Saturday, March 21, 2015

Peter Schiff: Why The Fed Will Not Raise Rates In 2015

Why Your Vote Does Not Matter In America

The Sunlight Foundation recently completed a study on corporate political spending and the reward companies received for their contributions. Their research found that for every $1 corporations spent on political donations they received $760 in return through direct business support. There is no better return for a company than buying and purchasing the next round of politicians.

This is why the political structure in the United States will never change. Corporations and the largest banks put their pre-chosen candidates out for Americans who then try and figure out who will protect their personal interests. The elections are over before they even begin.

While this used to anger me, over the years I have come to understand this system will never change until we reach the next major economic collapse (something far greater than 2008). All I (and you) can do as an individual is try to put yourself in a position to play by the rules of the rich.

For me personally that is through building businesses and preparing myself every day to be the best possible commercial real estate investor and manager (so I am ready to purchase as much quality real estate as possible and manage it well when the real collapse finally arrives).

For more see: Why Are Young Americans Not Starting Companies?

Why Cheap Oil Doesn't Stop The Drilling

For more on why this supply surge will be temporary see:

Friday, March 20, 2015

The Financial Markets Vs. The Real Economy: How Big Will The Gap Grow?

From Albert Edwards' most recent note:

Most economists see recessions causing increased saving by both households and companies, but I believe the causality has been reversed in the aftermath of Alan Greenspan’s bubble-blowing era - loose monetary policy drives asset prices, fostering increased private sector borrowing and spending. That was the disastrous policy that led to the unprecedented 2000 private (household + corporate) sector financial deficit of 4% of GDP (all corporate), and the same ruinous policy that drove the deficit up again to peak in 2007 (all households). The problem with using asset bubbles to drive an economy is that when the bubble bursts, private sector borrowers realise they have been taken for a mug and correct their savings behaviour aggressively, causing a recession. That same barbarically naive policy remains in place today.

His thoughts on corporations borrowing money to repurchase their own stocks:

Should we be less worried now that the US private sector surplus is 3% of GDP – ie an historically high level and less liable to spontaneous retrenchment? No. The decline from a 9% surplus at the end of 2009 to 3% of GDP now is precipitous and almost entirely driven by another corporate sector borrowing binge to finance activities in the financial markets. Another spontaneous recessionary retrenchment awaits.

My thoughts:

The current goal of the Federal Reserve is to drive the economy higher with asset bubbles in the financial markets (stocks, bonds and real estate). The Fed hopes euphoria in the markets will create a wealth effect, which will then stimulate the real economy, which will then provide a justification or real fundamentals behind the sky high asset values.

In the most recent cycle, from 2009 to present, only the first part of the plan has occurred; financial asset bubbles in U.S. stocks, bonds and real estate (particularly commercial real estate). The real economy has not yet gained traction. This has left the 1% who own the assets more wealthy than any time in history and the remaining 99% running in quicksand.

This perfectly sums up the Fed's dilemma, which was on full display this week. The Fed can see economic data is deteriorating across the board, other than the jobs number which the Fed has admitted is a rough determinant of what is really taking place with employment (i.e. jobs are being created but they are lower paying jobs while higher paying jobs continue to decline or stagnate).

In the meantime, the financial markets are booming and even the clueless Fed can feel the level of froth. Janet Yellen has comented on sky high valuations in biotech stocks, corporate bonds and commercial real estate. The Fed removed "patient" from their guidance this week, but they were clear in expressing their concern for the real economy.

I guess a positive you can take away; because the real economy has not recovered or been "pulled up" by the financial market bubbles, it will be impacted less when U.S. stocks, bonds and real estate finally enter back into reality (they collapse).

Thursday, March 19, 2015

Will Stocks Always Rise & Silver Always Fall?

I came across an interesting chart this week from Casey Research showing the massive volatility in silver market. We have just experienced the second largest decline of the last 50 years (close to 70%). While it certainly possible we could go much lower from here with a deflationary, scramble for cash like event, I am personally steadily accumulating physical silver at these mid-teens prices (silver is about $15 today).

After four relentless years of price declines people begin to forget there was ever a time when silver rose in price and begin to believe steady declines will last forever.

On the other end of the spectrum you have U.S. stocks which have been rising relentlessly for six straight years. People forget there was ever a time when U.S. stocks declined in price and believe the market will always rise, without interruption.

My belief is there will be a day, relatively soon, when the performance of these assets diverge considerably. Every day that passes until we reach that point will bring more people comfortably into the "safe" warm waters of U.S. stocks and away form the "danger" in precious metals or cash.

For more see: The 6 Year U.S. Stock Market Rally Relative To History & What Comes Next

Wednesday, March 18, 2015

Jim Grant On The Fed's Path Forward

Retirement Problems Ahead

When I look at retirement savings data I like to see the situation for those that will be retiring fairly soon. I don't really care about the savings of 25 to 34 year people. It's kind of like looking at those debt charts that say we'll have a problem in 2060. I don't care about 2060. Show me where there is a problem coming next.

There is a problem today, right now, for the retirement savings of Americans in the 55 to 64 year old age bracket. As you can see in the chart below from the National Institute on Retirement, over 90% of Americans in this age bracket have less than 400% of their annual income saved. Over 50% have less than 100% of their annual income saved.

This data was compiled at the end of 2013 following a massive rally in stocks, bonds and real estate. Just imagine how things will look when all these markets turn down together in the years ahead while incomes decline and job losses return.

Tuesday, March 17, 2015

The Rise & Fall Of BRICS Stock Markets

An excellent visual below of the BRICS (Brazil, Russia, India, China & South Africa) stock price performance since January 2002. People often reference China's violent share price rise in 2006 - 2007, but it looks tame in comparison to what took place in the other BRICS.

Some of these countries have once again been counted down and out after the most recent commodities sell-off with both their share markets and currencies taking a plunge (Russia, South Africa, Brazil). India and China have separated from the pack over the last two years with a stable currency and a rising share market (they depend less on commodity exports for growth).

As the U.S. stock market moves further and further into overvaluation and these emerging markets continue to cheapen, the BRICS are becoming far more attractive on a relative basis. My belief is after the next crash, these countries will lead on the way up again both in currency appreciation and stock market growth.

Monday, March 16, 2015

Presidential Campaigns

How Americans like myself feel when it's time to step up and make the Republican vs. Democrat vote.