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Even Warren Buffett Must Be Getting Concerned At This Market
Submitted by Thad Beversdorf via First Rebuttal blog,
I’ve recently taken on the challenge to work through various indicators that I believe are part of the giant con that America is still enjoying growing economic prosperity. The basis for doing this is that I have a very difficult time accepting that while real median incomes and real wages are declining that the nations standard of living or economic prosperity is increasing. The coexistence of such realities simply does not foot. Pouring over various datasets it becomes obvious that the ‘bridge’ between rising GDP and a declining economy is debt. Literally every relevant dataset I run over the past 50 years tells exactly the same story. That while demand has struggled due to real flat or declining income, economic ‘growth’ has been merely a function of debt principal, both national and consumer.
And as I’ve discussed in depth lately, GDP is supposed to equate to and thus represent total national income, however, it is being overstated because we are adding total additional debt into our change in GDP each period. The problem with that is for each additional dollar we have taken on since the mid 1970′s we’ve generated less than a dollar of output (i.e. income). And so we are losing money on each dollar requiring ever more debt to cover the losses and lack of natural growth. Further, calculating debt as income seems completely contradictory to what we do at the individual level. Certainly none of us add in the additional debt we take on each year and count that toward our income level. The reason we don’t is because we understand that at some point that has to be paid back with interest. And so we don’t identify additional debt as additional prosperity. It just doesn’t make sense.
In order to get to a GDP figure that more closely represents the nations true economic prosperity I adjust GDP and change in GDP for changes in debt at both the consumer level and at the Federal level. What we find is that we have not had true growth in economic prosperity since the early 1970′s with the exception of a four year period between 1996 and 2000. And we have seen a collapse in economic prosperity over the past 6 years. I find myself debating with people all the time who continue to tout the all time high market valuations are based on an improving economy and it really winds me up. I throw out facts and figures and get just a lot of conjecture in return, like my recent debate with the CIO of BMO.
One of the metrics people point to all the time is the Buffet indicator. They tell me things may be slightly overvalued relative to history but that we are still well below the overvaluations we saw in 2000. I’ve struggled with that one. I see they are right and I knew something seemed really off about it. Real median incomes have been declining since 1998, U6 unemployment rate for the past 6 years has remained at least double what the worst one period read was between 1998 and 2007 and the labour participation rate is lower than it has been since 1977 when few women were yet to venture outside the home. And forget about revenue. Despite 5% population growth ing the past 6 years real S&P sales are lower than they were 6 years ago. These should be devastating realities to the economy so then how is it that these all time high stock valuations can be lower than they were in 2000 relative to the economy?? Well thanks to a discussion with a good friend from North Carolina today (h/t Mr. McCabe) we talked right into the answer. It’s the same as every other economic distortion. Debt!
When we just think logically about it everyone knows we added $10 trillion of public debt over the past 7 years but no one ever seems to adjust any metrics for the insane amount of debt and the obvious implications and distortions that come along with it. We just keep on calming calculating with the blinders on. And so I’ve taken an adjusted GDP figure (excluding growth due only to additional debt principal) and run it against the Wilshire 5000 to get an Adjusted Buffet Indicator. And what we see is the true overvaluation of today’s markets. All data is pulled from St. Louis Fed except Wilshire data which I pulled from Wishire.com.
What we see is that the adjusted Buffet Indicator essentially mirrors the original Buffet Indicator from 1970 through 2000 when it dislocates slightly through 2008 at which point it completely dislocates. The adjusted indicator is nearing 3.72 standard deviations above the mean. Comparatively the original indicator had its highest overvaluation in 2000 at around 1.79 standard deviations above the mean. This suggests today’s true market valuation is more than twice the previous all time high in 2000.
This again makes sense when we start realizing we have to begin adjusting things for the incredible amount of debt we’ve taken on over the past 6 years. We simply cannot just turn a blind eye to the debt. And that is exactly what every government agency is doing. Where are they adjusting for the massive future drag on growth? Nowhere! You cannot borrow unlimited amounts of money and simply pretend like it isn’t happening!! If you could everyone would do it. Ask yourself where would GDP be if we hadn’t taken on $10 trillion of debt. And if you think it would be close to the same well then why in the hell did we take it on? Someone should go to prison because it’s costing us $250 billion per annum.
Hopefully you get the point that we MUST adjust our economic indicators for the enormous amount of debt. To simply pretend it doesn’t exist or has no material implication on the our prosperity is really beyond my ability of tolerance. I leave it with you to start thinking about how the additional $10 trillion in debt should start being adjusted out of the infinite ‘positive’ indicators of economic strength being thrown around by all the Krugman wannabes out there.
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See ya over at gvt.con.
Chuck Munger will be around later.....he's busy talking Uncle Warren off the ledge.
THEY ARE the ponzi...why do you think they give a shit
Yes, the Crony-Capitalist never need to worry until the Socialists they helped gain power, hang them.
In answer to the author's question about "why?", it's because the .gov guys LOVE to listen to "experts" like Paul Krugman who tells them that debts don't matter. License to unleash unlimited spending fueled by unlimited borrowing.
I'm just glad they spent 90% of it on highly productive things like welfare, EBT cards, "saving or creating" crony union jobs, and bombing brown people. We should see some real productivity dividends on those investments in the future.
In answer to the statement:
I leave it with you to start thinking about how the additional $10 trillion in debt should start being adjusted out of the infinite ‘positive’ indicators of economic strength being thrown around by all the Krugman wannabes out there.
I respond:
It will never be paid back.
If your country has the Reserve Currency and the most dominant global military and spy network... "Debts DON'T matter."
Your debts only matter to the rest of the world that has to pay for it: they use your fiat paper/pixels, and give you Stuff.
It's good to be King!
Except everyone was yapping about how debt had to fall back in 2009 to clear the decks and look what happened to stocks as even more debt was piled on.
Please, Buffet has numerous politicians in his fucking pocket, he is not concerned in the least. Why else would such an "evolved" society still be using oil and transporting it around in rail cars...
fucking stupid.
Yes you are!
Come on, you can do better than that my little fucknut.
(hat tip to ZH for calling out Buffet on this years ago, it was a good trade).
At least he's right on the politicians in his pocket and the rail cars. Love this time line:
1. 2008 Buffet begins to hold fundraisers and donate big $ to Obama.
2. 2009 Buffet buys BNSF for $26.5 billion and everyone wondered why he paid so much after the election.
3. Keystone pipeline is commissioned 2010.
4. Feb 2011 Obama gives Warren the Medal of Freedom, because you know, he has done so much for 'Merika.
5. 2012 Buffet gives Obama $1 billion via his PAC USA Action.
6. Through 6 years in office, Obama has consistently locked up the project and now threatens a veto.
7. BNSF has paid Berkshire more than $15 billion in dividends.
This year BNSF will have paid Birkshire all it's investment back. Meanwhile BNSF is cutting maintenance, and is operating "well below our standards" at a North Dakota hearing regarding poor service, fires, spills, etc...
When Warren puts it up for sale, you will know that either the pipeline is going to go through, or the fields are going to be producing less.
The 'Oracle' is just such a genius investor. He has a real talent for picking winners like BNSF. Life is good for the Crony-Capitalist.
It doesn't take a genius to guess that politicians would fight a pipeline while enabling a ramp up in rail cars, which are 34x more prone to spills than even an old pipeline. It might take a genius to bet billions on it though, not sure. All I know for sure is I missed the hell out of that boat.
Oh Warren is quite the modern Robber Baron, aint he?
All coincidence, Buffett is a nice old man of the people. He also called for a fairer tax system for the poor, and that never happened.
Clearly he is not as powerful as you suggest.
I was going to add, he is a member of the richest man in the universe club. Not likely he gets concerned about anything.
Buffet is THE reason that the Keystone pipeline isn't going to be approved....as you know. I've sat at too many railroad stops having to watch scores of new-ish oil transport cars wiz by!
He's not THE reason, just one of the biggest. There's several minor billionaires and high millionaires who are on the same side of the tracks as Buffett.
Graphing 101: Label your axes.
Of course we don't have prosperity. A $60k job puts you into near poverty because you can't qualify for any subsidies. A McDonald's hamburger meal is $7.25 and new 1700 sq ft homes are being sold for $550k in shitty suburbs.
Even people making $100k a year are having a hard time making it work. 20 years ago people making $100k a year lived in a gated community with a Jack Nicklaus designed golf course in the town I grew up in. In some places in America you can't even afford to live in a trailer park making $100k a year.
That is my measure of how insane the current valuation of the market is. $100k a year used to mean Porsches, a luxury home, country club memberships, lavish vacations. Now it barely buys you a middle class lifestyle.
Bingo. All under the mantra of "no inflation". Sheep are being slaughtered and they don't even know it. In addition, I know a recent friend who lost his job (so did his wife) is living in a $550,000 home and is now using SNAP. Fucking stupid. IMO you should have to sell all your assets before you are eligible for assistance.
How can someone have an asset worth half a fucking million and still be eligible for assistance reserved for the "poor".
fucking stupid.
Because that's what the FDA's rules say, and they want to expand the number of people on Food Stamps (EBT).
Under current guidelines, you can live in a $1 million home, drive a Ferrari, and still be elligible for EBT.
Wait until April 1, of this year, when California will lift its ban and allow convicted drug-dealing felons to receive EBT:
https://self-sufficiency.org/?p=546
It has nothing to do with helping the 'poor' and everything to do with buying votes from the FSA...
Exactly, no suprise people don't want to actually work. So long as the ammo and body armor is still cheap I guess.
Take it one more step.
A dog will rarly bite the hand that feeds it, even if the Hand brutalizes the dog from time to time.
The dog will even put himself in danger to keep the hand safe so that it's food source is secure.
SNAP is about maximum societal control.
Add-on: they'll also be more likely to riot (and direct their anger where official fingers point to) when cut off, if the plan calls for that.
Never underestimate human stupidity, unfortunately.
And also John William's Shadowstats inflation calculation is getting just a lot of conjecture in return all the way to people like Doug Short...
Effing stupid.
His net worth may be lower than the average SNAP recipient who lives in Section 8.
ADR-
Spot fucking on !
Agreed. $100k a year in the DC area or in any large city suburb on the coasts is like $30k a year in flyover country. DC/NoVa suburb homes are easily $550+k for a fixer upper in a nice hood with good schools. $100k a year doesn't go far with prices like that...
Well....He does claim to be a "value" investor (laugh track deafening)
DEFLATIONARY COLLAPSE IN OIL, STOCKS!
Just practicing.
"The coexistence of such realities simply does not foot"
In that case, good thing no one cares about GAAP any more
LOL!! yeah, or SWIFT...
full faith and credit...
tick tock motherfuckers.
Good article but why won't you fu.king label your Y axis?
Also how about defining some of your terms like the "Buffet Indicator", "Real GDP" (what the hell is real about the gov't published GDP) ...
Bout time Soros doubles down again on his Martingale short strategy. He has 1 chance left to get his original bet back.
Sheeeze - collapse might be happening now with crude at $46.36:
http://www.investing.com/commodities/crude-oil-advanced-chart
And equities following oil down the pipe:
http://www.investing.com/indices/us-30-advanced-chart
When did the MCap to GDP became a "Buffet indicator"??? Is it necessary to use the name of a croony capitalist to gain credibility when discussing market valuations?
Please, how do you "value" or "price" anything when there is no price discovery?
There is no spoon.
People think the Orifice of Omaha is the voice of Mr. Market, but they're way wrong.
Correction: The Oligarch of Omaha.
he just needs to rail some more tar sands and shale oil bitchez. no pipeline for you!
Warren Buffet is totaly corrupt and he knows it. He can pick up the phone and call from Obozo on down in D.C. and whatever he wants will happen.
He loves coming off as some kindly old granpa parceling out investment advice. The son of a bitch is as crooked as a dogs hind leg, and I do not believe his father would be proud of him.
The apple fell from a tree on a hill.
http://www.zerohedge.com/news/2014-08-14/70-years-later-warren-buffetts-dad-proved-right-about-everything
You cannot borrow unlimited amounts of money and simply pretend like it isn’t happening!! If you could everyone would do it"
Every central banker is doing it. That's what bankers do. They are like pedophiles and can't stop until they are locked up.
But they must.
Without the trillions to flesh out the fantasy that there is a functional world economy.
They would be left with the cold reality that non-productive populations starve to death.
Societal chaos, and mass starvation would tend to put a crimp on the staus quo.
Their only option at this point is to perpetuate the illusion.
They would be left with the cold reality that non-productive populations starve to death.
While wearing my best Bill Clinton face. "So, that's a bad thing?"$46.27, but don't fill 'er up just yet.
The market should be...
A house of commerce.
It has been made...
Into a den of thieves.
"debt is the great bridge between working hard and playing hard in this country." LIESMAN
Get it straight!
"I’ve recently taken on the challenge to work through various indicators that I believe are part of the giant con that America is still enjoying growing economic prosperity. The basis for doing this is that I have a very difficult time accepting that while real median incomes and real wages are declining that the nations standard of living or economic prosperity is increasing. The coexistence of such realities simply does not foot."
It's all explained in the context of Socionomics...
http://www.globaldeflationnews.com/science-is-revealing-the-mechanism-of...
Seriously is there really a Buffet Indicator? LOL
And when the fudged BLS rate goets to 4.5%, Buffett is gonna buy puts on every stock he owns from every dumb ass willing to selling them...
We are in a fucking depression, they just won't admit it. 90 Million people unemployed and 46 million on food stamps. Double from 2007 and the unemployment rate continues the drop and the market PE's continue to go up. We are living in one FUCKED up world. This OIL drop is a form of QE.
Debt doesn't matter when interest rates don't go up.
10T of spending creates a larger boner alert for Krugman and we all want to see that dont, we?
"the giant con that America is still enjoying growing economic prosperity."
So who cares?
In what way does this have anything remotely to do with investing in the stock markets? Isn't this website about investing in the stock and bond markets? This article is nothing but a bunch of pap about the economy or something which is in no way related to the financial markets. Its stupid.
I think Part II of the story will be about how corporate earnings are subject to the same hijinx as GDP calculations are. Debt-enabled buybacks that lower the denominator in EPS calcs are basically the same animal: they overstate the rate of increase.
Warren Buffet: American OLIGARCH
Warren Buffett is a Smart and Talented Man, and as I always say, "Success is Not an Accident".......
I give Him his Due.......
Having said that however, this, Not Money, is what Warren is really worried about:
"ARROW TO THE HEART";
"OPEN LETTER TO WARREN BUFFETT".
Because it is going to be shown that indeed, JUDGMENT IS NOT SUPERIOR TO TIME.....
The Followers in BRK are the ones who are Going to Pay the Price, Not Warren in Money terms, but rather, Reputation Terms, the thing that really Matters to Him....
Had Warren given WD Gann and Jesse Livermore the same Time and Due as Ben Graham, as I have, he might have had a Different Outcome...
And he would certainly Know that the Pump of BRK in Response to the above will only exacerbate the Fall Relative to Time, because it is Time, Not Men or their Judgment, that is the Supreme Force in Markets......
You See, Time cannot be Manipulated by Men.....And any such Manipulation becomes Encompassed in Time, and therefore is Equalized Relative to Time.....
For those Followers of BRK, et al., as I've said, ante up the $ 100 Million, Individually or Collectively, and you don't have to Go Down with his Reputation......
And Warren, My Advice: Quit Now, and Leave the Bag Behind.....
I Know You Can't, because BRK will GAP DOWN before the Open the Next Day.......
Captain Smith knew it too......
You See, as I've Said: Size or Power Doesn't Matter.....
Here is the deal...and the reason we, you, all of us and the fed ARE turning a blind eye - Interest Rates.
And they CAN cut them more, the 0% interest rate is just the float overnight rate...they still have 3% to cut off 30-year, and they can still cut 2, 5, 7, 10, 15 yr rates to Zero.
And thats probably whats going to happen. For better or worse, there is no other move that doesnt instantly cripple the entire economy. Its a trap of their own doing, but they are the printers of money.
Even when the Fed announces some rate hike, it will just be on the overniught rate...it has zero impact on the $20 Trillion in Debt. If they cut long rates by half, we can take another $20T in debt and whistle dixie...and they can then cut those rates in half again...sick and twisted..
But in a world where we have automated assembly lines, and what used to take 4 people to make now only takes 1 person...we dont really need full employment.
Sometimes I wonder...Have Humans outgrown themselves?
The gov. can increase the debt load until they can't make payments, just like their voters. It ultimately becomes a currency issue when foreigners abandon the $, which they have been doing, due to the ongoing inflationary theft. I doubt they can tack on another $20 Tillion, because the $'s percent of world trade has already dropped to 61%. When it drops below 50%, possible hyperinflation of the $. So, they stopped QE in October in order to deflate that potential, at least, temporarily. If the FED could squeeze China and India hard enough, they could get some of that gold back. Then, they could QE again safely.
the buffet indicator, what would they of called it in 2009, if there were no bank bail-outs.
with out the bail-outs, buffets name would go down in history as one of the people who lost the most money in the world, in the housing, financial crisis of 2008.
he'd be broke, and unavailable for comment, today.
No no no! He has publicly stated that he would NOT have lent GE and Goldman any money if the government wan't going to do something. He KNEW there would be bank bailouts. And traded on it, big. He even sold S&P puts (I guess he has a commodities account).
The other thing about Buffet is, he gets big money each year from insurance premiums (and dividends from his huge holdings of blue chip stocks). This is fresh income every year, regardless of where the prices of his holdings are marked. He's got $Billions in cash. I'm no fan of his, but its hard to see how he would've gone down in flames.
Aside, for all the dislike towards The Banksterz, I hear nothing about the Insurors who suck us dry with increases every year whether or not we have a claim. And outside of Buffet's realm, how come I hear no backlash againt the Health Insurance companies? Oh, we hate Obama and Obamacare, but not the individual companies who send us the bill? 300 million people, you figure somebody would connect the dots in 'Merica.