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Submitted by Rory Johnson via OilPrice.com,

Last month the world witnessed a paradigm shift: China surpassed the United States as the world’s largest consumer of foreign oil, importing 6.3 million barrels per day compared to the United States’ 6.24 million. This trend is likely to continue and this gap is likely to grow, according to the EIA’s October short-term energy outlook. Wood Mackenzie, a leading global energy consultancy, echoed this prediction, estimating Chinese oil imports will rise to 9.2 million barrels per day (70% of total demand) by 2020.

This trend has been driven by a combination of factors. Booming American oil production, slow post-recovery growth, and increasing vehicle efficiency have all served to reduce crude imports. In China, however, continued economic growth has brought with it a growing middle class eager to take to the road. While the automobile market had cooled earlier this year, September saw sales rise by 21%—a trend that is putting increasing strain on China’s infrastructure and air quality in addition to oil demand.

Some of the world’s largest traffic jams are now commonplace in major Chinese cities, and air quality issues have pushed authorities to pursue synthetic natural gas technology to offset the need for coal-fired electricity. Increasing oil consumption will only serve to exacerbate these issues.

Furthermore, the per capita consumption differential between the two countries is still vast, with an average Chinese citizen consuming a mere 2.9 barrels of oil per year compared to an average American who consumes 21.5. This indicates that China’s growing thirst for oil isn’t going to slow down anytime soon.

So what does this shift in oil imports mean?

More than anything else, it is a sign that China will increasingly depend on global markets to satisfy its ever-growing oil demand. This necessitates further engagement with the international system to protect its interests, encouraging a fuller integration with the current liberal order. This will have effects on both China’s approach to its currency and its diplomatic demeanour.  

Derek Scissors wrote last week that this shift might usher in a world where oil is priced in RMB as opposed to solely in USD. This transition could only occur, however, if the RMB was made fully convertible and Beijing steps back from its current policy of exchange rate manipulation. Earlier this year, HSBC predicted that the RMB would be fully convertible by 2017, a reality that is surely hastened by its position as the single largest purchaser of foreign oil. A fully convertible RMB would be a “key step in pushing it as a reserve currency and enhancing its use in global trade, said Sacha Tihanyi, a strategist at Scotia Capital.

On the diplomatic side, while the United States is unlikely to withdraw from its role as defender of global oil production or guarantor of shipping routes, an increasing reliance on foreign oil will push Beijing toward a more engaged role within the international community. It is likely that we will see a change in Beijing’s approach to international intervention and future participation in multilateral counterterrorism initiatives—anything to ensure global stability. In the future, anything that destabilizes the oil market will increasingly harm China more than the United States. While Beijing views this increased import reliance as a strategic weakness, it a boon for those hoping to see Beijing grow into its role as a global leader.

Bottom line: as Chinese oil imports grow, Beijing will become increasingly reliant on the current market-oriented global system—this is nothing but good news for those that enjoy the status quo.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Maf0CLqIXuw/story01.htm Tyler Durden

Responding to widespread criticism regarding its health care website, the federal government today unveiled its new, improved Obamacare program, which allows Americans to purchase health insurance after installing a software bundle contained on 35 floppy disks.

 

 

“I have heard the complaints about the existing website, and I can assure you that with this revised system, finding the right health care option for you and your family is as easy as loading 35 floppy disks sequentially into your disk drive and following the onscreen prompts,” President Obama told reporters this morning, explaining that the nearly three dozen 3.5-inch diskettes contain all the data needed for individuals to enroll in the Health Insurance Marketplace, while noting that the updated Obamacare software is mouse-compatible and requires a 386 Pentium processor with at least 8 MB of system RAM to function properly.

“Just fire up MS-DOS, enter ‘A:>dir *.exe’ into the command line, and then follow the instructions to install the Obamacare batch files—it should only take four or five hours at the most. You can press F1 for help if you run into any problems. And be sure your monitor’s screen resolution is at 320 x 200 or it might not display properly.”

Obama added that the federal government hopes to have a six–CD-ROM version of the program available by 2016.

 

Source: The Onion

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/7JuDGSW7BLQ/story01.htm Tyler Durden

Submitted by Michael Snyder via The Economic Collapse blog,

The collapse of American society is accelerating.  For the moment, much of our social decay is being masked by the tremendous level of affluence that we are experiencing in aggregate.  It has been reported that 4 out of every 5 adults in the United States "struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives", but in general Americans still enjoy a debt-fueled standard of living that is far beyond what most of the rest of the world enjoys.  When that debt-fueled standard of living permanently disappears, it is going to unleash chaos unlike anything that America has ever seen before. 

Right now, economic conditions in this country are not anywhere close to where they were before 2008, but this is just the beginning.  We are in the midst of an ongoing economic collapse which is going to get much, much worse in the years ahead.  When the next major wave of the economic crisis strikes, millions of people are going to become extremely desperate.  And desperate people do desperate things.  We are already starting to see this play out all over the nation, but this is only a preview of coming attractions.  What we are going to witness in future years is going to be almost too horrible for words.

So how can I be so sure that this is going to happen?  After all, the United States didn't descend into complete and utter chaos during the Great Depression of the 1930s.  Wouldn't an economic depression unfold in a similar manner today?

Unfortunately, a lot has changed since then.  A lot more Americans were self-sufficient back in those days, and the truth is that the character of our nation has been rotting and decaying for decades.  In a previous article, I described it this way…

"We are simply not the same country that we used to be.  Americans are proud, selfish, greedy, arrogant, ungrateful, treacherous and completely addicted to entertainment and pleasure.  Our country is literally falling apart all around us, but most Americans are so plugged into entertainment that they can't even be bothered to notice what is happening."

Just last weekend, there were "mini-riots" in several U.S. states when "technical issues" caused the food stamp system to go haywire for a few hours.

What would have happened if there had been an extended outage or if the political crisis in D.C. had caused food stamps to be completely cut off at some point in November?

Let's be thankful that we did not have to find out.

But even though major food stamps riots may have been averted (at least for now), there are a whole host of other signs that America is going to become a very unstable place during the next major economic downturn.  The following are 12 shocking clues about what America will look like when the next great economic crisis strikes…

#1 Would you continue to work as a bus driver if you were stabbed while driving or if a passenger poured urine all over you?  Just check out what has been going on in Detroit lately…

After two drivers were recently stabbed and another had urine poured on her by an angry rider, union officials representing bus drivers for the city of Detroit are set to protest in front of city hall at 10 a.m. on Monday.

#2 We are starting to see a lot of "group crimes" happen all over America.  For example, just the other day in Brooklyn, New York a gang of 10 young thugs dragged a young couple out of their vehicle and brutally beat them…

Ronald Russo was dragged to the ground. Then he was punched and kicked in the head. He felt more blows all over his body, investigators said. He suffered a fractured nose, a broken septum, a blood clot and abrasions to his shoulder. He was treated and released from Beth Israel Medical Center.

 

In the midst of the attack, there was a steady chorus of epithets. “White motherf—–!” screamed the attackers, who ranged in age from 12 to 18.

 

Alanna Russo, 30, was calling 911 when the 12-year-old girl pulled the woman’s hair and threw her to the ground. The victim’s head slammed into the concrete. She suffered a black eye, bleeding and difficulty breathing, prosecutors said, but she refused medical attention.

#3 A lot of people assume that they are perfectly safe inside their own vehicles but that is not the case at all.  A story in the New York Post about a gang of bikers that ruthlessly hunted down a young family that was driving an SUV made national headlines a few weeks ago…

A gang of bikers terrorized a dad driving with his wife and baby daughter on the West Side Highway — chasing after their SUV and then dragging the man out and beating him to a pulp in front of his horrified family, authorities said.

When the bikers caught up with this family they showed the father of the baby daughter absolutely no mercy…

One biker can be seen on the video ripping off his helmet and using it to bash in Lien’s driver’s-side window.

 

The crew pummeled Lien on the pavement in front of his wife, Rosalyn Ng, and their 2-year-old daughter, police sources said.

 

Lien, who also was slashed during the melee, was rushed to Columbia University Medical Center. He needed stitches to his face and chest and had two black eyes.

#4 We are living at a time when hearts are becoming very cold.  Some Americans are becoming so desperate for money that they will do almost anything to get it.  In fact, one couple in Tennessee has actually been charged with selling their four daughters for use in sex films…

An East Tennessee couple is facing a list of charges, accused of selling their children to take part in sex films.

 

Connie Sue McCall, 40, and her hus
band, Ronnie Lee McCall, 61, of Johnson City have been charged by a federal grand jury.

 

Paperwork shows the couple was selling their four daughters.

 

Prosecutors say the four girls were between the ages of 5 and 16 when this happened.

Could you imagine such a thing happening in your neighborhood?

Perhaps it is happening, but you just don't know that it is going on.

#5 And it is not only older people that are having their hearts grow cold.  It is happening to young people too.  Last week, a 17-year-old girl was caught carrying around a dead baby (which she probably gave birth to) in a shopping bag in a Victoria's Secret store right in the heart of Manhattan…

The dead baby found in the teen’s shopping bag at a Victoria’s Secret store in Manhattan was born alive and then asphyxiated, police said Friday, as the macabre discovery turned toward a possible homicide case.

 

Police believe 17-year-old Tiana Rodriguez gave birth to the baby at a friend’s house and that the infant was later asphyxiated. However, the city medical examiner’s office said an autopsy was inconclusive, and more tests were needed.

Who does something like that?

#6 Sadly, a lot of mothers appear to be losing the natural affection that they should have for their children.  Just check out another incident that happened in New York City recently…

So much for no child left behind.

 

A stroller-toting mom who used her 1-year-old son as cover during a massive candy shoplifting spree at a downtown Duane Reade used the tot's pram as a battering ram when workers confronted her — and then ran away without the baby, the NYPD said.

#7 One of the clearest signs that American society is decaying is the fact that groups of kids are banding together and agreeing to commit absolutely horrible crimes.  We have seen this with the "flash mob" robberies that are plaguing many cities, but what is even worse is when groups of kids band together to commit violent acts.  In Pennsylvania recently, a group of teens cheered on attackers as they beat up a 15-year-old girl…

Speaking exclusively to CBS 3, a 15-year-old high school student, whose identity we are concealing, described a terrifying attack by a gang of at least nine teenage boys as she was leaving an Interboro High School football game Monday night.

 

The teenage victim described first being taunted by the attackers, who followed her down a neighborhood street, cursing and spitting at her, before she was repeatedly kicked and punched, suffering at least one blow to her head.

The attackers even tried to throw her in front of a passing vehicle and nobody tried to stop them…

The victim says as at least two of the teenagers pummeled her, the others cheered them on shouting, “Come on, let’s get her!” At one point, the victim says, the gang tried to throw her under the wheels of a passing car, which swerved, narrowly missing her.

What is happening to this country?

#8 We have also been hearing about a lot of "gang rapes" lately as well.  The following is an excerpt from a first-hand account from a 14-year-old girl in Missouri that experienced this type of horrible ordeal…

About five shots tall, I drank it. I guess I didn't know how badly it would mess me up. But the boys who gave it to me did.

Then it was like I fell into a dark abyss. No light anywhere. Just dark, dense silence — and cold. That's all I could ever remember from that night. Apparently, I was there for not even an entire hour before they discarded me in the snow.

You can read the rest of her sobering story right here.

Are you starting to understand why I am so convinced that we have a major problem with our young men in America today?

Instead of raising young gentlemen, we are raising wild animals that seem to have very little self-control.

#9 And sometimes the public does not do anything to stop sexual assaults even when they happen on public streets.  In a recent incident in Athens, Ohio, not only did the public not stop a sexual assault, many actually took photos of the assault and posted them on social media websites…

Horrific photos of an alleged rape in progress have been shared on social media after crowds at a college homecoming celebration chose to take pictures and videos of the sex act rather than stopping it.

Would such a thing have happened in our country 50 years ago?

Of course not.

We need to come to grips with how far we have fallen.

#10 In America today, young kids can beat a homeless man to death and it barely even makes a blip on the news.  I'll bet hardly any of you have heard about what happened recently to a homeless man in New Jersey…

Three teenagers were in custody Saturday morning, on charges of beating a homeless man to his death in Hoboken, N.J.

 

As CBS 2’s Janelle Burrell reported, Hudson County Acting Prosecutor Gaetano T. Gregory said two 13-year-olds and a 14-year-old were charged in the Sept. 10 death of Ralph Eric Santiago, 46.

What would cause 13-year-olds and 14-year-olds to behave so savagely?

Could it be because we are raising them in a society where basic morality is not taught any longer?

#11 Our young people certainly do not have much respect for the very elderly anymore either.  Instead, the elderly are looked at as "weak" and "easy prey".  Just check out what recently happened to a 70-year-old man in upstate New York…

A 70-year-old man was seriously injured early Saturday morning after being attacked outside of a 7-Eleven in Syracuse.

 

Police say James Gifford had just left the store at the intersection of Valley Drive and South Street just after 6:00 a.m. and was attacked by a group of five or six black males, according to Syracuse Police.

 

Police also said this appears to be an unprovoked incident with an innocent victim.

#12 In this day and age, it is very hard to tell who you can trust.  You might meet someone on the street and they might smile and seem very nice, but inside they may be full of all kinds of garbage.  For example, just check out what one man in the Boston area planned to do…

A Boston-area man, who was planning to kidnap children, lock them in a basement dungeon, rape and eat them, should be imprisoned for at least 27 years, federal authorities said in court documents filed this week.

 

Geoffrey Portway pleaded guilty in May to distribution and possession of child pornography and solicitation to commit a crime of violence, according to court documents. He is scheduled to be sentenced on September 17.

 

“Portway has pled guilty to some of the most vile and heinous crimes known to our society,” federal prosecutors wrote in a sentencing recommendation.

This is how twisted and perverted our society has become.

A lot of Americans believe that if we could just elect "the right politicians" or if we could just change our economic system or if we could just fix one particular issue that everything would be right in America again.

Unfortunately, what we are facing is not so simple.  Our problems are not just in Washington D.C. or on Wall Street.  The truth is that our biggest problem is what is going on inside of us.

America is rotting and decaying on the inside, and the next great economic crisis is going to reveal just how bad things have gotten.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/VxLVnZIPKp4/story01.htm Tyler Durden

Remember when data mattered? Well, it doesn’t anymore (and hasn’t since the advent of central planning in 2009). Just to confirm that here is Goldman’s preview of tomorrow’s nearly two month delayed, September Non-far payrolls, which will be great no matter what, meaning the Fed remains in charge well into 2014. To wit:

“Any positive number will be discounted because it came before the DC theatrics and if it’s weak it confirms that tapering should be put off longer.“

Seriously, since absolutely nothing can possibly be bad news any more, can Bernanke just tell us what the closing print on the S&P for every trading day until the end of 2013 is (when it will usher in the new year at right about 1800) and then for 2014, when assuming 1 SPX tick for every $3.5bn in POMO flows, the S&P should close out that year at 2100. It’s not like anyone even pretends there is a discounting mechanism left.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/fsQxwuHnY9c/story01.htm Tyler Durden

Remember when data mattered? Well, it doesn’t anymore (and hasn’t since the advent of central planning in 2009). Just to confirm that here is Goldman’s preview of tomorrow’s nearly two month delayed, September Non-far payrolls, which will be great no matter what, meaning the Fed remains in charge well into 2014. To wit:

“Any positive number will be discounted because it came before the DC theatrics and if it’s weak it confirms that tapering should be put off longer.“

Seriously, since absolutely nothing can possibly be bad news any more, can Bernanke just tell us what the closing print on the S&P for every trading day until the end of 2013 is (when it will usher in the new year at right about 1800) and then for 2014, when assuming 1 SPX tick for every $3.5bn in POMO flows, the S&P should close out that year at 2100. It’s not like anyone even pretends there is a discounting mechanism left.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/fsQxwuHnY9c/story01.htm Tyler Durden

 

On that note, I want to point out that some of the best businesses in the world are beginning to approach valuations that are attractive (see Figure 1 below).

 

In terms of valuing a company, there are two key metrics I like. One is Enterprise Value (EV) divided by Earnings Before Taxes Interest Depreciation and Appreciation (EBITDA) or EV/ EBITDA.

 

I prefer this metric to the more traditional Price to Earnings (P/E) valuation metric because both Price (Market Cap) and Earnings are not very accurate measurements of a company’s health.

 

 

Regarding price, consider the following… a company that has a market cap of $10 billion, earnings $2 billion, has $2 billion in cash and has $9 billion in debt will look cheap with a P/E of 5… even though its debt load could bankrupt it.

 

Enterprise Value clears this issue up by including a company’s debt and cash on hand in the valuation process: EV is a company’s market cap, plus its debt, minus its cash. As such it is a much closer approximation of a company’s health than market cap.

 

Regarding earnings, as I noted in previous articles there are dozens and I literally mean dozens of ways to craft earnings to be better than reality.

 

For that reason I prefer Earnings Before Taxes Interest Depreciation and Appreciation (EBITDA) as a metric for a company’s earning potential.

 

I realize this term sounds confusing, but EBITDA is essentially the money a company generates before it pays taxes or manipulates the value of the assets on its balance sheet. As such it’s a much cleaner representation of the cash a company generates.

 

Thus, EV/ EBITDA is a much better valuation metric than P/E. For that reason I’ve priced the businesses in Figure 1 by EV/ EBITDA.

 

Another term you need to know about is earnings yield. For those of you who are unfamiliar with earnings yield, this is essentially a ratio made by dividing a company’s Earnings Per Share by its Price Per Share.

 

I like to use this ratio relative to the yield on the ten-year Treasury (which is considered risk free) to asset the benefit of owning a stock. Given the increased risk of owning a stock, the earnings yield should be dramatically higher than the yield on the Ten Year Treasury.

 

However, the cash a company generates does not necessarily equal the cash it pays its owners. So I also like to consider a businesses’ dividend yield relative to the yield on the Ten Year Treasury as well.

 

These three metrics (EV/ EBITDA, Earnings Yield, Dividend Yield) can be used to give a decent “back of the envelope” assessment of the value of a stock.

 

As you can see in Figure 1 above, some of the best businesses in the world are beginning to trade at attractive valuations from an EV/EBITDA and Earnings Yield perspective.

 

However, the dividend yield is generally less attractive for most of these companies than the yield on the Ten Year Treasury. And given that stocks are far more volatile, I believe there is simply too much risk here relative to the cash reward for owning them at this time.

 

I bring all of this up, because I want to make you aware that the bargain basement sale I predicted last issue is only just beginning. And while it is tempting to start backing up the truck to invest, we need to consider the old adage that the fact a stock is cheap doesn’t mean it cannot get cheaper.

 

Between the low dividends and the risk to the global economy I’ve outlined in last issue, these valuations, while attractive, are not nearly as attractive as I’d like.

 

When you can buy a business like Apple at a dividend yield of 4+% at a time when the 10 Year Treasury is yielding 2.0% or less, THEN it’s time to go shopping based on the potential risk reward.

 

This time is coming. But it’s not here yet. The macro picture for the world is dangerous. And high quality companies will not be spared the carnage if a market onslaught begins (which is looking increasingly likely).

 

For a FREE Special Report outlining how to protect your portfolio from the Fed’s policies, swing by: http://phoenixcapitalmarketing.com/special-reports.html

 

Best

Phoenix Capital Research

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/wjnFNM8l4mw/story01.htm Phoenix Capital Research

Dreams usually come to an end when we get to the good part. The juiciest part of the American dream has ended too; except the country will be waking up in the middle of the cold dark night and see itself breaking out into a cold sweat. Isn’t it amazing how the US federal workers get back to work and the politicians and the mainstream media believe that things are all hunky dory in the good old Land of Dreams? Dream on! The problem has only been temporarily solved and it won’t go away as it has nothing to do with brinkmanship or gamesmanship as it always has done in the past. It’s the whole system that needs an overhaul. The swamp needs dragging so that we can get rid of the swamp flies that have been feeding off the country.

How many times have I heard people (including US citizens and not just the politicians) harping on about how resilient the US economy is, how much the Chinese will never be better than them and how they will always be top of the roost? The US has been waning for decades now on a credit-rich, cash-poor economy where the order of the day is reduced salaries and increased taxation while the unemployment numbers just keep getting cranked up one more notch.

The shutdown ended after 16 days and the people have now forgotten.

Despite the fact that it will rear its ugly head yet again by the time 2014 has rung in the New Year and before the decorations have been taken down. The US is doing what it has always done: it’s living on credit. Even the time that it has voted for the federal workers to get back to work is nothing more than borrowed. It can’t even buy time these days.

There are some that sit back in the US and laugh at the crisis that is going on in the European Union pointing their accusatory fingers at the countries that joined together, doomed to failure in their less-than-humble opinion. But, they are so caught up in finger-wagging ‘I-told-you-so’ declarations that they can’t see the whacking great big log that is in their own eye and that truly needs felling right now.

• Analysts have suggested that there will be a loss of 4th-quarter revenues and rightly so for US companies.
• US GDP forecasts were reduced by 0.6% for the 4th quarter 2013.
• That’s a loss of $24 billion to an already hard-hit economy that is having trouble picking itself up out of the dust.
• US GDP growth will probably be around the 1.6% mark rather than 2.2% that had been previously suggested.
• Before the revision to 2.2%, growth in the 4th quarter had been predicted at 3%.
• Confidence has never been lower in the US and the Bloomberg Consumer Confidence Index dropped to minus 31.
• That’s the lowest that index has been since the end of 2011.
• September was already bad enough at minus 9.

The federal workers may be getting their money back in a deal that was passed to back pay them for salaries that had been lost due to the shutdown. But, what about the contract workers and the companies that were sitting there twiddling their idle thumbs while Congress battled out the Obamacare stakes and everyone stood their ground?

Uncertainty about the future (as the waters have only be calmed for a few months) will mean that the holiday season will see reduced spending and further damage to the economy. The bill is becoming rather heavy to pay because of playing around in Washington.

 

The Republicans never lost support despite what some might have said. They will be in a position come January to pursue their political goals and wage their budget warfare once again. 38% of US citizens polled by the Pew Research Center said that they still saw the Republican Party favorably. The slogan of the Republicansright now that is hitting home is that they are the ‘Real Americans’. Sweeping reforms that will push the country into self-government and liberalism along with spending cuts that are reminiscent of the Reagan era might just hit home with today’s economic backdrop against which President Obama is being strongly criticized for spending more than any other president in the history of the US.

President Reagan once said in 1985 “you didn’t send us to Washington to feed the alligators, you sent us to drain the swamp”. He certainly drained the swamp and took away all the water. That’s for sure. But, he should have done away with the alligators as they have certainly been getting their teeth into the rest of the country for the past three decades.The country has been drained dry. The alligators took a sizeable bite worth $24 billion out of the US economy.

America: If you want your dreams to come true, then don’t go to sleep.

January 15th will be your wake-up call, Uncle Sam. 

 

Originally posted: US Still Living on Borrowed Time

 

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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/qlstYrHwTBY/story01.htm Pivotfarm

“It is really going to end badly,” is the ominous warning that Damien Cleusix has issued to his clients as he believes we are now reaching the top of the secular bull market. Crucially, he sees US stock markets as “grossly over-valued” but that it is hidden from most people’s perceptions because (just as in 2000 and 2007) there are marginal sectors that make the ‘aggregate’ seem reasonable (not to mention the dreams of forward earnings.) His novel approach of a point-in-time Price-to-Sales comp shows the median valuation its highest in 23 years.. and Alan Greenspan’s infamous “exuberance” valuations in 1996 were 40% below current levels of elation. Today, the big difference with 2000 and 2007 is that government and central banks have already spend a lot of firing power to “make believe” that everything is fine again. He concludes, “there will be no place to hide when the tide turns.”

 

Via Damien Cleusix,

It is really going to end badly…

What if we are indeed only now reaching the top of the secular bull market… What if

It is no secret that we view the US stock markets as grossly over-valued. In recent meetings, as in the Spring of 2007, we have insisted that not only are markets more overvalued than what they seem, the overvaluation is also general. Ed Easterling wrote a provocative article not long ago on the subject. Those who have read his two books, “Unexpected Returns” and “Probable Outcome” know the quality of his research.

• In 2000 while TMT companies were reaching absurd valuation, small caps and quality value stocks where cheap. Remember that Berkshire Hathaway made its low the same day as the Nasdaq made its top or the same month as Julian Robertson, one of the best value stock picker of history, liquidated his fund.
• In 2007, the overvaluation was general but here again you had a sector distorting the various valuation ratios – financial companies. In the bear market that ensued, nobody who was long, even the best conservative value stock pickers, made money if they were long-only. There was carnage.

Today our contention is that markets are more overvalued than in 2007.

There will be no place to hide when the tide turns. No place. The best value managers will lose a lot of money, factors which have historically worked well will suffer a lot too (small caps will be crushed and could lose more than 60% from current levels, high dividend paying and shareholder yield stocks too as they are expensive relative to an expensive markets, quality stocks will outperform but not by much and given the concentration of hedge fund investors in some of them, they will be liquidated without mercy when blood will run in the street).

Margin factors are also the highest against the markets they have been since we have data in the early 90’s (and we doubt they were more expensive on a relative basis before).

In the graph below you can see 3 different valuation ratios where we try to remove the margin and sector overvaluation effect.

 

Data is based on Point in Time S&P 500 constituents since 1990. The red line is the median Price-to-Sale (P/S) ratio. The light blue line is the average of each components PS (an equal weighted P/S if you want) where the overvaluation of 2000 still stands out because of the SUN Micro of the time. The dark blue line is the average of the and and third quartile PS (we used Bloomberg for the components and the P/S data).

Remember Alan Greenspan’s irrational exuberance? It was in December 1996 and at the time it was indicating that the market were extremely expensive compared to history. Well in December 1996 the 3 ratios where 40% below current levels.

Today, the big difference with 2000 and 2007 is that government and central banks have already spent a lot of firing power to “make believe” that everything is fine again.

The current environment is structurally deflationary and real trend growth is much lower than what the Fed and most analysts are believing. For many, many years we have talked about this (demography, overindebtness, oversupply,…).  It means that inflation rate will be lower and unemployment higher than what the Fed is predicting. It also means that this is structural and not cyclical. It also means that the Fed, as long as it does not realize this, is going to continue what it has been doing for a very very long-term.

We have long said that investors bias causes them to sometimes struggle to see the world as it is and instead prefer to see it as it should be. Investors are too naive. Current policies are not what they should be (productive investment, deleveraging to move away from this culture of speculation and easy money) and we need a trigger to make this change. Could it be a more hawkish Fed with new governors nominated next year and/or realizing that they have created a fantastic bubble in the equity and corporate bond markets (both linked as most of the borrowing is done to buyback shares or other companies and hence the productive capital base is not increased further lowering long-term growth potential ceteris paribus).

With regard to the short-term markets movement we can only repeat what we said recently:

“Market short-term volatility (intra-day) has increased markedly in the past few weeks. Important tops (cyclical) are made when valuations are extended (check), important divergences are forming (check), market uniformity decreasing substantially (check), exuberant optimism (check and congrat to R. Shiller…), markets overbought (check but could be more extreme on the daily time frame) and, finally, increased short-term volatility (check). You can use some pattern (serie of small range days) if you really want to be cute.

 

The only ingredient missing here is a sell signal from our cyclical models which have stayed stubbornly positive since 2009 with the exception of a  short-lived sell signal during the  2011 route. By definition, those cyclical signals will miss the first part of the decline which make a 10-12% drawdown at the beginning of an cyclical bear market a rule rather than the exception. The above checks are all warnings that cyclical signals could turn down during the next correction (or at least in the near-term).”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xFgikufJGL0/story01.htm Tyler Durden

“It is really going to end badly,” is the ominous warning that Damien Cleusix has issued to his clients as he believes we are now reaching the top of the secular bull market. Crucially, he sees US stock markets as “grossly over-valued” but that it is hidden from most people’s perceptions because (just as in 2000 and 2007) there are marginal sectors that make the ‘aggregate’ seem reasonable (not to mention the dreams of forward earnings.) His novel approach of a point-in-time Price-to-Sales comp shows the median valuation its highest in 23 years.. and Alan Greenspan’s infamous “exuberance” valuations in 1996 were 40% below current levels of elation. Today, the big difference with 2000 and 2007 is that government and central banks have already spend a lot of firing power to “make believe” that everything is fine again. He concludes, “there will be no place to hide when the tide turns.”

 

Via Damien Cleusix,

It is really going to end badly…

What if we are indeed only now reaching the top of the secular bull market… What if

It is no secret that we view the US stock markets as grossly over-valued. In recent meetings, as in the Spring of 2007, we have insisted that not only are markets more overvalued than what they seem, the overvaluation is also general. Ed Easterling wrote a provocative article not long ago on the subject. Those who have read his two books, “Unexpected Returns” and “Probable Outcome” know the quality of his research.

• In 2000 while TMT companies were reaching absurd valuation, small caps and quality value stocks where cheap. Remember that Berkshire Hathaway made its low the same day as the Nasdaq made its top or the same month as Julian Robertson, one of the best value stock picker of history, liquidated his fund.
• In 2007, the overvaluation was general but here again you had a sector distorting the various valuation ratios – financial companies. In the bear market that ensued, nobody who was long, even the best conservative value stock pickers, made money if they were long-only. There was carnage.

Today our contention is that markets are more overvalued than in 2007.

There will be no place to hide when the tide turns. No place. The best value managers will lose a lot of money, factors which have historically worked well will suffer a lot too (small caps will be crushed and could lose more than 60% from current levels, high dividend paying and shareholder yield stocks too as they are expensive relative to an expensive markets, quality stocks will outperform but not by much and given the concentration of hedge fund investors in some of them, they will be liquidated without mercy when blood will run in the street).

Margin factors are also the highest against the markets they have been since we have data in the early 90’s (and we doubt they were more expensive on a relative basis before).

In the graph below you can see 3 different valuation ratios where we try to remove the margin and sector overvaluation effect.

 

Data is based on Point in Time S&P 500 constituents since 1990. The red line is the median Price-to-Sale (P/S) ratio. The light blue line is the average of each components PS (an equal weighted P/S if you want) where the overvaluation of 2000 still stands out because of the SUN Micro of the time. The dark blue line is the average of the and and third quartile PS (we used Bloomberg for the components and the P/S data).

Remember Alan Greenspan’s irrational exuberance? It was in December 1996 and at the time it was indicating that the market were extremely expensive compared to history. Well in December 1996 the 3 ratios where 40% below current levels.

Today, the big difference with 2000 and 2007 is that government and central banks have already spent a lot of firing power to “make believe” that everything is fine again.

The current environment is structurally deflationary and real trend growth is much lower than what the Fed and most analysts are believing. For many, many years we have talked about this (demography, overindebtness, oversupply,…).  It means that inflation rate will be lower and unemployment higher than what the Fed is predicting. It also means that this is structural and not cyclical. It also means that the Fed, as long as it does not realize this, is going to continue what it has been doing for a very very long-term.

We have long said that investors bias causes them to sometimes struggle to see the world as it is and instead prefer to see it as it should be. Investors are too naive. Current policies are not what they should be (productive investment, deleveraging to move away from this culture of speculation and easy money) and we need a trigger to make this change. Could it be a more hawkish Fed with new governors nominated next year and/or realizing that they have created a fantastic bubble in the equity and corporate bond markets (both linked as most of the borrowing is done to buyback shares or other companies and hence the productive capital base is not increased further lowering long-term growth potential ceteris paribus).

With regard to the short-term markets movement we can only repeat what we said recently:

“Market short-term volatility (intra-day) has increased markedly in the past few weeks. Important tops (cyclical) are made when valuations are extended (check), important divergences are forming (check), market uniformity decreasing substantially (check), exuberant optimism (check and congrat to R. Shiller…), markets overbought (check but could be more extreme on the daily time frame) and, finally, increased short-term volatility (check). You can use some pattern (serie of small range days) if you really want to be cute.

 

The only ingredient missing here is a sell signal from our cyclical models which have stayed stubbornly positive since 2009 with the exception of a  short-lived sell signal during the  2011 route. By definition, those cyclical signals will miss the first part of the decline which make a 10-12% drawdown at the beginning of an cyclical bear market a rule rather than the exception. The above checks are all warnings that cyclical signals could turn down during the next correction (or at least in the near-term).”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xFgikufJGL0/story01.htm Tyler Durden

Submitted by Jeff Thomas via Doug Casey's International Man blog,

Currently, a clever young man, Mark Dice is producing a series of videos in which he approaches strangers in public places in the US and asks them to sign a prepared petition that he is holding. Invariably, Mark behaves in a polite, congenial manner and makes a clear effort to appear as harmless as possible. However, the subjects of his petitions are the antithesis of his demeanour.

The subject of a Dice petition may be the repeal of the Second Amendment to the Constitution, a move to assure that old people are exterminated under Obamacare, or, as in the attached video, to ask potential petition signers to support Karl Marx as the next president of the US.

 

 

In each video, Mark's approach is the same. He chooses a large, open public space, dresses casually and hands his clipboard to someone who is passing and politely asks for his signature in support of a concept that is ludicrous. He does this with a straight face and always behaves pleasantly. Once the passer-by has taken the clipboard and is looking for the place to sign, Mark describes details (again, in a pleasant manner) of what is being proposed, such as,

"We're just gathering signatures to show support for Obama and his communist agenda, so we're gonna get Karl Marx on the 2016 ballot and continue the Marxist takeover."

Invariably, the prospective signers seem not to take in the significance of what Mark is saying. They seem to be focused more on where they are supposed to sign. No matter how many horrific details Mark offers the signers to provoke them to think about what they are signing, nothing seems to sink in.

Of course, we recognise that the video may contain only those people who were actually empty-headed enough to sign, and, surely, there were others who refused. However, this does not alter the fact that so many people simply "go along," seemingly oblivious to what they are signing.

Surely, for any reader of this publication, these videos will be both entertaining and exasperating, as they demonstrate the stupidity and complacency of so many people.

However, if we look a little deeper, what we see in the videos is even more revealing—to the point that we might consider that the "sheeple" we are observing are not simply buffoons; they pose a threat to our personal future.

Looking back into history, we see a parallel in Germany. In the late 1940s, many Germans were interviewed as to how it had been possible for Hitler to effect his extreme policies. They were asked how they could have sat by whilst the atrocities occurred. The Germans interviewed stated vaguely that they were not aware of the atrocities. When they were pointedly asked about seeing the Jews being dragged off and thrown on trains, or asked about the smell from the smokestacks at the concentration camps, the interviewees would shrug their shoulders and say that they had not realised the significance of what was happening.

At that time, Americans were rightfully outraged that the German people could have been so callous, so unobservant, or so dim-witted as to have been unaware of what was happening around them. Surely, at some point, the German people should have said, "That's enough. This is wrong and must stop."

And the Americans were correct, although it is also true that, having won the war, it was easy for them to criticise, as they had not been the people who had been under the thumb of an over-reaching fascist government.

Today, of course, the shoe is on the other foot. The US is tragically, but assuredly, the home of a fascist over-reaching government. On a very regular basis, Americans are subjected to new measures of control that they should feel are beyond the pale and are to be rejected. However, just as in Nazi Germany in the 1930s, the threat from the government towards those who do not comply is developing in lockstep with the increasing controls.

If we were to imagine a Mark Dice in Germany in late 1930s Berlin, stopping people in a friendly way to ask for their signatures on a petition that, say, called for the extermination of Jews, they might well have signed, finding it easier to "go along" than to question the validity of the idea being proposed.

The reason? Well, at some point in the destruction of a democracy, a mild fear sets in the minds of a people that all will not turn out well. At that point, many begin to shut down. Their ability to react to outrageous developments fades into a state of numbness. It no longer matters how irrational the proposal may be, it is simply accepted on the face of it, as it is easier to "go along" than to question. It is also less distressing.

If we watch the video that is attached, we may shake our heads that the petition signers do not react to the idea that a dead man (Karl Marx) is running for president. Neither do they react to the suggestion that they show support for Obama's "communist agenda." Neither do they react to the suggestion of a full communist takeover.

This does not necessarily mean that the petition signers are incredibly stupid. What it means is that they have chosen to tune out. It is best not to think. The petitioner is pleasant, and it does not pay to contest the issues in question. It is easier to simply sign.

At some point in the future, interviewers may ask Americans, "How could you just sit by whilst the atrocities occurred?" Americans may shrug their shoulders and say that they were not really aware of what was happening. If and when this comes to pass, will they be lying? Possibly not. It may be that those who had simply "tuned out" were no longer cognizant of the meaning of events around them and were functioning as automatons—servants of the American Reich.

It is sadly true that the signing of a Mark Dice petition is a mere symptom of a greater concern—the conversion of the American people from a once-proud culture of self-determination, to a lesser species of cooperative sheeple.

For the observer, it suggests that the US has passed the point of no return; that this may end as it has historically—in a period of warfare abroad and subjugation at home.

The warning signs are becoming more numerous with each passing day.

The choice for Americans today is whether to wait and see whether history repeats or whether to plan to be elsewhere before the deterioration advances further.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/1R4AAZdRR4g/story01.htm Tyler Durden