Tag Archives: economic collapse

“Political Correctness Is Tyranny With Manners”

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The United States is on the frontier of Aldous Huxley’s “Brave New World.” Full force propaganda, political/social correctness, “safe spaces,” everyone on Field Day gets ribbon”…the list goes on. Huxley’s vision is characterized by a society in which the population has been converted into standardized zombies. Starting with the educational system, children are educated in a way which shapes their self-image appropriate to their socioeconomic caste; critical thinking and individualism is discouraged. Sound familiar?

A colleague of our’s today remarked that “these markets are nothing more than another form of propaganda used as political/geopolitical tools.” Hard to argue against that considering every economic report issued by the Government is intentionally manipulated for purpose of brainwashing the public into thinking that the economy is doing better than everyone thinks. Remember, no criticial thinking allowed.

In this latest episode of the Shadow of Truth we dive into these issues full-throttle, including a brief discussion on the incipient rebellion brewing:

Wall Street’s Next Ticking Time Bomb: Pensions

Make no mistake, the criminality and fraud of most, if not all, DC politicians that is being exposed now is also occurring in corporate America and at pension funds, especially with regard to fraudulent financial reporting.   As an example, Exxon is now being investigated by the SEC over its asset valuation and accounting practices.   The same concept can be applied to pension funds (public and private).  The Dallas Fireman and Police Pension fund is the postcard example of both investment and accounting fraud:  LINK.

The pension time bomb has been activated for a long time but it’s now in the final countdown.   Pensions are woefully underfunded even if we give them the benefit of doubt on their current use of market-to-market.   Every pension fund under  the sun in this country – because rates are so low – has monthly negative outflows of cash:   beneficiaries are being paid more money than is flowing into the fund.  If the stock market declines more than 10% for an extended period of time, nearly every pension fund in the country would blow up.   This is why the last two stock plunges, which took the S&P 500 down over 10%, were met by heavy, if not blatant, Fed intervention which produced a steep V-bounce in the stock market both times.

Yesterday I spoke to a friend/colleague who works at a public pension fund.  He said the latest fad in pension management land is to shift money out hedge funds – which are woefully underperforming the market – and to put even more money into private equity funds.  This allows the pension funds to subject that capital to a quarterly mark to market test rather than an daily or monthly valuation accounting.  The only problem:  private equity investments are highly illiquid and the valuation of the underlying investments is an “art” that is not at all based on actual market transactions.   This private equity investment mark-to-market “Picasso”  leads to extreme “over-marking” of private equity investment valuations at pension funds.

This is also one of the primary reasons that the Fed can not raise interest rates even if it were true that the economy was improving and the labor market was tight, both conditions of which we know are not even remotely close to accurate but everyone seems content to play along with the joke.  

Many pensions have now allocated as much as 20% of the fund to private equity.   This is because they can control to a degree where the investments are marked and as long as the stock market does not decline, they never have to market them down.  But with the example of the Dallas pension fund above, if the beneficiaries are allowed to withdraw all of their money, the fund will have to unload its illiquid private equity investments to meet the outflow requests.   Good luck getting anything close to where those investments are marked in the fund.  The beneficiaries won’t receive anything close to the current stated value of their pension account.

If the status quo in the markets were to continue for the foreseeable future – which it won’t – pensions funds will run out of cash to pay beneficiaries well in advance of the “foreseeable future.”  Without cutting benefits drastically or, in the case of public pension funds raising taxes steeply to cover pension beneficiary outflows, some public pensions will hit the wall within 12-24 months.

Away from private equity investing – which is just another of the many asset bubbles spawned by the Fed’s near-zero interest rate and money printing policy (by the way, the Fed unbeknownst to many is still printing money) – Wall Street has been busy stuffing a plethora of  high-fee generating asset-backed “investment” securities into the market. These securities exploit the need by pensions to generate much higher investment income.   When you hear the term “reach for yield,” think:  pigs are greedy, hogs get slaughtered.   These securities are hog food.

The only problem is that interest rates are so low now the risk embedded in the underlying asset pools are much greater than the interest rate compensating the investor for buying these securities.   Ratings agency fraud is also present again. This is another instance of the current period of financial insanity “rhyming” with the Wall Street-fueled insanity that led to the 2008 financial collapse.

A perfect example is the latest “brain child” of Wall Street in which the payables from cell-phone bills (the mobile carrier’s receivables) are packed into pools and securitized into “bonds” – LINK.  Verizon is the first to do a deal like this.  It’s receivables from cell-phone bills were packaged into bonds, received a triple-A rating and were priced at 55 basis points over the benchmark triple-A corporate index.  That means it was issued around a 2.67% yield.

Think about this way, would you lend money to a stranger to pay his cellphone bill in exchange for receiving the amount you loaned plus receive a 2.67% annualized rate of interest on the loan next month?  There’s a reason the bonds were priced at 55 basis points over standard triple-A bond.  If the implied reason were apparent to all, the bonds would be yielding substantially more.  Eventually that reason will come to light and the bonds will tank in price.

The Dallas police and firemen had the right instinct:  if you are eligible, contact your pension administrator and demand to receive any pension money that can claw out of fund now.   Your alternative is to face substantial payment cuts at some point.  Eventually your fund will collapse and you will otherwise receive nothing more than an “Oops, Our Bad” letter from your pension fund.

Operation Mockingbird And The Mainstream Media

Notice how EVERYTHING – even the most trivial of events – on Fox News/Business, Bloomberg, CNBC, CNN and MSNBC is “BREAKING NEWS?” The presentation of the news and the exploitation of sensationalism has itself become an insidious form of propaganda.

Operation Mockingbird was implemented by the CIA in the early 1950’s as operation to influence the media.  The idea is that, regardless of the truth, the first headline read by the public in the media was the version of the news that would stick with the public.  As an example, whenever a bomb explodes somewhere in the U.S., the first headlines that hit the newswires blame it on ISIS.

The genesis of this propaganda tool was Edward Bernays (nephew of Sigmund Freud), who is credited with being “the guy” behind Joseph Goebbels and the father of the “Virginia Slims Girl,” among another nefarious accolades.

In this latest episode of the Shadow of Truth, we discuss the reasons why that, for almost anything connected with politics and economics, the opposite of anything reported by the mainstream media likely the truth.

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There’s Lies, Statistics And Apple Corporation

Apple announced earlier this week that its “initial quantities” of the new iPhone 7+ had already sold out.  Of course, it also announced a new policy in which it would not would disclose the first weekend sales volume of the new iPhone.  Nothing like using opacity to boost the use of propaganda.

On the news that the new phone had “sold out,” Apple’s stock went parabolic, running up 13.5% in four trading sessions.  Coincidentally, or not coincidentally, AAPL’s price surge this week helped the Fed prop up the S&P 500 and Dow.  By the way, AAPL’s revenues are now declining every quarter.

But it appears that the iPhone’s first day in stores is a complete dud.  Perhaps the most entertaining anecdote was the post on Zerohedge with several twitter posts showing no lines whatsoever outside of several mobile phone shops around New York City:  Sold Out?  USA Today wrote an article which contrasts the move in AAPL with the apparent lack of demand for the new product:  Apple Shares On Fire; iPhone Lined Decidedly Chill.

A colleague of mine told me this morning that he received an email from Apple informing him that if he trades in his old iPhone he can buy  a new IPhone 7 for $249.   The retail list price $699.

Companies do not sell a product with a list-price of $700 for $250 if there is high demand for that product or if that product is sold-out. 

Apple has transformed from the country’s most respected corporation into the same bag of lies, propaganda and fraud that has enveloped the entire financial, political and economic system.

Sure, Tim (Apple CEO), your new iPhone is sold-out just like Hillary Clinton is perfectly fit to run for President…

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Fed Intervention Has Completely Destroyed The Markets

Federal Reserve intervention has killed natural market processes.  The Fed is also starting to lose control of its ability to manipulate the markets.  Today is a good example.  The S&P and Dow are negative as I write this (2:30 EST) after staging a big early day rally.  Most sub-indices, like retail and housing, are also red. BUT, the infamous “FANG” (Facebook, Amazon, Netflix, Google) stocks + Apple are up anywhere from .2% (AMZN) to over 3% (AAPL). These stocks are the largest stocks in the SPX by market-cap and are part of the “tool kit” the Fed has been using to keep the S&P 500 and Dow from spiraling lower.

Since late 2012, the Fed has been able to orchestrate the markets with heavy doses of direct and indirect interventionary tactics.   It’s used a combination of money printing, plunge protection and propaganda to keep the stock market propped up, interest rates near zero and the price of gold suppressed.

But, if the action over the last four trading days are any indication, the Fed is increasingly losing its ability to control the markets.  This is most evident in the apparent break-down in market sector correlations.

From roughly late 2012 through early 2016, the Fed has been the US$/yen as a “lever” with which to push the S&P 500 up and the price of gold down.  If you study these three graphs, you can see the correlations from 2012 to 2016 and the breakdown of the correlations in 2016:          Weekly $/Yen           Weekly SPX           Weekly Gold

I happened to notice on Friday and yesterday (Tues, Sept 13) that, despite a move higher in the $/yen (the yen falling hard vs. the dollar), which is the level the Fed had been using to manipulate stocks, the stock market experienced steep sell-offs.  Typically the $/yen and the U.S. stock market move in near-perfect correlation. Today they are inversely correlated.

Even more interesting, the bond market, even at the short end, also sold off (yields rose).   This is unusual  because typically when stocks get bombed, the money coming out of stocks floods into very short maturity T-bills and the dollar rises.  Yesterday EVERYTHING was down except a few agricultural commodities and the dollar index.  I have no idea where the money that came of stocks was parked.

Regardless, it was clear that hedge funds were selling everything that was not nailed down yesterday  and Friday.  At some point, as volatility increases, a significant portion of the money coming of stocks and bonds will be flowing into the precious metals sector.   If you review the trading patterns in 2008 before and after the October, you’ll see that initially the metals/miners were correlated with the S&P 500.  Subsequent to the end of October, the precious metals sectors dislocated from the stock market and moved higher while stocks continued to decline.

I believe all of this activity, especially the dislocation in correlations among the sectors as discussed above reflects the Fed’s increasing inability to manipulate the financial system. There are just too many factors for which they can not account.   One perfect example is the disintegration of energy exploration and production sector assets.  Debt recoveries in E&P bankruptcy  restructurings have been averaging 21% – LINK.  This means that lenders are getting back, in general 21 cents on every dollar lent to these companies. Some tranches received close to zero.   Part of this “recovery value” no doubt includes some partially random value attributed to stock distributed to bagholders.

This is a problem because the big Too Big To Fail Banks were stuck holding a lot of this debt.   In other words, the melt-down in the energy sector has the potential to blow big holes in bank balance sheets (this among many other deteriorating assets).  If the Fed hikes rates, it will likely force recovery rates even lower.  In fact, it will lower the value of collateral securitizing most bank debt deals, especially mortgages.

It’s a common notion that the Fed has “backed itself into a corner” with interest rates and its monetary policy.  But there are several ways in which Fed has backed itself into a corner. These factors are beginning to emerge and they are removing the ability of the Fed to treat the financial system like its puppet.

Expect a lot more volatility in all market sectors going forward.  The economy is clearly headed into a recession, if not already in one.  An interest rate hike next week has the potential to trigger a plethora of unforeseeable chaos in the markets and I believe the Fed will once again defer on its threat to hike rates.

The Economy: It’s Worse Than I Thought

I got an email from a colleague today that said, among other things:  “The economy is tanking and, while you may be the most pessimistic around, you may not be pessimistic enough.”

To that I would say that I’m significantly more bearish than is reflected in my public analysis.  I spoke to a couple people today who offered anecdotal stories about their particular business niches – businesses in which new orders are somewhat tied to discretionary spending – and they both said that new business activity is unusually slow and that the last time they experienced new order flow this slow this was in 2008.

I’ve been suggesting for most of this year that retail sales were slowing and would fall off a cliff heading into fall.  I presented RL as a short idea in my Short Seller’s Journal on August 14th at $108 after visiting the Ralph Lauren store in Aspen.  I was the only person in the entire store and I was being hounded by the salesperson to the point of being uncomfortable.  RL is at $100.80 as I write this, which is a 7.2% ROR in 4 weeks for anyone who shorted the stock.  Based on the point of last trade and where I recommended them, the January 2017 $85-strike puts are up 35% – so far.  But the bigger gains will be made holding RL short when it drops to $40, where it was in early 2009 before the Fed’s money printing stimulated credit-induced retail spending.

My outlook on retail is supported by the BAC credit card spending report posted in Zerohedge today.  Based on BAC “aggregate card data,” retail sales ex-autos declined .1% in August from July and .3% in July from June.  The 3-month average (Jun-Aug) is down .2%. These numbers are “seasonally adjusted,” which means the actuals are probably worse.   BAC’s data for department store sales show that they’re down 4.6% year over year in August.  Autopart sales are in a downtrend and beginning to comp negatively.  Auto parts sales are highly correlated with  vehicle unit sales, which are entering a downturn based on July and August numbers, especially if you strip out Chrysler’s fraudulent sales numbers LINK.

The week retail sales reflect the deteriorating income and financial status of the average American household.  And so do restaurant sales.  Restaurant industry sales tracked by Black Box Intelligence show a .6% decline in August in same store sales were down .6% but same store traffic was down 2.7%. This was the third consecutive month same-store sales declined, with monthly sequential declines in 6 out of 8 months this year.

It’s expected that Q3 corporate earnings will once again decline from Q2.  This will be six quarters in a row that earnings drop.  But it’s even worse than that because the changes to accounting standards (GAAP) have enabled companies to manipulate their earnings reports to the upside.  Despite those accounting gimmicks, earnings continue to drop.

The stimulative effects of the Fed’s money printing program have faded.  The subprime debt default crisis that plagued the housing market in 2008 has been replaced by a general reflation of subprime credit issuance that includes housing, autos, student loans and personal loans.  Synchrony, formerly GE Capital Retail Bank, is advertising a  high yield savings account that pays 1.1% interest, or 8x the national average.  That’s because Synchrony is using depositor money to fund a plethora of high interest rate consumer lending platforms which primarily appeal to subprime borrowers.   I would strongly advise avoiding this savings account because, even with alleged FDIC coverage, you might not see your money when Synchrony impales itself on the toxic loans it makes.  Look for Synchrony to blow up sometime in the next 24 months.  Same with Capitol One,  Ally Financial and Credit Acceptance Corporation, among others.

The Fed will not  only not raise rates this year – or anytime in the foreseeable future for that matter – but watch for signs that another big dose of “QE” is being tee’d up.  Otherwise our financial system and economy is headed into that same abyss into which it stared in 2008.

Why Are Central Banks Buying Mining Stocks?

It was reported last week that the Norwegian and Swiss Central Banks had accumulated large positions in several high quality gold and silver mining stocks.  Why would these bankers want to own producers of a barbarous relic?

This is not some scheme to load up on miners and then dump them into the market to help the Fed/ECB/BOE manipulate the precious metals.  That’s an absurd view.  They would just short shares if they wanted to accomplish that.

The dollar’s reserve status is coming to an end. In fact, the current fiat currency system is coming to an end.  Central Bankers know this better than anyone.  Every western CB has been printing  money and buying worthless assets in order to keep the system from collapsing.  Central Banks that want to survive are also finding ways to hedge their fiat currency-based portfolios with negative beta assets.  Mining stocks are the easiest way to gain exposure to coming explosion in the price of gold and silver.   Also note that Norway and Switzerland are not members of the EU.

We discuss this topic in this week’s Shadow of Truth.  We also analyze the Hillary Clinton health situation:

Guest Post: Did The Deep State Postpone The Election?

Dave:

I believe the Deep State postponed the election today, using Clinton’s probably staged “health event” as the opening act of a drama that will unfold over the next several days to few weeks. The Deep State is in the process of pulling Clinton out of the game.

The Deep State knows several things. First, they know that the polls they manipulate showing that Clinton is ahead of or head-to-head with Trump are deliberate, doctored lies. They know that the true numbers demonstrate her campaign is disintegrating. This is reinforced by the fact that during her campaign appearances she plays to what are essentially empty halls, compared to Trump who routinely pulls in tens of thousands of standing-room-only supporters. Increasingly, the people realize that the polls are lies, and there is only so much further the Deep State can push them. The Brexit polls were total lies, too, and they impaled the establishment liars.

Second, they know that she is seriously ill, and that she will not be able to run a full-throttle campaign between now and election day; it will be physically impossible for her. Already, she has mysteriously disappeared from the campaign trail for hours at a time, and oftentimes longer. They thought they could prop her up through election day. Now they realize that they cannot.

Third, they know that Assange’s upcoming leaks are going to reveal her virtually indescribable dishonesty, greed, deviousness and criminality. They know that Assange has genuine information, and that it is going to be devastating to Clinton. She and her “Foundation” are complete frauds, and this fact is going to become totally inescapable, even to the most dimwitted and demented.

The “pneumonia” story will be used to excuse her hacking fits. It will also be used to get her out of the debates, during which she would be completely destroyed by Trump, particularly if she were not wearing her “earpiece” and getting talking points delivered to her by Abedin, who would simply be relaying the Deep State messages being conveyed to her, en route to Clinton. If Clinton has to go up against Trump in an honest debate, with no earpiece, she will be pulverized on her political record, avarice, physical and mental lack of fitness, and Foundation criminality. The Deep State will not allow tens of millions to watch that happen.

Clinton’s “health tragedy” (the “tragic event” of her health preventing her from becoming the first woman president, blah, blah, blah) will be gradually paid out to the populace over the next few weeks, and will be designed to induce the maximum amount of sympathy for her. The Deep State will keep her in the game for as long as possible, as they hope against hope that Trump screws up, or that perhaps something happens to him. If Trump’s numbers remain strong or increase, then they will pull her out of the game.

This will cause an election crisis. The election will be postponed.

Obama will pull the equivalent of a “pre-crime” maneuver, by extending Clinton and the Foundation “pre-pardons.” In other words, he will issue a Presidential Pardon for crimes the Clintons have not yet been charged with or convicted of, even though they would almost certainly face such charges and be convicted of them were the election to go against Clinton and were Justice permitted to function. A “pre-pardon” would be a first, but it would be absolutely no different from the unprecedented, dictatorial Executive Orders emanating from the White House over the past many years. The Supreme Court could render its verdict 20 years or so from now, after both of them are dead. The money, by then, would be long gone from view, and supporting Chelsea’s royal lifestyle of the Rich and Famous.

The government needs to shut down the Clinton investigations as soon as it can, because the high tide of Clinton criminality washes into every orifice of Washington, D.C. and Wall Street. The Deep State is never in 1,000 years going to allow Christie to formally investigate such endemic, monumentally profitable State corruption.

The motive for the Deep State to postpone the election until it can re-group its wounded forces is simple: Looting. The Deep State is looting one trillion dollars ($1,000,000,000,000.00) per year from the U.S. economy per year, at an absolute minimum. The true amount is almost certainly equivalent to the GAAP-based national annual deficits, which are running at roughly five trillions dollars ($5,000,000,000,000.00) per year. The $6.5 trillion ($6,500,000,000,000.00) missing from the Army, as admitted by the government, is a drop in the bucket compared to the actual amount that has been stolen from the nation, and the people. It should be no wonder to anyone why the Middle Class has been destroyed; it has been looted into oblivion.

These looting amounts do not include the Insider Trading looting that occurs in the financial markets every single day, facilitated by domestic and international information flows from connected insiders to complicit, profit-sharing traders who operate in total obscurity, privacy and immunity, and who annually book hundreds of billions of dollars in profits at a minimum. Inside Traders can book $25 billion in profits in 30 seconds on advance interest rate change information, and those opportunities happen dozens of times per year, as one simple illustration. There are thousands of similar opportunities in any given year.

The Deep State seeks to keep the Perpetual Fountain of Money gushing epic amounts of lucre into its pockets for as long as possible, because the profits from the Perpetual Fountain of Money are far beyond a mere Fairy Tale, they are a Living Dream Come True. The Deep State is not going to allow anyone or anything to turn off its Perpetual Fountain of Money, particularly not Trump.

The postponement of the election will most likely extend for at least one year, during which new events will cause a extensions of the postponement.

Revelation of the postponement of the November election could be one Black Swan that creates a dollar crisis. This might be why certain members of the Federal Reserve are now pushing for a rate hike in September, even though current U.S. economic circumstances make that idea absurd. It is probable that the Deep State realizes its machinations could create extreme, unpredictable and uncontrollable Forex volatility, and that they are attempting to pre-emptively head this off, or at least, ameliorate it.

The coming days will provide additional puzzle pieces for insertion into the mosaic, but needless to say, as a nation, we are in the most dangerous situation we have experienced during the past 50 years, at least. If people are not making serious preparations right now, they might come to regret it.

Regards, Stewart

About Stewart Dougherty:    I am a Harvard MBA, and Inferential Analytics leverages quantitative and qualitative techniques that I learned both in my education, and during a 30+ year business career. I am semi-retired, but have never worked harder in my life. About six years ago, I wrote several articles that were picked up by 24hgold, MarketOracle, Lew Rockwell, Goldseek and numerous other Internet publishers followed even by some magazines.

Paper Gold Is Legalized Fraud

A lot of questions were raised when it was reported that Deutsche Borse failed to deliver physical gold in exchange for its Xetra-Gold Notes.  But the only real answer to those questions is simple:  the only way you ever own physical gold is if you buy actual physical gold and take possession.

The allegations that Xetra-Gold or Deutsche Bank or Deutsche Borse committed fraud or failed to deliver gold are strictly false.  One thorough reading of the Xetra-Gold prospectus dispels those allegations.  The prospectus little more than a blanket legal disclaimer.   The language is clear.  It says right in the prospectus that the an investment in the Notes “does not constitute a purchase or other acquisition of Gold.”  There is not case for fraud because none of the participants in Deutsche Borse, and Deutsche Borse itself, did not commit any breach of contract per the terms of the prospectus.

The term “economic” in the prospectus is defined (pg 12) to mean that the “bears the market risk associated therewith. If the gold price decreases, provided that all other conditions remain unchanged, such decrease may result in a partial or complete depreciation of the invested capital. If the gold price increases, provided that all other conditions remain unchanged, such increase may result in an increase in the invested capital.

In this latest episode of the Shadow of Truth we discuss why buying paper forms of gold like GLD or Xetra-Gold is nothing more than an investment in a paper claim to the rate of return on gold during the period in which you own the security.  If you don’t hold your gold in your own possession, you don’t own it:

Enjoy This Labor Day – The Next One Might Be Unpleasant

I hope everyone enjoys this Labor Day with a few beers, family, friends and the U.S. Open Tennis Championships.  Most Americans do not realize that they are living in the shadows cast by the setting of the American Empire’s sun.  The U.S. political and economic system has morphed into a Banana Republic of the sort at which we used to laugh in high school history courses.

While the Government attempts to brainwash the population into slavish adulation of the military as the Deep State prepares for a global war, consider that the true patriots in this country are people like Paul Craig Roberts who have the balls to expose the truth about what is transpiring  beyond the veil of propaganda that has fallen between the American public and the wealthy elitists:

Workers understood that labor was the backbone of the economy, not Wall Street moguls or bankers in their fine offices. Workers wanted a holiday that recognized labor, thus elevating labor in public policy to a standing with capital. Some states created labor day holidays, but it wasn’t until 1894 that Labor Day was made a federal holiday.

The labor movement, which gave us Labor Day, is no longer with us. The American labor movement died about ten years after the death of its most famous leader, George Meany of the AFL-CIO. Meany, born in 1894, died in 1980.

Looking at last Friday’s BLS payroll report, the jobs are in the lowly paid, part-time service sector. The goods producing sector of the economy lost 24,000 jobs. The jobs are in retail trade, health care and social assistance, waitresses and bartenders, and government which is tax supported employment.

Whether Washington policymakers realize it or not, the American work force smells like India’s of a half century ago. Whatever deranged Hillary and her neoconservatives claim, there is no evidence in the composition of the US labor force that the US is a superpower. Indeed, what the employment statistics show is that the United States is a third world country, a country whose leaders are so out of their minds that they are picking fights with first world countries—Russia and China.  LINK

Dr. Roberts is a colleague and a friend with whom I’ve debated several issues and ideas. Unfortunately I do not have a realistic counter-argument to his sordid conclusion:  “The United States of America is on its last legs. As there is no willingness to recognize this, nothing can be done about it. America’s last function is to cause World War 3 in which all of us will expire.”