GFC 2? No; Meltdown2014

[Logen Ninefingers]

The current governmental crisis in the USA will eventually peter out.....I think we all know a deal on raising the debt ceiling will be done, and this will have the psychological effect of calming the global markets & letting everyone know that the equities party can continue, that the US dollar is still 'strong', that the US will pay it's bills. This is all just an illusion. A run-away stock market that is the only game in town as far as getting a return on money - because interest rates are being artificially suppressed - is now divorced from the under-lying ecomony of the US. The US underlying US economy is a basket case and just hanging on...whatever official figures come out of the USA are about as accurate as the figures out of China. True unemployment - counting the 'long-term discouraged' et al - is around 23 - 25% , with growth stagnant.....everything is being propped up by record low interest rates & a huge stock market bubble. This is a record bubble that the Fed have pumped-up and now cannot burst. Put simply, the Fed won't / can't allow interest rates to rise or the equities bubble to burst (and the two go hand and hand), so they can't taper.....they 'talked about' tapering and look what happened. They have to keep 'printing' $85 billion per month....

......which makes the problem worse - the bubble gets blown up even higher, which makes the illusory ecomonic strength - all based on a stock market charge to the stratosphere - even more fragile, which makes stimulus more necessary......this is a catch 22 situation, a vicious cycle. The USA ecomony - stock market false economy - is in a zombified gorge, it is an animated frankenstein on crack-cocaine. Meanwhile the real economy is either stagnant or atrophying. The gold market has been killed / died for 3 entirely logical reasons: 1/ Why keep your funds in gold when you can join the gorging of the equities party? 2/ The US dollar must kill off alternatives to sustain it's gravity defying high-wire act 3/ To provide buying opportunities at the right time for the 'big boys' - who will need 'insurance policies for when the equities bubble bursts.

When will this house of cards fall over? I've seen Bernacke's body language at the press conference after the last Fed meeting....and I was appalled at what I saw. He looks like a broken man.....now wonder he is trying to get out of the Fed. He's like the Enron boys trying to scarper just before the whole thing collapsed.

What I can't understand is why there isn't more panic about the impending disaster. I guess it's the way the world works: we only concentrate on what's right in front of us, and try to ignore what's down the track. Should we all just go back to sleep and ignore the fact that the writing is on the wall???? You cannot print your way out of this; you cannot double your money supply within 5 years - the Fed doesn't even believe this will work, this is all being done to sustain the party for as long as possible because there are now no alternatives.

[BIRMANBOY]

If you keep gnawing at your fingernails like this you'll be down to Logen Eightfingers in no time.:scared:
The current governmental crisis in the USA will eventually peter out.....I think we all know a deal on raising the debt ceiling will be done, and this will have the psychological effect of calming the global markets & letting everyone know that the equities party can continue, that the US dollar is still 'strong', that the US will pay it's bills. This is all just an illusion. A run-away stock market that is the only game in town as far as getting a return on money - because interest rates are being artificially suppressed - is now divorced from the under-lying ecomony of the US. The US underlying US economy is a basket case and just hanging on...whatever official figures come out of the USA are about as accurate as the figures out of China. True unemployment - counting the 'long-term discouraged' et al - is around 23 - 25% , with growth stagnant.....everything is being propped up by record low interest rates & a huge stock market bubble. This is a record bubble that the Fed have pumped-up and now cannot burst. Put simply, the Fed won't / can't allow interest rates to rise or the equities bubble to burst (and the two go hand and hand), so they can't taper.....they 'talked about' tapering and look what happened. They have to keep 'printing' $85 billion per month....

......which makes the problem worse - the bubble gets blown up even higher, which makes the illusory ecomonic strength - all based on a stock market charge to the stratosphere - even more fragile, which makes stimulus more necessary......this is a catch 22 situation, a vicious cycle. The USA ecomony - stock market false economy - is in a zombified gorge, it is an animated frankenstein on crack-cocaine. Meanwhile the real economy is either stagnant or atrophying. The gold market has been killed / died for 3 entirely logical reasons: 1/ Why keep your funds in gold when you can join the gorging of the equities party? 2/ The US dollar must kill off alternatives to sustain it's gravity defying high-wire act 3/ To provide buying opportunities at the right time for the 'big boys' - who will need 'insurance policies for when the equities bubble bursts.

When will this house of cards fall over? I've seen Bernacke's body language at the press conference after the last Fed meeting....and I was appalled at what I saw. He looks like a broken man.....now wonder he is trying to get out of the Fed. He's like the Enron boys trying to scarper just before the whole thing collapsed.

What I can't understand is why there isn't more panic about the impending disaster. I guess it's the way the world works: we only concentrate on what's right in front of us, and try to ignore what's down the track. Should we all just go back to sleep and ignore the fact that the writing is on the wall???? You cannot print your way out of this; you cannot double your money supply within 5 years - the Fed doesn't even believe this will work, this is all being done to sustain the party for as long as possible because there are now no alternatives.

[Logen Ninefingers]

Laugh it up!!! It would be great for someone to say "you are wrong & these are the reasons why". But unfortunately anyone looking at the fundamentals will reach the same conclusions I have. You can't point to a hugely inflated share-market bubble as evidence that everything is fine. Everything is the opposite of fine.

[BIRMANBOY]

Its immaterial what I think....the question one should ask when presented with such a dilemma is ok.....now what can I (you) do about it. Unfortunately the answer(s) such as EG (1) cash everything up and buy a rifle and ammunition and 300 cases of baked beans (2) cash up and turn into gold and revert to #1 (3) etc etc etc. are all trotted out regularly and tiresomely too frequently by countless others over the last several centuries. The problem is 999,999 times out of a 1,000,000 it doesnt eventuate and one (not you of course) is diverted into fruitless and un-neccessary stress and worry...not to mention getting rid of the baked beans. But if it makes you feel better and in control of your life then by all means go for it.

[Kaspar]

Laugh it up!!! It would be great for someone to say "you are wrong & these are the reasons why". But unfortunately anyone looking at the fundamentals will reach the same conclusions I have. You can't point to a hugely inflated share-market bubble as evidence that everything is fine. Everything is the opposite of fine.

According to http://www.multpl.com/ the S&P500 PE is approx 19.31, which compared to the historic mean of 15.50 doesn't seem like 'meltdown' territory. It seems there is room for the bull market to go much, much higher.

[Logen Ninefingers]

We had GFC 1 in 2008 and we almost had the China-syndrome with the global financial system. What is happening now has everything to do with how the Fed responded to that.

It's ridiculous to say that this is some sort of reaction to rampant paranoia about a situation that "999,999 times out of a 1,000,000 doesnt eventuate" : I am talking about this specific situation: 17.66 or something trillion of US govt debt, Fed reserve 'money printing' of 85 billion a month, Fed balance sheet of 3.5 trillion, 23% real unemployment in the US, an enormous US stock market bubble.
There is no manufactured paranoia here.

[BIRMANBOY]

The unfortunate aspect of paranoia is its very "real" to those prone to its occurence. But lets just say for arguements sake, and to humour you..we say you're right. Now what are you going to do about it. This is the point at which paranoia can turn into stress. The obvious answer to most of us is there is nothing you or I or individuals like us can do anything about the problem. Ranting on street corners on the proverbial soap boxes or traipsing up and down Madison Ave with a billboard proclaiming "The end is nigh" will solve nothing and just elevate your anxiety. Whats your solution to resolve the problem? How is it going to be implemented?

[Corporate]

I agree. I'm very surprised more isn't being made of this....the US government shut down because it can't pay its bills.

A resolution will come and they will kick the can down the road making the actual crash much worse.

[janner]

23% real unemployment in the US,

Not just the US. if the truth be told.

Get used to it..

As technology takes over from the " Manual " jobs i.e. Car Manufacturing.. Electronic assembly. Packaging. Warehousing. Medical procedures.. Even Piloting Aircraft.. as examples..

What can these millions upon millions of educated skilled people do ??
When they are no longer needed in the not to distant future ??

Push pens for a Government department ??..

Re-educate them into WHAT ???..

Even here we do not have enough fish for them all to go fishing..

[Logen Ninefingers]

Whether you are capitalist, socialist...whatever.....if you were an economist you'd realise that having so much of the US wealth trapped with 1% of the population does nothing for your economy; that money needs to be in circulation to do any good. Having your large corporates offshore their enormous profits does nothing for your economy. Having 10% of US corporate wealth locked in Apple does nothing for the US economy. They have huge structural problems.

[Hoop]

According to http://www.multpl.com/ the S&P500 PE is approx 19.31, which compared to the historic mean of 15.50 doesn't seem like 'meltdown' territory. It seems there is room for the bull market to go much, much higher.

Kaspar...be careful when dealing with PE Ratios...reported earnings can be distorted to create lower equity valued mirages ....To try and create a better gauge through PE normalisation, Shiller is the most famous producing his Annualised PE Ratio which is at a high 24.6 now...this is at the top of Crestmonts Research scale of fair value and is reaching the area where crazy things start to happen....very low inflation is the factor (driver) that is still making that 24 look fairly valued...any rise in inflation or Equity prices and Wall St becomes a red alert area.

Quote Crestmont Research in their 30th June report (http://www.crestmontresearch.com/docs/Stock-PE-Report.pdf)
"...P/E based upon reported earnings is near 18; it remains distorted below the normalized P/E of 23 due to currently high profit margins....."

High Profit margins is the other main worry John Hussman from Hussman Funds (http://www.hussmanfunds.com/wmc/wmc130930.htm)in his weekly newsletter (http://www.hussmanfunds.com/wmc/wmc130930.htm) outlines this problem...... quote ..."....that profit margins are about 70% above their historical norms, making raw P/E ratios (particularly those based on “forward operating earnings”) seem fairly reasonable. Understand that the use of raw forward operating P/E ratios implicitly assumes that these profit margins will remain at the most extreme levels in history forever...."


Not mentioned is the fact that the the S&P500 has been in a Secular Bear market Cycle (down trending normalised PE ratio period cycle) for 13 years now....with the current normalised PE Ratio figure of 24.6 (normally seen at the start of the Secular bear cycle) this would be considered as unusually very high

[Logen Ninefingers]

US corporate profits are abnormally high due to the effects of stimulus.....just one more reason why tapering is way over the distant horizon. (Another excuse will be: Govt shutdown impacts on ecomomy......just one more reason why stimulus will roll on).

If stimulus were to end, abnormally high corporate profits would decline, and then when those corporates start to post results that dissapoint the market....what happens to stocks across the board? And then what would that do to Bernacke's fantasy that "confidence" - as per confidence engendered by a huge stock market bubble - will kick-start consumer spending and get a broader economic recovery happening? In my view Bernacke is divorced from reality: even with a sustained stock market bubble happening, the underlying economy is rooted. Or he knows what the reality is but is caught in a trap of his own making. This is a 'recovery' that benefits the 1% when spending power is desperately needed in the hands of the wider US population. Wage growth is not happening, employment is stagnant.

The Fed is hopelessly trapped - they've blown up the balloon but this balloon is dependent on the Fed stimulus to stay up. So when can 'stimulus' = 'money printing' end? This is all creating massive distortions in the US economy that are begging for a correction. The longer the money printing continues, the bigger the balloon grows, the bigger the correction.

[Logen Ninefingers]

I would equate the Fed 'strategy' to driving down a highway and your wheels are falling off? How do you fix the problem and ensure a safe outcome for you and your fellow road users? Step harder on the gas!! Get that baby up to 220 mph!!!!

[noodles]

Kaspar...be careful when dealing with PE Ratios...reported earnings can be distorted to create lower equity valued mirages ....To try and create a better gauge through PE normalisation, Shiller is the most famous producing his Annualised PE Ratio which is at a high 24.6 now...this is at the top of Crestmonts Research scale of fair value and is reaching the area where crazy things start to happen....very low inflation is the factor (driver) that is still making that 24 look fairly valued...any rise in inflation or Equity prices and Wall St becomes a red alert area.

Quote Crestmont Research in their 30th June report (http://www.crestmontresearch.com/docs/Stock-PE-Report.pdf)
"...P/E based upon reported earnings is near 18; it remains distorted below the normalized P/E of 23 due to currently high profit margins....."

High Profit margins is the other main worry John Hussman from Hussman Funds (http://www.hussmanfunds.com/wmc/wmc130930.htm)in his weekly newsletter (http://www.hussmanfunds.com/wmc/wmc130930.htm) outlines this problem...... quote ..."....that profit margins are about 70% above their historical norms, making raw P/E ratios (particularly those based on “forward operating earnings”) seem fairly reasonable. Understand that the use of raw forward operating P/E ratios implicitly assumes that these profit margins will remain at the most extreme levels in history forever...."


Not mentioned is the fact that the the S&P500 has been in a Secular Bear market Cycle (down trending normalised PE ratio period cycle) for 13 years now....with the current normalised PE Ratio figure of 24.6 (normally seen at the start of the Secular bear cycle) this would be considered as unusually very high


I also read Hussman. It is very sobering.

I have brought put options to protect my portfolio (they are cheap ATM as volatility is still quite low). I hope they expire out of the money.

[Kaspar]

Kaspar...be careful when dealing with PE Ratios...reported earnings can be distorted to create lower equity valued mirages ....To try and create a better gauge through PE normalisation, Shiller is the most famous producing his Annualised PE Ratio which is at a high 24.6 now...this is at the top of Crestmonts Research scale of fair value and is reaching the area where crazy things start to happen....very low inflation is the factor (driver) that is still making that 24 look fairly valued...any rise in inflation or Equity prices and Wall St becomes a red alert area.


Interesting, thanks Hoop.


I would equate the Fed 'strategy' to driving down a highway and your wheels are falling off? How do you fix the problem and ensure a safe outcome for you and your fellow road users? Step harder on the gas!! Get that baby up to 220 mph!!!!

Hi Logen, so you believe there is huge underlying problems with the US economy and there is going to be a huge correction at some point. May I ask what steps you have taken to protect your investments? What assets do you see as being well positioned to ride out a storm?

[Logen Ninefingers]

Well I'd like to get a wider range of opinions on this forum as to what people see as going on with the us economy....the US nation in general really. I'm intrigued by some of the posts urging me to cut my stress levels or buy a gun and some baked beans.
I don't believe I should be alone in seeing that it is an inconvenient truth that the US economy is in a dire state. I guess I'm watching this play out with a sense of incredulity and unreality. When major cities in the US go bankrupt, when the US is 2 weeks from default, when government becomes totally dysfunctional, when real unemployment is 23%, when the fed actively 'prints money' to keep the interest on govt debt low, when it starts to fund the US govt overspending via bond buying, when it Irresponsibly continues Its dangerous Interference In order to props up inflated equities markets, when the US economy is on the verge of deflation while the central bank is supposedly 'stimulating' it...........what aren't other people seeing?
Is anyone curious about the kind of world we may be living in in 2 years time, when the world's cornerstone economy and currency may well have completely thanked?

[MAC]

Logen Ninefingers, stress can shorten one’s life dramatically if you allow it too, my advice for you is twofold, firstly cash up and take out a nice fixed term deposit, assuming that you trust banks, then take a five day hike in the mountains and forget about the financial world for a while, this will help you no end.

If the above doesn’t help you try seeking out some advice from a friendly financial advisor.

[Logen Ninefingers]

When the stock market crashes, and with the underlying economy already rooted, huge wealth will be destroyed but the massive debt from the years of easy money and low Interest rates wIll still be on the books. With revenues collapsed, leaving the US unable to pay it's debts, and anarchy, panic and social chaos becoming the order of the day, what kind of a world will we be living in? Surely one that is vastly different from how we live today.

[Logen Ninefingers]

But how does commenting on the unfolding events and stating facts indicate someone is suffering from stress? I'm trying to understand your mindset. I'd say I'm actually incredibly calm. As to the fundamentals of the situation in the US, I'd say that the actions of the fed are unprecedented in US hIstory.This is an interventionist
experiment that now has both the US government and the US corporate complex addicted to QE. When the fed simply talked about tapering, share and bond markets were rocked by the suggestion. If this is the situation when tapering is merely suggested, how can actual tapering actually happen?

[Logen Ninefingers]

Hmmm...can't see that I've been ranting and raving every day about the sky falling in. It's funny to read in other posts in other threads about people who "knew the GFC was coming". Now they shout it from the roof-tops, but won't ever be able to prove they actually did know. Obviously the reason they told no-one at the time is they would have been lambasted as paranoid.
And others seem to be 'doomsday prepping' but are obviously keeping it on the down-low.

Just for the record, I'm not hiding under my desk or crazed with fear. I'd say the concensus seems to be the chance of another GFC happening is remote, and it's pointless even discussing it any case. Fair enough.

[noodles]

stop trying to use us to validate the skewed sitauation in your brain.

Moosie, this is a bit harsh. I would argue that most threads on this forum a full of people trying to use it to validate a skewed opinion of a stock.

More to the point, his comments are not without merit. It is a debate to be had. No one seems to be arguing the other way. It is mostly personal attacks.

[BIRMANBOY]

Not harsh at all...they are rants...there is no attempt to provide answers, alternatives or solutions. Invitations to contribute same are ignored. It therefore should be called a rant. As you say some of the comments have merit....but unfortunately no-one (including L9F) has any answers so its all a bit of a self absorbed waste of time.
Moosie, this is a bit harsh. I would argue that most threads on this forum a full of people trying to use it to validate a skewed opinion of a stock.

More to the point, his comments are not without merit. It is a debate to be had. No one seems to be arguing the other way. It is mostly personal attacks.

[noodles]

Not harsh at all...they are rants...there is no attempt to provide answers, alternatives or solutions. Invitations to contribute same are ignored. It therefore should be called a rant. As you say some of the comments have merit....but unfortunately no-one (including L9F) has any answers so its all a bit of a self absorbed waste of time.

On post 14, i mentioned that i use put options as a solution to a potential gfc2. Does it make me paranoid? Do you insure your house?

[Logen Ninefingers]

I accept that my initial posts were using sensationalist language, and probably were not creating the right footing for a decent debate. They were just a bunch of "this outcome is going to happen" type posts.

I'd say that I haven't provided any charts, but I have provided 'facts'......numbers etc......that no one is really disputing. No one has challenged me on the real US umemployment rate - the one that includes the 'long term discouraged' and 'short term discouraged' (using their US designations). Everyone knows that the Fed is buying $85 Billion per month is US bonds. No one in the thread has put a date on when they expect tapering to end, or indeed if it will end. Past instances of sustained 'money printing' have lead to hyper-inflation & massive currency devaluations. I guess the USD being the worlds bench-mark currency is a big complicating factor in the mix....but could QE back-fire on the USD and the US economy in general?
Is the US share-market in a bubble, sustained by stimulus and abnormal corporate profits? Or are the current highs normal and sustainable, and any correction will not be in the realm of a 'crash'?
Is the US economic recovery broad-based & their middle class recovering nicely, or are a small number of people benefiting and the structural problems getting worse?

I'm looking at the numbers & current events, and then adding historical context, and the mix of what I'm seeing does not look healthy.

To me, it's a little similar to how events unfolded prior to GFC1. GFC1 did not happen overnight. Firstly I started to read stories about small regional US banks going under, and then the situation with Freddie Mac and Fannie Mae began to make disturbing reading. I remember discussing the situation with my colleague Jack - a conspiracy nut, which I'm not - but someone who was always immersed in current events because he was a conspiracy nut. We used to say how ugly it was getting in the States because we were invariably looking at the same sort of stuff.
It was like someone who looks outwardly healthy but you hear their kidneys have shut down, then their liver is not working properly. It all adds up and compounds and you can see the outcome won't be good.
We'd have these conversations in the office and the boss would look at us a bit non-plussed, like "you idiots, this is the U S of A you are talking about".
Is that how everyone feels now as well....that the US is invulnerable and will always come through no matter what? The ol' red white & blue always triumphs in the end?
Even today, there is a sense of unreality about those days, about how close the financial system came to armageddon.
So would / should we really be surprised if those extraordinary and momentous events were to have a sequel, or next phase? Or is it now "business as normal"....everythings been fixed and resolved. 'Move along, nothing to see here'.

Now I'm not saying me and Jack predicted the GFC, I'm just saying we could see some things happening that didn't look good. There are things happening in the States now that are disquieting and disturbing, and not just one thing - a number of things. And it's being masked by the soaring stock-market and QE, which are at the same time potentially part of the problem.

Do I need to start preparing for doomsday or take a hike in the mountains? Well that's kind of my business. But it shouldn't be that I / we can't comment on what is going on. There's no hysteria here.