Marshall Sutherland
  
Peak ProsperityPeak Prosperity wrote the following post Fri, 15 Dec 2017 18:41:29 -0500
The Great Oil Swindle
The Great Oil Swindle

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When it comes to the story we're being told about America's rosy oil prospects, we're being swindled. And the swindle is not just limited to the US.

At its core, the swindle is this: The shale industry's oil production forecasts are vastly overstated.

The false conclusions the world is drawing as a result of the deception and outright lies we're being told is putting our future prosperity in major jeopardy. Policy makers and ordinary citizens alike have been misled, and everyone -- everyone -- is unprepared for the inevitable and massive coming oil price shock.
Maria Karlsen
  
Oh wow. Thanks for sharing.

(Btw. As a comparison: The current fuel price in Sweden is about 6,8 USD/gallon - and that's considered normal.)
Marshall Sutherland
  
Desperate Venezuelans Turn to Video Games to Survive

Crisis-wracked Venezuela has become fertile ground for what’s known as gold farming. People spend hours a day playing dated online games such as Tibia and RuneScape to acquire virtual gold, game points or special characters that they can sell to other players for real money or crypto-currencies such as bitcoin. The practice, which has previously cropped up in other basket-case economies such as North Korea’s, has become so popular with Venezuelans that they’re now spreading inflation inside the virtual worlds.
Marshall Sutherland
  
Peak ProsperityPeak Prosperity wrote the following post Fri, 01 Dec 2017 23:57:42 -0500
You're Just Not Prepared For What’s Coming
You're Just Not Prepared For What’s Coming

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All bubbles burst -- painfully of course. That’s their very nature. Mathematically, it's impossible for half or more of a bubble's participants to close out their positions for a gain. But in reality, it's even worse. Being generous, maybe 10% manage to get out in time.

That means the remaining 90% don’t. For these bagholders, the losses will range from 'painful' to 'financially fatal'.

Which brings us to the conclusion that a similar proportion of people will be emotionally unprepared for the bursting of these bubbles.  Again, playing the odds, I'm talking about you.

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Marshall Sutherland
  
The Dumbest Dumb Money Finally Gets Suckered In

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What’s frustrating about this is the repeating pattern of government creating conditions in which smart money (that is, the guys who donate big to political campaigns) is allowed to get in early, make huge profits, and then hand the bag to regular people who aren’t connected or sophisticated enough to see what’s happening. The rich, who are or will soon be shorting the hell out of this market, get richer and the rest see their hopes for a decent (or any) retirement dashed one more time.

And the political class wonders why voters don’t like them anymore.
Marshall Sutherland
  
Tim O'Reilly on What's the Future

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Author Tim O'Reilly, founder of O'Reilly Media and long-time observer and commenter on the internet and technology, talks with EconTalk host Russ Roberts about his new book, WTF? What's the Future and Why It's Up to Us. O'Reilly surveys the evolution of the internet, the key companies that have prospered from it, and how the products of those companies have changed our lives. He then turns to the future and explains why he is an optimist and what can be done to make that optimism accurate.
Marshall Sutherland
  
Sovereign ManSovereign Man wrote the following post Thu, 07 Sep 2017 12:19:08 -0400
The world’s most powerful bank issues a major warning
The world’s most powerful bank issues a major warning

In 1869, a 48-year old Jewish immigrant from the tiny village of Trappstadt in Germany’s Bavaria region hung a shingle outside of his small office in lower Manhattan to officially launch his new business.

His name was Marcus Goldman, and the business he started, what’s now known as Goldman Sachs, has become the preeminent investment bank in the world with nearly $1 trillion in assets.

They didn’t get there by winning any popularity contests.

Goldman Sachs has been at the heart of nearly every major banking scandal in recent history.

The company has settled lawsuits on countless charges, ranging from exchange rate manipulation, stock price manipulation, demanding bribes from their own clients, front-running retail customers, and just about every shady business practice that would put money in their pockets.

Yet throughout it all, Goldman Sachs has been protected from any serious punishment by its friends in highest offices of government.

Four out of the last eight US Treasury Secretaries, including the current one, have formerly been on the payroll of Goldman Sachs.

Three current Federal Reserve Bank presidents are Goldman Sachs alumni.

The current president of the European Central Bank and the current head of the Bank of England are both former Goldman Sachs employees.

You get the idea.

On its face, there’s nothing wrong with government staffing its departments with top executives from the private sector; taxpayers would probably rather have someone who knows what s/he’s doing behind the desk rather than some random guy off the street.

But the consequent favoritism that results from this revolving door is blatant and repulsive.

Case in point: in 2008 when the financial system was going up in flames and most banks were suffering enormous losses, the government orchestrated a sweetheart bailout deal, of which Goldman was the primary beneficiary.

Goldman stood to lose billions of dollars from its bad investments in insurance giant AIG (which was going bankrupt).

Instead, Goldman was repaid 100 cents on the dollar, courtesy of the US taxpayer. And that’s not an isolated case.

The point is that Goldman Sachs is deeply embedded across the entire economy, nearly every major western government, and the most important financial markets in the world.

So when the bank’s CEO says that financial markets are too expensive, it’s probably time to start paying attention.

That’s exactly what happened yesterday at the Handelsblatt business conference in Frankfurt, Germany– Goldman Sachs’ CEO told the audience bluntly that world financial markets “have been going up for too long.”

And it’s true. Many major stock markets around the world are near all-time highs. Bond markets are near all-time highs. Property markets are near all-time highs.

Insolvent governments that have a history of defaulting on their debts (like Argentina) are able to issue bonds with maturity dates of ONE HUNDRED YEARS at laughably small interest rates.

Companies which perpetually lose money are seeing their stock prices soar to continual new heights.

Interest rates in many parts of the world are still negative.

And whereas the average length of a ‘bull market,’ in which asset prices rise, is just over 5 years, the current bull market has been going for 8 ½ years.

That makes it one of the longest in the history of financial markets.

There are now legions of seasoned analysts, traders, and investment bankers working on Wall Street who have literally never experienced a down year.

Little by little, a few prominent voices in finance have started to express concerns about the state of financial markets.

Yesterday’s comments by Goldman’s CEO was only the latest. Though given his status as THE market and economic insider, his remarks are perhaps the most noteworthy.

In fairness, no one has a crystal ball, especially when it comes to financial markets. Not even the CEO of Goldman Sachs.

But if these guys are telling the world that the market is overheated, you can probably imagine they’ve already started selling.

Source
Marshall Sutherland
  
Sovereign ManSovereign Man wrote the following post Mon, 28 Aug 2017 17:20:09 -0400
The average American had a bigger savings account… in 1997!
The average American had a bigger savings account… in 1997!

Quite literally as a I write these words to you, the heads of the world’s largest central banks are packing their bags and heading home after a three-day symposium in Jackson Hole, Wyoming.

Central bankers aren’t exactly mega-celebrities, so their conferences don’t make international news outside of financial circles.

But if people understood what was at stake, they’d probably pay more attention.

Central bankers wield totalitarian authority over their nations’ interest rates.

Setting interest rates means they have direct influence over the price of money. In other words, they influence the price of EVERYTHING–

How much you pay for your mortgage. The price of your home. How cheap (or expensive) it is for a business to borrow money for expansion… which directly affects how many people they hire.

Their influence over rates helps determine how much interest the government pays each year on its debts, which ultimately impacts tax rates and other spending programs.

It’s extraordinary power.

And whereas nearly every branch of government has some system of checks and balances to ensure no single body has too much authority, central banks aren’t technically part of the government…

… so their power is nearly entirely unchecked.

To be fair, I’m sure they’re all very nice people with good intentions.

Central bankers are not moustache-twirling villains plotting a takeover of the world.

But the decisions they make have serious implications over the lives of hundreds of millions of people.

Just like politics, every action they take has winners and losers.

And it’s easy to see who’s been winning over the last several years as a result of their policies.

Stock markets around the world are at all-time highs. Bond markets are at all-time highs. Real estate is at all-time highs.

If you own assets you’ve done extremely well.

But if you’re in the rapidly deteriorating middle class, especially the lower middle class, you haven’t.

Looking at the United States, for example, it seems quite strange that the stock market is near its ALL-TIME HIGH while the overall economy has been sluggish for years.

Annual GDP growth for the United States in 2016 was a measly 1.6%, a rate that barely keeps up with population.

And global GDP growth has been low for years.

This has had a significant impact on employment and wages.

Central bankers and politicians tout that the unemployment rate in the US is at a 10-year low.

And that sounds great.

But it’s easy to see a different picture when you look deeper at the numbers.

According to data from the US Labor Department, for example, the percentage of Americans in their prime work years (between the ages of 25 and 54) who actually have jobs is still WAY below the level prior to the 2008 Great Recession.

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Wage growth has also been stagnant..

On top of that, debt levels are hitting record highs. Student debt. Consumer debt. Auto loans.

And people are once again unable to pay their debts.

Over the last 12 months, for example, Capital One’s net charge-offs increased 40%.

Cash levels are also incredibly low.

We’ve all seen the stories about how little savings the average American has.

Well, I pulled the data myself, using Bank of America as a proxy.

Bank of America’s annual report from 2016 shows that the bank has $592 billion in consumer deposits from 46 million households.

That works out to be an average of $12,870. Per HOUSEHOLD. Not per person.

And that amount includes EVERYTHING: savings, investments, retirement, etc.

What’s amazing is that, 20 years ago, Bank of America’s annual report showed the bank had $392 billion in deposits from 30 million households.

That worked out to be $13,067 per household… in 1997!

So 20 years later, Bank of America’s average customer has LESS MONEY. And that’s before adjusting for inflation.

This is one of the biggest stories of our time: the middle class… especially the lower middle class… is being decimated.

A strong middle class has long been the hallmark of modern western civilization.

In fact, history shows that throughout many dominant empires, from ancient Rome to the British Empire, a robust middle class is essential to maintain a durable society.

Where the middle class is strong and growing, civilization flourishes.

And where the middle class fails, civilization turns over.

Source
Marshall Sutherland
  
He means domain name, not website.

Sovereign ManSovereign Man wrote the following post Wed, 09 Aug 2017 11:03:46 -0400
This cryptocurrency website is selling for more money than Facebook’s
This cryptocurrency website is selling for more money than Facebook’s

What’s money worth if interest rates are negative?

Interest rates, after all, are the “price” of money.

When we borrow money from a bank and pay interest on the loan, it means that the money we’re borrowing has value. That –capital- has value.

Negative interest rates, on the other hand, suggest that capital is totally worthless.

This isn’t a philosophical exercise. These are the times we’re living in.

Despite a few tiny increases, interest rates worldwide are still near the lowest levels they’ve been in 5,000 years of human history.

Bankrupt governments across Europe who are already in debt up to their eyeballs have issued trillions of euros worth of new debt with negative yields.

And there have even been famous cases (also in Europe) in which bank depositors have had to PAY interest, while borrowers were BEING PAID to take out a mortgage.

Capitalism is defined by capital.

How does capitalism function when the cost of capital goes negative?

How does price discovery take place in a market where people (and governments) are literally being paid to borrow money?

I’m asking these questions because I honestly don’t know the answers.

Something is fundamentally broken in the market today.

Stripping capital of its value causes people to do stupid things.

How else could anyone explain that Argentina, a country in perpetual crisis that has defaulted on its debt eight times in the past century, sold billions of dollars worth of 100-year bonds last month to eager investors?

Or that Netflix, a company which consistently burns through billions of dollars of capital, was able to borrow over $1.5 billion at an interest rate of just 3.625%?

Again, this company lost $1.7 billion last year.

Plus they say they’ll lose another $2.5 billion in 2017, and that they don’t see this situation improving anytime soon.

In fact, Netflix’s most recent quarterly report states very plainly, “we expect to be FCF [free cash flow] negative for many years.”

Tesla, another serial value destroyer, is also tapping the debt markets.

That company is raising $1.5 billion to fund production of its low-priced Model 3.

That will bring the total amount of capital Tesla has raised since 2014 to nearly $8 billion.

Of course, Tesla needs to keep raising money because they burn through it so quickly.

Tesla loses $13,000 on every single car that it makes.

And the company has lost $1.6 billion in the past two quarters alone, not including the absurdly expensive Model 3 launch.

Then there’s Uber, a company ‘worth’ nearly $70 billion (and has raised around $14 billion in cash).

Yet the company loses nearly $3 billion every year.

And let’s not forget the mad dash for Bitcoin, which just hit yet another record high… or the even more high-flying market for ‘Initial Coin Offerings’, or ICOs.

ICOs are so white-hot that, earlier this summer, one company raised $153 million through the Ethereum blockchain in just THREE hours.

And of course there’s Ethereum itself, which is up 2,000% so far this year.

Perhaps most telling is that the domain Ethereum.com is available for sale for TEN MILLION DOLLARS.

Ironically the domain investing.com sold for just $2.45 million a few years ago.

Even Facebook’s fb.com sold for less— $8.5 million.

Now, I’m very much in favor of the crytpofinance movement.

But it’s clear that countless people are throwing money at an asset class that they don’t understand or know anything about.

I wonder how many retail investors who bought Bitcoin at its peak have ever read the original white paper… or have a clue how it works.

Or how many ethereum speculators understand a single line of code from the blockchain’s all-important ‘smart contract’ programming language?

People today are reckless with their money. They’re blindly throwing cash at anything that could produce a return.

This is the type of behavior that takes place when capital loses its value.

History is full of similar examples of capital losing value, including the famous episode of hyperinflation in Weimar Germany.

Hyperinflation hit Germany after the country printed paper money to finance its debt payments after World War I.

The government was printing so much money that they had to commission 130 different printing companies to run around the clock.

In 1914, at the beginning of the Great War, the exchange rate of the German mark to the US dollar was 4.2 to 1.

In 1923, the rate jumped to 4.2 trillion to one. The German mark was essentially worthless.

The currency lost value so rapidly, waiters would have to jump on tables to announce price changes every half hour.

Workers would bring wheelbarrows to work to collect their wages… then immediately leave to spend the money before it lost its value.

The barter system set in, with craftsmen offering their services for food.

Children would make arts and crafts with money, adults would burn the worthless paper to light their stove.

I doubt many people are setting money on fire to heat their homes today.

But they might as well be.

With so many investors throwing their capital into phenomenally pitiful investments that consistently lose money with no end in sight, or bonds which guarantee negative rates of return, the end result is the same–

That money is being set on fire.

Source
Marshall Sutherland
  
The Myth of Drug Expiration Dates

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Hospitals and pharmacies are required to toss expired drugs, no matter how expensive or vital. Meanwhile the FDA has long known that many remain safe and potent for years longer.

ProPublica has been researching why the U.S. health care system is the most expensive in the world. One answer, broadly, is waste — some of it buried in practices that the medical establishment and the rest of us take for granted.  We’ve documented how hospitals often discard pricey new supplies, how nursing homes trash valuable medications after patients pass away or move out, and how drug companies create expensive combinations of cheap drugs. Experts estimate such squandering eats up about $765 billion a year — as much as a quarter of all the country’s health care spending.

I guess I shouldn't worry so much about the 10 year old bottle of antihistamines we still use.
cer
cer
  
My previous doctor had to run an illegal pill exchange, taking in leftover HIV meds when a person's treatment was changed, giving them to a patient who needed them. There was no legal mechanism to accomplish this.
Marshall Sutherland
  
Sovereign ManSovereign Man wrote the following post Thu, 13 Jul 2017 12:57:35 -0400
“The universe is under no obligation to make sense to you.”
“The universe is under no obligation to make sense to you.”

In 1999 my colleague Tim Price had front row seats to the first Internet bubble.

He tells a great story about being a private client portfolio manager at Merrill Lynch in London at the time, and describes how clients were clamoring to buy technology stocks.

‘Giddy’ doesn’t really do the mania justice. ‘Insane’ comes closer to describing the popular mood.

James Glassman and Kevin Hassett had just published a book, Dow 36,000 (the title speaks for itself), and Merrill Lynch thought it fitting to give a copy to every single person on staff.

The NASDAQ stock index, which was heavily comprised of the technology companies that everyone loved so much, consistently hit fresh all-time highs. It was practically a daily occurrence.

Stock valuations soared; companies that lost grotesque amounts of money were “worth” billions of dollars simply because investors no longer cared about conventional metrics like profit.

Warren Buffett blasted this “irrational exuberance” and wrote that “a bubble market has allowed the creation of bubble companies– entities designed more with an eye to making money off investors rather than for them. . .”

But Buffett was dismissed as a foolish old man.

1999/2000 was also when investment guru Jim Cramer told everyone to buy incredibly expensive tech stocks at all-time highs– like Digital Island, 724 Solutions, and Exodus Communications.

(If you haven’t heard of any of those companies, it’s because they all spectacularly flamed out after losing billions of dollars of their investors’ capital.)

Tim tells a story about a website that existed back then called f**kedcompany.com.

The website showcased ridiculous businesses that were burning through money, and over time it developed into a chat room for venture capitalists, stock investors, and professional asset managers.

Tim describes a post he read once in 1999 from somebody who called himself ‘Stanford MBA’.

It was brief and to the point:

“We have stumbled upon the perfect business model. We will lose money on every sale, and we will make up for up it in volume.”

The market peaked just a few months later. And when it came crashing down, the NASDAQ lost 78% of its value.

As a matter of fact, when adjusted for inflation, the NASDAQ is still 17.6% below its March 2000 peak.

In other words, investors have waited nearly two decades and STILL haven’t recovered their losses from the dot-com bubble.

With the benefit of hindsight, it’s easy to see the obvious warning signs.

The mania in 1999 was palpable. No one cared about profit. Retail investors were piling in at record pace. And the ‘experts’ said it would last forever.

We’re seeing similar indicators today.

Some of the largest, most popular companies in the world have been inflating their stock prices by borrowing money to purchase their own shares.
Others, including ExxonMobil, AT&T, Verizon, Netflix, etc. have NEGATIVE free cash flow, meaning that their businesses are burning through cash and increasing debt.

Yet despite this cash burn, stock valuations are currently at their highest levels since the financial crisis, and have only been higher two times in history. (One of them was the Great Depression.)

And retail investors have been piling in at record levels; Charles Schwab recently reported unprecedented amounts of investors are opening new brokerage accounts.

Of course, if stocks are highly overvalued, bonds are even more ridiculous.

Governments that are completely bankrupt have been able to borrow trillions of dollars at yields which are NEGATIVE.

Perhaps most astonishingly, last month the government of Argentina sold $2.75 billion worth of bonds that will not mature until the year 2117– ONE HUNDRED YEARS from now.

(Bear in mind that Argentina has spent 75 out of the last 200 years in some state of default.)

And the experts tell us that the good times will last forever. No other than Janet Yellen stated a few weeks ago that we will not see another financial crisis in our lifetimes.

The list goes on and on. Stocks are at all-time highs. Bonds are at all-time highs. Real estate is at all-time highs.

So is, by the way, consumer debt, government debt, and margin debt. (The latter means that investors are borrowing record amounts of money to buy stocks.)

None of this makes sense.

Astrophysicist Neil DeGrasse Tyson opens his book Astrophysics for People in a Hurry with a great quote: “The universe is under no obligation to make sense to you.

The same can clearly be said about financial markets. They can remain irrational and expensive for years even though it makes absolutely no sense.
And yes, markets could become even MORE irrational and expensive.

But this is hardly a reason to participate in such madness.

There are always other options… including the option to do nothing at all.

Personally I am building up a large cash position right now and waiting patiently for a major correction (or even crash).

This is one thing we do know for certain– nothing moves up or down in a straight line. Asset prices rise and fall in boom/bust cycles.

And when those crashes occur, having cash is critical.

Remember the 2008 crash? Bank lending dried up. It was nearly impossible to borrow money to invest.

And the most incredible opportunities were available exclusively to investors who had plentiful cash and the will to act.

This might mean waiting months or even years for the opportunity to strike.

But when it comes to investing, the long-term risk-adjusted rewards of being patient and conservative almost invariably outweigh the short-term gains of chasing the latest fad.

Source
Marshall Sutherland
  
Peak ProsperityPeak Prosperity wrote the following post Fri, 09 Jun 2017 19:38:12 -0400
Why The Markets Are Overdue For A Gigantic Bust
Why The Markets Are Overdue For A Gigantic Bust

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As much as I try, I simply cannot jump on the bandwagon that says that printing up money out of thin air has any long-term utility for an economy.

It's just too clear to me that doing so presents plenty of dangers, due what we might call 'economic gravity': What goes up, must also come down.
Marshall Sutherland
  
Sovereign ManSovereign Man wrote the following post Mon, 12 Jun 2017 13:09:04 -0400
Record “Wealth” in America: 72% of US businesses are NOT profitable
Record “Wealth” in America: 72% of US businesses are NOT profitable

The Federal Reserve in the United States just released a new report showing that “Total Household Wealth” in the United States has reached a record $94.8 trillion.

That’s an impressive figure.

Even more impressive is that Total Household Wealth has increased by $40 trillion since the lows of the Great Recession in 2009.

No doubt there’s probably a multitude of central bankers and bureaucrats toasting their success in having engineered such magnificent prosperity.

And it’s certainly an achievement worth celebrating. As long as you don’t look too closely at the data.

Total Household Wealth is exactly what it sounds like– the total net worth of every person in the United States, from Bill Gates down to the youngest newborn baby.

So when you add up all the 330+ million folks in the Land of the Free and tally up their combined net worth, the total is $94 trillion.

The thing is that the VAST majority of that wealth, especially the incredible growth over the last 8 years, has been from increases in just two asset classes: real estate and the stock market.

In fact, stocks and real estate alone account for roughly 2/3 of the wealth increase since 2009.

I’ll come back to that in a moment.

Now, simultaneously, we see plenty of other interesting data, also published by the Federal Reserve and US federal government.

Both the Fed and Census Bureau, for example, tell us that over 80% of businesses in the US are “nonemployer” companies, i.e. businesses which only employ one person (the owner), and often provide his/her primary source of income.

Yet according to the Federal Reserve, only 35% of these small businesses are profitable. Most are operating at a loss.

In other words, only 35% of the companies which make up 80% of American businesses are profitable.

You’re probably already doing the arithmetic– this means that a whopping 72% of all US businesses are NOT profitable.

That hardly sounds like record wealth to me.

Shifting gears, there’s the little factoid that an astounding 40% of young Americans are living with their parents– the highest percentage in the last 75 years.

And who can blame them considering student debt in the Land of the Free also hit a record $1.4 trillion three months ago, more than double the amount since the Great Recession.

Speaking of record debt, US credit card debt passed a record $1 trillion, and total US consumer credit hit a record $3.8 trillion last month.

Again, all of this hardly seems like ‘wealth’ to me.

Then there’s the issue of wages, which have remained essentially flat since the 2009 Great Recession if you adjust for inflation.

According to the US Department of Labor, inflation-adjusted wages, aka “real hourly compensation” in the US fell an annualized 0.9% last quarter, and fell a dismal 5.6% in the previous quarter.

Adjusted for inflation, the average American isn’t making any more money.

Once again, this is a pitiful excuse for ‘wealth.’

American businesses aren’t more productive either.

The same Labor Department report shows that productivity in the Land of the Free was flat in the first quarter of this year.

And productivity actually declined in 2016– something that hasn’t happened in at least the last 50 years.

Not to mention total economic growth in the Land of the Free has been pretty pitiful, logging a pathetic 1.6% last year.

And GDP growth in the first quarter of 2017 was just 1.2% on an annualized basis.

The US economy has exceed hasn’t surpassed 3% growth in more than 10-years, and it’s only happen two times so far in this millennium.

Seriously? This is “wealth”?

Look, I get it. Houses are ‘worth’ more than they used to be, and the stock market is much higher.

But these effects are heavily influenced by the trillions of dollars that was conjured out of thin air by the Federal Reserve.

ExxonMobil may be the most telling example.

In early September 2008, just prior to the financial crisis, Exxon had recently reported revenues of $72 billion, with $11.1 billion in net operating cashflow.

For the first quarter of 2017 the company reported revenues of $61 billion and net operating cashflow of $8 billion.

Plus, ExxonMobil managed to add nearly $20 billion in debt to its balance sheet over that same period.

So over 8-years, Exxon is making less money and has more debt. Yet its stock price is actually HIGHER.

More broadly, 66% of the largest companies in the US that have given estimates of their earnings for next quarter have issued “negative guidance”.

Companies expect to make less money. But stocks are near all-time highs.

Does this make any sense? Is that also wealth?

No.

This is nothing more than the result of paper money that has been created by central bankers, allocated to a tiny financial elite, and dumped into the stock market.

It’s the same with real estate. Sure, prices are higher. But it’s not because of fundamentals.

In terms of population, there’s only been a 7% increase in the number of households in the United States since 2009.

There’s been a commensurate increase in the supply of homes as well.

So in terms of supply/demand fundamentals, the average price nationwide shouldn’t be that much higher.

But take a look at this chart, courtesy of the Federal Reserve.

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The red line shows interest rates, which have been generally falling since 1990. The blue line shows home prices, which have been rising like crazy since 2012.

It doesn’t take a rocket scientist to spot the correlation: record low interest rates mean higher home prices.

This isn’t wealth.

It’s just phony paper.

And as the Great Recession showed in late 2008, phony paper wealth can go ‘poof’ in an instant.

With that in mind, it may be time to consider taking some of that paper wealth off the table and setting it aside for a rainy day.

Source
Marshall Sutherland
  
Peak ProsperityPeak Prosperity wrote the following post Fri, 17 Mar 2017 20:05:13 -0400
Banks Are Evil
Banks Are Evil

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I don't talk to my classmates from business school anymore, many of whom went to work in the financial industry.

Why?

Because, through the lens we use here at PeakProsperity.com to look at the world, I've increasingly come to see the financial industry -- with the big banks at its core -- as the root cause of injustice in today's society. I can no longer separate any personal affections I might have for my fellow alumni from the evil that their companies perpetrate.

And I'm choosing that word deliberately: Evil.
Marshall Sutherland
  
Sovereign ManSovereign Man wrote the following post Mon, 13 Mar 2017 08:23:29 -0400
The US government now has less cash than Google
The US government now has less cash than Google

In the year 1517, one of the most important innovations in financial history was invented in Amsterdam: the government bond.

It was a pretty revolutionary concept.

Governments had been borrowing money for thousands of years… quite often at the point of a sword.

Italian city-states like Venice and Florence had been famously demanding “forced loans” from their wealthy citizens for centuries.

But the Dutch figured out how to turn government loans into an “investment”.

It caught on slowly. But eventually government bonds became an extremely popular asset class.

Secondary markets developed where people who owned bonds could sell them to other investors.

Even simple coffee shops turned into financial exchanges where investors and traders would buy and sell bonds.

In time, the government realized that its creditworthiness was paramount, and the Dutch developed a reputation as being a rock-solid bet.

This practice caught on across the world. International markets developed.

English investors bought French bonds. French investors bought Dutch bonds. Dutch investors bought American bonds.

(By 1803, Dutch investors owned a full 25% of US federal debt. By comparison, the Chinese own about 5.5% of US debt today.)

Throughout it all, debt levels kept rising.

The Dutch government used government bonds to live beyond its means, borrowing money to fund everything imaginable– wars, infrastructure, and ballooning deficits.

But people kept buying the bonds, convinced that the Dutch government will never default.

Everyone was brainwashed; the mere suggestion that the Dutch government would default was tantamount to blasphemy.

It didn’t matter that the debt level was so high that by the early 1800s the Dutch government was spending 68% of tax revenue just to service the debt.

Well, in 1814 the impossible happened: the Dutch government defaulted.

And the effects were devastating.

In their excellent book The First Modern Economy, financial historians Jan De Vries and Ad Van der Woude estimate that the Dutch government default wiped out between 1/3 and 1/2 of the country’s wealth.

That, of course, is just one example.

History is full of events that people thought were impossible. And yet they happened.

Looking back, they always seem so obvious.

Duh. The Dutch were spending 68% of their tax revenue just to service the debt. Of course they were going to default.

But at the time, there was always some prevailing social influence… some wisdom from the “experts” that made otherwise rational people believe in ridiculous fantasies.

Today is no different; we have our own experts who peddle ridiculous (and dangerous) fantasies.

Case in point: this week, yet another debt ceiling debacle will unfold in the Land of the Free.

You may recall the major debt ceiling crisis in 2011; the US federal government almost shut down when the debt ceiling was nearly breached.

Then it happened again in 2013, at which point the government actually DID shut down.

Then it happened again in 2015, when Congress and President Obama agreed to temporarily suspend the debt ceiling, which at the time was $18.1 trillion.

That suspension ends this week, at which point a debt ceiling of $20.1 trillion will kick in.

There’s just one problem: the US government is already about to breach that new debt limit.

The national debt in the Land of the Free now stands at just a hair under $20 trillion.

In fact the government has been extremely careful to keep the debt below $20 trillion in anticipation of another debt ceiling fiasco.

One way they’ve done that is by burning through cash.

At the start of this calendar year in January, the federal government’s cash balance was nearly $400 billion.

On the day of Donald Trump’s inauguration, the government’s cash balance was $384 billion.

Today the US government’s cash balance is just $34.0 billion.

(Google has twice as much money, with cash reserves exceeding $75 billion.)

This isn’t about Trump. Or even Obama. Or any other individual.

It’s about the inevitability that goes hand in hand with decades of bad choices that have taken place within the institution of government itself.

Public spending is now so indulgent that the government’s net loss exceeded $1 trillion in fiscal year 2016, according to the Treasury Department’s own numbers.

That’s extraordinary, especially considering that there was no major war, recession, financial crisis, or even substantial infrastructure project.

Basically, business as usual means that the government will lose $1 trillion annually.

Moreover, the national debt increased by 8.2% in fiscal year 2016 ($1.4 trillion), while the US economy expanded by just 1.6%, according to the US Department of Commerce.

Now they have plans to borrow even more money to fund multi-trillion dollar infrastructure projects.

Then there’s the multi-trillion dollar bailouts of the various Social Security and Medicare trust funds.

And none of this takes into consideration the possibility of a recession, trade war, shooting war, or any other contingency.

This isn’t a political problem. It’s an arithmetic problem. And the math just doesn’t add up.

The only question is whether the government outright defaults on its creditors, defaults on promises to its citizens, or defaults on the solemn obligation to maintain a stable currency.

But of course, just like two centuries ago with the Dutch, the mere suggestion that the US government may default is tantamount to blasphemy.

Our modern “experts” tell us that the US government will always pay and that a debt default is impossible.

Well, we’re living in a world where the “impossible” keeps happening.

So it’s hard to imagine anyone will be worse off seeking a modicum of sanity… and safety.

Do you have a Plan B?
elmussol
  
Crisis? What crisis?
Marshall Sutherland
  
Peak ProsperityPeak Prosperity wrote the following post Sat, 11 Mar 2017 00:01:54 -0500
When This All Blows Up...
When This All Blows Up...

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This report marks the end of a series of three big trains of thought. The first explained how we’re living through the Mother Of All Financial Bubbles. The next detailed the Great Wealth Transfer that is now underway, siphoning our wealth into the pockets of an elite few.

This concluding report predicts how these deleterious and unsustainable trends will inevitably ‘resolve’ (which is a pleasant way of saying ‘blow up’.)
Marshall Sutherland
  
Our Miserable 21st Century

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As may be seen in Figure 3, U.S. adult work rates never recovered entirely from the recession of 2001—much less the crash of ’08. And the work rates being measured here include people who are engaged in any paid employment—any job, at any wage, for any number of hours of work at all.
Manuel
  last edited: Sun, 05 Mar 2017 14:22:41 -0500  
Very clarifying. The graph shows that cyclical crises are provoked by capital to increase profits by reducing labor costs, increasing the mass of unemployed available.
Marshall Sutherland
  
As cynical as I may be sometimes, I don't think anyone is purposefully provoking these cycles (maybe I misunderstood, but that's what it looked like you were saying).

I do, however, think that the powers that be have been redefining statistics like unemployment (and inflation) to make it look like everything is rosy. Which unemployment graph below makes sense next to Fig 3 above?

  Alternate Unemployment Charts

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The seasonally-adjusted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994. That estimate is added to the BLS estimate of U-6 unemployment, which includes short-term discouraged workers.

The U-3 unemployment rate is the monthly headline number. The U-6 unemployment rate is the Bureau of Labor Statistics’ (BLS) broadest unemployment measure, including short-term discouraged and other marginally-attached workers as well as those forced to work part-time because they cannot find full-time employment.
Marshall Sutherland
  
Peak ProsperityPeak Prosperity wrote the following post Fri, 03 Mar 2017 21:59:05 -0500
The Coming Great Wealth Transfer
The Coming Great Wealth Transfer

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In the past, I've warned about the coming Great Wealth Transfer.  But now we need to talk about it in the present tense, because it’s here.

Virtually everybody in the bottom 95% is being economically and financially sacrificed to bail out the prior bad decision of the central banks and their associated governments. And as that’s deeply unfair, it breeds resentment. Psychology tells us that resentment breeds contempt. And once there, relationship are doomed to fail. Our leaders have broken their covenant with the governed, and the governed are increasingly pissed. Expect that simmering anger to boil over at some point.
Marshall Sutherland
  
Peak ProsperityPeak Prosperity wrote the following post Thu, 23 Feb 2017 16:50:32 -0500
It’s Bubble Time!
It’s Bubble Time!

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It's impossible to predict with certainty how much more insane our financial markets will get before an inevitable correction, but my personal bet is “a lot!”

For my reasons why, take a few minutes to watch the chapter on bubbles below from The Crash Course. For those who haven't seen it before, the takeaway is this: bubbles pop only when greed in the market has been exhausted.

Join the conversation »

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Marshall Sutherland
  
Considerations On Cost Disease

Imagine if tomorrow, the price of water dectupled. Suddenly people have to choose between drinking and washing dishes. Activists argue that taking a shower is a basic human right, and grumpy talk show hosts point out that in their day, parents taught their children not to waste water. A coalition promotes laws ensuring government-subsidized free water for poor families; a Fox News investigative report shows that some people receiving water on the government dime are taking long luxurious showers. Everyone gets really angry and there’s lots of talk about basic compassion and personal responsibility and whatever but all of this is secondary to why does water costs ten times what it used to?
Marshall Sutherland
  
Peak ProsperityPeak Prosperity wrote the following post Fri, 17 Feb 2017 22:45:09 -0500
The Mother Of All Financial Bubbles
The Mother Of All Financial Bubbles

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The main lesson from Oroville -- or Fukushima, or Katrina --  is that governments do a poor job of relating accurate information to their citizens when big threats are involved. Part of that is likely due to a desire to avoid stoking fear. Part probably due to politics and bureaucracy. And part probably due to plain old incompetence.

Regardless of the cause, it means that the public -- even the vigilant ones -- suffer information deficits when it matters most. Simply put, the authorities do not share all the facts necessary for making informed decisions.

Which brings us to one of the truly great risks we're facing today. One with much more destructive potential than a single failed dam but, like Oroville, one the authorities are desperate to keep us in the dark about.