Don’t look now but slumping crude prices are hitting the Canadian housing market like a freight train. Energy accounts for 10% of Canadian GDP and around 25% of exports and the swift fall in oil prices is having a profound effect in the nation’s oil producing regions. Take Calgary for instance, where single-family home sales fell 34% last month. As the following chart shows, Alberta derives some 30% of its provincial revenues from energy royalties and as one TD analyst quoted by the Calgary Herald recently noted, “the effects of significantly lower oil prices had already turned up in resale activity, with sales in Calgary and Edmonton down more than 40 per cent and 30 per cent respectively, from October to January [and] as resale activity slows, prices usually follow.”
Depressed crude prices will create a $7 billion annual revenue shortfall for the province while GDP growth, which had been running at around 4%, is expected be just under half that this year, with some analysts predicting the economy will contract. Here’s CIBC’s outlook for instance:
The Alberta government’s own assessment of the economic situation is deteriorating rapidly.
From the Alberta fiscal update:
The impact of lower oil prices on real economic growth is expected to be less severe than on incomes. Alberta’s real GDP, the volume of goods and services produced, is expected to expand in 2015, but at a much slower pace of 0.6%. This is down from the Second Quarter forecast of 2.8%.
Although there are some similarities between the current [oil] price correction and previous ones, there are also key differences. Marginal extraction costs are significantly higher than in the past, with few sources of cheap supply remaining. In addition, current excess supply on the market can be attributable to price levels that encouraged the extraction of higher cost crude, rather than shrinking demand.
More broadly, there are significant signs that the housing market is starting to turn. For instance, the New Housing Price Index fell 0.1% in January. This was the first decrease at the national level in nearly a half decade.
Here’s more from The Herald:
Two housing reports released Thursday indicate year-over-year price gains for the Calgary market but on a monthly basis the real estate sector is starting to see declines indicating a correction is on its way.
“The abrupt shift in housing demand and supply conditions in some parts of the country indicate that potentially severe housing corrections have already begun. In Calgary, for example, the slump in existing home sales and jump in new properties listed for sale suggest that house prices will decline by 15 per cent this year,” said David Madani, economist with Capital Economics.
“Preliminary sales and listings figures for February reinforce this view: home sales fell by 35 per cent from a year ago, while the total number of properties listed for sale jumped by over 107 per cent.”
As you might imagine, the pain is particularly acute in the country’s oil boom towns. Here’s The Herald again:
Just take a look at what’s happening in the heart of Alberta’s oilsands industry as crude’s price collapse continues.
MLS sales of single-family homes in Fort McMurray and its surrounding area have plunged so far this year. In February, sales were down by a whopping 66 per cent from a year ago, at just 48 units. That followed an annual decline of 53.19 per cent in January.
...and more from RBC:
Softening demographic fundamentals likely will weigh on Alberta’s housing sector. Already there are signs of impending housing market downturns in Calgary and Edmonton, although these so far primarily reflect a loss of confidence caused by the sharp drop in oil prices rather than weaker population growth. We project home resales to decline by nearly 16% in 2015 in Alberta and housing starts to moderate from 40.6K units last year to 27.5K units this year.
We estimate that the direct impact of lower capital spending in the energy sector will reduce Alberta’s real GDP growth rate by more than 1.5 percentage points in 2015. Indirectly, the effect will spread to employment, net migration, the housing sector, consumer spending and, possibly, public sector spending. Our updated forecasts assume a decline in employment during the first half of 2015 in Alberta. Job losses could be as much as half the jobs created in 2014.
This isn't at all good for the country as a whole because as the Globe and Mail reports, Alberta has been a critical piece of the economic puzzle for Canada:
Alberta contributed one-third of Canada’s economic growth [in 2013] and is by far the fastest-growing province in the country again this year. Since the beginning of 2013, nearly half the jobs created in the country were in Alberta
Considering all of this, have a look at the following chart which shows the complete and total decoupling of Canadian housing prices and crude.
Bringing it all together, it appears as though the 50% decline in crude prices may spell the end for the long-running Canadian housing boom. The data looks abysmal in oil-rich Alberta while at the national level, it looks as though January marked a tipping point. Add to this the fact that Canadian households are more leveraged than they have ever been as the following graphic from Statistics Canada shows:
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We'll leave you with the following from Laurentian Bank:
Canadian consumers are highly leveraged and thus cannot continue supporting the growth of the economy like they have done over the past decade unless jobs are added at the same pace as they are in the U.S. The housing sector is also fully valued.
March 24 – Gold $1191.70 up $3.70 - Silver $16.97 up 9 cents
Out Of Tricks?
"I make my practices real hard because if a player is a quitter, I want him to quit in practice, not in a game." … Bear Bryant, legendary Alabama football coach
It is totally understandable why followers of this commentary have become sick and tired of hearing about The Gold Cartel and the misery they have delivered. It has affected everyone in the gold/silver industry. Basically, investing in the gold/silver shares has been a waste of time and money for the last 17 years. If you had told me that when The Café opened for business in September of 1998, I would have said, "No Way!" … especially since gold went from below $300 back then to $1900+ and silver was below $4, and would rise to $49+.. The other day the XAU was lower than in September of 1998. To me it is more than mindboggling. There have been some really big winners along the way, but they have been dwarfed by the failures … and those failures have been run by some of the finest guys/gals I have ever met. This has been a nightmare.
That said, we were warned by one of the best of the best in our camp, the legendary Bob Bishop of the heralded Gold Mining Stock Report. Bob was the "gold man" in his day and a good friend to GATA. His wife also went to the same high school as me in Glen Ridge, New Jersey. When GATA held our third conference right outside of Washington, D.C., we had a last minute cancellation from one of our speakers. On the spur of the moment Bob agreed to make a presentation. In that presentation he said he was exiting from the gold/silver shares.
Golly, that was 7 years ago, soon to be to the day. I wish I had listened to THE MAN. I did not. So as not to make more Café readers run away. That is the bad news. The good news is that what we have coming in the shares will be one of the most historic market moves in history … and we all need to be there after this cacophony of dismal affairs these past years. Same drill: Newton’s Law about equal and opposite reactions. As bad as it has been, the better it will be in the years ahead. The shares will go bonkers as in a mania rarely ever seen before.
This is not a 'woe is us' story. Anyone who paid attention around 2000 has cleaned up with their bullion purchases … big time so … which means we have a lot of happy camper Café members, who will be even happier down the road.
OK, back to the day. Gold made it to $1195, while silver took out $17 to upside for a brief period of time. Enter Gold Cartel and that was all she wrote. What else is there to say? It is all about the bums and their "allowances"...
From MIDAS following the Fed’s surrender last Wednesday…
Today was somewhat abysmal in that we clearly saw how entrenched The Gold Cartel remains with their control over the precious metals prices. It is hard to remember a time when gold rallied $20 and that rally has me madder than before we got it. As the day wore on today, the euro, DOW and crude oil all made NEW daily highs by substantial margins, while gold was not allowed to do so. Actually, both made modest new highs later and then were nailed again … even as those outside markets mentioned kept on going.
That said, there is some serious daylight here in that the con job over the true state of the U.S. economy ought to be soon running its course. Even the Fed can’t "bull" their way around it anymore. Our economy is in big trouble after ALL the QE and money printing they have done … and they know it. This is a main reason why The Gold Cartel has gone all out to take gold and silver into the dumpster … to defuse the truth barometers.
Well, while THEY are still huffing and puffing, today brought us a lot closer to the day when this charade is going to end. That day shouldn’t be too far off. When The Tipping Point is finally reached, the precious metals are going to go bonkers and the bums won’t be able to do anything about it.
IF we are close to that point, we ought to get a rare follow-through tomorrow and gold should be knocking on its $1200 door by weekend.
To end on a POSITIVE note, gold is last at $1173, while silver is $16.05 ... which means they are back close to their highs of the day. That is constructive and suggests The Gold Cartel might really have their hands full for a change.
CRUD, I take that back. In the last 15 minutes, gold was taken down to $1167 and silver to $15.89. NOTHING has changed!
Well, something has changed in terms of upward price movement, controlled as it is.
Now for some fun. Obviously, we are thrilled to have Bob Bishop in our camp, big GATA supporter and superb thinker that he is. We are also extremely fortunate to have James McShirley with us. James was a featured speaker at GATA’s London conference in August of 2011. What a spectacular event that was!
James checked in today with some comments on the way the gold/silver world really is, in contrast to the mumbo jumbo garbage put out by the precious metals nincompoop pundits…
Lest we forget the 26th & 31st = cartel shenanigan days
As always it is important to remember Thursday the 26th is option expiration day for April gold, with a week from today being first notice day. These two events have always been an opportunity for the cartel to impose iron lids anywhere near a big option number. Until this Comex charade is over blasting through $1200 seems remote. If gold does somehow defy its cartel masters it will be a very welcome development.
It seems silver has broken out above, and fell below $17 at least 50 times in the past week. This is SO unnatural, as typically even a couple consecutive breakouts above previous stiff resistance would get shorts covering in a hurry. The shorts in this instance aren’t worried in the least. Their agenda is capping and thwarting any and all breakouts rather than utilizing normal trading rules.
Note too how lumber went limit up this morning in a nanosecond on the rumor of China buying from a major Canadian mill. Lumber not only anticipated higher prices, but went limit up on a rumor. How quaint. Panicked shorts and mills pulling bids translate to higher prices in a hurry. This is how gold and silver should trade if there wasn’t a constant presence capping all rallies. We’ll never know how many gold rallies which were capped at 1% could have risen 5% or even 10% had price discovery been allowed. Some day price discovery will return with a vengeance, and +10% will be low volatility. Until then we wait for the lockdown to run its course.
What fun! Was thinking about James this morning re his commentary last week…
John paid a nice complement to James Mc and had a question for him…
Thanks for passing along. Give JB my best.
Regarding JB’s question regarding lumber: $270 must hold as a bottom or else it’s an elevator ride to hell. Canadian mills are still profitable here, yielding closer to $340 after factoring the Loonie/Dollar exchange rate. U.S. mills however are hemorrhaging badly. So far mills are only taking minor counters. Overproduction however is still evident. How quickly it gets cleaned up is the question. DC’s and wholesalers will be key if/when it does get cleaned up. Lumber is notorious for going on a tear out of nowhere and it wouldn’t take much to ignite a rip-roaring rally. FWIW I hedged our operation’s entire year here at these levels. Owning wood in the $270’s might look pretty good once hurricane season kicks off.
You don’t have to be a futures trader to "get" these markets, but surely the experience helps. As a former limit position trader at one point in my career, I know something about it all. It made my day this morning getting back to James about his lumber call and hedge bet. He came back with…
It tickled me to see lumber limit up as everybody and his brother-in-law was so hugely bearish. My lumber broker said his three dumbest traders who always lose money got short yesterday, and that’s when he knew limit up was right around the corner. Anybody shorting a 25 year low deserves to get lit up. Can’t wait for it to happen to the cartel.
The AM Fix was $1193.25. The PM Fix fell to $1191.50.
Oh my gosh … the gold open interest rose a steep 11,094 contracts to 447,773, which means the gold OI is as high as it has been in a long time. The silver open interest fell 1527 contracts to 174,123.
The ideal here would be for the specs to pour into the gold market, as the technicals are SO good, while the perennial mega silver shorts RUN FOR THE HILLS.
The global debt glut, plus the related money printing efforts by the world's central banks to try to stimulate further credit growth at all costs, leads us to conclude that a major currency crisis -- actually, multiple major currency crises -- are practically inevitable at this point.
To understand better the anatomy of a currency collapse, we talk this week with Philip Haslam, author of the book When Money Destroys Nations. Haslam is an authority on monetary history, and more recently, has spent much time in Zimbabwe collecting dozens of accounts of the experiences real people had as the currency there failed.
This week, he and Chris discuss the process by which a hyperinflationary currency collapse occurs:
In South Africa, there's a river called Suicide Gorge where you can jump off from the top of a series of waterfalls. You jump off each waterfall, and you can then go down to the next. But the problem is, once you jump off each waterfall, you can’t get back up again. So we used this analogy to describe the process of hyperinflation.
Typically, as a government prints money, you get levels of inflation. But that’s inflation based on historic money printing. Every year, when you get your salary increase, you base it on historic processes. You take the latest consumer price index and then build it into your wage increases. If you're a business, you'll build it into rent increases and price increases of your products. But it's all based on historic inflation.
But then the time comes when a cultural shift occurs and people begin to say "Hang on a second, my salary increase was based on historic inflation, but I'm beginning to lose purchasing power -- I'm getting poorer and poorer. Stop giving me increases based on last year, and give me increases based on next year." So the inflation becomes based on a future money printing, rather than historic money printing. That's what we call our first 'gorge moment'.
That leads very quickly then into our second gorge moment, which is where the rate of price increases actually outstrips the amount of money in the economy and you get money shortages. In 2003, the economy in Zimbabwe experiences fierce money shortages. You had massive queues at the banks, real shortages, everyone trying to take their money out of the banking system. It became a real problem as people began to distrust the banks more and more. They actually wanted to hold their money directly, concerned that the banks actually did not have it.
Gorge moment three is when that pressure begins to work its way into the real economy and margins begin to decrease to the point where stores begin to close. That is a real cultural shift. Before, stores were open; goods were expensive but you could still get food and you could still get goods and services. But at gorge moment three, the formal supply sector shuts down.
Gorge moment four is when the banking system begin to stop lending. If you are lending money to someone and, a day later, that money you lent has lost value, you no longer want to make loans. You're going to use that money to go speculating and buy things that will hold value. So gorge moment four is very close to gorge moment three. Stores close and credit dries up. People stop lending.
Following this stage is gorge moment five: a curious consumption hysteria develops that we call 'scorched money'. It's when people try to take their money and get rid of it as fast as they can because if you hold it instead, it's going to lose value by the next day and you can buy less and less with it as time goes on. People will do anything to get rid of their money and find anything that will hold some value of some sort. It’s a crazy, consumption hysteria where everyone’s buying everything. There is huge amount of demand, but in reality, production has stopped. So you have this entire consumption of the economy where all goods and services get consumed.
Finally comes the sixth gorge moment which is the death of the currency and the final collapse of the money-based system.
Click the play button below to listen to Chris' interview with Philip Haslam (52m:19s)
Echoing the grave concerns of no lesser 'maestro' of manipulation than Alan Greenspan, Wells Capital Management's Jim Paulsen notes that while the U.S. stock market has risen by about 3 times from its crisis low in March 2009; much of this advance has been against a backdrop of disappointing productivity gains... should productivity growth remain subpar, stock market risk seems to be rising.
As Paulsen notes,
Since late 2011, the stock market and productivity have exhibited an uncommon divergence. Stock prices have continued to rise despite significantly weak productivity growth.
What does this divergence suggest?
- Maybe the stock market has simply discounted a near-term expected improvement in productivity growth as it did in the mid-1990s (i.e., then, the stock market began to surge at the beginning of 1995 even though productivity did not significantly improve until 1997),
- perhaps the amazingly low and persistently falling interest-rate structure of recent years has pushed the stock market higher despite disappointing productivity growth (similar to the early 1990s stock market advance),
- or conceivably, the stock market is simply extended today and is at risk of a correction should productivity growth not soon improve.
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So just as The Fed waits for the "inevitable" rise in wages... so permabulls wait with breathless anticipation for a resurgence in productivity... which is odd given Greenspan's explanation of just how America's "entitlement" society - which is getting bigger - is nothing but an anchor around the neck of US productivity hopes.
As demonstrated by Monday’s bail in “celebration” in Cyprus and more poignantly by the Blockupy protests in which clashes between police and protesters briefly turned Frankfurt into 1965-era Watts last Wednesday, being a central banker in Europe is becoming a dangerous job. Fortunately, you can help by joining the ECB as a “Fire Prevention And Safety Expert.” Here’s more from the central bank’s official job description:
The Security and Safety Division of the European Central Bank (ECB) operates a physical security and safety programme for the members of the ECB’s decision-making bodies, staff and visitors, as well as for valuables and the ECB’s premises. As such, it is responsible for taking all necessary measures to prevent harm to assets and staff stemming from fire and smoke…
Here are some of the things the “successful applicant” will be tasked with:
Providing expert advice on matters related to fire prevention
Implementing and executing technical and organisational fire prevention and safety measures for ECB premises
Organising and conducting regular fire safety inspections of ECB premises
Dealing with crisis management issues related to fire prevention and safety
As for qualifications, applicants should have the following:
Ideally a master’s degree in fire prevention and safety or construction, electrical or chemical engineering or other relevant field, or (i) a bachelor’s degree combined with relevant professional qualifications or four years of relevant experience in the field of fire prevention and safety or (ii) a relevant professional qualification (such as the successful completion of training to become a senior fire brigade officer (upper-level civil servant)) combined with eight years of relevant experience in fire prevention and safety;
In addition, at least three years of experience as a fire prevention/safety expert, ideally including the provision of expert advice on fire prevention, preferably related to the design of fire prevention concepts for larger (e.g. high-rise) building construction projects;
A qualification as a certified occupational safety and health expert would be a distinct advantage;
Ideally, knowledge and understanding of the key physical security systems and their interfaces with fire prevention systems (e.g. access control, intrusion detection and security management systems);
As a reminder, here was the scene last week in Frankfurt, home of the ECB's new headquarters...
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Anyone interested in applying for the ECB's Fire Safety expert position can apply here.
[The following post by TDV Offshore Director, Paul Seymour]
Everyone in the world who cares at all about the fight to retain their basic human right to personal privacy, has become aware of the latest Ameriken attack on same. That being the effective closing of Banca Privada d’Andorra all due to allegations of money laundering.
I’ve come across a plethora of information on the subject, and after reading through it, thought I’d share with you what I’ve learned so far. The obvious starting point are the official charges themselves. Unlike with Loyal and BMI, who are being attacked extra-judicially, because there is no lawful enforcement of FATCA available, FinCEN, the black op’s of the Treasury Department, has formally filed some charges, and is taking this one through a due process channel. At least that’s the perception they’re shooting for.
Rogue Government, with Zero Credibility
The ten-page Notice of Finding, effective as of March 6, 2015, has a lot of the spin we’re used to seeing from the rogue agency known as Treasury, of the rogue Ameriken government. I think we can safely use such a term for an agency and government whose public servants routinely break the law, and just as routinely commit perjury in front of a seemingly impotent Congress. For that reason, as I read through the Notice, I’m extremely credulous about all of the charges. I also have to ask myself, why is the bank effectively closed merely based upon accusations?
Remember, this is a private bank, in a sovereign country in the middle of Europe. I wasn’t aware that all banks worldwide somehow fell under the jurisdiction of Amerike. Yet we’re aware that around 100 banks in Switzerland, including that country’s oldest, have all closed their doors due to attacks from a foreign government.
I assume that all of our readers are sophisticated enough to know that the USG gives not a crap about drug smuggling nor money laundering. It’s common knowledge that USG operatives routinely profit from illegal drug smuggling and laundering themselves. The real issue here is to not only participate in the profits of illegal drug distribution, but to also be able to weaken some of the competition, and simultaneously gain increased control over banks world-wide. Think HSBC, who now essentially works directly for Treasury after their non-prosecute agreement.
With those facts in mind, I found the Notice to be interesting reading. It starts out by informing the world that it has legal jurisdiction based upon the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”). We’re all aware that the provisions of this misnamed law are so broad that your grandmother could get ensnared by it, if a bureaucrat chose to pursue her.
The more things change, the more they stay the same - Lavrentiy Pavlovich Beria was chief of the Soviet security and secret police apparatus under Stalin. He was top deputy of the NKVD during the Great Purge, responsible for many of the millions of imprisonments and killings. He told Stalin, “Show me the man and I’ll find you the crime.”
FinCEN Director, Jennifer Shasky Calvery from a 2014 Reuters article. Amerike now favors the use of “minorities” for such posts, as the sheeple have been programmed to believe that criticizing such people is “racist” or “sexist”, and therefore taboo. I had to laugh about two weeks ago when a banker in Minnesota called me racist for using the word Gringo, although I’m more Gringo than he’ll ever be. Keep in mind that people who are considered “minorities” make up 80%+ of the population. I think that same figure will soon apply to recipients of government funding, if it doesn’t already.
Therefore, while critically reviewing the Notice with these facts in mind, I was continually paused by the terminology. For example, “FinCEN has found that reasonable grounds exist for concluding that several officials of BPA’s high-level management in Andorra have facilitated financial transactions on behalf of Third-Party Money Launderers (“TPMLs”) providing services for individuals and organizations involved in organized crime, corruption, smuggling, and fraud.”
I guess we should no longer be amazed that a mere accusation by a US bureaucrat can cause the effective shut down of a private foreign bank. I mean, I have reasonable grounds to conclude that Treasury has fabricated the charges for political reasons, but I’m not an Ameriken bureaucrat, so my reasonable conclusions, don’t count. Nor do those of their employers, the sheeple.
In case you weren’t aware, all depositors at BPA have been notified that they no longer have full access to their own money. Does that mean that FinCEN has reasonable cause to suspect that 100% of depositors at BPA have participated in alleged illegal activities? No, of course not. No where near even 5% in fact.
The Notice then went on to use that oldest of USG tactics, the unfounded smear campaign, mastered by the grease-ball Hoover, as it talks about people who, when using a viable strategy to protect their personal privacy, are most likely engaging in activities which the USG considers to be its sole domain. Terrorism and/or money laundering. All others trying to muscle in on its territory should be executed.
“From 2011 to February 2013, High-Level Manager A at BPA in Andorra provided substantial assistance to Andrey Petrov, a TPML (“TPML 1”) working for Russian criminal organizations engaged in corruption. Petrov facilitated several projects on behalf of transnational criminal organizations.”
This has to make just about anyone roll on the floor laughing. Public servants, at one of the most corrupt institutions in the world, have been able to somehow effectively close down a foreign financial institution, and block the access of tens of thousands of law-abiding citizens to their own money, due to mere allegations of corruption? I’m simply speechless…..hahahahahaahaha
FinCEN goes on to state—“Petrov used the proceeds of transnational organized crime (I wonder exactly how “crime” is defined here…) to bribe local officials in Spain. Petrov secured beneficial zoning rights and contracts from a local official.”
I kid you not, sports fans. Banca Privada d’Andorra, has been shut down, and thousands of law-abiding citizens, including Americans, have been left without access to their money, because the lying thieves at Treasury have alleged that some guy bribed zoning officials in Spain to alter zoning rights. That with money had passed through countless Ameriken banks too. We all know that such things as bribery to obtain favorable zoning doesn’t occur in New York, Chicago, Detroit, Miami, Los Angeles, New Orleans, etc etc on a daily basis. I’ve never heard of closing down banks in response to it, though.
In order to “strengthen” their pitiful case, FinCEN goes on to state – “In addition to BPA’s facilitation of illicit financial transactions by Petrov, in a separate scheme, a Venezuelan and his network relied on BPA to deposit the proceeds of public corruption.” There’s the pot calling the kettle black once again.
Political Reasons for Damaging Countless Law Abiding Citizens, Including Americans (Acceptable Collateral Damage)
“This network was well connected to Venezuelan government officials and relied on various methods to move funds, including false contracts, mischaracterized loans, over- and under-invoicing, and other trade-based money laundering schemes.”
Ahhhh. Now it’s all starting to make sense. This bank had the audacity to work with not only Russians but Venezuelans too. The competition, in other words.
In fact, in the words of FinCEN – “Between approximately 2007 and 2012, BPA also used its U.S. correspondents to send or receive wire transfers totaling more than $50 million. In addition, 62 percent of BPA’s outgoing transactions through one U.S. correspondent bank involved only four high-risk customers. In 2014, BPA continued to facilitate the movement of funds related to this scheme through the U.S. financial system. Overall, BPA facilitated the movement of $4.2 billion in transfers related to Venezuelan money laundering.” Why then, aren’t the US banks under the same scrutiny? Simple. They are already under Treasury and Fed control. Bought and paid for with your money during the bail-outs. I guess they were able to overlook the red flags legally, as they were enjoying some nice fees for converting currencies, and moving the funds.
Just in case you haven’t already been convinced that this witch hunt is politically motivated, the third party named in FinCEN’s unproven allegations is Gao Ping, a Chinese national.
The question then must be asked—Is the real issue converting US Treasuries to gold in order that Russia, China and Venezuela might start a gold/silver backed currency to knock the worthless dollar from its undeserved pedestal as world reserve currency?
There are recent signs that Germany, and maybe even Switzerland, and France might like to get in on that action. Very bad news for Uncle Sam, as that would drag his faith-backed green-back ever closer to toilet paper status. Won’t be so easy to invade Germany and hang Merkel. Even Washington has public-relations limits.
What should we take away from this lesson?
It’s increasingly obvious that the Imperial Oligarchy which is the current USSA, as represented by this army of unelected, and unaccountable bureaucrats, is amongst many other things, actively engaged in a world-wide war to control the world’s financial system.
That can only be achieved by, amongst other things, gaining access to the management of every financial institution in the world. UBS, HSBC, Credit Suisse, etc etc in addition to those already firmly under control such as Bank of America, JP Morgan-Chase, Wells Fargo etc etc. A client recently was told that he could not, under any circumstances, wire his money from his Chase account to mine. My bank, of course, is in a privacy, and due-process respecting jurisdiction. Chase finds that unacceptable. You should be asking why. If you hold money there, you should be concerned whether or not it’s really yours, as you don’t have the ability to do with it as you find prudent.
Phase I of the US War on Personal Privacy was an attack on Switzerland. This phase resulted in the shut-down of 100+ Swiss banks, and subverted most, if not all, of those left “standing” (if only on their knees). There has been, and will continue to be, some backlash from Switzerland due to that, but it was about as successful as the invasion of Iraq, I suppose. Hung the former ally, which was the leader, and killed a few million bystanders, but the oil is under control.
Phase II of the US War on Personal Privacy was the drafting and passing of FATCA, an attempt to subvert the rest of the world’s banks by having them compromise centuries-old principles of protecting personal privacy. This is being carried out so that undeserving people in the US, Europe and other parts of the developed world like Argentina, Chile and Brazil can share your money.
Are the elected leaders afraid that their failed fiscal management might bring about unrest on the part of the poor, huddled masses? Have they concluded that the only way to save their worthless hides, and maintain power, is to wipe out the middle class, and create a new blob of mediocrity somewhere between the two? That’s called Communism, boy and girls, and it’s coming to a neighborhood near you.
Let’s take a break and ponder that thought with this example of 1980’s poetry on that subject by a Canadian band. https://www.youtube.com/watch?v=8_D0wkLyCXE with the OECD being the hatchet, Treasury the axe, and Obama via unconstitutional executive orders the saw. All orchestrated by those who run the Fed, and the MIC.
This attack on BPA is Phase III. Similar to that which was carried out upon Switzerland, but on a world-wide basis. This attack on BPA is similar to the one on HSBC, which was quickly swept under the carpet, after deals had been struck, and Treasury in control.
Phase IV will be seizures from subjects, as well as from foreign governments when practicable. Was Ukraine a demonstration of both ability and will? Personally I’m looking for old enemies to save the day. Based on my travels to places which used to be in chaos, and have emerged after some very tough times, they seem to emerge in a much more healthy state. Uruguay is a good example, emerging from civil war in the 70’s and 80’s. Colombia after finally reducing the leftist guerillas, paramilitaries, and mafia to levels below those in the current day USSA. Even Russia and China, which I was programmed to fear and loathe in childhood, have much less blood-thirst than the latest puppet regimes of Amerike. The psychos running Washington seem to be prepared to use whatever means are necessary to maintain power. As they control nuclear weapons, all should take note of that.
Results and Avoiding the Fallout - You are at war, whether you know it or not. It’s undeclared, and seemingly invisible to the vast majority, but war it is. At stake are your personal freedoms. Very basic ones, in fact, like due process, and personal privacy. The lack of due process could very well lead to your incarceration, and/or loss of life. Being stripped of your assets could well lead to obvious dangers as well.
This war is being waged for the sake of financial power between the West and East. You’re merely a pawn. The key is not to get caught by the shorts. Diversification/hedging is the only smart move considering this uncertainty. Holding USD, and to some extent Euros, is, well, idiotic. Especially in Treasury controlled institutions. They will not gain 100% control before the USD goes down, and right now, while the USD is unsustainably high, is the perfect moment to move it out to other currencies, and precious metals.
You can move both your after tax funds, as well as your tax-deferred retirement funds, out of US controlled institutions, and simultaneously diversify out of the USD, and into foreign fiats, and physical precious metals. It isn’t just for the rich. If you have $50k to protect, it’s foolish not to do so. Similarly, start foreign citizenship. Yesterday.
Contact us here at firstname.lastname@example.org for asset protection including diversification, and email@example.com for citizenship in a free country in order to assure your continued basic human right to travel freely.
[Editor's Note: Paul can help you out at TDV Offshore with any of your offshoring questions.]
Paul worked for several years with Big 4 CPA firms in both the US and Saudi Arabia, and then spent many years as a multi-national corporate Controller and CFO in places like Florida, Riyadh, Abu Dhabi, Cairo, and Medellín. In his second, more free life, he has found a natural home in the offshore industry following almost 2 decades as a permanent expat from the former America. For more information check out TDV Offshore or contact him to learn more about the realities of economical offshore asset protection firstname.lastname@example.org
If you could live anywhere in America during the tumultuous years ahead, where would it be? This is a topic that is hotly debated, and the truth is that there is not a single right answer. If you have a very strong family support system where you are, it might not be right to try to move 2000 miles away and start a new life from scratch. And for many Americans, moving is out of the question in the short-term because they are completely and totally dependent on employment in their local areas. But in recent years we have seen an increasing number of Americans strategically relocate to another region of the country. They can see our society breaking down and they can see the storm clouds on the horizon and they want to do what they can to prepare themselves and their families for what is ahead. So is there a “best place to live” in the United States? Are there some areas that are preferable to others? The following are 9 maps to consider…
#1 Population Density
When the U.S. economy crashes and civil unrest starts erupting in our cities, ideally you will want to be living in an area with low population density. In other words, the fewer people around the better. The map below represents population density with a series of yellow dots. As you can see, the west coast and the eastern half of the nation are generally very crowded. So if you are looking for an area with lots of “breathing room”, the area between the Mississippi River and the west coast is a good place to look.
#2 Average Precipitation
Unfortunately, the western half of the nation is also generally very dry. So if you are planning to grow your own food during a time of economic and social turmoil, that is something to keep in mind. There are a few areas between the Mississippi River and the west coast that do get plenty of rainfall (northern Idaho for example), but those areas are few and far between.
The latest national map from the U.S. Drought Monitor is the next map that I have shared. The multi-year drought in the state of California is already the worst drought in the recorded history of the state, and many scientists believe that it could stretch on for many more years. But it isn’t just California that has been suffering. There are other areas in the Southwest that are starting to resemble the Dust Bowl days as well. So obviously these areas are not ideal if you plan to be self-sufficient and grow much of your own food during a time of great crisis.
#4 Average Snowfall
If you don’t like cold and snow, you will want to avoid the colored areas on this next map. And if you do plan to live in an area that gets plenty of cold and snow, you will want to have a solid plan for heating your home if the electrical grid goes down and is not available for an extended period of time.
#5 Average Homicides
In the years ahead, crime in the United States is likely to rise dramatically. If you are looking for somewhere safe, the areas that have relatively low crime rates right now will probably be better than areas that have relatively high crime rates right now. In general, rates of violent crime are higher in our major cities and in the Southeast.
For a lot of people, tax rates are extremely important when choosing a place to live. This next map shows the states where the state income tax rate is zero. But please keep in mind that there are other reasons why some of these states may be undesirable during an emergency situation.
#7 Nuclear Power Plants
We have all seen what a single nuclear power plant disaster can do in Japan. Well, in a future disaster scenario, we could potentially be facing multiple “Fukushimas” all at once here in the United States. The map below shows where nuclear reactors are located throughout America. You might want to think twice before moving in right next door to one.
A single giant tornado can absolutely shred the best laid plans of any family. There are some that feel completely and totally comfortable living right in the heart of “Tornado Alley”, and there are others that very much would like to avoid any area that is at high risk for tornadoes. As you can see from the map below, the highest risk areas are generally in the Southeast part of the nation.
Of course tornadoes are far from the only natural disaster to consider when choosing a place to live. For much more on all of this, check out these articles…
For many Americans, moving to a politically-compatible area of the country is extremely important. The map below uses red and blue to represent the average margin of victory in recent presidential elections. The states that are very red voted very heavily for Republican candidates. The states that are very blue voted very heavily for Democratic candidates. The states that are purple were in the middle. But it is important to remember that there are areas within each state that tend to be more conservative or liberal than the state overall.
I noted more thoughts for each individual state in my previous article entitled “What Is The Best Place To Live In America? Pros And Cons For All 50 States“. But wherever you go, the truth is that no place is going to be perfect. The following is how Joel Skousen, the author of “Strategic Relocation: North American Guide to Safe Places“, put it in one of his recent articles…
The more rural you are, the higher the cost of building, maintaining equipment and commuting to civilization—and, the higher your expenses for services including utilities, alternate energy and internet connectivity. The more your priorities emphasize closeness to a community, the higher your risks will be during a social meltdown, and the more precise must be your preparations to bug out to a separate retreat. So, as you see, there are always compromises in life, no matter if you spend $50,000 on your property or millions, there is no perfect property that will meet all your criteria. Focus on what’s most important for you, your family and/or group.
That was very well said.
No matter what other people are doing, you have to make the choices that are right for you and your family.
Israel Spies On U.S. Negotiations With Iran, Gives Info to Congressmen Trying to Block a Deal ... The BIGGER Picture
It is – rightfully – front-page news that Israel was caught spying on the closed-door negotiations between the U.S. and Iran.
And the Obama administration is particularly outraged that Israel allegedly shared that information with Republican congressmen who want to stop any peaceful deal with Iran.
This is certainly outrageous … but small, in the grand scheme of things.
Because Israeli spying on America is so rampant that U.S. officials have labeled it “alarming, even terrifying”.
And because the U.S. has only half-heartedly asked Israel to stop … Israel has told the U.S. to pound sand.
As if that isn’t bad enough, the NSA voluntarily shares the raw data it collects on American citizens with Israel.
This includes raw data on U.S. government officials. This not only raises major privacy concerns for American citizens, but it might mean that Israel is spying on the American Congress and other high-level politicians.
Indeed, leaked NSA documents show that U.S. intelligence officials are concerned that the NSA may be putting Israel’s security needs ahead of America’s.
Indeed, 5,000 years of history shows that spying on one’s own people is always aimed at crushing dissent. (Incidentally, opposing unnecessary, costly wars - such as war against Iran - is treated as terrorism and unacceptable dissent.)
But it's not just Americans ... America’s spy apparatus also helps foreign governments - like Israel - crush dissent in their countries.
These programs were never about terrorism: they’re about economic spying, social control, and diplomatic manipulation. They’re about power.
Yesterday, I discussed the valuation report issued by the Office of Financial Research which contained several important statements about the risk to investors in overvalued markets. To wit:
"Markets can change rapidly and unpredictably. When these changes occur, they are sharpest and most damaging when asset valuations are at extreme highs.
High valuations have important implications for expected investment returns and, potentially, for financial stability."
There was one particular chart that really grabbed my attention which was the ratio of corporate profits to GDP.
There are a couple of important points, in particular, to take away from the chart above. First, historically corporate profits floated around the long term mean of about 6%. This makes complete sense as corporate profitability is a reflection of actual economic growth which has grown by roughly the same amount as shown in the chart below.
Secondly, at two standard deviations from the long-term mean, it is clear that corporate profitability has reached historical extremes which suggest a reversion is likely closer than not.
Importantly, the surge in corporate profitability has not been a function of equivalent increases in revenue growth but rather through increases in "financial engineering" from changes in accounting rules to massive share repurchases. However, profitability generated through "financial engineering" is illusory, which is why despite the surge in corporate profits, employee compensation has declined. The chart below is the ratio of wages to corporate profits.
What is important to note is that the acceleration in corporate profits has come through two primary factors; deregulation and expansive monetary policy. As noted yesterday:
"Broadly speaking, systemic crises tend to be preceded by bubbles in one asset class or another. Brunnermeier and Schnabel identi?ed four factors that accelerate the emergence of asset bubbles: expansive monetary policy, lending booms, foreign capital in?ows, and ?nancial deregulation.
They concluded that the ?nancing of bubbles is much more relevant than the type of asset bubble, noting that 'bubbles in stocks may be just as dangerous as bubbles in real estate if ?nancing runs through the ?nancial system.' They also noted that the spillover effects of bubbles bursting are most severe when accompanied by a lending boom, high leverage, and liquidity mismatch of market players."
I discussed previously the growing detachment between the stock market and the "real" underlying economy. One of the areas I touched on was corporate earnings that have been elevated by an immense amount of accounting gimmickry, cost cutting, and productivity increases. The problem, as I stated, is that historically earnings have grown 6% peak-to-peak before a reversion. Notice, I said peak-to-peak. The issue is that the majority of analysts now estimate that earnings will rise unabated for the next five years.
As shown in the chart below, the dashed red line shows where earnings are currently as compared to what expectations were. Secondly, earnings have never attained the currently expected growth rate...ever.
As Jeremy Grantham once stated:
"Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system, and it is not functioning properly."
Grantham is correct. As shown, when we look at inflation-adjusted profit margins as a percentage of inflation-adjusted GDP we see a clear process of mean reverting activity over time.
Reversions occur both from peaks and troughs. Therefore, when profits-to-GDP have exceeded their long-term average to a significant degree (1 or 2 standard deviations) there has been a subsequent reversion. (Note: the chart above is real, inflation-inflation adjusted profits to real GDP as opposed to the chart by the OFR which was on a nominal basis.)
Corporate profit margins have physical constraints. Out of each dollar of revenue created there are costs such as infrastructure, R&D, wages, etc. Currently, one of the biggest beneficiaries to expanding profit margins has been the suppression of employment and wage growth and artificially suppressed interest rates that have significantly lowered borrowing costs. Should either of the issues change in the future, the impact to profit margins will likely be significant.
However, there is one more fascinating tale that the inflation-adjusted profits-to-GDP ratio tells us. The chart below shows the ratio overlaid against the S&P 500 index.
I have highlighted peaks in the profits-to-GDP ratio with the blue vertical bars. As you can see the peaks, and subsequent reversions, in the ratio have been a leading indicator or more severe reversions in investment markets over time. This should not be surprising as asset prices should eventually reflect the underlying reality of corporate profitability. However, since asset prices are driven by emotion, rather than logic, this accounts for the lag between the fundamentals and the realization by investors that "this time is NOT different."
As stated above, balance sheet manipulations have been the primary factors in surging profitability. However, those actions are finite in nature and the process of manufacturing profits has cannibalized consumer incomes. Stagnant wage growth, combined with a rising cost of maintaining the current standard of living, has led to a diminishing ability to generate further sales gains in excess of population growth. This goes a long way to explain why falling gasoline prices, which does not increase real incomes, has not translated into higher retail sales.
For now, the bull market rages on as hopes of continued Central Bank stimulus dances playfully in investors heads. Eventually, the current disconnect between the economy and the markets will merge and as the OFR concluded in yesterday's report:
"Today, many market strategists see the bull market extending throughout 2015. However, Quicksilver markets can turn from tranquil to turbulent in short order. It is worth noting that in 2006 volatility was low, and companies were generating record pro?t margins, until the business cycle came to an abrupt halt due to events that many people had not anticipated. Although investor appetite for equities may remain robust in the near term, because of positive equity fundamentals and low yields in other asset classes, history shows high valuations carry inherent risk. Based on the preliminary analysis presented here, the ?nancial stability implications of a market correction could be moderate due to limited liquidity transformation in the equity market. However, potential ?nancial stability risks arising from leverage, compressed pricing of risk, interconnectedness, and complexity deserve further attention and analysis."
Against expectations of a 4.75 million barrel build (according to Bloomberg), API reported a 4.8 mm barrel build overall but the Cushing build (2mm barrels) was less than last week's 3mm build. This is the 11th weekly build in a row - the longest streak of builds since October 2004. The last 11 weeks have seen inventories build over 20% - the fastest pace on record.
- *API SAID TO REPORT CUSHING STOCKPILES UP 2M BBL
- *API SAID TO REPORT U.S. CRUDE STOCKPILES UP 4.8M BBL
Before the data hit, WTI popped after the data was released...
Crude Inventories are soaring at by far the fastest pace on record...
Earlier today we told (or more appropriately “retold,” because we called it for what it was right after it happened two years ago) the story of a Citadel algo gone rogue that inadvertently played havoc with the E-mini on June 3, 2013. Thankfully, the penalty was stiff for the world’s most highly leveraged hedge fund as the CME doled out a massive $70,000 fine which we suspect someone at the firm probably paid with the cash they were carrying in their wallet. It’s incidents like this — and “flashy” bestsellers — that have a nasty habit of shifting perceptions which is why we weren’t surprised to see the results of a market structure survey conducted by ConvergEx:
At this time we are pleased to share the results of our recent U.S. Equity Market Structure Survey, the results of which show both displeasure in current market structure and a desire for change. Our survey found that a majority of financial industry participants believe that the U.S. equity markets are unfair and that HFT is harmful.
Here's a breakdown of the respondents...
...who think the US stock market is rigged...
...by a legion of harmful algos...
...but there's no point in altering strategy because nobody can do anything about it...
...but if an "accident" happens.......we're all screwed. *** This was as of April, 2014. To view the latest data, see here.
Let’s Stop Living In Fairy Land: “This Is Training To Condition The Public To Accept Military On The Streets”
The United States military, law enforcement, and intelligence agencies are planning a two-months long exercise later this year. The government claims this is an effort to protect the American people, but Alex Jones has a different take.
In the following video Jones provides extensive documentation sourced over the last twenty years. The evidence is clear… and frightening.
The exercises taking place this summer in states like Texas, Utah and California are designed not for the protection of Americans, but rather, the intimidation of an entire nation. Members of the military and law enforcement are being desensitized to deployments on U.S. soil and the public is being conditioned to accept soldiers on every street corner as normal.
Sounds like a conspiracy, right?
The real conspiracy is the story we’re being told by “official” sources.
We are not attacking the military… we are exposing and attacking the policy of turning the military into a police state tool, which has been going on covertly behind the scenes for decades and is now coming to a head.
This is training to condition the public to accept military on the streets.
I was already given the information by Army PsyOps… and why do you think PsyOps was upset? Because they understand PsyOps are being run against the American people… And these are not PsyOps to free Vietnam or to arm people in other countries… these are PsyOps to take our freedoms… and it’s damn treason.
And let’s stop living in a fairy land…
You are being conditioned… you are being prepared to accept this.. and it’s not just here… all over the western world tyranny is being established.
I’m not saying that the military is going to invade Texas this summer and take over… It’s being done to condition the military and the police that it’s all normal so in the future it can be incrementally phased in…
Remember, the most PsyOp’d people are those inside the government… they keep you compartmentalized… they keep you in the dark and feed you crap.
And now they’re there telling you ‘there’s no militarization.. there’s no plan… there’s nothing going on.’
Militaries are always used to bring in tyranny.
Who can deny that Obama just dissolved the border without any Congressional authority?
Who can deny they’re shutting down the power plants with no Congressional authority under carbon taxes?
Who can deny the FCC just seized control of the internet?
Who can deny they’re getting EAS alerts on their phones from the President?
Who can deny the internet kill switch Obama has?
Who can deny they put our military under NATO command?
Who can deny that by every yardstick we’re losing our freedom?
The conspiracy is the fairy tale they’ve been telling the American people.
A beautiful cob house in Oregon, USA
Hidden away in a lush Oregon woodland near Coquille is a collection of tiny cob homes with names like Dawn and Dusk.
For those who recall our summary of the most popular article of 2014, there was one common theme:" what readers founds most fascinating, and troubling, was the increasing preponderance of social disobedience, of covert, proxy or outright wars, and of civil unrest: all phenomena that accompany a world sliding deeper into distress, not as most central banks and their puppet media would have us believe, a global recovery."
It should therefore hardly come as a surprise that as SocGen attempts to quantify the biggest Black Swans risks (and hopes) of 2015 (yes, a foolish endeavor since nobody can actually envision what a black swan may be, by its very definition an event that was predicted by no one), it notes that "political and financial risks now outnumber real economy risks."
So what does SocGen believe are 2015's black swans?
Here are the "bad" ones, alongside their estimated probability of occurring:
- Ukraine crisis spills over to broader disruption (5%)
- Deflate-thy-neighbor, or systemic EM crisis (10%)
- Lower-than-expected price multipliers (15%)
- Sharp repricing of G4 term premiums (20%)
- UK election leads to Brexit vote (25%), Brexit (10%)
- China hard-landing (30%)
Here are the "unexpected" events that would lead to a favorable outcome (sadly, these never actually occur).
- Higher than expected price multipliers (15%)
- Euro area fast track reform and growth friendly fiscal policies (10%)
But, then again, why bother with such trivial exercises, when as Paul Tudor Jones accurately laid out, how the current centrally-planed farce ends is simple - there are three outcomes: Revolution, War and Taxes.
Everything else is just a distraction.
Surveying the Fed’s handiwork during last week’s press conference, Janet Yellen noted that all was awesome except that stocks were now slightly “on the high side” of their historical range. You can say that again!
In fact, you can say that any one capable of uttering such tommyrot has been totally bamboozled by Wall Street’s sell-side con artists. Yes, the latter surely need to be monitored by the Feds. But that would be the kind of “Feds” who operate Uncle Sam’s non-elective hospitality facilities.
Take the Russell 2000 stock index. That’s smack dab in the Fed’s wheelhouse because upwards of 90% of the sales and earnings of the Russell 2000 are from domestic sources. So among the various market indicators, the small and mid-cap stocks which comprise the index should best capitalize the good works emanating from the Eccles Building. After all, the masters of the world’s reserve currency domiciled there profess no interest in the dollar’s exchange rate and aver that they can micro-manage the US economy because it is a closed bathtub not impacted by wages, prices and capital flows from abroad.
Well, the Russell 2000 closed at a new all-time high on Friday. At its index value of 1266 it is now up 260% from is post-crisis low. Undoubtedly, the nation’s labor-economist-in-chief believes that’s all to the good. But then surely no one told her it represents a valuation multiple of just about 90X LTM (latest 12 months) earnings reported by the 2000 companies which comprise the index, and which were certified as accurate by 4,000 CEOs and CFOs on penalty of jail time.
The mystery of how the Fed remains so stubbornly bubble blind—-just like it did during the dotcom and housing bubbles—is thus revealed. The self-evident reason is that the purported geniuses who comprise our monetary politburo drink the Wall Street Cool-Aid about forward ex-items EPS.
In the case of the Russell 2000, this Wall Street confected version of the EPS multiple as of last Friday was 19.9X—–or just like the lady said, a tad on the high side but nothing to sweat about. Why not keep the pedal-to-the-metal awhile longer?
But here’s the thing. We have a yawning gap here. After sell-side analysts got done tracing their all-seasons hockey sticks several quarters into the future and finished deleting any expected charges to earnings that might plausibly be dismissed as “non-recurring”, the implied forward ex-items EPS for the Russell 2000 disseminated by Wall Street was exactly $63.87 per share.
By contrast, the actual 4-quarter GAAP result through December 2014 reported to the SEC was $14.18 per share. Needless to say, to blithely ignore this blinding difference—as surely Yellen did—-is an egregious dereliction of duty.
And the reason is this: The Fed has caused two thundering stock market bubbles and crashes already this century—–which resulted in $8 trillion and $10 trillion of devastating losses, respectively. Moreover, these cliff-diving crashes happened suddenly and were consummated within a matter of months, meaning that the Wall Street insiders and fast money traders got out and then returned to scavenge the bottom, while the main street homegamers took it in the chin twice.
So you would think that people who believes a few places to the right of the decimal point on the CPI make a big difference might wonder about $14 per share versus $64; and, most certainly, investigate whether this yawning GAAP is some type of temporary aberration or simply par for the course in the casino.
Indeed, they most surely should wonder about the following: One year ago, the LTM GAAP earnings for the Russell 2000 was exactly $14.10 per share for CY 2013. So the $14.18 per share reported for 2014—– on GAAP earnings numbers that you won’t go to jail for—-means that the Russell 2000 has gained the munificent sum of eight pennies or 0.6% during the past year.
That’s right. America’s hometown stock index is trading at 90X based on an earnings growth rate of less than 1%. A tad “on the high side” indeed.
Moreover, none of the Wall Street defenses for using the forward ex-items profit figures can withstand serious scrutiny. The casino has become so corrupted and bubbled up that the numbers are not worth the paper they are printed on.
Consider a brief history of Wall Street’s ex-items projection for S&P 500 earnings for CY2014. Exactly two years ago, that figure was about $125 per share. At the time, it was just another case of look ma, everything’s normal.
The S&P was then trading at 1560—–so the implied two-year forward multiple was 12.5X. By one year-ago, the Wall Street hockey stick had shrunk to $120 per share—–which then represented just 15.5X the nine-month forward earnings figure for 2014 based on an index price of 1870.
Needless to say, any CNBC talking head would have told you that these multiples were completely normal and that stocks still had “room to run”. And that part would have been true. Last Friday the S&P 500 closed at 2108 or up by 35% from two years-ago and 13% from March 2014.
Alas, the ex-items earnings figure for 2014 is now actually recorded, and its the part which isn’t up. All those bottoms-up hockey sticks turned out to be a tad optimistic because the number actually came in at $113 per share or 10% lower than its two-year ago outlook. And as to the GAAP stay-out-of-jail version of profits, the number for 2014 came in at $102 per share.
So it turns out the S&P 500 is being capitalized at 20.6X actual GAAP EPS. Other than during recession quarters, the only time the S&P multiple was recently even close to that was in Q3 2007, when the LTM multiple was 19.4X. Even the Fed heads recall what happened next.
And, no, the difference between honest GAAP earnings and Wall Street’s ex-items version is not a matter of subjective preference. Non-recurring charges for asset write-offs, goodwill reductions, employee severance and other so-called restructuring costs are real expenses that consume cash and/or destroy corporate capital. For any given company honest GAAP earnings can be “lumpy” from period to period, but that can be solved by amortizing, not eliminating, these charges.
And as to the S&P 500 basket as a whole, even the “lumpy” canard is not really an issues because for many years now the difference between GAAP earnings and ex-items profits has ranged consistently between 8-15%. The lumps wash out when it comes to the entire index.
Over any reasonable period of time, however, this 8-15% gap adds up to some real money. During the eight years encompassing 2007 through 2014, in fact, GAAP earnings reported to the SEC by the S&P 500 companies have cumulated to about $5 trillion—–while ex-items earnings ballyhooed by Wall Street have totaled around $6 trillion. There is a distinct possibility that this $1 trillion difference is not just a rounding error when it comes to valuation!
More importantly, as the Fed’s bubble cycles get long-in-the-tooth, the forward ex-items hockey sticks tend to get steeper; and over the decades, the creativity of the sell-side in deleting “non-recurring” charges has gotten considerably more acute. Accordingly, comparisons of today’s ex-items multiples with purported long-term average multiples is a proverbial case of apples and oranges.
Some sense of that is evident in the graph below, which is based on trailing earnings on a GAAP basis. It shows that as of June 2014, the median PE multiple for all NYSE stocks with positive earnings was at an all-time high——even exceeding the lofty heights of the dotcom bubble years.
And that’s not the half of it. In today’s Fed sponsored casino there are far more companies with negative earnings and large capitalizations than in those benighted times decades ago when “price discovery” still existed. So that brings us to the stupendous biotech bubble that even Yellen claims to have recognized back in June of 2014.
Since then the NASDAQ biotech index is up another 50%—–bringing the index to 6X its March 2009 bottom. But even then the real valuation absurdity is not fully apparent on the surface. As Zero Hedge documented the other day, the 150 companies in the index have a collective market cap of $1.06 trillion, but only $21 billion of LTM earnings, implying a PE multiple of 50X.
But rollover Russell 2000—–you haven’t seen nothing yet. The 5 big cap biotechs in the index—-Gilead, Amgen, Shire, Biogen and Celgene—had net income of $25.5 billion during the most recent LTM period—-or well more than the index total. If you add in the next 20 positive earners, you get to $30.5 billion of net income or 145% of the $21 billion reported by the entire basket of 150 companies.
So the internals shape up this way. The Big 5 had a market cap of nearly $550 billion or did last Friday before today’s Gilead stumble which took the index down by about $20 billion. And the next 20 traded at a collective value of $230 billion, meaning that the market cap of the top 25 companies in the index (which accounted for 145% of total earnings) was about $780 billion.
Needless to say, the math here implies something rather astounding. Namely, that there are 125 companies in the NASDAQ biotech index which are valued at $280 billion, but posted aggregate losses of nearly $10 billion in the most recent LTM reporting period.
So yes, Janet, there is a bubble in biotech and its a doozy. It amounts to well more than one-quarter trillion dollars of bottled air. Its a direct result of six years of free ZIRP money to the carry trade gamblers and Wall Street’s self-evident confidence that the Fed is petrified of a hissy fit and will not hesitate to keep the juice flowing indefinitely—– even if it’s called a 25 bps increase in the money market rate, eventually.
The stupendous extent of the biotech bubble—and its merely representative—–can be seen in the free market contrafactual. That is to say, what would these 125 negative earners in the biotech index have to generate when they grow-up in order to earn-out there current $280 billion market cap?
Well, the Big 5 trade at 21X earnings and with $68 billion of combined revenues they reported a five-year sales growth rate of 16.5% per annum. So when you get to quasi-stable maturity even in the Fed’s casino it takes one small sized mountain of sales to earn even a middling sized multiple. But whoops——half of the big 5 LTM profits were accounted for by Gilead, which had an LTM net profit rate of 49% on $25 billion of sales. By contrast, the more typical net income margins of Biogen and Amgen were 30% and 25%,respectively.
Even more to the point, the net income margin of the next 20 companies—–represented by names like Mylan, Alexion, Biotechnic and Luminex was 17.5%, while the PE multiple of these earlier stage companies was a frisky 47X. And frisky is indeed the correct term because their 5-year revenue growth rate was only slightly higher than the Big 5 at 21%.
In short, give these 125 cash burning negative earners and virtually salesless biotechs a grown-up PE multiple of 20X and a net income margin of 20%. That means they would need to generate $70 billion of sales from today’s cold start. Good luck with that, and with the near ZIRP discount rate that is implied by the amount of time that would be required to get from here to there.
Indeed, speaking of the amount of time required to get from zero to 60 mph, Elon Musk has finally explained why Tesla is worth $35 billion. That is, despite the fact that it has never generated a dimes of net income; has in fact posted net losses of $1.4 billion since Goldman started flogging it in 2007; and can’t possibly compete with the likes of Toyota and BMW in scaling up to the mass market volume that is implied in its current infinite multiple.
It turns out that Musk believes Tesla is actually peddling a death trap, and foresees a world in which the testosterone-riven rich men who buy his vehicles today will be prohibited from even driving their own cars. Stated differently, he is now admitting that the market is capitalizing his driverless car vision——-to go along with his Mars Shuttle and warp speed trains:
So what happens when we get there (to driverless cars)? Musk said that the obvious move is to outlaw driving cars. “It’s too dangerous,” Musk said. “You can’t have a person driving a two-ton death machine”.
No less than investment guru Jim Cramer now gets the joke. Back in early February, Cramer issued his own broadside:
“Clean up your act, Musk—Tesla’s a total disaster!…….. No way the balance sheet can support the investment needed……. Musk confirmed that it will be spending staggering amounts of money on capital expenditures….. Where the heck is this money going to come from?”
That about sums up the “high side”. The Fed is driving a two-ton bubble machine, but has no clue that it has become a financial death trap.
2:20a HKT Wednesday, March 25, 2015
Dear Friend of GATA and Gold:
GoldCore's Mark O'Byrne writes today that the gold-storage facilities HSBC is closing are essentially safe-deposit boxes rather than vaults. O'Byrne adds that gold owners are probably better off not storing their gold with a bank anyway. His commentary is posted at GoldCore here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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Back on June 3, 2013, following what was merely the latest observation of how broken the market is thanks to central banks manipulation and HFT rigging, we wrote the following:
Why did the E-Mini just dump by 6 points on no news following the 6pm resumption of trading? Why not.
Maybe someone hacked the vacuum tubes' calendar file and instead of Tuesday has pegged tomorrow as a Wednesday which takes away any "fundamental" reason to ramp futures and stocks (or perhaps someone leaked that after Tuesday we get a Wednesday when nothing levitationally magical happens, which however makes no sense: after all someone could just as easily refute that rumor with another rumor that yet another Tuesday will follow a week from tomorrow, offsetting the Wednesday rumor).
That, or your run of the mill fat finger.
Or, worst case, someone actually, gulp, selling with premeditated intent (which in the new normal is at least a 2nd degree felony, somewhere up there alongside marketslaughter).
And as happens with nearly 100% regularity nowadays, our snarky commentary on what takes place behind the scenes was once again almost 100% accurate. Because earlier today we learned precisely what happened.
Not surprisingly, it was an HFT, and it was premeditated selling, if only by a rogue algo, which as Bloomberg earlier described "roiled S&P futures." The guilty party was none other than the NY Fed's favorite hedge fund, the one which the Plunge Protection Team "uses" to buy E-minis at key downward inflection points. From Bloomberg:
Citadel Fined for Software Bug That Roiled S&P Futures
Citadel LLC was fined $70,000 by CME Group Inc. for roiling Standard & Poor’s 500 Index futures trading in June 2013, an event triggered by a software bug at the firm. The hedge fund firm’s Citadel Securities division unintentionally placed trades that had already been executed, causing “an atypical short-term increase in trading volume” that swayed prices for E-mini futures on the S&P 500, CME Group said in a disciplinary action released Monday. Citadel didn’t admit or deny breaking the exchange’s rules. Katie Spring, a spokeswoman for Chicago-based Citadel, declined to comment. The malfunction lasted only about a minute, underscoring how quickly computerized trading systems can run amok
Yes, just one "hedge fund", the one with the highest leverage in the world, moved the S&P by 6 points, or about 0.3%, just because of an HFT "server software malfunction." Yes, the 9x regulatory, and highest in the world, leverage helps when just one hedge fund is mandated to move the entire market.
And the biggest sarcasm of all: Citadel's rogue selling wasn't a "2nd degree felony" but it was close, and was what CME dubbed a market "offense." From the CME:
Pursuant to an offer of settlement in which Citadel Securities LLC (“Citadel”) neither admitted nor denied the rule violations upon which the penalty is based, on March 19, 2015, a Panel of the Chicago Mercantile Exchange Business Conduct Committee (“Panel”) found that it had jurisdiction over Citadel pursuant to Rules 400 and 402 as the conduct occurred while Citadel was a CME member, and during an approximately one-minute period on June 3, 2013, Citadel entered a series of unintentional orders on the Globex electronic trading platform.
What exactly caused the "roiling"?
This unintentional order entry activity was caused by a software malfunction in a server that Citadel used to route orders to the Exchange. As a result of this malfunction, Citadel resent to the Exchange for execution orders that had previously been filled, which in turn caused an atypical short-term increase in trading volume and impacted the price in the E-mini S&P Futures market.
And the penalty?
The Panel concluded that Citadel thereby violated CME Rule 432.Q. In accordance with the settlement offer, the Panel ordered Citadel to pay a fine of $70,000.
Or what Citadel earns in about 100 milliseconds of market rigging.
And to think, all of these market rigging unpleasantness could have been avoided, if only Citadel's "software malfunction" had led to buying instead of selling.
Oh well, lesson learned.
With the controversy surrounding Netanyahu’s inflammatory campaign rhetoric still simmering, and with Washington making it clear that the White House isn’t intent on “pretending like” the Prime Minister didn’t suggest that a two-state solution would happen over his dead body and that maybe Arab Israelis shouldn’t vote, tensions between the US and Israel don’t appear set to dissipate in the near-term. The Wall Street Journal is reporting that Israel secretly gathered information regarding nuclear talks between Iran and the US then shared the information with members of Congress in an attempt to undermine support for the talks. Here’s WSJ:
The spying operation was part of a broader campaign by Israeli Prime Minister Benjamin Netanyahu’s government to penetrate the negotiations and then help build a case against the emerging terms of the deal, current and former U.S. officials said. In addition to eavesdropping, Israel acquired information from confidential U.S. briefings, informants and diplomatic contacts in Europe, the officials said.
But it wasn’t really all the spying and eavesdropping and general sneakiness that irked Washington:
The espionage didn’t upset the White House as much as Israel’s sharing of inside information with U.S. lawmakers and others to drain support from a high-stakes deal intended to limit Iran’s nuclear program, current and former officials said.
“It is one thing for the U.S. and Israel to spy on each other. It is another thing for Israel to steal U.S. secrets and play them back to U.S. legislators to undermine U.S. diplomacy,” said a senior U.S. official briefed on the matter…
The U.S. and Israel, longtime allies who routinely swap information on security threats, sometimes operate behind the scenes like spy-versus-spy rivals. The White House has largely tolerated Israeli snooping on U.S. policy makers—a posture Israel takes when the tables are turned.
Where the story really gets amusing though is when The Journal explains how Israel says it actually got the information and how Washington learned about what the Israelis were up to:
Israeli officials denied spying directly on U.S. negotiators and said they received their information through other means, including close surveillance of Iranian leaders receiving the latest U.S. and European offers…
Current and former Israeli officials said their intelligence agencies scaled back their targeting of U.S. officials after the jailing nearly 30 years ago of American Jonathan Pollard for passing secrets to Israel.
While U.S. officials may not be direct targets, current and former officials said, Israeli intelligence agencies sweep up communications between U.S. officials and parties targeted by the Israelis, including Iran…
As secret talks with Iran progressed into 2013, U.S. intelligence agencies monitored Israel’s communications to see if the country knew of the negotiations. Mr. Obama didn’t tell Mr. Netanyahu until September 2013.
So breaking that down, the US spied on Israel and discovered that Israel was spying on the US, which under normal circumstances would be fine, but this time the Israeli spying was aimed at undermining US diplomacy, so this spying was unacceptable, but Israel contends that in fact, it did not spy on the US to obtain the sensitive information but in fact gathered it from spying on other countries.
And while the prime minister’s office denies that it conducted any espionage against the US, the Israelis can’t for the life of them figure out why Washington would underestimate their ability to conduct espionage:
A senior official in the prime minister’s office said Monday: “These allegations are utterly false. The state of Israel does not conduct espionage against the United States”...
Israeli officials, who said they had already learned about the talks through their own channels, told their U.S. counterparts they were upset about being excluded. “ ‘Did the administration really believe we wouldn’t find out?’ ”
Maybe they’re right, Washington shouldn’t have been surprised because after all, the US probably built the system that Israel used to do the spying:
Americans shouldn’t be surprised, said a person familiar with the Israeli practice, since U.S. intelligence agencies helped the Israelis build a system to listen in on high-level Iranian communications.
Moving past the comedic value here, the allegations certainly aren’t doing anything to improve the relationship between The White House and Netanyahu in what was already an extremely contentious time for US-Israeli relations. And for anyone who thinks Washington is going to let this slide, here’s a quote from a senior US official:
“If you’re wondering whether something serious has shifted here, the answer is yes.”