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The US Ponzi Economy
Excerpted from John Hussman's Weekly Market Comment,
When the most persistent, most aggressive, and most sizeable actions of policymakers are those that discourage saving, promote debt-financed consumption, and encourage the diversion of scarce savings to yield-seeking financial speculation rather than productive investment, the backbone that supports a rising standard of living is broken.
...
Meanwhile, financial repression by the Federal Reserve has held interest rates at zero, discouraging savings while encouraging and enabling households to go more deeply into debt. Various forms of deficit-financed government assistance and unemployment compensation have also been used to make up the shortfall, allowing consumption, and by extension, corporate revenues and profits, to be sustained. As long-term economic prospects have deteriorated, the illusion of prosperity has been maintained through soaring indebtedness, coupled with yield-seeking speculation in risky assets that has repeatedly (albeit not always immediately) been followed by crashes throughout history
The U.S. Ponzi Economy is one where domestic workers are underemployed and consume beyond their means, household and government debt make up the shortfall, corporate profits expand to a record share of GDP as competitive pressures are reduced and cheap goods and labor are outsourced, corporations both accumulate the debt of other companies and issue new debt of their own, primarily to repurchase their own shares at escalating valuations, our trading partners (particularly China and Japan) become our largest creditors and accumulate trillions of dollars of claims that can effectively be traded for U.S. property and future output, Fed policy encourages the yield-seeking diversion of scarce savings toward speculation in risky securities, and as with every Ponzi scheme, everyone is happy as long as nobody seeks to be repaid.
Buybacks are not a return of capital to shareholders – they are partly a leveraged speculation on shareholder’s behalf, partly a strategy to enhance per-share earnings by reducing share count, and partly a way to reduce the dilution from stock-based compensation to corporate insiders. Moreover, repurchases move in tandem with corporate debt issuance, which is another way of saying that the history of stock buybacks is one of companies using debt to buy their stock at overvalued prices.
Keep in mind also that corporate share repurchases have no tendency to concentrate at points of depressed valuation, and but have instead been most aggressive at points that have historically represented severe overvaluation.
* * *
An important note on the equity markets
We’re observing a continued deterioration in market internals at extremely elevated valuations, much as we observed in July 2007 (see Market Internals Go Negative). Credit spreads have widened in recent weeks, breadth has deteriorated (resulting in weakness among the average stock despite marginal new highs in several major indices), and downside leadership is also increasing. As a small example that illustrates the larger point, despite the marginal new high in the S&P 500 last week, the NYSE showed more declines than advances, and nearly as many new 52-week lows as new 52-week highs. About half of all equities traded on the Nasdaq are already down 20% from their 52-week highs and below their 200-day averages. Small cap stocks have also weakened considerably relative to the S&P 500.
Indeed, though it’s not a signal that factors into our own measures of market internals (and we also wouldn’t put much weight on it in the absence of deterioration in our own measures), it’s interesting that Friday also produced a “Hindenburg” signal as a result of that lack of internal uniformity: both new highs and new lows exceeded 2.5% of issues traded, the S&P 500 was above its 10-week average, and breadth as measured by advance-decline line is deteriorating.
One can certainly wait for greater internal deterioration before raising concerns, but my impression is that this confirmation is likely to emerge in the form of a steep, abrupt initial decline (which we call an “air pocket”). That isn’t a forecast, but an observation based on prior instances of deteriorating uniformity following extended overvalued, overbought, overbullish periods. This time may be different. Needless to say, we aren’t counting on that.
The chart below shows the cumulative NYSE advance-decline line (red) versus the S&P 500.
While the divergence is not profound, similar and broader divergences are appearing across a wide range of asset classes and security types, and it’s the uniformity of those divergences – not simply the extent – that contains information that suggests that investor risk preferences are subtly shifting toward risk aversion.
h/t A.N.
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WTF do we care about 30 manipulated stocks!
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.Gojob360.com
www.Blowjob360.com nice!
I do admit, I clicked YOUR link.
I signed in just to give you a greenie.
I think some of the high class "escorts" on Wall Street are making $20000.00+ per month working part-time. Why are you only making 7K?
He hasn't pulled his teeth out yet.
Good ol' gummer
for Mr. O'bµmmer
How much to suck my dick ?
This is not going to end well.......at all.
Jim Sinclair: Gold Will be $50,000 per Ounce, Gold Confiscation, Dollar Gets Hammered and More
http://www.youtube.com/watch?v=8IQ_TBJHrcU
The gurus do not know much more than the average ZHer. JS also boldly proclaimed at 1570 gold "the old lows are going to hold". Right! Nope. He know says the "cycle is turning up". Right ? This week will probably tell if 1180 falls or not, it may well fall. Time will tell. Listen to all, follow your own mind. Someday $50k might be a reality, but in what kind of world?
timing is not a big deal when you accept mortality
as your adviser. the historical and generational
fundamentals are of most interest, that is the story
i listen for and hear in my ears. that, and a constant
hissing sound. once i met a dentist who said it might
be a benign tumor but i never sat in his chair.
.
as for what kind of world? i have been wondering about that
since i was a child too. mostly about the one that already,
supposedly, exists but i could never quite grasp.
I gave you the green arrow. Gold maybe $50000.00 or maybe $300.00 per ounce.... either way the paper that is held will be worth heating a fireplace, or wiping your ass. I saw in Vietnam civilians desperate to have their MPC (Military Payment Certificates) worth anything (from an overnight change in the nationally used "currency") other than the two uses I described.
If you don't believe me, research the MPC currency change that occurred appox. October 1968 in Vietnam. The locals, caught unaware, were totally wiped-out financially. The frantic desperation on their faces, as they tossed bundles of the old MPC over the concertina wire for us to exchange for them, was indescribable. We could only toss it back.
...And that was a deflation from the point of view of the Banksters. Impoverishing the Vietnam allowed them to destroy demand, collapsed prices in terms of dollars and buy up the place for pennies on the dollar.
That's what the OLIGARCHS **saw**.
That is what the Debt Money Monopoly Oligarchs saw in Weimar and Argentina as well.
DEFLATION SO THEY COULD SEIZE CONTROL FOR PENNIES ON THE DOLLAR.
You would do well to find one instance when the DEBT MONEY MONOPOLY WIPED THEMSELVES OUT **WHILE THEY STILL CONTROLLED THE MAJORITY OF THE DEBT PAPER AND THE MONEY PORTION OF DEBT BASED MONEY**.
Guess what?
You.
Can't.
Do.
It.
For obvious reasons, too.
THEY WON'T BANKRUPT THEMSELVES TO BAIL OUT THOSE THEY CRIMINALLY PUT INTO DEBT THROUGH FRAUD.
Sheep are for sheering - and they always planned to sheer the debtors from the beginning.
They promote people who promote wrong ideas so that the sheeple repeat the wrong ideas... the best way to control the opposition is to finance it into the public mindshare.
The Skeleton Key knowledge of when to worry about hyperinflation is when the Debt Money Monopoly is out of debt paper and money... into real hard goods and service through foreclosure or buying up real assets for pennies on the dollar.
No Thanks For the Memories, JimS... ;-)
central banks specialize in obscuring price discovery
and the value of human relations. they see themselves as capable of
assuming the status of universally
necessary and self aggrandized
interlocutor by politically purchased, out of thin air,
corporate and financial law.
i'm not sure what to call that other than presumptuous
and tyrannical? they enjoy the official role of
masta' and it seems the slaves know not what to do?
fiat paper credit, fractional reserve, not today at
zero interest for you, my friend. that rate is reserved
for the den of thieves, themselves.
.
thanks for the up take tick.
The motherfuckers in Asia will do another smash now that the market has been open for just over an hour.
Watch.
Smack down coming in 30 minutes or less, bitchezzz !!
yea, Yellen sez poor people need to go into debt to somehow aquire wealth.
Fuck yea.
"Murica
The sad thing is, I'm seriously considering taking out several thousand dollars on my CC to buy silver...and I haven't convinced myself it's stupid.
Wait until the next collapse, you will get it cheaper.
If you do, consider shorting and equal amount of stock.
For example, I remember when SBUX and silver were both about $8 each. Now SBUX is $75 and silver is $18. They may well meet back at $8 again. The upside on silver is more than SBUX and the downside on SBUX is more than silver, IMHO.
A deflationary spiked pit is coming - the oligarchs need to buy up reality and complete their Art of War operaiton on the chumtocracies of the world.
They didn't criminally loot trillions for nothing!
We were hearing all about Hidenburg Omen's in 2013 on ZH, and it all came to nothing.
Sonic: keep whistling past the graveyard, as it could be a rather long walk.... or it may end abruptly. You have been forewarned.
80% of ZHers live with the philosophy that because it han't happened, it will never happen - kinda of a steve liesman.cnbc mentality
The Omen is a statistical probability indicator much like a forecast for rain.
Per Wikipedia:
Statistical probabilites very interesting. At the craps table you may throw 1-1 (or 6-6) once every 36 throws (odds are 35-1,against) and 7 once every 6 throws. There exists a "statistical probability" to throw 1-1 7 times in a row, it is quite high, but it could happen. Playing backgammon against a friend of mine, I threw 6-6 5 times in a row to come from behind to win the game. It was for $40 as the cube had been turned several times. I had shook the dice from a cup vigerously and, needless to say, he threw the board against the wall. True story.
Watched Pots don't crash....or boil
Same old song and dance here.
When QE 3 ends simply start QE 4 just like Friday the 13th series.
Only don't have an end chapter.
Hey now I know who that arrested Tranny is... she works on American Pickers.
Jef Lee Johnson : From A Buick 66
http://www.youtube.com/watch?v=qeOLov2cyF4
and one can bet the robber barons aint gonna stick around long enough to deal with the "wrath", which we hope will be many 1000"s of heads in baskets.
It is all based upon fakery. What do you expect?
In the news this weekend was the suspension of a Florida State University Quarterback. It turns out that he said some "offensive statements" about "women's anatomy". The school, treating him like a fucking sixth grader, suspended him from a game that may have POTENTIALLY COST the school MILLIONS OF DOLLARS in TeeVee Revenues.
We are so upright and self righteous that we cannot have any of our student atheletes saying inappropriate jokes. That makes us LOOK BAD.
Give me a fucking break. He is just another fucking stupid football player who is skilled in avoiding four or five 250lbs men looking to leave him as a smear stain on the turf, and who also can throw a ball.
This is how our most advanced EDUCATED minds think? They risked losing MILLIONS OF DOLLARS OF BADLY NEEDED REVENUE over a fucking joke?
You see...IT IS ALWAYS ABOUT THE IMAGE OVER THE SUBSTANCE. These school administrators, in their Ivory Towers, think that someone saying, "Why does a girl have legs? So they do not leave snail trails.", or, something like that, is so inappropriate that they will COST THE SCHOOL BADLY NEEDED REVENUE? These assholes are involved in making financial decisions for their institution??? Are they fucking out of their rabid ass minds?
Nah...NO WORRIES...The State will bail us out.
Personally I do not give a fuck as I do not like FloriDUH State.
But these same types of graduates with their PhDs, AND THEIR SMALL, PETTY MINDS. are bent on leading us toward Financial Collapse because...image is more important than substance.
TO THE ASSHOLE WHO JUNKED IT...
How much does it cost to leave Interest Rates at artificially low prices?
How much does it cost to artificially supress the price of Gold?
How much does it cost to keep the Housing Market artificially supported through the buy outs of Mortgage Backed Securitiess?
Our entire fucking economy is based upon a FANTASY.
This bullshit is not just restricted to the Financial Markets. IT IS PANDEMIC THROUGHOUT OUR ENTIRE FUCKING CULTURE.
So...Go fuck yourself as it will not change the truth.
The other side of the coin is Penn State protecting it's football franchise while 9 YO's are getting it in the ass in the shower room.
You choose.
Yeah. Go figure.
There a lot of people in the Comments Section whom will believe that to be okay. God forbid that they "tarnish the image".
LOL
You might want to educate yourself about the history of said quarterback before you open your ignorant pie hole and spew.
So they suspend him for an "off color" joke and not the other things?
Sexual Assault warrants suspension. An off color joke???
Why do you think that the Penn State incident, the Sandusky affair, was brought up?
Isn't that the epitome of hypocrisy?
Image over substance Mr. Hood. You just demonstrated my point so classically.
You fell into a snare trap which I had set. You exposed your character.
I will root all of you hedonistic, narcissistic psychpaths out and expose you to the light.
I am here to expose truth.
Have a good look in the mirror Mr. Hood.
You ignorant motherfucker ! Gold down a buck in Asia. leave it alone motha fuckers.
Sell the COMEX Contracts short. Knock down that price.
The Asians are depending upon you to help empty Western Vaults at bargain basement prices.
Directionally, I agree with you on much of what you posted, but we probably should wait to see the next shoe to hit FSU on the head from that psychopath. The crap I'm reading is that the rape charge is alive and fermenting in the justice vat. He is more than a bubble off plumb and the good name of the school is taking a hit. Shuck him muy pronto and any enabler along with him. I'd run Jimbo's ass off before God got the news and I would tell the prez what shithole behavior it was to tolerate that and the crablegs heist out of Publix. Of course, the trustees must grow a pair of balls larger than mustard seeds.
The latest "fuck that woman's pussy" rant on a table in the student union before a lot of mixed students is rubbing the administrators' noses in it. He will continue until forced out is the way to bet it.
How bout a major lawsuit against the fledgling democratic republic of Ukraine that allowed that commerical airliner to fly over it's airspace in violation of the air traffic pattern(s) prior to it's downing to go with that "ponzi scheme"?!!!
Maybe this will help expedite the U.S. and NATO to provide a little more accuracy to the "fudged report" the Dutch just submitted that they said would take more than a year for the full report in hopes that the World forgets!
to sum up:
You know it's dishonest.
Also know that it is legal, there is no law that says it is illegal.
So if this increases my balance in the bank account, fuck whoever loses.
It is the law of the Dog!
One day the house falls.
: - /
Team America World Police & Ponzi extraordinaire Inc. fuck yea!!
It is typical, at the beginning of a bear market, to see many smaller companies decline while the average is held up by a few giant companies.
Eventually even the giants lose their momentum and the bear market is on.
That is what the last chart makes me think of.
BTFD Don't fight the FED's software.
A survey of consumer finances by the Federal Reserve has some surprising data: people 55 to 64 approaching retirement show a decline in 401(k) and IRA balances compared to 2010 and 2007.
While the median 401(k)/IRA savings of people aged 45-54 increased, people getting closer to retirement now have less money less than they did three years ago.
The bottom line overall from this year’s report is that median income and median wealth for American households have both declined from 2010.
Alician H. Munnell writes on MarketWatch in her article "Dismal Fed data on retirement saving" that the Fed predicts gloomy times for boomers with 401(k)s and IRAs.
Says Munnell: The Federal Reserve has just released the 2013 Survey of Consumer Finances (SCF), a triennial survey of a nationally representative sample of U.S. households, which collects detailed data on their assets, liabilities, and demographic characteristics. It is considered the gold standard of information on income and wealth.
"Overall, this year’s report is very discouraging. For American households, both median income and median wealth have declined since 2010….
"The new numbers are both surprising and discouraging – particularly for those approaching retirement (as my completed Issue Brief reflects). The SCF shows for households age 55-64 a surprising decline in 401(k)/IRA balances, from a median of $120,000 in 2010 to $111,000 in 2013. Savings of $111,000 will only provide roughly $500 per month in income; and since that amount is not indexed for inflation, its purchasing power will decline over time. The only bright spot in the numbers is a significant increase in holdings for households age 45-54.”
The latter group’s holdings increased from $70,000 in 2010 (down from $75,000 in 2007) to $100,000.
My question, how can $500 per month in retirement income, plus the declining purchasing power of Social Security returns, compete with arbitrary government inflationary increases in the minimum wage to $15 an hour, i.e, $31,200 a year, in certain areas? The obvious answer is they can't.
http://blogs.marketwatch.com/encore/2014/09/18/dismal-fed-data-on-retirement-saving/
Our species is not wired to live within its' means. Only physical restraints like running out of food or water will ever be an effective control over our behaviour. We are truly the same as a colony of ants, a hive of bees, or even a simple culture of mold.
I'll tell ya what's keeping me up night latley... Fall is here and what comes after fall? That's right ... WINTER. Last winter something completely unpredictable happened. It got cold! There were even reports of snow in some locations!! Who could have predicted this?? Not ever having experienced winter weather before, the consumer was unable to get out spend their Federal Resrve Notes until we had the spring thaw. Word on CNBC was that it just wrecked GDP, which otherwise would have been off the charts!
Going long Farmer's Almanac and snow plows....
Braced for it. Short on ski resorts and tire chains.
https://www.youtube.com/watch?v=Mfzrv77-SQY
Rev Horton Heat (my left hand holds a bottle of gin, my right hand a loaded gun)
What if the government, through its Fed and proxies, is buying stock constantly in an effort to keep air in this bubble?
Then all these downside predictions, guesses and bets are OFF.
I would not put anything past these moneychangers. If there existed Beanie Baby futures, they would manipulate and inflate that market too if it meant prolonging the game.
It certainly is a Ponzi economy. All based on perception of the 20%. The BRICS will soon fix the petrodollar and next finding nothing backing the US dollar.
The COMEX PMs are over subscribed over 70:1. Once the BRICS expose the fraud it should get interesting.
WTF. Just figured this out? It has always been a ponzi scheme. But the bears failure to fully embrace the ‘New Normal’ has made them a lot poorer. No, there is no big conspiracy going on, this is how it is and will be forever. The oligarchs and top 10% who benefit the most are not about to see their wealth decimated by Dow 7,000 and have all the little people shooting at them. The new normal has made millions richer by boosting their 401Ks, and they in turn, run out and buy lots of things. Low rates and loose credit keep people borrowing and buying. So far, it has all worked exactly as planned and they are fairly transparent with their Keynesian concepts. Keep rates low forever and continue massive government deficit spending. There can NEVER be austerity or a balanced budget; it would mean overnight collapse. The Fed bank must continue to create money and fund all the spending. It keeps people working and they buy things.
We are never going back to old normal, as it would just bring about economic ruin and social unrest. After about 100 years, it failed, now the new normal is here to stay. The only way it is likely to fail is if debt burdens become unmanageable. and they still have plenty more tools available to them. Student loan forgiveness would free up $1T to move into the housing market. That would help to re-inflate the bubble and again get people using their homes for ATMs. If the economy slows, expect congress to quickly put out another $1T stimulus package and more QE would flow. The deficits do not matter. Nobody cares about them and there is here is no hyperinflation. Millions depend upon government largeness. If you take it away, the party ends ugly. A steady supply of new consumers who need housing and cars and toys is planned through several “immigration reform” bills. They are way ahead of the bears and will do “whatever it takes”. Are you going to stay short for the next 100 years to see if the new normal fails? Hope you have deep pockets.
Soon the quarterly earnings will come out and there will be plenty of lousy numbers. Futures will indicate a very weak open and bears will pile onto the short side. Janet will laugh, place a couple of calls and say a few words to the press. The markets will reverse and explode higher. Accept this, profit from it, or don’t.
Even if your debt is forgiven you still won't be able to live if there isn't a job that pays enough for you to consume anything.
Somebody making $25k a year can't afford a $325k house even if his $150k student loan debt disappears.
The stock market going up 20% a year can't help someone who doesn't have anything to invest. Even seeing $10k turn to $100k doesn't do anything if during that same period inflation runs 10% a year.
Think they plan on taxing the forgiven debt? Heh? Heh.. They ain't lettting you out!
You'll start your miserable life with either a big school loan, never to be repaid, but hanging on you like an anchor. Or a tax debt, doing the same thing.
Debt holiday. All debt. That would be fun.
Inflation on main street is really kicking into overdrive now. No money for even the creditworthy to put a tiny down payment on anything. an utter ponzi if it gets better from here. Sure hope nobody needs to sell.
I can see the price of the PM's going up when there is demand.
There isn't any shortage of delivery or BO's.
I wish there were.
I just got back from a meeting with a current $5.5 billion company. The meeting was about how to turn the company into a $8 billion company by 2017. They didn't talk about if they would hit the mark, the $8 billion mark was already a foregone conclusion. The VP stood up and said, "We will hit this mark, we have to. It is your job to make us surpass it."
Essentially Wall Street put the $8 billion by 2017 mark on the CEO's forehead. If they don't hit the target the hedge funds will crucify the stock and the CEO will see his net worth evaporate. It did happen before and the CEO took a $1 salary until the stock recovered. Now if he didn't own a single share, that would mean something but at $14 a share the guy still had a net worth of a little over $1 billion. After this great sacrifice the stock did recover and promptly doubled.
Once the big synergy meeting was completed we broke into smaller teams based on departments. As a consultant I had the privilege of sitting in multiple meetings. One department said they had their best year ever hitting $35 million with a target of $60 million for 2015. Another group hit $120 million with a next year target of $200 million. While impressive I was trying to figure out where the $5 billion in revenue was coming from if some of the most successful product lines were only bringing in a few hundred million.
When the revenue growth targets were discussed there were no real plans for getting there. I just heard "international" over and over. Somebody supposedly put the potential market worldwide at $240 billion. So the goal was to capture 10% of that. When somebody talks about capturing 10% of a market it doesn't sound like a tall order, makes it seem achievable and that you are doing something wrong if you don't hit it. However this is already a global corporation doing business in North and South America, Europe, Asia, and Africa. Unless there is $100 billion of business done in Antarctica I just don't see the $240 billion market.
The truth is the $240 billion represents the inventory stuffing potential to support the global ponzi market. When the sales staff asked about marketing, they were told to push the retail buyers to purchase more inventory. The more inventory purchased, the higher the booked revenue. End sales is secondary, even profit falls far below booked revenue. Inventory stuffing is business 101.
If Wall Street cared about end sales and true profit, the size of the economy would probably be a fraction of the reported number. GDP is a bridge to nowhere made up of trillions of dollars of booked revenue that never ends up as a true consumed entity. As long as revenue grows, Wall Street says a company is successful. Even losing billions can raise the equity value of a company if revenue is increasing.
The scam is incredible. An Empire of bullshit to enable worthless people to amass great fortunes.
Is it Brawndo?
Brawndo has electrolytes.
http://dilbert.com/strips/comic/1996-08-10/
A well balanced portfolio is gold, silver, freeze dried foods, a backup water supply, No Debt and Vanguard's Wellsley Fund.
What I don't like about this guy, he says very little about the 1% getting TRILLIONS from bailouts and He begrudges the unemployed money to eat. The unemployment dollars provide are a cheap buy out in place of JOBS. There should never be a check written without work or service provided. To create a program like the WPA costs dollars but provides service to the community and skills to the unemployed. Instead of giving banksters TRILLIONS we should have created REAL jobs! The next person that runs for President on that platform gets my vote. FUCK the BANKSTERS. With this coming next collapse I say they don't get ONE PENNY!
There is 1 and only 1 semi stable path out of the global mess were in (massive Chinese malinvestment in excess capacity, US "investment" in consumption) and that is for G3 currencies to significantly weaken with respect to RMB. Doing so would give the Chinese people a huge bump (they spend about 40% of income of food and energy, which are effectively denominated in USD), launching both income and wealth effect for Chinese households. It would address global CA/trade imbalances and put the global economy back in balance. But, the only viable path at this point (because I'd systemic malinvestment on both sides) is to deflate financial assets in real asset terms through gold. b Only gold need not be supported by cash flows and only gold can respond in a timely fashion.
Else, the path runs through collapse.
The vast majority of people have no clue that the US or the world are in any kind of trouble. This is both good and bad for the people and those who believe they are running the world.