This Chart Shows Us How Bad The Economy Really Is: “Flashing Red Warning”

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Recent weeks have led to a fairly significant drop in stock valuations, with many expert analysts struggling to figure out exactly why it’s happening. You’ll hear them cite the weather, or market overreaction, or any number of reasons for why stocks have seen their share prices reduced and why they’ll be rebounding in the near-term.

What they won’t show you on mainstream financial channels is what’s really happening behind the scenes.

Forget about all the minute-by-minute noise for a moment and take a look at the following chart. It gives a very simple overview of earnings growth trends for stocks listed on the S&P 500 on a quarterly basis.

Last year saw what analysts would call fairly robust growth, and they had no problem citing these numbers for evidence of economic recovery.

We’re curious what they’d call it now, considering this chart shows a massive collapse in earnings per share growth across the board.

Pay close attention to that yellow line, which indicates growth (or lack there of) for the first quarter of 2014. According to Zero Hedge this is a Flashing Red Warning as earnings growth plunges to its lowest levels since 2012:

While the so-called “experts” were adamant in repeating that one must ignore all Q1 economic data (because of harsh weather you know), one thing the same “experts” pounded the table on was the earnings growth in 2014 which confirmed that the Fed was correct in tapering and that the corporate sector was well on its way to achieving “escape velocity” and a stable recovery. And then this happened…

EPS Growth
(Chart via @Not_Jim_Cramer)

Most people, when you ask them how the economy is doing, will point to the Dow Jones, NASDAQ and S&P 500 as evidence of a healthy recovery.

What the majority of those people fail to look at is the underlying valuations for the stocks within those indexes.

If you are an investor and hold stocks, or are thinking about jumping in because this latest “correction” is about to take a turn for the better, we direct your attention to this absolutely critical piece of information regarding price-per-earnings from Karl Denninger of Market Ticker.

A bit of perspective is in order here.  The number of stocks that have been trading on nothing more than QE-addled leverage, with nosebleed territory P/Es including Facebook (96), Amazon (537!), Netflix (180), LinkedIn (762), Salesforce (Negative P/E) and Twitter (ditto; -$ 3.41 EPS.)

Yeah, but the market is “cheap”, right?  Sure it is with all these big-cap techs trading at prices like this…

There is only one reason to buy such a stock — you’re convinced that some other sucker will pay you an even greater multiple to sales (say much less earnings) than you paid.

That the air will eventually come out of such a market is inevitable.

The P/E ratio of a stock is basically the price of the stock compared to the earnings of said share. In the case of Amazon trading at 537 times earnings, this is an INCREDIBLE number considering most conservative financial advisers recommend dividend earning stocks in the 10 – 12 P/E range for investment purposes. In essence, the easiest way to interpret Amazon today is that an investor is willing to pay $ 537 for $ 1 in current earnings. So, investors who bought Amazon stock at its current price should see a return on that investment… in about 537 years (give or take)  at current earnings.

Yes, that’s how crazy the stock market is right now, and Amazon is certainly not alone insofar as over-valuation is concerned.

Couple that with the earning growth chart above and you can clearly see that we are in very dangerous territory here.

And this doesn’t even take into account the economic warfare playing out between East and West, where Russia has now announced it will be actively pursuing a strategy to decouple its resource trade from the US dollar, meaning it will now trade in local currencies as opposed to the world’s traditional reserve currency.

As this new form of warfare plays out by the worlds super powers, all monetary systems will be affected. So how is this going to affect you? These effects will cause a continued degradation of the U.S. dollar with the real possibility that China and Russia will stop funding our debt. If and when this happens, the-you-know-what will inevitably hit the fan. 

As Paul Craig Roberts noted recently, there is a reckoning coming and all evidence points to economic failure in 2014.

Or, we can all just go along with the prevailing narrative and pretend like happy days are here again.

The following song was released shortly after the 1929 stock market crash before anyone had realized its implications. It reassured Americans that “Your cares and troubles are gone… there’ll be no more from now on.”

We know how that ended up…


SHTF Plan – When It Hits The Fan, Don’t Say We Didn’t Warn You

Nationwide Home Sales Collapse: There Is No Recovery and This Chart Proves It

Now may be the best time to buy a home. At least that’s what the majority of real estate agents in America will tell you if you ask them how the housing market is doing.

They’ll cite various statistics and give you a “feel” for the market from their personal experiences to convince you this is the case. But if you’re paying attention, then it should be clear that there is, in fact, no recovery in the housing sector. And any gains we may have seen over the last few years are nothing short of a Federal Reserve fueled mirage, much like the stock market.

The following chart from Bank of America is indicative of some serious fundamental problems, not just with the housing market, but the broader economy as a whole.

first-time-homebuyers

If you ask the experts they’ll give a host of reasons for why sales are down, as well as prognostications for why the real estate market is about to turn the corner and head back to new highs.

The weather, of course, is always to blame for lackluster sales in homes and consumer products, and that, apparently, is the case once again. But the National Association of Realtors has, for the first time ever, indicated that there is another key challenge facing home buyers.

Student debt appears to be a factor in the weak level of first-time buyers.

“The biggest problems for first-time buyers are tight credit and limited inventory in the lower price ranges,” he said. “However, 20 percent of buyers under the age of 33, the prime group of first-time buyers, delayed their purchase because of outstanding debt. In our recent consumer survey, 56 percent of younger buyers who took longer to save for a downpayment identified student debt as the biggest obstacle.”

Brown notes the survey results are for recent homebuyers. “It’s clear there are other people who would like to buy a home that are not in the market because of debt issues, so we can expect a lingering impact of delayed home buying,” Brown added.

NAR via Zero Hedge

In short, we’re broke as a nation and we’re broke as individuals.

A recent micro documentary that discussed America’s College Debt Bubble in detail predicted that we would soon begin seeing the fall out from trillion dollar student loans. Apparently, that fall out has already begun.

But not to worry, because housing experts indicate that we may soon see home sales and prices start to rise, an effect that will be fueled by more jobs and rising incomes:

“Going forward it will take sustainable job and income growth to propel would-be-homebuyers back into the market. But with the labor market uneven at best, it may take some time before the housing industry regains the momentum seen earlier last year.”

Housing Wire

As you have probably deduced, there’s one key problem here. There is no job growth. And, any income growth already has inflation priced right in, so purchasing power will not increase and is likely to actually decrease because the rate of inflation is outpacing what Americans are being paid.

Thus, if we are awaiting a real estate recovery and the necessary steps for such a recovery require an improvement in the jobs market then you can forget about it.

The housing market is the pulse of our nation. It was the trigger event for the collapse of 2008, and it looks like it is now indicating what many of us already know: that we are in the midst of another recession within a broader depressionary trend.

Couple this with the Federal Reserve now indicating that they are pulling back on $ 85 billion in monthly market stimulus, and you can probably guess where this is headed next.

Welcome to Round 2.

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SHTF Plan – When It Hits The Fan, Don’t Say We Didn’t Warn You

The insane fantasies of the Marxist EPA laid low by one simple chart

But if the EPA can stop just one extra molecule of the deadly toxin known as carbon dioxide from escaping into the atmosphere, the destruction of the American economy will be worth it!

Please note, of course, that the EPA won’t dare to speak out against the Earth’s most egregious polluter, China.

China’s level of pollution renders all of America’s activities meaningless, but that won’t stop the Marxist left from bankrupting America’s energy producers.

There has been no global warming for 17 years and 6 months — according to the gold standard of temperature measurement known as the RSS satellite record — but that won’t stop the Marxist left from issuing thousands of new regulations every year.

In 2012, the EPA’s insane regulations were costing the American economy nearly $ 400 billion a year. It’s far worse today.

The needless destruction of the coal industry by the Democrat Party led the Federal Energy Regulatory Commission to warn of rolling blackouts within the next two years.

Let me be the first to suggest that the grid should always start energy conservation by shutting down all power to Washington, D.C.

I mean, the EPA must want the blackouts to occur, so they should be the very first to feel the pain.

Doug Ross @ Journal

CHART: Top 10 sites consuming the most Internet bandwidth

Since I’m not a gamer, I had no idea what “Twitch” is. Not Twitchy. Twitch. And it’s apparently consuming tremendous amounts of bandwidth on the intratubes.

Twitch, the startup which lets players broadcast and watch live streams of video gaming action, is not yet a huge public company. Yet it ranks among these web titans as one of the largest sources of broadband traffic during prime-time hours, according to a new study from the cloud and network infrastructure firm DeepField.

Twitch announced today that is now has more than 1 million different users broadcasting on its platform each month. That helped it push more traffic across the web than big names in the streaming video and music business like Hulu, Amazon, and Pandora. “We don’t keep track of our share of global internet traffic, so that chart was news to us,” says Matt DiPietro, Twitch’s vice president of marketing. “But I think it was gratifying for our infrastructure team to see, because they have been working like crazy to help us keep up.”

The rapid rise in broadcasters is due in part to a new platform for Twitch’s streaming service, a home-console system. Before the release of the newest Playstation and Xbox units, Twitch was for PC gaming only. “About 20 percent of our broadcasters are now coming from the Playstation 4,” says DiPietro. “That shows us there is a whole new audience with a hunger for the ability to stream their games.” Twitch also integrates with the Xbox One, though that feature has not officially rolled out yet.

In order to deal with its rapidly rising bandwidth, Twitch is upgrading its “points of presence” — locations where it owns or rents servers — so that it has enough horsepower near big audience clusters to deliver smooth video. “We just finished a 400 percent expansion to our Chicago site and the same in Stockholm. We are looking to do the same for our audience in Russia, Korea, and Brazil,” notes DiPietro. The company is using the $ 20 million it raised back in September of 2013 to fund this expansion.

But don’t worry, the forthcoming merger between Comcast and Time Warner Cable is bound to improve Internet performance and customer service!

Doug Ross @ Journal

Wall Street Journal: “Scary 1929 market chart gains traction. If market follows the same script, trouble lies directly ahead.”

stockmarket-chart(Washington, D.C.) — I hope there is nothing to this. But I thought I ought to share it with you anyway.

“There are eerie parallels between the stock market’s recent behavior and how it behaved right before the 1929 crash,” says a columnist writing for the Wall Street Journal’s Market Watch. “That at least is the conclusion reached by a frightening chart that has been making the rounds on Wall Street. The chart superimposes the market’s recent performance on top of a plot of its gyrations in 1928 and 1929. The picture isn’t pretty. And it’s not as easy as you might think to wriggle out from underneath the bearish significance of this chart.”

“I should know, because I quoted a number of this chart’s skeptics in a column I wrote in early December,” notes Wall Street analyst Mark Hulburt. “Yet the market over the last two months has continued to more or less closely follow the 1928-29 pattern outlined in that two-months-ago chart. If this correlation continues, the market faces a particularly rough period later this month and in early March. (See chart, courtesy of Tom McClellan of the McClellan Market Report; he in turn gives credit to Tom DeMark, a noted technical analyst who is the founder and CEO of DeMark Analytics.)”

“One of the biggest objections I heard two months ago was that the chart is a shameless exercise  in after-the-fact retrofitting of the recent data to some past price pattern,” Hulburt notes. “But that objection has lost much of its force. The chart was first publicized in late November of last year, and the correlation since then certainly appears to be just as close as it was before. To be sure, as McClellan acknowledged: ‘Every pattern analog I have ever studied breaks correlation eventually, and often at the point when I am most counting on it to continue working. So there is no guarantee that the market has to continue following through with every step of the 1929 pattern. But between now and May 2014, there is plenty of reason for caution.’ Tom Demark added in interview that he first drew parallels with the 1928-1929 period well before last November. ‘Originally, I drew it for entertainment purposes only,’ he said—but no longer: ‘Now it’s evolved into something more serious.’”….

To read the rest of the column, please click here.

>> Please click here to read Implosion: Can American Recover From Its Economic & Spiritual Challenges In Time?

 


Joel C. Rosenberg’s Blog