Friday, December 26, 2014

Next... Merry Crash?

"...Since 2009, we’ve had the Fed and central banks from around the world deliver decent to better Christmas seasons… but this should be the last one for now.

The economy is the best it’s been since late 2007. Car sales are higher than ever. The affluent, which comprises many of our subscribers, are doing better than ever.

But clouds are gathering on the horizon and there are thunderstorms ahead.

Since 2000, the average household has seen a decline in real wages and going back even further to 1983, there has been little in the way of progress throughout this entire boom. How can the wealthy keep getting wealthier and leave the average person behind without an outright revolt?

Oil and commodity prices are collapsing, as we forecast years ago, along with the most solid of commodities like gold and silver.

Emerging countries are underperforming because they depend on these commodity exports, while the populations of the developed and wealthy nations get older every year. Demographic trends continue to point downward as they have for years and in many cases, it’s been for decades.

By looking at the numbers in the U.S., both the affluent and car sales are projecting down for the coming years. And as for Europe, it’ll see the brunt of its demographic cliff as we did after 2007 and Japan when it fell off in 1989 and in 1996.

Even countries like South Korea will follow after 2018.

Everyone knows I am a lover of history; it’s in my nature to go back and dig around for facts and figures that most don’t even see. So when I look back at all of the things I’ve learned from my research and from reviewing my own life, I’ve come to a conclusion that stands out… you don’t get something for nothing.

That’s what we’ve gotten for several years now: $14 trillion in global money printed out of thin air to offset the greatest debt crisis, deflation and depression, and the most global, since the 1930s.

I wish I could bring more tidings of good cheer this year… but I can’t.

The more we go into denial and kick the proverbial can down the road, the harder we’ll land when the chickens come home to roost. This is proven by all addictions, including every debt and financial asset bubble in history.

So, if you want to have merry Christmas seasons for all the years to come, you need to do the opposite of what all the experts, economists and politicians are recommending: protect your assets and hunker down for the greatest financial crisis and stock market crash we’ll see in our lifetimes.

Yes, I know that stocks keep defying gravity.

But that’s what happens as every bubble has done throughout history… it keeps expanding, overtaking everything in its path until it bursts so violently that it destroys debt, wealth, businesses and jobs faster than ever.

Yes, with the recent strong showings in the markets against increasingly risky factors like the junk bond debacle in the fracking industries: How could stocks be so ignorant after a subprime crisis in just four states in the U.S. triggered the last global financial crisis?

The markets are on crack and they will end like every crack addict in history — in detox!"

Harry S. Dent JR.
Senior Editor,
Economy & Markets

Friday, December 19, 2014

What is Going On? Current Economic Fundamentals & FedSpeak Explained. Danger Ahead! Outstanding Commentary.

"The Fed is Absolutely Terrified Of This...

As we keep emphasizing, the Fed’s real concern is the bond bubbleNOT stocks.

We get more evidence of this from Janet Yellen’s press conference after the Fed’s Wednesday FOMC meeting.

During the conference, Yellen repeatedly stated that lower oil prices were “positive” for the US economy. This is simply astounding because the Fed has repeatedly told us time and again that it was IN-flation NOT DE-flation that was great for the economy.

And yet, on Wednesday, the head of the Fed admitted, in public, that deflation can in fact be positive.

How can deflation be both positive for the economy at the same time that the economy needs MORE inflation?

The answer is easy… Yellen doesn’t care about the economy. She cares about the US’s massive debt load AKA the BOND BUBBLE.

Yellen knows deflation is actually very good for consumers. Who doesn’t want cheaper housing or cheaper goods and services? In fact, deflation is actually the general order of things for the world: human innovation and creativity naturally works to increase productivity, which makes goods and services cheaper.

However, DEBT DEFLATION is a nightmare for the Fed because it would almost immediately bankrupt both the US and the Too Big To Fail Wall Street Banks. With the US sporting a Debt to GDP ratio of over 100%... and the Wall Street banks sitting on over $191 TRILLION worth of derivatives trades based on interest rates (bonds), the very last thing the Fed wants is even a WHIFF of debt deflation to hit the bond markets.

This is why the Fed is so obsessed with creating inflation: because it renders these gargantuan debt loads more serviceable. In simplest terms, the Fed must “inflate or die.” It will willingly sacrifice the economy, and Americans’ quality of life in order to stop the bond bubble from popping.

This is also why the Fed happily talks about stocks all the time; it’s a great distraction from the real story: the fact that the bond bubble is the single largest bubble in history and that when it bursts entire countries will go bust.

This is why the Fed NEEDS interest rates to be as low as possible… any slight jump in rates means that the US will rapidly spiral towards bankruptcy. Indeed, every 1% increase in interest rates means between $150-$175 billion more in interest payments on US debt per year.

If you’ve ever wondered how the Fed can claim inflation is a good thing… now you know. Inflation is bad for all of us… but it allows the US Government to spend money it doesn’t have without going bankrupt… YET.

However, this won’t last. All bubbles end. And when the global bond bubble bursts (currently standing at $100 trillion and counting) the entire system will implode.

I fully expect that 2015 will be the year when the second round of the Great Crisis really hits. And when it does, entire countries will go bust... ."

From: Graham Summers, Phoenix Capital Research.

Wednesday, December 3, 2014

Still Riding the Wave? Fed Official Warns Of a Potential Collapse. The Fed’s reputation is on borrowed time.

December 03, 2014

"Fed Official Warns Of a Potential Collapse

The Fed’s reputation is on borrowed time.

Much of the so called “economic recovery” that began in 2009 has been based on the Fed’s credibility as a Central Bank to rein in the collapse.

However, at this point even the financial media has begun to realize that the Fed has elevated asset prices (stocks, homes, etc.) and nothing else. Incomes have not moved in line with stocks nor has GDP growth nor has the employment picture.

Put another way, everyone now realizes that the Fed has boosted stocks and don’t little else. This has lead some to accuse the Fed of targeting the markets rather than boosting the economy (see the recent wave of legislation meant to increase Congressional oversight of the Fed being introduced in Congress).

The Fed isn’t doing itself any favors in terms of defending its track record.

Enter Bill Dudley: former Goldman Sachs bank turned NY Fed President.

Dudley made a speech yesterday regarding the Fed’s policies. Early on he states that when the Fed starts raising rates, it will gauge the market’s reaction closely to see how the financial system adjusts:

First, when lift-off occurs, the pace of monetary policy normalization will depend, in part, on how financial market conditions react to the initial and subsequent tightening moves.  If the reaction is relatively large—think of the response of financial market conditions during the so-called “taper tantrum” during the spring and summer of 2013—then this would likely prompt a slower and more cautious approach….

A few minutes later, he claims the Fed doesn’t care about stocks or bond yields or other items… the very same “conditions” he claimed the Fed will pay close attention to just a few moments before…

Let me be clear, there is no Fed equity market put.  To put it another way, we do not care about the level of equity prices, or bond yields or credit spreads per se.  Instead, we focus on how financial market conditions influence the transmission of monetary policy to the real economy

Suffice to say, Dudley is aware that the Fed is now considered to be a stock market prop and nothing else. The fact he is trying to explicitly dissuade the markets of this belief says a lot about the Fed’s thinking on this topic (read: we need to distance ourselves from the markets).

Between this and Fed #2 Stanley Fischer’s statement that the Fed’s primary concern is on when and how to raise interest rates, stocks are on borrowed time. Not only will rates be rising in the next 12 months, but even the biggest stock cheerleader at the Fed (Dudley) is now trying to break the belief that the Fed is an “equity market put”

Stocks are on borrowed time. The next round of the Financial Crisis is approaching."

Graham Summers, Phoenix Capital Research

Friday, November 21, 2014 WARNING Bank Deposits Will Soon No Longer Be Considered [Cash] Money But Paper Investments

Nov 16th @ G20: "...the risks of holding any cash in a bank or financial institution will have to be weighed as if you were holding a stock or municipal bond, which could decline in an instant should the financial environment bring a crisis even remotely similar to that of 2008."Nov 16th @ G20: "...the risks of holding any cash in a bank or financial institution will have to be weighed as if you were holding a stock or municipal bond, which could decline in an instant should the financial environment bring a crisis even remotely similar to that of 2008." WARNING Bank Deposits Will Soon No Longer Be Consi...: What does this mean? Kenneth Schortgen Jr explains : This weekend the G20 nations will convene in Brisbane, Australia to conclude a week...

Tuesday, November 18, 2014

The Great EU Farce Continues… But For How Much Longer?

Mario Draghi once again surfaced this morning to promise to do “whatever it takes” to help the Eurozone. Draghi has done this anytime the EU markets drop ever since since the bottom in the summer of 2012.
It’s amazing to watch, particularly when you consider that it is now public information that Draghi actuallydidn’t have a plan when he first claimed this and is effectively making up policy on the fly. 
Here are Draghi’s comments from this morning:
 Note, that the first statement contains the qualifier “within its mandate.” Of course traders and investors won’t bother to consider that the ECB’s mandate DOESN’T ALLOW IT TO BUY SOVEREIGN BONDS.
It’s not entirely their fault. Draghi is huge liar (as in Jean-Claude Juncker’s statement that “when it gets serious, you have to lie.”) This is why he stated that the ECB’s expanded purchase program “could” include Government bonds.
Sure… it could, but it would be illegal and would instigate an outright revolt from Germany.
Draghi could just as easily have said that the program “could” include buying used cars or discarded aluminum cans… those assets would be more likely acquisition targets than EU Sovereign Bonds.
Indeed, if we wanted to take this approach to investment analysis, we “could” state that the EU “could” be a great place to invest if EU banks came clean about their balance sheets, the farce ended, and accurate pricing returned to the markets.
Similarly, savers “could” feel good about having their deposits in EU banks if interest rates were not negative and the ECB and EU Governments stopped stealing savers’ deposits to prop up insolvent banks.
The reality is Draghi is bluffing, just as he has been since the summer of 2012. He’s not willing to “do whatever it takes,” because in order for the EU to survive, accurate accounting has to come back and outright fraud and corruption have to end.
What Draghi really means is that he’s willing to do “whatever it takes,” to perpetuate the farce that is the EU recovery. Unemployment of 25% or higher in some countries? Doesn’t matter. People starving? Ignore. Corrupt politicians taking bribes to profit from the fraud? Irrelevant.
The show must go on. Eventually the music will stop. When it does, the EU will collapse. Until then, the farce will continue, though it’s getting old.
Source: Graham Summers (

Thursday, October 30, 2014

China's Housing Downturn: Is This a More Serious Correction?

China's housing downturn..."is this a more lasting correction?

Source: @IanTalley @WorldBank

...For now the markets don’t seem to be pricing in an impending improvement in China’s housing demand. Here is the May-2015 SHFE steel rebar futures contract (actively traded)."


Saturday, October 4, 2014

"The Economy is Busted and Stocks Are In a Bubble. End of Story"

"This is getting old.

We continue to be told that the US economy is in recovery and stronger than ever. The press trumpets heavily massaged data (GDP growth and the unemployment number) while ignoring data that clearly indicates the US economy is in the toilet (labor participation rate, median income, etc).

Do the following sound like a strong economy?

1)   The labor participation rate is at a 36 year low meaning there are less Americans of working age actually working than at any point in over three decades.
2)   Median income is down over $4K since 2008. You cannot use mean income to measure income because the wealth disparity in the US skews the results courtesy of the 0.01% who earn millions per year.
3)   An incredible 47% of US households receive some form of social spending from the US Government.
4)   One in five US households are on food stamps.

Keep these in mind whenever you hear that the economy is in recovery or stronger than ever. The reality is that the Federal Government and Federal Reserve handed trillions of dollars to the big banks (most of them FOREIGN banks). Everyone else got hosed.

The end result?

Stocks have become more and more disconnected from reality to the point that we are in a massive bubble even larger than that of the housing bubble.

You cannot have a market go absolutely vertical forever. At some point this whole mess will come crashing down."
-Graham Summers, Phoenix Capital Research

October is a Particularly Dangerous Month...

"October: This is one of the particularly dangerous months to invest in stocks. Other dangerous months are July, January, September, April, November, May, March, June, December, August and February.”

  - Mark Twain

Friday, May 16, 2014

Total Private and Public Debt Worldwide - Debt Deflation, not Inflation, is the Near Term Risk (Lacy Hunt, Van Hoisington)

"...debt deflation – not inflation – is the biggest near-term risk...the famous characterization of inflation ultimately depends on stable or rising monetary velocity… sans sufficient monetary velocity [see below], inflation does not materialize." Dr. Lacy Hunt (via Mauldin conference)

*Money Velocity*: "...the even more important velocity of money (V) rejects the argument that monetary policies are gaining traction. Velocity, or the speed at which money turns over, links M2 to the level of nominal economic activity. With the money supply expanding at 5.6% in the latest year, it would be reasonable to expect the same growth rate in nominal GDP if V were stable. Unfortunately, since 1997 velocity has been falling, and in the last twelve months it has dropped by 3% to 1.57, the lowest level in six decades (Chart 4). While velocity is influenced by a myriad of factors, the rate of change of financial innovation and lending for productive purposes affect its direction. If debt generates an income stream that repays principal and interest and creates other activities, it will tend to expand economic activity and cause V to rise. Student, auto and other loans for consumption (which represent the bulk of the increase in consumer credit in 2013) do not meet the necessary criteria, so debt is merely an acceleration of future consumption. This will tend to inhibit the borrower’s ability to increase consumption in the future. Further,  new regulations on our financial industries are discouraging financial innovation, and this will bring further downward pressure on velocity."


Wednesday, May 7, 2014

Income Inequality Ultimately Adjusts Itself? Dent's Demographic View

The Super-Rich Will Get Their [Derriere] Kicked

"...Gallup just conducted a recent poll on what Americans think is the best place for long-term investments.

I don’t have to tell you that most people are always wrong about such things. In fact, there is nothing better to bank on than going contrary to popular opinion.

Fifteen years ago, I would’ve bet that poll showed stocks as number one. But I knew before I saw the results that it would not be stocks… it would be real estate.

Here is how this common logic works: They aren’t making any more land… so prices can only go up!
And here’s why that common logic is flawed…

It doesn’t adjust for technology and the means to build more real estate on the same land.

And, more importantly, it doesn't adjust for slowing and even contracting demographic trends in most of the wealthiest countries in the world.

Most people think the next great real estate boom is just around the corner. This would seem logical, because real estate prices have gone up for most of our lifetimes.

Two major trends have caused this illusion:

1.     The Bob Hope generation returned from World War II as the first middle-class generation in history able to afford homes and mortgages with GI benefits to accelerate home-buying.
2.     The massive baby boom generation followed and put unprecedented demand pressures against limited supply (especially in coastal areas). This resulted in home prices ballooning into the greatest bubble in modern history.

To get the clear and simple long view, just look at this chart from Robert Shiller, one of the few mainstream economists I respect and follow.

This chart is brilliant, because Shiller painstakingly (with a lot of student slaves, I presume) adjusted home prices in the U.S. for both the size of the home and the quality of the features. He produced a great and realistic analysis!

It shows the only major bubble in real estate in the last 120 years, from 2000 to 2005.

The insight from this chart is crystal clear: Home prices do not appreciate with the economy or even long-term shortages of land (as there is always somewhere else to build). Instead, they appreciate with inflation or replacement costs.

Adjusted for inflation, home prices are relatively flat — which means you get a “zero” real return.

Holy cow, Batman! You mean real estate is not an appreciating asset like stocks or bonds?

The common wisdom of people who think real estate is the best long-term investment falls into the category of most people usually being wrong!

I have been preaching for over a decade about real estate not having the prospects it used to. I warned in my newsletters in late 2005 that the U.S. real estate bubble was peaking (Shiller and I were the only ones to predict this), and it did, in sales and in prices in early 2006.

In Chapter 3 of my latest book, The Demographic Cliff, I show in greater depth why “real estate will never be the same.”

When I account for real estate lasting forever — adjusting for dyers (at age 79) who sell versus peak buyers (ages 41 to 42) — real estate “net demand” did peak in 2006, and after bouncing a bit into 2013, it declines again for decades off and on.

In Shiller’s chart above, it would look like we are near the long-term “flat” trend again for real estate adjusted for inflation. And we got closer in 2012.

But real estate does not ordinarily bubble as much as stocks or commodities. This has been the greatest, and most global, real estate bubble in modern history — thanks to unprecedented baby-boom demand pressures and ultra-low interest rates.

After such a bubble, real estate prices are likely to head toward the lower range of values in the global financial crisis I forecast ahead, as they did during the Great Depression of the 1930s.

My analysis of U.S. home prices strongly suggests that home prices could drop another 34% to 44% from the limp rally since 2012, to merely erasing the bubble gains from January of 2000 onward.

This is not the time to buy real estate, especially not in prime cities like London, New York, San Francisco, L.A., Miami, Vancouver, Toronto, Sydney, and Melbourne.

The high-end is much more vulnerable than the low-end, as appreciation has come back much more strongly. The most affluent are like Alice in Wonderland in the wake of massive central bank stimulus — which has kept their bubble going and, as a result, will peak later in their spending cycle.

The richest billionaires in the world think there is no better place to put money than in condos that are in major financial city centers, priced at $10,000 to $15,000 per square foot.

In the end, the smart money becomes the dumb money, because they have nowhere else to put their cash, except in the most expensive real estate in the world... ."

Harry S. Dent Jr.

Friday, May 2, 2014

How and When the Economic (Housing) Bubble Will Burst

President "Bobby": Mr. Gardner, do you agree with Ben, or do you think that we can stimulate growth through temporary incentives?
[...Long pause...]
Chance the Gardener: As long as the roots are not severed, all is well. And all will be well in the garden.
President "Bobby": In the garden.
Chance the Gardener: Yes. In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.
President "Bobby": Spring and summer.
Chance the Gardener: Yes.
President "Bobby": Then fall and winter.
Chance the Gardener: Yes.
Benjamin Rand: I think what our insightful young friend is saying is that we welcome the inevitable seasons of nature, but we're upset by the seasons of our economy.
Chance the Gardener: Yes! There will be growth in the spring!
Benjamin Rand: Hmm!
Chance the Gardener: Hmm!
President "Bobby": Hm. Well, Mr. Gardner, I must admit that is one of the most refreshing and optimistic statements I've heard in a very, very long time.

Tuesday, April 8, 2014

"We all know how bubbles end: BADLY...This time will be no different..."

The Fed has created the mother of all bubbles.

Today, the S&P 500 is sitting a full 34% above its
200-weekly moving average. We have NEVER been
this overextended above this line at any point in
the last 20 years.

Indeed, if you compare where the S&P 500 is relative
to this line, we're even MORE overbought that we were
going into the 2007 peak at the top of the housing bubble.

We all know how bubbles end: BADLY.

This time will be no different. The last time a major bubble
of these proportions burst, we fell to break through this line
in a matter of weeks.

We then plunged into one of the worst market Crashes of
all time.

By today's metrics, this would mean the S&P 500 falling
to 1,300 then eventually plummeting to new lows. However,
given the scope of this bubble we believe sub-700 on the S&P 500
is possible.

This is not doom and gloom. This is a fact. The Fed
has created an even bigger bubble than the 2007 one.

The time to prepare for this is not once the collapse
begins, but NOW, while stocks are still rallying.
Stocks take their time moving up, but when they
crash it happens VERY quickly...

Graham Summers
Phoenix Capital Research

Monday, April 7, 2014

Supplement to Gambiling That ETF's Understand Your Retirement - The Retirement Savings Drain by Robert Hiltonsmith

The Retirement Savings Drain, Robert Hiltonsmith (pdf)

Gambling That ETFs Understand Your Retirement Timing

"...look at the impact over an investment lifetime. Do you really want to invest in a system where you put up 100% of the capital (you're the mutual fund shareholder), you take 100% of the risk, and you get 30% of the return?" Jack Bogle, April 23, 2013, Frontline, The Retirement Gamble

The Retirement Gamble

Wednesday, April 2, 2014

The Depression that Cured Itself (James Grant, Austrian Economics Research Conference)

What might have been...if the human race were only a little bit more adept with money...

"Cleopatra died in the year 30 B.C. (on the authority of Wikipedia).

Let us say that one of her loyal servants had the presence of mind to liquidate $100 dollars of her bangles and make a perpetual deposit at 2% interest in the 'Bank of Eternity' in Alexandria.

So...2044 years at 2% interest...let's see...carry the three...yes...that would be 37,909,764,047,315,200,000. That's the sum of money that would be available to us human beings.

Now that's an awkward some. That's before tax and depredations... So let us reduce it to a more manageable per capita sum. That would be $5.3 billion dollars per capita. [$5.3 billion dollars for each person on the earth.]

...Which, as the former middleweight champion, Jake LaMotta, used to say, "is a lot ta money...even when you say it fast."

Perhaps you have read the somewhat down casting news, fully 36% of Americans nearing retirement age have saved $1,000 dollars or less.

Now I put it to you ladies and gentlemen...the difference between $5.3 billion per capita in the world and less than one thousand dollars is the measure of the difficulty we have buying low, selling high, and keeping our hands off other peoples money."

-James Grant (below video)


"The whole “recovery” in Europe never made much sense" to me...

Three Gaping Holes In the EU "Recovery" Story That Could Cost Investors Millions

Phoenix Capital Research's picture

The whole “recovery” in Europe never made much sense to us.

We are told repeatedly that Europe has passed through the storm, that the EU economy and financial system are on the mend, and that Europe is now the place to be investing.

However, the fact of the matter is that economic data can be fudged for political reasons (e.g. Angela Merkel’s re-election bid in Germany), riots/ protests can be ignored or marginalized by the media, and the real state of bank balance sheets can be hidden as long as you avoid major margin calls or funding stressors.

Indeed, considering that Europe’s problems took years to unfold, despite the clear evidence that its banking system was virtually insolvent, the fact that things appear calm in Europe today doesn’t really say much about the true state of affairs over there.

So what truly has improved in Europe?

Bonds yields have fallen… but when you’ve got sovereign governments (via social security funds), the ECB, and bank of international settlements all buying your bonds… odds are they’ll fall in yield.

What about corporate earnings and revenues? Well if you are comparing your results to 2012 when the entire EU banking system almost imploded, chances are they’ll look pretty good. If you compare your physique to a dead guy, you’ll look healthy no matter how out of shape you are.

And then of course there are European stocks, which have been roaring higher ever since ECB President Mario Draghi stated he would do “whatever it takes” to keep the EU financial system afloat (somehow this claim is more relevant than the actual monetary or banking laws of the EU).

Indeed, EU financials have not only more than doubled since the dark days of 2012… they’ve in fact exceeded their pre-crisis 2011 highs!

But then again, when your Central Bank gives banks access to unlimited capital in exchange for totally garbage collateral priced at 100 cents on the Euro (despite it being worth at most half of that), you’re likely going to see a lot of liquidity move into stocks.

At the end of the day, all of the data points used to claim that things have improved are largely accounting gimmicks. The people claiming that all is well are the same folks who denied there was a problem to begin with… and who, not coincidentally, draw the vast majority of their political and social capital from perpetuating this claim.

So here are some rather staggering data points Europe needs to confront before stating “all clear.”

  1. As of 2012, an incredible 25% of the total EU population (120 MILLION people) was living in poverty or social exclusion (the number has since increased by four million more… so much for things improving).
  2. In 2011, child poverty in Spain was an incredible 30%. That was before things got ugly in 2012.
  3. Youth unemployment in Europe is an amazing 22% with troubled countries like Spain and Greece showing levels more than twice that.

The solution to these problems? Continue to claim that the crisis is over… and put into place various schemes to steal citizens’ money if things get worse again (Cyprus snatched over 40% of all deposits over €100,000 during its recent banking issues).

When you are actively promoting plans to snatch deposits to prop your banking system up (see the recent IMF proposal), you are not in “recovery.”

We don’t know if things will erupt tomorrow, next week or next year. But we do know that the “recovery” is largely a work of fiction… and that the crisis will erupt again at some point.

Phoenix Capital Research

Thursday, March 20, 2014

China Bubble: Timing is Tough, But Facts Are Real (Harvard Business School-->Theory of Demographics-->Harry Dent)

2014: The Year of Defaults

By Harry S. Dent Jr., Senior Editor, Survive & Prosper

For two years now, I’ve been warning in our Boom & Bust newsletter that China is going to be the ultimate and largest trigger for the next global financial crisis… a crisis that will be deeper and last longer than the first one that governments quickly combatted with unprecedented quantitative easing and bailouts.

And the cracks in the greatest bubble in modern history are finally starting to show.

George Soros warned late last year that China’s subprime lending was starting to look like the U.S. just before its crisis.

Now Leland Miller, President of China Beige Book International, is warning that 2014 will be the year of defaults for China.

Defaults will occur in trust products… wealth-management products… corporate bonds… and even some government bonds.

China’s subprime lending has mushroomed to more than $2 trillion in the last five years.

Its corporate bond market now totals $4.2 trillion.

Its total credit has surged from $9 trillion to $23 trillion since late 2008, or 250% of GDP.

Once again, additional borrowing and spending adds very little to GDP…

Just like it was, right before our subprime crisis, right now every dollar of debt China incurs adds only 15 cents to its GDP. At the height of our crisis in 2009, each additional dollar of debt created 85 cents of GDP.
China is currently getting very little bang for its borrowed buck.

As I always say: Debt is like a drug. It takes more and more to create less and less effect until the system fails.

Now, China’s system is starting to fail… and the bubble is starting to blow up and the fallout will affect us all.

As Miller warns, this is a different China than that of the past two decades. The government understands that it has to slow growth after massively overbuilding and inflating bubbles.

This, he warns, will impact China’s neighbors — places like South Korea, Japan, and Australia (where I recently issued strong warnings about the China burst) — more than most people assume.

Societe Generale’s analyst, Albert Edwards, warns: “Australia is a leveraged time bomb waiting to blow up. It is not a CDO (meaning collateralized debt obligation), it is a CDO squared. All we have in Australia is, at its simplest, a credit bubble (consumer debt) built upon a commodity boom, dependent for its sustenance on an even greater credit bubble in China.”


Already, an agricultural financial co-op has closed its doors, and depositors couldn’t withdraw their money. And a China Credit Trust wealth-management product of $496 million blew up.

The Chinese government bailed them out.

Then, on March 7, China saw its first corporate bond default, when Shanghai Chaori Solar defaulted on its bond payments. It’s unlikely the government will bail it out.

The government wants to reign in the subprime lending that has spiraled out of control. But can it slow down lending and allow defaults without creating a snowball effect?

I don’t think so. Not with the extreme real estate and debt bubble.

No government has ever been able to wind down a major bubble without a crash. Bubbles don’t correct… they don’t have soft landings… they burst!

But finally the sign I have most been waiting for…

A Chinese developer, Zhejiang Xingrun Real Estate Company just defaulted on $567 million of its debt to 15 banks, including 29% of it to China Construction Bank.

Now we’re talking.

Chinese developers are highly leveraged. They have massively overbuilt everything, with the encouragement and backing of the central and local governments, and with rising subprime lending from wealth-management products searching for yield (sound familiar?).

This is where I expect the greatest acceleration of defaults to come from, that then prompt real estate declines… then further defaults in wealth-management products… and so on.

Nomura Holdings, Inc. now warns what I’ve been saying for years: “There is a high risk of a sharp correction in real estate prices due to oversupply.”

Well duh!

Mark my words: The China bubble is going to blow up and when it does, the country’s economy and market will fall over like a dead elephant. There is no chance of a soft landing here.

How much is central bank easing in the U.S., or Europe, or Japan, going to help when Chinese wealth implodes even faster than Japanese wealth did when its stock and real estate bubble burst?

Not much.

Even worse, the most aggressive buyers bidding up real estate in the most bubbly cities — like London, New York, San Francisco, L.A., Vancouver, Singapore, Sydney, and Melbourne — are Chinese.

That means we’re not just going to see the China real estate and debt bubble burst, but real estate and debt bubbles around the world.

Get ready for the great deflation of 2014 to 2019.



Saturday, March 1, 2014

Maybe It's Not Just the Weather - Lumber Futures Not Bullish on Housing Construction

SoberLook: "Chart: Jul 2014 lumber futures indicate the market isn't bullish on construction. Maybe it's not just the weather - "

Embedded image permalink

Thursday, February 27, 2014

Stock Market Bubble Confidence Explained in One Chart

Who holds the most stocks? 50k+ households. Who holds most jobs producing those corporate gains? <50k+ households. This is what a bubble looks like. No fundamental investment in labor means demand is not there (real).Think fundamentals, not media headlines.

Wednesday, February 26, 2014

Warren Buffett's Dow Jones Industrials vs. Whole Life Insurance

Per Warren Buffett (Forbes Magazine today), "in the 20th century, the Dow Jones industrial index advanced from 66 to 11,497." With lots of unpredictability. Recoveries took up to 25 years. The overall gain is about 5.3% per year (taxable) (link). 

100% stock funds have averaged 4.25% for the last 20 years (Actual investor behavior, per 2013 Dalbar study). Blended funds and bond funds significantly less.

Whole life insurance ~5.6% for 50 years (tax-advantaged). NO LOSS years. None. If you don't make it? Completes savings goal in full, immediately. Also pays itself off in full if disabled before 59 1/2. Pays for long-term care--without using your cash, cash you can use for retirement first (or use early without tax penalty).

What else does this? Do the math. Ask questions. Learn. Then ask more questions. Think--if it makes sense, call. Avoid volatility…and suffering. Start. Ask.

Tuesday, February 18, 2014

This Isn’t a Bubble… Oh, Really?

This Isn’t a Bubble…Oh, Really?!?
By Harry S. Dent Jr.

(From email on Tuesday, February 18, 2014)

You can make all types of insights by studying human beings throughout history, but the one that stands out is that we’re predisposed to bubbles. And no matter how obvious they always are in retrospect, most people never see them when they’re happening.

Why is that?

Because we want each bubble to be real.

We want to get rich overnight, with little effort.

We want to go to heaven when we die.

So we delude ourselves into believing that there is no bubble. It’s just how life should be. And we do this every single time.

Without exception!

I just saw the movie Nebraska...

It stars Bruce Dern, who got an Oscar nomination for his role as an aging alcoholic in Billings, Montana, who gets the classic “you won a million dollars” notification in the mail (you know, the promotional scam kind?).

But Dern’s character, Woody Grant, is on his last leg in life. He just wants to believe he’s won a million dollars… that he’s finally made it… that he is a somebody.

Woody is so delusional, he begins walking the 800 miles to Nebraska (he’s too old to drive anymore). Winning that money is that important to him. After all, all he’d ever wanted, all his life, was a brand new pick-up truck so he could feel and look like a winner… he wanted it even when he was too old to drive.

And that million bucks is going to help him get it.

After the police pick him up on the road, his son agrees to take him to Nebraska, despite knowing that his father has not won anything at all.

Along the way, they stop at their hometown in Hawthorne, Nebraska, where Woody becomes an instant celebrity. Everyone in the town wants desperately to believe that anyone could make it big overnight… or die and go to heaven. They want to be a part of the bubble as well…

And of course, dozens of people suddenly find some reason or other why Woody owes them money.

Only when they finally get to Lincoln, Nebraska… to the magazine company that sent Woody the flyer announcing him a winner… does he realize there is no million bucks. There is no free prize or bubble.

Touched by his father’s desperation, Dave bought him that pick-up truck anyway, and let him drive it through his hometown so Woody could have that feeling he’s so longed for. So that he could make it seem that he had actually won that money.

The bubble re-created one last time!

I tell you about this story because Dave is the Fed and those being fooled by the Fed’s actions are Woody.

And all vehemently deny that we’re in a bubble. They’re absolutely delusional.

If I had a nickel for every economist or analyst that has declared that the current stock boom is not a bubble,
I could die and go to heaven knowing my wife and kids would be set for life!

You don’t have to walk or drive to Lincoln, Nebraska to see the obvious. Just look at the chart below:

Anybody with half a brain would agree that the stock market from late 1994 into early 2000 was a bubble — but only now, in retrospect. It was most extreme in the Nasdaq and Internet stocks. But even in the broader Dow, stocks gained 8,280 points in just over five years. In fact, during that time frame, stocks got to the highest valuations in P/E ratios ever… even greater than the infamous bubble in the Roaring 20s.

And this recent bull market, from March of 2009 to January of 2014, isn’t a bubble?

Absolutely delusional.

The point gain during this latest run has been even greater, in slightly less time. It’s gone up 10,146 points in just less than five years… and it could go as high as 17,200 before it peaks just ahead, but it may peak before that.

How could anyone look at these two bull market runs (shown in the chart above) and say that we’re not in a bubble?

But it gets worse.

It’s not positive demographics and technology-adoption trends driving this bull market, as in the last two.

This bubble has been entirely created by unprecedented stimulus from the Fed and central banks around the world.

Mark my words: We are about to see a bigger bubble burst than in 2008… something closer to the likes of the Great Depression.

You can prosper by simply stepping out of the way before this obvious bubble bursts, just like every other bubble in history has.


Wednesday, February 12, 2014

Jeffrey Gundlach: "High Yield Bonds "Most Over-Valued In History"

“There’s a lack of pricing power in most areas of the economy...” (Bloomberg)

Price Slowdown for Cars, Baby Clothes Raises Fed Concerns

By Michelle Jamrisko and Ilan Kolet Feb 12, 2014 8:07 AM PT

Five years into the U.S. economic expansion, inflation shows little sign of picking up as prices rise more slowly for goods and services from automobiles to medical care, complicating the Federal Reserve’s drive to guide the economy away from the precipice of deflation.
The personal consumption expenditures price index, minus food and energy costs, rose 1.2 percent in 2013, matching 2009 as the smallest gain since 1955. Of 27 categories of goods and services in the gauge, 18 showed smaller price increases over the past two years, according to data compiled by Bloomberg.
The slowdown has been broad-based, with durable goods such as autos, nondurables like clothing and services including health care all playing a role. Fed policy makers are on guard to keep such disinflation from morphing into outright deflation, a persistent drop in prices that prompts households to delay purchases in anticipation of even lower costs and leads companies to postpone investment and hiring.
“There’s a lack of pricing power in most areas of the economy,” said Laura Rosner, an economist at BNP Paribas SA in New York and a former researcher at the New York Fed. “In certain months we see weakness in medical care, and then that passes on to apparel prices in other months. It’s a weakness that never quite fades.”

 Investors predict subdued prices. The five-year breakeven rate, a market gauge of inflation expectations over the next five years based on trading in inflation-linked Treasuries, was at 1.94 percent yesterday, down from 2.3 percent last year at this time... .