Did you notice the bubble headed bimbos on CNBC hyperventilating and calling for Janet Yellen to do something about the 3% fall in the S&P 500? They have been programmed to regurgitate the falsity that the Federal Reserve can prop up Wall Street for eternity. This belief has been borne out by the fact the S&P 500 hadn’t had a 2.5% weekly decline since June of 2012. In a normal, non-manipulated, non-delusional, FREE market, there would have been 8 weekly declines of 2.5% or more over that time frame. This is how you get a bubble. If you think the 3% decline has been scary, just wait for the remaining 50%.
John Hussman provides some inconvenient facts this week for the bulls:
The ratio of nonfinancial equity market capitalization to nominal GDP is presently about 120%, compared with a historical average prior to the late-1990’s bubble of just 55%. The comparison – about double the historical norm – is about the same if one uses the Wilshire 5000, which includes financials, and for Tobin’s Q (price to replacement cost of assets). The price/revenue multiple of the S&P 500 is presently 1.6, versus a pre-bubble norm of just 0.8. All of these measures have a correlation of about 90% with subsequent 10-year S&P 500 returns, even including recent bubbles and subsequent busts.
The ratio of Shiller earnings (the 10-year average of inflation adjusted earnings) to S&P 500 current revenues is 6.4% here, versus a historical norm of 5.3%. At normal profit margins, the Shiller P/E would presently be 30 – right in line with other more reliable measures at about double its pre-bubble norm. Even at 25, however, the Shiller P/E exceeds every pre-bubble observation since 1871, except for a few weeks leading up to the 1929 peak.
Increasing our concern is a 10-week average of advisory bulls at 57.7% versus just 14.8% bears – the most lopsided bullish sentiment in decades. Add the record pace of speculation on borrowed money, with NYSE margin debt now at 2.5% of GDP – an amount equivalent to 26% of all commercial and industrial loans in the U.S. banking system. Add the currency collapses in Argentina and Venezuela, as well as fresh credit strains and industrial shortfall in China, and one has any number of factors that could be viewed in hindsight as a “catalyst” (as the German trade gap was viewed after the 1987 crash, in the absence of other observable triggers).
We all know the system is broken. We know the oligarchs meeting in Davos are worried. They think they are smarter than the plebs. They think they can fix an unfixable system with more debt. They can’t. They are just setting the world up for the greatest financial collapse in world history. As Hussman points out, China is broken. The U.S. is broken. The whole fucking world is broken.
My overall impression of the global economy here couples disruptions in developing economies with year-over-year growth in U.S. real GDP, real final sales, payroll employment and household employment all close to the border that has historically delineated expansions from recessions. The Wall Street Journal reported last week that “The China Beige Book, a quarterly survey of Chinese businesses and banks, concluded that the country’s ‘credit transmission is broken.’” The same appears to be true in the U.S., where there are $2.4 trillion of excess reserves already in the U.S. banking system.
It’s broken & it won’t be fixed.
Every Monday morning on Sirius radio, POTUS, Tim Farley interviews Peter Morici about the economy.
Morici was on a roll this morning, basically saying our politicians are doing nothing but more of the same expecting a new result. Extending unemployment, raising the minimum wage, believing that income equality will somehow create prosperity, will all fail as in a free market there must always be the one taking the risk making more than the one content to work for a wage and go home.
When Morici mentioned that the future ACA affect on business was the wildcard yet to be played and will prove to be the most damaging to the economy, he was cut off by Farley and thanked for his time.
It’s broken and it can’t be fixed.
BAHHH-HAHAHAHAHA!!!
I’m tired of fucking waiting… just bring it already.
Bring the fucking chaos…. it’s like watching some guy tightrope walking across The Valled Of The Really Pointy Rocks Of Pain in a high wind… you KNOW dude is gonna fall and buy it. Just a matter of when.
Waiting for him to fall is driving me nuts…
Hussman points out how unusual is the period since 1995.
How many people really grasp just what a 19 year period of “excess” really means.
To me, it is Exhibit #1 in the indictment of this as a long period of transition, capping a TWO CENTURY upward trend and heralding an entirely different paradigm.
For a long time “we” enjoyed the fruits of the rolling back of political power in favor of individual liberty, a trend that began in earnest in the 17th and 18th centuries and led to widespread (if uneven) rising living standards.
During the last phase of the rise we saw planted the seeds of the destructive next trend: People turned their backs on individual liberty, instead embracing the political system as a means to “make life better.”
We got “political freedom” in the form of expanding “democracy” to the stupidest and least productive among us, guaranteeing a future collapse by enabling use of politics for direct redistribution of wealth.
We got “political freedom” in the form of the Civil Rights Acts, which led inexorably to racial set-asides and political favoritism based solely on skin color.
We got “political freedom” in the form of the Community Redevelopment Act, Pell Grants, Racial Quotas, Minority and Women-owned Business contract set-asides, and a host of political graft and patronage.
We got “political freedom” in the form of a Central Bank whose entire purpose was to legitimize both private and public con artistry and plunder on a scale never imagined by despots of antiquity.
As Orwell posited, we have (political) freedom = slavery.
None of this exists in isolation. All of it (including the last 19 years of manic fluctuations in asset values, all at levels unheard of previously) is a tapestry woven of separate threads, all yielding a picture of the END OF AN ERA that began when our great-great-great grandparents were not yet born.
Crisis reality-the goobermint isn’t going to be there to help you: http://www.shtfplan.com/headline-news/crisis-reality-within-an-hour-the-stores-were-emptied_01212014
*boom*
Yep, just a matter of time.
Thanks for playing.
Hub just got one more kick of the refi can. Not a guarantee that we will be left alone for the next five years, but can is flying right now.
Tightrope is an apt description Billy, that is exactly how my national and local future feels.
Count me a “dollar worshiper.”
If you have any paper money you don’t want, please send it my way. I’m sure I can find a use for it.
What constitutes most people’s “money?”
Their checking account balance? (It’s an IOU from the bank, and if the bank lent it out and busts….)
Their unused credit card limit? (Can be turned off on one second’s notice.)
The value of the stocks & bonds in their brokerage account? (That’s a time bomb, and then even if they sell out, all they hold is—yes—an IOU from a bank again, a bank that is probably technically insolvent.)
What are we left with?
The change under the couch cushion.
We are drowning in “IOU-dollars,” not the dollars themselves. It takes little imagination to see that if there’s a banking dislocation in our future, it won’t result in people drowning in dollars, it will yield a desperation for dollars (to service all those loans people took on, to buy groceries, to buy fuel for the SUV, to pay the real estate taxes on the house, etc.).
Next up is likely NOT Wiemar Germany.
All we await is for the contagion of fear to spread in the herd.
In the electronic age, what does a bank run look like? How long does it take to occur?
It’s destiny may well be irreversible, but I remind you that Mises correctly predicted the inevitable end of the USSR in his book Socialism published in 1922.
Mises died in 1973.
The USSR survived him by 16 years, fulfilling its destiny 77 years after Mises correctly and irrefutably documented its irreversible destiny.
Timing. Timing matters more than any other consideration.
matslinger, you appear to be evading my point.
Say, for instance, you read a convincing piece showing that the US Stock market is headed for a once-in-three-century collapse…any time now….wait for it….just a little longer…..
And you sell your house. You quit your job and move to the hills. You go full-Prepper, adopting a 19th century farm lifestyle.
And 19 years later things are still as they were before. You’ve run out of money (remember, you quit your job). All the stuff you were promised will be worth their weight in gold….aren’t. The pressures of real life are dogging you. Your kids are now teens and questioning your very sanity as they see the rest of their peers live a life they can’t imagine because YOU cut them off from it.
What if the paradigm doesn’t shift for ANOTHER 19?
You don’t know the future. If you did you’d be so rich that you wouldn’t waste your time on this (or any) website.
I find it entertaining when I see (and I see it frequently) people pound the table, insisting that “something” is absolutely inevitable and will occur next week, or next year.
There are two kinds of people who do that kind of table-pounding: One is someone too young to have paid the tuition at the school of Reality, jumping on board some irrefutable, analytically compelling narrative and getting financially corn-holed. The other is someone who is ALWAYS selling the SS/DD to a new crop of naive followers.
Which are you?
I would campaign aggressively for any American presidential candidate who would make a speech like Putin’s… and follow through.