Stockmans The Implosion is Near: Signs of the Bubbles Last Days Friday August 01, 2014 15:59 Those of us who have been complaining about the economy and how the game is rigged in favor of the 1% by government intervention and Federal Reserve Monetary policy are being ignored once again. After the 2008-09 financial market crisis there was a much larger audience. Now folks on Wall Street who were ready to listen to the warnings of my guests on Turning Hard Times into Good Times have lost interest and gone back to their old reckless ways. But, in fact, as David Stockman pointed out in his excellent article titled “The Implosion is Near: Signs of the Bubble’s Last Days,” we are setting ourselves up for another major market decline because investors have been embolden to go long on stock with little or no fear of downside danger because the Fed has guaranteed a perpetual put under the market, should it begin any serious decline. In other words, no major correction in the stock market is allowed to occur, at least as long as the Fed has the power to stop it. David said, “As of mid-2014, therefore, it can be fairly said that fear and short interest have been extinguished almost entirely. The Wall Street casino has thus become a one-way market that coils dangerously upward, divorced completely from the fundamentals of earnings and cash flow and real world economic conditions and prospects.” To illustrate that markets have lost downside fear, Stockman displayed the two charts above. The chart upper left shows shallow S&P market corrections. The chart above right shows record low volatility. Clearly, investors have been lured into feeling safe about the equity markets so they buy on the dips and that stops any major decline. They have come to believe in the Ph.D. standards as opposed to the true free market standard which comes with an asset based monetary system like gold or silver. I’m guessing that well over 90% of America has been indoctrinated into believing the gods of Keynesian economics. It teaches that you can get rich by consuming and dissaving, not by saving and investing. The Zero Rate Interest Policy (ZIRP) is leading to all manner of misallocation of capital through numerous carry trades and gambling casinos to the point where the stock market is little more than a gambling casino totally detached from the real economy, thus benefitting mostly the top 1%. But this detachment from the real economy is very dangerous because as David points out, Keynesian policy has one very fatal flaw. They print endless amounts of money but totally ignore the dangers of debt and balance sheets that are leveraged into insolvency, whether personal, corporate, government or central bank’s balance sheets. Indeed that is what happened in 2008. But rather than realize debt was the problem, the Keynesians have simply engaged in the same debt-creating process as they did prior to 2008. Indeed as Stockman noted, this whole process of pumping money into the equity markets really got started with the Plunge Protection Team after the 1987 stock market crash. The Fed has simply created a moral hazard by disabling the market’s self cleansing rising interest rates that hold down excessive debt creation and leverage in the system. The Keynesian blindness to the importance of allowing interest rates to rise to regulate excessive speculation and mal investment causes policy makers to keep printing money and to induce people into thinking that you can’t lose in the stock market, just as the Fed caused people to think you couldn’t lose in the housing market prior to 2007-08. But eventually systems hit limits. So the equity market and the granddaddy of all bubbles, the U.S. Treasury debt market, will implode. Stockman also went on to point out that the quality of debt is deteriorating drastically meaning that money is being leant to companies with highly leveraged balance sheets. Wall Street cheerleaders point to equity earnings to justify new highs in the stock market. But as Stockman points out, at 20 times earnings, the market is expensive by any definition. Moreover, a big reason for per share earnings is the massive stock buy backs by large corporations with cash to burn. Near the end of his article Stockman sums up the reason why we are very near an implosion. He states, “In other words, at a point which is month #61 of the current business cycle, and thereby already beyond the average cycle since 1950, why would anyone in their right mind say a market is not bubbly when it’s trading at nearly 20X reported earnings? Indeed, in a world where interest rate and profit rate normalization must inevitably come, the capitalization rate for current earnings should be well below normal—-not extended into the nosebleed section of historical results.” Perhaps Goldman Sachs is paying some attention to Stockman? They downgraded their equity posture to “neutral” for the next quarter. In any event, I would add to all that David said in his article, one more factor that raises the risk of a global economic implosion and that is growing wars and sanctions that are already reducing global economic activity and what is left of honest business and cash flow. We are indeed living in the most perilous times since I began writing this newsletter back in 1981. If ever there was a time to own gold, it’s now despite what Wall St. propaganda tells you. And it might also not be a bad idea to examine your belief in our Creator of the Universe. Indeed that realization has brought comfort to me in light of growing wars and rumors of wars. I would also encourage you to read David Stockman’s essay at his website at: davidstockmanscontracorner/the-implosion-is-near-signs-of-the-bubbles-last-days/ and you can listen to David and Mish Shedlock discuss this very issue on my radio show form a couple of weeks ago here: jaytaylormedia/audio/ Jay Taylor jaytaylormedia miningstocks Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication. Precious Metal Charts Gold Silver Platinum Palladium Click to see this Precious Metal chart 24h 30D 60D 6M 1Y Gold 24h Interactive Chart
Posted on: Tue, 05 Aug 2014 01:46:34 +0000