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A Financial Professional’s Perspective
ShedConnect.com
A Financial Professional’s Perspective
Given the recent volatile gyrations of the markets, we thought it an opportune time ask a full-time financial advisory firm whom we respect for their take on the current environment.
As most PeakProsperity.com readers are aware, we highly advise investors to work in concert with a professional financial advisor whose strategy takes into account the “Three E” macro risks highlighted in our foundational series, The Crash Course.
If folks experience difficulty finding such a professional, we refer them to Peak Prosperity’s endorsed financial advisor: New Harbor Financial. The folks at New Harbor have been mindful of our analysis — as well as that of other experts we admire, such as John Hussman — for over a decade now.
We aked them for their latest evaluation of the current situation in the markets, how they’re positioned right now, and what guidance they’re offering to their clients.
Here’s what they have to say:
Environment
Risk in global stock markets is exceedingly high at the present time in our opinion. Much of the work that we do in evaluating risk levels in the stock market at any given time is derived from valuations, and other key market metrics like stock market breadth, sentiment, and technicals. Valuations, measured the way that we think they should be, have never been higher. Both the cyclically adjusted price earnings (CAPE) ratio developed by Robert Shiller, and the margin-adjusted CAPE, as developed by John Hussman, are at or near historic extremes. Valuations cannot be used to precisely time the short-term movements of stock indices, but over the long-term of 5 to 10 years or more, valuations have a very high correlation to actual realized returns over those timeframes.
…click on the above link to read the rest of the article…
Steen Jakobsen: The Four Horsemen Portend A Painful Reckoning
Steen Jakobsen: The Four Horsemen Portend A Painful Reckoning
Steen Jacobsen, Chief Economist and Chief Investment Officer of Saxo Bank sees economic slowdown ahead.
Specifically, his “Four Horseman” indicators: the drivers of economic growth, are all flashing red.
Jacobsen believes that the central banks will continue their liquidity tightening efforts for as long as they can get away with (i.e., until the financial markets start toppling over). In his opinion, they eased way too much for way too long; and the malinvestment and zombification that resulted needs to clear the system — and it will likely do so more violently and painful than the central banks will like:
I like to make things simple. Right now we have the Four Horsemen: the four drivers of the global economy. They are the quantity of money, which is falling; the price of money, which is rising; the price of energy,which is a tax on consumers and is rising; and globalization/productivity, which is falling.
So, if you look at the economy as a black box, I really don’t know what happens inside of it. But I can observe what goes into the black box: it’s these four things.
Globalization / productivity, we know that’s all about Trump, trade war and the likes. It’s not exactly improving; it’s actually worsening.
As for the quantity of money, a lot of people argue with me that the Central Banks are still expanding their balance sheets, but the fact of the matter is that the QT in terms of the U.S has been reducing the Federal Reserve balance sheet. And we have a stealth reduction of the balance sheet in terms of the Bank of Japan. The EBC would love to cut and is publicly committed to doing so. The Bank of England is doing its first hike. So the quantity of money is falling.
…click on the above link to read the rest of the article…
How Prepared Are You? Let’s Find Out.
How Prepared Are You? Let’s Find Out.
We’re pleased to announce the first-ever Peak Prosperity Resilience Challenge.
Over an upcoming weekend in January 2019 (specifc dates to be announced soon) participating individuals will turn off their electricity from Friday at 7:00pm to 7:00pm Sunday and subsist entirely off of their existing preparations.
Are you in?
We’ll be seeking community input over the next month as we refine the particulars of this challenge; but the intention is to stress-test everyone’s current in-place emergency plans. So when the weekend arrives, no going out to the store to get new batteries, more firestarter, or a hot coffee.
A number of Peak Prosperity members proposed this idea to us in the wake of Hurricanes Harvey and Florence. During those storms, a lot of folks learned their emergency preps were much less robust than they had initially anticipated.
We agree this challenge is a great idea. Working out kinks and shortcomings during a practice-run like this will increase our odds of persevering through a future emergency.
Which is why we’re picking a cold winter month (for those of you in the northern hemisphere) to really push ourselves out of our comfort zones.
What will you eat? How will you stay sufficiently warm? Will you have to take steps to keep the pipes in your house from freezing? How will you communicate with the outside world? Do you have sufficient nighttime lighting? How will you occupy your time?
The goal here is to identify each of our weak areas while having some fun knowing that we’re all going through the experience together. We’ll all regroup here online once we turn the electricity back on Sunday night and compare learnings. Trust me, there will be many to share.
…click on the above link to read the rest of the article…
Mike Maloney: “One Hell Of A Crisis”
Mike Maloney: “One Hell Of A Crisis”
Mike Maloney, monetary historian and founder of GoldSilver.com, has just released two new chapters of his excellent Hidden Secrets Of Money video series.
In producing the series, Maloney has reviewed several thousand years of monetary history and has observed that government intervention and mismanagement — such as is now rampant across the world — has alwaysresulted in the diminishment and eventual failure of currency systems.
As for the world’s current fiat currency regimes, Mike sees a reckoning approaching. One that will be preceded by massive losses rippling across nearly all asset classes, destroying the phantom wealth created during the latest central bank-induced Everything Bubble, and grinding the global economy to a halt:
Gold and silver are tremendously undervalued right now, and I dare you to try to find another asset that is tremendously undervalued. There just is not. By all measures, everything is just in these hyper-bubbles. OK, real estate is not quite a hyper-bubble; it’s not quite as big as 2005 and 2006, but by all measures, it’s back into a bubble. But now, we’ve got the bond bubble, the biggest debt bubble in the world. These are all going to pop.
We had a stock market crash in the year 2000, and then in 2008, we had a crash in stocks and real estate. The next crash is going to be in stocks, real estate and bonds — including a lot of sovereign debt, corporate bonds and a whole lot of other bonds that will be crashing at the same time. So, it will be all of the standard financial asset classes, including the traditional ‘safe haven’ of bonds that are going to be crashing at the same time that the world monetary system is falling apart.
…click on the above link to read the rest of the article…
Will Your Retirement Efforts Achieve Escape Velocity?
Will Your Retirement Efforts Achieve Escape Velocity?
The concept of ‘retirement’, of enjoying decades of work-free leisure in your golden years, is a relatively new construct. It’s only been around for a few generations.
In fact, the current version of the relaxed, golfing/RV-touring/country club retirement lifestyle only came into being in the post-WW2 boom era — as Social Security, corporate & government pensions, cheap and plentiful energy, and extended lifespans made it possible for the masses.
But increasingly, it looks like the dream of retiring is fast falling out of reach for many of today’s Baby Boomers. Most will outlive their savings (if they have any at all).
And the retirement prospects look even worse for Generations X, the Millennials, and Gen Z.
A Bad Squeeze
While the US enjoyed a wave of unprecedented prosperity throughout the 20th century, the data clearly shows that halcyon era is ending.
Real wages (i.e., nominal $ earned divided by the inflation rate) for the average American worker have hardly budged since the mid-1960s:
Yet the cost of living has changed dramatically over the same time period. Note how the rate of increase in the Consumer Price Index (CPI) started accelerating in the late ’60s and never looked back:
Squeezed between stagnant wages and a rising living costs, perhaps it should be little surprise that so many Americans are having difficulty finding anything left over to save for retirement.
We’ve written about this extensively in our past reports, such as Let’s Stop Fooling Ourselves: Americans Can’t Afford The Future and The Great Retirement Con. But as a way of driving the point home, here are some quick sobering stats from the National Institute On Retirement Security:
- The median retirement account balance among all working US adults is $0. This is true even for the cohort closest to retirement age, those 55-64 years old.
…click on the above link to read the rest of the article…
Is The Long-Anticipated Crash Now Upon Us?
Shutterstock
Is The Long-Anticipated Crash Now Upon Us?
I admit: I’m a permabear.
This is no surprise to those who know and have followed me over the years. But I’m publicly proclaiming my ‘bearishness’ because doing so might open up a needed and long overdue dialog.
Here’s my fundamental position: Infinite growth on a finite planet is impossible.
Cutting to the chase, this is why I predict a major crash/collapse across stocks, bonds and real estate is on the way.
The recent market weakness seen over the past two weeks is nothing compared to what’s in store. As we’ve been carefully chronicling, bubbles burst from ‘the outside in’, starting at the weaker places at the periphery before progressing to the center.
Emerging market equities are now down -26% from their January highs and -18% year-to-date. China’s stocks market is down -32%, even with substantial intervention by the government to prop things up.
The periphery has been weakening all year, and the contagion has now spead worldwide.
Taken as a whole, global equities have shed some $13 trillion of market capitalization for a -15% decline:
The rot has spread to the core with surprising speed. Now even the formerly bullet-proof US equity markets are stumbling.
The S&P 500 is now negative on the year:
It’s been obvious for a long time to those who have watched The Crash Course that endless growth is simply not possible. Not for a bacteria colony in a petrie dish, not for an economy, not for any species on the planet. Eventually, when finite resources are involved, limits matter.
But the vast majority of society pretends as if this isn’t true.
…click on the above link to read the rest of the article…
The Coming Inflation Threat: The Worst Of Both Worlds
Sandusky Register
The Coming Inflation Threat: The Worst Of Both Worlds
Historically, 2.5% is about as low as inflation gets in a mass-consumption economy like the U.S. that depends on the constant expansion of credit.
But even 2.5% annually can add up if wages are stagnant. According to the Bureau of Labor Statistics (BLS), what cost $1 in January 2009 now costs $1.19. https://www.bls.gov/data/inflation_calculator.htm
That 19% decline in the purchasing power of dollars is tolerable as long as wages go up by 20% over the same period, but for many American households, wages haven’t kept pace with official inflation.
While the nominal hourly wages keep rising, adjusted for inflation, wages have stagnated for decades. Here’s a chart based on BLS data that shows median weekly earnings adjusted for official inflation rose $6 a week after five years of decline:
But stagnant wages are only part of the inflation picture: official inflation under-represents real-world inflation on several counts.
First, the weightings of the components in the Consumer Price Index (CPI) are suspect. Many commentators have explored this issue, but the main point is the severe underweighting of expenses such as healthcare, which is only 8.67% of the CPI but over 18% of the U.S. Gross Domestic Product (GDP).
Second, the “big ticket” components—rent/housing, healthcare and higher education—are under-reported for those who have to pay the unsubsidized cost. The CPI reflects minor cost decreases in tradable commodity goods such as TVs and clothing that are small parts of the family budget, while minimizing enormous expenses such as college tuition and healthcare that can cost $20,000 annually or more.
…click on the above link to read the rest of the article…
The Weighted Average Cost Of Capital
ittybiz.com
The Weighted Average Cost Of Capital
This is a revisitation of a report I wrote back in late 2016, predicting the imminent end of zero-bound interest rates and warning of the downward pressure that rising rates, mathematically, must place on today’s elevated asset prices.
Since the publication of that report, interest rates have indeed vaulted higher. Look at how the 3-month US Treasury yield has exploded since the start of 2017:
A Little Background
When I was fresh out of college in the mid-90s, I landed a job at Merrill Lynch. I was an “investment banking analyst”, which meant I had no life outside of the office and hardly ever slept. I pretty much spoke, thought, and dreamed in Excel during those years.
Much of my time there was spent building valuation models. These complicated spreadsheets were used to provide an air of quantitative validation to the answers the senior bankers otherwise pulled out of their derrieres to questions like: Is the market under- or over-valuing this company? Can we defend the acquisition price we’re recommending for this M&A deal? What should we price this IPO at?
Back then, Wall Street still (mostly) believed that fundamentals mattered. And one of the most widely-accepted methods for fundamentally valuing a company is the Discounted Cash Flow (or “DCF”) method. I built a *lot* of DCF models back in those days.
I promise not to get too wonky here, but in a nutshell, the DCF approach projects out the future cash flows a company is expected to generate given its growth prospects, profit margins, capital expenditures, etc. And because a dollar today is worth more than a dollar tomorrow, it discounts the further-out projected cash flows more than the nearer-in ones. Add everything up, and the total you get is your answer to what the fair market value of the company is.
…click on the above link to read the rest of the article…
Wolf Richter: Making Sense Of The Recent Market Gyrations
Wolf Richter: Making Sense Of The Recent Market Gyrations
Every week at PeakProsperity.com, we record a podcast exclusive for our premium subscribers titled Off The Cuff, where Chris and a weekly expert discuss the notable developments of the week. Every once in a while, we’ll share one of these episodes with the general public, which we’re doing this week. Here’s Chris Martenson in discussion with Wolf Richter, evaluating the causes and repercussions of last week’s violent drop across the stock and bond markets.
Recorded last week as the market was in full melt-down mode, Chris and Wolf Richter decode the underlying drivers of the sudden reversal, and peer into the future to predict what is most likely to happen next. Both agree that, whether stocks are briefly ‘rescued’ in the ensuing days, the long-awaited downward re-pricing of the ‘Everything Bubble’ is nigh.
As Wolf puts it:
The emerging market stock index is down 22% from January. So they have gotten hit pretty hard. There’s this trend from the outside toward the core. So when something deteriorates, it starts at the outside and moves toward the core, the core being the higher quality US financial instruments. So that’s probably a dynamic that has already started. And I agree with you. The central banks removing liquidity is a big thing, and it has a big impact.
And people have said, for years, well, QE didn’t cause stocks to go up. So when that goes away, it’s not going to cause stocks to go down. But that’s just not true. The purpose of QE, as Bernanke himself explained it in a Washington Post editorial in 2010, is to create the wealth effect, to bring asset prices up so that the wealthy feel wealthier and spend more money and then this someone trickles down.
…click on the above link to read the rest of the article…
Has “It” Finally Arrived?
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Has “It” Finally Arrived?
With the recent plunge in the S&P 500 of over 5%, has the long-anticipated (and long-overdue) market correction finally begun?
It’s hard to say for certain. But the systemic cracks we’ve been closely monitoring definitely got an awful lot wider this week.
After nearly a decade of endless market boosting, manipulation and regulatory neglect, all of the trading professionals I personally know are watching with held breath at this stage. The central banks have distorted the processes of price discovery and market structure for so many years now, that it’s difficult to know yet whether their grip on the markets has indeed failed.
But what we know for certain is that bubbles always burst. Inevitably. Each is built upon a fallacy; and when that finally becomes apparent to enough people, the mania ends.
And today, there are currently massive bubbles in stocks, bonds and real estate. Every one courtesy of the central banks (as we have written about in great detail here at PeakProsperity.com over the years).
And with no Plan B in place to gracefully exit the corner they have painted themselves — and thereby the global economy — into, the only option available to them is to double-down on the pretense that we’d all be screwed without their stewardship. They have to do this I suppose. To admit the truth would throw the world into panic and themselves out of a job.
Who knows what they think privately? But in public, they give us real gems like these:
Williams Says Fed Rate Hikes Helping Curb Financial Risk-Taking
U.S. interest-rate increases will help reduce risk-taking in financial markets, Federal Reserve Bank of New York President John Williams said.
…click on the above link to read the rest of the article…
Think You’re Prepared For The Next Crisis? Think Again.
Think You’re Prepared For The Next Crisis? Think Again.
No plan of operations extends with any certainty beyond the first contact with the main hostile force.
~ Helmuth von Moltke the Elder
Everybody has a plan until they get punched in the mouth.
~ Mike Tyson
Scottish poet Robert Burns aptly penned the famous phrase: “The best laid schemes o’ mice an’ men/Gang aft a-gley.” (commonly adapted as “The best laid plans of mice and men often go awry.”)
How right he was.
History has shown time and time again that the only 100% predictable outcome to any given strategy is that, when implemented, things will not go 100% according to plan.
The Titanic’s maiden voyage. Napolean’s invasion of Russia. The Soviet’s 1980 Olympic hockey dream team. The list of unexpected outcomes is legion.
Dwight D. Eisenhower, the Supreme Commander of the Allied Expeditionary Forces in Europe during WW2, went as far as to say: “In preparing for battle, I’ve always found that plans are useless but planning is indispensable.”
This wisdom very much applies to anyone seeking safety from disaster. Whether preparing for a natural calamity, a financial market crash, an unexpected job loss, or the “long emergency” of resource depletion — you need to take prudent planful steps now, in advance of crisis; BUT you also need to be mentally prepared for some elements of your preparation to unexpectedly fail when you need them most.
Here are two recent events that drive that point home.
Lessons From Hurricane Florence
A family member of mine lives in Wilmington, NC, which received a direct hit last month from Hurricane Florence.
…click on the above link to read the rest of the article…
Our Delusional Economy Is Poised To Slam Into The Brick Wall Of Reality
dailyhaha
Our Delusional Economy Is Poised To Slam Into The Brick Wall Of Reality
While life has always been uncertain, today our choices matter more than ever. The decisions each of us make today will determine if we thrive, merely survive, or fail during the future time of upheaval ahead.
The window of opportunity to change course for humanity is all but closed. There’s simpply no more time to hope that somehow, magically, the world’s entire energy complex will suddently evolve to a bountiful and sustainable new plane — whether by market forces, by maverick billionaires like Elon Musk, or by happy accident.
As we hammer home constantly here at Peak Prosperity, energy is everything. Without it, our society simply can’t function.
And it’s critical to appreciate that it takes an investment of energy to migrate from energy solution to another.
Imagine you heat your house with wood, but want to switch to a forced air gas furnace. Is there energy involved in doing so? You bet there is. Besides the obvious new need for natural gas, there’s a huge amount of embodied energy in the manufacture and installation of your new furnace, all the duct work, and the delivery lines that will bring the gas to the furnace. Further, there will be electricity required to force the air from the furnace, through the ducts, and into your house.
The same is true when making transitions at the national level. What’s involved in the much larger projects of switching industrial agriculture away from the fossil fuel driven process of plowing, planting, fertilizing, irrigating, harvesting, drying or cooling, and then transporting food from the field to your table?
At each stage there’s an enormous amount of energy infrastructure that needs to be rebuilt and reconfigured to run on “something else.” Let’s examine the current dream that we’ll switchover to powering all of our farming needs with electricity.
…click on the above link to read the rest of the article…
Joe Saluzzi: The Markets Are Still Way Too Vulnerable To A Sudden Liquidity Disappearance
Joe Saluzzi: The Markets Are Still Way Too Vulnerable To A Sudden Liquidity Disappearance
Joe Saluzzi, co-founder of Themis Trading LLC, outspoken exchange expert, and author of the excellent exposé Broken Markets, returns to give us an update on the state of high frequence trading — otherwise known as HFT.
In the past, Saluzzi has been a vocal critic of the dominant and parasitic role HFT algorithims play in today’s financial markets, siphoning off profits at the expense of the “dumb money” (i.e. retail investors) while undermining the integrity and stability of exchanges. Front running, spoofing, flash crashes — HFTs are the culprits behind them.
Saluzzi actually has some positive developments to note: namely that the obscene profits the HFTs used to make (i.e., steal) are moderating as the arms race in the industry has escalated and the players are increasingly competing with each other. Also, the SEC appears to be moving much faster now towards putting some material constraints in place.
But the unfair advantages that HFTs enjoy, as well as their threat to market stability, are still very real. If we don’t continue to fight to bring them under control, we risk a vicious downdraft during the next big market crisis should the algos instantly exit in a panic:
If the HFT algos get spooked and stop trading, then you got a major problem.
In times like this when there’s no storm out there, it’s time to fix the house now to make sure that when the storm comes the house doesn’t get knocked down. So how do you fix the house? By getting rid of the conflicts of interest, maybe adding more obligations for market makers, looking at those off-exchange venues which are considered ‘dark pools’ and learning what’s going on there, looking at all different types of the issues that continue to haunt us — most of which don’t become visible until they don’t pop up at the end.
…click on the above link to read the rest of the article…
What Comes Next
What Comes Next
All things have a beginning, a middle and and end.
And now, more than 3,480 days into the current bull market, the longest in history, we can say with high confidence we are very close to its end.
Why?
For manifold reasons that are multiplying fast. So many, in fact, that each of the key speakers at the recent Peak Prosperity/Contra Corner Summit in New York City had difficulty finding enough time to enumerate them all during the six-hour event.
David Stockman, President Reagan’s budget head and former US Congressman, focused his warnings on the overconcentration of financialized (i.e., phony) profits in the world economy, which mask the steep decline in the production of tangible (i.e., real) value.
Among his long litany of examples of the sclerosis and fraud within today’s economy, he explained how so much of today’s euphoric stock prices are an artifact of the cheap credit made possible by the world’s central banking cartel — enabling a massive LBO of our corporate industry.
Long story short: artificially low rates have been allowing corporate executives, for years, to buy back a huge percentage of their company’s shares, enriching shareholders (most notably the execs themselves) in the immediate term, while saddling the underlying companies under tremendous leverage (1m:13s):
(Purchase the full replay video)
As long as stock prices stay high and rates stay low, no one cares; they’re making too much money. But as rates rise and prices fall, these corporations will become crippled by their debt service requirements, be forced to lay off large swaths of their workforces, and quite possibly go out of business. Failures will ripple across the corporate landscape, sinking the US into prolonged recession.
As a society we’ll be the poorer for it. And suffer the full brunt of the pain this collapse of malinvestment will bring.
…click on the above link to read the rest of the article…
Bad Money
Dreamstime
Bad Money
We’re all going to have to be a lot more resilient in the future.
The “long emergency“, as James Howard Kunstler puts it, is now upon us.
If ever there was a wake-up call from Mother Nature, it’s been the weather events over the past 12 months.
Last year, the triplet Hurricanes Harvey, Maria, and Irma resulted in thousands of deaths (mainly in Puerto Rico) and tens of $billions in destruction.
This year has seen a rash of 120° F (50° C) summer days, droughts, current monster storms like Typhoon Mangkhut and Hurricane Florence — as well as numerous 100/500/1,000-year floods spread across the globe.
And that’s just so far.
It remains nearly impossible to connect climate change directly to any particular weather event. But taken together, it’s becoming increasingly difficult to dismiss the scientific claim that the quantity of heat trapped in the earth’s weather systems impacts the amount of water that now falls (or refuses to fall) from the sky and the high-temperature heat waves that now shatter records with such regularity that once-rare extreme conditions are now becoming routine.
Our “new normal” is quickly diverging from the natural conditions most of us have grown up with. Permafrost isn’t “permanent ” anymore — it melts. The Arctic now can be ice-free. In a growing number of regions in the US, you can leave a screenless window open on an August evening (with the lights on!), and remain unmolested by the swarms of insects that used to prowl the night.
All of these symptoms are connected by a root cause: our society’s relentless addiction to growth. And while we do our best here at PeakProsperity.com to continually raise awareness of this existential threat, the rest of the media completely ignores it.
meltdown? That’s splashed everwhere…
…click on the above link to read the rest of the article…
