The Beginning Of The End
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Anyone That Believes That Collapsing Oil Prices Are Good For The Economy Is Crazy

Oil - Public DomainAre much lower oil prices good news for the U.S. economy?  Only if you like collapsing capital expenditures, rising unemployment and a potential financial implosion on Wall Street.  Yes, lower gasoline prices are good news for the middle class.  I certainly would rather pay two dollars for a gallon of gas than four dollars.  But in order to have money to fill up your vehicle you have got to have an income first.  And since the last recession, the energy sector has been the number one creator of good jobs in the U.S. economy by far.  Barack Obama loves to stand up and take credit for the fact that the employment picture in this country has been improving slightly, but without the energy industry boom, unemployment would be through the roof.  And now that the “energy boom” is rapidly becoming an “energy bust”, what will happen to the struggling U.S. economy as we head into 2015?

At the start of this article I mentioned that much lower oil prices would result in “collapsing capital expenditures”.

If you do not know what a “capital expenditure” is, the following is a definition that comes from Investopedia

“Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. This type of outlay is made by companies to maintain or increase the scope of their operations. These expenditures can include everything from repairing a roof to building a brand new factory.”

Needless to say, this kind of spending is very good for an economy.  It builds infrastructure, it creates jobs and it is an investment in the future.

In recent years, energy companies have been pouring massive amounts of money into capital expenditures.  In fact, the energy sector currently accounts for about a third of all capital expenditures in the United States according to Deutsche Bank

US private investment spending is usually ~15% of US GDP or $2.8trn now. This investment consists of $1.6trn spent annually on equipment and software, $700bn on non-residential construction and a bit over $500bn on residential. Equipment and software is 35% technology and communications, 25-30% is industrial equipment for energy, utilities and agriculture, 15% is transportation equipment, with remaining 20-25% related to other industries or intangibles. Non-residential construction is 20% oil and gas producing structures and 30% is energy related in total. We estimate global investment spending is 20% of S&P EPS or 12% from US. The Energy sector is responsible for a third of S&P 500 capex.

These companies make these investments because they believe that there are big profits to be made.

Unfortunately, when the price of oil crashes those investments become unprofitable and capital expenditures start getting slashed almost immediately.

For example, the budget for 2015 at ConocoPhillips has already been reduced by 20 percent

ConocoPhillips is one of the bigger shale players. And its decision to slash its budget for next year by 20% is raising eyebrows. The company said the new target reflects lower spending on major projects as well as “unconventional plays.” Despite the expectation that others will follow, it doesn’t mean U.S. shale oil production is dead. Just don’t expect a surge in spending like in recent years.

And Reuters is reporting that the number of new well permits for the industry as a whole plunged by an astounding 40 percent during the month of November…

Plunging oil prices sparked a drop of almost 40 percent in new well permits issued across the United States in November, in a sudden pause in the growth of the U.S. shale oil and gas boom that started around 2007.

Data provided exclusively to Reuters on Tuesday by industry data firm Drilling Info Inc showed 4,520 new well permits were approved last month, down from 7,227 in October.

If the price of oil stays this low or continues dropping, this is just the beginning.

Meanwhile, the flow of good jobs that this industry has been producing is also likely to start drying up.

According to the Perryman Group, the energy sector currently supports 9.3 million permanent jobs in this country

According to a new study, investments in oil and gas exploration and production generate substantial economic gains, as well as other benefits such as increased energy independence. The Perryman Group estimates that the industry as a whole generates an economic stimulus of almost $1.2 trillion in gross product each year, as well as more than 9.3 million permanent jobs across the nation.

The ripple effects are everywhere. If you think about the role of oil in your life, it is not only the primary source of many of our fuels, but is also critical to our lubricants, chemicals, synthetic fibers, pharmaceuticals, plastics, and many other items we come into contact with every day. The industry supports almost 1.3 million jobs in manufacturing alone and is responsible for almost $1.2 trillion in annual gross domestic product. If you think about the law, accounting, and engineering firms that serve the industry, the pipe, drilling equipment, and other manufactured goods that it requires, and the large payrolls and their effects on consumer spending, you will begin to get a picture of the enormity of the industry.

And these are good paying jobs.  They aren’t eight dollar part-time jobs down at your local big box retailer.  These are jobs that comfortably support middle class families.  These are precisely the kinds of jobs that we cannot afford to lose.

In recent years, there has been a noticeable economic difference between areas of the country where energy is being produced and where energy is not being produced.

Since December 2007, a total of 1.36 million jobs have been gained in shale oil states.

Meanwhile, a total of 424,000 jobs have been lost in non-shale oil states.

So what happens now that the shale oil boom is turning into a bust?

That is a very good question.

Even more ominous is what an oil price collapse could mean for our financial system.

The last time the price of oil declined by more than 40 dollars in less than six months, there was a financial meltdown on Wall Street and we experienced the deepest recession that we have seen since the days of the Great Depression.

And now many fear that this collapse in the price of oil could trigger another financial panic.

According to Citigroup, the energy sector now accounts for 17 percent of the high yield bond market.

J.P. Morgan says that it is actually 18 percent.

In any event, the reality of the matter is that the health of these “junk bonds” is absolutely critical to our financial system.  And according to Deutsche Bank, if these bonds start defaulting it could “trigger a broader high-yield market default cycle”

Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry. West Texas Intermediate crude is currently trading at multi-year lows of around $75 per barrel, down from $107 per barrel in June.

A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle, if materialized,” warn Deutsche strategists Oleg Melentyev and Daniel Sorid in their report.

If the price of oil stays at this level or continues to go down, it is inevitable that we will start to see some of these junk bonds go bad.

In fact, one Motley Fool article recently stated that one industry analyst believes that up to 40 percent of all energy junk bonds could eventually go into default…

The junk bonds, or noninvestment-rated bonds, of energy companies are also beginning to see heavy selling as investors start to worry that drillers could one day default on these bonds. Those defaults could get so bad, according to one analyst, that up to 40% of all energy junk bonds go into default over the next few years if oil prices don’t recover.

That would be a total nightmare for Wall Street.

And of course bond defaults would only be part of the equation.  As I wrote about the other day, a crash in junk bonds is almost always followed by a significant stock market correction.

In addition, plunging oil prices could end up absolutely destroying the banks that are holding enormous amounts of energy derivatives.  This is something that I recently covered in this article and this article.

As you read this, there are five “too big to fail” banks that each have more than 40 trillion dollars in exposure to derivatives.  Of course only a small fraction of that total exposure is made up of energy derivatives, but a small fraction of 40 trillion dollars is still a massive amount of money.

These derivatives trades are largely unregulated, and even Forbes admits that they are likely to be at the heart of the coming financial collapse…

No one understands the derivative risk positions of the Too Big To Fail Banks, JP Morgan Chase, Citigroup, Bank of America, Goldman Sachs or Morgan Stanley. There is presently no way to measure the risks involved in the leverage, quantity of collateral, or stability of counter-parties for these major institutions. To me personally they are big black holes capable of potential wrack and ruin. Without access to confidential internal data about these risky derivative positions the regulators cannot react in a timely and measured fashion to block the threat to financial stability, according to a National Bureau of Economic Research study.

So do we have any hope?

Yes, if oil prices start going back up, much of what you just read about can be averted.

Unfortunately, that does not seem likely any time soon.  Even though U.S. energy companies are cutting back on capital expenditures, most of them are still actually projecting an increase in production for 2015.  Here is one example from Bloomberg

Continental, the biggest holder of drilling rights in the Bakken, last month said 2015 output will grow between 23 percent and 29 percent even after shelving plans to allocate more money to exploration.

Higher levels of production will just drive the price of oil even lower.

At this point, Morgan Stanley is saying that the price of oil could plummet as low as $43 a barrel next year.

If that happens, it would be absolutely catastrophic to the most important industry in the United States.

In turn, that would be absolutely catastrophic for the economy as a whole.

So don’t let anyone tell you that much lower oil prices are “good” for the economy.

That is just a bunch of nonsense.

Plummeting Oil Prices Could Destroy The Banks That Are Holding Trillions In Commodity Derivatives

Panic Button - Public DomainCould rapidly falling oil prices trigger a nightmare scenario for the commodity derivatives market?  The big Wall Street banks did not expect plunging home prices to cause a mortgage-backed securities implosion back in 2008, and their models did not anticipate a decline in the price of oil by more than 40 dollars in less than six months this time either.  If the price of oil stays at this level or goes down even more, someone out there is going to have to absorb some absolutely massive losses.  In some cases, the losses will be absorbed by oil producers, but many of the big players in the industry have already locked in high prices for their oil next year through derivatives contracts.  The companies enter into these derivatives contracts for a couple of reasons.  Number one, many lenders do not want to give them any money unless they can show that they have locked in a price for their oil that is higher than the cost of production.  Secondly, derivatives contracts protect the profits of oil producers from dramatic swings in the marketplace.  These dramatic swings rarely happen, but when they do they can be absolutely crippling.  So the oil companies that have locked in high prices for their oil in 2015 and 2016 are feeling pretty good right about now.  But who is on the other end of those contracts?  In many cases, it is the big Wall Street banks, and if the price of oil does not rebound substantially they could be facing absolutely colossal losses.

It has been estimated that the six largest “too big to fail” banks control $3.9 trillion in commodity derivatives contracts.  And a very large chunk of that amount is made up of oil derivatives.

By the middle of next year, we could be facing a situation where many of these oil producers have locked in a price of 90 or 100 dollars a barrel on their oil but the price has fallen to about 50 dollars a barrel.

In such a case, the losses for those on the wrong end of the derivatives contracts would be astronomical.

At this point, some of the biggest players in the shale oil industry have already locked in high prices for most of their oil for the coming year.  The following is an excerpt from a recent article by Ambrose Evans-Pritchard

US producers have locked in higher prices through derivatives contracts. Noble Energy and Devon Energy have both hedged over three-quarters of their output for 2015.

Pioneer Natural Resources said it has options through 2016 covering two- thirds of its likely production.

So they are protected to a very large degree.  It is those that are on the losing end of those contracts that are going to get burned.

Of course not all shale oil producers protected themselves.  Those that didn’t are in danger of going under.

For example, Continental Resources cashed out approximately 4 billion dollars in hedges about a month ago in a gamble that oil prices would go back up.  Instead, they just kept falling, so now this company is likely headed for some rough financial times…

Continental Resources (CLR.N), the pioneering U.S. driller that bet big on North Dakota’s Bakken shale patch when its rivals were looking abroad, is once again flying in the face of convention: cashing out some $4 billion worth of hedges in a huge gamble that oil prices will rebound.

Late on Tuesday, the company run by Harold Hamm, the Oklahoma wildcatter who once sued OPEC, said it had opted to take profits on more than 31 million barrels worth of U.S. and Brent crude oil hedges for 2015 and 2016, plus as much as 8 million barrels’ worth of outstanding positions over the rest of 2014, netting a $433 million extra profit for the fourth quarter. Based on its third quarter production of about 128,000 barrels per day (bpd) of crude, its hedges for next year would have covered nearly two-thirds of its oil production.

Oops.

When things are nice and stable, the derivatives marketplace works quite well most of the time.

But when there is a “black swan event” such as a dramatic swing in the price of oil, it can create really big winners and really big losers.

And no matter how complicated these derivatives become, and no matter how many times you transfer risk, you can never make these bets truly safe.  The following is from a recent article by Charles Hugh Smith

Financialization is always based on the presumption that risk can be cancelled out by hedging bets made with counterparties. This sounds appealing, but as I have noted many times, risk cannot be disappeared, it can only be masked or transferred to others.

Relying on counterparties to pay out cannot make risk vanish; it only masks the risk of default by transferring the risk to counterparties, who then transfer it to still other counterparties, and so on.
This illusory vanishing act hasn’t made risk disappear: rather, it has set up a line of dominoes waiting for one domino to topple. This one domino will proceed to take down the entire line of financial dominoes.
The 35% drop in the price of oil is the first domino. All the supposedly safe, low-risk loans and bets placed on oil, made with the supreme confidence that oil would continue to trade in a band around $100/barrel, are now revealed as high-risk.

In recent years, Wall Street has been transformed into the largest casino in the history of the world.

Most of the time the big banks are very careful to make sure that they come out on top, but this time their house of cards may come toppling down on top of them.

If you think that this is good news, you should keep in mind that if they collapse it virtually guarantees a full-blown economic meltdown.  The following is an extended excerpt from one of my previous articles

—–

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.

—-

Our entire economy is based on the flow of credit.  And all of that debt comes from the banks.  That is why it has been so dangerous for us to become so deeply dependent on them.  Without their loans, the entire country could soon resemble White Flint Mall near Washington D.C….

It was once a hubbub of activity, where shoppers would snap up seasonal steals and teens would hang out to ‘look cool’.

But now White Flint Mall in Bethesda, Maryland – which opened its doors in March 1977 – looks like a modern-day mausoleum with just two tenants remaining.

Photographs taken inside the 874,000-square-foot complex show spotless faux marble floors, empty escalators and stationary elevators.

Only a couple of cars can be seen in the parking lot, where well-tended shrubbery appears to be the only thing alive.

I keep on saying it, and I will keep on saying it until it happens.  We are heading for a derivatives crisis unlike anything that we have ever seen.  It is going to make the financial meltdown of 2008 look like a walk in the park.

Our politicians promised that they would do something about the “too big to fail” banks and the out of control gambling on Wall Street, but they didn’t.

Now a day of reckoning is rapidly approaching, and it is going to horrify the entire planet.

Guess What Happened The Last Time The Price Of Oil Crashed Like This?…

Price Of Oil Causes A Junk Bond Crash - Public DomainThere has only been one other time in history when the price of oil has crashed by more than 40 dollars in less than 6 months.  The last time this happened was during the second half of 2008, and the beginning of that oil price crash preceded the great financial collapse that happened later that year by several months.  Well, now it is happening again, but this time the stakes are even higher.  When the price of oil falls dramatically, that is a sign that economic activity is slowing down.  It can also have a tremendously destabilizing affect on financial markets.  As you will read about below, energy companies now account for approximately 20 percent of the junk bond market.  And a junk bond implosion is usually a signal that a major stock market crash is on the way.  So if you are looking for a “canary in the coal mine”, keep your eye on the performance of energy junk bonds.  If they begin to collapse, that is a sign that all hell is about to break loose on Wall Street.

It would be difficult to overstate the importance of the shale oil boom to the U.S. economy.  Thanks to this boom, the United States has become the largest oil producer on the entire planet.

Yes, the U.S. now actually produces more oil than either Saudi Arabia or Russia.  This “revolution” has resulted in the creation of  millions of jobs since the last recession, and it has been one of the key factors that has kept the percentage of Americans that are employed fairly stable.

Unfortunately, the shale oil boom is coming to an abrupt end.  As a recent Vox article discussed, OPEC has essentially declared a price war on U.S. shale oil producers…

For all intents and purposes, OPEC is now engaged in a “price war” with the United States. What that means is that it’s very cheap to pump oil out of places like Saudi Arabia and Kuwait. But it’s more expensive to extract oil from shale formations in places like Texas and North Dakota. So as the price of oil keeps falling, some US producers may become unprofitable and go out of business. The result? Oil prices will stabilize and OPEC maintains its market share.

If the price of oil stays at this level or continues falling, we will see a significant number of U.S. shale oil companies go out of business and large numbers of jobs will be lost.  The Saudis know how to play hardball, and they are absolutely ruthless.  In fact, we have seen this kind of scenario happen before

Robert McNally, a White House adviser to former President George W. Bush and president of the Rapidan Group energy consultancy, told Reuters that Saudi Arabia “will accept a price decline necessary to sweat whatever supply cuts are needed to balance the market out of the US shale oil sector.” Even legendary oil man T. Boone Pickens believes Saudi Arabia is in a stand-off with US drillers and frackers to “see how the shale boys are going to stand up to a cheaper price.” This has happened once before. By the mid-1980’s, as oil output from Alaska’s North Slope and the North Sea came on line (combined production of around 5-6 million barrels a day), OPEC set off a price war to compete for market share. As a result, the price of oil sank from around $40 to just under $10 a barrel by 1986.

But the energy sector has been one of the only bright spots for the U.S. economy in recent years.  If this sector starts collapsing, it is going to have a dramatic negative impact on our economic outlook.  For example, just consider the following numbers from a recent Business Insider article

Specifically, if prices get too low, then energy companies won’t be able to cover the cost of production in the US. This spending by energy companies, also known as capital expenditures, is responsible for a lot of jobs.

“The Energy sector accounts for roughly one-third of S&P 500 capex and nearly 25% of combined capex and R&D spending,” Goldman Sachs’ Amanda Sneider writes.

Even more troubling is what this could mean for the financial markets.

As I mentioned above, energy companies now account for close to 20 percent of the entire junk bond market.  As those companies start to fail and those bonds start to go bad, that is going to hit our major banks really hard

Everyone could suffer if the collapse triggers a wave of defaults through the high-yield debt market, and in turn, hits stocks. The first to fall: the banks that were last hit by the housing crisis.

Why could that happen?

Well, energy companies make up anywhere from 15 to 20 percent of all U.S. junk debt, according to various sources.

It would be hard to overstate the seriousness of what the markets could potentially be facing.

One analyst summed it up to CNBC this way

This is the one thing I’ve seen over and over again,” said Larry McDonald, head of U.S strategy at Newedge USA’s macro group. “When high yield underperforms equity, a major credit event occurs. It’s the canary in the coal mine.

The last time junk bonds collapsed, a major stock market crash followed fairly rapidly.

And those that were hardest hit were the big Wall Street banks

During the last high-yield collapse, which centered around debt tied to the housing sector, Citigroup lost 63 percent of its value in the following 60 days, Kensho shows. Bank of America was cut in half.

I understand that some of this information is too technical for a lot of people, but the bottom line is this…

Watch junk bonds.  When they start crashing it is a sign that a major stock market collapse is right at the door.

At this point, even the mainstream media is warning about this.  Just consider the following excerpt from a recent CNN article

That swing away from junk bonds often happens shortly before stock market downturns.

“High yield does provide useful sell signals to equity investors,” Barclays analysts concluded in a recent report.

Barclays combed through the past dozen years of data. The warning signal they found is a 30% or greater increase in the spread between Treasuries and junk bonds before a dip.

If you have been waiting for the next major financial collapse, what you have just read in this article indicates that it is now closer than it has ever been.

Over the coming weeks, keep your eye on the price of oil, keep your eye on the junk bond market and keep your eye on the big banks.

Trouble is brewing, and nobody is quite sure exactly what comes next.

10 Examples Of The Social Decay That Is Eating Away At America Like Cancer

Social Decay - Public DomainIt isn’t just our economy that is crumbling.  Something is happening to America that no amount of money will be able to fix.  Everywhere around us we can see evidence of the social decay that is systematically eating away at the foundations of our society.  It can be found on the streets of our inner cities, in dark basements in extremely rural communities, in the most prestigious boardrooms on Wall Street, and definitely in the halls of power in Washington.   Bringing in an entirely different crop of politicians or printing gigantic mountains of money is not going to solve this problem, because it exists in the hearts of millions of ordinary men and women.  The truth is that we really need to take a good, long look at ourselves in the mirror, because we need to take a 180 degree turn as a nation.  What we are doing now is clearly not working, and the longer that we take to address this problem the worse it is going to get.  The following are 10 examples of the social decay that is eating away at America like cancer.  Individually, they could be dismissed as isolated incidents.  But I could have easily listed 100 examples or 1000 examples.  Every single day, we are inundated with reports like these.  The symptoms of the decay of our society are all around us.  We just have to be willing to look at them…

#1 It seems like many of the most horrific crimes these days are happening in middle America.  For example, a woman was recently hit over the head, raped and set on fire in a park in Wichita Kansas

Wichita police say a woman was sexually assaulted, hit on the head, and set on fire Monday night in Fairmount Park.

According to police, the woman was on the ground, almost in a crawl, barely moving, and naked.

The woman was helped by a neighbor – Johnnye Marshall woke up her boyfriend Deon McPherson when she heard somebody scream for help.

“What if that was my daughter?  I’d want somebody to go in and get her,” McPherson told The Wichita Eagle.  “Where there wasn’t blood, there was a burn.”

The flames from the fire were about 2 to 4 feet high.  McPherson stayed with the woman until firefighters arrived.

#2 I have repeatedly written about how the United States is the most obese of all the major industrialized nations.  Well, now we are using our extreme obesity to try to hide things that we have stolen

A 350-pound Wal-mart shopper was arrested yesterday after he was found sitting atop five stolen rib eye steaks in the seat of a motorized scooter that he was riding around the South Carolina store.

Rodney Fowler, 43, was spotted Tuesday afternoon placing the steaks in his scooter by a Walmart loss prevention officer, according to a police report.

“Suspect sat on the steaks and exited the store passing all points of sale, without attempting to pay for said merchandise,” cops noted.

The 5’ 5” Fowler was then confronted by the Walmart worker and escorted back into the store, where he was later arrested by police for shoplifting. “Due to his size, the suspect was cuffed using two pairs of cuffs,” investigators noted.

#3 What would you do if a police officer pulled you over for a traffic stop and exposed his private parts to you when he came up to your vehicle?  Well, this actually has been happening in New Jersey

A Newton police officer was arrested Monday on accusations that he unzipped his pants and exposed himself to young male drivers during “numerous” traffic stops.

Jason R. Miller, 37, of Hampton Township, a patrolman since 2001, turned himself in at the Sussex County Prosecutor’s Office and has been indefinitely suspended without pay pending the outcome of the criminal case, according to a statement issued by Sussex County Prosecutor Francis Koch and Newton Police Chief Michael Richards.

Miller was charged with two counts of official misconduct, one count of a pattern of official misconduct and one count of lewdness, the statement said.

Miller would expose his genitals to motorists “to satisfy his prurient interests” and then let them leave without issuing traffic summonses, according to a police complaint.

#4 If someone was planning to “accidentally” kill his wealthy wife, you would think that he would be smart enough not to put an “X” on the map where he planned to do it.  But that is apparently precisely what one man in Colorado foolishly did…

A suburban Denver man charged with pushing his wife to her death off a cliff in Colorado’s Rocky Mountain National Park could not explain to investigators why he had a park map with an “X” drawn at the spot where she fell.

Newly unsealed court documents say Harold Henthorn denied using the map during the deadly September 29, 2012, hike.

But he told friends that he scouted out the park’s steep and craggy terrain at least six times, trying to find the perfect place to take Toni to celebrate their 12th year of marriage.

It also turns out that his first wife died in a “freak accident” too.

Some coincidence, eh?

#5 It is one thing to kill someone.  It is another thing to hack the dead body up with a saw and cook it.  I don’t know what in the world has happened to the state of Florida, but a lot of really weird stuff has been going on down there lately…

Angela Stoldt told officials she took a hacksaw to her neighbor’s body last year and tried to cook away evidence of James Sheaffer.

One leg went in the oven. Other parts went into pots.

Stoldt’s house in Deltona smelled of burning flesh, but she assured her daughter it was just a rat broiling in the oven, according to details made public last week after a grand jury charged her with first-degree murder.

“Thursday is when I was cooking him,” Stoldt told investigators. “Friday is when I was dumping him.”

The 42-year-old Deltona woman is accused of killing Sheaffer, 36, a limousine driver, in April 2013.

#6 In recent years, it seems like there has been a constant stream of news stories about twisted men locking up women in their basements and forcing them to be sex slaves.  The latest example comes from Cincinnati

A man pleaded guilty Friday to locking multiple women in his Cincinnati home and forcing them into prostitution.

Christopher Hisle, 45, was arrested on April 8, 2014, in Louisville, Kentucky after authorities said he drove a young woman from Cincinnati to Louisville to engage in prostitution at a nearby Red Roof Inn.

An FBI investigation later revealed Hisle was involved in forcing and compelling the women to engage in commercial sex for at least two years. He held the women at his Avondale home at 908 Lexington Ave., documents state .

It is unknown how many women Hisle held at one time and what their ages were. Authorities said at least 12 women are victims of his human trafficking operation.

#7 Why would a grown woman want to have sex with a 10-year-old boy?  You would have to be incredibly sick to try to do such a thing, but that is reportedly what one 25-year-old babysitter in Connecticut is charged with doing.  In fact, she is accused of doing this multiple times

A babysitter has been accused of repeatedly having sex with her friend’s 10-year-old son while she was looking after him and his other siblings.

Marybeth Rataic is facing 10 felony charges after allegedly having sex three times with the boy at his home in Meriden, Connecticut.

Police say that in one instance, the 25-year-old from Willimantic, had sex with the boy while his siblings slept in the room after creeping into the child’s room, which he shared with his brothers.

She is also accused of having sex with the 10-year-old while his mother was giving birth in hospital.

#8  A minor scuffle between two girls at a California high school erupted into a melee when a 400 pound police officer slammed his fist into the face of one of the girls.   Other students began to swarm the officer, and at that point things got wildly out of control

A lunchtime fight at a Central California high school Wednesday ended with police swarming onto campus, closing the school and putting six students under arrest, authorities said.

However, Ernest Righetti High School students say the initial fight was relatively minor, and that it was a Sheriff’s deputy striking one of the girls involved in the brawl that sparked the mass violence on campus.

That shocking moment was filmed by a bystander and has since been posted online by the Santa Maria Times.

The video shows the officer trying to break up a fight between two girls, only to hit one of the young women and drag her away. Students watching the altercation appear outraged by the act, and start to swarm the officer.

#9 When I was growing up, it seemed like almost everyone watched the Cosby Show on Thursday night.  Bill Cosby was “America’s Dad”, and he was universally respected.  Well, it turns out that now he is being accused of rape by 15 different women.  How is it possible that such horrific crimes could be covered up for so long, and what does that say about our society?  The following comes from Time Magazine

In Cosby’s story we find accusations of women being silenced for decades by threats, lawyers, fear and a generally defensive public, who until now were uninterested in being awakened from sweet dreams of their TV father.

The NPR audio interview released last week showcases Cosby’s clearly pre-determined response to the softest, almost nervous questions about the rape allegations: deafening silence.

This should not be viewed as the mature response of a well respected, integrity filled man (and in the case of his wife, a beloved, regal woman) attempting to maintain dignity and stay above the fray. It should be seen as what it is: A power move by a someone so arrogant that he thinks he shouldn’t even be asked about the fact that 15 women are accusing him of a horrific crime.

#10 As I have written about previously, the violence that we have seen in Ferguson, Missouri this year is a perfect example of how the streets of America can descend into chaos.  And now the upcoming grand jury decision threatens to rekindle that violence.

Instead of sober deliberation about this case and sincere attempts at peaceful reconciliation, both sides are preparing for mass civil unrest.  If the grand jury reaches “the wrong decision” we could see even more rioting, looting, violence and police brutality than we saw the first time around.

And this time, it may not be limited to Ferguson.  As the Daily Sheeple has pointed out, protest organizers have put up a Tumblr page for something called “The Ferguson National Response Network“.  According to that page,  “planned responses” are being organized in 82 cities throughout the United States.  In addition, protest organizers have released a list of 19 “Proposed Rules of Engagement” for confrontations with law enforcement authorities.  Needless to say, all of this sounds quite ominous.  The following are the 82 cities where “planned responses” are currently being organized…

Albany, NY
Albuquerque, NM
Atlanta, GA
Austin, TX
Baltimore, MD
Bangor, ME
Beavercreek, OH
Blacksburg, VA
Boston, MA
Buffalo, NY
Carbondale, IL
Chapel Hill, NC
Chattanooga, TN
Chicago, IL
Cleveland, OH
Columbia, MO
Columbus, OH
Dallas, TX
Denver, CO
Des Moines, IA
Detroit, MI
Durham, NC
Ferguson, MO
Gainesville, FL
Grand Rapids, MI
Greensboro, NC
Greenville, NC
Grinnell, IA
Houston, TX
Indianapolis, IN
Iowa City, IA
Jackson, MI
Kansas City, MO
Kennesaw, GA
Lawrence, KS
Lexington, KY
Longview, TX
Los Angeles, CA
Louisville, KY
Meadville, PA
Memphis, TN
Milwaukee, WI
Minneapolis, MN
Mobile, AL
Monpelier, VT
Monroeville, OH
Nashville, TN
New London, CT
New Orleans, LA
Newark, NJ
Northampton, MA
NYC, NY
Oak Ridge, TN
Oakland, CA
Olympia, WA
Oshkosh, WI
Phoenix, AZ
Philadelphia, PA
Pittsburgh, PA
Portland, OR
Providence, RI
Raleigh, NC
Rochester, NY
Rocky Mount, NC
San Diego, CA
Santa Barbara, CA
Seattle, WA
South Hadley, MA
Spring Valley, NY
Springfield, MA
St. Paul, MN
St. Petersburg, FL
Stroudsberg, PA
Tallahassee, FL
Tampa, FL
Toledo, OH
Toronto, Canada
Tucson, AZ
Washington, D.C.
West Hartford, CT
West Palm Beach, FL
Williamsburg, VA
Worcester, MA

Police in Ferguson are warning citizens that they better buy guns because they “will not be able to protect you or your family“.  And
CNN is reporting that gun sales in Ferguson are indeed surging.

Hopefully this grand jury decision will come and go and peace will prevail in Ferguson and elsewhere.

But without a doubt, the thin veneer of civilization that we all take for granted on a daily basis is disappearing.

The foundations of our society are steadily rotting and decaying, and our underlying problems are getting worse with each passing day.

How long will our nation be able to remain stable if this continues?

If Everything Is Just Fine, Why Are So Many Really Smart People Forecasting Economic Disaster?

Apocalyptic Disaster - Public DomainThe parallels between the false prosperity of 2007 and the false prosperity of 2014 are rather striking.  If we go back and look at the numbers in the fall of 2007, we find that the Dow set an all-time high in October, margin debt on Wall Street had spiked to record levels, the unemployment rate was below 5 percent and Americans were getting ready to spend a record amount of money that Christmas season.  But then the very next year the worst economic crisis since the Great Depression shook the entire planet and everyone wondered why most people never saw it coming.  Well, now a similar pattern is unfolding right before our eyes.  The Dow and the S&P 500 both hit record highs on Monday, margin debt on Wall Street is hovering near record levels, the unemployment rate has ticked down a little bit and Americans are getting ready to spend more than 600 billion dollars this Christmas season.  The truth is that the economy seems pretty stable for the moment, and most people cannot even imagine that an economic collapse is coming.  So why are so many really smart people forecasting economic disaster in the near future?

For example, just consider what the Jerome Levy Forecasting Center is saying.  This is an organization with a tremendous economic forecasting record that goes all the way back to the Great Depression.  In fact, it predicted ahead of time the financial trouble and the recession that would happen in 2008.  Well, now this company is forecasting that there is a 65 percent chance that there will be a global recession by the end of next year…

In 1929, a businessman and economist by the name of Jerome Levy didn’t like what he saw in his analysis of corporate profits. He sold his stocks before the October crash.

Almost eight decades later, the consultancy company that bears his name declared “the next recession will be caused by the deflating housing bubble.” By February 2007, it predicted problems in the subprime-mortgage market would spread “to virtually all financial markets.” In October 2007, it saw imminent recession — the slump began two months later.

The Jerome Levy Forecasting Center, based in Mount Kisco, New York, and run by Jerome’s grandson David, is again more worried than its peers. Its half-dozen analysts attach a 65 percent probability of a worldwide recession forcing a contraction in the U.S. by the end of next year.

Could they be wrong?

It’s certainly possible.

But I wouldn’t bet against them.

John Hussman is another expert that is warning of financial disaster on the horizon.  He believes that we are experiencing a massive stock market bubble right now and that stocks are approximately double the value that they should be

If you look at corporate profits and especially corporate profit margins, they’re one of the most cyclical and mean-reverting series in economics. Right now, we have corporate profits that are close to about 11% of GDP, but if you look at that series you will find that corporate profits as a share of GDP have always dropped back to about 5.5% or below in every single economic cycle including recent decades, including not only the financial crisis but 2002 and every other economic cycle we have been in.

Right now stocks as a multiple of last year’s expected earnings may look only modestly over valued or modestly richly valued. Really if you look at the measures of valuation that are most correlated to the returns that stocks deliver over time say over seven years or over the next 10 years the S&P 500 in our estimation is about double the level of valuation that would give investors a normal rate of return.

Could you imagine the chaos that would ensue if stocks really did drop by 50 percent?

Well, Hussman says that this is precisely what must happen in order for stock prices to return to historical norms…

Right now, like I say, we are looking at stocks that have been pressed to long-term expected returns that are really dismal. But more important than that, in every market cycle that we’ve seen with the mild exception of 2002, we’ve seen stocks price revert back to normal rates of return. In order to get to that point from here, we would have to have equities drop by about half.

If that does happen, it will make the crisis of 2008 look like a Sunday picnic.

Meanwhile, other very prominent thinkers are also warning that an economic nightmare is rapidly approaching.

Economic cycle theorist Martin Armstrong foresees major economic problems in 2015 which will ultimately lead to “civil unrest”  in 2016

It looks more and more like a serious political uprising will erupt by 2016 once the economy turns down. That is the magic ingredient. Turn the economy down and you get civil unrest and revolution.

And of course there are a whole lot of other economic cycle theorists that are forecasting that we are about to experience a massive economic downturn as well.  For much more on this, please see this article and this article.

What is truly frightening is that we have never even come close to recovering from the last economic crisis.  One poll that was taken just prior to the recent election found that only 28 percent of Americans said that their families were doing better financially.  In addition, here are some more survey numbers about how Americans are feeling about the economy

According to voter exit polls conducted by CNN, 78% said they are worried about the economy, with 69% saying that, in their view, economic conditions are not good. 65% responded that the country is on the wrong track vs. only 31% who believed that it is headed in the right direction.

Even though we are repeating so many of the same patterns that we experienced back in 2007, we are doing so with a fundamentally weaker economy.  The last crisis did a tremendous amount of permanent damage to us.  For an extensive look at this, please see my previous article entitled “12 Charts That Show The Permanent Damage That Has Been Done To The U.S. Economy“.

And there are lots of signs that much of the planet is already entering another major economic slowdown.  In a recent article, Brandon Smith summarized some of these.  He says that we are currently witnessing “the last gasp of the global economy“…

Global exports, and thus consumer demand, are plunging. Germany, the only pillar left to prop up the failing European Union, has experienced a severe decline in exports not seen since 2009.

China, the largest exporter and importer in the world, and Chinese companies, have been caught in a number of instances using fraudulent invoices to artificially inflate their own export numbers, in some cases reporting 50% more exported goods than had actually existed.

China’s manufacturing has also declined for the past five months, exposing the nature of its inflated export stats and indicating a global slowdown.

The Baltic Dry Index, a measure of global shipping rates for raw goods, and thus a measure of demand for shipping, continues to drag along near historic lows.

The U.S. consumer (the only economic asset the U.S. has besides the dollar’s world reserve status), has seen declines in spending as well as wages.

In the meantime, long term jobless Americans continue to fall off welfare rolls by the millions, making unemployment numbers look good, but the overall future picture look terrible as participation rates dissolve into the ether of government statistics.

How is such poverty being hidden? Foodstamps. Plain and simple. Nearly 50 million Americans now subsist on food stamp programs today, and this number shows no signs of dropping. In states like Illinois, two people sign up for food assistance for every citizen that happens to find a job.

From time to time, I get accused of “spreading fear” and of being obsessed with “doom and gloom”.

But that is not the case at all.

I actually want our economy to stay stable for as long as possible.  Many Americans don’t realize this, but even the poorest of us live in luxury compared to much of the rest of the world.  It would be wonderful if we could all live out our lives in peace and quiet and safety.

Unfortunately, it is simply not going to happen.

And it does not take an expert to see what is coming.

Anyone with half a brain should be able to see the economic disaster that is approaching.

There is hope in understanding what is happening and there is hope in getting prepared.  Millions of Americans that are willingly blind to our problems are going to have their lives absolutely destroyed when they get blindsided by the coming crisis.  So please use this brief period of relative stability to get prepared and to warn others.

Once this false bubble of hope runs out, all of our lives are going to dramatically change.

If A Few Ebola Cases Can Make The Stock Market Crash This Much, What Would A Full-Blown Pandemic Mean?

Stock Market Crash Ebola - Public DomainIs Ebola going to cause another of the massive October stock market crashes that Wall Street is famous for?  At one point on Wednesday, the Dow was down a staggering 460 points.  It ultimately closed down just 173 points, but this was the fifth day in a row that the Dow has declined.  And of course Ebola is one of the primary things that is being blamed for this stunning stock market drop.  Since September 19th, we have seen the S&P 500 fall about 7 percent and the Nasdaq fall nearly 10 percent.  The VIX (the most important measure of volatility on Wall Street) shot up an astounding 22 percent on Wednesday.  So many of the ominous signs for the markets that I wrote about on Tuesday are now even worse.  If a handful of Ebola cases in the United States can cause this much panic in the financial world, what would a full-blown pandemic look like?

Of course Ebola is not the only reason why stocks are declining.  Just look at what is happening over in Europe.  The European Stoxx 600 index is already down a whopping 11.4 percent from the high that it hit just 18 days ago.  That is officially considered to be “correction” territory.

And Greece experienced a full-blown stock market collapse on Wednesday

As if the world didn’t have enough to be worried about (ISIS, Ebola, slowing China, Ukraine, slowing Germany, Fed tightening, etc.) now look what’s back: Greece. And in a big way.

The stock market is down over 9% on Wednesday, which is about as big as crashes come.

And the banks are getting absolutely smashed.

In general, markets tend to fall faster than they rise.

When there is a sudden downturn, the price action can be violent.  And just like we saw back in 2008, financial stocks are leading the way.  Just check out what happened to some of the biggest banks in America before the final bell sounded…

Volume leader Bank of America, down 5%, Citigroup, off 5.5%, and JP Morgan, down 4.6%, were particularly hard hit.

And thanks to Ebola fears, airline stocks plummeted as well

Airline stocks were roiled by the prospects of curtailed travel due to the spreading Ebola virus. United Continental fell 4% and American Airlines was off 4.3%. Among tech stocks, Intel lost 3.3%. Apple fell 1.7% and Microsoft slipped 2.3%.

An increasing number of voices are concerned that we could be on the verge of a repeat of what happened back in 2008.

For example, Professor Steve Keen, the head of Economics, History & Politics at Kingston University in London, wrote the following in a piece for CNN entitled “Brace yourself for another financial crash“…

My acceleration indicator has been flagging that the stock market was due for a fall since mid-2013.

It’s a tribute to the power of the Fed’s Quantitative Easing that the market continued to defy the gravity of decelerating debt for so long. QE was really a program to inflate asset prices since, as my colleague Michael Hudson puts it, “the Fed’s helicopter money fell on Wall Street, not Main Street”.

But with QE being unwound, the stock market is now back under the control of the not so tender mercies of excessive private debt.

So welcome to the New Crisis — same as the Old Crisis. The roller coaster ride is likely to continue.

Others are even more pessimistic.  For example, just check out what Daniel Ameduri of Future Money Trends recently told his readers

“If it drops below 15,000 points I would suggest people start buying food and ammo, because this depression is about to turn nasty.”

However, keep in mind that not that much has really changed from a month or two ago.

Yes, we now have had three confirmed cases of Ebola in the United States, but this could be just the beginning.

At first, the fear of Ebola will be worse than the disease.

But if a worst-case scenario does develop in the United States where hundreds of thousands of people are getting the virus, the fear such a pandemic will create will be off the charts.

In the midst of a full-blown Ebola pandemic, we wouldn’t just be talking about a 10 percent, 20 percent or 30 percent stock market decline.

Rather, we would be talking about the greatest stock market collapse in the history of stock market collapses.  In essence, there would not be much of a market at all at that point.

And if Ebola does start spreading wildly in this country, we would have a credit crunch that would make 2008 look like a Sunday picnic.

During times of extraordinary fear, financial institutions do not want to lend money to each other or to consumers.  But our economy is entirely based on debt.  If credit were to stop flowing, we would essentially not have an economy.

That is why we need to pray that this Ebola crisis stops here.  But thanks to the incompetence of Barack Obama and the CDC, there has been a series of very grave errors in trying to contain this disease.  This display of incompetence would be absolutely hilarious if we weren’t talking about a disease that could potentially kill millions of us.

Let us hope for the best, but let us also prepare for the worst.  That means stocking up on the food and supplies that you will need to stay isolated for an extended period of time.  As we have seen so many times in the past, basic essentials fly off of store shelves during any type of an emergency.  During an extended Ebola pandemic, those essentials would be in very short supply and prices on the basics would absolutely skyrocket.  Those that have taken the time to get prepared now will be way ahead of the game.

And if there were dozens or hundreds of people in your community that were contagious, you would definitely not want to go to a grocery store or anywhere else where large numbers of people circulate.

The key during any major pandemic is to keep yourself and your family isolated from the virus.  This is basic common sense, but it is something that Barack Obama does not seem to understand.  As I write this, he still has not done anything to restrict air travel between the United States and West Africa.  Hopefully this very foolish decision will not result in scores of dead Americans.

9 Ominous Signals Coming From The Financial Markets That We Have Not Seen In Years

Ominous Storm Clouds Gathering - Public DomainIs the stock market about to crash?  Hopefully not, and there definitely have been quite a few “false alarms” over the past few years.  But without a doubt we have been living through one of the greatest financial bubbles in U.S. history, and the markets are absolutely primed for a full-blown crash.  That doesn’t mean that one will happen now, but we are starting to see some ominous things happen in the financial world that we have not seen happen in a very long time.  So many of the same patterns that we witnessed just prior to the bursting of the dotcom bubble and just prior to the 2008 financial crisis are repeating themselves again.  Hopefully we still have at least a little bit more time before stocks completely crash, because when this market does implode it is going to be a doozy.

The following are 9 ominous signals coming from the financial markets that we have not seen in years…

#1 By the time the markets closed on Monday, we had witnessed the biggest three day decline for U.S. stocks since 2011.

#2 On Monday, the S&P 500 moved below its 200 day moving average for the first time in about two years.  The last time this happened after such an extended streak of success, the S&P 500 ended up declining by a total of 22 percent.

#3 This week the put-call ratio actually moved higher than it was at any point during the collapse of Lehman Brothers in 2008.  This is an indication that there is a tremendous amount of fear on Wall Street right now.

#4 Everybody is watching the VIX at the moment.  According to the Economic Policy Journal, the VIX has now risen to the highest level that it has been since the heart of the European debt crisis.  This is another indicator that there is extraordinary fear on Wall Street…

US stock market volatility has jumped to the highest since the eurozone debt crisis, according to a closely watched index, the the CBOE Vix index of implied US share price volatility.

It jumped to 24.6 late on Monday and is up again this morning. On Thursday, it was as low as 15.

That’s a very strong move, but things have been much worse. At height of the recent financial crisis – the Vix index peaked at 80.1 in November 2008.

Could we get there again? Yeah.

#5 The price of oil is crashing.  This also happened in 2008 just before the financial crisis erupted.  At this point, the price of oil is now the lowest that it has been in more than two years.

#6 As Chris Kimble has pointed out, the chart for the Dow has formed a “Doji Star topping pattern”.  We also saw this happen in 2007.  Could this be an indication that we are on the verge of another stock market crash similar to what happened in 2008?

#7 Canadian stocks are actually doing even worse than U.S. stocks.  At this point, Canadian stocks have already dropped more than 10 percent from the peak of the market.

#8 European stocks have also had a very rough month.  For example, German stocks have already dropped about 10 percent since July, and there are growing concerns about the overall health of the German economy.

#9 The wealthy are hoarding cash and precious metals right now.  In fact, one British news report stated that sales of gold bars to wealthy customers are up 243 percent so far this year.

So what comes next?

Some experts are saying that this is the perfect time to buy stocks at value prices.  For example, USA Today published a story with the following headline on Tuesday: “Time to ‘buy’ the fear? One Wall Street pro says yes“.

Other experts, however, believe that this could represent a major turning point for the financial markets.

Just consider what Abigail Doolittle recently told CNBC

Technical strategist Abigail Doolittle is holding tight to her prediction of market doom ahead, asserting that a recent move in Wall Street’s fear gauge is signaling the way.

Doolittle, founder of Peak Theories Research, has made headlines lately suggesting a market correction worse than anyone thinks is ahead. The long-term possibility, she has said, is a 60 percent collapse for the S&P 500.

In early August, Doolittle was warning both of a looming “super spike” in the CBOE Volatility Index as well as a “death cross” in the 10-year Treasury note. The former referenced a sharp move higher in the “VIX,” while the latter used Wall Street lingo for an event that already occurred in which the fixed income benchmark saw its 50-day moving average cross below its 200-day trend line.

Both, she said, served as indicators for trouble ahead.

So what do you think?

Are we about to witness a stock market crash and another major financial crisis?

Or is this just another “false alarm” that will soon fade?

Please feel free to share what you think by posting a comment below…

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.

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