The Great Divide: The Death of the Middle Class

Written by Jeff Nielson (CLICK FOR ORIGINAL)

 

 

 

 

 

 

Several months ago, a chart produced by one of the Big Banks was presented to readers . It was supposed to be innocuous data on global wealth distribution, but instead portrayed a horrifying picture.

 

The focal point of the aforementioned article was that when it came to “the world’s poorest people,” the Corrupt West has now produced a greater percentage of severe poverty in its own populations than in India, and an equal percentage of such poverty as exists in Africa.

Stacked beside this, we see that when it comes to the richest-of-the-rich, the Corrupt West remains in a league of its own. Supposedly, we are living in “the New Normal,” where life is supposed to get increasingly harder and harder. So why does the New Normal never affect those on top?

Of course all of these extremely poor people being manufactured by our governments (as these regimes give away our jobs, destroy wages, and eviscerate our social programs) have to come from somewhere. Certainly they don’t come from the Wealthy Class.

Indeed, the chart above provides us with a crystal-clear view of where all these poor and very-poor people are coming from: the near-extinct Middle Class. In order to manufacture hundreds of millions of impoverished citizens in our nations, the Old World Order has had to engage in a campaign to end the Middle Class.

We are conditioned to consider economic “classes” within our own societies, but with the chart above, we’re given a global perspective. Where does the Middle Class exist today, globally? At the upper end, it exists in China, and to a lesser extent, in Latin America and other Asian nations. At the lower end of the Middle Class, we see such populations growing in India and even Africa.

Only in the West, and especially North America, is the Middle Class clearly an endangered species. Two incredibly important aspects of this subject are necessary to cover:

1) How and why has the One Bank chosen to perpetrate Middle Class genocide?

2) What are the consequences of the Death of the Middle Class?

Attempting to catalogue the nearly infinite number of ways in which the oligarchs of the One Bank have perpetrated their Middle Class genocide is impractical. Instead, discussion will be limited to the five most important programs responsible for the Death of the Middle Class: three of them relatively new, and two of them old.

a) Globalization

b) Union decimation/wage destruction

c) Small business decimation

d) Money-printing/inflation

e) Income taxation

Globalization was rammed down our throats in the name of “free trade,” the Holy Grail of charlatan economists . But, as previously explained, real free trade is a world of “comparative advantage” where all nations play by a fair-and-equal set of rules. Without those conditions, “free trade” can never exist.

The globalization that has been imposed upon us is, instead, a world of “competitive devaluation,” a corrupt, perpetual, suicidal race to the bottom. The oligarchs understood this, given that they are the perpetrators. The charlatan economists were too blinded by their own dogma to understand this. And, as always, the puppet politicians simply do what they are told.

Next on the list: union decimation and wage destruction are inseparable subjects, virtually the flipside of the same coin. “But wait,” shout the right-wing ideologues, “unions are corrupt, everyone knows that.”

Really? Corrupt compared to whom? Are they “corrupt” standing next to the bankers, who have stolen all our wealth ? Are they “corrupt” standing next to their Masters, the oligarchs who are hoarding all our stolen wealth ? Are they “corrupt” standing next to our politicians, who betrayed their own people to facilitate this economic pillaging? No, compared to any of those groups, unions (back when they still existed) were relative choir-boys.

When it comes to corruption, nobody plays the game as well as those on top. Compared to the Fat Cats, everyone else are rank amateurs. When unions were strong and plentiful, everyone had jobs. Almost everyone earned a livable wage (or better). Gee, weren’t those terrible times! Look how much better off we are now, without all those “corrupt unions.”

The other major new component in the deliberate, systemic slaughter of the Middle Class was and continues to be Small Business decimation. “Small business is the principal job-creator in every economy.” Any politician who ever got elected can tell you that.

If this is so, why do our corrupt governments funnel endless trillions of dollars of Corporate Welfare (our money) into the coffers of Big Business, while complaining there is nothing left to support Small Business? Why do our governments stack the deck in all of our regulations and bureaucracies, greasing the wheels for Big Business and strangling Small Business in their red tape?

Why do our governments refuse to enforce our anti-trust laws? One of the primary reasons for not allowing the corporations of Big Business to grow to an illegal size is because these monopolies and oligopolies make “competition” (meaning Small Business) impossible. One might as well try to start a small business on the Moon.

Then we have the oligarchs’ “old tricks” for stealing from the masses (and fattening themselves): banking and taxation. Of course, to the oligarchs, “banking” means stealing, and you steal by printing money. As many readers are already aware, “inflation” is money-printing – the increase (or inflation) of the supply of money.

In the absence of the gold standard, there is no way to protect savings [i.e. wealth] from confiscation through inflation .

– Alan Greenspan (1966 version )

Remove the Golden Handcuffs , as central banker Paul Volcker bragged of doing in 1971, and then it’s just print-and-steal – until the whole fiat currency Ponzi scheme implodes.

Then of course we have income taxation: 100 years of systemic thievery. No matter what the form or structure, by its very nature every system of income taxation will:

i) Provide a free ride to those at the very, very top

ii) Be revenue-neutral to the remainder of the wealthy

iii) Relentlessly steal out of the pockets of everyone else (via over-taxation)

This is nothing more than a matter of applying simple arithmetic. However, many refuse to educate themselves on how they are being robbed in this manner, year after year, so no more will be said on the subject.

These were the primary prongs of the oligarchs’ campaign to exterminate the Middle Class. As always, skeptical readers will be asking “why?” The answer is most easily summarized via The Bankers’ Manifesto of 1892 . This document was presented to the U.S. Congress in 1907 by Republican congressman, and career prosecutor, Charles Lindbergh Sr.

It reads, in part:

The courts must be called to our aid, debts must be collected, bonds and mortgages foreclosed as rapidly as possible.

When through the process of law, the common people have lost their homes they will be more tractable and easily governed through the influence of the strong arm of government applied to a central power of imperial wealth under the control of the leading financiers [the oligarchs]. People without homes won’t quarrel with their leaders.

We have “the strong arm of government.” The oligarchs saw to that by bringing us their “War on Terror.” When it comes to throwing people out of their homes, and creating a population of serfs, that’s a two-part process.

Step 1 is to manufacture artificial housing bubbles across the Western world, and then crash those bubbles. However, this is only partially effective in turning Homeowners into Homeless. To truly succeed at this requires Step 2: exterminating the Middle Class. A Middle Class can survive a collapsing housing bubble, assuming they remained reasonably prudent. The Working Poor cannot.

Finally, after more than a century of scheming, the oligarchs have all of their pieces in place. In the U.S., they’ve even already built many gulags – to warehouse these former Middle Class homeowners – since a large percentage of those people are armed.

This brings us to one, final point: the consequences of the Death of the Middle Class. What happens when you destroy the foundation of a house? Just look.

As readers have been told on many previous occasions, the “velocity of money” is effectively the heartbeat of an economy. It is another way of representing the economics principle known as the Marginal Propensity to Consume, probably the most important principle of economics forgotten by charlatan economists.

The principle is a simple one, since it is half basic arithmetic and half common sense. Unfortunately, these are both skills beyond the grasp of charlatan economists. If you take all of the money out of the pockets of the People, and you stuff it all into the vaults of the Wealthy (where it sits in idle hoards), then there is no “capital” for our capitalist economies – and these economies starve to death .

What is the response of the oligarchs to the relentless hollowing-out of our economies? They have ordered the puppet politicians to impose Austerity: taking even more money out of the pockets of the people. It is the equivalent to someone with anorexia going to a doctor, and the doctor imposing a severe diet on the patient (i.e. victim). The patient will not survive.

 

The Middle Class is dying. Unlike the oligarchs’ Big Banks, we are not “too big to fail.” Our jobs are gone. Our unions are gone. Our Middle Class wages are gone. Very soon, our homes will be gone. But don’t worry! It’s just the New Normal.

 

Please email with any questions about this article or precious metals HERE

 

 

The Great Divide: The Death of the Middle Class

Written by Jeff Nielson (CLICK FOR ORIGINAL)

 

via Zero Hedge http://ift.tt/1Y3yCNE Sprott Money

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

When fear becomes collective, when anger becomes collective, it’s extremely dangerous. It is overwhelming… The mass media and the military-industrial complex create a prison for us, so we continue to think, see, and act in the same way… We need the courage to express ourselves even when the majority is going in the opposite direction… because a change of direction can happen only when there is a collective awakening… Therefore, it is very important to say, ‘I am here!’ to those who share the same kind of insight.

 

— Thich Nhat Hanh, Buddhist Monk, The Art of Power

Oliver Stone has penned a powerful and emotional takedown of Hillary Clinton, focusing on her insane neocon foreign policy chops in a piece published in the Huffington Post titled, Why I’m for Bernie Sanders.

What follows are just a few paragraphs, I suggest reading the entire thing:

Of course, Google told us all we needed to know several months ago:

For more on Hillary and her neocon foreign policy agenda, see:

Bernie Sanders to Hillary Clinton – “I’m Proud to Say Henry Kissinger is Not My Friend”

“You Want to Be Free and Dead?” – Billionaire Hillary Clinton Donor Says to Sacrifice Civil Liberties for “Safety”

Not a Joke – War Criminal Hillary Clinton is Now Running on Her Foreign Policy “Strengths”

“We Came, We Saw, He Died” – Revisiting the Incredible Disaster That Is Libya

The Forgotten War – Understanding the Incredible Debacle Left Behind by NATO in Libya

via Zero Hedge http://ift.tt/1X1pWHn Tyler Durden

We noted last week that 1.3 million industrial robots would be installed between 2015 and 2018, and this would more than double the stock of active robots around the world.

While many of those robots will be used in the automotive and electronics sectors, VisualCapitalist's Jeff Desjardins notes that there are many other roles that robots will be filling in the future. Surprisingly, according to global consultant McKinsey & Co, not all of these jobs are low-skill, low-wage jobs, either.

Mckinsey ran a comprehensive study of nearly 800 different jobs in the United States, ranging from CEOs to fast food workers. Between these roles, they found 2,000 individual work activities, and assessed them against 18 different capabilities that could potentially be automated. In their analysis, they found that 45% of work activities representing $2 trillion in wages can already by automated based on proven technology that currently exists. A further 13% of work activities in the U.S. economy could be automated if the technologies used to understand and process human language were brought up to the median human level of competence.

(click image for fully interactive version)

 

WHO’S IN, WHO’S OUT?

The interactive visualization above charts specific careers on their automation potential (out of 100%) along with the hourly average wage of the job.

What is most interesting about the analysis is that automation potential doesn’t correlate with low-skill, low-wage jobs as much as one may think. While it’s true that the three million fast food workers across the country have an automation potential of 74%, and that heavy truck driving activities can be 69% automated, there are also great counter-examples: for example, only 7% of manual labor and 22% of janitorial activities could be automated.

Likewise, high-paying jobs are not necessarily robot-proof.

Doctors (23%), nurses (29%), and even CEOs (25%) all have significant amounts of their jobs that can be automated with current technology. Almost half (47%) of what pharmacists do can be done by a robo-pharmacist, and 72% of commercial pilot activities can be done through computers.

Not interested in having a robot fill your shoes? Mckinsey notes at the end of their analysis that both creativity and sensing emotion are extremely difficult to automate. Focus on building skills and competencies in these categories, and you’ll be just fine (for now, at least).

via Zero Hedge http://ift.tt/1ROGAFR Tyler Durden

Authored by Gaius Publius via DownWithTyranny.com,

The Sanders- and Trump-led (for now) political rebellion is not going to go away. There are only two questions going forward:

• Will it remain a political rebellion, one that expresses itself through the electoral process, or will it abandon the electoral process as useless after 2016? 

• Will it be led by humanitarian populism from the left, or authoritarian populism from the right?

Why is this rebellion permanent, at least until conditions improve? Because life in the U.S. is getting worse in a way that can be felt by a critical mass of people, by enough people to disrupt the Establishment machine with their anger. And because that worsening is seen to be permanent.

Bottom line, people are reaching the breaking point, and we're watching that play out in the 2016 electoral race.

Yes, It Is a Rebellion

There's no other way to see the Sanders and Trump surges except as a popular rebellion, a rebellion of the people against their "leaders." If one of them, Sanders or Trump, is on the ballot in November running against an Establishment alternative, Sanders or Trump, the anti-Establishment candidate, will win. That candidate will cannibalize votes from the Establishment side.

That is, Sanders will attract a non-zero percentage of Trump-supporting voters if Cruz or Paul Ryan runs against him, and he will win. By the same token, Trump will attract a non-zero percentage Sanders-supporting voters (or they will stand down) if Clinton runs against him, and she will lose to him.

(In fact, we have a good early indication of what percentage of Sanders supporters Clinton will lose — 20% of Sanders primary voters say they will sit out the general election if Clinton is the candidate, and 9% say they will vote for Trump over Clinton. By this measure, Clinton loses 30% of the votes that went to Sanders in the primary election.)

If they run against each other, Sanders and Trump, Sanders will win. You don't have to take my word for it (or the word of any number of other writers). You can click here and see what almost every head-to-head poll says. As I look at it today, the average of the last six head-to-head polls is Sanders by almost 18% over Trump. In electoral terms, that's a wipeout. For comparison, Obama beat McCain by 6% and Romney by 4%.

Note that Sanders is still surging, winning some states with 80% of the vote (across all states he's won, he averages 67% of the vote), while Trump seems to have hit a ceiling below 50%, even in victory. The "socialist" tag is not only not sticking, it's seen positively by his supporters. And finally, just imagine a Trump-Sanders debate. Sanders' style is teflon to Trumps', and again, I'm not alone in noticing this.

Whichever anti-Establishment candidate runs, he wins. If both anti-Establishment candidates face off, Sanders wins. The message seems pretty clear. Dear Establishment Democrats, you can lose to Sanders or lose to Trump. Those are your choices, and I'm more than happy to wait until November 9 to find out what you chose and how it turned out. Not pleased to wait, if you choose wrongly, but willing to wait, just so we're both aware of what happened.

The Rebellion Is Not Going Away

I won't be happy with you though, Establishment Democrats, if you choose badly. And I won't be alone. Because even if you succeed with Clinton, Establishment Democrats, or succeed in giving us Trump in preference to giving us Sanders, the rebellion is not going away.

If you look at the Trump side, it's easy to see why. Are wages rising with profits? No, and Trump supporters have had enough. (They don't quite know who to blame, but they're done with things as they are.) Will they tolerate another bank bailout, the one that's inevitable the way the banks are continuing to operate? They haven't begun to tolerate the last one. They already know they were screwed by NAFTA. What will their reaction be to the next trade deal, or the next, or the next? (Yes, it's not just TPP; there are three queued up and ready to be unleashed.)

Trump supporters, the core of them, are dying of drugs and despair, and they're not going to go quietly into that dark night. The Trump phenomenon is proof of that.

On the Sanders side, the rebellion is even clearer. Sanders has energized a great many voters across the Democratic-independent spectrum with his call for a "political revolution." But it's among the young, the future of America, that the message is especially resonant. For the first time in a long time, the current generation of youth in America sees itself as sinking below the achievements of their parents.

The Guardian:

US millennials feel more working class than any other generation

 

Social survey data reveals downshift in class identity among 18-35s, with only a third believing they are middle class

 

Millennials in the US see themselves as less middle class and more working class than any other generation since records began three decades ago, the Guardian and Ipsos Mori have found.

 

Analysing social survey data spanning 34 years reveals that only about a third of adults aged 18-35 think they are part of the US middle class. Meanwhile 56.5% of this age group describe themselves as working class.

 

The number of millennials – who are also known as Generation Y and number about 80 million in the US – describing themselves as middle class has fallen in almost every survey conducted every other year, dropping from 45.6% in 2002 to a record low of 34.8% in 2014. In that year, 8% of millennials considered themselves to be lower class and less than 1% considered themselves to be upper class.

Of course, that leads to this:

The large downshift in class identity among young adults may have helped explain the surprisingly strong performance in Democratic primaries of the insurgent presidential candidate Bernie Sanders, who has promised to scrap college tuition fees and raise minimum wages.

Will those voters, so many of them self-described "independents," return to the Democratic Party? Only if the Party offers them a choice they actually want. If the Party does not, there will be hell to pay on the Democratic side as well. America is making them poorer — Establishment Democratic policies are making them poorer — and they're done with it. The Sanders phenomenon is proof of that.

Will the Very Very Rich Stand Down?

The squeeze is on, and unless the rich who run the game for their benefit alone decide to stand down and let the rest of us catch our breath and a break, there will be no letting up on the reaction. What we're watching is just the beginning. Unless the rich and their Establishment enablers stand down, this won't be the end but a start, and just a start.

I'll identify the three branches to this crossroad in another piece. It's not that hard to suss out those three paths, so long as you're willing to look a few years ahead, into the "middle distance" as it were. The ways this could play out are limited and kind of staring right at us.

But let's just say for now, America faces its future in a way that hasn't happened since the Great Depression, another period in which the Constitution was rewritten in an orderly way (via the political process). Which means that for almost every living American, this is the most consequential electoral year of your life.

I know. I'm not happy about that either.

via Zero Hedge http://ift.tt/1Sqq3Zn Tyler Durden

As of this moment, Donald Trump has 736 delegates and is (mostly) smoothly sailing to the nomination with Ted Cruz almost 273 behind him at 463. However, there is suddenly an all too real chance that 273 lead can melt to as little as 173 with Trump’s delegate count dropping by 50 as a result of what happened during this week’s CNN townhall meeting when as previously reported, Trump reneged on his pledge to support the GOP candidate. The reason is that by doing so, he may have jeopardized his hold on South Carolina’s 50 delegates.

As Time reports, the Palmetto State was one of several that required candidates to pledge their loyalty to the party’s eventual nominee in order to secure a slot on the primary ballot. Though Trump won all of the state’s 50 delegates in the Feb. 20 primary, anti-Trump forces are plotting to contest their binding to Trump because of his threat on the pledge Tuesday.

The loyalty pledge is nothing new in South Carolina, where it has been required for decades, but took on new focus in light of Trump’s public musings about a third party run or withdrawing his support from the eventual nominee if he is stopped at a contested convention.

As a reminder, when asked about if he still would pledge to support the eventual Republican nominee during a town hall Tuesday with CNN’s Anderson Cooper, Trump said “No. I don’t anymore,” adding that he has been “treated very unfairly.”

 

As Time adds, while Trump has been hiring staff to ensure he hangs on to delegates in what could be a messy convention fight, the latest threat appears to be an error on his part.

South Carolina Republican Party Chairman Matt Moore gave credence to the anti-Trump claims: “Breaking South Carolina’s presidential primary ballot pledge raises some unanswered legal questions that no one person can answer,” he told Time. “However, a court or national convention Committee on Contests could resolve them. It could put delegates in jeopardy.”

More from Time:

When Trump filed for the ballot in South Carolina he signed a pledge stating to “hereby affirm that I generally believe in and intend to support the nominees and platform of the Republican Party in the November 8, 2016 general election.”

 

South Carolina has yet to select delegates to the convention and it is a state where Trump may already be on the defensive with delegates. South Carolina delegates to the national convention must have been delegates or alternates to the state’s 2015 GOP convention, a requirement that benefits candidates who appeal to the establishment.

 

Those delegates would be bound to Trump on the first ballot according to state and RNC rules. The challenge, which could only be filed once delegates are selected, would seek to allow them to be free-agents on the first ballot, thereby keeping Trump further from the key 1,237 figure he needs to secure the nomination. Similar challenges could also be filed in other states that added loyalty pledges.

The news of the potential loss of delegates came as Trump met with RNC chairman Reince Priebus Thursday. Trump said afterward he had a “nice meeting” to talk about party unity with RNC Chairman Reince Priebus. “Looking forward to bringing the party together,” Trump said on Twitter. “And it will happen!”

Priebus said the meeting was scheduled days ago and included a discussion about the process heading into the party’s July convention in Cleveland. “We did talk about unity and working together and making sure when we go to Cleveland, and come out of Cleveland, that we’re working in the same direction,” Priebus told the Fox News Channel.

That said, Priebus will surely be delighted by the prospect of Trump losing 50 votes and making a convention that much more likely.

Then again, if Trump is about to lose his delegates for reneging on his South Carolina pledge, then what about Ted Cruz whose response when asked if he would support Trump was that he “is not in the habit of supporting someone who attacks [his] wife and family.” That sounds like a no to us. Or how about Kasich who said “if the nominee is somebody who’s hurting the country and dividing the country I can’t stand behind him“, which is another conditional no.

Or is this just one more of those times when Trump does not do the “political thing” and gives an unequivocal answer to a question to which everyone else implicitly responded the same way, and will now have to deal with the fall out. The answer, most unequivocally, is yes.

via Zero Hedge http://ift.tt/1RsS3it Tyler Durden

An avalanche of data from AsiaPac tonighht was a very mixed bag…

South Korean trade data continued to shrink:

• *SOUTH KOREA MARCH EXPORTS FALL 8.2% Y/Y
• *SOUTH KOREA MARCH IMPORTS FALL 13.8% Y/Y

And deflation is wahing ashorer…

• *SOUTH KOREA MARCH CONSUMER PRICES FALL 0.3% M/M

*  *  *

Japanese data was a disastrophe…Every single aspect of the Tankan survey missed expectations – from Large manufacturing business outlooks to small service business current conditions…

But Finance Minister Aso had some helpful things to say…

• *ASO: CAN SEE SOME WEAKNESS IN ECONOMIC SENTIMENT IN TANKAN (umm, yeah!)
• *ASO: OVER LONGER TERM, AM VERY COMFORTABLE REGARDING ECONOMY (oh ok then, we won't worry)

So rest easy my friends, Japan is safe to take leveraged long bets on for one more day. Oh one more thing, that whole NIRP, low rates, encourage lending, transmission mechanism thing… FUBAR!!

 

FinMin Aso had some comments on that too..

• *ASO: BANKS HAVE MONEY, DON'T HAVE ANYONE TO LEND IT TO

So the entire Keynesian model just hit the endgame of debt saturation? That explains why he said this….

• *ASO: MONETARY EASING, FISCAL STIMULUS HAVE LIMITS

Which directly contradicts Kuroda who just yesterday said…

• *KURODA: DON’T THINK THERE IS LIMIT FOR BOJ EASING NOW

So Limits or No Limits? Who cares – just buy moar stuff.

*  *  *

And then came China…

Cheers were heard from around the world as China's Services PMI jumped off 7 year lows (from 52.7 to 53.8), however this is still below January's levels – not exactly an exuberant bounce after a trillion of fresh credit injections…

• *CHINA NON-MANUFACTURING PMI AT 53.8 IN MARCH

And then Manufacturing hit with a big bounce back into expansion…

• *CHINA MANUFACTURING PMI AT 50.2 IN MARCH

 

This is a major problem for Janet, because if China is back in recovery, then The Fed no longer has to worry about China's economy when deciding on the next rate hike.

Of course what all this means is that Caixin's China PMI (due in 30 minutes) will be a miss to baffle everyone with bullshit.

 

 

via Zero Hedge http://ift.tt/1MFpLkA Tyler Durden

Submitted by Etai Friedman via Palisade-Research.com,

After the stock market crash of 1987, The Federal Reserve embarked on a path that led to the biggest debt bubble in the history of the world. The day after the 1987 crash (Oct. 20, 1987) Alan Greenspan, Chairman of the Fed, announced to the world that The Fed stood ready to provide whatever liquidity was needed by the banking system to prevent the crash from turning into a systemic financial crisis. That was the day the Fed “put” was born.

 

 

A put is an option that allows its owner to sell a specified amount of a particular asset at a predetermined price by a specific date. As an example, if an investor had a February 90 put on Apple’s stock that investor would have the right to sell 100 shares at 90 a share until the third Friday in February when the option expired. An investor would only exercise that put if Apple’s stock price dropped below 90 a share before expiration. As it stands Apple’s stock price is 94.02 as of Friday’s close so no rational investor would exercise that put. But if on Monday Apple’s stock crashed and was trading 60 a share than the investor would exercise his put and gladly sell his stock at 90 a share to the person who sold him the put. So in effect after 1987 The Fed was acting as a giant put for the financial markets, a role it had heretofore not played.

In September of 1998 Long Term Capital Management, a highly leveraged high profile hedge fund, sustained losses that threatened its solvency. The fund with a few billion in equity had $80 billion in assets and all of its trades were going against the firm. LTCM’s equity was going to be wiped out within days. Warren Buffet and a consortium of investors offered to bail out the fund by paying fire sale prices for the assets and shutting down the fund. LTCM’s management balked and looked to The Fed for a better solution. The Fed engineered a bailout by numerous banks that left LTCM’s management in place with some of their wealth to spare. Once again, The Fed intervened in a market calamity and this time bailed out an extremely reckless hedge fund that should have been allowed to fail. The Fed’s put engendered moral hazard in the hedge fund community by allowing reckless and destabilizing behavior to go unpunished.

In December of 1999, The Fed injected enormous amounts of liquidity into the banking system to fend off any potential problems from the Y2K problem. If you recall, The Fed was worried that banking computer systems might erroneously register 1900 as the year on January 1, 2000 due to perceived deficiencies in banking software. To avert any panic, The Fed stuffed money into the banking system to make sure no calamities ensued. The stock market which was already in the midst of a mania in the tech sector effectively had kerosene poured on the fire. The extra banking liquidity found its way into the stock market and sent the tech bubble into overdrive. After the new year passed without so much as a hiccup The Fed withdrew the excess liquidity and the tech bubble peaked in March 2000 and then collapsed.

This is where the story of the debt bubble begins. Prior interventions by The Fed promoted moral hazard and rampant speculation but up to this point they did not need to employ debt to prop up the U.S. economy. That all changed after the internet stock mania collapsed, trillions in wealth was destroyed, and the U.S. economy went into recession. The Fed was once again worried that the crash in technology stocks would cause a systemic financial crisis so they embarked on an interest rate cutting program that saw the Fed Funds Rate drop from 6.5% to 1% from 2000 to 2003. This in effect morphed the tech stock bubble into a housing bubble. Adjustable rate mortgage yields plunged in value and accelerated a housing boom already in progress. The public, encouraged by low rates and lax underwriting standards stampeded into housing sending prices through the roof. Mortgage debt exploded and home equity values skyrocketed buffeting the tech collapse induced recession. The average American increased their leverage to all-time highs. Figure 1 shows that by the fourth quarter of 2007 household debt payments as a percentage of disposable income hit a record 13.2% up from 10.5% just 15 years earlier.

Figure 1

The Fed meanwhile did not normalize rates until 2005 when the Fed Funds Rate was back up to 4% on its way to 5.25% by 2006, the year the housing boom peaked.  Total debt in the U.S. went from $18 trillion in 2001 to $30 trillion by 2007. Comparatively speaking it took 35 years for total debt in the U.S. to go from under $1 trillion to $4 trillion. As we all know the collapse in housing prices revealed that trillions in mortgage backed securities were not actually AAA rated and the collapse in value of these securities almost took the financial system with them.

Large investment banks, like Bear Stearns and Merrill Lynch, became insolvent and were forced to merge with better capitalized banks. Lehman Bros. was allowed to fail and brought the global financial system to its knees. The Fed, now headed by Ben Bernanke, went into overdrive slashing the Fed Funds rate to zero percent and essentially backstopping all financial institutions and depositors’ cash and near cash investments.

A new tool was introduced by The Fed, called Quantitative Easing, which allowed The Fed to purchase mortgage backed securities and other long dated debt to push down long term interest rates and encourage lending. Rates at both the front end and the back end of the yield curve plunged to historic lows with the hope that people and businesses would begin to borrow again and get the economy growing. These extreme measures stopped the free fall in financial assets and began a six-year expansion that was both meager and debt fueled.

During and following The Global Financial Crisis consumers in some developed countries deleveraged but the rest of the economy, namely governments and businesses, leveraged up. From the first quarter of 2008 to the second quarter of 2015 total debt in the U.S. increased from $30 trillion to $40 trillion. Globally, total debt grew from $142 trillion in the fourth quarter of 2007 to $200 trillion in the second quarter of 2014, an increase of $58 trillion. Total global debt as a percentage of global GDP grew from 269% in 2007 to 286% in 2014. The massive central bank intervention during The Global Financial Crisis prevented a deleveraging of the global economy and actually encouraged more leverage to stimulate growth. Once again the planet was borrowing from future growth to propel current growth. This was indeed a short sighted solution to an existential crisis faced by the world. Kicking the can down to 2016 has now come to its logical end.

During 2015 the strength of the global economy began to be questioned as commodity prices collapsed, Chinese economic growth slowed, and global trade slowed. For the first time since the European Sovereign Debt Crisis credit spreads began to widen and low rated corporate debt and leveraged loans began declining in value. As seen by Figure 2 Corporate Net Debt to Ebitda rose to record levels while Ebitda began to decline.

Figure 2

Declining oil prices crushed low rated high yield energy debt. Figure 3 shows that prices of CCC rated debt collapsed in the fourth quarter of 2015.

Figure 3

Also in the first quarter of 2016 low rated commercial real estate debt plunged in value as seen in Figure 4.

Figure 4

The credit markets are signaling that the debt fueled expansion that began in 2010 is turning to bust. This is the most precarious moment in financial market history because as the world slides into recession global central banks have no ability to soften the oncoming recession with debt creation. Globally interest rates are close to zero and even negative in Europe and Japan. Long term government bond yields are also extremely low. This is sending a very clear and ominous signal that the world cannot service more debt and in fact needs to deleverage and get on more solid financial footing.

The last time the world deleveraged was during The Great Depression. The defining quality of The Great Depression was the destructive deflation that gripped the economy. Deflation destroys financial asset values like stocks and corporate bonds and hard assets like real estate. It also lowers incomes while making debt more expensive to service as debt to income ratios rise. The world economy is on the precipice of another Great Depression.

This state of affairs demands a dramatic repositioning of investment portfolios. Investors who choose to remain passive but want to preserve their wealth need to liquidate their investments in stocks and corporate bonds and hold cash only.  Investors who are more opportunistic can hold a combination of cash and U.S. government bonds. U.S. government bonds have already begun to rally so buying at current levels is not quite as attractive as it was a month ago but we expect negative interest rates to eventually visit America so there is still considerable upside. Figure 5 shows that inflation expectations continue to plunge even as The Fed erroneously is raising interest rates.

Figure 5

The more aggressive investor can find opportunities to earn high returns employing strategies that will benefit from a financial collapse and a severe, deflationary recession. These strategies include shorting stock index futures, getting long VIX futures, etfs, and options, getting long stock index option volatility via index etfs, and on a limited basis shorting individual company stocks whose business plans will be acutely affected by economic developments.

We would not simply be short financial assets every day because we recognize that the markets will initially be quite volatile which means sharp bear market rallies in between dramatic declines in financial assets. We would initially be positioned to benefit from this two-way volatility and as the declines become more severe and investors begin to throw in the towel the fund will be more short oriented.

We recognize that The Fed will not sit idly by as this bear market intensifies. However limited their options they will employ them and they may provide brief respite from the bear market. We believe The Fed will stop raising interest rates and begin cutting them in 2016 taking them into negative territory. We also believe The Fed will embark on QE4, although it is not clear what assets they will purchase. What is clear is that rate cuts and QE4 will offer brief pauses in financial asset declines but will not ultimately arrest those declines.

Major fiscal policy adjustments will be needed and this will depend on who takes the White House in 2017. A Democratic win would be a negative while a Republican win by certain candidates may pave the way for major fiscal policy changes. For instance, Ted Cruz’s flat tax would be particularly beneficial and soften the blow of the economic contraction as more money will be directly put into Americans’ hands.

We also believe the next President needs to strip The Fed of their dual mandate of price stability and full employment. The Fed should no longer be tasked with ensuring full employment and debt creation should be disincentivized through changes to the tax code.

Lastly, we would like to highlight we take no pleasure in what we see coming to pass in the financial markets and simply wants to offer investors the opportunity to earn high returns in what otherwise will be an environment devoid of financial opportunities and of declining employment.

via Zero Hedge http://ift.tt/1q7qOju Tyler Durden

The last few weeks have seen Hong Kong's Hang Seng index surge over 14% which – if one believes the mainstream media – must mean renewed confidence in world economic growth and that everything is awesome. However, that narrative just got destroyed as Hong Kong retail sales in February just crashed by the most since 1999 as fewer Chinese tourists visited the city during the Lunar New Year holiday and as one analyst warned, sales will "continue to fall for the rest of 2016 as all the negative factors won’t be solved in the near term."

 

As Bloomberg details, retail sales dropped 21 percent in February to HK$37 billion ($4.8 billion) year on year, according to a statement from Hong Kong’s statistics department. Combining January and February, sales fell 14 percent.

The monthly decline is the worst since January 1999 when sales were also down 21 percent.

 

 

“Apart from the severe drag from the protracted slowdown in inbound tourism, the asset market consolidation might also have weighed on local consumption sentiment,” a government said in a statement on Thursday. “The near-term outlook for retail sales will still be constrained by the weak inbound tourism performance and uncertain economic prospects.”

 

Chow Tai Fook Jewellery Group Ltd., the world’s largest-listed jewelry chain, and Sa Sa International Holdings Ltd. reported slumping sales over the holiday when mainland Chinese tourists to the territory dropped 12 percent during Feb. 7-13. The stock market rout and a slowing Chinese economy have affected consumer sentiment for luxury goods, Chow Tai Fook has said.

 

Sales of jewellery, watches and clocks, and valuable gifts dropped 24 percent, while those of electrical goods and photographic equipment plunged 27 percent, according to Thursday’s statement.

The government will monitor closely its repercussions on the wider economy and job market, it said,  but as Bloomberg adds,

Mainland China tourists “are unlikely to come back in the short term,” said Forrest Chan, an analyst at CCB International Securities Ltd. Hong Kong residents are also consuming less due to stagnant property values and the weak stock market, he said.

 

“Hong Kong’s retail market will continue to fall for the rest of 2016 as all the negative factors won’t be solved in the near term,” Chan said in a telephone interview.

via Zero Hedge http://ift.tt/1RQgGI5 Tyler Durden

Submitted by Jim Quinn via The Burning Platform blog,

As the stock market gyrates higher and lower in a fairly narrow range, the spokesmodels and talking heads on CNBC breathlessly regurgitate the standard bullish mantra designed to keep the muppets in the market. They are employees of a massive corporation whose bottom line and stock price depend upon advertising revenues reaped from Wall Street and K Street. They aren’t journalists. They are propagandists disguised as journalists. Their job is to keep you confused, misinformed, and ignorant of the true facts.

Based on the never ending happy talk and buy now gibberish spouted by the pundit lackeys, you would think we are experiencing a bull market of epic proportions and anyone who hasn’t been in the market has missed out on tremendous gains. There’s one little problem with that bit of propaganda. It’s completely false. The Fed turned off the QE spigot at the end of October 2014 and the market has gone nowhere ever since.

QE1 began in September 2008, taking the Fed balance sheet from $900 billion to $2.3 trillion by June 2010. This helped halt the stock market crash and drove the S&P 500 up by 50% from its March 2009 lows. QE2 was implemented in November 2010 and increased the Fed balance sheet to $2.9 trillion by the end of 2011. This resulted in an unacceptable 10% increase in the S&P 500, so the Fed cranked up their printing presses to hyper-speed and launched the mother of all quantitative easings, with QE3 pushing their balance sheet to $4.5 trillion by October 2014, when they ceased their “Save a Wall Street Banker” campaign.

 

 

As Main Street dies, Wall Street has been paved in gold.

 

The S&P 500 soared to all-time highs, with 40% gains from the September 2012 QE3 launch until its cessation in October 2014. Like a heroine addict, Wall Street has experienced withdrawal symptoms ever since, and begs for more monetary easing injections. Yellen and her gang of central bank drug dealers keep the patient from dying by continuing doses of ZIRP and psychologically comforting dialogue designed to cheer up Wall Street bankers.

QE3 ended 17 months ago and shockingly the S&P 500 is exactly where it was 17 months ago. How many bull markets go flat for 17 months? As John Hussman accurately points out, we are experiencing a topping formation in the third and biggest bubble of the last 16 years. It’s a long way down from here.

With the S&P 500 Index at the same level it set in early-November 2014, and the broad NYSE Composite Index unchanged since October 2013, the stock market continues to trace out a massive arc that is likely to be recognized, in hindsight, as the top formation of the third financial bubble in 16 years.

The chart below shows monthly bars for the S&P 500 since 1995. It’s difficult to imagine that the current situation will end well, but it’s quite easy to lose a full-cycle perspective when so much focus is placed on day-to-day fluctuations. The repeated speculative episodes since 2000 have taken historically-reliable valuation measures to extremes seen previously only at the 1929 peak and to a lesser extent, the 1937 peak (which was also followed by a market loss of 50%). Throughout history, at each valuation extreme – certainly in 2000, 2007 and today – investors have openly embraced rich valuations in the belief that they represent some new, modern and acceptable “norm”, failing to recognize the virtually one-to-one correspondence between elevated valuations and depressed subsequent investment outcomes.

So we’ve had the stock market going nowhere for 17 months, with valuations at obscene levels based on all historical precedents, corporate profits falling for three straight quarters, real wages of working people stagnant at 1988 levels, and home prices soaring to unreachable heights due to hot money from China, Wall Street hedge funds, and the ever resilient and late flipper class. Consumer spending, which accounts for 67% of our economy, is dead in the water as Obamacare, soaring rents, rising food costs and 0% interest on savings accounts drain the life out of middle class households. The average person (not Wall Street bankers, government apparatchiks, or other parasites of the establishment) is experiencing and has been experiencing a recession for years.

Low interest rates and double talk from clueless academic Federal Reserve lackeys cannot and will not prop up the stock market forever. Corporate buybacks, financed with cheap debt, by insanely greedy CEOs is the last leg in this wobbly stool. This will come to a screeching halt as profits collapse and the market goes south.

Stocks always fall during a recession and we have entered a recession, whether it is broadcast by the corporate controlled media or not. The last 17 months have offered the public an opportunity to exit near the top. Anyone who hasn’t taken advantage of this opportunity will be regretful in the not too distant future. With valuations twice historical norms, there is no place to go but down. Hussman understands history better than the brainless twits on CNBC.

Wall Street analysts talk endlessly on financial television about low interest rates “justifying” current valuations, without completing the story that even if this were true,  these rich valuations still imply predictably dismal future returns on stocks, particularly on a 10-12 year horizon.

Every bear market in history, including those that completed recent cycles, has taken valuations to the point where expected long-term returns approached or exceeded 10% annually. This is also true for bear markets prior to the 1960’s when interest rates regularly hovered at levels similar to the present.

On a combined set of historically-reliable measures, we presently estimate that valuations are more than twice their historical norms; twice the level that has routinely been pierced to the downside in even the most run-of-the-mill market cycle completions across a century of history, regardless of the level of interest rates.

Warren Buffett’s favorite valuation method for the market (Market Cap/GDP), which he has disregarded now that he has sold out to the crony capitalist establishment, is at extreme levels only seen at historic market tops (1929, 2000, 2007). Based upon basic mathematical equations and history, according to Hussman, the S&P 500 will be no higher in 2028 than it is today. I wonder how many financial advisors have put that in their neat little investment models? How many Boomers and Gen Xers can handle a 0% return over the next 12 years?

With the S&P 500 still within a few percent of its record 2015 high, investors have a critical opportunity here to understand the difference between a run-of-the-mill outcome and a worst-case scenario. The present ratio of MarketCap/GDP is about 1.2, which we fully expect to be followed by nominal total returns in the S&P 500 of about 2% annually over the coming 12 years. Given the current dividend yield on the S&P 500 actually exceeds 2%, the historically run-of-the-mill expectation from current valuations is that the S&P 500 Index itself will be below current levels 12 years from today, in 2028.

The arrogant ego maniacal pricks, who inhabit the upper echelons of the Wall Street towers of babel, confidently disregard facts, history, and basic risk management concepts as they are about to inflict the third market collapse in sixteen years upon the unsuspecting public. Hussman‘s projections in 2000 were right and his projections today will be proven right.

I realize that a projection like this seems preposterous. Unfortunately, this just reflects objective evidence that has remained reliable over a century of market cycles. Recall that our real-time projection for 10-year S&P 500 total returns in 2000 was correctly negative even on the basis of optimistic assumptions. The basic arithmetic was the same.

Now for the kicker. Throughout history the stock market has experienced secular bull and bear markets where valuations go from extremely overvalued to extremely undervalued. The secular bear market from 1966 until 1982 was followed by a secular bull market from 1982 until 2000. In 2008/2009 we were headed towards a secular low, but the Fed intervened in order to save their Wall Street owners from bankruptcy. The system was not purged of its excesses. The chaff was not separated from the wheat. Therefore, the secular lows have not happened yet.

Using basic mathematical relationships which have held for over 100 years of stock market performance, Hussman concludes a run of the mill reversion to the mean will result in a 50% stock market loss. In order to reach a secular low in valuations, we would experience a 73% loss from here. That seems inconceivable to a population of normalcy bias blinded, iGadget distracted, math challenged CNBC believers. Will you let cognitive dissonance rule your decision making or will you use reason to understand the peril directly ahead?

Notice that expected market returns of about 6% have historically been associated with a MarketCap/GDP ratio of 0.8. The historical norm associated with 10% equity returns has been about 0.6. The secular lows of 1949 and 1982 hit ratios about 0.33. So a rather minimal completion of the current cycle would take the market down by about -33% from here (=0.8/1.2-1), a run-of-the-mill cycle completion would be about -50%, and a truly worst-case scenario would take the market down by about -73% to a secular valuation low in the current market cycle. One can’t rule anything out given reckless monetary policy, fragile European banks, excessive covenant-lite lending and so forth, but I don’t expect more than a run-of-the-mill cycle completion here.

I’m afraid the lesson of history is that people never learn from the lessons of history. It’s always different this time. People will ignore the facts until it is too late. Every historically accurate statistical valuation method proves we are in the mother of all bubbles, created by Federal Reserve sociopaths. Every reliable economic indicator is flashing red for recession. There is absolutely no doubt this market is going to crash. It’s just a matter of when and by how much. If you think you can get out in time, be my guest and buy some more Amazon, Google, and Facebook on margin. Or you can heed the lessons of history as laid out by John Hussman. Your choice.

The central lesson to be learned from market history – and particularly from yield-seeking bubbles – is not that valuations are irrelevant, nor that central bank intervention is capable of sustaining bubbles permanently. Rather, the lessons are: 1) market internals, and the investor risk-preferences they convey, are the hinge between overvalued markets that remain elevated and those that collapse, and 2) unlike prior market cycles, even extreme “overvalued, overbought, overbullish” conditions were insufficient to derail speculation in the face of reckless monetary policy since 2009 – one had to wait until market internals deteriorated explicitly before adopting a hard-negative market outlook.

If one learns those hard-won lessons about the importance of investor risk-preferences and market internals over portions of the market cycle, one need not fall prey to the delusion that easy money can support stocks once risk-aversion sets in (recall 2000-2002 and 2007-2009), and one need not make the mistake of discarding the essential lessons that valuations have taught in complete market cycles across a century of history.

via Zero Hedge http://ift.tt/25zmGJ4 Tyler Durden