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Rabobank: The Purge Could Contribute To A Widening Of The Cultural And Political Divide

Rabobank: The Purge Could Contribute To A Widening Of The Cultural And Political Divide

On Friday Twitter took the decision to permanently suspend President Trump from its platform due to the “risk of further incitement of violence”.  The day before Facebook had already blocked him.  Tech giants have also moved against right-wing social media platform Parler, with Apple and Google removing it from their app stores over the weekend and Amazon withdrawing the cloud service in which it stores its data.  In view of the events on Capitol Hill last week, the actions have brought relief for many.  However, this news has also sparked warnings that the actions of the tech giants cannot make dissenting opinion vanish and that the purge could contribute to a widening of the cultural and political divide in the US. 

For certain there are concerns that the Democrats’ efforts to impeach the President could underscore amongst his supports Trump’s unfounded allegations that the November election was ‘stolen’ from him.  Democrats are expected to introduce a motion to the House of Representatives today calling on Vice-President Pence to invoke the 25th Amendment in order to strip Trump of his office.  If Pence fails to do so, they plan to impeach Trump later in the week.  For Senate Republicans, however, this looks to be a step too far.  While several have publically criticised the President for his role in the last week’s violence in Washington which led to the death of five people, many have indicated that impeachment may not be the best way to hold Trump accountable.  Senator Toomey instead has called for the President to resign and “go away as soon as possible.”

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Democrat Control of Washington Could Trigger Four Years of Surging Inflation

At the beginning of the first term of a newly elected POTUS, the first 100 days set the tone for what that administration wants to accomplish.

Joe Biden’s election has been certified by Vice President Mike Pence, so his first 100 days will begin on January 20. The new administration’s economic agenda has priorities that could differ from yours.

But that’s not all.

As the New Republic points out, a newly elected 50-50 Senate “dramatically changes the power realities awaiting Joe Biden on January 20.” Because the new Vice President Kamala Harris will represent the Senate “tie-breaker” vote. Meanwhile, Mitch McConnell will become the minority leader. That means McConnell wouldn’t be able to obstruct proposed legislation as he has been able to do in the past.

So those first 100 days that set the tone for the administration, what might they look like? According to historian Donald Critchlow, this, among other things:

Raising taxes; the Green New Deal; expansion of ObamaCare as the first step toward nationalized healthcare; a massive stimulus bill; immigration reform with border security in name only; and appeasement with China.

Critchlow added ominously, “The first 100 Days of the Biden administration might very well go down in the history books as the ‘100 Days of No Return.’”

Then there is the potential for an even more alarming shift in the balance of power, according to Newsmax:

Capitol Hill observers generally agree that one of the first pursuits of a Democrat-controlled Senate would be admission of statehood for both the District of Columbia and Puerto Rico — a move that would guarantee both two senators and a Democrat Senate majority for years to come.

…click on the above link to read the rest of the article…

 

Lance Roberts: GMO’s Jeremy Grantham Is Correct, There’s An ‘Epic Bubble In Stocks’

Lance Roberts: GMO’s Jeremy Grantham Is Correct, There’s An ‘Epic Bubble In Stocks’

Following GMO’s co-founder Jeremy Grantham’s renewed warning about extreme overvaluations, RIA Advisors Chief Investment Strategist Lance Roberts chimed in on the conversation Thursday morning.

In “Three Minutes on Markets & Money,” Roberts agress with Grantham, saying, “the stock market is in a bubble.”

To refresh readers on Grantham’s Tuesday note titled “Waiting for the Last Dance,” Grantham wrote, “today, the P/E ratio of the market is in the top few percent of the historical range, and the economy is in the worst few percent. This is completely without precedent and may even be a better measure of speculative intensity than any SPAC.”

He wrote while he doesn’t know when the bubble will burst, the bust cycle is inevitable, and not even the Federal Reserve can prevent it.

“Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives,” Grantham said.

So back to Roberts, he says bubbles are a function of the market and repeat throughout time. Clearly, that is true in the figure below, showing bubbles over the past four decades.

Today is “clearly a bubble,” he said, adding that S&P500 valuations are overly stretched.

He said investors’ psychology is euphoric as they take on more equity exposure than ever before, adding that most speculative risks are being transacted in the options market.

In a series of charts, Roberts shows extreme optimism and/or high valuations that are not sustainable.

Market Cap Of Stocks / GDP Ratio

S&P500 Price To Sales Ratio

…click on the above link to read the rest of the article…

 

Waiting For the Last Dance

The Hazards of Asset Allocation in a Late-stage Major Bubble

The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.

These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle. For positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part. Every career incentive in the industry and every fault of individual human psychology will work toward sucking investors in.

But this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives. Speaking as an old student and historian of markets, it is intellectually exciting and terrifying at the same time. It is a privilege to ride through a market like this one more time.


“The one reality that you can never change is that a higher-priced asset will produce a lower return than a lower-priced asset. You can’t have your cake and eat it. You can enjoy it now, or you can enjoy it steadily in the distant future, but not both – and the price we pay for having this market go higher and higher is a lower 10-year return from the peak.”1


…click on the above link to read the rest of the article…

What To Do When The Planets Diverge

What To Do When The Planets Diverge

Planets Jupiter and Saturn came into closer alignment than any time since 1226 this week.  Yet the planets in Washington did not align.  The federal government was unable to ‘Christmas tree’ its stimulus bill.

At the 11th hour, President Trump called bull pucky on the contents of Congresses hideous creation.  Too much pork.  Not enough relief.

Congress will return next week and attempt to salvage a deal.  Likewise, we’ll save fiscal stimulus and its consequential economic distortions for reckoning with another day.

It’s Christmas, after all.  We’d prefer to delve into the esoteric.  Thus, today, for fun and for free, we seek meaning through numerology and astrology.  Where to begin…

Not long ago, if you recall, a Dow Jones Industrial Average (DJIA) above 30,000 was impossible.  Nothing could touch it.  But here it is, in the flesh, a DJIA that’s a peppermint stick above this “sacred” number.

A DJIA above 30,000 is, indeed, quite impressive.  But equally impressive is a distinct, yet somehow related milestone that’s rapidly approaching.  The U.S. National Debt is over $27.5 trillion.  At the current spending rate, the national debt will surpass a round and rotund $30 trillion within nine months.

The reality, however, is that the national debt exceeded $30 trillion a long time ago.  In fact, it’s really 568 percent higher.  Remember, current unfunded liabilities, including Social Security and Medicare, now total over $156.2 trillion.

Added together, the national debt and current unfunded liabilities total $183.7 trillion.  Truly, this number is so large it’s near impossible to comprehend.  Thus, for simplicity and for the sake of numerological harmony, today’s ruminations are limited in breadth and scope to DJIA 30,000 and U.S. National Debt $30 trillion.

…click on the above link to read the rest of the article…

Fed’s New Paradigm Adds Helium to the Stock Bubble

Valuation are not only high, they are among the highest on record.
The Laws of InvestingThe Wall Street Journal asks Has the Fed Rewritten the Laws of Investing?

It has been an odd year with the Covid-19 crisis hammering the economy, but stocks recovering from sharp losses and then powering to new highs. As a result, standard measures show valuations are at rarely-seen levels that have typically ended in tears.

The S&P 500 trades at 22 times analysts’ expected earnings—its most expensive level since the dot-com bubble. It also trades at its richest multiple to its inflation-adjusted earnings over the past decade—the valuation method popularized by economist Robert Shiller —in nearly 20 years. The total value of U.S. stocks as a percentage of the U.S. economy, which Warren Buffett once called “the best single measure of where valuations stand at any given moment,” is now higher than at any point during the dot-com years.

Stocks vs Interest Rates

Some suggest stocks may not be as expensive as they seem because that interest rates are extremely low.

John Hussman has pointed out the fallacy of that theory many times. The Journal explains the fallacy this way.

The 10-year Treasury largely reflects investor expectations of what the overnight rates set by the Fed will average over the next decade. The Fed responds to what is going on with the economy, setting rates higher when it is trying to cool things down, lower when it is trying to heat things up. So low yields are tantamount to a low-growth, low-inflation economy—one in which profit growth would be low, too. Why pay up for stocks under that scenario?

…click on the above link to read the rest of the article…

Make Your ‘Dent In The Universe’

Having spent a career launching iconic products — including Apple’s first Macintosh computer — Guy Kawasaki knows a thing or two about what leads to success and fulfillment in both business and life.

These are insights more and more of us could benefit from right now, as the economic disruption caused by covid has thrown many households into turmoil as millions of workers have been laid off, hundreds of thousands of businesses are closing, and many industries have been upended.

As we look ahead to the coming decade, challenges abound. More and more experts foresee a “lost decade” for the markets, as today’s sky-high valuations have pulled tomorrow’s returns into today. Many of the jobs lost to the pandemic simply won’t come back.

How can we chart a course through this uncertainty that will give us hope, happiness and fulfillment?

Kawasaki advises developing an accurate understanding of your talents and then optimizing them for a niche others aren’t serving well. Ask yourself: How can I maximize the value can I bring? And how can I make it as unique as possible?

In Guy’s long experience, the people who manage to exist in the upper right quadrant of the chart above have the most successful careers, the most profitable businesses, and the most fulfilling relationships.

Guy thinks this framework is more important than ever given the continued disruption and challenges ahead.

Which is why now, more than ever, is the time to partner with a financial advisor who understands both the opportunities and the risks in play, can craft an appropriate portfolio strategy for you given your needs, and apply sound risk management protection where appropriate:

To The Breaking Point

To The Breaking Point

If you thought fundamentals, valuations and earnings growth matter the joke is on you.

In 2020 central banks have managed to do the unthinkable: Not only once again save investors from any damage in markets, but they intervened to such a degree that negative earnings growth is now the stuff of new record highs as well.

After all, never before have we seen indices vertically catapult to new record highs 2 years in a row on the cumulative reality of no earnings growth (2019) and negative earnings growth in 2020 with a multiple expansion of a near 50% in just 12 months with an unemployment rate of near 7% to boot.

As it’s all unprecedented it becomes a question of sustainability:

To get a visual appreciation of the vertical nature of the price action check a chart of small caps, up 17.5% on the year with negative earnings growth yet going vertical to new all time highs:

The chart apparently as vertical as the Citi Euphoria index:

If you are looking for precedence you will come up short as the vertical extension on some of these charts have no precedence.

Case in point, take a look at $RUT on a monthly basis:

The 10 MA oscillator has moved past the only to 2 previous all time extreme readings in the 15 range, now sitting above 21. Note the 2 previous occasions of extreme extensions above 15 resulted in an eventual reversal to and below the monthly 10MA.

Not only is the price action far extended, but price is entirely outside the monthly Bollinger band. As I outlined at the December 2018 bottom and again at the March 2020 bottom, markets don’t like technical imbalances, they lead to reversion and this market here is showing a historic imbalance as prices have been crashing to the upside.

…click on the above link to read the rest of the article…

If You Thought 2020 Was Bad, Watch What Happens In 2021

In terms of the economy and the American social situation, 2020 is definitely one of the ugliest years on record, there’s really no way around it. That said, I get the impression that many in the public are operating under the assumption that we are about to cross over the peak of the mountain and it will be all downhill from here on. Unfortunately, this is not the case.

All eyes have been focused on the pandemic event, and the thinking is that once the pandemic is “over”, the crisis will be over and everything will go back to normal. But, as the globalists have been telling us since the outbreak began, the world “will never go back to normal again”. It’s not because of the pandemic, mind you, it’s because THEY won’t allow things to go back to normal. The “great reset”, as the World Economic Forum calls it, is meant to go on for many years. And, the globalists intend that every aspect of our lives be changed into something almost unrecognizable.

First I want to make it clear that I don’t expect the reset agenda to be successful. In fact, I think it’s going to fail miserably. The globalists have reached too far too fast and exposed themselves, and millions upon millions of people around the world and in America are not buying the pandemic narrative. But here is the problem; the pandemic is a distraction from a much greater threat, namely the economic collapse that is developing right now.

The financial downturn has been created by international banks and central banks through massive debt creation and inflationary stimulus measures. The initial spark for the wildfire took place in 2008, the economic threat has been under the noses of the public for quite some time…

…click on the above link to read the rest of the article…

What Oil’s Troubles Mean to the Rest of Us

To the extent that stock prices reflect expectations of future value, investors don’t like the prospects for oil, and oil’s demise signals muted prospects for economic growth.

Exxon-Mobil (XOM) was removed from the Dow Jones Industrial Average this past August, ending a run that began when the Dow expanded to 30 stocks in 1928. This leaves Chevron as the sole oil company in the index. For most of those 92 years, there were three oil majors in the Index (Standard of NJ/Exxon, Texaco, and Standard of CA/Chevron) – now there is one. Should you care?

In one sense, no. The Dow is an actively-managed index, and 11 of the current 30 firms have replaced other names since 2000. (Exxon-Mobil was replaced by Salesforce.) The financial media treats changes in the Dow as measures of overall market levels, but little money is actually invested in DJIA-linked products. There’s an interesting article in all that, but it’s not this one.

On the other hand, the Dow committee likes to include industries and companies that are growing and successful. Removing XOM is a measure of the decline of the economic status of “big oil.” Over the last two months, both XOM and BP have approached their lows from this past March, which were in turn the lowest prices for those stocks since 1994 (BP) or 1997 (XOM). The S&P 500 has grown by a factor of four since 1997.

The WTI price of oil is (as of October 2020) around $40 per barrel, which is the lowest since 2003 on an inflation-adjusted basis except for a brief period at the start of 2016 and a few weeks this spring. This reflects the abundance of oil supplies after the COVID-induced demand collapse, but it also is a price below what’s necessary to operate much of the industry profitably…

…click on the above link to read the rest of the article…

For Stocks & Bonds, Upside Surprise of Inflation and Interest Rates “Could Prove Nasty”: Dudley

For Stocks & Bonds, Upside Surprise of Inflation and Interest Rates “Could Prove Nasty”: Dudley

Five reasons to “worry about faster inflation.” It’s “a greater danger precisely because it’s no longer perceived as such.”

“Given how completely financial markets have come to expect low inflation and interest rates, and how much support those expectations are providing to bond and stock prices, an upside surprise could prove nasty,” says former president of the Federal Reserve Bank of New York Bill Dudley, in a warning about how markets are ignoring the rising risks of inflation.

Companies have been raising prices, and they have been getting away with it. I’m not talking about prices at the gas station or grocery store which bounce up and down, but prices for things that are more stable, particularly services, where 70% of spending takes place, such as broadband services, shipping rates, and the regular highflyers, such as healthcare. Rents on a national basis are mix of plunging rents in some cities and surging rents in other cities. There has been inflation in goods too, including used-vehicle prices which have spiked by 15% since June,

Many of the restaurants that remained open raised their prices to deal with the additional costs and the decline in seating capacity during the Pandemic, and people are willing to pay those prices to support their restaurants. This happened across other industries that have cut capacity, triggering surging prices despite a decline in demand.

Some of these price increases happened because demand was red-hot, brought on by the sudden shifts to eating at home, working at home, learning at home, playing at home, and vacationing at home, and the other distortions brought about by the Weirdest Economy Ever. Other price increases happened because there were supply constraints due to the Pandemic, and the higher prices stuck.

…click on the above link to read the rest of the article…

Weekly Commentary: Monetary Disorder In Extremis

Weekly Commentary: Monetary Disorder In Extremis

November non-farm payrolls gained 245,000, only about half the mean forecasts – and down from October’s 610,000. It was the weakest job growth since April’s employment debacle. U.S. equities rallied on the disappointing news. A few Bloomberg headlines captured the aura: “Stocks Gain as Jobs Miss Boosts Stimulus Bets;” “Fed Case for Fresh Action Gets Stronger on Soft U.S. Jobs Report;” and “Jobs Data Was a ‘Perfect Miss’ for Fed and Aid.”
Bad news has never been more positively received in the stock market. Some analysts are now anticipating the Fed will soon supersize its already massive monthly bond purchases. Chairman Powell’s comments this week did little to dissuade such thinking: “We are going to keep our rates low and keep our tools working until we feel like we really are very clearly past the danger that is presented to the economy from the pandemic.”

The U.S. Bubble Economy structure has evolved into a voracious Credit glutton. There’s a strong case for significant additional fiscal stimulus. The case for boosting monetary stimulus is not compelling. Financial conditions have remained ultra-loose. Credit stays readily available for even the riskiest corporate borrowers, as bond issuance surges to new heights. While formidable, the remarkable speculative Bubble throughout corporate Credit is dwarfed by what has regressed to a raging stock market mania.

Manic November will be chronicled for posterity. Future historians will surely be confounded. It is being called the strongest ever November for equities. Up 12% for the month, the Dow posted its largest one-month advance since January 1987. The S&P500 returned 10.9%, a huge bonanza relegated to small potatoes by the “melt-up” in the broader market. The “average stock” Value Line Arithmetic Index posted an 18.3% advance in November. The small cap Russell 2000 also surged 18.3%, and the S&P400 Midcaps rose 14.1%.

…click on the above link to read the rest of the article…

Uncertainty and the Future

Uncertainty and the Future

QUESTION: I would imagine that if Trump is able to prevail in the courts and earn a second term social unrest would be profound but what would be the effects on the markets?

RM

ANSWER: There is still a shot that Trump can prevail if he can stop Biden from reaching 270 votes and that would throw it into the House of Representatives where each state would get one vote and Trump would win in that scenario as took place during the election of 1824. But PA has certified Biden as the winner and then a state judge ruled against the governor. Then lawsuits against Georgia, Michigan, and Wisconsin raise the stakes of perhaps preventing Biden from getting 270 sending it into the House of Representatives.

What is clear from Socrates is that civil unrest will rise no matter what. If Trump can prevail or the Republicans can keep the Senate, then the Great Reset agenda will be stalled. But Biden can still use executive orders if he takes the White House to try to impose lockdowns etc overriding Congress. In Theory, Trump could have used executive orders ordering the State to end lockdowns but that would have been used against him and the Democrats argued he lacked that power. With Biden, they would say he has it.

My OPINION is just an OPINION. This year has been off the charts and it is still not over. Socrates just follows the markets and that is the only tool we have that is not subject to personal opinion which I seriously doubt anyone will be correct in this mess other than sheer luck. Nobody has lived through this type of market. The press attributes the rally to the vaccine. Let’s be honest here, that is propaganda. The Dow took the lead only because of international capital flows.

…click on the above link to read the rest of the article…

Prepare for Winter

Prepare for Winter

Realism must precede optimism or the optimism will collapse as the tsunami of reality comes ashore.

It’s time to prepare materially and psychologically for a winter unlike any other in our lifetimes.

Here’s the view from 30,000 feet:

1. The stock market and the general zeitgeist of optimism have soared based on expectations that the real-world economy and efforts to suppress Covid would also track a V-shaped recovery.

While GDP did make a V-shaped recovery, GDP (gross domestic product) is a measure of flows and consumption, not a measure of the socio-economic “balance sheet.” GDP measures the money flowing through accounts but not the “assets” of a functioning society: functional institutions and infrastructure and the well-being and security of the citizenry.

Thus GDP soars while the real-world economy and society are hollowed out by economic inequality, declining health, financial insecurity, rising prices for essentials, dysfunctional institutions and decaying infrastructure.

Simply put, GDP doesn’t measure what’s important; it creates destructive incentives to squander resources and borrow staggering sums to support more consumption. This systemic flaw in what we measure has long been recognized by mainstream economists such as Joseph Stiglitz. Measuring What Counts: The Global Movement for Well-Being (Joseph E. Stiglitz et al.)

So the recovery of GDP doesn’t mean the real-world economy has been restored to pre-Covid settings. GDP is a deceptive metric that’s masking a free-fall in our well-being, security and social cohesion.

2. Just as GDP is a deceptive measure of the economy, counting Covid fatalities is equally deceptive: a declining death count is good news, of course, but that ignores the other effects of Covid, particularly organ damage and “Long-Covid” debilitation, not just in people with pre-existing conditions and the elderly but in healthy middle-aged and even some young people.

…click on the above link to read the rest of the article…

Weekly Commentary: Well, That’s Some Weird… Stuff

Weekly Commentary: Well, That’s Some Weird… Stuff

The “average stock” Value Line Arithmetic Index jumped 6.4% for the week. The NYSE Arca Oil Index surged 19.8%, with the Philadelphia Oil Services Index up 17.4%. The KWB Bank Index rose 11.5%, as the Nasdaq Bank Index advanced 13.6%. The Bloomberg REIT Index jumped 6.8%.
The S&P600 Small Cap Index gained 7.5% for the week, as the S&P400 Midcaps rose 4.3%. The Bloomberg Americas Airlines Index jumped 12.9%. The JPMorgan Leisure Travel Index surged 15.3%. Major equities indices rose 13.3% in Spain, 11.9% in Austria, 11.5% in Greece, 10.5% in Belgium, 8.5% in France, 6.9% in the UK and 4.8% in Germany. Turkish stocks surged 8.3%. Crude (WTI) prices jumped 8.1%. Meanwhile, Zoom was down 19%, Netflix 6.2%, Facebook 5.6%, Amazon 5.5%, and Tesla fell 5.0%. Well, That’s Some Weird… Stuff.

I have no interest in disparaging Pfizer’s (and BioNtech’s) Monday announcement of 90% effectiveness for their Covid vaccine. It’s encouraging news. But it is a two-shot vaccine with what reportedly can induce strong post-shot reactions. Moreover, logistical challenges await a vaccine requiring extreme cold storage (negative 100 Fahrenheit). There will be limits to its availability, but mainly I expect a majority of American’s initially to approach Covid vaccines with caution. While many questions remain unanswered, the bottom line is 90% effectiveness bodes well for Covid vaccines generally.

Monday’s market reaction to the news doesn’t bode so well for general market stability.

November 13 – Bloomberg (Justina Lee): “Jon Quigley says he probably should have known something big was coming — even if his risk models didn’t. Just a day after the Great Lakes Advisors manager watched CBS’s ‘60 Minutes’ about America’s unprecedented efforts to deploy a vaccine when it comes, Pfizer Inc. revealed significant progress on its pandemic cure. That revelation spurred the biggest moves ever in Quigley’s $3.9 billion portfolio. While stock benchmarks cheered the news, Wall Street’s most popular styles of quant trading got hit by a historic storm…

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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