Food for Thought for you Fiscal Folks

Discussion in 'The Cheap Seats' started by Fmode11, Mar 14, 2013.

  1. Fmode11

    Fmode11 MVP

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    Last Tuesday, the DJIA reached a new all time high. That day the Investors Business Daily / TIPP Economic Optimism Index is at its lowest level since December of 2011.


    So, let’s take a look at some recent developments apparently gone un-noticed by the media.

    As the DJIA ( an index composed of 30 stocks) hit an all time high, twenty of the stocks in the index did not reach an all time high. Hmmm. Must be indexing or weighting or averaging or something like that. Or maybe the number is seasonally adjusted like all of the rest of the numbers.

    According to Trim Tabs, insider (corporate executives) buying of stocks has hit an all time low. But wait there’s more...Insider selling is at an all time high. So what do these CEO’s and other top executives fear about owning shares of their own companies?

    According to the U.S. Commerce department, personal incomes in January dropped to a 20 year low. After tax incomes dropped to a 54 year low; 1959 was when the index was created. But who needs income when stocks are making new highs, right?

    And let’s not forget our hometown going into receivership. If (when) Detroit declares bankruptcy, it will be the largest municipal bankruptcy in the history of the United States. Too bad they didn’t just buy stocks.

    Gasoline once again hit the magic $4.00 per gallon which has historically produced an immediate stall in the economy. Perhaps the price of gas doesn’t matter anymore with all of those Volts on the road. Volt? When’s the last time you even heard that word?

    Freight shipment volumes are now at a two year low. Virtual merchandise?

    Wal-Mart, the world’s largest company, largest employer and largest retailer reported that February sales were the worst in seven years calling it a “total disaster”. Hmmm. That one’s easy: Those customers have simply moved up to shopping at Whole Foods and Neiman Marcus.

    For those of you who remember, The Readers Digest, a 91 year old publication, filed for bankruptcy for the second time in less than four years. The CEO said this is the last time. Can’t they just go digital? Dude?

    Sears, K Mart, J.C. Penney, Best Buy and Radio Shack have announced they will close hundreds of stores by the end of this year. Must be all that internet shopping. So why is freight at a two year low? J.C.Penney reported the lowest sales in more than 20 years. Here are just a few more. Office Depot, Barnes & Noble, GameStop and OfficeMax. Oh, and JP Morgan Chase just announced another 17,000 job cuts. Sorry.

    GDP was down .1 % in the fourth quarter of 2012 and up a mere 1.5% for the entire year according to the Commerce Department. Art Cashin, long time UBS veteran explains that in every case when GDP dropped to this level, there has always been a recession. But hey, what does he know? Sure he’s been trading markets for about 47 years but he still looks at things the old fashioned way. Totally out of touch with the new reality. Totally. Dude.

    Speaking of 2012, last year, global cell phone sales declined for the first time since the, err uh, last recession. An apple a day? Down 40% from its high.
    According to the Conference Board, consumer confidence in the U.S. is lower than it was a year ago. I think that’s just because people are so negative these days.

    Bill Gross of PIMCO, who manages the largest bond fund in the world says that the U.S. economy is running out of time and will soon implode like Japan has over the last 20 years. See what I mean? Negative people. Geez.

    According to the 2013 Car Affordability Study, a new car is now too expensive for most Americans. Hmmm. Fiat 100? Sergio?

    But wait...Housing! Housing is booming again, right? Hmmm. According to Lender Processing Services, seven percent of all mortgages in the U.S. are delinquent. There are3,506,000 homes that are 30 days delinquent but not in foreclosure. There are 1,531,000 homes that are 90 days delinquent butnot in foreclosure. There are 1,703,000 homes in foreclosure that arein pre-sale inventory. That kind of sounds like 6.7 million distressed homes that will hit the market at some point, doesn’t it? And when that happens? Two friends of mine in the real estate business have told me that Fannie, Freddie and FHA are selling foreclosed homes in bulk to private investors. If you’re willing to take on say, 100 homes in a given market, they will sell them to you for about twenty cents on the dollar. Assuming half of the homes are desirable either to rent out or flip, that means the other half will be dumped onto the market as well. Interestingly, when these homes are sold in bulk, the sale price is not reflected in the local MLS comps. This means that the lowball sale prices go un-noticed, under the radar. Say man, wanna buy a house? Well, according to one of these private investors, Fannie is currently offering 5000 of them in Detroit... for...free. No takers yet. Maybe in the spring?

    Speaking of comps, how about these?

    In October of 2007, when the DJIA last traded atthis level, there were 153 million people in the work force. Today, there are 133 million.

    The unemployment rate was 4.7%. Today, it’s 7.9%. There were 6.7 million people unemployed. Today, there are 13.2 million people unemployed.

    GDP growth was 2.5%. Today, it’s 1.5%.

    A gallon of gas was $2.75. Today, it’s $3.75.

    There were 26.5 million people on food stamps. Today, there are 48 million. When big companies like JP Morgan Chase want to “cut costs” they eliminate thousands of jobs. As expenses drop, earnings go up. As earnings go up, stock prices go up. If that’s the case, if companies keep laying off people, the market should keep going up. Right?
     
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  2. Shaun Mason

    Shaun Mason Somebody you used to know.

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    It's all a shell game now.
     
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  3. Keller

    Keller The enemy of my enemy is my friend.

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    What does that even mean?
     
  4. Fmode11

    Fmode11 MVP

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    It short, the financial world is being propped up on mis-leading information and another bubble is building. Since the state run media will do everything to protect Obama and the current administration, they will not report the negative under-lyings of the current environment.

    Ben Bernake should have a bullet put in his head. abolishthefed has the best user name here
     
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  5. Keller

    Keller The enemy of my enemy is my friend.

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    What kind of bubble are we talking about here? Are you saying I should be buying GOLD and SILVER? Are you saying I shouldn't buy a house?

    What ramifications are we talking about?
     
  6. I Peench

    I Peench Caught in the hustle

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    Essentially, at least in my opinion. Put simply, the fed is pumping money into our financial system at alarming rates-allowing the stock market to reach artificially high levels. With tax rates rising, it looks bleak imo. Ask Carter what happens when you have inflation and rising tax rates.

    Keynesian Economics FTW!!!! :finger:
     
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  7. Keller

    Keller The enemy of my enemy is my friend.

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    Thats not helpful for my everyday investing life.

    Not being a financial person - what does this mean to me?
     
  8. Shaun Mason

    Shaun Mason Somebody you used to know.

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    The bubble is going to burst and we are all fucked.
     
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  9. Fmode11

    Fmode11 MVP

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    Be ready to pull everything you have in the market out - on a moment's notice!
     
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  10. I Peench

    I Peench Caught in the hustle

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    Or short EVERYTHING :)
     
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  11. Keller

    Keller The enemy of my enemy is my friend.

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    Even Gold etc?
     
  12. I Peench

    I Peench Caught in the hustle

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    Not if you heed the above advice
     
  13. I Peench

    I Peench Caught in the hustle

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    I wouldn't say so. There's no reason to believe you wouldn't stand to benefit from buying gold. Historically, the price of silver lags behind gold-so I'd suggest looking into that as well.
     
  14. Fmode11

    Fmode11 MVP

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    Been increasing my stake in gold for a couple years now. It's the solid bet against inflation which we all know is coming in addition to the DJIA crash.
     
  15. Keller

    Keller The enemy of my enemy is my friend.

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    Any idea when its coming?
     
  16. I Peench

    I Peench Caught in the hustle

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  17. abolishthefed

    abolishthefed Specializing in mediocrity

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    The money currently being printed is given to banks, who then use that money to push up prices on equities and commodity futures. The game will continue until another event happens, which wipes out equity. Banks are levered 20 to 1 or 30 to 1. Meaning, a 3-5% downtick in their portfolio book can eliminate all their capital.

    Gold and silver are a great investment in any environment. Think of them as a store of value. The value of the metal doesn't change, but the value of the fiat dollars used as a means of exchange moves. For example, the nominal price of gold and silver will still go down in nominal terms if a deflationary event happens. However, it still should buy the same amount of commodities - gas, corn, wheat, etc.

    The DJIA is just now touching it's nominal highs from 5-6 years ago. Below is a chart of the increase in the monetary base to achieve that end. Notice how it went parabolic in 2008.

    [​IMG][​IMG]

    However, very little of that money is reaching the real economy. The velocity of money measures how quickly a dollar changes hands in the economy. We are currently experiencing massive inflation in necessities - namely food and gasoline. Imagine what will happen to inflation if the velocity of money normalizes.

    [​IMG][​IMG]

    Basically, the new highs in the equity markets do not reflect any kind of economic reality. Banks are being given money at 0% from the Federal Reserve and they are using that money to bid up equities and commodities. Most financial models require a stable currency to measure risk. Since the currency is not stable, money gets misallocated and creates bubbles. There are multiple black swans out there that could be the trigger to pop all the bubbles worldwide.

    If you are buying your house for an investment, hold off. Local municipalities are raising taxes nationwide. Tax increases lead to a drop in cash flow for people that currently own homes. People that can't afford the increases will eventually look to sell their house, leading to an increase in housing inventory and decreasing prices. Also, interest rates will never be lower. Interest rates and prices typically have an inverse relationship. Once interest rates start to increase, the demand for housing will drop, as fewer people are able to afford the monthly payments. The decrease in demand will lead to a drop in home prices. If you buy at a low interest rate, you run the risk of being underwater in your home, if you don't plan to live there for the duration of the mortgage.
     
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  18. abolishthefed

    abolishthefed Specializing in mediocrity

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    More graphs for thought.

    Below is a graph of excess reserves held by banks at the Federal Reserve. Because the Fed pays them money on those reserves, it can be included as an asset on their balance sheet and can then be used as capital. Notice how it correlates with the adjusted monetary base graph above. The money is not being used for any kind of lending function.

    [​IMG]

    Here is the employment-population ratio Fmode11 mentioned above. It is currently the lowest it has been since the 1980s. That's a hell of a jobs recover the media is touting.

    [​IMG]

    Here's what the US manufacturing situation looks like. Hello 1940s.

    [​IMG]

    Average duration of unemployment.

    [​IMG]
     
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  19. Randiesel75

    Randiesel75 Walk On

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    And for anyone currently thinking about a new mortgage, might want to get the ball rolling. The new FHA guidelines for 2013 are increasing the MIP to rebuild the reserves that were depleted from the subprime mess that erupted in 2007. Not only a rate increase, but MIP will be required for the lifetime of the loan, not cancelled after 5-years or 78% LTV.

    Get those claims in now before June 1st if going FHA.
     
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  20. Fmode11

    Fmode11 MVP

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    And just think what the liberals can accomplish if they also take control of the House in 2014. This has to be stopped
     
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  21. Fmode11

    Fmode11 MVP

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    And just think what the liberals can accomplish if they also take control of the House in 2014. This has to be stopped
     
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  22. Randiesel75

    Randiesel75 Walk On

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    double-post... Great way to get double the Like from a single member (or quoted twice)!
     
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