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A. Gary Shilling - Six Realities In An Age Of Deleveraging

Tyler Durden's picture




 

Submitted by Lance Roberts of Street Talk Live blog,

In Part III of Lance's series of reports from the 10th annual Strategic Investment Conference, presented Altegris Investments and John Mauldin, the question of how to invest during a deleveraging cycle is addressed by A. Gary Shilling, Ph.D.  Dr. Shilling is the President of A. Gary Shilling & Co., an investment manager, Forbes and Bloomberg columnist and author - Mr. Shilling's list of credentials is long and impressive.  His most recent book "The Age Of Deleveraging: Investment Strategies In A Slow Growth Economy" is a must read.  Here are his views on what to watch out for and how to invest in our current economic cycle.


Six Fundamental Realities

  • Private Sector Deleveraging And Government Policy Responses
  • Rising Protectionism
  • Grand Disconnect Between Markets And Economy
  • Zeal For Yield
  • End Of Export Driven Economies
  • Equities Are Vulnerable

Private Sector Deleveraging And Government Policy Responses

Household deleveraging is far from over. There is most likely at least 5 more years to go. However, it could be longer given the magnitude of the debt bubble. The offset of the household deleveraging has been the leveraging up of the Federal government.

The flip side of household leverage is the personal saving rates. The decline in the savings rate from the 1980’s to 2000 was a major boost to economic growth. That has now changed as savings rate are now slowly increasing and acting as a drag on growth.

However, American’s are not saving voluntarily. American’s have been trained to spend as long as credit is readily available. However, credit is no longer available. Furthermore, there is an implicit mistrust of stocks which is a huge change from the 90’s when stocks were believed to be a source of wealth creation limiting the need to save.    

My forecast for GDP growth going forward is that it will remain mired around 2%.

The response to the stalled economic environment and deleveraging cycle has been massive government interventions.  The Fed’s original program of zero interest rates have failed to promote borrowing. The next step was unprecedented Quantitative Easing.

The Fed’s dual mandate is full employment, currently targeted at 6.5%, and price stability (inflation) around 2%.  The Fed has been very clear that the current QE programs are directly tied to these targets.

However, monetary policy is a very blunt instrument, but the Fed believes that it will work within a 5 step process.

  1. The Fed buys treasuries and mortgage bonds out of the market.
  2. The increase in liquidity is then reinvested into the equity market.
  3. The rise in asset prices creates a wealth effect for consumers.
  4. With stronger confidence consumers spend more which creates demand on businesses.
  5. The increase in demand leads to job creation.

The problem is that there is little evidence that Q.E. programs are fulfilling their intended role.

History is not a controlled experiment. There is no way to tell what would have really happened had the Fed not intervened after the financial crisis.

However, what we can absolutely measure, is the impact of the Fed’s activities on the economy. If we measure the increase in real GDP for each dollar of increase in debt we find that it has been close to nil. From 2001 through the end of Q2-2012 – we find that there has been only a 0.08% increase in real GDP per dollar of increase in debt.  

While the economy has failed to ignite - there has been a sharp surge in market capitalization as a percentage of nominal GDP.   Currently at levels well above the long term average it is unlikely that this is the beginning of the next great secular bull market.

The bottom line is that despite trillions of dollars of Federal Reserve interventions there has been very little impact on the real economy. This is because there has been very little follow on effect from the massive increases in excess reserves.   Historically required reserves have remained fairly close to the level of excess reserves. However, today, excess reserves are running roughly $1.7 trillion above the level of required reserves. Liquidity remains trapped which is why there is no velocity of money in the economy.

Growing Protectionism

The problem today is that everybody wants to increase exports to boost their respective economies - but no one wants to, or is able to, buy. This has pushed countries into the need to take more drastic actions to stabilize and boost their economies.   This has led to currency devaluation schemes.

Japan is the poster child to currency devaluation.   They have gone “all in” to debase their currency in hopes that they will create some inflation. For Japan it is “go big or go home.”

It is important to note that NO ONE ever initiates currency devaluation – they are just trying to get back to even.  

Currently, the head of the central bank in Japan, has the backing of the country. This will allow him to operate and continue his stimulative actions. The tipping point will be when he loses this approval.

However, while Japan is currently happy with their direction, other countries are not. Eventually there will be a reprisal.

The Great Disconnect

“Don’t worry about a thing as long as the Fed is inflating assets and the economy is in the tank.”

Nobody wants to end the current Q.E. programs.  What it will take is an economic shock of some magnitude. What type of shock it will be, and when it will occur, are the only questions?

Here is the simple truth: Stocks will eventually revert to the fundamentals of the economy. Such a reversion will devastate most investors that are unhedged for that eventuality.

Zeal For Yield

The chase for yield has reached excessive levels. Despite the rising risks individuals continue to ignore the fundamentals and reach for ever increasing levels of yield.

Junk bonds, emerging market debt and bank loans are at record low levels in yield. The yield on stocks and bonds are equal for the first time decades. This is an indication of a late stage bull market. It is also one that has historically ended badly for investors.

End of Export Driven Growth In Developing Countries.

The demand for exports is slowing as the major developed countries are weak and demand slackens.

(Note: This was seen in the latest trade deficit report as imports for the U.S. plunged sharply last month. In other words the demand for products from other exporters is slowing which negatively impacts their economies.)

As Jeff Gundlach discussed earlier – China’s growth rate is slowing. However, no run really trusts the data coming out of China. It takes China 18 days from the end of the quarter to report GDP. It takes the U.S. 28 days.   China never revises their data subsequent to that first report while the U.S. revises its data two more times over a 90 day period. The data is extremely unreliable. For instance, how do you have a flat manufacturing report coming out of China, as measured by Markit PMI, when they supposedly have a 7.7% GDP growth? That simply does not add up.

Going forward emerging economies are focused on creating internal growth to offset the drag from slowing export growth. This will likely lead to problems.

Equities Are Vulnerable

We are still within a secular BEAR market that begin in 2000 with P/E ratios still contained within a declining trend. Despite media commentary to the contrary - this time is likely not different.

In order for valuations just to return to the long term average they would have to decline by 27.5% from current levels. However, the reality is that valuation reversions always exceed the long term mean.

Furthermore, corporate profits have only soared due to declining labor costs and increased productivity. The problem now is that there is an inability to slash costs and increase productivity at levels that can offset the decline in operating earnings and revenue.

This makes equities susceptible to a large reversion at some point in the future.

2013 Investment Themes

“Economists are like lookouts at the house of ill-repute.   They are kept away from the action but good to have when the cops arrive.”

The risk on trade is alive and well - but will not last forever. Therefore, the following is what I find attractive and unattractive in the current environment.

Attractive.

  • Treasury Bonds
  • Quality Bonds And Dividend Stocks.
  • Small Luxuries
  • Staples And Food.
  • Doll Vs Yen, Long Nikkei
  • Selected Healthcare Providers And Medical Office Buildings
  • Productivity Enhancers – Things That Help Businesses Lower Costs
  • North American Energy Producers Excluding Renewables

Unattractive

  • Developed Country Stocks
  • Homebuilders And Related Companies
  • Your House
  • Big Ticket Consumer Discretionary Stocks
  • Consumer Lenders
  • Selected Banks
  • Junk Securities
  • Developing Country Bonds And Stocks
  • Commodities
  • Old-Tech Capital Equipment Producers

Q&A

Austerity Or Stimulus – What Should We Be Doing?

If you don’t get austerity when things are tough you will never get it.   This is the problem in Germany.

In the U.S. – Congress has it completely backwards.   They should be working on structural deficits rather than fiscal deficits. Change retirement ages, etc. rather than trying to inflate assets.

GDP less inventories is much weaker.   Inventories are a residual of activity and small changes on either end have a big impact on the economic figure.  

What Happens?

The great disconnect will reconnect over the next couple of years which will negatively impact long only investors.

The Fed Reserve – Does The Fed Have To Exit?

That is an interesting point. With slow growth, which will continue due to the ongoing deleveraging cycle for another 5 years, it is likely that the Fed will not try and exit.   However, when the economy begins to reach higher levels of growth in the future the excess reserves will begin to flow into the system.   If the Fed doesn’t exit from their policies when that occurs the impact of inflation could be severe.

 

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Fri, 05/03/2013 - 21:57 | 3529303 lewy14
lewy14's picture

Shiller gonna shill.

EDIT: Crap, I was too quick on the draw. Shilling, not Shiller. My bad. Damn, and I'd been sitting on that one waiting for a Shiller headline.

Fri, 05/03/2013 - 22:05 | 3529328 Jam Akin
Jam Akin's picture

Attractive?  Treasury Bonds?  What a crock of horseshit.

Fri, 05/03/2013 - 22:07 | 3529330 markmotive
markmotive's picture

Massive Japanese money-printing and the Yen carry trade is supporting US Treasury yields.

http://www.planbeconomics.com/2013/05/must-watch-christine-hughes-of.html

Sat, 05/04/2013 - 00:26 | 3529553 DoChenRollingBearing
DoChenRollingBearing's picture

After I received a "doom porn" email from one member of our group that stays in touch with each other re TEOTWAWKI and exfiltrating the USA, I sent him a response (edited to preserve anonymity):

"Outgoing Email re Preparation"

http://tinyurl.com/c4ml4fh

Sat, 05/04/2013 - 01:51 | 3529660 Precious
Precious's picture

Ahh yes Mr. Shilling. Apply reason. That might work!

It seems more likely however, that positive returns generally avail to those who possess the biggest guns.

Sat, 05/04/2013 - 16:07 | 3530390 Herd Redirectio...
Herd Redirection Committee's picture

Does anyone actually BELIEVE that the Fed believes this sh*t:

  • The rise in asset prices creates a wealth effect for consumers.
  • With stronger confidence consumers spend more which creates demand on businesses.

OK, so lets take a closer look. Who will actually experience this hypothetical wealth effect?  The wealthy, of course, those exposed to bonds, financial stocks, the stock market.  So, by definition, a very small segment of the population will not only experience a 'wealth effect', they are literally becoming more wealthy!  Fed policy benefits a small segment of the populace, and we think this is an accident, or incompetence?

So on to the next point, which consumers will have stronger confidence?  Only those who experienced the 'wealth effect'. 

The problem w/ the economy, besides its very structure (fractional reserve banking, usury, w/ fiat currency), is that those with the most wealth could not possibly spend it all, while those who would spend the money if they had it, are broke. 

If you were able to do a historical analysis, I bet you the inequality of wealth now is greater than it was in feudal times.

Sat, 05/04/2013 - 12:08 | 3530014 DoChenRollingBearing
DoChenRollingBearing's picture

@ the Bearing Guy

Hey!  I picked up a troll!  How cool is that?  Maybe my blog has arrived!

Sat, 05/04/2013 - 14:16 | 3530220 Quinvarius
Quinvarius's picture

Here is the thing.  No matter what the problem, the gov can print money and buy their way out of it.  Grid down.  Banks dying.  War.  It doesn't matter.  Massive inflation is the biggest concern and the future reality.  Every other problem is just a cause of money printing.  I would use the term hyperinflation, but because so many people try to define it as X price increase over Y time period, I am not going to bother going into that debate.  The USD is going to lose the next 90% of its purchaseing power over 4X faster than it lost the first 90 percent.  The latest printfest/debtfest has kicked us 4 decades into the future on money creation.  We were blowing up the money supply 5.3 percent every year between 1981 and 2008.  Just to maintain the status quo the new debt and monetary needs at that level, the US will be creating at least 215 billion a year if QE ends in 2014 at a 4 trillion monetray base.  However, based on debt levels and funding needs, I would say it will be closer to 900 billion a year minimum.

I would say your friend with PMs will do okay.  I wouldn't worry too much about max max chaos.  I would worry about the kind of scarcity we see in bullets and PMs coming in waves over the food and energy markets.  Fake pricing set by banks and government causes that. 

Sat, 05/04/2013 - 06:49 | 3529764 WhiteNight123129
WhiteNight123129's picture

Yes and Japanese bonds are "attractive" too.

 

Sat, 05/04/2013 - 09:27 | 3529861 markmotive
markmotive's picture

It doesn't matter what's 'right' or 'wrong'. What matters is that forces with an infinite supply of money are currently supporting the US and Japanese bond markets.

It will work until it doesn't.

Sat, 05/04/2013 - 17:11 | 3530491 WhiteNight123129
WhiteNight123129's picture

So go to step II.

Fri, 05/03/2013 - 22:16 | 3529349 lewy14
lewy14's picture

The thing that will destabilize the system now is... growth itself. 

So after deleveraging? Why worry... there will be no "after deleveraging".

There are plenty of ways policy can destroy growth. They are manifest now.

The combination of (deflationary) growth-inhibiting government policy and (inflationary) QE monetary policy creates rough stability - with an every increasing share of state ownership of, and state control over, the "economy".

If you're a connected statist oligarch, what's not to like?

What I'm not seeing is any potential for a "reset" event. This setup could be stable plenty long enough for the PTB to become permanently entrenched. 

Fri, 05/03/2013 - 22:41 | 3529395 Seer
Seer's picture

Sometimes it feels good to beat a dead horse, but at the end of the day you only beat on a dead horse...

Most fail to understand that growth, due to insufficient NATURAL capital, is what is killing everything.  There is NOTHING that anyone can do about this.  Any attempts to force growth only guarantees another bubble.

Perpetual growth on a finite planet is NOT possible.  As much as I dislike govt, govt has zero control over this fact.

Sat, 05/04/2013 - 09:52 | 3529875 noless
noless's picture

Over harvesting of ocean wildlife seriously concerns me. If you wanna talk about systemic collapse, look no further than a collapse in the global food chain, some might make it out chewing on irradiated leather, but seriously, id rather not.

If humans don't scale back extraction it places extreme pressure on the remaining species of the planet, i still wish i'd ever been able to taste a passenger pigeon..

So yeah.

Fri, 05/03/2013 - 23:08 | 3529443 Hail Spode
Hail Spode's picture

How long can it be stable when fewer and fewer are growing beans and more and more are connected to redistributing the beans that others grow?  

Fri, 05/03/2013 - 23:35 | 3529488 lewy14
lewy14's picture

Beans no longer imply beanmakers.

Sat, 05/04/2013 - 09:20 | 3529851 U4 eee aaa
U4 eee aaa's picture

And they aren't even magic beans

Fri, 05/03/2013 - 23:08 | 3529444 Hail Spode
Hail Spode's picture

How long can it be stable when fewer and fewer are growing beans and more and more are connected to redistributing the beans that others grow?  

Sat, 05/04/2013 - 03:53 | 3529719 mess nonster
mess nonster's picture

Due to the magic of petroleum, only 2 people out of 100 grow beans in the US. Peak Oil means that bean production is bound to plummet, and with it the population of non-bean-producers.

Arable land, bitchez.

Work ethic, bitchez.

Don't eat the seed corn (beans), bitchez!

Sat, 05/04/2013 - 08:07 | 3529810 Gazooks
Gazooks's picture

permenently entrenched = cratered

 

the economic scenario relates well to the recent impact of shifted cargo in the belly of a 747 unable to sustain altitude at pitch of assent

 

the closer to stall is the adrenaline rush of inevitable fireball fate

 

shill ing will sift rubble

Fri, 05/03/2013 - 21:58 | 3529308 fonzannoon
fonzannoon's picture

"Household deleveraging is far from over. There is most likely at least 5 more years to go"

and then what? Thing are just awesome?

Tyler with all the respect in the world....forget shilling and everyone else and post the real vid of the day and let's all have a drink and put this fked up day to bed.

http://video.cnbc.com/gallery/?play=1&video=3000166102

Fri, 05/03/2013 - 22:08 | 3529331 Room 101
Room 101's picture

I agree.  Another fucked up day.  A drinking thread is in order. Put me down for a frosty one.  Hell, I'll buy all you ladies and gentlebitchez a round. 

Fri, 05/03/2013 - 22:09 | 3529333 fonzannoon
fonzannoon's picture

knukles sent this to me a year ago as a good drinking song. I listen to it all the time now. Have a cold one and enjoy.

http://www.youtube.com/watch?v=_VKouBHarIo

Fri, 05/03/2013 - 23:09 | 3529407 otto skorzeny
otto skorzeny's picture

Horst Wessel Lied and an Englberg Pilsner. Also-take  Mylute to win tomorrow in a sloppy Derby.

Sat, 05/04/2013 - 01:46 | 3529662 Mactheknife
Mactheknife's picture

"Goldencents"...Rick Pitino's horse.

Sat, 05/04/2013 - 08:38 | 3529826 francis_sawyer
francis_sawyer's picture

3 horse Exacta Box: 11-8-3

~~~

My gift to you...

http://www.drinksmixer.com/drink5382.html

Sat, 05/04/2013 - 10:25 | 3529904 fonzannoon
fonzannoon's picture

I'm gonna play it Francis.

Fri, 05/03/2013 - 23:00 | 3529432 Jim in MN
Jim in MN's picture

http://www.youtube.com/watch?v=boanuwUMNNQ

Metallica, 'Whiskey in the Jar' silly video though great song...find another band doing it if you want it more Irish-y

Fri, 05/03/2013 - 23:13 | 3529453 otto skorzeny
otto skorzeny's picture

metallica was great pre-Lars acting like a d-bag about Napster.

Fri, 05/03/2013 - 23:34 | 3529464 Prometheus418
Prometheus418's picture

Here's another for ya, fonzannoon-

You may not like it better than the Waterboys, but they definately live in the same neighborhood, and if you're like me, variety is the spice of life.

http://www.youtube.com/watch?v=lYT9qALQE6Y

 

Sat, 05/04/2013 - 08:57 | 3529835 shovelhead
shovelhead's picture

I like it.

Knucks got good taste. I'll have to see if it works as well with a finely cured Santa Marta.

Fri, 05/03/2013 - 23:17 | 3529461 Freddie
Freddie's picture

I like Tyler(s) but where is the story tonight on Nigel Farage and UKIP's big wins in the UK? 

Fri, 05/03/2013 - 23:28 | 3529475 otto skorzeny
otto skorzeny's picture

freddie- if you think politicians are the solution to anything you need professional help.

Sat, 05/04/2013 - 09:25 | 3529859 U4 eee aaa
U4 eee aaa's picture

If the leaders of the rebellion are true patriots, it only takes about two weeks for the elites to get to them(and the elites can take their time). Soon they are spouting the same betrayalspeak that the regular political pets are spewing

It will take creative destruction and change agents to change our world

Sat, 05/04/2013 - 16:27 | 3530420 Herd Redirectio...
Herd Redirection Committee's picture

There's a lot of ways.  You can blackmail, you can extort, you can threaten, preferably vulnerable family members.  YOu can bribe, thats a known favorite.  Worse come to worse you will be Spitzer'd, or Kennedy'd.

Fri, 05/03/2013 - 23:34 | 3529486 CrazyCooter
CrazyCooter's picture

Excellent link. I cashed out everything last year due to taxes. I got a small bank balance and some debts. I have a bid in at an auction for a 10 yr old truck. If I win it, I am selling my 2011 vehicle and using the equity to almost eliminate credit card debt. At that point, I will be down to a rent house that is cash flow neutral with a tenant.

I very much look forward to those pay days with disposable PM bennie bucks to spend. My wife is VN, so I may very well park some dollars over there or even buy some RE just to spread it around.

I got job security and am improving my marketable skills, so I can ride the ride, but this is going to be real tough for a lot of folks. It scares me to think I am going to "retire" in 20+ years; all hell will have broke loose by then and the big oil fields will be dried up. But, I think I can hold onto a job during that time, so we will see.

Regards,

Cooter

Fri, 05/03/2013 - 23:45 | 3529506 Seer
Seer's picture

Wow!  A 10 yr-old truck!  Mine's 20 yrs-old! (only new vehicle I ever bought was a lawn tractor for my wife!)

I've never owned a credit card.  If something is really worth having then either pay cash or take out an actual loan.

Bought land (and a house) a couple of years ago and am working on farming skills.

It's easier to think of retirement if you don't think about it.  That is, don't expect it.  I'm going with the premise that there won't really be any such thing in the future, and, really, I'm OK with that (not like I could "retire" anyway).  If your wife is VN then she can probably tell you that "retirement" isn't exactly a household term there: my wife is from the Philippines (old school) and she KNOWS this to be the case; makes it a lot easier, cuts down on fantasy-land pressures.  Best way to look at things is to seek to be as productive as you can for as long as you can.

Sat, 05/04/2013 - 00:25 | 3529551 CrazyCooter
CrazyCooter's picture

The secret to an old vehicle is maintenance. If you know its been taken care of, it makes sense to play that game. Mileage is another big factor. Ubiquity in parts is the rest.

Being as no one really gets educated about money/credit, its a process once the light bulb goes on. Kind of my situation. If I had ZH in '06, I would be in a VASTLY different place. But I didn't find ZH until after I bought a house and divorced. Can't live in the past, so just keeping my boots on and moving in the right direction.

SE Asian women are the best IMHO. Frugal, no bull shit gals that don't suffer much BS. Mine has a BS in Economics and Engineering. She tries to kill me with food. I think the only complaint is she doesn't like me to drink beer. Like a damn bull dog with the subject. I get a six pack a week and if I save em up to drink, she gives me grief. LOL!

Regards,

Cooter

Sat, 05/04/2013 - 09:30 | 3529863 U4 eee aaa
U4 eee aaa's picture

Anyone who spends more than 5 or 10K on a vehicle is just boasting.

They are designed to get you from point A to point B. They are not designed to impress your neighbor. There might be a benefit in getting a mate but once you are married you don't need it for that.

Sat, 05/04/2013 - 10:18 | 3529897 noless
noless's picture

5k sounds kind of steep to me, but then again, I'm fine driving something with a warn clutch and no resale value.. I wonder sometimes what it's like to drive a new car. I'm serious.

Sun, 05/05/2013 - 14:11 | 3532315 U4 eee aaa
U4 eee aaa's picture

Some folks don't know how to fix 'em. Mine cost $3,000 and I've probably put $500 or so work into it. It gets me to a from work reliably every day. I'm not sure I'd take it on a long road trip but it's a Toyota so it would probably do all right

Sat, 05/04/2013 - 11:36 | 3529980 roadhazard
roadhazard's picture

I've got a 95' Chevy 4x4 pu. On the other hand I'm getting a dozen brand new 2013 chickens Today.

Sat, 05/04/2013 - 07:31 | 3529786 GubbermintWorker
GubbermintWorker's picture

Peter has been laughed at before when he was spot on, if I remember correctly.

Fri, 05/03/2013 - 22:03 | 3529320 otto skorzeny
otto skorzeny's picture

the Fed has no exit strategy - they'll ride this bomb down like Major Kong in Dr Strangelove.

Fri, 05/03/2013 - 23:00 | 3529433 Seer
Seer's picture

Much of what he says about how things are working (or not, as is the case) is good.  His "solutions," however, are not: this is pretty much standard fare for nearly everyone.  Treasuries?  Huh?

"However, when the economy begins to reach higher levels of growth in the future"

And THERE it is!  The PREMISE.  They ALL do it, slip in a basic premise on which they heap everything else, and never can we really engage in questioning the premise!  "Housing prices ALWAYS go up."  "We will ALWAYS have growth."

Sat, 05/04/2013 - 06:24 | 3529757 YHC-FTSE
YHC-FTSE's picture

Ridiculous premise, but as we all know a Ponzi by definition has to add more suckers to maintain the illusion of working. Adding new suckers = growth = debt maintenance. 

This might be an unpopular prediction, but I think with the appointment of Watt at Freddie and Fannie, and the desperate systematic need for High Quality Assets,  there will be a concerted effort this year to sign up as many mortgages as possible, and real estate is going to be pimped/pumped to highs until we get the whole subprime collapse all over again. Cash buyers have rolled the ball, and the Fed will want to keep the momentum. 

Sat, 05/04/2013 - 09:42 | 3529868 cherry picker
cherry picker's picture

YHC-FTSE

From previous comments you have written, I assume you're a young fella, seem to be intelligent, articulate and have a grasp of things.

The ball is in your court.  If we ever wan't to achieve hope and change, you'll have to do it.  My generation, the white haired waiting for the pine box types are too addicted to SSI, free medical and so on.  It is my generation's life blood, but we have had our time.  I am not like that, never asked and won't ask .gov for anything, although I contributed.  Too much pride in this old body, would rather starve first.

You are going to make mistakes, that's OK.  Just don't sell your soul to the 1%, don't let them seduce you with hookers, blow and coin and don't let them threaten you.  If you can do that and if there are others out there with the same mind as you, we may have a fighting chance for a sorely needed correction.

 

Sat, 05/04/2013 - 18:00 | 3530569 YHC-FTSE
YHC-FTSE's picture

You meet the sweetest, nicest, wise people on rare occasions,  and this is one of them. Thank you.

Sat, 05/04/2013 - 10:29 | 3529909 noless
noless's picture

Agree on RE. They're gonna ride that bitch, haven't looked in a while as i no longer have the means, but the subliminal is a definite push towards home buying for the young. My experience was a constant drought of property in my range, even as i was saving, putting me in a place to buy something substantially more than i needed, without the option that i wanted, ended up renting because all the shit i could have potentially afforded was bought and set up as rentals, yay easy money i guess.

Take away: total control of markets leaves you either indebted or enslaved, generally both as synonyms.

Fri, 05/03/2013 - 23:15 | 3529455 Petrus Romanus
Petrus Romanus's picture

I would have to say that Mr Shilling is a bit of a CUNT!

 Where does this cocksucker see deleveraging? I hope this shill is raped by a pigmy.

Fri, 05/03/2013 - 23:26 | 3529472 otto skorzeny
otto skorzeny's picture

or at least by a pig-man.

Fri, 05/03/2013 - 23:41 | 3529495 Jam Akin
Jam Akin's picture

 

Or one of those Greeks that was rogering Kermit last night...

 

Fri, 05/03/2013 - 23:57 | 3529520 q99x2
q99x2's picture

In the U.S. – Congress has it completely backwards.

From whose perspective?

They are in the process of removing the spoils from the war they were never willing to fight. I think if asked they would admit to doing a good job.

Secession is an answer.

Fri, 05/03/2013 - 23:58 | 3529522 MrBoompi
MrBoompi's picture

They could have just given $10,000 to every American man woman and child, stipulating it would be used first against debts and any left over would be yours, in cash. And they could have done this through the treasury without interest bearing debt. Nothing to pay back to anyone. This would have bypassed the first four steps outlined above. But TPTB can never tolerate being left out of their monopolistic debt creation schemes. A fucking parasite cannot transform itself into a butterfly.

Sat, 05/04/2013 - 10:47 | 3529925 Vooter
Vooter's picture

Yeah, but that would imply that they're actually interested in finding a solution. They're not...

Sat, 05/04/2013 - 16:34 | 3530433 Herd Redirectio...
Herd Redirection Committee's picture

Its about control.  Thats the purpose of our financial system.

Declaring a jubilee, or giving freshly printed money straight to the people, does nothing to increase your control.

Sat, 05/04/2013 - 17:02 | 3530477 Law97
Law97's picture

Exactly.  The current policies are not designed to help the broader economy but rather to enrich the already rich and further consolidate their power. 

Sat, 05/04/2013 - 00:00 | 3529526 Atomizer
Atomizer's picture

The PlayBook

 

  1. Allow the Dow Jones to reach 16,000 points.
  2. Buying a loaf of bread will surpass the cost of a Starfuck latté
  3. Under historical patency, the wealth stealing Jews and Muslim banking subsidiaries will be rounded up for a oven burning ceremony.
  4. New peace will endure for another 20 years until they test the whole Global scenario again.

Don’t shoot the messenger. If you knew someone that grew up during the late 1800’s to early 1900’s. They passed along a leather book. Sorry, this is out of print and not available on Amazon.. Snickers.  

 

MY DAD IS DEAD - Like a Vise

Sat, 05/04/2013 - 00:33 | 3529562 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

Round and round.  There is a disturbing cyclicality in history...

Sat, 05/04/2013 - 00:15 | 3529543 Cabreado
Cabreado's picture

"In the U.S. – Congress has it completely backwards.   They should be working on structural deficits rather than fiscal deficits. Change retirement ages, etc. rather than trying to inflate assets."

Beware those who attempt to shove (anything) at you, and fail to give even a mention to a corrupt Congress, and failure of the rule of law.

 

Sat, 05/04/2013 - 00:33 | 3529556 Kirk2NCC1701
Kirk2NCC1701's picture

What the CB's are afraid to admit -- and will not admit -- is that at this point they're playing "mind over matter" games:  These "Flat Earth theorists" hope that if they keep on their present course, that the masses will come to their aid, and increase the VoM. 

To use a campfire analogy:  If they keep throwing lighter fluid on the wet logs, eventually the logs will have to burn as a self-sustaining fire -- dammit it!  Never mind that the lighter fluid may not last or that it's expensive as hell.

Sat, 05/04/2013 - 01:13 | 3529613 polo007
polo007's picture

http://news.goldseek.com/GoldSeek/1367608346.php

Because of excessive government interference with interest rates, those desperate for income—including pension funds—have pushed prices of virtually all secure sources to nosebleed heights. When the Fed eventually does raise interest rates, the bond bubble will be pricked and the stampede to get out of bonds should be like a herd of elephants attempting to exit through a revolving door. What to do in such a bond market crisis? Aside from TDL's blue-chip recommendations, we always recommend dispersing assets in several "friendly" countries. Also, diversifying in golds and silvers, including Saint-Gaudens double-eagle gold coins, rather than just keeping capital entirely in fiat currencies.

The world is in what we call "The Second Great Depression," comparable with the first one, in the 1930s. As laid out in my final business book, "Goldbug!," doubling the money supply in 1922 to pay for World War I caused a great inflation that after 1929 was corrected by the First Great Depression, in the 1930s. The similar printing of enormous quantities of paper money, not backed by anything except more paper, has also resulted in the current Great Deflation, still deepening, worldwide. The soup kitchens of the 1930s have been replaced by food stamps, but the resemblance is not coincidental.

Realizing that Keynesian economics failed to end unemployment after the 1932 crash, until World War II began around 1940, enabled us to predict with specific clarity that it would not work these days either. Indeed. Historically, large quantities of printing-press money has failed to reduce the downward trend of Americans with jobs in recent years. Few believed our prediction of "The Coming End of the Age of Jobs," or that it would lead to "The Coming New Social Order," but it is already unfolding. Unemployment in Europe already ranges between 20% and 50%, depending.

It is difficult for investors to protect themselves in this situation, but we cover it as best we can. We have recommended blue-chip stocks that have a dividend yield higher than that of U.S. Treasury paper, because they are proxies for institutions seeking to park their cash in areas other than overpriced bonds. That should end when the Federal Reserve finally allows interest rates to rise, but its fanaticism in continuing to suppress rates despite the Keynesian method not working represents a triumph of hope over experience—and will not end well.

Especially shocking is the delusion that adding inflation to a deflation would somehow cancel each other out, but is in fact the futile attempt to cure a problem with its cause. Overprinting paper runs at increasing risk of an eructation of "hyperinflation"—please note it is a word not used anywhere in the mainstream press these days. Predicting a hyperinflation is so daring in today's environment that we might be mistaken, so we will have to get closer toward the end game to be more confident of it. We hope we are mistaken.

Sat, 05/04/2013 - 01:56 | 3529655 knowshitsurelock
knowshitsurelock's picture

Five more years of deleveraging, and then?  The economy takes off because all those Joe Sixpack baby boomers decide to releverage into a bigger McMansion?

What fucktards!  Let me spell it out for them.  10 MORE YEARS of deflation and deleveraging.  The Fed keeps doing their lame ass Keynesian bullshit unabated, no one buys anything, ALL asset classes get taken out behind the woodshed and severly beaten until there is blood running in the streets, and your hip waders don't work at keeping all the bullshit off of you...

AND, that includes gold and silver in that asset clobbering, not just housing and stocks and bonds.  Face it, you stackers!  10 more years!!!

Then inflation takes off like a raped ape and all you stackers will be vindicated, but not until I load up on silver at 12 bucks an ounce and gold at 750.  You can sit it out with your round trip ticket and miss out on the premiums, but hey, I'm sure you're all in your mid 20's and can take a ten year round trip, no problem.  All you aging baby boomers are fucked though.

You're just early to the party, the Ho'derves are not out on the table yet, and the only person who has shown up so far is that fat bitch Suzy ho-maker who no one want's to fuck.

Sat, 05/04/2013 - 10:44 | 3529920 Vooter
Vooter's picture

"AND, that includes gold and silver in that asset clobbering, not just housing and stocks and bonds.  Face it, you stackers!  10 more years!!!"

But of course, the 10 years is going to pass no matter what happens, so who cares? Unlike you, apparently, I have things that I actually LIKE TO DO, and no matter what happens economically over the next 10 years, I'll still be doing them and enjoying them! It's called LIFE...maybe you should get one...

And of course, we stackers will ALSO be loading up on silver at 12 bucks an ounce and gold at $750, so in fact we'll a step ahead of you...AGAIN. Do you really think that you're the only person who has cash to spend? LOL...

Sat, 05/04/2013 - 02:20 | 3529681 Debugas
Debugas's picture

"the delusion that adding inflation to a deflation would somehow cancel each other out"

 

Indeed :) in principle it could - you give the money to the borrowers so they can pay back the lenders. But heck that is not what money are printed for

Sat, 05/04/2013 - 06:57 | 3529768 Beam Me Up Scotty
Beam Me Up Scotty's picture

Except they aren't giving the money to the borrower, they are giving it to the lender to cover the liability the lender has.  Its like the lender got their money but the borrower still has to pay anyway, so the lender in the end gets it twice.

Sat, 05/04/2013 - 17:09 | 3530488 Law97
Law97's picture

I wonder when the American sheeple will begin to connect the dots between monetary policy and rising inequality/decimated middle class?

 

I suppose when we start seeing large violent demonstations in front of the Eccles building. 

Sat, 05/04/2013 - 03:11 | 3529702 dunce
dunce's picture

People with no jobs do not experience a wealth effect and people with jobs that do not have much in the way of assets but live payday to payday do not feel richer because the stock market hit a new high. People working for the govt. do not care about the stock market because they can not be fired and their pensions are huge and safe. The step 4 is not going to happen. He predicts 2% growth but seems to believe no recession is going to happen for at least several years, that is being very optimistic.The bankers and the dotcom people are piling up millions but they are a small % of the population.They are buying mansions and yachts but no more than they always have.

Sat, 05/04/2013 - 04:14 | 3529727 andrewp111
andrewp111's picture

People who work for the Federal Government DO concern themselves with the stock market. We have the choice of G, C, F, I, and S funds for our TSP (the Government's equivalent of a 401K). Only the G fund (Treasurys) is safe.

Sat, 05/04/2013 - 06:38 | 3529760 Roandavid
Roandavid's picture

Define safe.

Sat, 05/04/2013 - 06:49 | 3529763 WhiteNight123129
WhiteNight123129's picture

Hey Gary, there are no deflations since 1933. Did you get the memo?

https://commons.wikimedia.org/wiki/File:US_Historical_Inflation_Ancient.svg

And China has been slowing since 2011 (when it was time to short VALE). There is now some pent-up demand in hte Western part of the country.

 

 

Sat, 05/04/2013 - 07:32 | 3529788 GubbermintWorker
GubbermintWorker's picture

Oh, my, god! Get this man and his advice away from me!

Staples and food is the ONLY thing he is correct about!

Sat, 05/04/2013 - 08:05 | 3529808 John Law Lives
John Law Lives's picture

"We are still within a secular BEAR market that begin in 2000 with P/E ratios still contained within a declining trend. Despite media commentary to the contrary - this time is likely not different."

Interesting that the word, "likely", was used here.  In other words, nobody outside the inner circle really knows how long Chairsatan might keep his foot on the gas pedal, so nobody knows how long this CAN go on.  He may be determined to keep his foot on the gas pedal for a very long time.

Sat, 05/04/2013 - 09:00 | 3529838 Son of Loki
Son of Loki's picture

Moar printing, Gary, is what we need.....moar, moar. moar zero down cars, zero down houses, zero down Obamacare, zero down penison plans, and zero down This and zero down That.....so no one is paying for anything and shifts the costs to someone else (like the taxpayers).....and everything will be fixed.

 

It's all "Fre" in the New paradigm.

 

 

Sat, 05/04/2013 - 09:49 | 3529873 shovelhead
shovelhead's picture

Seems to me the basic problem is the Fed can stuff the banks with money and the banks can stuff the market with money but until they invent a way to make bad collateral good and NPLs disappear these insolvent banks are nitroglycerin waiting for a bump.

Consumer driven economies without consumer cash and money velocity can stay moribund for a very long time as businesses fall by the wayside and create negative feedback loops as more productive jobs disappear.

I think Ludwig is correct, that until losses are taken on the bad debt and bankrupt banks buried, a  slow bleed will continue until outside forces make a default inevitable.

Either way, the pain will continue as long as we stay in the QE-ZIRP coma of papering over losses with funny money.*

 

*No economic models were used or harmed in making this opinion.

 

Sat, 05/04/2013 - 10:43 | 3529919 noless
noless's picture

The solution to your problem is barter and black markets. No legitimate business will prosper under this monetary regime.

Sat, 05/04/2013 - 11:48 | 3529991 OpTwoMistic
OpTwoMistic's picture

Want recovery?  Stop the insanity.  Give every citizen in the US  a $1000.00 a month, not taxed.

Instant purchases, paying down debt, some to stocks, some saving.  Never give money to banks.

Purchases mean companies hire. Payroll tax revenue increases also with SS inflows.

Got a better idea?

Sat, 05/04/2013 - 12:01 | 3530003 Umh
Umh's picture

The rise in asset prices creates a wealth effect for consumers. <--- bullshit!

The rise in asset prices creates a wealth effect for asset owners.

Sat, 05/04/2013 - 12:29 | 3530039 moneybots
moneybots's picture

When does the deleveraging cycle begin?

The DOW is 1,000 points higher than in 2007 and the government is leveraged up to 16 trillion from 10 trillion.

Sat, 05/04/2013 - 15:16 | 3530311 TradingTroll
TradingTroll's picture

WOW! Re: " I have things that I actually LIKE TO DO"

 

What insight! The depth!!

 

Amazing. All those things you like to do must be free. Dont event have to drive, so no gas or car needed, dont have to eat to do those things, so no food needed, dont need shelter, so no housing, dont need heat. Shall I go on? Dont need clothes, etc.

 

Sure, skiing is expensive, so we take up snowshoing, but you apparently have it all figured out. For a minute, I thought, the guy likes either walking as its cheap. But walking uses clotes and food and especially shoes.

 

but I think I have you figured out:

 

-live in a cave

-no teeth (have them pulled, dental is too costly)

-wear furs for warmth

-eats roots, leaves, bark

-hobby is cave painting

 

So shame on the rest of us for wanting a life that actually requires some consumption of commodities to sustain it!

 

Sat, 05/04/2013 - 17:15 | 3530500 WhiteNight123129
WhiteNight123129's picture

"The Fed’s original program of zero interest rates have failed to promote borrowing."

 

THE FED HAS NO INTENTION TO PROMOTE BORROWING. THE FED WANTS BASE MONEY TO GO DIRECTLY IN THE ECONOMY WHAT IS SO HARD TO UNDERSTAND? SPANISH CARGO GOLD FROM SOUTH AMERICA. BLOODY FUCKING SAME THING.

 

Sat, 05/04/2013 - 20:17 | 3530747 neutrinoman
neutrinoman's picture

Shilling is a smart guy. But he and certain others don't understand is that asset inflation now includes bond prices. When asset deflation hits again in a big way, bond prices will go *down*, that is, normalize. It doesn't imply really high rates -- just normal rates. But even normal rates will be a disaster for some actors.

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