Most of the time when I watch the financial game shows I just have the video on and the sound off. I really can’t take the BS that is constantly being fed to the public to keep them blissfully unaware of our current circumstances.
There are times, however, when I will turn up the sound when I see a market legend like Art Cashin come on or an investing legend like Jeff Gundlach or Bill Gross come on. Today I saw Lloyd Blankfein CEO of Goldman Sachs on and decided to turn up the volume.
By the way, his firm had a great set of numbers for the first quarter – you could actually call it a blow-out quarter where they outperformed every metric. So the stock must have lurched higher right? WRONG. It was actually down because the company did not announce any additional stock buybacks in the next quarter. To me, this shows how sick this market actually is when financial engineering is more important than results!
Anyway, Mr. Blankfein caught my attention with this quote. “People will debate back and forth what’s normal and what’s the new normal but conditions where interest rates are zero, yield curves are flat, there’s no risk premium. Where central banks all around the world are buying all the risky assets which then therefore put a damper on volatility and the opportunity to perform, that’s not a natural state”.
I agree wholeheartedly with his sentiment that this is a totally unnatural state of affairs and appears to me that this is a bubble with a pin edging closer day by day.
I believe the entire economic theme is nothing but a mirage. I hear “experts” touting full employment when nearly a hundred million people are simply not counted! They are either totally misinformed or are purposefully deceiving people. Yet I hear this stated day after day as a fact on the financial game shows.
If all is so well why have I read two stories in the last week about college students nationwide being homeless and food insecure? This is not a small problem as I may have imagined. According to a study by researchers at the Wisconsin Hope Lab 42% of community college students didn’t have access to enough food for a healthy life and 12% were actually homeless. In another article a full 20% of college students at 4-year universities were food insecure. These articles were highlighting the food pantries and shelters that were being built to help with this problem. It is not a problem that those trying to help see going away anytime soon.
In another disaster that is taking place I was commiserating with my CPA about the obscene amount of taxes I had to pay. He said “That’s bad enough but I have to pay $1600.00 per month for my health insurance with a $10,000.00 deductible. My wife needed a colonoscopy that cost $2500.00 and they paid ZERO”. How much economic activity is being stymied by ridiculous taxes and unaffordable health insurance costs. Real affordable healthcare would be a shot in the arm for the economy. If the health insurance was $800.00 per month that is a few trips out to dinner and maybe a new outfit or pair of shoes. Instead- it counts as “growth” in the economy while only one area gets to benefit.
Let’s look at some other things where some red flags should be waving.
All-time highs reached recently:
- Bankruptcies in the retail industry
- Corporate Debt overall
- Personal debt
- State and local debt
- Global debt 1
- Dow, S&P, Nasdaq recently
You may be wondering why I mention these things together but I am observing that this latest run-up in stocks has not been based upon growing businesses and profits but by financial engineering- buying stocks back by companies, buying by central banks who “print” the money out of nowhere and purchase the assets, and companies going deeper into debt to keep paying juicy dividends as well as buying those stocks back. In a simple explanation they can’t see any investment ideas that make any more sense than buying their own stock back. That should tell us a LOT about how the CEOs and CFOs are actually seeing this economy. Watch what they do- not what they say!
You might say so what? Who cares WHY the market is higher- it’s higher. Well, if it were based upon revenue growth and profit margin growth it would likely be sustainable. The debt-based growth is short-term and not sustainable particularly if interest rates rise in any meaningful way. By the way, rates ARE rising even though there is significant pressure (buying the bonds outright) to keep rates low.
I was also listening to a podcast by David McAlvany where he highlighted the fact that as the market was melting down in February the robo-machines froze. This highlights what I have written about many times. When prices are rising you can always buy. When prices are falling and the machines all say sell- who is there to buy? It appears to me that the Fed was the answer the last time. Will they intervene the next time? Or the time after that? As Clint Eastwood might say “Are you feeling lucky?”
Jim Rickards also said “Liquidity is the ultimate paradox in finance. It’s always there when you don’t need it and never there when you need it most. The reason is crowd behavior, or what mathematicians call hyper synchronicity (a fancy word for everyone doing the same thing at the same time) In a financial crisis everyone wants their money back at once.
My opinion is that I would rather be a year early than a second late.
In the meantime, I am seeing some reason to finally put some hope in the metals markets. Day after day I watch as the price tumbles- usually when volume is at its lowest and find out in the days ahead that someone dumped obscene amounts of paper gold or silver contracts into the market with a market order. (That means sell at any price). This is NOT the way someone looking to profit would enter this trade- just one more clue of the intentions of these “sells” as if we needed any more! Of course, as I have written many times each intervention has to be larger to get the same results. Lately, these beatdowns have only lasted for hours as the metals have been climbing right back. A few years ago these sells into the market could have meant $100.00 moves down where we are now seeing $5-$10.00 moves.
The COT (Commitment of Traders) report has been showing a lot of short covering in the past few weeks- particularly in silver. The commercial traders are more bullish right now than they have been in a long time. They may be fearful of a large move higher.
I heard a Michael Pento interview where he said something interesting when the host asked – so Michael, when will this manipulation end? His answer: Never- they’ll just manipulate it up the next time. Maybe that is why many major banks and others are purchasing large amounts of gold and silver and have been for a while.
Of course, according to them- you shouldn’t have any yourself- at least not until it’s FAR higher and they can sell it to you then!
Mike Savage, ChFC, Financial Advisor
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1- Information from IMF, Zereohedge, Money GPS, USDebtclock.org regarding debt
2- Raymond James makes a market in Goldman Sachs