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

How Will The Economy Improve In 2014 If Almost Everyone Has Less Money To Spend?

Piggybank-Photo-by-Damian-OSullivan-300x199Is the U.S. consumer tapped out?  If so, how in the world will the U.S. economy possibly improve in 2014?  Most Americans know that the U.S. economy is heavily dependent on consumer spending.  If average Americans are not out there spending money, the economy tends not to do very well.  Unfortunately, retail sales during the holiday season appear to be quite disappointing and the middle class continues to deeply struggle.  And for a whole bunch of reasons things are likely going to be even tougher in 2014.  Families are going to have less money in their pockets to spend thanks to much higher health insurance premiums under Obamacare, a wide variety of tax increases, higher interest rates on debt, and cuts in government welfare programs.  The short-lived bubble of false prosperity that we have been enjoying for the last couple of years is rapidly coming to an end, and 2014 certainly promises to be a very “interesting year”.

Obamacare Rate Shock

Most middle class families are just scraping by from month to month these days.

Unfortunately for them, millions of those families are now being hit with massive health insurance rate increases.

In a previous article, I discussed how one study found that health insurance premiums for men are going to go up by an average of 99 percent under Obamacare and health insurance premiums for women are going to go up by an average of 62 percent under Obamacare.

Most middle class families simply cannot afford that.

Earlier today, I got an email from a reader that was paying $ 478 a month for health insurance for his family but has now received a letter informing him that his rate is going up to $ 1,150 a month.

Millions of families are receiving letters just like that.  And to say that these rate increases are a “surprise” to most people would be a massive understatement.  Even people that work in the financial industry are shocked at how high these premiums are turning out to be…

“The real big surprise was how much out-of-pocket would be required for our family,” said David Winebrenner, 46, a financial adviser in Lebanon, Ky., whose deductible topped $ 12,000 for a family of six for a silver plan he was considering. The monthly premium: $ 1,400.

Since Americans are going to have to pay much more for health insurance, that is going to remove a huge amount of discretionary spending from the economy, and that will not be good news for retailers.

Get Ready For Higher Taxes

When you raise taxes, you reduce the amount of money that people have in their pockets to spend.

Sadly, that is exactly what is happening.

Congress is allowing a whopping 55 tax breaks to expire at the end of this year, and when you add that to the 13 major tax increases that hit American families in 2013, it isn’t a pretty picture.

This tax season, millions of families are going to find out that they have much higher tax bills than they had anticipated.

And all of this comes at a time when incomes in America have beensteadily declining.  In fact, real median household income has declined by a total of 8 percent since 2008.

If you are a worker, you might want to check out the chart that I have posted below to see where you stack up.  In America today, most workers are low income workers.  These numbers come from a recentHuffington Post article

-If you make more than $ 10,000, you earn more than 24.2% of Americans, or 37 million people.

-If you make more than $ 15,000 (roughly the annual salary of a minimum-wage employee working 40 hours per week), you earn more than 32.2% of Americans.

-If you make more than $ 30,000, you earn more than 53.2% of Americans.

-If you make more than $ 50,000, you earn more than 73.4% of Americans.

-If you make more than $ 100,000, you earn more than 92.6% of Americans.

-You are officially in the top 1% of American wage earners if you earn more than $ 250,000.

-The 894 people that earn more than $ 20 millionmake more than 99.99989% of Americans, and are compensated a cumulative $ 37,009,979,568 per year.

It is important to keep in mind that those numbers are for the employment income of individuals not households.  Most households have more than one member working, so overall household incomes are significantly higher than these numbers.

Higher Interest Rates Mean Larger Debt Payments

On Tuesday, the yield on 10 year U.S. Treasuries rose to 3.03 percent.  I warned that this would happen once the taper started, and this is just the beginning.  Interest rates are likely to steadily rise throughout 2014.

The reason why the yield on 10 year U.S. Treasuries is such a critical number is because mortgage rates and thousands of other interest rates throughout our economy are heavily influenced by that number.

So big changes are on the way.  As a recent CNBC article declared, the era of low mortgage rates is officially over…

The days of the 3.5% 30-year fixed are over. Rates are already up well over a full percentage point from a year ago, and as the Federal Reserve begins its much anticipated exit from the bond-buying business, I believe rates will inevitably go higher.

Needless to say, this is going to deeply affect the real estate market.  AsMac Slavo recently noted, numbers are already starting to drop precipitously…

The National Association of Realtors reported that the month of September saw its single largest drop in signed home sales in 40 months. And that wasn’t just a one-off event. This month mortgage applications collapsed a shocking 66%, hitting a13-year low.

And U.S. consumers can expect interest rates on all kinds of loans to start rising.  That is going to mean higher debt payments, and therefore less money for consumers to spend into the economy.

Government Benefit Cuts

Well, if the middle class is going to have less money to spend, perhaps other Americans can pick up the slack.

Or maybe not.

You certainly can’t expect the poor to stimulate the economy.  As I mentioned yesterday, it is being projected that up to 5 million unemployed Americans could lose their unemployment benefits by the end of 2014, and 47 million Americans recently had their food stamp benefits reduced.

So the poor will also have less money to spend in 2014.

The Wealthy Save The Day?

Perhaps the stock market will continue to soar in 2014 and the wealthy will spend so much that it will make up for all the rest of us.

You can believe that if you want, but the truth is that there are a whole host of signs that the days of this irrational stock market bubble are numbered.  The following is an excerpt from one of my recent articles entitled “The Stock Market Has Officially Entered Crazytown Territory“…

The median price-to-earnings ratio on the S&P 500 has reached an all-time record high, and margin debt at the New York Stock Exchange has reached a level that we have never seen before.  In other words, stocks are massively overpriced and people have been borrowing huge amounts of money to buy stocks.  These are behaviors that we also saw just before the last two stock market bubbles burst.

If the stock market bubble does burst, the wealthy will also have less money to spend into the economy in 2014.

For the moment, the stock market has been rallying.  This is typical for the month of December.  You see, the truth is that investors generally don’t want to sell stocks in December because they want to put off paying taxes on the profits.

If stocks are sold before the end of the year, the profits go on the 2013 tax return.

If stocks are sold a few days from now, the profits go on the 2014 tax return.

It is only human nature to want to delay pain for as long as possible.

Expect to see some selling in January.  Many investors are very eager to start taking profits, but they wanted to wait until the holidays were over to do so.

So what do you think is coming up in 2014?  Please feel free to share what you think by posting a comment below…

Michael T. Snyder is a graduate of the University of Florida law school and he worked as an attorney in the heart of Washington D.C. for a number of years. Today, Michael is best known for his work as the publisher of The Economic Collapse Blog and The American Dream. If you want to know what things in America are going to look like in a few years read his new book The Beginning of the End.


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

Recession in 2014: “The Government Will Not Be Able to Save the Economy”

Editor’s Note: The following article has been generously contributed by well known contrarian analyst and commentator Gonzalo Lira of the Lira Strategic Planning Group.

Over the years he has put forth some incredibly astute and accurate analysis about economics, market dynamics, the machinations behind the scenes and what to expect from the global economy. As you’ll see below, Gonzalo understands the fundamentals behind what makes global commerce tick and his analysis strongly suggests the onset of a major recession in 2014. It won’t be just another “typical” 18 month cyclical recession such as those we’ve seen in the past. This time around Gonzalo notes that the Federal Reserve and U.S. government are, in essence, out of options, meaning that when the pain hits, there isn’t much with respect to policy making that can be done.

The end result? Expect stock markets to crash, real estate prices to slide, and a self-reinforcing negative feedback loop that will further crush America’s working classes. Moreover, as Gonzalo explains, the price of everything from food to energy will likely rise as a consequence of the Fed’s inflationary monetary policy and investors fleeing to commodities as protection from financial collapse.

Take the time to review this excellent analysis, and put your preparedness initiatives in overdrive – just in case.


What If There’s A Recession in 2014?
By Gonzalo Lira

If policymakers were gunfighters, they’d be out of bullets: They have run out of effective policy tools to improve the economy.

So the question is simple: If there is a recession in 2014, and policymakers are out of bullets, how will it play out across the American economy?

empty-revolver

What the Fed is looking at.

Recently, Deutsche Bank’s Jim Reid very astutely pointed out that the current “expansion” of the U.S. economy is on its fifth year—the seventh longest in history.

We are due for a recession.

Now, before facing up to a possible 2014 recession, let’s ask ourselves: What happened during the last recession?

No one can quite agree as to the specific causes of the 2007–09 recession—and fighting that particular fight isn’t the point of this essay. But we can all more or less agree that global overindebtedness caused a mini-Minsky Moment, whereby borrowers could no longer borrow enough to keep from defaulting on their previous loans. Hence September 2008. Hence the collective global “Ahhh!!!!” moment that we all recall with such sweet and fond nostalgia.

To stave off what looked like financial and economic Armageddon, the Treasury Department first under Henry Paulson and then under Timothy Geithner, and the Federal Reserve under Ben Bernanke, basically threw money into the economy: The Treasury’s Troubled Asset Relief Program (TARP) originally authorized $ 700 billion to buy up toxic assets, while the Fed created the Maiden Lane vehicles, lowered interest rates to zero (zero interest-rate policy, ZIRP), and simultaneously created money by way of the various iterations of Quantitative Easing (QE).

Combined, these Treasury and Fed programs prevented the bankruptcies of the so-called “systemically important” (a.k.a., “Too Big To Fail”) banks, and provided the U.S. Federal government with the cash to carry out the 2009 stimulus program. After all, had it not been for the Fed’s purchases of Treasury bonds by way of QE, the yields on the government’s bonds would have risen so high that the stimulus program could not have been financed, let alone the +$ 1 trillion deficits of 2009, 2010, 2011 and 2012.

But screw the deficit—the Treasury and Fed measures saved everybody’s bacon. Equities crashed? Houses underwater? 401(k)’s in the toilet? Thanks to TARP, ZIRP and QE, they rebounded.

Rather than take the hit, work out the bad loans, and organically regrow the economy, the Treasury and Fed measures were essentially morphine—or heroin—to dull the pain of the Global Financial Crisis: They made us feel great, but the disease is still there.

Overindebtedness. Bad debts piled on top of bad debts.

Now because of the Treasury’s and especially the Fed’s morphine/heroin drip, starting in Q3 of 2009, the American economy’s gross domestic product has been expanding, which economists hail as the end of the 2007–09 recession, and the beginning of the current “expansion”.

(Re. the “expansion”: Nevermind that unemployment was scrapping 10% as late as Q3 of 2011, and that as of Q4 of 2013, we are still at 7% U-3 unemployment—and this U-3 figure ignores the long-term unemployed, who have simply given up, reducing the employment participation rate to historic lows, thereby skewing the real unemployment figure something awful.)

So here we are in Q4 of 2013, staring down the barrel of 2014, suspecting—fearing—that we might have a recession staring right back at us.

Question: What could the Federal government and the Federal Reserve realistically do, to avert a recession in 2014? Or if not avert it, at least ameliorate its effects?

Oh boy . . .

Insofar as the Federal government is concerned, realistically,nothing. In 2008, facing what appeared to be the end of the financial world, Congress was snookered into agreeing to the Bush Administration’s $ 700 billion TARP bailout. Then in 2009, the incoming Obama Administration had two winds at its back—the Global Financial Crisis, which required the incoming administration to do something, anything; and the fact that Obama was the new prez, who’d won decisively with his deceptive talk of “hope”. Thus the $ 787 billion stimulus package.

Combined, the Bush TARP and the Obama stimulus were some $ 1.5 trillion mainlined into the American economy.

Today, five years after his inauguration, and after the Government shutdown and the botched Obamacare launch, Obummer just doesn’t have the pull. More to the point, the Democratic caucus does not trust him. So Democrats on the Hill will not stick their necks out for an Obama stimulus program. So the O-Administration’s economic brain trust might come up with all sorts of plans to preëmptively stop a 2014 recession—but they don’t have the votes to make these plans happen.

As to a repeat of the Henry “Give-us-all-your-money-or-the-banks-will-die!” Paulson scare tactics—they won’t work today, not after the nasty taste left by the one in 2008.

So macro-economically speaking, Barack Obama is walking around with an empty peashooter: He can’t even wave the threatof using it without seeming foolish.

Turning now to the Federal Reserve: They might be packing a big ol’ .45 Magnum, but they are most definitely out of bullets. They can’t lower interest rates any further than they have—what are they going to do, start charging people who deposit money in banks? This is the problem with hitting the lower bound: You can’t go any lower than ZIRP. At best, the Fed could expand QE even further, and buy up even more Treasury debt. But then any impact from more QE will be marginal, assuming it has any effect at all.

So if the Federal government and the Federal Reserve are essentially out of bullets, what’s going to happen to us law-abiding citizens when the Big Bad Recession comes rolling into town?

First off, no one can seriously or responsibly doubt that a recession will not come. Even if the American economy by some miracle manages to sneak through 2014 with positive numbers, a downturn will hit in 2015 anyway. Don’t believe me? Check out this chart:


Click to enlarge

I have grounded, non-orthodox reasons to think that a recession will hit in 2014, reasons which I will expand upon during my live presentation next Thursday (see here). But even if you don’t buy my heterodox reasons, the orthodox business cycle would confirm that a recession is on its way.

So to weather it, you’d have to know what’s going to happen.

A basic outline is pretty clear:

Stocks will take the brunt of the beating, once recession-fever hits—after all, equities are floating on nothing but QE, and everybody knows it.

Bonds won’t do so well either, at least not corporate issuance. Treasury bonds will continue trending with flat yields, if only because the Federal Reserve will probably signal that it will continue (or even expand) QE. Treasury bonds will also continue high because of a simple safe-haven play . . . but there won’t be the sense of today’s Treasuries being the rock-solid Treasuries of yore: There will be more volatility in the T-bond markets. A greater willingness to exit Treasuries at a moment’s notice, especially if there are hints of inflation.

Real estate? Forget it—it’ll be another popping bubble, with the same damage as the last one.

The only store of value will be commodities. Not just precious metals, but all commodities: Industrials, agros, and fossil fuels. It will simply make more sense for the investment community to rotate out of iffy stocks and dodgy bonds, and rotate into physical commodities. Why? Because there is too much liquidity.

If there is such a rotation from equities and bonds into commodities, then the prices of food and transportation will rise—precipitously.

Thus we will have inflation, possibly severe inflation. But the Fed will be loathe to rein in inflation via interest rate hikes.

You know the saying about owning a hammer, and everything looking like a nail? The Fed cannot conceive of any way in which to help the economy that does not involve keeping interest rates low. The Fed under Bernanke (and Greenspan previously, who was guilty of the same sin) does not understand that it is not the job of the Fed to maintain full employment, stable prices, and a solvent banking sector. The Fed’s only mission is to ensure the stability of the fiat currency. Full employment? That’s the Federal government’s problem. Banking sector solvency? That’s not the government’s problem, that’s the free market’s problem.

But the Fed, blinded, thinks that it has to support the banking sector and try to do something about employment. Thus it has lowered interest rates to laughable/insane levels. And it cannot raise them because of its own bias: “You don’t raise interest rates during a recession” is practically a Zen koan with the Fed economists.

If commodities start to rise, as a market reaction to falling stock prices and a need to find an investment safe-haven, then inflation will rear its ugly head and hurt the American economy very, very badly. But the Fed—repeating exactly the same error that brought us stagflation—will not raise interest rates to quell it. The Fed will be too frightened of smothering the economy during a recession to raise rates and defend the currency.

Thus the Fed will stand pat with ZIRP and QE, come a recession in 2014.

In other words, the government will not be able to save the economy. This is the single point I’m trying to make here: If you think for a second that the Federal government and the Federal Reserve will step in once again and save everyone’s bacon (like the last time), then you have not been paying attention to what I’ve been saying—or been paying attention to how truly helpless the Obama Administration and the Fed really are.

The Federal government and the Federal Reserve are out of bullets. 

Which means we are on our own come a recession. And we’ll be paying not only for the recession of 2014, but also for the recession of 2007-09, which was deferred, but not worked out.

In other words, a recession in 2014 just might well be The Big One.

Oh boy . . . 

Okay, that’s my thinking—here’s my pitch: This coming Thursday, at 8pm EST, I’m going to give a live presentation that’s going to look into all these issues in a lot more detail—really start us thinking seriously about what to do, if and when a recession hits the American economy. The title of this web seminar? Simple:

What A Recession in 2014 Will Look Like

Click on the link—and in case you missed it, here it is again. In this live presentation, I will expand on this brief essay, and will take audience questions, too.

If you’re not sure if I’m an idiot or not, check out my appearance on Max Keiser last year and see for yourself:


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