Seeking Alpha

Graham Summers'  Instablog

Graham Summers
Send Message
Graham Summers is Chief Market Strategist for Phoenix Capital Investment Research, an independent investment strategy firm based in Washington DC with clients in 56 countries around the world.
My company:
Daily Market Alert
My blog:
Daily Market Alert
View Graham Summers' Instablogs on:
  • The Terrifying Reality Of The Fed's Decision Making Process

    The Fed is a money-printing machine that wants stocks to go higher.

    That's effectively all anyone needs to know regarding the Fed's monetary policies. Every other statement regarding the Fed is only accurate for a brief period of time as the Fed continually changes its goals, thresholds, and responsibilities almost every other month.

    Throughout this time period only two things thing have been constant:

    1) The Fed has continued to print money expanding its balance sheet.

    2) Stocks have moved higher.

    The reason we suggest this is because, based on the Fed's actions, these are the only sensible conclusions one can come to. The Fed obviously doesn't have any forecasting ability. It didn't predict the Tech bubble, Housing Bubble, 2008 Crisis, Arab Spring, EU Crisis or Housing Bubble 2.0.

    Moreover, we've been hearing that "growth would pick up in the second half of the year" for 5 years now. It has never shown up. Neither has income, full-time employment, the labor participation rate, or anything else that would indicate a strong economy.

    Secondarily, the Fed has proven that it is only too happy to A) ignore reality in the form of any data that contradicts its theories and B) ignore any "threshold" that the Fed itself might establish as a target for stopping the printing presses or raising interest rates.

    After all, the Fed suggested it would stop QE and raise interest rates when unemployment hit 6.5%. The Fed predicted this would happen in 2015 (that terrible forecasting record again). Unemployment hit 6.5% back in the first quarter of 2014. So the Fed dropped its unemployment threshold because said threshold was "no longer meaningful."

    Then there's the Fed's 2% inflation threshold, which we hit last month. The Fed again ignored this, claiming that the inflation numbers were "noise." Now Fed Presidents are claiming that inflation might remain below 2% for several years or that inflation might go above 2% and it wouldn't be a "catastrophe." The way things are going, Janet Yellen should predict that inflation will be between negative infinite and positive infinite sometime in the next 10 years. At least that would be an accurate forecast.

    At this point, one can surmise that the Fed has absolutely no idea what it's doing and is simply making things up as it goes. Moreover, there's little hope of reining in the Fed because even if Congress implementing a "balance sheet size threshold" or "number of QE programs threshold" for the Fed, the Fed would simply ignore them.

    If the notion that the single most powerful entity in the world economy is ignoring warnings signs everywhere and continues to operate based on debunked and delusional academic theories worries you, you're not alone. After all, it takes a special type of ignorance or delusion to ignore the fact that the cost of living is soaring throughout the US today.

    Here are Food prices.

    Here are energy prices:

    Here are home prices:

    And in case you don't own your home, here are rents:

    Inflation is already a reality. It's only a matter of time before it gets out of control and crashes the economy and markets. Stocks love inflation at first, but eventually the rising costs destroy profit margins. We're currently in the first half of this. The second half will be a doozy.

    This concludes this article. If you're looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html

    This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

    Best Regards

    Phoenix Capital Research

    Jul 17 1:49 PM | Link | Comment!
  • Try As He Might, Mario Draghi's Magic Levers Just Won’T Create Growth

    Mario Draghi is unhappy with the EU.

    He's not unhappy with the concept of the union; rather, he's unhappy with the fact that EU banks are not lending into the EU economy.

    In Draghi's imaginary world, bank lending = "growth."

    The reasons for this are A) He's a former Goldman Sachs banker and so associates any and all deals with bank profits (which contributed to his wealth and power) and B) he has no understanding of how the real world works.

    Bank lending only contributes to growth in a meaningful way if the capital is deployed effectively. If a bank lends money to someone to start a business (using the guy's house as collateral on the loan), significant growth only occurs if the guy's successful in deploying the capital to bring in sales.

    If you don't have sales, you don't have a business. Without sales, our imaginary entrepreneur simply has an increased debt load that, if he fails to pay it back, could result in him losing his house.

    Sure, he might hire some people to work for him using the capital from the loan to meet payroll. But unless his idea brings actual money through the door, these jobs, and his business (along with his house) will soon be gone.

    Moreover, it's not like the bank does well from the deal either. If the economy is in the dumps (as it is in the EU today) and the entrepreneur's new firm fails, the bank is left with a foreclosed home that it can't sell. And God forbid that home prices are failing at this time (which they are in much of the EU) because the bank will be sitting on a deflating, illiquid asset that produces no return.

    Capitalism is a tough game and success has little to do with capital. According to Harvard Business School, 75% of all startups with at least $1 million in funding DON'T even return investors' capital.

    Put another way, three out of every four startups that convinced investors to give them at least $1 million in backing fail to even pay back the initial investment.

    We've barely scratched the surface of how start-ups, the global economy, and the like really work, but already we've come up with multiple issues that reveal just how misguided and overly-simplistic are Mario Draghi's beliefs in the importance of bank lending.

    And this is the biggest problem with all Centrally Planned economies or monetary policies: they all reduce the world to a control room with various levers titled, "interest rates" "inflation" "QE." Central Bankers seem to believe that it they pull various levers, growth will magically occur.

    It's a vision of reality so simplistic, you'd think a 10-year came up with it. Anyone who's actually started a business or created jobs knows a bank loan isn't the key to success.

    A bank loan is just money (well, actually it's just debt). And if you cannot deploy that money in such a way that your returns exceed your debt payments, then you're in fact worse off than you were if you'd simply not taken out the loan to begin with.

    Draghi's solution to this problem? Cut interest rates to negative so that you have to pay to keep your deposits at a bank. He believes that if rates are negative banks will be forced to lend.

    To return to our control room metaphor, Draghi believes that he simply hasn't pulled the magic "interest rate" level far enough (even though it's already at the floor). So he drilled a foot into the floor and pushed the lever down into the hole.

    We do not mean to single out Draghi as uniquely misguided. His counterparts at the US Federal Reserv or the Bank of Japan are no more attuned to economic realities. At the end of the day, a handful of Central Bankers are betting the entire financial system on their misguided theories.

    No one knows how this will play out. We all know on some level that it will not end well, but exactly how and when it will all backfire remains to be seen. We've already had two epic Crises in the last 15 years. By the look of things, we're heading for a third one in the not to distant future.

    This concludes this article. If you're looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html

    This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

    Best Regards

    Phoenix Capital Research

    Jul 17 1:48 PM | Link | Comment!
  • More Evidence Of Massive Fraud In China

    So now we're finding out that "80,000 tonnes of aluminum and 20,000 tonnes of copper" of that was posted as collateral in China is missing.

    God only knows how many billions of yuan's worth of loans and financial instruments were using this imaginary stuff as collateral, but then again, God only knows a lot of things about China's economic "miracle."

    It's extraordinary that anyone is surprised by any of this. Back in 2007, no less than current First Vice Premiere of China, Li Keqiang, admitted to the US ambassador to China that ALL Chinese data, outside of electricity consumption, railroad cargo, and bank lending was for "reference only."

    Put another way, one of the top-level Chinese politicians admitted in private that China's economic data is a total fiction.

    Fraud is endemic in China's economy. Whether you're talking about dogs disguised as lions in zoos, China accounting for over 85% of fake goods seized in the EU, rat meat being sold as lamb, 400 BILLION counterfeit cigarettes being produced (including one manufacturer who went so far as to disguise his operation as a military base), large multinationals like Caterpillar being swindled by Chinese frauds, or the over 10,000 Chinese officials who have fled China taking over $100 billion with them, China has got it all.

    All of these stories are public. Anyone could find them. Which is why it's extraordinary that anyone would be surprised that Chinese firms are also lying about the copper and aluminum they claim to own.

    To its credit, China's government has made an effort to crack down on fraud, but when cooking the books is endemic to the point that your educators coin the term "GDPism" to describe the fudging numbers to meet requirements, there's only so much a number of high profile arrests can do.

    At the end of the day, China's economy and financial system are a black box. No one really knows what's real and what's not. This makes it all but impossible to accurately assess what's going on there.

    Adding to the confusion is the fact that China's Government is heavily invested in maintaining the illusion that China is a powerhouse. So every data point (even the formerly accurate electricity consumption) is massaged.

    After all, if a multi-billion dollar company like Caterpillar, with its army of consultants, lawyers, and bankers can be tricked into acquiring a Chinese scam, what chance does an individual investors have?

    This concludes this article. If you're looking for the means of protecting yourself from what's coming, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html.

    This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

    Best Regards

    Jun 16 3:21 PM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.