Tuesday, April 8, 2014

"We all know how bubbles end: BADLY...This time will be no different..."

The Fed has created the mother of all bubbles.

Today, the S&P 500 is sitting a full 34% above its
200-weekly moving average. We have NEVER been
this overextended above this line at any point in
the last 20 years.

Indeed, if you compare where the S&P 500 is relative
to this line, we're even MORE overbought that we were
going into the 2007 peak at the top of the housing bubble.

We all know how bubbles end: BADLY.

This time will be no different. The last time a major bubble
of these proportions burst, we fell to break through this line
in a matter of weeks.

We then plunged into one of the worst market Crashes of
all time.

By today's metrics, this would mean the S&P 500 falling
to 1,300 then eventually plummeting to new lows. However,
given the scope of this bubble we believe sub-700 on the S&P 500
is possible.

This is not doom and gloom. This is a fact. The Fed
has created an even bigger bubble than the 2007 one.

The time to prepare for this is not once the collapse
begins, but NOW, while stocks are still rallying.
Stocks take their time moving up, but when they
crash it happens VERY quickly...

Graham Summers
Phoenix Capital Research

Monday, April 7, 2014

Supplement to Gambiling That ETF's Understand Your Retirement - The Retirement Savings Drain by Robert Hiltonsmith

The Retirement Savings Drain, Robert Hiltonsmith (pdf)

Gambling That ETFs Understand Your Retirement Timing

"...look at the impact over an investment lifetime. Do you really want to invest in a system where you put up 100% of the capital (you're the mutual fund shareholder), you take 100% of the risk, and you get 30% of the return?" Jack Bogle, April 23, 2013, Frontline, The Retirement Gamble

The Retirement Gamble

Wednesday, April 2, 2014

The Depression that Cured Itself (James Grant, Austrian Economics Research Conference)

What might have been...if the human race were only a little bit more adept with money...

"Cleopatra died in the year 30 B.C. (on the authority of Wikipedia).

Let us say that one of her loyal servants had the presence of mind to liquidate $100 dollars of her bangles and make a perpetual deposit at 2% interest in the 'Bank of Eternity' in Alexandria.

So...2044 years at 2% interest...let's see...carry the three...yes...that would be 37,909,764,047,315,200,000. That's the sum of money that would be available to us human beings.

Now that's an awkward some. That's before tax and depredations... So let us reduce it to a more manageable per capita sum. That would be $5.3 billion dollars per capita. [$5.3 billion dollars for each person on the earth.]

...Which, as the former middleweight champion, Jake LaMotta, used to say, "is a lot ta money...even when you say it fast."

Perhaps you have read the somewhat down casting news, fully 36% of Americans nearing retirement age have saved $1,000 dollars or less.

Now I put it to you ladies and gentlemen...the difference between $5.3 billion per capita in the world and less than one thousand dollars is the measure of the difficulty we have buying low, selling high, and keeping our hands off other peoples money."

-James Grant (below video)


"The whole “recovery” in Europe never made much sense" to me...

Three Gaping Holes In the EU "Recovery" Story That Could Cost Investors Millions

Phoenix Capital Research's picture

The whole “recovery” in Europe never made much sense to us.

We are told repeatedly that Europe has passed through the storm, that the EU economy and financial system are on the mend, and that Europe is now the place to be investing.

However, the fact of the matter is that economic data can be fudged for political reasons (e.g. Angela Merkel’s re-election bid in Germany), riots/ protests can be ignored or marginalized by the media, and the real state of bank balance sheets can be hidden as long as you avoid major margin calls or funding stressors.

Indeed, considering that Europe’s problems took years to unfold, despite the clear evidence that its banking system was virtually insolvent, the fact that things appear calm in Europe today doesn’t really say much about the true state of affairs over there.

So what truly has improved in Europe?

Bonds yields have fallen… but when you’ve got sovereign governments (via social security funds), the ECB, and bank of international settlements all buying your bonds… odds are they’ll fall in yield.

What about corporate earnings and revenues? Well if you are comparing your results to 2012 when the entire EU banking system almost imploded, chances are they’ll look pretty good. If you compare your physique to a dead guy, you’ll look healthy no matter how out of shape you are.

And then of course there are European stocks, which have been roaring higher ever since ECB President Mario Draghi stated he would do “whatever it takes” to keep the EU financial system afloat (somehow this claim is more relevant than the actual monetary or banking laws of the EU).

Indeed, EU financials have not only more than doubled since the dark days of 2012… they’ve in fact exceeded their pre-crisis 2011 highs!

But then again, when your Central Bank gives banks access to unlimited capital in exchange for totally garbage collateral priced at 100 cents on the Euro (despite it being worth at most half of that), you’re likely going to see a lot of liquidity move into stocks.

At the end of the day, all of the data points used to claim that things have improved are largely accounting gimmicks. The people claiming that all is well are the same folks who denied there was a problem to begin with… and who, not coincidentally, draw the vast majority of their political and social capital from perpetuating this claim.

So here are some rather staggering data points Europe needs to confront before stating “all clear.”

  1. As of 2012, an incredible 25% of the total EU population (120 MILLION people) was living in poverty or social exclusion (the number has since increased by four million more… so much for things improving).
  2. In 2011, child poverty in Spain was an incredible 30%. That was before things got ugly in 2012.
  3. Youth unemployment in Europe is an amazing 22% with troubled countries like Spain and Greece showing levels more than twice that.

The solution to these problems? Continue to claim that the crisis is over… and put into place various schemes to steal citizens’ money if things get worse again (Cyprus snatched over 40% of all deposits over €100,000 during its recent banking issues).

When you are actively promoting plans to snatch deposits to prop your banking system up (see the recent IMF proposal), you are not in “recovery.”

We don’t know if things will erupt tomorrow, next week or next year. But we do know that the “recovery” is largely a work of fiction… and that the crisis will erupt again at some point.

Phoenix Capital Research