IT’S ALL GOOD, RIGHT?

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Posted on 26th November 2014 by Administrator in Economy |Politics |Social Issues

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It really isn’t hard to connect the dots and see the real economy in the real world, outside Wall Street, is a disaster and getting worse by the hour. Below are a bunch of dots that have been issued in the last 24 hours. Here are the facts.

Real disposable income has risen at a 1.8% annual rate over the last four months. Meanwhile, real consumer spending has increased at a 2.4% annual rate over the last four months. I thought all those jobs Obama talks about should result in wages. Why is disposable personal income so pitiful if the unemployment rate is really 5.9%? And of course, these figures are based upon a fake inflation rate of less than 2%. We all know it is 5% or higher.

If things are going so well, why are unemployment claims surging to the highest level in 3 months? Shouldn’t the wonderful holiday season be resulting in massive retail hiring to service all the well off citizens buying more shit they don’t need, with money they don’t have? Consumer debt outstanding will surely hit a new high in December.

 

Maybe the lack of disposable income is because the number of people receiving free shit for not working is now at a 14 year low. As we know, government transfers of our money to people not working counts as personal income in the warped minds of government bureaucrats. It looks like the free rides are getting shorter.

With the stock market hitting new highs every day, the millionaire pundits on the corporate mainstream media are ecstatic as the wealth of billionaires and bankers skyrockets. If it is good for Wall Street it must be good for Main Street. Right? Not according to Gallup. It seems the Americans living in the real world ain’t so ecstatic. They plan to barely spend more on Christmas than last year, and 6% LESS than they spent in 2011 and 2012. How about 17% less than they spent in 2007? How about 16% less than they spent in 1999? Does this jive with an economic recovery and a stock market at all-time highs?

Back in the real world of businesses, it seems things aren’t so good. Zero Hedge pithily describes the situation:

The Durable Goods ex-transports number dropped by a whopping -0.9%, far below the 0.5% increase expected, and the biggest drop since the December -1.8% tumble which was blamed on the Polar Vortex. It is unclear what the October tumble will be blamed on: the Ebola scare? The Bullard Bottom?

If the high level numbers weren’t enough proof, how about an iconic American manufacturer? Their sales and profits are falling. They expect sales for the current quarter to PLUNGE by 21%. That only happens in recessions. I thought the agricultural economy was booming. Maybe not.

Deere’s stock slips after downbeat outlook for equipment sales

By Tomi Kilgore

Published: Nov 26, 2014 7:18 a.m. ET

NEW YORK (MarketWatch) — Deere & Co.’s stock DE, +0.31% fell 3.4% in premarket trade Wednesday, after the farm equipment maker beat fiscal fourth-quarter profit and sales forecasts, but provided a downbeat outlook for equipment sales. For the quarter ended Oct. 31, the company reported earnings of $649.2 million, or $1.83 a share, down from $806.8 million, or $2.11 a share, in the year-earlier period, but above the FactSet consensus analyst estimate of $1.57. Revenue fell 5% to $8.97 billion, as equipment sales fell 7%, but topped analyst forecasts of $7.73 billion. For the current quarter, Deere expects equipment sales to fall 21%, on expectations of a continued pullback in the agricultural sector. “The slowdown has been most pronounced in the sale of large farm machinery, including many of our most profitable models.” The stock has lost 3.9% so far this year through Tuesday, compared with a 12% gain in the S&P 500.

 

The government laughingly told the sheep that GDP in the 3rd quarter had soared. A critical thinking person might wonder how that could be. We know from the data presented above that the consumer has not been spending, because they don’t have anything to spend. As detailed below, corporate profits crashed in the 3rd quarter. We’ve got corporate profits growing at 2.1% when the PE ratio of the S&P 500 is 20.  Based on every valuation method ever used, the stock market is now overvalued by at least 50%.

 

Growth in corporate profits slows sharply in third quarter

By Jeffry Bartash

Published: Nov 25, 2014 8:31 a.m. ET

WASHINGTON (MarketWatch) – Growth in adjusted corporate profits slowed sharply in the third quarter, new government figures show. Adjusted pretax profits increased by $43.8 billion, or a 2.1% annual rate. That’s down from $164.1 billion, or an 8.4% increase, in the second quarter, the Commerce Department said Tuesday. Profit figures are adjusted for depreciation and the value of inventories.

 

So despite these factual data points, the MSM and Wall Street will party on with the belief that Grandma Yellen and the rest of the corrupt central bankers around the globe will devalue the world to prosperity. Or at least provide prosperity to the .1% that control them.

 

NO ONE TOLD YOU WHEN TO RUN, YOU MISSED THE STARTING GUN

209 comments

Posted on 20th November 2014 by Administrator in Economy |Politics |Social Issues

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Ticking away the moments that make up a dull day
You fritter and waste the hours in an offhand way.
Kicking around on a piece of ground in your home town
Waiting for someone or something to show you the way.

Tired of lying in the sunshine staying home to watch the rain.
You are young and life is long and there is time to kill today.
And then one day you find ten years have got behind you.
No one told you when to run, you missed the starting gun.

Pink Floyd – Time

I stumbled across two mind blowing charts yesterday that had me pondering how generations of Americans had frittered their lives away, spending money they didn’t have  on things they didn’t need, utilizing easy to acquire debt, and saving virtually nothing for their futures or a rainy day. We are a nation of Peter Pans who never grew up. While I was driving home from work, one of my favorite Pink Floyd tunes came on the radio and the lyrics to Time seemed to fit perfectly with the charts I had just discovered.

We were all young once. Old age and retirement don’t even enter your thought process when you are young. Most people aren’t sure what they want to do for the rest of their lives when they are in their early twenties. Slaving away at your entry level low paying job, chasing the opposite sex, getting drunk, and having fun on the weekends is the standard for most young people. But you eventually have to grow up. Because one day you find ten years have got behind you. No one tells you when to grow up. And based on the charts below, tens of millions missed the starting gun.

I graduated college in 1986 and started my entry level CPA firm job, making $18,000 per year. I did live at home for a year and a half before getting an apartment with a friend. I was able to buy a car, pay off my modest student loan debt, go out on the weekends, and still save some money. I was in my early 20’s and had opened a mutual fund account at Vanguard. Anyone who entered the job market from the mid 1970s through the mid 1980’s, which would be the late Baby Boomers and early Generation Xers, had job opportunities and the benefit of low stock market valuations.

P/E ratios of the market were single digits in the late 70s and early 80s, versus 20 today. Dividend yields on stocks averaged 5% for the S&P 500, versus 1.9% today. The Dow bottomed out at 759 in 1980, while the S&P 500 bottomed at 98. A 20 year secular bull market was about to get under way. Baby Boomers and Generation Xers had the opportunity of a lifetime. Even after six years of the bull, when I graduated from college the Dow stood at 1,786 and the S&P 500 stood at 521. I had just begun to invest when the 1987 crash wiped out 20% in one day. It meant nothing to me. I didn’t have much to lose, so I just kept investing.

The 20 year bull market took the Dow from 759 to 11,722 by January 2000. The S&P 500 rose from 98 to 1,552 by March 2000. You also averaged about a 3% dividend yield per year over the entire 20 years. Your average annual return, including reinvested dividends, exceeded 17%. Anyone who even saved a minimal amount of money on a monthly basis, would have built a substantial nest egg for retirement. If you had invested in 10 Year Treasuries, your annual return would have exceeded 11% over the 20 years. Even an ultra-conservative investor who only put their money into 5 year CDs would have averaged better than 7% per year over the 20 years.

Even with the two stock market collapses since 2000, your average annual return in the stock market since 1980 still exceeds 11%. That’s 34 years with an average annual total return of better than 11%. Every person who had a job over this time frame should have accumulated a decent level of retirement savings. That is why the chart below is so shocking. Over 15% of all people 60 and older and 23% of people 45 to 59 years old have NO retirement savings. None. Nada. Zilch. This means 25 million Boomers and Xers are stuck living off a Social Security pittance and choosing between keeping the heat on or eating a feast of Ramen noodles and Friskies. It seems they let 30 years get behind them. They missed the starting gun.

http://www.mybudget360.com/wp-content/uploads/2014/11/retirement-savings.png

I’m not shocked that over 50% of 18 to 29 year olds have no retirement savings. With the terrible job market, declining real wages, massive levels of student loan debt, two stock market crashes in the space of eight years, and 4% annual returns since 2000, young people today have neither the means nor trust in the system to save for retirement. Their elders had no such excuse. Just a minimal amount per paycheck saved over the last 30 years would have compounded to well over $100,000, even at modest salary levels. It is disgraceful that 25 million people over the age of 45 have saved nothing for their retirement. Far more disgraceful is the median household retirement balance of $3,000 for all working age households. There are 122 million households in this country and 61 million of them have $3,000 or less in retirement savings.

http://www.mybudget360.com/wp-content/uploads/2014/11/20130620__figure9.jpg

The far worse data points are the $12,000 median retirement balance of aged 55 to 64 households and the $10,100 median retirement balance of aged 45 to 54 households. These people are on the edge of retirement and have less than one year’s expenses saved. There is no legitimate excuse for this pitiful display of planning. These people had decades to save, strong financial market returns, and if they worked for a decent size organization – matching contributions to their retirement accounts. They didn’t need a huge salary. They didn’t need to save 20% of their salary. They didn’t have to be an investing genius. A savings allocation of just 3% to 5% would have grown into a decent sized nest egg after a few decades of compounding.

We know from the data in the chart, it didn’t happen. The concept of delayed gratification is unknown to the millions of nearly broke Boomers and Xers, shuffling towards an old age of poverty, misery and regret. A 64 year old has a life expectancy of about 20 years. They’ll have to budget “very” frugally to make that $12,000 last. The question is how did it happen. I don’t buy the load of crap that you can’t judge people as groups. I judge people by their actions, not their words. I know you can’t lump every Boomer and Xer into one box. Individuals in every generation have bucked the trend, lived within their means, saved for the future, and accumulated significant nest eggs for their retirement. But the aggregate numbers don’t lie. The majority of those over the age of 45 have squandered their chance at a relatively comfortable retirement. These are the people who most vociferously insist the government do something about their self created plight. It’s their right to free healthcare, free food, subsidized housing, free utilities, higher minimum wages, and a comfortable government subsidized retirement. They are wrong. They had a right to life, liberty and the pursuit of happiness. It was up to them to educate themselves, get a job, work hard, and accumulate savings.

The generations of live for today, don’t worry about tomorrow Americans over the age of 45 have no one to blame but themselves. They bought those 4,500 sq foot McMansions with negative amortization 0% down mortgages. They had to keep up with the Jones-es by putting in granite counter-tops, stainless steel appliances, home theaters, Olympic sized swimming pools, and enormous decks. They have HDTVs in every room in their house and must have every premium cable channel, along with the NFL package. They upgrade their phones every time Apple rolls out a new and improved version. They pay landscapers to manicure their properties. They lease new BMWs every three years. They have taken exotic vacations on an annual basis. They haven’t packed a lunch for themselves since they were 16 years old. Eating out for lunch and dinner has been a staple of their existence for decades. That morning Starbucks coffee is a given. A new wardrobe of name brand stylish clothes for every season is a requirement because your neighbors and co-workers are constantly judging you. Nothing proves you’re a success like a Rolex watch, Canali suit, Versace boots, or Gucci handbag. The have it now generations got it then and have virtually nothing now because they acquired all of these things with debt.

Real cumulative household income is up 10% since 1980. Consumer debt outstanding has risen from $350 billion in 1980 to $3.267 trillion today. That is a 933% increase. We’ve had decades of faux prosperity aided and abetted by Wall Street shysters, corrupt politicians, mega-corporation mass merchandisers, and Madison Avenue maggots trained in the methods of Edward Bernays to convince willfully ignorant consumers to consume. And consume we did. Saving, not so much. You can blame the oligarchs, bankers, retailers, and politicians for the fact you didn’t save, but it rings hollow. No matter how much propaganda is spewed by the ruling class, we are still individuals with free will. The older generations had choices. Saving money requires only one thing – spending less than you make. Most Boomers and Xers chose to spend more than they made and financed the difference. When the average credit card balance is five times greater than the median retirement account balance, you’ve got a problem. The facts about our consumer empire of debt are unequivocal as can be seen in these statistics:

  • Average credit card debt: $15,593
  • Average mortgage debt: $153,184
  • Average student loan debt: $32,511
  • $11.62 trillion in total debt
  • $880.3 billion in credit card debt
  • $8.05 trillion in mortgages
  • $1.12 trillion in student loans

I don’t blame those in their 20’s and 30’s for not having retirement savings. Anyone who entered the workforce around the year 2000 has good reason to not trust the system or their elders. There have been two stock market collapses and every asset class is now extremely overvalued due to the criminal machinations of the Federal Reserve. There are far less good paying jobs. Real wages keep declining. They were convinced by their elders to load up on student loan debt, leaving them as debt serfs. The Wall Street/Federal Reserve scheme to boost home prices and repair their insolvent balance sheets has successfully kept young people from ever being able to afford a home. So you have young people unable to save, invest or spend. You have middle aged and older Americans with little or no savings, mountains of debt, low paying service jobs, and an inability to spend. The only people left with resources are the .1% who have captured the system, peddle the debt, and reap the rewards of consumption versus saving. They may be able to engineer a stock market rally to further enrich themselves, but they can not propel the real economy of 318 million people. Our consumer society is dying – asphyxiated by debt – shorter of breath and one day closer to death.

I’d love to offer some sage advice on how to fix this problem, but it’s too late. Too many people missed the starting gun. More than ten years got behind them. No one is going to come to the rescue of people who never saved for their future. The Federal government has already made $200 trillion of entitlement promises it can’t keep. State governments have made tens of trillions in pension promises they can’t keep. They can’t tax young people who don’t have jobs. Older generations who think the government is going to rescue them from their foolish shortsighted choices are badly mistaken. Their benefits are likely to be reduced because the unsustainable will not be sustained. The 45 to 64 year old cohort who chose not to save can run and run to try and catch up with the sun, but it’s too late. It’s sinking. Their plans have come to naught. They are destined for lives of quiet desperation. There is nothing more to say.

So you run and you run to catch up with the sun but it’s sinking
Racing around to come up behind you again.
The sun is the same in a relative way but you’re older,
Shorter of breath and one day closer to death.

Every year is getting shorter; never seem to find the time.
Plans that either come to naught or half a page of scribbled lines
Hanging on in quiet desperation is the English way
The time is gone, the song is over,
Thought I’d something more to say.

Pink Floyd – Time

Obamacare + Executive Action = You’re Screwed

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Posted on 26th November 2014 by Administrator in Economy |Politics |Social Issues

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Hat tip Westcoaster
Guest Post by Karl Denninger

This is what you get America.

It is what you get when you allow a “President” to issue executive actions that are clearly unlawful — and yet he is not immediately impeached for doing so.

It is what you get when you allow a “President” to intentionally deceive all of you (who didn’t bother paying attention, or were too busy bowing before your baby Jesus) in passing a law that protects a panoply of firms that between them monopolize nearly a fifth of our economy.

And now, between the two, you have a “President” who has and will destroy literal millions of blue-collar jobs because he has provided a $3,000 a year incentive to businesses to legally hire 5 million illegal invaders instead of citizens!

President Obama’s temporary amnesty, which lasts three years, declares up to 5 million illegal immigrants to be lawfully in the country and eligible for work permits, but it still deems them ineligible for public benefits such as buying insurance on Obamacare’s health exchanges.

Under the Affordable Care Act, that means businesses who hire them won’t have to pay a penalty for not providing them health coverage — making them $3,000 more attractive than a similar native-born worker, whom the business by law would have to cover.

Got it yet America?

You not only are being forced to tolerate these illegal invaders, those who wish to immigrate here legally are not only being ignored while these lawless invaders roam our land, your jobs are now going to go to them as they are $3,000 a year cheaper to employ than you because they’re exempt from Obamacare’s requirements while you are not.

This is not an accident.  This outcome is is exactly what you get when you allow The Rule of Law to become a dead letter, you sit and watch Dancing With The Stars instead of rising in outrage and you refuse to demand that Congress impeach the Constitution-hating, America-destroying jackass infesting the White House.

This man has taken action after action that empower banks to steal your homes, further empower medical monopolists to steal everything you have, intentionally provided guns to Mexican drug gangs used to murder more than 300 people (in Mexico) and at least one border agent, and empower illegal invading hoards to steal your jobs by subsidizing their employment to the tune of $3,000 over you as a citizen.  And he’s not alone — his predecessors did many of the exact same things, irrespective of their political party!

Stop whining America because it is a fact that for nearly all of you — with the exception of the banksters and medical monopolists — you are being flat-out bled dry because each and every day you wake up and through your action and inaction consent to all of the above and more.

Stuck In Reverse And Descending Into Trauma

6 comments

Posted on 26th November 2014 by Administrator in Economy |Politics |Social Issues

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Guest Post by 


John Vachon Rain. Pittsburgh, Pennsylvania Jun 1941
US Q3 GDP was revised up by the BEA to 3.89%, but that’s no longer what financial markets react to. They sit and wait for more QE somewhere on the planet to be doled out. Will Americans, if they see this at all, take those numbers, add them to the sweet drop in prices at the pump and spend what they save on more holiday purchases? I’m not saying I know, but I do see that US consumer confidence is down, as is global business confidence – the latter at a five year low.

The Case/Shiller index reports a “broad-based slowdown” for US home prices, and that in the rear view mirror that looks at Q3. So that’s not where those 3.89% came from, it wasn’t housing (wonder what it was). The Gallup Christmas survey lost 8% of exuberance in one month. What this adds up to is that Americans may not spend all of that saved gas money, and that means there’s a real danger of deflation coming to America too – as if Japanese and European attempts to export their own were not enough yet.

While the media continue to just about exclusively paint a picture of recovery and an improving economy, certainly in the US – Europe and Japan it’s harder to get away with that rosy image -, in ordinary people’s reality a completely different picture is being painted in sweat, blood, agony and despair. Whatever part of the recovery mirage may have a grain of reality in it, it is paid for by something being taken away from people leading real lives. US unemployment numbers are being massages three ways to Sunday, as is common knowledge, or should be; the amounts of working age people not working, and not being counted as unemployed either, is staggering.

But there’s a very large, and growing, number of people who do work, but find it impossible to sustain either themselves or their families on their wages. That’s how the recovery, fake as it even is, is paid for. And this will have grave consequences for many years, if not decades, to come.

If a government would come clean with its citizens, explain the overwhelming debt situation a nation is in, that everyone will have to do with less at least for a while, and then openly start restructuring the debts, those consequences would be much less damaging. But all governments choose to talk about only recovery and growth, and to let their people suffer the consequences of the policies enacted to achieve these goals, even if after 6-7 years of crisis and dozens of trillions in stimulus, we’re no closer to either. Quite the contrary. We’re not in ‘drive’, we’re stuck in ‘reverse’. We’re backing up. We’re moving backwards.

Lance Roberts at StreetTalkLive provides stats on how many Americans have been made dependent on some sort of handout:

The Dismal Economy: 148 Million Government Beneficiaries

.. the Federal Reserve has stopped their latest rounds of bond buying and are now starting to discuss the immediacy of increasing interest rates. This, of course, is based on the “hopes” that the economy has started to grow organically as headline unemployment rates have fallen to just 5.9%. If such activity were real then both inflation and wage pressures should be rising – they are not. According to the Congressional Budget Office study that was just released, approximately 60% of all U.S. households get more in transfer payments from the government than they pay in taxes.

Roughly 70% of all government spending now goes toward dependence-creating programs. From 2009 through 2013, the U.S. government spent an astounding 3.7 trillion dollars on welfare programs. In fact, today, the percentage of the U.S. population that gets money from the federal government grew by an astounding 62% between 1988 and 2011. Recent analysis of U.S. government numbers conducted by Terrence P. Jeffrey, shows that there are 86 million full-time private sector workers in the United States paying taxes to support the government, and nearly 148 million Americans that are receiving benefits from the government each month.

Yet Janet Yellen, and most other mainstream economists suggests that employment is booming in the U.S. Okay, if we assume that this is indeed the case then why, according to the Survey of Income and Program Participation conducted by the U.S. Census, are well over 100 million Americans are enrolled in at least one welfare program run by the federal government. Importantly, that figure does not even include Social Security or Medicare. (Here are the numbers for Social Security, Medicaid and Medicare: More than 64 million are receiving Social Security benefits, more than 54 million Americans are enrolled in Medicare and more than 70 million Americans are enrolled in Medicaid.) Furthermore, how do you explain the chart below? With roughly 45% of the working age population sitting outside the labor force, it should not be surprising that the ratio of social welfare as a percentage of real, inflation-adjusted, disposable personal income is at the highest level EVER on record.

Tyler Durden addresses deteriorating wages in America with a great metaphor:

The Mystery Of America’s “Schrodinger” Middle Class, Which Is Either Thriving Or About To Go Extinct

On one hand, the US middle class has rarely if ever had it worse. At least, if one actually dares to venture into this thing called the real world, and/or believes the NYT’s report: “Falling Wages at Factories Squeeze the Middle Class.” Some excerpts:

For nearly 20 years, Darrell Eberhardt worked in an Ohio factory putting together wheelchairs, earning $18.50 an hour, enough to gain a toehold in the middle class and feel respected at work. He is still working with his hands, assembling seats for Chevrolet Cruze cars at the Camaco auto parts factory in Lorain, Ohio, but now he makes $10.50 an hour and is barely hanging on. “I’d like to earn more,” said Mr. Eberhardt, who is 49 and went back to school a few years ago to earn an associate’s degree. “But the chances of finding something like I used to have are slim to none.” Even as the White House and leaders on Capitol Hill and in Fortune 500 boardrooms all agree that expanding the country’s manufacturing base is a key to prosperity, evidence is growing that the pay of many blue-collar jobs is shrinking to the point where they can no longer support a middle-class life.

In short: America’s manufacturing sector is being obliterated: “A new study by the National Employment Law Project, to be released on Friday, reveals that many factory jobs nowadays pay far less than what workers in almost identical positions earned in the past.

Perhaps even more significant, while the typical production job in the manufacturing sector paid more than the private sector average in the 1980s, 1990s and early 2000s, that relationship flipped in 2007, and line work in factories now pays less than the typical private sector job. That gap has been widening — in 2013, production jobs paid an average of $19.29 an hour, compared with $20.13 for all private sector positions. Pressured by temporary hiring practices and a sharp decrease in salaries in the auto parts sector, real wages for manufacturing workers fell by 4.4% from 2003 to 2013, NELP researchers found, nearly three times the decline for workers as a whole.

How is this possible: aren’t post-bankruptcy GM, and Ford, now widely touted as a symbol of the New Normal American manufacturing renaissance? Well yes. But there is a problem: recall what we wrote in December 2010: ‘Charting America’s Transformation To A Part-Time Worker Society:”

.. one of the most important reasons for lower pay is the increased use of temporary workers. Some manufacturers have turned to staffing agencies for hiring rather than employing workers directly on their own payroll. For the first half of 2014, these agencies supplied one out of seven workers employed by auto parts manufacturers. The increased use of these lower-paid workers, particularly on the assembly line, not only eats into the number of industry jobs available, but also has a ripple effect on full-time, regular workers. Even veteran full-time auto parts workers who have managed to work their way up the assembly-line chain of command have eked out only modest gains.

And that’s not some isolated incident, as the Guardian makes clear, it’s the same thing in Britain.:

Record Numbers Of UK Working Families In Poverty Due To Low-Paid Jobs

Insecure, low-paid jobs are leaving record numbers of working families in poverty, with two-thirds of people who found work in the past year taking jobs for less than the living wage, according to the latest annual report from the Joseph Rowntree Foundation. The research shows that over the last decade, increasing numbers of pensioners have become comfortable, but at the same time incomes among the worst-off have dropped almost 10% in real terms. Painting a picture of huge numbers trapped on low wages, the foundation said during the decade only a fifth of low-paid workers managed to move to better paid jobs. The living wage is calculated at £7.85 an hour nationally, or £9.15 in London – much higher than the legally enforceable £6.50 minimum wage.

As many people from working families are now in poverty as from workless ones, partly due to a vast increase in insecure work on zero-hours contracts, or in part-time or low-paid self-employment. Nearly 1.4 million people are on the controversial contracts that do not guarantee minimum hours, most of them in catering, accommodation, retail and administrative jobs. Meanwhile, the self-employed earn on average 13% less than they did five years ago, the foundation said. Average wages for men working full time have dropped from £13.90 to £12.90 an hour in real terms between 2008 and 2013 and for women from £10.80 to £10.30.

Poverty wages have been exacerbated by the number of people reliant on private rented accommodation and unable to get social housing, the report said. Evictions of tenants by private landlords outstrip mortgage repossessions and are the most common cause of homelessness. The report noted that price rises for food, energy and transport have far outstripped the accepted CPI inflation of 30% in the last decade. Julia Unwin, chief executive of the foundation, said the report showed a real change in UK society over a relatively short period of time. “We are concerned that the economic recovery we face will still have so many people living in poverty. It is a risk, waste and cost we cannot afford: we will never reach our full economic potential with so many people struggling to make ends meet.

And it’s even worse in Greece and Spain and Italy, all so northern Europe and the Brussels politicos can keep alive the idea that Germany and Holland are doing well, and overall growth is almost at hand. That southern Europe must suffer for that idea has been justified away for years now, and it’s not even an issue deemed worth discussing anymore.

And that attitude will blow up in their faces, it’s inevitable that it will. Very few people understand how dangerous the games are that our governments and central banks play. And when the effects do play out, they will be blamed on other causes. Debt and propaganda rule our world supreme.

Excellent writer and great friend Jim Kunstler shows how simple the entire facade is to fathom, and how the next step away from the mess we’re in is so painfully obvious: downscale.

Buy the All Time High

Wall Street is only one of several financial roach motels in what has become a giant slum of a global economy. Notional “money” scuttles in for safety and nourishment, but may never get out alive. Tom Friedman of The New York Times really put one over on the soft-headed American public when he declared in a string of books that the global economy was a permanent installation in the human condition. What we’re seeing “out there” these days is the basic operating system of that economy trying to shake itself to pieces. The reason it has to try so hard is that the various players in the global economy game have constructed an armature of falsehood to hold it in place — for instance the pipeline of central bank “liquidity” creation that pretends to be capital propping up markets.

It would be most accurate to call it fake wealth. It is not liquid at all but rather gaseous, and that is why it tends to blow “bubbles” in the places to which it flows. When the bubbles pop, the gas will tend to escape quickly and dramatically, and the ground will be littered with the pathetic broken balloons of so many hopes and dreams. All of this mighty, tragic effort to prop up a matrix of lies might have gone into a set of activities aimed at preserving the project of remaining civilized. But that would have required the dismantling of rackets such as agri-business, big-box commerce, the medical-hostage game, the Happy Motoring channel-stuffing scam, the suburban sprawl “industry,” and the higher ed loan swindle.

All of these evil systems have to go and must be replaced by more straightforward and honest endeavors aimed at growing food, doing trade, healing people, traveling, building places worth living in, and learning useful things.

All of those endeavors have to become smaller, less complex, more local, and reality-based rather than based, as now, on overgrown and sinister intermediaries creaming off layers of value, leaving nothing behind but a thin entropic gruel of waste. All of this inescapable reform is being held up by the intransigence of a banking system that can’t admit that it has entered the stage of criticality. It sustains itself on its sheer faith in perpetual levitation. It is reasonable to believe that upsetting that faith might lead to war.

But that’s not yet where we are, though Ferguson sure looks close to that war Jim talks about. Our leading classes will not let us downscale, no matter how much sense that makes for the ‘lower’ 95% of the population, because that would risk their leading positions. And so we’ll have to deal with a lot more misery before the whole edifice finally blows up, and we’ll end up with huge swaths of traumatized people. In a great article, Lynn Stuart Parramore describes how that works:

So Many People Are Badly Traumatized by Life in America: It’s Time We Admit It

Recently Don Hazen, the executive editor of AlterNet, asked me to think about trauma in the context of America’s political system. As I sifted through my thoughts on this topic, I began to sense an enormous weight in my body and a paralysis in my brain. What could I say? What could I possibly offer to my fellow citizens? Or to myself? After six years writing about the financial crisis and its gruesome aftermath, I feel weariness and fear. When I close my eyes, I see a great ogre with gold coins spilling from his pockets and pollution spewing from his maw lurching toward me with increasing speed. I don’t know how to stop him. Do you feel this way, too?

All along the watchtower, America’s alarms are sounding loudly. Voter turnout this last go-round was the worst in 72 years, as if we needed another sign that faith in democracy is waning. Is it really any wonder? When your choices range from the corrupt to the demented, how can you not feel that citizenship is a sham? Research by Martin Gilens and Benjamin I. Page clearly shows that our lawmakers create policy based on the desires of monied elites while “mass-based interest groups and average citizens have little or no independent influence.” Our voices are not heard.

When our government does pay attention to us, the focus seems to be more on intimidation and control than addressing our needs. We are surveilled through our phones and laptops. As the New York Times recently reported, a surge in undercover operations from a bewildering array of agencies has unleashed an army of unsupervised rogues poised to spy upon and victimize ordinary people rather than challenge the real predators who pillage at will. Aggressive and militarized police seem more likely to harm us than to protect us, even to mow us down if necessary.

Our policies amplify the harm. The mentally ill are locked away in solitary confinement, and even left there to die. Pregnant women in need of medical treatment are arrested and criminalized. Young people simply trying to get an education are crippled with debt. The elderly are left to wander the country in RVs in search of temporary jobs. If you’ve seen yourself as part of the middle class, you may have noticed cries of agony ripping through your ranks in ways that once seemed to belong to worlds far away.

[..] A 2012 study of hospital patients in Atlanta’s inner-city communities showed that rates of post-traumatic stress are now on par with those of veterans returning from war zones. At least 1 out of 3 surveyed said they had experienced stress responses like flashbacks, persistent fear, a sense of alienation, and aggressive behavior. All across the country, in Detroit, New Orleans, and in what historian Louis Ferleger describes as economic “dead zones” — places where people have simply given up and sunk into “involuntary idleness” — the pain is written on slumped bodies and faces that have become masks of despair. We are starting to break down.

When our alarm systems are set off too often, they start to malfunction, and we can end up in a state of hyper-vigilance, unable to properly assess the threats. It’s easy for the powerful to manipulate this tense condition and present an array of bogeymen to distract our attention, from immigrants to the unemployed, so that we focus our energy on the wrong enemy. Guns give a false sense of control, and hatred of those who do not look like us channels our impotent rage. Meanwhile, dietary supplements and prescription painkillers lure us into thinking that if we just find the right pill, we can shut off the sound of the sirens. Popular culture brings us movies with loud explosions that deafen us to what’s crashing all around us.

The 21st century, forged in the images of flames and bodies falling from the Twin Towers, has sputtered on with wars, financial ruin and crushing public policies that have left us ever more shaken, angry and afraid. At each crisis, people at the top have seized the opportunity to secure their positions and push the rest of us further down. They are not finished, not by a long shot.

Trauma is not just about experiencing wars and sexual violence, though there is plenty of that. Psychology researchers have discussed trauma as something intense that happens in your life that you can’t adequately respond to, and which causes you long-lasting negative effects. [..] trauma comes with a very high rate of interest. The children of traumatized people carry the legacy of pain forward in their brains and bodies, becoming more vulnerable to disease, mental breakdown, addiction, and violence. Psychiatrist Bessel van der Kolk, an expert on trauma, emphasizes that it’s not just personal.

Trauma occupies a space much bigger than our individual neurons: it’s political. If your parents lost their jobs, their home or their sense of security in the wake of the financial crisis, you will carry those wounds with you, even if conditions improve. Budget cuts to education and the social safety net produce trauma. Falling income produces trauma. Job insecurity produces trauma.

There’s much more at the link, and every word is worth reading. The mental consequences of the gutting of our societies by governments and the financial industry does not get nearly enough scrutiny. We act, or politicians and media do, as if millions of people losing their jobs, and over half of young people in certain nations never having had a chance of a job, is just a matter of numbers, of mere statistics.

And then all sorts of ‘experts’ claim it’s all just the price to pay for technological progress, that will make everything so much better for everyone some sunny day soon. But that sunny say will never come, the techno happy ideal version of the future has already died with the debt incurred to facilitate it. We need to take a step backwards, or we’ll continue to drive backwards. Or be driven, to be more precise, since we’ve handed over the steering wheel to people who have no intention of taking us where we want to, and should, go. They are only intent on taking us where they can squeeze us most.

Thing is, there’s precious little left to squeeze. And they know that much better than most of us do. That’s why it’s imperative that we should get rid of these clowns, or there’ll be a whole lot more trauma. We can organize our societies, and we can even organize ways to downscale them peacefully . But not with those at the helm who see us only as mere entities to draw blood from.

We need to be a whole lot more assertive about this; we shouldn’t want to be surrounded by traumatized friends and family members and neighbors There’s nothing good for us in that. It’ll be used against us in increased surveillance and clampdowns and all that comes with it.

We can have good jobs for everyone, all it takes is to have what we need, produced in our own communities and societies, instead of having it shipped over from China. It’s not rocket science. It’s just that there’s a certain segment in society, which unfortunately happens to be the most powerful one, that doesn’t want us to do that. They want more and bigger, not smaller and better.

Until we solve that issue, things will keep getting worse. And not just a little bit. We need to find leaders that actually represent us, our needs and desires and ideas, and we need to find ways to elect them. If we don’t, we face a very bleak future in which there won’t be much left for us to choose. Or enjoy. We live in a pivotal moment in time, but we don’t recognize it for what it is. We seem to think it’s all some minor hiccup. We are dead wrong.

19 US Shale Areas That Are Suddenly Endangered, “The Shale Revolution Doesn’t Work At $80″

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Posted on 26th November 2014 by Administrator in Economy |Politics |Social Issues

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Enjoy the sub $3.00 gas prices while they last. The Saudis know what they are doing. Oil was $25 per barrel and gas prices were below $2.00 when the Saudis took down the twin towers. Know your enemy.

Tyler Durden's picture

INFLATION MAKES TURKEYS OUT OF US ALL

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Posted on 26th November 2014 by Administrator in Economy |Politics |Social Issues

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Central bankers always seem worried about deflation. The cost of Thanksgiving dinner is about the same as last year. Is it a bad thing that your costs didn’t go up? If we hadn’t experienced Federal Reserve created inflation over the last 18 years the cost of your Thanksgiving dinner would be about $21. But thank Greenspan, Bernanke and Yellen for the increase to $50. Everyone give thanks to central bankers for costs more than doubling in the last 18 years.

Things That Make You Go Hmmm: How Could It Happen?

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Posted on 26th November 2014 by Administrator in Economy |Politics |Social Issues

Things That Make You Go Hmmm: How Could It Happen?

By Grant Williams

 

“How could it happen, Grandad?”

The old man’s eyes misted over as he looked down at his grandson, who sat at his feet, his young eyes alive with questions as he turned the heavy gold bar over in his hands.

”I’ve told you the story too many times to count,” said the man, half-pleading, but knowing full-well he’d soon be deep into the umpteenth retelling of a story he’d lived through once in reality and a thousand times more through the eager questioning of the young man now tugging at his trouser leg. “Why don’t I tell you the story of how I met your Grandma instead?”

“Because that’s boring.” The reply was borne of the honesty only a ten-year-old could possibly still possess.

“OK, OK,” said the old man, a smile creeping into the corners of his mouth, “you win.”

“It began in early November of 2014, when a man called Alasdair Macleod published a report on how the Chinese had been secretly buying gold for 30 years.

“Most people believed what the Chinese Central Bank had been telling the world — that they owned just 1,054 tonnes. That number, first published in 2009, had remained unchanged for over five years; but there was a group of people who refused to accept that the People’s Bank of China were telling the truth, and those people set about diligently doing their own analysis to try to determine what the real number might be.

“In early November of 2014, Macleod’s report — which went largely unnoticed because most people were busy celebrating new highs in the stock market and the fact that a newly strengthening dollar was forcing down the price of gold — laid out the case for there having been an astounding amount of gold bought by the Chinese over the previous three decades.

“According to Macleod, China saw an opportunity at a crucial time and, with a view on the longer term, they took it.”

Grandad dipped his thumb and forefinger into his vPad, which hovered just above the table, and pinched and cast a paragraph into the air before them. At the same time, they heard the voice of Alasdair Macleod himself read the words aloud:

(Alasdair Macleod): China first delegated the management of gold policy to the People’s Bank by regulations in 1983. This development was central to China’s emergence as a free-market economy following the post-Mao reforms in 1979/82. At that time the west was doing its best to suppress gold to enhance confidence in paper currencies, releasing large quantities of bullion for others to buy. This is why the timing is important: it was an opportunity for China, a one-billion population country in the throes of rapid economic modernisation, to diversify growing trade surpluses from the dollar.

“Macleod explained why what he was about to explain to the world was going to come as something of a surprise to most people.” Grandad dipped his fingers and cast again:

To my knowledge this subject has not been properly addressed by any private-sector analysts, which might explain why it is commonly thought that China’s gold policy is a more recent development, and why even industry specialists show so little understanding of the true position. But in the thirty-one years since China’s gold regulations were enacted, global mine production has increased above-ground stocks from an estimated 92,000 tonnes to 163,000 tonnes today, or by 71,000 tonnes; and while the west was also reducing its stocks in a prolonged bear market all that gold was hoarded somewhere.

“But Grandad, why was the West selling its gold? That’s just stupid!” the young boy interjected, right on cue.

Again the old man smiled. Every time he told the story, his grandson would pepper him with the same questions, with a regularity that brought a familiar rhythm to this very private dance the two of them had performed so many times.

He paused, as he always did, to create just the right amount of dramatic tension before answering.

“I know it seems stupid NOW, but don’t forget, you know what you know. Back then, the people in charge in the West weren’t really all that smart; and, besides, when the Golden Domino finally fell, it became obvious that they had been…” — the old man paused, choosing his words carefully, almost theatrically; but when they came, they were the same carefully chosen words he used every time — “… a little less than honest about a few things.

“Now,” he continued with mock indignation, “if you’ll allow me to get back to the story…”

The boy smiled, and his grandfather pushed on.

“Macleod’s report concentrated on the period between 1983 and 2002, because in 2002 two important things happened: the Chinese people became free to own gold, and the Shanghai Gold Exchange was established. He wrote that the reason they allowed these two events to take place was that they’d already accumulated ‘enough gold’ for what he called ‘strategic and monetary purposes,’ and they were happy to keep adding to their stockpile from their domestic mine production and scrap, rather than buy more in the market…”

The old man held up a hand to head off the question he knew was coming — “I know, I know… you want to know how much the Chinese would have had to accumulate in order to be able to do this, don’t you? Well, Mr. Macleod told us, remember?” He reached once more into vPad space, waggled his fingers a bit, and cast the following:

(Alasdair Macleod) Between 1983 and 2002, mine production, scrap supplies, portfolio sales and central bank leasing absorbed by new Asian and Middle Eastern buyers probably exceeded 75,000 tonnes. It is easy to be blasé about such large amounts, but at today’s prices this is the equivalent of $3 trillion. The Arabs had surplus dollars and Asia was rapidly industrialising. Both camps were not much influenced by Western central bank propaganda aimed at side-lining gold in the new era of floating exchange rates, though Arab enthusiasm will have been diminished somewhat by the severe bear market as the 1980s progressed. The table and chart below summarise the likely distribution of this gold:

SIMPLIFIED GOLD SUPPLY 1983-2002 Tonnes
Official Sales by Central Banks 4,856
Estimated Leasing (Veneroso) 14,000
Mine Production 41,994
Net Western divestment (bullion, jewelry & scrap (est.) 15,000
TOTAL 75,850

 

The old man clipped his last sentence short to allow his young audience to make the (quite grown-up, the man thought) point that he always did at this juncture:

“But Grandad, you can’t just say things like ‘probable’ and make assumings like that. We always get told at school that you have to show your workings-out.”

His grandfather let the grammatical error slide — one more time.

“Ah yes, but THAT was the problem, wasn’t it? Everybody wanted proof that numbers like Macleod’s were accurate, but NOBODY wanted proof that the official figures were true, and THAT turned out to be the key lesson that the world learned from this whole sorry debacle.”

“But Grandad, YOU didn’t get hurt, did you?”

The old man looked through the window and out at the snowflakes settling on the tall pines that surrounded the ski field not 40 yards from where he sat, and smiled.

“That’s true,” he said, “but only because I was willing to think for myself and allow for possibilities that most people wouldn’t believe for a moment could actually happen. It wasn’t easy, and it wasn’t fun for many years, believe me. Now, where was I?”

“You were at the part where Mr. Macleod explained where all that gold had gone and…”

“Might have gone,” the man interrupted. “Remember, back then we didn’t know for sure.”

He smiled again and went on with the story.

“Macleod’s work suggested that, while a huge amount of gold had gone flooding into the Middle East during the oil boom of the 1970s (much of it ending up in Switzerland, which, back then at least, was famous around the world as being a safe haven for financial assets), in the mid-’90s, after the gold price had languished for many years, sentiment had changed.”

(Alasdair Macleod): In the 1990s, a new generation of Swiss portfolio managers less committed to gold was advising clients, including those in the Middle East, to sell. At the same time, discouraged by gold’s bear market, a Western-educated generation of Arabs started to diversify into equities, infrastructure spending and other investment media. Gold stocks owned by Arab investors remain a well-kept secret to this day, but probably still represent the largest quantity of vaulted gold, given the scale of petro-dollar surpluses in the 1980s. However, because of the change in the Arabs’ financial culture, from the 1990s onwards the pace of their acquisition waned.

By elimination this leaves China as the only other significant buyer during that era. Given that Arab enthusiasm for gold diminished for over half the 1983-2002 period, the Chinese government being price-insensitive to a Western-generated bear market could have easily accumulated in excess of 20,000 tonnes by the end of 2002.

“Now, I know this is all back-of-the-envelope stuff — assumings, as you call them — but remember, back then, in 2014, none of the other stuff had been exposed.”

“But, Grandad, why were the Chinese buying all that gold? And why did the Westerns let them have it? I mean, it’s worth so much. Why didn’t they just keep it?”

This was always the old man’s favourite part, and he leaned forward in his seat as his enthusiasm for the story returned. With a twinkle in his eyes, he beckoned the boy closer.

“Strategy,” he said, then, after a pause (and with what even he felt was a little more relish than usual) “… and STUPIDITY!

“The Chinese had become very rich during those years, but most of that wealth had come in the form of dollars…”

“What, US dollars?” the boy asked, incredulously. “But why would they ever have wanted lots of those?”

“Because,” the old man chuckled, “there was a time — long before you were born — when everybody wanted US dollars. I know that’s hard to believe NOW, but it was true. If I may…?”

“So-rry Gran-dad,” the boy answered rhythmically and with mock apology.

“Anyway, the Chinese were great students of history and knew that, over thousands of years, what used to be called ‘fiat currency’ had always ended up worthless; and so they planned for the day when that fate would befall the dollar. They began accumulating euros instead of dollars — not because the euro was better but because they didn’t want to own too much of any one currency.”

“Whatever happened to the euro, Grandad?” inquired the boy.

“One story at a time, little fella!” replied the old man. “Now, where was I? Oh yes, then, in the mid-2010s, China began signing all sorts of agreements with other countries, like Iran, Turkey, Russia…”

“And Switzerland!” the boy eagerly interjected.

“… and Switzerland,” his grandfather agreed.

“Those agreements enabled them to swap goods and services for currencies other than the US dollar — all so they could eventually break their ties to what they saw as a doomed currency. And all the while, quietly, in the background, they were swapping as much of that paper money as they could for…?”

“GOLD!!!” Right on cue the boy blurted out the answer, raising both hands in triumph.

“Gold,” the old man said, softly. “Remember what Mr. Macleod wrote?” He cast it up:

(Alasdair Macleod): Following Russia’s recovery from its 1998 financial crisis, China set about developing an Asian trading bloc in partnership with Russia as an eventual replacement for Western export markets, and in 2001 the Shanghai Cooperation Organisation was born. In the following year, her gold policy also changed radically, when Chinese citizens were allowed for the first time to buy gold and the Shanghai Gold Exchange was set up to satisfy anticipated demand.

The fact that China permitted its citizens to buy physical gold suggests that it had already acquired a satisfactory holding.

Since 2002, it will have continued to add to gold through mine and scrap supplies, which is confirmed by the apparent absence of Chinese-refined 1 kilo bars in the global vaulting system. Furthermore China takes in gold doré from Asian and African mines, which it also refines and probably adds to government stockpiles.

Since 2002, the Chinese state has almost certainly acquired by these means a further 5,000 tonnes or more. Allowing the public to buy gold, as well as satisfying the public’s desire for owning it, also reduces the need for currency intervention to stop the renminbi rising. Therefore the Chinese state has probably accumulated between 20,000 and 30,000 tonnes since 1983, and has no need to acquire any more through market purchases, given her own refineries are supplying over 500 tonnes per annum.

“A man called Simon Hunt, who had extremely good connections in China and, more importantly perhaps, a willingness to entertain possibilities most people couldn’t, told a fascinating story once about a visit paid by a friend of his to an army base in China…”

(Simon Hunt, Nov 14, 2014): China is in the process of making the RMB acceptable as an international currency. It wants its trading partners and others to see the RMB as a stable currency that does not play the game of devaluation when difficulties arise. It is the long-game in which Beijing hopes that their currency not only becomes acceptable in financing trade but that central banks can feel secure in adding the RMB to their reserves, as some are now doing.

As we have discussed in earlier reports, China, not just the PBOC, holds far more gold than the market has been assuming, probably in the region of 30,000 tonnes, compared with the USA holding very little of its reported 8,300 tonnes.

Whilst in Japan we were told an interesting if not amusing story that supports this contention. A friend of ours has several factories in China and thus knows many senior people in different disciplines, one of which is a senior PLA officer. He was invited down to their HQ for drinks. After a few hours, his friend suggested they take a walk around the compound ending up at the entrance of a large warehouse. The door was opened and to my friend’s astonishment the warehouse was stacked from floor to ceiling with gold bars.

One day, when the timing suits Beijing best, the PBOC will link the RMB to gold. The West may dislike gold, or at least some of their central banks [do], preferring to operate with fiat currencies, but Eastern governments have a history of seeing gold as a store of value.

“NOW, of course, it seems that what Simon said should have been completely obvious; but all the way back in 2014, believe it or not, the idea that the Chinese would peg their currency to gold was something that most people here in the West just couldn’t even comprehend. I can’t even begin to tell you the number of times I talked to people about this stuff. For years it was obvious how things would end, but only a small group of people listened. Mostly, people just laughed and told me I was a fool. They said I should be buying shares and that a return to ANY kind of gold standard was a ridiculous idea. Do you know what I did?”

“Bought more gold?” The boy phrased it like a question even though he knew the answer. He just liked to let his grandfather have his moment.

“Bought more gold,” the old man said matter of factly. He threw up a chart they both knew well:

“But, but, you’ve jumped ahead, Grandad! The part where the Chinese link their currency to gold isn’t for ages yet. You skipped the bit about the Swiss gold! AND you left out the best part — the missing gold?”

“Sheesh!” the old man said in mock exasperation, “I’m coming to that part now! You are one impatient little fella, aren’t you?”

“But this is the best bit!” the boy replied excitedly.

Click here to continue reading this article from Things That Make You Go Hmmm… – a free newsletter by Grant Williams, a highly respected financial expert and current portfolio and strategy advisor at Vulpes Investment Management in Singapore.

I THREW IT ALL AWAY

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Posted on 26th November 2014 by Administrator in Economy |Politics |Social Issues

IT’S ALL GOOD

1 comment

Posted on 26th November 2014 by Administrator in Economy |Politics |Social Issues

Talk about me babe, if you must
Throw on the dirt, pile on the dust
I’d do the same thing if I could
You know what they say, they say it’s all good
All good
It’s all good

Big politician telling lies
Restaurant kitchen, all full of flies
Don’t make a bit of difference, don’t see why it should
But it’s all right, ’cause it’s all good
It’s all good
It’s all good

Wives are leavin’ their husbands, they beginning to roam
They leave the party and they never get home
I wouldn’t change it, even if I could
You know what they say man, it’s all good
It’s all good
All good

Brick by brick, they tear you down
A teacup of water is enough to drown
You ought to know, if they could they would
Whatever going down, it’s all good
All good
Say it’s all good

People in the country, people on the land
Some of them so sick, they can hardly stand
Everybody would move away, if they could
It’s hard to believe but it’s all good
Yeah

The widow’s cry, the orphan’s plea
Everywhere you look, more misery
Come along with me, babe, I wish you would
You know what I’m sayin’, it’s all good
All good
I said it’s all good
All good

Cold-blooded killer, stalking the town
Cop cars blinking, something bad going down
Buildings are crumbling in the neighborhood
But there’s nothing to worry about, ’cause it’s all good
It’s all good
They say it’s all good

I’ll pluck off your beard and blow it in your face
This time tomorrow I’ll be rolling in your place
I wouldn’t change a thing even if I could
You know what they say, they say it’s all good
It’s all good

Connecting the Dots: Stock Manipulati​on 101: Using Stock Buybacks to Mask Deep Business Problems

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Posted on 26th November 2014 by Administrator in Economy |Politics |Social Issues

Connecting the Dots: Stock Manipulation 101: Using Stock Buybacks to Mask Deep Business Problems

By Tony Sagami

 

Stock buybacks are always a good thing… right? That’s what the mass media has trained investors to believe, but there are times when stock buybacks are a horrible strategy.

Let’s take a look at Herbalife, which has had very visible news items as billionaires like Carl Icahn, George Soros, Daniel Loeb, and Bill Ackman publicly debate the future of the company.

Herbalife shares have lost more than half their value in 2014 because of a Federal Trade Commission investigation and a big drop in profits. 50% is a huge haircut, but I believe Herbalife is poised for even more pain.

Rapidly Disappearing Profits

Herbalife recently reported its third-quarter results and they were just awful. Herbalife earned $0.13 per share in Q3, but that was a whopping 92% decline from the $1.32 it earned last year.

That’s awful, but Herbalife says business will be even worse going forward. The Wall Street crowd expected Herbalife to grow revenues by 7% in 2015, but the company said that its revenues will fall by -1% to -2% instead.

Part of that lower guidance is from the impact of the strong US dollar. Guidance for Q4 includes an unfavorable impact of $0.31 from currency conversions. If you remember, I previously wrote that the strong dollar was going to kill the 2015 profits of companies that do lots of business overseas.

I have to admit, I am skeptical of all the multilevel marketing businesses, but Herbalife is reinforcing that preconceived notion.

FTC and FBI Investigation

The Federal Trade Commission is investigating Herbalife for what could ultimately result in charges that Herbalife is operating an illegal pyramid scheme.

In March, the FTC sent Herbalife a civil investigative demand (CID), which is a subpoena on steroids because all the evidence produced by a CID can be used by other agencies in other investigations, such as the FBI, which is also investigating Herbalife.

The FTC outcome is unknown. Heck, Herbalife could eventually be declared innocent and pure… but I wouldn’t bet on it.

Board Members Gone Bad!

When your company is in the middle of FTC and FBI investigations, the last thing you want is for your company officers to get in trouble with the law. A current Herbalife board member, Pedro Cardoso, has been charged with illegal money laundering by Brazilian prosecutors. Time will tell if the charges are true… but it looks very bad.

That’s not the only problem with the Herbalife board of directors. Longtime Herbalife Board Member Leroy Barnes announced that he is leaving. Board members leave for legitimate reasons all the time, but Barnes is the fourth Herbalife board member to leave in 2014. Talk about rats jumping the ship!

The Smoke and Mirrors of Stock Buybacks

The above issues are all serious and enough to stay away from Herbalife, but the biggest red flag I see is the abusive financial engineering that Herbalife is using to prop up its stock.

Example: In Q2, Herbalife spent over $500 million to buy back its own stock for the purpose of propping up its earnings-per-share ratio. Fewer shares translates into higher earnings per share.

The root of the problem is that Herbalife is using up all its cash AND borrowing money like mad to finance the stock buyback.

In the last year, Herbalife’s debt has exploded by over $1 billion. Herbalife is using every penny of operating cash flow and taking on new debt just to buy back its stock.

Moreover, since Herbalife’s stock has plunged by 50% this year, Herbalife wasted hundreds of millions of dollar of shareholder money by buying stock at much higher prices.

And now that revenue, profits, and free cash flow generated by operations are shrinking, Herbalife is on a collision course with insolvency.

Carl Icahn, who is certainly a much better investor than I will ever be, is a big Herbalife fan and even went as far as to call the shares undervalued. “I would tell you I do believe Herbalife is quite undervalued and it is still a good business model.”

Ahhhh… Carl… sorry, but I think you couldn’t be more wrong.

George Soros, by the way, appears to agree with me because he reduced his Herbalife holdings by 60% after the company reported those disastrous third-quarter results a few weeks ago.

I’m not suggesting that you rush out and buy put options on Herbalife tomorrow morning. As always, timing is everything, but I have very little doubt that Herbalife’s stock will be significantly lower a year from now.

Moreover, the real point isn’t whether Herbalife is headed higher or lower, but that good, old-fashioned fundamental research can help you make money in any type of market environment.

Even during bear markets.

30-year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here. To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.