Sat JUL 07 18 SIT EC y POL Part 1 Economics
ND denounce Global-neoliberal debacle y propone State-Social
+ Capit-compet in Econ
ZERO HEDGE ECONOMICS
Neoliberal globalization is over. Financiers know it, they
documented with graphics
HERE THE KEY 15
points to understand the current
economic debacle. Summary: MUST READ
Author: Tyler Durden
As we wrap up Q2 of 2018, Michael Lebowitz and I present
our “chartbook” of the “most important charts” from
the last quarter for you to review.
"...investors do NOT have 118
years to invest..."
1- THERE WILL BE NO ECONOMIC BOOM
“Wages are failing to keep up with even historically low rates
of “reported” inflation. Again, we point out that it is likely that
your inflation, if it includes the non-discretionary items listed above, is
higher than “reported” inflation and the graph below is actually
worse than it appears.”
See chart:
“BUT this is nothing new as corporations have failed
to ‘share the wealth’ for the last couple of decades.”
2- BUYBACKS RUN AMOK
“Another major pillar of support for equity prices is corporate
buybacks. The graph below shows the correlation between buybacks and the
S&P 500 since 2000 (note that 2018 is an estimate).”
See Chart:
“Further support for this theory comes from Goldman Sachs who claims
that corporations have been the biggest class of buyer of equities since 2010
easily surpassing ETF’s, foreign investors, mutual funds, households and
pension funds.”
Read: BTFD or STFR
3- THE ILLUSION OF PROSPERITY
“The illusion of economic growth has been fueled by ever increasing
levels of debt to support consumption. However, if you back out the level of
debt you get a better picture of what is actually happening economically.”
See Chart:
“When credit creation can no longer be sustained the markets must begin
to clear the excesses before the cycle can begin again. That clearing
process is going to be very substantial. With the economy currently requiring
roughly $3.50 of debt to create $1 of economic growth, the reversion to a structurally manageable
level of debt would involve a $25 trillion reduction of total credit market
debt from current levels.”
Read: The Debtor’s Prism
4- THE AVERAGE NOT THE RULE
“The
chart below shows the S&P 500 as compared to annualized returns and the
average of market returns since 1900. Over the last 118 years, the market has NEVER produced a 6% every
single year even though the average has been 6.87%.
However, assuming
that markets have a set return each year, as you could expect from a bond, is
grossly flawed. While there are many years that far exceeded the average of 6%,
there are also many that haven’t. But then again, this is why 6% is the ‘average’ and NOT the ‘rule.'”
See Chart:
5- BORROWING FROM THE FUTURE
“The ‘gap’ between
the ‘standard of living’ and real disposable incomes is more clearly shown
below. Beginning in 1990, incomes alone were no longer able to meet the
standard of living so consumers turned to debt to fill the ‘gap.’
However, following the ‘financial
crisis,’ even the combined levels of income and debt no longer fill the
gap. Currently,
there is almost a $7000 annual deficit that cannot be filled.”
See Chart:
“In the past, when Americans wanted to expand their consumption beyond the constraint of incomes
they turned to credit in order to leverage their consumptive purchasing power.
Steadily declining interest rates and lax lending standards put excess credit
in the hands of every American. Such is why, during the 80’s and 90’s, as the
ease of credit permeated its way through the system, the standard of living
seemingly rose in America even while economic growth slowed along with incomes.”
6- ALWAYS OPTIMISTIC
“Since the end of 2014, investors are paying twice the rate of earnings
growth.”
See Chart:
“No matter how you look at the data, the point remains the same.
Investors are currently overpaying today for a stream of future sales and/or
earnings which may, or may not, occur in the future. The risk, as always, is
disappointment.”
7- YIELDS TELL THE STORY
“As shown, when the spreads on bonds begin to blow out, bad things have
occurred in the markets and economy.”
See Chart:
https://www.zerohedge.com/sites/default/files/inline-images/Yields-AAA-BB-040318_0.png?itok=BH1kJtta
“For the Federal Reserve, the
next “financial crisis” is already in the works. All it takes
now is a significant decline in asset prices to spark a cascade of events that
even monetary interventions may be unable to stem.”
8- ECONOMIC REALITIES
“Unfortunately, as much as we would like to believe that Navarro’s
comment is a reality, it simply isn’t the case. The chart below shows the
5-year average of wages, real economic growth, and productivity.”
See Chart:
“Notice that yellow
shaded area on the right. As I
wrote previously:
‘Following the financial crisis, the Government and the Federal Reserve
decided it was prudent to inject more than $33 Trillion in debt-laden
injections into the economy believing such would stimulate an economic
resurgence.”
9- LEVERAGE
“There are two other problems currently being dismissed to support the
‘bullish bias.’
The first, is that while investors have been chasing returns in the
‘can’t lose’ market, they have also been piling on leverage
in order to increase their return. Negative
free cash balances are now at their highest levels in market history.”
See Chart:
“Yes, margin debt does increase as asset prices rise. However, just as
the ‘leverage’ provides the liquidity to push asset prices higher, the
reverse is also true.
The second problem, which will be greatly
impacted by the leverage issue, is liquidity of ETF’s themselves.
When the ‘robot trading algorithms’ begin to reverse, it will not be a slow and methodical process
but rather a stampede with little regard to price, valuation or fundamental
measures as the exit will become very narrow.”
Read: The Risk
Of Algo’s
10- SIMPLE METHOD OF RISK MANAGEMENT
“The chart below is $1000 invested in the S&P 500 in 1997 on a
capital appreciation basis only. The reddish line is just a ‘buy and
hold’ plot while the blue line is a ‘switch to cash’ when the 200-dma
is broken. Even with higher trading costs, the benefit of the strategy is
readily apparent.”
See Chart:
“To Ben’s point, what happens to many investors is they get
‘whipsawed’ by short-term volatility. While the signal gets them out, they
‘fail’ to buy back when the signal reverses.
‘I just sold out, now I’m supposed to jump back in? What if it crashes
again?’
The answers are ‘yes’ and ‘it doesn’t matter.’ That is the just
part of the investment strategy.
But such is incredibly hard to do, which is why the majority of
investors fail at investing over time. Adhering to a discipline, any discipline, is hard. Even ‘buy
and hold,’ fails when the ‘pain’ exceeds an individuals tolerance for
principal loss.”
11- DEBT BUBBLE
“Rising interest rates are a “tax.” When combined with a
stronger dollar, which negatively impacts exporters (exports make up roughly
40% of total corporate profits), the catalysts are in place for a problem
to emerge.
The chart below compares total non-financial corporate debt to GDP to
the 2-year annual rate of change for the 10-year Treasury. As you can see
sharply increasing rates have typically preceded either market or economic
events. Of course, it is during those events which loan default rates rise, and
leverage is reduced, generally not in the
most “market-friendly” way.”
See Chart:
12- NOT WHAT IT SEEMS
“In the past, when Americans wanted to expand their consumption beyond the constraint of incomes
they turned to credit in order to leverage their consumptive purchasing power.
Steadily declining interest rates, and lax lending standards, put excess credit
in the hands of every American. Such is why, during the 80’s and 90’s, as the
ease of credit permeated its way through the system, the standard of living
seemingly rose in America even while economic growth slowed along with
incomes.”
See Chart:
As I recently discussed with Shawn Langlois at MarketWatch::
With a deficit between the current standard of living and what incomes,
savings and debt increases can support, expectations of sustained rates of
stronger economic growth, beyond population growth, becomes problematic.
For investors, that poses huge risks in the market.
While accounting gimmicks, wage suppression, tax cuts and stock
buybacks may support prices in the short-term, in the long-term the market is a
reflection of the strength of the economy. Since the economy is 70% driven by
consumption, consumer indebtedness could become problematic.”
13- EMPLOYMENT ILLUSION
“Why are so many people struggling to find a
job and terminating their search if, as we are repeatedly told, the labor
market is so healthy? To explain the juxtaposition of the low jobless claims number and
unemployment rate with the low participation rate and weak wage growth, a
calculation of the participation rate adjusted unemployment rate is revealing.
When people stop looking for a job, they are still unemployed, but they
are not included in the U-3 unemployment calculation. If we include those who
quit looking for work in the data, the employment situation is quite different.
The graph below compares the U-3 unemployment rate to one that assumes a
constant participation rate from 2008 to today. Contrary to the U-3 unemployment rate of 4.1%, this metric implies an
adjusted unemployment rate of 9.1%.”
See Chart:
14- RETIREMENT CRISIS
“The chart below is the S&P 500 TOTAL return from 1995 to present.
I have then projected for using variable rates of market returns with cycling
bull and bear markets, out to 2060. I
have then run projections of 8%, 7%, 6%, 5% and 4% average rates of return from
1995 out to 2060. (I have made some estimates for slightly lower
forward returns due to demographic issues.)”
See Chart:
“Given real-world return assumptions, pension funds SHOULD lower their return estimates to roughly 3-4% in
order to potentially meet future obligations and maintain some solvency.
It is the same problem for the average American who plans on getting
6-8% return a year on their 401k plan, so why save money? Particularly when
the mainstream media, and financial community, promote these flawed claims
to begin with.”
15- HOW LONG TO GET BACK TO EVEN
“The chart below shows
the total real return (dividends included) of $1,000
invested in the S&P 500 with dollar cost averaging (DCA). While
the periods of losing and recovering are shorter than the original graph, the
point remains the same and vitally crucial to comprehend: there are long
periods of time investors spend getting back to even, making it significantly
harder to fully achieve their financial goals. (Note the graph is in log format
and uses Dr. Robert Shiller’s data)”
See Chart:
“The feedback from Josh, Dan and others expose
several very important fallacies about the way many professional money managers
view investing.
The most obvious is that investors do NOT have
118 years to invest.”
…
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...And why
we need a new energy strategy -
fast
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"The economy has hit a
wall and is now sliding down it. I don’t care what bullish propaganda may or may not be
bubbling up in the headlines from the financial media and Wall Street, the hard
numbers I look at everyday show
accelerating economic weakness. "
As expressed in past issues (the Short
Seller’s Journal), I don’t put a
lot of stock in the regional Fed economic surveys, which are heavily shaded by
“hope” and “expectation” metrics that are used to inflate the overall index
level. These are so-called “soft” data reports. But
See Chart: now even the “outlook”
and “expectations” measurements are falling quickly (see last week’s Philly Fed
report). The Trump “hope premium” that inflated the stock market starting in
November 2016 has left the building.
See Chart:
Something
wicked this way comes:
Notwithstanding mainstream media rationalizations to the contrary, a flattening
of the yield curve always always always precedes a contraction in economic
activity (aka “a recession”). Always. Don’t let anyone try to convince you
otherwise. An “inverted” yield curve occurs when short
term yields exceed long term yields. When the yield curve inverts, it means
something wicked is going to hit the financial and economic system.
Studies have shown that curve inversions precede a recession
anywhere from 6 months to 2 years. I would argue that, stripping away the
affects of inflation and data manipulation, real economic activity has been
somewhat recessionary for several years.
See Chart:
A note on gold and silver: The massive
take-down in the price of gold and silver, which is occurring primarily during
the trading hours of the LBMA and the Comex – both of which are paper
derivative markets – is quite similar to the take-down that occurred in the
metals preceding the collapse of Bear and Lehman in 2008. It is imperative that the price of gold’s function as a
warning signal is de-fused in order to keep the public wallowing in ignorance –
just like in 2008.
See Chart:
But keep
an eye on the stock prices of Deutsche Bank, Goldman and Morgan Stanley – as
well as the Treasury yield curve...
See Chart:
…
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"The statisticians are simply peddling a myth, which leaves it wide open to abuse. The myth-makers,
so long as the myths are believed, control
the narrative..."
READ THIS:
There is one thing that’s so far been widely
ignored and that’s inflation.
More correctly, it is the officially recorded rate of increase in prices
that’s been ignored. Inflation proper has
already occurred through the expansion of the quantity of money and credit
following the Lehman crisis ten years ago. The rate of expansion of
money and credit has now slowed and that is what now causes concern to the
monetarists. But it is what happens to prices that should concern us, because
an increase in price inflation violates the stated
targets of the Fed. An increase in the
general level of prices is confirmation that the purchasing power of a currency
is sliding.
Brent is now nearly $80 a barrel. That has risen 62% since
last June. If the US economy continues to grow the Fed will have to put up
interest rates to slow things down. If it doesn’t, as money-supply followers
fear, the Fed may still be forced to put up interest
rates to contain price inflation.
It is too simplistic
to argue that a slowing of money supply growth removes the inflation threat. In
this article, I explain why, and postulate that the
next credit crisis will be the beginning of the end for unbacked fiat
currencies.
In short:
Total fiat currency destruction should take at
least a further year or two, perhaps three from there. But first things first:
the current phase of the credit cycle must evolve into a credit crisis before
we can feel our way through its developing consequences.
Read rhw whole art here
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US
DOMESTIC POLITICS
Seudo democ y sist
duopolico in US is obsolete; it’s
full of frauds & corruption. Urge cambiarlo
Cuando las
ratas huyen es porque el barco se hunde
"We
observe a statistically significant effect in the expected direction"
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US-WW ISSUES (Geo Econ, Geo Pol
& global Wars)
Global depression is on…China, RU, Iran search for State
socialis+K- compet. D rest in limbo
" It is time for the rest of the world to wake up to the danger posed by Washington and mobilize to stand up
against it..."
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"Through
the high-level talks, the trust between the DPRK and the United States is
facing a dangerous situation where our resolve for denuclearisation, which has
been firm and steadfast, may falter."
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"The
military is monitoring the situation in neighboring areas, and has the
confidence and abilities to maintain regional stability and defend national
security," Taiwan's defense ministry said in a statement.
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