Are Stocks Heading For a 1929-Type Crash?

In the early 2000s, Alan Greenspan was worried about deflation. So he hired Ben Bernanke, the self-proclaimed expert on the Great Depression from Princeton. The idea was that with Bernanke as his right hand man, Greenspan could put off deflation from hitting the US. Indeed, one of Bernanke’s first speeches was titled “Deflation: Making Sure It Doesn’t Happen Here”

The US did briefly experience a bout of deflation from late 2007 to early 2009. To combat this, Fed Chairman Ben Bernanke unleashed an unprecedented amount of Fed money. Remember, Bernanke claims to be an expert on the Great Depression, and his entire focus was to insure that the US didn’t repeat the era of the ‘30s again.

Current Fed Chair Janet Yellen is cut of the same cloth as Bernanke. And her efforts (along with Bernanke’s) aided and abetted by the most fiscally irresponsible Congress in history, have recreated an environment almost identical to that of the 1920s.

Let’s take a quick walk down history lane.

In the 1920s, most of Europe was bankrupt due to after effects of WWI. Germany in particular was completely insolvent due to the war and due to the war reparations foisted upon it by the Treaty of Versailles. Remember, at this time Germany was the second largest economy in the world (the US was the largest, then Germany, then the UK).

Germany attempted to deal with the economic implosion created by WWI by increasing social spending: social spending per resident grew from 20.5 Deutschmark in 1913 to 65 Deutschmark  in 1929.

Since the country was broke, incomes and taxes remained low, forcing Germany to run massive deficits. As its debt loads swelled, the county cut interest rates and began to print money, hoping to inflate away its debs.

When the country lurched towards default, US and other banks loaned it money, doing anything they could to keep the country from defaulting on its debt. As a result of this and the US’s relative economic strength compared to most of Europe, capital flew from Europe to the US.

This created a MASSIVE stock market bubble, arguably the second largest in history. From its bottom in 1921 to its peak in 1929, stocks rose over 400%. Things were so out of control that the Fed actually raised interest rates hoping to curb speculation.

The bubble burst as all bubbles do and stocks lost 90% of their value in a mere two years.

Today, the environment is almost identical but for different reasons. The ECB first cut interest rates to negative in June 2014. Since that time capital has fled Europe and moved into the US because 1) interest rates here are still positive, albeit marginally, and 2) the US continues to be perceived as a safe-haven due to its allegedly strong economy.

This process has accelerated in 2015.

  • Globally, there have been 20 interest rate cuts since the years started a mere two months ago.
  • Interest rates are now at record lows in Australia, Canada, Switzerland, Russia and India.
  • Many of these rates cuts have resulted in actual negative interest rates, particularly in Europe (Denmark, Sweden, and Switzerland).
  • Both the ECB and the Bank of Japan are actively engaging in QE programs forcing rates even lower.
  • All told, SEVEN of the 10 largest economies in the world are currently easing.

Because the US is neutral, money has been flowing into the country by the billions. A lot of it is moving into luxury real estate (particularly in LA and York), but a substantial amount has moved into stocks as well as the US Dollar.

As a result of this, the US stock market is trading at 1929-bubblesque valuations, with a CAPE of 27.34 (the 1929 CAPE was only slightly higher at 30. And when that bubble burst, stocks lost over 90% of their value in the span of 24 months.

Another Crash is coming… and smart investors would do well to prepare now before it hits.

If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis “Round Two” Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

You can pick up a FREE copy at:

http://www.phoenixcapitalmarketing.com/roundtwo.html

Best Regards

Phoenix Capital Research

 

Stocks Are In the Second Biggest Bubble Since 1870!

By almost any measure, stocks are sharply overvalued. Warren Buffet’s favorite value metric for stocks is Total Market Cap of the market/ GDP.

Today we find this metric showing stocks as sharply overpriced. As Doug Short recently noted, only the Tech Bubble was more expensive.

This is true going back even to 1870.

Of course this doesn’t mean stocks cannot rally further. But it doesn’t bode well for long-term returns for the market in general.

This is also true from a CAPE perspective.

As I’ve noted before, the single best predictor of stock market performance is the cyclically adjusted price-to-earnings ratio or CAPE ratio.

Corporate earnings are heavily influenced by the business cycle. Typically the US experiences a boom and bust once every ten years or so. As such, companies will naturally have higher P/E’s at some points and lower P/E’s at other. This is based solely on the business cycle and nothing else.

CAPE adjusts for this by measuring the price of stocks against the average of ten years’ worth of earnings, adjusted for inflation. By doing this, it presents you with a clearer, more objective picture of a company’s ability to produce cash in any economic environment.

Based on a study completed Vanguard, CAPE was the single best metric for measuring future stock returns. Indeed, CAPE outperformed:

  1. P/E ratios
  2. Government Debt/ GDP
  3. Dividend yield
  4. The Fed Model,

…and many other metrics used by investors to predict market value.

So what is CAPE telling us today?

The CAPE is at its 3rd highest reading going back to 1890. Only the 1929 bubble and the Tech Bubble were more expensive relative to earnings.

Bear in mind… earnings are overstated. Indeed, a study performed by Duke University found that roughly 20% of publicly traded firms manipulate their earnings to make them appear better than they really are. The folks who were surveyed for this study about this practice were the actual CFOs at the firms themselves.

These practices have only worsened since the “crisis ended.” Corporations have been reducing loan loss reserves, buyback shares via debt, and axing jobs en masse in efforts to juice earnings as high as possible.

Put another way, even with RECORD HIGH profit margins, the market is overvalued on a scale rarely seen in the last 140 years. One can only imagine what the REAL CAPE would be if we removed all the accounting gimmicks from earnings.

Stocks are in a bubble. And it is one of the largest bubbles in the last century, larger even than the 2007 bubble, which preceded the 2008 Crash.

Another Crisis is coming. And based on the size of the bubble today, it will be worse than the 2008 one.

And yet, 99% of investors will ignore the clear warnings today… just as 99% ignored the warnings in 2007 and 1999.

If you’re looking for actionable investment strategies to profit from this, we highly recommend you take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

Private Wealth Advisory is a WEEKLY investment newsletter that tells you what stocks to buy, and what stocks to avoid to insure you see consistent gains. Our track record is rock solid with recent positions closed out with gains of 26%, 29%, and 37%… all held for under six months.

In fact, we just closed two new winners of 20% and 52% yesterday!!!

And we’ve only closed ONE loser in the last 7 months!

You can try Private Wealth Advisory for 30 days (1 month) for less than $10…

If you decide you like it, an annual subscription will kick in and you’ll be charged the remaining $190 of an annual subscription.

But if you don’t like it… just drop us a line and you won’t be charged again. Everything you received during your 30 day trial (the reports, investment ideas, etc.) are yours to keep...

To take out a $10 trial subscription to Private Wealth Advisory…

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Best Regards

Graham Summers

We’ve Entered the Worst Economic Collapse Since 2008

The global economic implosion continues to worsen.

China is growing at 3%… possibly even lower. One of the only remotely accurate Chinese economic data points is rail traffic. Well, Chinese rail freight has fallen at a pace not seen since the Asia Financial Crisis. In fact, it’s even worse today than it was in 2008.

This tells us that China’s economy is collapsing. China is an export economy… with much of it going to the US.

So it should be little surprise that the US’s import data just posted the worst collapse since Lehman Brothers.

If it is collapsing then global trade should be doing the same. And it is. The Baltic Dry index, which is a proxy for global trade, has fallen 80% in the last 18 months. It just recently hit an all-time low (even lower than during the 2008 collapse).

 

And the Fed’s own GDP tracker has collapsed to ZERO growth (down from a forecast of 2% growth a few months ago)

 

 

 

 

 

 

 

 

 

 

And against this backdrop… investors are completely bullish. The Investors Intelligence Survey shows the lowest number of bears in history.

The time to prepare for what is coming is now BEFORE the Crash hits.

And yet, 99% of investors will ignore the clear warnings today… just as 99% ignored the warnings in 2007 and 1999.

If you’re looking for actionable investment strategies to profit from this, we highly recommend you take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

Private Wealth Advisory is a WEEKLY investment newsletter that tells you what stocks to buy, and what stocks to avoid to insure you see consistent gains. Our track record is rock solid with recent positions closed out with gains of 26%, 29%, and 37%all held for under six months.

In fact, we just closed two new winners of 20% and 52% yesterday!!!

And we’ve only closed ONE loser in the last 7 months!

You can try Private Wealth Advisory for 30 days (1 month) for less than $10…

If you decide you like it, an annual subscription will kick in and you’ll be charged the remaining $190 of an annual subscription.

But if you don’t like it… just drop us a line and you won’t be charged again. Everything you received during your 30 day trial (the reports, investment ideas, etc.) are yours to keep...

To take out a $10 trial subscription to Private Wealth Advisory…

CLICK HERE NOW!

Best Regards

Graham Summers

Earnings Have Peaked And Are Falling For the First Time Since 2008

Earnings may very well have peaked.

MarketWatch notes that adjusted profits (even after all of the accounting gimmicks), FELL last year. This is the first time this has happened since we entered the alleged “recovery.”

For the full year, adjusted profits slipped 0.8% to $2.09 trillion. The last time profits fell was in 2008 when a recession was in full swing. Banks and other finance companies showed lower earnings, while nonfinancial firms modestly increased profits. Profit figures are adjusted for depreciation and the value of inventories.

Source: Marketwatch

Bear in mind… earnings are overstated. Indeed, a study performed by Duke University found that roughly 20% of publicly traded firms manipulate their earnings to make them appear better than they really are. The folks who were surveyed for this study about this practice were the actual CFOs at the firms themselves.

These practices have only worsened since the “crisis ended.” Corporations have been reducing loan loss reserves, buyback shares via debt, and axing jobs en masse in efforts to juice earnings as high as possible.

This has resulted in the HIGHEST corporate profit/ GDP ratio since the Feds began tracking this metric in the 1940s:

 

 

 

 

 

 

 

Put simply: corporate profits are at a record high relative to the economy… and they just began to roll over.

Take a look at the below chart showing current stock levels and changes in forwards Earnings Per Share (EPS). Note, in particular how divergences between EPS and stocks tend to play out (hint look at 2007-2008).

 

 

 

 

 

 

 

 

We all know what came next.

If you’ve yet to take action to prepare for the second round of the financial crisis, we offer a FREE investment report Financial Crisis “Round Two” Survival Guide that outlines easy, simple to follow strategies you can use to not only protect your portfolio from a market downturn, but actually produce profits.

You can pick up a FREE copy at:
http://www.phoenixcapitalmarketing.com/roundtwo.html

Best Regards
Phoenix Capital Research

The Fed Is Sitting On a $191 TRILLION Time Bomb

Stocks are bouncing today because the Fed will wrap up its monthly FOMC meeting and make a public statement this afternoon. Stocks have been rallying into FOMC meetings for the last three years, so traders are now conditioned to buy stocks in anticipation of this.

The prime focus for the markets is whether the Fed continues to state that it will raise rates after “a considerable time.” The reality is that the Fed cannot and will not raise rates anywhere near normal levels at any point because doing so would blow up the financial system.

Let’s walk through this together.

Currently, the US has over $17 trillion in debt. The US can never pay this off. That is not some idle statement… we issued over $1 trillion in NEW debt in the last eight weeks simply because we don’t have the money to pay off the debt that is coming due from the past.

Since we don’t have that kind of money, the US is now simply issuing NEW debt to raise the money to pay back the OLD debt.

This is why the Fed NEEDS interest rates to be as low as possible… any slight jump in rates means that the US will rapidly spiral towards bankruptcy. Indeed, every 1% increase in interest rates means between $150-$175 billion more in interest payments on US debt per year.

So the Fed wants interest rates low because it makes the US’s debt load much more serviceable. This is why the Fed keeps screwing around with language like “after a considerable time” despite the fact that rates should already be markedly higher based on the Taylor Rule as well as the state of the US economy: it’s all a ruse to pretend the Fed has a real choice in the matter.

However, there’s an even bigger story here.

Currently US banks are sitting on over $236 trillion in derivatives trades.

Of this, 81% ($191 TRILLION) are based on interest rates.

Put another way, currently US banks have bet an amount equal to over 1,100% of the US GDP on interest rates.

Guess which banks did this?

The BIG FIVE: JP Morgan, CitiGroup, Goldman Sachs, and Bank of America.

In other words… the Too Big To Fails… the very banks that the Fed has bailed out, and done everything it can to prop up.

What are the odds that the Fed is going to raise rates significantly and risk blowing up these firms? Next to ZERO.

Forget about the Fed’s language and its FOMC meeting. The real story is the $100 trillion bond bubble (more like the $200 trillion interest rate bubble based on bonds). When it breaks, it doesn’t matter what the Fed says or does.

If you’re looking for actionable investment recommendations to profit from this, we highly recommend you take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

Private Wealth Advisory is a monthly investment newsletter that tells you what stocks to buy, and what stocks to avoid to insure you see consistent gains. Our track record is rock solid with recent positions closed out with gains of 26%, 29%, and 37%… all held for less than a year.

These kinds of returns are just par for the course. Private Wealth Advisory has previously seen winning streaks of 20 STRAIGHT winning trades, 40 straight winning trades, and even an incredible 73 straight winning trades.

We just opened two new positions a week ago… they’re already up 16% and 21%, respectively…

To take out a trial subscription to Private Wealth Advisory

CLICK HERE NOW!

Private Wealth Advisory comes with a rock solid guarantee. If you aren’t happy with your subscription and making serious money in the first month, drop us a line and you won’t be charged again… the reports and strategies you get for the initial $0.99 are yours to keep…

Best Regards

Graham Summers

Phoenix Capital Research