"The U.S. Jobs report came out announcing that 288,000 new non-farm payroll jobs were created in April. It turns out, 234,000 those are fiction. The Labor Department fudged over 80 percent of the reported number using their CESBD estimate, the estimate they believe of new jobs that were created by new companies in April. That is an impossible number to estimate…
"To include an estimate of these jobs, which is way off the mark anyway, is ludicrous. It is a bogus attempt to pretend the economy is stronger than it actually is. There are very few sold signs on homes anywhere; a recent ABC survey showed 71 percent of folks dissatisfied with the economy; good people have to work two jobs, and or long hours at one job just to keep their positions. Most successful people I meet are working 12 hour days, 6 days a week. To pretend the economy and jobs market is strong is nonsense."
McHugh's Mid-day Market Update, Robert McHugh
May 2, 2014
And Jeremy Grantham, who manages $120 Billion in Assets says the S&P 500 is overvalued by 65%.
Unfortunately, both Grantham and McHugh are correct.
Put another way, Bogus official Numbers and Fed QE (et al) policies have artificially inflated Equities Prices - they are a "Mirage" as Carl Icahn says. And they have greatly distorted other Markets' Prices as well. Indeed, if one looks at the Real Numbers (cf. Shadowstats.com below) one realizes the Economy is not recovering and is in fact weakening. And on that basis one can reasonably conclude the S&P is 65% overvalued.
But the foregoing Realities mean that Nasty Market Surprises (and thus Opportunities) Await Investors, and sooner rather than later.
For Investors it is Crucial to know the Real Numbers so one can Avoid (or Profit from) the Threats and Profit from the Opportunities.
So here we first describe key Real Numbers and then identify Threats and certain Excellent Opportunities.
Employment is Key to recovery as the citizens of the USA and Eurozone know all too well. Employed persons consume, thus making improved Corporate Earnings possible.
And the Employment Reality in the USA (and elsewhere) is actually worsening but is hidden by Bogus official statistics. Consider Shadowstats:
"April Labor Data Were Nonsense, at Best. To the extent that the headline April unemployment data are to be believed, the labor situation is spinning negatively out of control, and the happy cheerleading from the Bureau of Labor Statistics (BLS) is without merit. Most likely, there are unstable seasonal adjustments at work here, as with the payroll series, but the BLS keeps those household-survey numbers secret….
"Unemployment Disaster. The April unemployment rate dropped, but that was in a manner that reflected horrendous deterioration in labor-market conditions. The "good" news was that the headline unemployment rate U.3 dropped to 6.28% in April from 6.71% in March. The bad news is that of the 733,000 people no longer counted as unemployed in the aggregate numbers, an even greater number effectively stopped looking for work or lost their employment, with total employment in decline. There was a loss of 73,000 employed, plus 733,000 unemployed, with a resulting, combined 806,000 drop in the headline labor force.
"How does the unemployment rate plunge when there is a net drop in employment? The key is the breakout of the 806,000 leaving the labor force. Here is how the math works, where the unemployment rate is calculated as a percent of the labor force. For March, 10.486 million unemployed / 156.227 million labor force = 6.71%. For April, [(10.486 - .733 = 9.753 million unemployed] / [156.227 -.733 (decline in unemployed) -.073 (decline in employed) = 155.421 million labor force] = 6.28%....
"As the headline unemployed become discouraged, they rollover from U.3 to U.6. As the headline short-term discouraged workers rollover into long-term discouraged status, they move into the ShadowStats measure, where they remain. …
"…headline April 2014 U.3 unemployment at 6.3%, down from 6.7% in March; headline U.6 unemployment at 12.3% in April, down from 12.7% in March; and the headline ShadowStats unemployment measure holding at 23.2% for the fourth month…." (emphasis added)
Commentary No. 624, John Williams,
Shadowstats.com, May 2, 2014
And it is not merely that Employment is weak.
Another Burden the Middle Class and Working Poor have to bear is that the Purchasing Power of their $US (and several other) Fiat Currency continues to decline. Indeed, the Fed's (and other Central Banks) various Money Printing and Credit Expansion Policies have caused a 98% decline in the Purchasing Power of the $US since The Fed was founded in 1913. And Savers and Retirees are getting the Currency Devaluation Shaft as well.
And though the Private, for-Profit Fed's QE Policies have been touted as helping the Economy and Employment they Actually do no such thing. They merely support The Fed's owners - the Mega-Banks - and bolster Asset Prices.
In sum, the Fed's policies do not help the Economy or Middle Class via the Wealth effect. Instead, they hurt both. Consider the following cogent analysis of The Fed's "Correlation Error" so far as the alleged Wealth Effect is concerned.
"[M]edian earnings for men in 2009 were lower than they were in the early 1970s. And it gets worse. [...] Between 1960 and 2009, the share of men working full-time fell from 83% to 66%, and the share not making formal wages tripled from 6% to 18%. When you take all men, not just those working full-time, [you see] a plummet of 28% in median real wages from 1969 to 2009….
"Start with that correlation error: What actually occurs during periods where stock prices are rising? As Benjamin Graham observed, over the long term, markets act like a weighing machine - valuing equities based on their cash flow and earnings.
"During periods of economic expansion, it is the rising fundamental economic activity that reflects the positive things wrongly attributed to the wealth effect. Companies can hire more and increase their capital spending. Competition for labor leads to rising wages. Employed, well-paid workers spend those wages on capital goods such as cars and houses, and discretionary items like entertainment and travel.
"Oh, and along with all of these economic positives, the stock market is buoyed as well, by increasing profits and more buoyant psychology.
"In other words, all of the same forces that drive a healthy economy, leading to happy consumers spending their plump paychecks, also drive equity markets higher. The Fed, though, seems to think that the stock-market tail is wagging the fundamental economic dog."
Michael Greenstone & Adam Looney
Hamilton Project, Brookings Institution
And it is not just the Currency Devaluation (i.e., loss of Purchasing Power) and Bubbles (e.g., the artificial inflation of Asset Prices) which Fed and other Central Bank Policies create. One could argue that Fed Policies are in fact creating the sort of Centrally Planned, Centrally Controlled Economy that the Marxist Pathology envisioned. To the extent that this is True, we are in a World of Trouble.
In any event, the Transformation over recent decades of Major Economies from being based on Savings for Investment ("Earned Liquidity" to use Dr. Richebacher's RIP term) to being based on Borrowing ("Borrowed Liquidity") has not only facilitated Bubbles and Crashes (cf 2001-2002 Internet Bubble Crash, 2007-2009 Real Estate Bubble Crash) but it has also opened the Door to other Chicanery which is profitable for the Mega Banks but harmful to nearly everyone else.
"Taxpayers are paying billions of dollars for a swindle pulled off by the world's biggest banks, using a form of derivative called interest-rate swaps; and the Federal Deposit Insurance Corporation has now joined a chorus of litigants suing over it….
"Derivatives . . . have turned into a windfall for banks and a nightmare for taxpayers…. While banks are still collecting fixed rates of 3 to 6 percent, they are now regularly paying public entities as little as a tenth of one percent on the outstanding bonds, with rates expected to remain low in the future. Over the life of the deals, banks are now projected to collect billions more than they pay state and local governments - an outcome which amounts to a second bailout for banks, this one paid directly out of state and local budgets.
"It is not just that local governments, universities and pension funds made a bad bet on these swaps. The game itself was rigged,…
"On March 14, 2014, the FDIC filed suit for LIBOR-rigging against sixteen of the world's largest banks - including the three largest US banks (JPMorgan Chase, Bank of America, and Citigroup), the three largest UK banks, the largest German bank, the largest Japanese bank, and several of the largest Swiss banks. Bill Black, professor of law and economics and a former bank fraud investigator, calls them "the largest cartel in world history, by at least three and probably four orders of magnitude."
"LIBOR (the London Interbank Offering Rate) is the benchmark rate by which banks themselves can borrow. It is a crucial rate involved in hundreds of trillions of dollars in derivative trades, and it is set by these sixteen megabanks privately and in secret….
"The rate-rigging banks have been caught red-handed, but the greater manipulation of interest rates was done by the Federal Reserve itself. The Fed aggressively drove down interest rates to save the big banks and spur economic recovery after the financial collapse. In the fall of 2008, it dropped the prime rate (the rate at which banks borrow from each other) nearly to zero.
"This gross manipulation of interest rates was a giant windfall for the major derivative banks. Indeed, the Fed has been called a tool of the global banking cartel….
"Bill Black concurs, stating, 'Our system is completely rotten. All of the largest banks are involved-eagerly engaged in this fraud for years, covering it up.'"…
"The Global Banking Game Is Rigged, and the FDIC Is Suing,"
Ellen Brown, via lemetropolecafe.com, April 13, 2014
Quite apart from the illicit Wealth Transfers exposed in the foregoing, one important Takeaway is that there is now yet another Great Bubble, a Credit/Debt Bubble, a Bubble destined to loudly Pop with Seriously Negative Consequences for Citizens around the world.
Among the most prominent are the USA's $17 Trillion plus Debt which can never reasonably be repaid, nor can Japan's Debt which is 220% of GDP.
And much of China's Huge Shadow Banking Debt will have to be written off.
Yes indeed. This bubble will pop. Indeed, the signs are that the "Pop" is near, but not before the Central Banks' attempts to prevent its popping (via more QE et al) generate Hyperinflation.
"I felt something changing last Friday. Was the truth breaking out? Lies, untruths and lies, propaganda, lies and damn lies. What are the lies? Lies that the Fed and the government are telling us -- Federal Reserve Notes ("dollars") are money and silver and gold are outdated relics of another age. What I sensed on Friday (with gold up 17 dollars and silver up 50 cents) was that the basket of lies was beginning to fall apart.
"The US public will swallow lies for just so long, and then the truth breaks through the barriers. The public knows that 'their' inflation is more like 12% than the 1.2% that the Labor Department says it is. The public is beginning to wake up to the fact that silver and gold are real money -- pure wealth that has been respected for thousands of years.
"Meanwhile the Fed is pumping trillions of dollars into the banking system in an attempt to push core inflation up to 2 percent. The system absorbs all this liquidity, and actual 'poor man's inflation' gradually increases. But somewhere ahead (I think it will be this year) inflation will break out of its current bounds, and today's 'mild inflation' will turn into hyperinflation. That's when interest rates will break out and head violently higher. At that point the Fed will administer the only medicine it knows -- more QE, more liquidity.
"Judging by past history, there are only two certain events -- wars and currency depreciation….
"Towards the end of the year, all the liquidity that the Fed has created will be released, and instead of deflation, the US will be dealing with hyperinflation. Russell advice -- Take a position in physical silver and gold, and be patient, very patient."
Richard Russell, 05/05/2014
Consider some of the Signals
- US Debt of $17 Trillion plus is unpayable and increasing.
- The BRICS Nations are establishing a Trade Settlement System as an alternative to the Western SWIFT System and as well establishing an Alternative Bank to the Western IMF.
- Much US and Eurozone Gold has been dumped for years to hold Gold Prices down and the $US up, but the Physical supply in the West is nearly exhausted. China and India have been and are purchasing Western Gold and taking Delivery.
- The Russian Parliament has ordered $US Abandonment (albeit not with sudden implementation) and other countries (e.g., China) are beginning to trade for oil in Currencies other than $US. Thus the Reign of the PetroDollar (and therefore the $US) is nearing its end.
- The $US is increasingly testing its 50 DMA
- We reiterate the U.S. Economy is not recovering.
As a final dose of Reality Therapy, consider that the Equities Market will not be helped by Ostensible Job "Growth," Noah Sugarman via Greg Guenthner explains why: "It turns out that private sector job gains have lagged the growth in adult working age population since 2008," explains Rude researcher Noah Sugarman. "In 2008, there were about 2 working-age adults for every private sector job. Today, that ratio has widened from 2 to 2.13. That means we'd actually need to total more than 123 million jobs to really get back to where we were before the recession." [And this raises the question how in the world could the U.S. Benefit from the Senate Amnesty Bill (S744) Tripling of Legal Immigration, Amnestying Illegals and increasing H1B Visas, when 12% of the USA's own STEM graduates and Millions of others are unemployed?]
And now there are two relatively new Negatives - Momentum Stocks have Cratered, and Margin Debt (recently at record highs) has reversed and fallen. The last two times margin debt reversed (2000-2001 and 2007-2008) the Markets Crashed.
And there is The Threat which becomes ever more threatening as the days pass.
And that Greatest Threat is that the $US is on its way to being finished as the World's Reserve Currency. It does not please us to say this, but the private for-profit Federal Reserve's decades-long devaluing of the $US for the benefit of its Mega-Bank Owners is The Main Culprit.
But the Key Point Now and going forward is that the current long-term downtrend in the $US could turn into a rout at any time, which it will when Big Money players realize that the $US Days as Reserve Currency are over.
Long-term therefore, since The Fed (and other CB's) will have to continue, and eventually increase, QE again to keep interest rates down and Equities propped up a while longer, the already ongoing debasement of the $US Purchasing Power as a result of the Ongoing Currency War will become increasingly evident.
Therefore at some point the ongoing modest selling (i.e., refusal to support or purchase) of the $US by Sovereigns will turn into a Rout (as will selling of U.S. Treasuries), likely resulting in the collapse of US Treasury Securities Values as well as the displacement of the $US by the Gold-Backed Chinese Yuan as World Reserve Currency. That is where we are headed, like it or not. In other words, the Winners in the Currency Wars will be the Holders of Tangible Assets - Gold & Silver above all, as well as Agricultural and certain (but not all) Energy Assets. Acquiring these now is The Opportunity of the decade.
But the foregoing Developments are also Signals which have facilitated our Profitable Recommendations described in Note 1 below. And we are close to recommending leveraged short positions as we profitably did in 2008.
Regarding Gold and Silver Prices, they have been subject to ongoing Price Suppression, (Note 2 below) however this suppression cannot continue much longer, due to increasing Chinese and Indian purchases and deliveries.
"Writing in the small hours of Wednesday (05/08/14) morning, chart and momentum factors induced *The Gartman Letter* to make optimistic noises about gold. To JBGJ's memory, during the long bottoming process for gold around the years 1990-2001 when the confluence of these factors caused *TGL* to do this violent selloffs frequently promptly materialized. The *BullionVault*reminded this morning *UK Gold Sales, 15 Years to the Day.* That was a classic case of rising expectations being suddenly crushed. It looks as if the gold vigilantes are back….
"If indeed gold has reverted to the pattern of a decade and more ago, eventually Asian demand will oblige the overhead surveillance to retreat. And that is after all what was seen in late March."
JBGJ, LLC, John Brimelow, 05/08/2014
Finally, we note one entirely avoidable Threat - holding an Excess of a Fiat Currency.
"Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value."
Warren Buffet, 05/07/2014
May 8, 2014
Note 1: Our attention to Key Timing Signals has facilitated Recommendations which have performed well lately. Consider our six most recent profits taken*:
• 75% Profit on Crude Oil Call on April 14, 2014 after 13 days (i.e., about 2000% Annualized)
• 60% Profit on Water Management Company on March 3, 2014 after 454 days (i.e., about 50% Annualized)
• 100% Profit on Crude Oil Call on February 10, 2014 after 27 days (i.e., about 1400% Annualized)
• 30% Profit on Equity Index Puts on February 5, 2014 after 8 days (i.e., about 1440% Annualized)
• 55% Profit on Water Management Company on January 15, 2014 after 406 days (i.e., about 50% Annualized)
• 140% Profit on Equity Index Call on December 27, 2013 after just 10 days (i.e., about 5200% Annualized)
*Past Profitable Performance is no assurance of future Profitable Performance.
Note 2: We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster's December, 2009, Special Alert containing a summary overview of Intervention entitled "Forecasts and December, 2009 Special Alert: Profiting From The Cartel's Dark Interventions - III" and Deepcaster's July, 2010 Letter entitled "Profit from a Weakening Cartel; Buy Reco; Forecasts: Gold, Silver, Equities, Crude Oil, U.S. Dollar & U.S. T-Notes & T-Bonds" in the 'Alerts Cache' and 'Latest Letter' Cache at deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at gata.org, including testimony before the CFTC, for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster's profitable recommendations displayed at deepcaster.com have been facilitated by attention to these "Interventionals." Attention to The Interventionals facilitated Deepcaster's recommending five short positions prior to the Fall, 2008 Market Crash all of which were subsequently liquidated profitably.