iftttwall

 

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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Technical Analysis: Bear Expanding Triangle | Bull Expanding Triangle | Bull Falling Wedge | Bear Rising Wedge | High & Tight Flag

 

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

It would appear, despite the President's urging, that Obamacare's helpline is living up to its mnemonics. As The National Review reports, President Obama emerged on Monday to assure Americans that the “kinks” surrounding the federal and state health-care exchanges are improving and urged consumers to call the exchange hotline if they continue to encounter problems online. Shortly after he made the suggestion, Twitter lit up with reporters and others who attempted to do so but failed to get through to a navigator as promised.

 

Indeed, Mr. President, 1-800-318-2596 to you too.

 

 

Via The National Review,

…

After dialing the number, some callers got a busy signal, others received an automated message, and yet others were referred back to Healthcare.gov.

 

 

For the record, just called 1-800-318-2596, got a busy signal.

— Annie Lowrey (@AnnieLowrey) October 21, 2013

.@AnnieLowrey And now a different message. “I’m sorry. Due to extremely high call volume, no customer service representative is available”

— Jonathan Weisman (@jonathanweisman) October 21, 2013

@AnnieLowrey “We’re sorry, but due to extremely high call volume, all of our customer service representatives are currently busy.”

— Silvia Killingsworth (@silviakillings) October 21, 2013

@AnnieLowrey “Please call back later in the day or during the weekend.”

— Scott Conroy (@RealClearScott) October 21, 2013

RT @philipaklein: Can’t make this up. Got through 800-number, followed prompts, and got referred to http://t.co/q7gyHgxRKR.

— Byron York (@ByronYork) October 21, 2013

 

In his speech, President Obama said that there was “no excuse” for the problems plaguing the website and assured Americans, “These problems are getting fixed.” He also said that the issues with the online exchanges do not reflect flaws in the legislation itself, which he said offers a high-quality product.

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/jm0xh-W5v6Y/story01.htm Tyler Durden

It would appear, despite the President's urging, that Obamacare's helpline is living up to its mnemonics. As The National Review reports, President Obama emerged on Monday to assure Americans that the “kinks” surrounding the federal and state health-care exchanges are improving and urged consumers to call the exchange hotline if they continue to encounter problems online. Shortly after he made the suggestion, Twitter lit up with reporters and others who attempted to do so but failed to get through to a navigator as promised.

 

Indeed, Mr. President, 1-800-318-2596 to you too.

 

 

Via The National Review,

…

After dialing the number, some callers got a busy signal, others received an automated message, and yet others were referred back to Healthcare.gov.

 

 

For the record, just called 1-800-318-2596, got a busy signal.

— Annie Lowrey (@AnnieLowrey) October 21, 2013

.@AnnieLowrey And now a different message. “I’m sorry. Due to extremely high call volume, no customer service representative is available”

— Jonathan Weisman (@jonathanweisman) October 21, 2013

@AnnieLowrey “We’re sorry, but due to extremely high call volume, all of our customer service representatives are currently busy.”

— Silvia Killingsworth (@silviakillings) October 21, 2013

@AnnieLowrey “Please call back later in the day or during the weekend.”

— Scott Conroy (@RealClearScott) October 21, 2013

RT @philipaklein: Can’t make this up. Got through 800-number, followed prompts, and got referred to http://t.co/q7gyHgxRKR.

— Byron York (@ByronYork) October 21, 2013

 

In his speech, President Obama said that there was “no excuse” for the problems plaguing the website and assured Americans, “These problems are getting fixed.” He also said that the issues with the online exchanges do not reflect flaws in the legislation itself, which he said offers a high-quality product.

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/jm0xh-W5v6Y/story01.htm Tyler Durden

Authored by Stephen Roach, originally posted at Project Syndicate,

Yes, the United States dodged another bullet with a last-minute deal on the debt ceiling. But, with 90 days left to bridge the ideological and partisan divide before another crisis erupts, the fuse on America’s debt bomb is getting shorter and shorter. As a dysfunctional US government peers into the abyss, China – America’s largest foreign creditor – has much at stake.

It began so innocently. As recently as 2000, China owned only about $60 billion in US Treasuries, or roughly 2% of the outstanding US debt of $3.3 trillion held by the public. But then both countries upped the ante on America’s fiscal profligacy. US debt exploded to nearly $12 trillion ($16.7 trillion if intragovernmental holdings are included). And China’s share of America’s publicly-held debt overhang increased more than five-fold, to nearly 11% ($1.3 trillion) by July 2013. Along with roughly $700 billion in Chinese holdings of US agency debt (Fannie Mae and Freddie Mac), China’s total $2 trillion exposure to US government and quasi-government securities is massive by any standard.

China’s seemingly open-ended purchases of US government debt are at the heart of a web of codependency that binds the two economies. China does not buy Treasuries out of benevolence, or because it looks to America as a shining example of wealth and prosperity. It certainly is not attracted by the return and seemingly riskless security of US government paper – both of which are much in play in an era of zero interest rates and mounting concerns about default. Nor is sympathy at work; China does not buy Treasuries because it wants to temper the pain of America’s fiscal brinkmanship.

China buys Treasuries because they suit its currency policy and the export-led growth that it has relied on over the past 33 years. As a surplus saver, China has run large current-account surpluses since 1994, accumulating a massive portfolio of foreign-exchange reserves that now stands at almost $3.7 trillion.

China has recycled about 60% of these reserves back into dollar-denominated US government securities, because it wants to limit any appreciation of the renminbi against the world’s benchmark currency. If China bought fewer dollars, the renminbi’s exchange rate – up 35% against the dollar since mid-2005 – would strengthen more sharply than it already has, jeopardizing competiveness and export-led growth.

This arrangement fits America’s needs like a glove. Given its extraordinary shortfall of domestic saving, the US runs chronic current-account deficits and relies on foreign investors to fill the funding void. US politicians take this for granted as a special privilege bestowed by the dollar’s position as the world’s major reserve currency. When queried about America’s dependence on foreign lenders, they often smugly retort, “Where else would they go?” I have heard that line many times when I have testified before the US Congress.

Of course, America benefits from China’s outward-facing growth model in many other ways, as well. China’s purchases of Treasuries help hold down US interest rates – possibly by as much as one percentage point – which provides broad support to other asset markets, such as equities and real estate, whose valuation depends to some extent on Chinese-subsidized US interest rates. And, of course, hard-pressed middle-class American consumers benefit hugely from low-cost Chinese imports – the Walmart effect – that enable them to stretch their budgets in an era of unrelenting pressure on jobs and real incomes.

For more than 20 years, this mutually beneficial codependency has served both countries well in compensating for their inherent saving imbalances while satisfying their respective growth agendas. But here the past should not be viewed as prologue. A seismic shift is at hand, and America’s recent fiscal follies may well be the tipping point.

China has made a conscious strategic decision to alter its growth strategy. Its 12th Five-Year Plan, enacted in March 2011, lays out a broad framework for a more balanced growth model that relies increasingly on domestic private consumption. These plans are about to be put into action.  An important meeting in November – the Third Plenum of the Central Committee of the 18th Chinese Communist Party Congress – will provide a major test of the new leadership team’s commitment to a detailed agenda of reforms and policies that will be required to achieve this shift.

The debt-ceiling debacle has sent a clear message to China – and comes in conjunction with other warning signs. Post-crisis sluggishness in US aggregate demand – especially consumer demand – is likely to persist, denying Chinese exporters the support they need from their largest foreign market. US-led China bashing – a bipartisan blame game that reached new heights in the 2012 political cycle – remains a real threat. And now the safety and security of US debt are at risk. Economic alarms rarely ring so loudly. The time has come for China to respond with equal clarity.

Rebalancing is China’s only option. Several internal factors – excess resource consumption, environmental degradation, and mounting income inequalities – are calling the old model into question, while a broad constellation of US-centric external forces also attests to the urgent need for realignment.

With rebalancing will come a decline in China’s surplus saving, much slower accumulation of foreign-exchange reserves, and a concomitant reduction in its seemingly voracious demand for dollar-denominated assets. Curtailing purchases of US Treasuries is a perfectly logical outgrowth of this process. Long dependent on China to finesse its fiscal problems, America may now have to pay a much steeper price to secure external capital.

Recently, Chinese commentators have provocatively referred to the inevitability of a “de-Americanized world.” For China, this is not a power race. It should be seen as more of a conscious strategy to do what is right for China as it confronts its own daunting growth and development imperatives in the coming years.

The US will find it equally urgent to come to grips with a very different China. Codependency was never a sustainable strategy for either side. China just happens to have understood this first. The days of its open-ended buying of Treasuries will soon come to an end.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/1E5PgvWMcCA/story01.htm Tyler Durden

“The question is not ‘tapering’,” Marc Faber exclaims to his hosts on CNBC’s Squawk Box this morning, “the question is at what point will they increase the asset purchases to say $150 [billion] , $200 [billion], or a trillion dollars a month.” QE-4-EVA is here to stay, as Faber explained “every government program that is introduced under urgency and as a temporary measure is always permanent.” Simply put, “The Fed has boxed itself into a position where there is no exit strategy,” and while inflation may not be present in the ‘chosen’ indicators, Faber blasts, there’s been incredible asset inflation – “we are the bubble. We have a colossal asset bubble in the world [and] a leverage or a debt bubble.” There will be massive wealth destruction, he concludes, “one day this asset inflation will lead to a deflationary collapse one way or the other. We don’t know yet what will cause it.”

 

The Fed is Boxed In….

 

The world is in a gigantic bubble…

 

Back in April 2012, Faber said the world will face “massive wealth destruction” in which “well to-do people will lose up to 50 percent of their total wealth.”

In today’s “Squawk” appearance, he said that could still happen but possibly from higher levels because of the “asset bubble” caused by the Fed.

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

“The question is not ‘tapering’,” Marc Faber exclaims to his hosts on CNBC’s Squawk Box this morning, “the question is at what point will they increase the asset purchases to say $150 [billion] , $200 [billion], or a trillion dollars a month.” QE-4-EVA is here to stay, as Faber explained “every government program that is introduced under urgency and as a temporary measure is always permanent.” Simply put, “The Fed has boxed itself into a position where there is no exit strategy,” and while inflation may not be present in the ‘chosen’ indicators, Faber blasts, there’s been incredible asset inflation – “we are the bubble. We have a colossal asset bubble in the world [and] a leverage or a debt bubble.” There will be massive wealth destruction, he concludes, “one day this asset inflation will lead to a deflationary collapse one way or the other. We don’t know yet what will cause it.”

 

The Fed is Boxed In….

 

The world is in a gigantic bubble…

 

Back in April 2012, Faber said the world will face “massive wealth destruction” in which “well to-do people will lose up to 50 percent of their total wealth.”

In today’s “Squawk” appearance, he said that could still happen but possibly from higher levels because of the “asset bubble” caused by the Fed.

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