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Oil Falls Below 50 As Global Financial Markets Begin To Unravel

Crisis Silhouette - Public DomainOn Monday, the price of oil fell below $50 for the first time since April 2009, and the Dow dropped 331 points.  Meanwhile, the stock market declines over in Europe were even larger on a percentage basis, and the euro sank to a fresh nine year low on concerns that the anti-austerity Syriza party will be victorious in the upcoming election in Greece.  These are precisely the kinds of things that we would expect to see happen if a global financial crash was coming in 2015.  Just prior to the financial crisis of 2008, the price of oil collapsed, prices for industrial commodities got crushed and the U.S. dollar soared relative to other currencies.  All of those things are happening again.  And yet somehow many analysts are still convinced that things will be different this time.  And I agree that things will indeed be “different” this time.  When this crisis fully erupts, it will make 2008 look like a Sunday picnic.

Another thing that usually happens when financial markets begin to unravel is that they get really choppy.  There are big ups and big downs, and that is exactly what we have witnessed since October.

So don’t expect the markets just to go in one direction.  In fact, it would not be a surprise if the Dow went up by 300 or 400 points tomorrow.  During the initial stages of a financial crash, there are always certain days when the markets absolutely soar.

For example, did you know that the three largest single day stock market advances in history were right in the middle of the financial crash of 2008?  Here are the dates and the amount the Dow rose each of those days…

October 13th, 2008: +936 points

October 28th, 2008: +889 points

November 13th, 2008: +552 points

Just looking at those three days, you would assume that the fall of 2008 was the greatest time ever for stocks.  But instead, it was the worst financial crash that we have seen since the days of the Great Depression.

So don’t get fooled by the volatility.  Choppy markets are almost always a sign of big trouble ahead.  Calm waters usually mean that the markets are going up.

In order to avoid a major financial crisis in the near future, we desperately need the price of oil to rebound in a substantial way.

Unfortunately, it does not look like that is going to happen any time soon.  There is just way too much oil being produced right now.  The following is an excerpt from a recent CNBC article

The Morgan Stanley strategists say there are new reports of unsold West and North African cargoes, with much of the oil moving into storage. They also note that new supply has entered the global market with additional exports coming from Russia and Iraq, which is reportedly seeing production rising to new highs.

Since June, the price of oil has plummeted close to 55 percent.  If the price of oil stays where it is right now, we are going to see large numbers of small producers go out of business, the U.S. economy will lose millions of jobs, billions of dollars of junk bonds will go bad and trillions of dollars of derivatives will be in jeopardy.

And the lower the price of oil goes, the worse our problems are going to get.  That is why it is so alarming that some analysts are now predicting that the price of oil could hit $40 later this month

Some traders appeared certain that U.S. crude will hit the $40 region later in the week if weekly oil inventory numbers for the United States on Wednesday show another supply build.

‘We’re headed for a four-handle,’ said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York. ‘Maybe not today, but I’m sure when you get the inventory numbers that come out this week, we definitely will.’

Open interest for $40-$50 strike puts in U.S. crude have risen several fold since the start of December, while $20-$30 puts for June 2015 have traded, said Stephen Schork, editor of Pennsylvania-based The Schork Report.

The only way that the price of oil has a chance to move back up significantly is if global production slows down.  But instead, production just continues to increase in the short-term thanks to projects that were already in the works.  As a result, analysts from Morgan Stanley say that the oil glut is only going to intensify

Morgan Stanley analysts said new production will continue to ramp up at a number of fields in Brazil, West Africa, Canada and in the U.S. Gulf of Mexico as well as U.S. shale production. Also, the potential framework agreement with Iran could mean more Iranian oil on the market.

Yes, lower oil prices mean that we get to pay less for gasoline when we fill up our vehicles.

But as I have written about previously, anyone that believes that lower oil prices are good for the U.S. economy or for the global economy as a whole is crazy.  And these sentiments were echoed recently by Jeff Gundlach

Oil is incredibly important right now. If oil falls to around $40 a barrel then I think the yield on ten year treasury note is going to 1%. I hope it does not go to $40 because then something is very, very wrong with the world, not just the economy. The geopolitical consequences could be – to put it bluntly – terrifying.

If the price of oil does not recover, we are going to see massive financial problems all over the planet and the geopolitical stress that this will create will be unbelievable.

To expand on this point, I want to share an excerpt from a recent Zero Hedge article.  As you can see, a rapid rise or fall in the price of oil almost always correlates with a major global crisis of some sort…

Large and rapid rises and falls in the price of crude oil have correlated oddly strongly with major geopolitical and economic crisis across the globe. Whether driven by problems for oil exporters or oil importers, the ‘difference this time’ is that, thanks to central bank largesse, money flows faster than ever and everything is more tightly coupled with that flow.

Oil Crisis Chart - Zero Hedge

So is the 45% YoY drop in oil prices about to ’cause’ contagion risk concerns for the world?

And without a doubt, we are overdue for another stock market crisis.

Between December 31st, 1996 and March 24th, 2000 the S&P 500 rose 106 percent.

Then the dotcom bubble burst and it fell by 49 percent.

Between October 9th, 2002 and October 9th, 2007 the S&P 500 rose 101 percent.

But then that bubble burst and it fell by 57 percent.

Between March 9th, 2009 and December 31st, 2014 the S&P 500 rose an astounding 204 percent.

When this bubble bursts, how far will it fall this time?

 

3 Of The 10 Largest Economies In The World Have Already Fallen Into Recession – Is The U.S. Next?

Global RecessionAre you waiting for the next major wave of the global economic collapse to strike?  Well, you might want to start paying attention again.  Three of the ten largest economies on the planet have already fallen into recession, and there are very serious warning signs coming from several other global economic powerhouses.  Things are already so bad that British Prime Minister David Cameron is comparing the current state of affairs to the horrific financial crisis of 2008.  In an article for the Guardian that was published on Monday, he delivered the following sobering warning: “Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy.”  For the leader of the nation with the 6th largest economy in the world to make such a statement is more than a little bit concerning.

So why is Cameron freaking out?

Well, just consider what is going on in Japan.  The economy of Japan is the 3rd largest on the entire planet, and it is a total basket case at this point.  Many believe that the Japanese will be on the leading edge of the next great global economic crisis, and that is why it is so alarming that Japan has just dipped into recession again for the fourth time in six years

Japan’s economy unexpectedly fell into recession in the third quarter, a painful slump that called into question efforts by Prime Minister Shinzo Abe to pull the country out of nearly two decades of deflation.

The second consecutive quarterly decline in gross domestic product could upend Japan’s political landscape. Mr. Abe is considering dissolving Parliament and calling fresh elections, people close to him say, and Monday’s economic report is seen as critical to his decision, which is widely expected to come this week.

Of course Japan is far from alone.

Brazil has the 7th largest economy on the globe, and it has already been in recession for quite a few months.

And the problems that the national oil company is currently experiencing certainly are not helping matters

In the past five days, 23 powerful Brazilians have been arrested, with even more warrants still outstanding.

The country’s stock market has become a whipsaw, and its currency, the real, has hit a nine-year low.

All of this is due to a far-reaching corruption scandal at one massive company, Petrobras.

In the last month the company’s stock has fallen by 35%.

The 9th largest economy in the world, Italy, has also fallen into recession

Italian GDP dropped another 0.1% in the third quarter, as expected.

That’s following a 0.2% drop in Q2 and another 0.1% decline in Q1, capping nine months of recession for Europe’s third-largest economy.

Like Japan, there is no easy way out for Italy.  A rapidly aging population coupled with a debt to GDP ratio of more than 132 percent is a toxic combination.  Italy needs to find a way to be productive once again, and that does not happen overnight.

Meanwhile, much of the rest of Europe is currently mired in depression-like conditions.  The official unemployment numbers in some of the larger nations on the continent are absolutely eye-popping.  The following list of unemployment figures comes from one of my previous articles

France: 10.2%

Poland: 11.5%

Italy: 12.6%

Portugal: 13.1%

Spain: 23.6%

Greece: 26.4%

Are you starting to get the picture?

The world is facing some real economic problems.

Another traditionally strong economic power that is suddenly dealing with adversity is Israel.

In fact, the economy of Israel is shrinking for the first time since 2009

Israel’s economy contracted for the first time in more than five years in the third quarter, as growth was hit by the effects of a war with Islamist militants in Gaza.

Gross domestic product fell 0.4 percent in the July-September period, the Central Bureau of Statistics said on Sunday. It was the first quarterly decline since a 0.2 percent drop in the first three months of 2009, at the outset of the global financial crisis.

And needless to say, U.S. economic sanctions have hit Russia pretty hard.

The rouble has been plummeting like a rock, and the Russian government is preparing for a “catastrophic” decline in oil prices…

President Vladimir Putin said Russia’s economy, battered by sanctions and a collapsing currency, faces a potential “catastrophic” slump in oil prices.

Such a scenario is “entirely possible, and we admit it,” Putin told the state-run Tass news service before attending this weekend’s Group of 20 summit in Brisbane, Australia, according to a transcript e-mailed by the Kremlin today. Russia’s reserves, at more than $400 billion, would allow the country to weather such a turn of events, he said.

Crude prices have fallen by almost a third this year, undercutting the economy in Russia, the world’s largest energy exporter.

It is being reported that Russian President Vladimir Putin has been hoarding gold in anticipation of a full-blown global economic war.

I think that will end up being a very wise decision on his part.

Despite all of this global chaos, things are still pretty stable in the United States for the moment.  The stock market keeps setting new all-time highs and much of the country is preparing for an orgy of Christmas shopping.

Unfortunately, the number of children that won’t even have a roof to sleep under this holiday season just continues to grow.

A stunning report that was just released by the National Center on Family Homelessness says that the number of homeless children in America has soared to an astounding 2.5 million.

That means that approximately one out of every 30 children in the United States is homeless.

Let that number sink in for a moment as you read more about this new report from the Washington Post

The number of homeless children in the United States has surged in recent years to an all-time high, amounting to one child in every 30, according to a comprehensive state-by-state report that blames the nation’s high poverty rate, the lack of affordable housing and the effects of pervasive domestic violence.

Titled “America’s Youngest Outcasts,” the report being issued Monday by the National Center on Family Homelessness calculates that nearly 2.5 million American children were homeless at some point in 2013. The number is based on the Education Department’s latest count of 1.3 million homeless children in public schools, supplemented by estimates of homeless preschool children not counted by the agency.

The problem is particularly severe in California, which has about one-eighth of the U.S. population but accounts for more than one-fifth of the homeless children, totaling nearly 527,000.

This is why I get so fired up about the destruction of the middle class.  A healthy economy would mean more wealth for most people.  But instead, most Americans just continue to see a decline in the standard of living.

And remember, the next major wave of the economic collapse has not even hit us yet.  When it does, the suffering of the poor and the middle class is going to get much worse.

Unfortunately, there are already signs that the U.S. economy is starting to slow down too.  In fact, the latest manufacturing numbers were not good at all

The Federal Reserve’s new industrial production data for October show that, on a monthly basis, real U.S. manufacturing output has fallen on net since July, marking its worst three-month production stretch since March-June, 2011. Largely responsible is the automotive sector’s sudden transformation from a manufacturing growth leader into a serious growth laggard, with combined real vehicles and parts production enduring its worst three-month stretch since late 2008 to early 2009.

A lot of very smart people are forecasting economic disaster for next year.

Hopefully they are all wrong, but I have a feeling that they are going to be right.

Serious Financial Trouble Is Erupting In Germany And Japan

Stock Market Collapse - Public DomainThere are some who believe that the next great financial crash will not begin in the United States.  Instead, they are convinced that a financial crisis that begins in Europe or in Japan (or both) will end up spreading across the globe and take down the U.S. too.  Time will tell if they are ultimately correct, but even now there are signs that financial trouble is already starting to erupt in both Germany and Japan.  German stocks have declined 10 percent since July, and that puts them in “correction” territory.  In Japan, the economy is a total mess right now.  According to figures that were just released, Japanese GDP contracted at a 7.1 percent annualized rate during the second quarter and private consumption contracted at a 19 percent annualized rate.  Could a financial collapse in either of those nations be the catalyst that sets off financial dominoes all over the planet?

This week, the worst German industrial production figure since 2009 rattled global financial markets.  Germany is supposed to be the economic “rock” of Europe, but at this point that “rock” is starting to show cracks.

And certainly the civil war in Ukraine and the growing Ebola crisis are not helping things either.  German investors are becoming increasingly jittery, and as I mentioned above the German stock market has already declined 10 percent since July

German stocks, weighed down by the economic fallout spawned by the Ukraine-Russia crisis and the eurzone’s weak economy, are now down more than 10% from their July peak and officially in correction territory.

The DAX, Germany’s benchmark stock index, has succumbed to recent data points that show the German economy has ground to a halt, hurt in large part by the economic sanctions levied at its major trading partner, Russia, by the U.S. and European Union as a way to get Moscow to butt out of Ukraine’s affairs. The economic slowdown in the rest of the debt-hobbled eurozone has also hurt the German economy, considered the economic locomotive of Europe.

In trading today, the DAX fell as low as 8960.43, which put it down 10.7% from its July 3 closing high of 10,029.43 and off nearly 11% from its June 20 intraday peak of 10,050.98.

And when you look at some of the biggest corporate names in Germany, things look even more dramatic.

Just check out some of these numbers

The hardest hit sectors have been retailers, industrials and leisure stocks with sports clothing giant Adidas down 37.7pc for the year, airline Lufthansa down 27pc, car group Volkswagen sliding 23.6pc and Deutchse Bank falling 20.2pc so far this year.

Meanwhile, things in Japan appear to be going from bad to worse.

The government of Japan is more than a quadrillion yen in debt, and it has been furiously printing money and debasing the yen in a desperate attempt to get the Japanese economy going again.

Unfortunately for them, it is simply not working.  The revised economic numbers for the second quarter were absolutely disastrous.  The following comes from a Japanese news source

On an annualized basis, the GDP contraction was 7.1 percent, compared with 6.8 percent in the preliminary estimate. That makes it the worst performance since early 2009, at the height of the global financial crisis.

The blow from the first stage of the sales tax hike in April extended into this quarter, with retail sales and household spending falling in July. The administration signaled last week that it is prepared to boost stimulus to help weather a second stage of the levy scheduled for October 2015.

Corporate capital investment dropped 5.1 percent from the previous quarter, more than double the initial estimate of 2.5 percent.

Private consumption was meanwhile revised to a 5.1 percent drop from the initial reading of 5 percent, meaning it sank 19 percent on an annualized basis from the previous quarter, rather than the initial estimate of 18.7 percent, Monday’s report said.

For the moment, things are looking pretty good in the United States.

But as I have written about so many times, our financial markets are perfectly primed for a fall.

Other experts see things the same way.  Just consider what John Hussman wrote recently…

As I did in 2000 and 2007, I feel obligated to state an expectation that only seems like a bizarre assertion because the financial memory is just as short as the popular understanding of valuation is superficial: I view the stock market as likely to lose more than half of its value from its recent high to its ultimate low in this market cycle.

At present, however, market conditions couple valuations that are more than double pre-bubble norms (on historically reliable measures) with clear deterioration in market internals and our measures of trend uniformity. None of these factors provide support for the market here. In my view, speculators are dancing without a floor.

And it isn’t just stocks that could potentially be on the verge of a massive decline.  The bond market is also experiencing an unprecedented bubble right now.  And when that bubble bursts, the carnage will be unbelievable.  This has become so obvious that even CNBC is talking about it…

Picture this: The bond market gets spooked by a sudden interest rate scare, sending a throng of buyers streaming toward the exits, only to find a dearth of buyers on the other side.

As a result, liquidity evaporates, yields soar, and the U.S. finds itself smack in the middle of another debt crisis no one saw coming.

It’s a scenario that TABB Group fixed income head Anthony J. Perrotta believes is not all that far-fetched, considering the market had what could be considered a sneak preview in May 2013. That was the “taper tantrum,” which saw yields spike and stocks sell off after then-Federal Reserve Chairman Ben Bernanke made remarks that the market construed as indicating rates would rise sooner than expected.

If the strength of our financial markets reflected overall strength in the U.S. economy there would not be nearly as much cause for concern.

But at this point our financial markets have become completely and totally divorced from economic reality.

The truth is that our economic fundamentals continue to decay.  In fact, the IMF says that China now has the largest economy on the planet on a purchasing power basis.  The era of American economic dominance is ending.  It is just that the financial markets have not gotten the memo yet.

Hopefully we still have at least a few more months before stock markets all over the world start crashing.  But remember, we are entering the seventh year of the seven year cycle of economic crashes that so many people are talking about these days.  And we are definitely primed for a global financial collapse.

Sadly, most people did not see the crash of 2008 coming, and most people will not see the next one coming either.

5 U.S. Banks Each Have More Than 40 Trillion Dollars In Exposure To Derivatives

Roulette Wheel - Public DomainWhen is the U.S. banking system going to crash?  I can sum it up in three words.  Watch the derivatives.  It used to be only four, but now there are five “too big to fail” banks in the United States that each have more than 40 trillion dollars in exposure to derivatives.  Today, the U.S. national debt is sitting at a grand total of about 17.7 trillion dollars, so when we are talking about 40 trillion dollars we are talking about an amount of money that is almost unimaginable.  And unlike stocks and bonds, these derivatives do not represent “investments” in anything.  They can be incredibly complex, but essentially they are just paper wagers about what will happen in the future.  The truth is that derivatives trading is not too different from betting on baseball or football games.  Trading in derivatives is basically just a form of legalized gambling, and the “too big to fail” banks have transformed Wall Street into the largest casino in the history of the planet.  When this derivatives bubble bursts (and as surely as I am writing this it will), the pain that it will cause the global economy will be greater than words can describe.

If derivatives trading is so risky, then why do our big banks do it?

The answer to that question comes down to just one thing.

Greed.

The “too big to fail” banks run up enormous profits from their derivatives trading.  According to the New York Times, U.S. banks “have nearly $280 trillion of derivatives on their books” even though the financial crisis of 2008 demonstrated how dangerous they could be…

American banks have nearly $280 trillion of derivatives on their books, and they earn some of their biggest profits from trading in them. But the 2008 crisis revealed how flaws in the market had allowed for dangerous buildups of risk at large Wall Street firms and worsened the run on the banking system.

The big banks have sophisticated computer models which are supposed to keep the system stable and help them manage these risks.

But all computer models are based on assumptions.

And all of those assumptions were originally made by flesh and blood people.

When a “black swan event” comes along such as a war, a major pandemic, an apocalyptic natural disaster or a collapse of a very large financial institution, these models can often break down very rapidly.

For example, the following is a brief excerpt from a Forbes article that describes what happened to the derivatives market when Lehman Brothers collapsed back in 2008…

Fast forward to the financial meltdown of 2008 and what do we see? America again was celebrating. The economy was booming. Everyone seemed to be getting wealthier, even though the warning signs were everywhere: too much borrowing, foolish investments, greedy banks, regulators asleep at the wheel, politicians eager to promote home-ownership for those who couldn’t afford it, and distinguished analysts openly predicting this could only end badly. And then, when Lehman Bros fell, the financial system froze and world economy almost collapsed. Why?

The root cause wasn’t just the reckless lending and the excessive risk taking. The problem at the core was a lack of transparency. After Lehman’s collapse, no one could understand any particular bank’s risks from derivative trading and so no bank wanted to lend to or trade with any other bank. Because all the big banks’ had been involved to an unknown degree in risky derivative trading, no one could tell whether any particular financial institution might suddenly implode.

After the last financial crisis, we were promised that this would be fixed.

But instead the problem has become much larger.

When the housing bubble burst back in 2007, the total notional value of derivatives contracts around the world had risen to about 500 trillion dollars.

According to the Bank for International Settlements, today the total notional value of derivatives contracts around the world has ballooned to a staggering 710 trillion dollars ($710,000,000,000,000).

And of course the heart of this derivatives bubble can be found on Wall Street.

What I am about to share with you is very troubling information.

I have shared similar numbers in the past, but for this article I went and got the very latest numbers from the OCC’s most recent quarterly report.  As I mentioned above, there are now five “too big to fail” banks that each have more than 40 trillion dollars in exposure to derivatives…

JPMorgan Chase

Total Assets: $2,476,986,000,000 (about 2.5 trillion dollars)

Total Exposure To Derivatives: $67,951,190,000,000 (more than 67 trillion dollars)

Citibank

Total Assets: $1,894,736,000,000 (almost 1.9 trillion dollars)

Total Exposure To Derivatives: $59,944,502,000,000 (nearly 60 trillion dollars)

Goldman Sachs

Total Assets: $915,705,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $54,564,516,000,000 (more than 54 trillion dollars)

Bank Of America

Total Assets: $2,152,533,000,000 (a bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $54,457,605,000,000 (more than 54 trillion dollars)

Morgan Stanley

Total Assets: $831,381,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $44,946,153,000,000 (more than 44 trillion dollars)

And it isn’t just U.S. banks that are engaged in this type of behavior.

As Zero Hedge recently detailed, German banking giant Deutsche Bank has more exposure to derivatives than any of the American banks listed above…

Deutsche has a total derivative exposure that amounts to €55 trillion or just about $75 trillion. That’s a trillion with a T, and is about 100 times greater than the €522 billion in deposits the bank has. It is also 5x greater than the GDP of Europe and more or less the same as the GDP of… the world.

For those looking forward to the day when these mammoth banks will collapse, you need to keep in mind that when they do go down the entire system is going to utterly fall apart.

At this point our economic system is so completely dependent on these banks that there is no way that it can function without them.

It is like a patient with an extremely advanced case of cancer.

Doctors can try to kill the cancer, but it is almost inevitable that the patient will die in the process.

The same thing could be said about our relationship with the “too big to fail” banks.  If they fail, so do the rest of us.

We were told that something would be done about the “too big to fail” problem after the last crisis, but it never happened.

In fact, as I have written about previously, the “too big to fail” banks have collectively gotten 37 percent larger since the last recession.

At this point, the five largest banks in the country account for 42 percent of all loans in the United States, and the six largest banks control 67 percent of all banking assets.

If those banks were to disappear tomorrow, we would not have much of an economy left.

But as you have just read about in this article, they are being more reckless than ever before.

We are steamrolling toward the greatest financial disaster in world history, and nobody is doing much of anything to stop it.

Things could have turned out very differently, but now we will reap the consequences for the very foolish decisions that we have made.

The Dow And S&P 500 Soar To Irrational Heights – Meanwhile The Ultra-Wealthy Rush To Buy Gold Bars

Gold Bars - Public DomainDid you know that the number of gold bars being purchased by ultra-wealthy individuals has increased by 243 percent so far this year?  If stocks are just going to keep soaring, why are they doing this?  On Thursday, the Dow Jones industrial average and the S&P 500 both closed at record highs once again.  It is a party that never seems to end, and there are a lot of really happy people on Wall Street these days.  But those that are discerning realize that we witnessed the exact same kind of bubble behavior during the dotcom boom and during the run up to the last financial crash in 2007.  The irrational exuberance that we are witnessing right now cannot go on forever.  And the bigger that this bubble gets, the more painful that it is going to be when it finally bursts.  Those that get out at the peaks of the market are the ones that usually end up making lots of money.  Those that ride stocks all the way up and all the way down are the ones that usually end up getting totally wiped out.

To get an idea of how irrational the markets have become, all one has to do is to look at Twitter.

Would you value “a horribly mismanaged company” that is less than 10 years old and that has never made a yearly profit at 31 billion dollars?

Well, that is precisely how much the financial markets say that Twitter is worth at this moment.

Even though Twitter will probably never be much more popular than it is right now, it continues to bleed money profusely.  On a GAAP (generally accepted accounting principles) basis, Twitter lost an astounding 145 million dollars during the second quarter of 2014…

Twitter’s GAAP net loss totaled $145 million, up from $42 million a year ago. On a GAAP basis, Twitter lost $0.24 per share. Investors, however, were not expecting Twitter to be profitable by GAAP measurements, so the loss isn’t too much of a drag.

Why would anyone want to invest in such a money pit?

Here are some more disturbing financial numbers about Twitter from David Stockman

Currently, Twitter (TWTR) is valued at $31 billion.That’s 18X revenue, but the catch is that the revenue in question is it’s lifetime bookings over the 18 quarters since Q1 2010.

When it comes to profits, the numbers are not nearly so promising!  For the LTM period ending in June, TWTR booked $974 million of revenue and $1.7 billion of operating expense. That why “NM” shows up in its LTM ratio of enterprise value to EBITDA. It turns out that its EBITDA was -$704 million. In fact, its R&D expense alone was 83% of revenues.

Of course the truth is that Twitter should be able to make money.

And it probably would be making money if it was being managed better.

The following is what Silicon Valley venture capitalist Peter Thiel said about Twitter on CNBC the other day…

“It’s a horribly mismanaged company — probably a lot of pot-smoking going on there.”

But because Twitter is a “hot tech stock” investors are literally throwing money at it.

And there are many other tech companies that have similar stories.  Off the top of my head, Snapchat, LinkedIn, Yelp and Pinterest come to mind.

Fueled by the quantitative easing policies of the Federal Reserve, U.S. stocks have enjoyed an unprecedented joy ride.

However, as David Stockman recently told Yahoo Finance, the subsequent crash is likely to be enormously painful…

“I think what the Fed is doing is so unprecedented, what is happening in the markets is so unnatural,” he said. “This is dangerous, combustible stuff, and I don’t know when the explosion occurs – when the collapse suddenly is upon us – but when it happens, people will be happy that they got out of the way if they did.”

The behavior that we are observing in the stock market simply does not reflect what is happening in the economy overall whatsoever.

In many ways, U.S. economic fundamentals just continue to get even worse.  Small business ownership in the United States is at an all-time low, the labor force participation rate is the lowest that it has been in 36 years, and the U.S. national debt has grown by more than a trillion dollars over the past 12 months.

But on Wall Street right now, there is very little fear that the party is going to end any time soon.

The following is how Seth Klarman recently described the market complacency that he is seeing at the moment…

To put it a bit differently, writer and investor John Mauldin is right when he says that there is “a bubble in complacency.” Fear has effectively been banished. The members of the Fed know it. Stock traders who chase the market to new highs almost daily know it. Implied volatilities (and realized volatilities) are historically low (the VIX Index recently hit a seven-year low), and falling. The Bank for International Settlements recently cautioned that financial markets are euphoric and in the grip of an aggressive search for yield. The S&P has gone over 1,000 days without a 10% decline, according to Birinyi Associates. Dutch and French 10-year government bond yields are at 500 and 250 year lows, respectively; Spain, 225 years. Spanish debt yields were recently inside of U.S. levels.

But as Klarman also observed, just because “investors have been seduced into feeling good” does not mean that this current bubble is any different from what we witnessed back in 2007…

It’s not hard to reach the conclusion that so many investors feel good not because things are good but because investors have been seduced into feeling good—otherwise known as “the wealth effect.” We really are far along in re-creating the markets of 2007, which felt great but were deeply unstable when shocks started to pile up. Even Janet Yellen sees “pockets of increasing risk-taking” in the markets, yet she has made clear that she won’t raise rates to fight incipient bubbles. For all of our sakes, we really wish she would.

Meanwhile, the ultra-wealthy are making moves to protect themselves from the inevitable chaos that is coming.

For example, the Telegraph recently reported that sales of gold bars to wealthy customers are up 243 percent so far in 2014…

The super-rich are looking to protect their wealth through buying record numbers of “Italian job” style gold bars, according to bullion experts.

The number of 12.5kg gold bars being bought by wealthy customers has increased 243 percent so far this year, when compared to the same period last year, said Rob Halliday-Stein founder of BullionByPost.

“These gold bars are usually stored in the vaults of central banks and are the same ones you see in the film ‘The Italian Job’,” added David Cousins, bullion executive from London based ATS Bullion.

Do they know something that we don’t?

The ultra-wealthy are able to stay ultra-wealthy for a reason.

They are usually a step or two ahead of most of the rest of us.

And any rational person should be able to see that this financial bubble is going to end very, very badly.

Most People Don’t Believe It, But We Are Right On Schedule For The Next Financial Crash

Stock Market Crash - Public DomainPeople have such short memories.  Even though we are repeating so many of the same patterns that we witnessed in 2000-2001 and 2007-2008, most people do not think that another financial crash is coming.  In fact, with the stock market setting record high after record high lately, I have been taking quite a bit of criticism for my relentless warnings about the coming financial storm.  Many of the comments go something like this: “Snyder you are a moron!  Nothing you say ever comes true.  The stock market is going to keep on rocking and Obama is going to lead this country back to greatness.  I hope that you choke on all of your doom and gloom.”  Of course these critics never offer any hard evidence that I have been wrong about anything.  They just assume that since the stock market has soared to unprecedented heights that all of us “bears” must have been wrong.

But the truth is that what we are observing right now is classic bubble behavior.  The stock market crashes of 1929, 1987 and 2008 were all preceded by irrational market rallies in the spring or summer.  The financial markets have become completely divorced from economic reality, and such a state of affairs never lasts forever.  It is just a matter of time before a correction comes.

But every time there is a bubble, most people end up getting caught up in all of the euphoria.  And it is happening again.  In fact, CNBC has just reported that bearishness among market newsletter writers is the lowest that it has been since 1987.  But of course we all remember what happened back in 1987…

Professional investors haven’t had this little fear about stocks since Ronald Reagan was president.

It was the same year Michael Jackson told us in a song he was “Bad.” The New York Giants won the Super Bowl.

And oh yeah … by the way … the stock market crashed.

As gauged by the weekly Investors Intelligence report, bearishness among market newsletter writers has fallen to 13.3 percent, a level it has not seen since 1987 as the market continues to set new highs despite a seemingly endless call for a long-overdue correction.

People need to understand that just because something has not happened yet does not mean that it is not going to happen.

In this day and age, we have extremely short attention spans and we do not have the patience to wait for much of anything.  But the financial world is not a game of checkers.  It is a game of chess where things can take an extended period of time to play out.

Those that are mocking those of us that are bearish should consider where we stand financially in comparison to previous crash cycles.  For example, the derivatives bubble is 20 percent larger than it was back in 2008, the “too big to fail banks” are 37 percent larger than they were back in 2008 and global debt levels are 40 percent larger than they were back in 2008.

In other words, many of our long-term economic problems are a lot worse than they were just prior to the last major financial meltdown.

But most people pay such little attention to the fundamentals these days.  All they can see is that little stock market ticker going up and up and up.

Other analysts with much stronger credentials than I are issuing similar ominous warnings about what is ahead for the financial markets.

For example, Nobel Prize-winning economist Robert Shiller is warning that market valuations are tremendously bloated right now

Shiller, a Yale University professor who is often cited as one of the most influential people in economics and finance in the world, created a metric that compares stock prices with corporate profits. The metric recently climbed above 25. That level has only been surpassed three times since 1881: 1929, 1999 and 2007.

Steep market tumbles followed each instance, including the bursting of the dotcom bubble in the early 2000s.

But it doesn’t take a genius to see this.

Just look at the chart of the NASDAQ that I have posted below.  The “dotcom bubble” in 2000 is really easy to see.  So why can’t more people recognize the bubble that is happening now?…

NASDAQ Chart

In so many ways this bubble is reminiscent of the “dotcom bubble” of 14 years ago.  Consider the following numbers from a recent article by Brett Arends

When you look at medians, or in other words the typical stock, valuations are higher today than they were at the peak in 1999-2000.

For example, the median stock today is 20 times earnings. In January 2000, it was 16 times.

The median stock today trades at 2.5 times “book” or net asset value. At the start of 2000 it was just 2.2 times.

The median stock today trades for 1.8 times annual per-share revenues. In 2000: just 1.4 times.

What we are experiencing is not normal.

And this is especially true considering the fact that our overall economic performance is tepid at best.

A stock market correction is coming.

But you don’t have to take my word for it.  Some of the most prominent names in the financial world are warning about the coming correction.  Two of them were recently interviewed by CNBC

A jolt to international confidence in central banks will lead to a 30 to 60 percent market decline, David Tice, president of Tice Capital and founder of the Prudent Bear Fund, told CNBC’s “Power Lunch.” When this happens, he said, markets will face a “period of extreme turmoil.”

This crash will be precipitated, he said, by a disillusionment with the Federal Reserve’s “confidence game,” which will then see inflation rise, and the Fed scramble to raise rates. At that point, Tice added, “the Fed starts to lose control.”

Another market watcher also called for an impending fall.

The Fed’s low interest rates could bring a “scary” 50-60 percent market correction, said technical analyst Abigail Doolittle.

“Unfortunately, I think it could come on a crash similar to what happened in 2007,” Doolittle, the founder of Peak Theories Research, said on “Squawk Box” a day after the S&P 500 closed above the 2,000 level for the first time ever. “It’s tough to know what the exact catalyst will be. But that’s the very nature of that kind of selloff. They start slowly and then happen very suddenly.”

And as Zero Hedge has pointed out, billionaires such as Sam Zell, George Soros, Stan Druckenmiller and Carl Icahn all seem to be “quietly preparing” for the next crash.

Yes, the next financial crash has taken longer to come to fruition than many had anticipated.  But as I have discussed so many times before, this is a very good thing.  We should want this period of relative stability to last for as long as possible.  The longer that things remain relatively stable, the longer that all of us have to prepare and to position ourselves for the financial chaos that is coming.

At this point, the fact that we are in the midst of a massive financial bubble has become so obvious that even the Bank for International Settlements is publicly talking about it…

Financial markets have been exuberant over the past year, […] dancing mainly to the tune of central bank decisions. Volatility in equity, fixed income and foreign exchange markets has sagged to historical lows. Obviously, market participants are pricing in hardly any risks.

Many have expected me to “change my tune” about the coming collapse because of how well the stock market has been performing.

Well, that simply is not going to happen.

Our economic fundamentals have continued to deteriorate, and our financial system is in far worse shape than it was just prior to the financial crash of 2008.

The truth is that we are right on schedule for the next great financial crash.

You can choose to ignore the warnings if you would like, but ultimately time will reveal who was right and who was wrong.

Employment Recovery? 1,600 Workers Apply For Just 36 Jobs At An Ice Cream Plant In Maryland

Ice Cream - Photo by ElinorDThe stock market may be soaring to unprecedented heights, but things just continue to get even tougher for the middle class.  In this economic environment, there is intense competition for virtually all kinds of jobs.  For example, more than 1,600 applications were recently submitted for just 36 jobs at an ice cream plant in Hagerstown, Maryland.  That means that those applying have about a 2 percent chance of being hired.  About 98 percent of the applicants will be turned away.  That is how tough things are in many areas of the country today.  It is now more than five years after the great financial crash of 2008, and the level of employment in the United States is still almost exactly where it was at during the worst moments of the last recession.  And this is just the beginning.  The next major financial crash is rapidly approaching, and once it strikes our employment crisis is going to get much, much worse.

Working at an ice cream plant does not pay very well.  But at least it beats flipping burgers or stocking shelves at Wal-Mart.  And in this economy, there is no shortage of desperate workers that are willing to take just about any job that they can find.  The following is how a Breitbart article described the flood of applications that were received for just 36 positions at an ice cream plant owned by Shenandoah Family Farms in Hagerstown, Maryland…

Thanks to persistent unemployment and low availability of low-skill jobs, Shenandoah Family Farms’ ice cream plant in Hagerstown, Maryland has received over 1,600 applicants for a grand total of 36 jobs. Many of those applicants are former workers at the Good Humor plant that was bought by Shenandoah Family Farms. “You’d think that after 20-some-years working someplace at least somebody would think you area a good person, that you’d show up on time every day, and that would be worth something,” Luther Brooks, a 50-year-old former worker at the plant told the Washington Post. “I can’t get nothing. I’ve tried.”

Anyone that believes that the economic crisis is “over” is just being delusional.  It may be “over” for the boys and girls that work on Wall Street, but even their good times are only temporary.

Of course most Americans are not fooled by the propaganda being put out by the mainstream media.  According to a recent CNN poll, 70 percent of all Americans believe that “the economy is generally in poor shape”.

And according to another survey, the economy is still the #1 concern for American voters by a good margin and unemployment is still the #2 concern for American voters by a good margin.

In other words, “It’s the economy, stupid!

The American people can see that mid-wage jobs are disappearing and that the middle class is being systematically eviscerated.  The following is a short excerpt from a recent Business Insider article

A startling number of middle-class jobs may be headed toward extinction.

More than any other job class, mid-level positions have struggled to recover from the recession, and only a quarter of jobs created in the past three years are categorized as mid-wage. There are high-skilled professional jobs that require college degrees and low-skilled service jobs for less educated workers, but the middle is getting squeezed.

As mid-wage jobs disappear, they are being replaced by low wage jobs.  As I mentioned yesterday, one recent study found that about 60 percent of the jobs that have been “created” since the end of the last recession pay $13.83 or less an hour.

And this is just the beginning of the decline of the middle class.  Another great financial crisis is rapidly approaching, and once it arrives things are going to get much worse than they are right now.

A number of very prominent experts believe that this next great financial crisis could begin in 2014.  For example, in a recent article entitled “Top Ten Trends 2014: A Year of Extremes“, Gerald Celente warned that “an economic shock wave” could hit the United States by the middle of the year.  Here are some excerpts from that article…

-“In 33 years of forecasting trends, the Trends Research Institute has never seen a new year that will witness severe economic hardship and social unrest on one hand, and deep philosophic enlightenment and personal enrichment on the other. A series of dynamic socioeconomic and transformative geopolitical trend points are aligning in 2014 to ring in the worst and best of times.”

-“Such unforeseeable factors aside, we forecast that around March, or by the end of the second quarter of 2014, an economic shock wave will rattle the world equity markets.”

-“Nearly half of the requests for emergency assistance to stave off hunger or homelessness comes from people with full-time jobs. As government safety nets are pulled out from under them – as they will continue to be for the foreseeable future – the citizens of Slavelandia will have no recourse but action.”

You can read the rest of that article right here.

And according to the Wall Street Journal, United-ICAP chief market technician Walter Zimmerman in convinced that 2014 will mark the beginning of a massive stock market decline.  In fact, he believes that over the next couple of years it could fall by more than 70 percent…

In what may be the bearish call to end all bearish calls, one technician believes 2014 will be the year of “major reversals,” with the Dow Jones Industrial Average expected to start a two-year decline that could eventually take it down more than 70% to below 5000.

If his forecast is correct, it will make what happened in 2008 look like a Sunday picnic…

“Based on our longer-term time cycles the present stock market rally must be considered the bubble to end all bubbles,” Mr. Zimmerman wrote in a note to clients.

He doesn’t believe the Dow Industrials will hit a long-term cycle low until 2016, somewhere in the 5770 to 4650 range. The Dow hasn’t seen those levels, which are 65% to 72% below current prices, since late-1995 to mid-1996.

So what do you think the rest of 2014 will bring?

Please feel free to share your thoughts by posting a comment below…

12 Very Ominous Warnings About What A U.S. Debt Default Would Mean For The Global Economy

Ominous Clouds - Photo posted on Instagram by annekejongA U.S. debt default that lasts for more than a couple of days could potentially cause a financial crash unlike anything that the world has ever seen before.  If the U.S. government purposely wanted to damage the global financial system, the best way that they could do that would be to default on U.S. debt obligations.  A U.S. debt default would cause stocks to crash, would cause bonds to crash, would cause interest rates to soar wildly out of control, would cause a massive credit crunch, and would cause a derivatives panic that would be absolutely unprecedented.  And that would just be for starters.  But don’t just take my word for it.  These are the things that top financial experts all over the planet are saying will happen if there is an extended U.S. debt default.

Because they are so close together, the “government shutdown” and the “debt ceiling deadline” are being confused by many Americans.

As I wrote about the other day, the “partial government shutdown” that we are experiencing right now is pretty much a non-event.  Yeah, some national parks are shut down and some federal workers will have their checks delayed, but it is not the end of the world.  In fact, only about 17 percent of the federal government is actually shut down at the moment.  This “shutdown” could continue for many more weeks and it would not affect the global economy too much.

On the other hand, if the debt ceiling deadline (approximately October 17th) passes without an agreement that would be extremely dangerous.

And if the U.S. government is eventually forced to start delaying interest payments on U.S. debt (which could potentially happen as soon as November), that would be absolutely catastrophic.

Once again, just don’t take my word for it.  The following are 12 very ominous warnings about what a U.S. debt default would mean for the global economy…

#1 Gerald Epstein, a professor of economics at the University of Massachusetts Amherst: “If the US does default, that will make the Lehman Brothers bankruptcy look like a cakewalk”

#2 Tim Bitsberger, a former Treasury official under President George W. Bush: “If we miss an interest payment, that would blow Lehman out of the water”

#3 Peter Tchir, founder of New York-based TF Market Advisors: “Once the system starts to break down related to settlement and payments, then liquidity disappears, as we saw after Lehman”

#4 Bill Isaac, chairman of Cincinnati-based Fifth Third Bancorp: “We can’t even imagine all the things that might happen, just like Henry Paulson couldn’t imagine all the bad things that might happen if he let Lehman go down”

#5 Jim Grant, founder of Grant’s Interest Rate Observer: “Financial markets are all confidence-based. If that confidence is shaken, you have disaster.”

#6 Richard Bove, VP of research at Rafferty Capital Markets: “If they seriously default on the debt, what we’re really talking about is a depression”

#7 Chinese vice finance minister Zhu Guangyao: “The U.S. is clearly aware of China’s concerns about the financial stalemate [in Washington] and China’s request for the US to ensure the safety of Chinese investments.”

#8 The U.S. Treasury Department: “A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse”

#9 Goldman Sachs: “We estimate that the fiscal pull-back would amount to 9pc of GDP. If this were allowed to occur, it could lead to a rapid downturn in economic activity if not reversed quickly”

#10 Simon Johnson, former chief economist for the IMF: “It would be insane to default, but it’s no longer a zero-percent probability”

#11 Warren Buffett about the potential of a debt default: “It should be like nuclear bombs, basically too horrible to use”

#12 Bloomberg: “Anyone who remembers the collapse of Lehman Brothers Holdings Inc. little more than five years ago knows what a global financial disaster is. A U.S. government default, just weeks away if Congress fails to raise the debt ceiling as it now threatens to do, will be an economic calamity like none the world has ever seen.”

A U.S. debt default could be the trigger for the “nightmare scenario” that so many people have been writing about in recent years.  In fact, it could greatly accelerate the timetable for the inevitable economic collapse that is coming.  A recent Yahoo article described some of the things that we would likely see in the event of an extended U.S. debt default…

A default would upend money markets, destroy bond funds, slam the brakes on lending, cause interest rates to spiral, make our banks insolvent, and deal a blow to our foreign trading partners and creditors around the globe; all of which would throw the U.S. and the world into economic disarray.

And of course stocks would crash big time.  Deutsche Bank’s David Bianco believes that if the U.S. government starts missing interest payments on U.S. Treasury bonds, we could see the S&P 500 go down to 850 by the end of the year.

There would be almost immediate panic among ordinary Americans as well.  In fact, it is being reported that some banks are already stuffing their ATM machines will extra cash just in case…

With just 10 days left to raise the debt ceiling and congressional Republicans threatening to force the government to default on its obligations, banks are taking some dramatic steps to prepare for the economic chaos that would result should the brinkmanship continue.

The Financial Times reports that one major U.S. bank has started stuffing its automatic teller machines with extra cash in preparation for a possible bank run from panicked depositors. The New York Times reports that another bank is weighing a plan to advance funds to customers who rely on Social Security and other government payments that could stop in the event of a default.

Let’s hope that cooler heads will prevail and that a U.S. debt default will be avoided.

Unfortunately, it appears that the Democrats are absolutely determined not to be moved from their current position a single inch.  They have decided to refuse to negotiate and demand that the Republicans give them every single thing that they want.

And who can really blame them for adopting that strategy?  After all, it has certainly worked in the past.  Whenever Democrats have stood united and have refused to give a single inch, the Republicans have always freaked out and caved in eventually.

Will this time be any different?

The funny thing is that once upon a time, Barack Obama was adamantly against any increase in the debt limit.  The following comes courtesy of Zero Hedge

Obama Debt Ceiling

But now Obama says that it is so unreasonable to be opposed to a debt limit increase that any negotiations are out of the question.

So which Obama is right?

If the Democrats will not negotiate, a debt default could still be avoided if the Republicans give in.

And that is what they always do, right?

Perhaps not this time.  Just check out what John Boehner had to say on Sunday

“I, working with my members, decided to do this in a unified way,” the speaker said — with demands to defund, delay or otherwise alter the Affordable Care Act.

Boehner had expected that the Obamacare fight would come during the next vote to raise the debt ceiling, “but, you know, working with my members, they decided, let’s do it now,” he said. “And the fact is, this fight was going to come, one way or another. We’re in the fight. We don’t want to shut the government down. We’ve passed bills to pay the troops. We passed bills to make sure the federal employees know that they’re going to be paid throughout this.”

“You’ve never seen a more dedicated group of people who are thoroughly concerned about the future of our country,” he said of House Republicans. “It is time for us to stand and fight.”

But will the Republicans really stand and fight?

In the past, betting on the intestinal fortitude of the Republican Party has been a loser every single time.

So we’ll see.  Boehner insists that this time is different.  Boehner insists that he is not going to fold like a 20 dollar suit this time.  In fact, when he was asked if the U.S. government was headed toward a debt default if Obama continued to refuse to negotiate, Boehner made the following statement

“That’s the path we’re on.”

The mainstream media has certainly been placing most of the blame at the feet of the Republicans, but at least the U.S. House of Representatives has been trying to get an agreement reached.  The House has voted 26 times since the Senate last voted.  Harry Reid has essentially shut the Senate down until the Republicans fold and give the Democrats exactly what they want.

The funny thing is that this could probably be solved very easily.  If the Democrats agreed to a one year delay to the individual mandate, the Republicans would probably jump at it.  And because of epic technical failures, hardly anyone has been able to get signed up for Obamacare anyway.  So a one year delay would give the Obama administration time to get their act together.

Unfortunately, the Democrats seem absolutely obsessed with the idea that they will not give the Republicans one single inch.  They seem to believe that this will be to their political benefit.

But this is a very dangerous game that they are playing.  The U.S. government must roll over 441 billion dollars of short-term debt between October 18th and November 15th.

If a debt ceiling increase is not in place by that time, it will send interest rates soaring.  Borrowing costs for state and local governments, corporations, and ordinary Americans will go through the roof and economic activity will be hit really hard.

And as detailed above, we could potentially be looking at a financial crash that would make 2008 look like a Sunday picnic.

So let us hope for a political solution soon.  That will at least kick the can down the road for a little bit longer.

If a debt default were to happen before the end of this year, that would bring a tremendous amount of future economic pain into the here and now, and the consequences would likely be far greater than any of us could possibly imagine.

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