Warren Buffett

Warnings Of A Dramatic Inflationary Collapse Just Keep Getting Louder

Signs of impending economic doom continue to grow all around us.  For years, highly respected experts have been warning about the steady destruction of our standard of living and the death of the U.S. dollar.  Perhaps you didn’t listen to those voices at first, and that is understandable.  Most Americans have their hands full making a living and taking care of their families.  But then housing prices started to go absolutely nuts, health costs continued to spiral out of control and a trip to the grocery store just kept getting more painful.  At this point, nobody can honestly deny that inflation has become a major problem.

But even though the chorus of voices that is warning of a dramatic inflationary collapse is growing by the day, the Federal Reserve just keeps pumping more giant piles of money into the financial system, and the federal government continues to engage in the most reckless spending binge in the entirety of U.S. history.

Despite the utterly insane policies of our “leaders”, the U.S. economy continues to languish in economic purgatory.  Trillions upon trillions of dollars have been poured into the economy, and yet the U.S. still has 8.2 million fewer jobs than it did last February.

They had hoped to create an “economic boom”, but instead they are setting the stage for an implosion of epic proportions.  In fact, John Williams of shadowstats.com insists that we are “eventually headed into a hyperinflationary economic collapse”…

So, is the choice inflation or implosion? Williams says, “That’s the choice, and I think we are going to have a combination of both of them. I think we are eventually headed into a hyperinflationary economic collapse. It’s not that we haven’t been in an economic collapse already, we are coming back some now. . . . The Fed has been creating money at a pace that has never been seen before. You are basically up 75% (in money creation) year over year. This is unprecedented. Normally, it might be up 1% or 2% year over year. The exploding money supply will lead to inflation. I am not saying we are going to get to 75% inflation—yet, but you are getting up to the 4% or 5% range, and you are soon going to be seeing 10% range year over year. . . . The Fed has lost control of inflation.”

And remember, when the Fed has to admit the official inflation rate is 10%, John Williams says, “When they have to admit the inflation rate is 10%, my number is going to be up to around 15% or higher. My number rides on top of their number.”

You don’t want to believe Williams?

That is fine.

He has just been right time after time over the years.

But feel free to ignore him if you wish.

If you are determined to ignore the truth, you probably will not like what Egon von Greyerz is saying either…

As technological developments and markets go parabolic, we observe many market “experts,” even intelligent ones, forecasting that we are now in an exponential economic era. Thus many believe that this will go on forever. This is the typical attitude at market and economic tops and guarantees that THIS WILL NOT END WELL!

It is clearly absolute nonsense to believe that exponential expansion based on deficits, debts and fake money is the beginning of a new era. Anyone studying the economy and history of markets knows that exponential moves indicate the end of an era and not the beginning. As I have repeatedly said, history is our best teacher and it both rhymes and repeats itself. And history now gives us dire warnings.

If you wish to reject what these experts are telling us, can you point to another time in history when officials have wildly created new money and everything has turned out just great?

“New money” is always such a tempting solution, because every time it always seems to work at the beginning.  It is kind of like a tonic that instantly makes you feel better for a few hours but that ultimately kills you in the end as you keep taking it.

Now that we have greatly accelerated our journey toward an inflationary collapse, even Warren Buffett has started to sound the alarm…

“We are seeing substantial inflation,” Warren Buffett told attendees at last week’s annual Berkshire Hathaway shareholder meeting. “We are raising prices. People are raising prices to us, and it’s being accepted.”

Ordinary Americans are searching for “inflation” online more frequently now than they have in more than a decade, data from Deutsche Bank strategist Jim Reid shows.

But CNN insists that everything is going to be just fine.

So that means that we don’t have anything to be concerned about, right?

Personally, I am deeply concerned about the second half of this calendar year, and it appears that I am not the only one.  Billionaires and corporate insiders have been offloading stocks at a very brisk pace in recent weeks…

When the country’s CEOs and billionaires start to head to the exits a little bit quicker than usual at the tail end of a 13 year bull market, it may be time to start paying attention.

That’s what we found noteworthy about a recent Bloomberg piece, which noted that stock sales by some of the world’s richest shareholders are “reaping a windfall”, thanks to our current inflated equity markets, “to the tune of trillions”.

Amazon.com’s Jeff Bezos and Google co-founder Sergey Brin are just two of the well known names that have been offloading stock. They are joined by names like Mark Zuckerberg and Larry Ellison.

If you have been snoozing for the last few years, now is the time to wake up.

Because we are steamrolling toward an economic implosion that will make the history books, and our economic problems are just one element of the “perfect storm” that our society is facing.

But a lot of people out there are going to be absolutely blindsided by what is coming, because they have no interest in listening to the warnings.

Instead, they have placed their trust in the talking heads that the corporate media puts on television, and those talking heads keep assuring us that everything is going to be just fine.

***Michael’s new book entitled “Lost Prophecies Of The Future Of America” is now available in paperback and for the Kindle on Amazon.***

About the Author: My name is Michael Snyder and my brand new book entitled “Lost Prophecies Of The Future Of America” is now available on Amazon.com.  In addition to my new book, I have written four others that are available on Amazon.com including The Beginning Of The End, Get Prepared Now, and Living A Life That Really Matters. (#CommissionsEarned)  By purchasing the books you help to support the work that my wife and I are doing, and by giving it to others you help to multiply the impact that we are having on people all over the globe.  I have published thousands of articles on The Economic Collapse Blog, End Of The American Dream and The Most Important News, and the articles that I publish on those sites are republished on dozens of other prominent websites all over the globe.  I always freely and happily allow others to republish my articles on their own websites, but I also ask that they include this “About the Author” section with each article.  The material contained in this article is for general information purposes only, and readers should consult licensed professionals before making any legal, business, financial or health decisions.  I encourage you to follow me on social media on Facebook, Twitter and Parler, and any way that you can share these articles with others is a great help.  During these very challenging times, people will need hope more than ever before, and it is our goal to share the gospel of Jesus Christ with as many people as we possibly can.

Guess What Warren Buffett Is Doing With His Money Right Now?

Does Warren Buffett believe that a major financial crisis is coming?  In life, what people do is far more important than what they say, and what Warren Buffett is doing with his money right now speaks volumes.  During the second half of 2019, a lot of the “experts” are warning about the possibility of a market crash, and corporate insiders have been selling stocks at a rate that we haven’t seen since the last financial crisis.  There appears to be a widespread belief that the market is about to take a really negative turn, and we haven’t seen this sort of a “race for the exits” in a very long time.  But when there is a lot of fear on Wall Street, that can sometimes be an opportunity to make a lot of money.  Warren Buffett certainly hasn’t been afraid to “zig” when others are “zagging” over the years, and if he believed that there were great opportunities in the marketplace right now he would not hesitate to strike.  But as you will see below, he’s not doing that.

Warren Buffett is the most famous investor in America today, but if you are not familiar with him, the following is a pretty good introduction from Wikipedia…

Warren Edward Buffett (/ˈbʌfɪt/; born August 30, 1930)[2] is an American business magnate, investor, speaker and philanthropist who serves as the chairman and CEO of Berkshire Hathaway. He is considered one of the most successful investors in the world[3][4] and has a net worth of US$82 billion as of July 18, 2019, making him the third-wealthiest person in the world.[5]

Buffett was born in Omaha, Nebraska. He developed an interest in business and investing in his youth, eventually entering the Wharton School of the University of Pennsylvania in 1947 before transferring and graduating from the University of Nebraska at the age of 19. He went on to graduate from Columbia Business School, where he molded his investment philosophy around the concept of value investing that was pioneered by Benjamin Graham. He attended New York Institute of Finance to focus his economics background and soon after began various business partnerships, including one with Graham. He created Buffett Partnership, Ltd in 1956 and his firm eventually acquired a textile manufacturing firm called Berkshire Hathaway, assuming its name to create a diversified holding company. In 1978, Charlie Munger joined Buffett and became vice chairman of the company.[6][7]

Buffett became one of the wealthiest people in the entire country by aggressively investing his money.  His keen instincts have enabled him to make the right move far more often than not, and that is why what he is doing with his money right now has so many people concerned.

Instead of pumping his company’s cash into the stock market, Buffett has decided to hoard it.  In fact, Berkshire Hathaway currently has 122 billion dollars that is just sitting there and doing nothing at all…

Warren Buffett, known for being one of the world’s most prescient investors, has kept quiet on whether U.S. equities are too expensive at a time when the global economy is slowing, Bloomberg reports. But he’s reportedly hoarding a record $122 billion in cash at Berkshire Hathaway Inc., leading to some speculation that he sees a recession on the horizon, or at least is sending some sort of warning. The cash pile is more than half the value of Berkshire’s $208 billion portfolio of public companies, and the only time that percentage has reportedly been higher since 1987 was in the years leading up to the 2008 financial crisis.

Yet again, we are talking about something that hasn’t happened since the last financial crisis.

Red flags are popping up all around us, and yet most people are choosing not to pay attention.

If Buffett believed that an “economic boom” was coming and that stock prices were going to go higher, sitting on a giant mountain of cash wouldn’t make any sense at all.

But if he believed that the market was about to crash and that stock prices would soon be far cheaper than they are now, having a mammoth cash hoard would make all of the sense in the world.

Of course Buffett is not the only one that can see what is coming.  Earlier today, a CNBC article lamented the fact that there has been a “sudden pullback” in spending among wealthy individuals all over America…

From real estate and retail stores to classic cars and art, the weakest segment of the American economy right now is the very top. While the middle class and broader consumer sections continue to spend, economists say the sudden pullback among the wealthy could cascade down to the rest of the economy and create a further drag on growth.

Luxury real estate is having its worst year since the financial crisis, with pricey markets like Manhattan seeing six straight quarters of sales declines. According to Redfin, sales of homes priced at $1.5 million or more fell 5% in the U.S. in the second quarter. Unsold mansions and penthouses are piling up across the country, especially in ritzy resort towns, with a nearly three-year supply of luxury listings in Aspen, Colorado, and the Hamptons in New York.

When an economic crisis is ahead, the correct thing to do is to reduce spending, and obviously that is precisely what many at the top of the economic pyramid have decided to do.

Meanwhile, millions of other Americans do not understand what is happening, and they just assume that everything is going to be just fine somehow.

A lot of people out there seem to believe that the problems that caused the last financial crisis were “fixed” and that the good times will just keep on rolling for many years to come.

Perhaps the blind optimists will be proven right and Warren Buffett will be proven wrong this time.

It is theoretically possible that this could happen, but I certainly wouldn’t bet on it.

About the author: Michael Snyder is a nationally-syndicated writer, media personality and political activist. He is the author of four books including Get Prepared Now, The Beginning Of The End and Living A Life That Really Matters. His articles are originally published on The Economic Collapse Blog, End Of The American Dream and The Most Important News. From there, his articles are republished on dozens of other prominent websites. If you would like to republish his articles, please feel free to do so. The more people that see this information the better, and we need to wake more people up while there is still time.

According To The “Buffett Indicator”, The Stock Market Is More Primed For A Crash Than It Has Ever Been Before

Warren Buffett’s favorite indicator is telling us that stocks are more overvalued right now than they have ever been before in American history.  That doesn’t mean that a stock market crash is imminent.  In fact, this indicator has been in the “danger zone” for quite some time.  But what it does tell us is that stock valuations are more bloated than we have ever seen and that a stock market crash would make perfect sense.  So precisely what is the “Buffett Indicator”?  Well, it is actually very simple to calculate.  You just take the total market value of all stocks and divide it by the gross domestic product.  When that ratio is more than 100 percent, stocks are generally considered to be overvalued, and when that ratio is under 100 percent stocks are generally considered to be undervalued.  The following comes from MSN…

That being said, the Buffett Indicator, while it’s not a flawless indicator, does tend to peak during hot stock markets and bottom during weak markets. And as a general rule, if the indicator falls below 80%-90% or so, it has historically signaled that stocks are cheap. On the other hand, levels significantly higher than 100% can indicate stocks are expensive.

For context, the Buffett indicator peaked at about 145% right before the dot-com bubble burst and reached nearly 110% before the financial crisis.

So where are we today?

Right now we are at almost 149 percent, which is the highest level ever recorded…

Where does the Buffett Indicator stand now? It may surprise you to learn that, at nearly 149%, the total market cap to GDP ratio has never been higher. It’s even higher than the 145% peak we saw during the dot-com bubble.

In recent days we have seen a “tech bloodbath”, but that was nothing compared to what is eventually coming.  Ultimately, the stock market would need to fall by at least one-third in order for prices to be properly balanced again.

And it appears that Warren Buffett is taking his own advice.  His company is currently sitting on more than 100 billion dollars in cash…

Having said that, it does seem like Buffett himself is paying attention and agrees that the market is generally expensive. After all, the lack of attractive investment opportunities has resulted in Berkshire Hathaway accumulating nearly $110 billion of cash and equivalents on its balance sheet. Plus, Buffett has specifically cited valuation when discussing the absence of major acquisitions lately.

Warren Buffett didn’t become one of the wealthiest men in America by being stupid.  He knows that valuations are absurd right now, and he is waiting to strike until valuations are not so absurd.

And he knows that another recession is inevitably coming.  I wrote about some of the trouble signs yesterday, and more trouble signs seem to pop up on a daily basis now.

Earlier today, CNN published an article entitled “Two recession warning signs are here”…

Home sales have declined in four of the past five months as housing prices have grown — but paychecks have remained stagnant. Many people can’t afford to buy homes, and those who can are taking on a lot of debt to get into them.

I feel really bad for those that purchased a home in recent months, because those poor people are getting in right at the top of the bubble.  The housing bubble is about to burst in a major way, and there will be a tremendous amount of pain afterwards.

And we received more bad news about the housing market on Wednesday.  According to Redfin, housing demand plunged 9.6 percent in June…

The long list of housing headwinds is finally taking its toll on potential buyers. Housing demand fell 9.6 percent in June, compared with June 2017, according to a monthly index from Redfin. That is the largest decline since April 2016.

CNN’s second “warning sign” is the fact that the yield curve is about to invert…

The Federal Reserve, which is finishing up its two-day meeting Wednesday, is expected to raise its target rate two more times this year. Higher rates have boosted short-term US Treasury bond rates. But the longer-term bond rates haven’t risen along with the shorter-term rates, because investors are growing wary about the economy over the long haul.

With two more interest rate hikes planned, the Fed could boost short-term rates higher than long-term ones, inverting the so-called yield curve. An inverted yield curve has preceded every recession in modern history.

If you don’t understand the yield curve or you just want a deeper examination of this issue, please see my previous article entitled “Beware – The Last 7 Times The Yield Curve Inverted The U.S. Economy Was Hit By A Recession”.

In recent weeks, there has been renewed interest in my economics website as people begin to wake up and understand that a major economic crisis is looming.  Of course the truth is that we are way, way overdue for a stock market crash and another recession.  The only thing that is surprising is that it took us so long to get here.

Sadly, most people are still very much asleep.  Average Americans spend most of their waking hours staring at either a television or a computer screen, and the big media companies control almost all of the media that we are so voraciously consuming.  Instead of thinking for themselves, most people simply regurgitate what they have been fed by the media giants, and we are never going to turn things around if we continue to allow “the matrix” to tell us what to think.

The Buffett Indicator is very simple, but it is also very accurate.  If you want to do well in the stock market, you want to buy low and sell high, and right now we are in absurdly high territory.  Stock valuations always return to their long-term averages eventually, and many believe that the coming stock market crash is going to arrive sooner rather than later.

Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

Global Financial Meltdown Coming? Clear Signs That The Great Derivatives Crisis Has Now Begun

Global Financial Meltdown - Public DomainWarren Buffett once referred to derivatives as “financial weapons of mass destruction“, and it was inevitable that they would begin to wreak havoc on our financial system at some point.  While things may seem somewhat calm on Wall Street at the moment, the truth is that a great deal of trouble is bubbling just under the surface.  As you will see below, something happened in mid-September that required an unprecedented 405 billion dollar surge of Treasury collateral into the repo market.  I know – that sounds very complicated, so I will try to break it down more simply for you.  It appears that some very large institutions have started to get into a significant amount of trouble because of all the reckless betting that they have been doing.  This is something that I have warned would happen over and over again.  In fact, I have written about it so much that my regular readers are probably sick of hearing about it.  But this is what is going to cause the meltdown of our financial system.

Many out there get upset when I compare derivatives trading to gambling, and perhaps it would be more accurate to describe most derivatives as a form of insurance.  The big financial institutions assure us that they have passed off most of the risk on these contracts to others and so there is no reason to worry according to them.

Well, personally I don’t buy their explanations, and a lot of others don’t either.  On a very basic, primitive level, derivatives trading is gambling.  This is a point that Jeff Nielson made very eloquently in a piece that he recently published…

No one “understands” derivatives. How many times have readers heard that thought expressed (please round-off to the nearest thousand)? Why does no one understand derivatives? For many; the answer to that question is that they have simply been thinking too hard. For others; the answer is that they don’t “think” at all.

Derivatives are bets. This is not a metaphor, or analogy, or generalization. Derivatives are bets. Period. That’s all they ever were. That’s all they ever can be.

One very large financial institution that appears to be in serious trouble with these financial weapons of mass destruction is Glencore.  At one time Glencore was considered to be the 10th largest company on the entire planet, but now it appears to be coming apart at the seams, and a great deal of their trouble seems to be tied to derivatives.  The following comes from Zero Hedge…

Of particular concern, they said, was Glencore’s use of financial instruments such as derivatives to hedge its trading of physical goods against price swings. The company had $9.8 billion in gross derivatives in June 2015, down from $19 billion in such positions at the end of 2014, causing investors to query the company about the swing.

Glencore told investors the number went down so drastically because of changes in market volatility this year, according to people briefed by Glencore. When prices vary significantly, it can increase the value of hedging positions.

Last year, there were extreme price moves, particularly in the crude-oil market, which slid from about $114 a barrel in June to less than $60 a barrel by the end of December.

That response wasn’t satisfying, said Michael Leithead, a bond fund portfolio manager at EFG Asset Management, which managed $12 billion as of the end of March and has invested in Glencore’s debt.

According to Bank of America, the global financial system has about 100 billion dollars of exposure overall to Glencore.  So if Glencore goes bankrupt that is going to be a major event.  At this point, Glencore is probably the most likely candidate to be “the next Lehman Brothers”.

And it isn’t just Glencore that is in trouble.  Other financial giants such as Trafigura are in deep distress as well.  Collectively, the global financial system has approximately half a trillion dollars of exposure to these firms…

Worse, since it is not just Glencore that the banks are exposed to but very likely the rest of the commodity trading space, their gross exposure blows up to a simply stunning number:

For the banks, of course, Glencore may not be their only exposure in the commodity trading space. We consider that other vehicles such as Trafigura, Vitol and Gunvor may feature on bank balance sheets as well ($100 bn x 4?)

Call it half a trillion dollars in very highly levered exposure to commodities: an asset class that has been crushed in the past year.

The mainstream media is not talking much about any of this yet, and that is probably a good thing.  But behind the scenes, unprecedented moves are already taking place.

When I came across the information that I am about to share with you, I was absolutely stunned.  It comes from Investment Research Dynamics, and it shows very clearly that everything is not “okay” in the financial world…

Something occurred in the banking system in September that required a massive reverse repo operation in order to force the largest ever Treasury collateral injection into the repo market.   Ordinarily the Fed might engage in routine reverse repos as a means of managing the Fed funds rate.   However, as you can see from the graph below, there have been sudden spikes up in the amount of reverse repos that tend to correspond the some kind of crisis – the obvious one being the de facto collapse of the financial system in 2008:

Reverse Repo Operation

What in the world could possibly cause a spike of that magnitude?

Well, that same article that I just quoted links the troubles at Glencore with this unprecedented intervention…

What’s even more interesting is that the spike-up in reverse repos occurred at the same time – September 16 – that the stock market embarked on an 8-day cliff dive, with the S&P 500 falling 6% in that time period.  You’ll note that this is around the same time that a crash in Glencore stock and bonds began.   It has been suggested by analysts that a default on Glencore credit derivatives either by Glencore or by financial entities using derivatives to bet against that event would be analogous to the “Lehman moment” that triggered the 2008 collapse.

The blame on the general stock market plunge was cast on the Fed’s inability to raise interest rates.  However that seems to be nothing more than a clever cover story for something much more catastrophic which began to develop out sight in the general liquidity functions of the global banking system.

Back in 2008, Lehman Brothers was not “perfectly fine” one day and then suddenly collapsed the next.  There were problems brewing under the surface well in advance.

Well, the same thing is happening now at banking giants such as Deutsche Bank, and at commodity trading firms such as Glencore, Trafigura and The Noble Group.

And of course a lot of smaller fish are starting to implode as well.  I found this example posted on Business Insider earlier today…

On September 11, Spruce Alpha, a small hedge fund which is part of a bigger investment group, sent a short report to investors.

The letter said that the $80 million fund had lost 48% in a month, according the performance report seen by Business Insider.

There was no commentary included in the note. No explanation. Just cold hard numbers.

Wow – how do you possibly lose 48 percent in a single month?

It would be hard to do that even if you were actually trying to lose money on purpose.

Sadly, this kind of scenario is going to be repeated over and over as we get even deeper into this crisis.

Meanwhile, our “leaders” continue to tell us that there is nothing to worry about.  For example, just consider what former Fed Chairman Ben Bernanke is saying…

Former Federal Reserve chairman Ben Bernanke doesn’t see any bubbles forming in global markets right right now.

But he doesn’t think you should take his word for it.

And even if you did, that isn’t the right question to ask anyway.

Speaking at a Wall Street Journal event on Wednesday morning, Bernanke said, “I don’t see any obvious major mispricings. Nothing that looks like the housing bubble before the crisis, for example. But you shouldn’t trust me.”

I certainly agree with that last sentence.  Bernanke was the one telling us that there was not going to be a recession back in 2008 even after one had already started.  He was clueless back then and he is clueless today.

Most of our “leaders” either don’t understand what is happening or they are not willing to tell us.

So that means that we have to try to figure things out for ourselves the best that we can.  And right now there are signs all around us that another 2008-style crisis has begun.

Personally, I am hoping that there will be a lot more days like today when the markets were relatively quiet and not much major news happened around the world.

Unfortunately for all of us, these days of relative peace and tranquility are about to come to a very abrupt end.

Warren Buffett: Derivatives Are Still Weapons Of Mass Destruction And ‘Are Likely To Cause Big Trouble’

Nuclear War - Public DomainAfter all these years, the most famous investor in the world still believes that derivatives are financial weapons of mass destruction.  And you know what?  He is exactly right.  The next great global financial collapse that so many are warning about is nearly upon us, and when it arrives derivatives are going to play a starring role.  When many people hear the word “derivatives”, they tend to tune out because it is a word that sounds very complicated.  And without a doubt, derivatives can be enormously complex.  But what I try to do is to take complex subjects and break them down into simple terms.  At their core, derivatives represent nothing more than a legalized form of gambling.  A derivative is essentially a bet that something either will or will not happen in the future.  Ultimately, someone will win money and someone will lose money.  There are hundreds of trillions of dollars worth of these bets floating around out there, and one of these days this gigantic time bomb is going to go off and absolutely cripple the entire global financial system.

Back in 2002, legendary investor Warren Buffett shared the following thoughts about derivatives with shareholders of Berkshire Hathaway…

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so
far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Those words turned out to be quite prophetic.  Derivatives have definitely multiplied in variety and number since that time, and it has become abundantly clear how toxic they are.  Derivatives played a substantial role in the financial meltdown of 2008, but we still haven’t learned our lessons.  Today, the derivatives bubble is even larger than it was just before the last financial crisis, and it could absolutely devastate the global financial system at any time.

During one recent interview, Buffett was asked if he is still convinced that derivatives are “weapons of mass destruction”.  He told the interviewer that he believes that they are, and that “at some point they are likely to cause big trouble”…

Thirteen years after describing derivatives as “weapons of mass destruction” Warren Buffett has reaffirmed his view that they pose a threat to the global economy and financial markets.

In an interview with Chanticleer this week, Buffett said that “at some point they are likely to cause big trouble“.

“Derivatives, lend themselves to huge amounts of speculation,” he said.

Most of the time, the big banks that do most of the trading in these derivatives do very well.  They use extremely sophisticated computer algorithms that help them come out on the winning end of these bets most of the time.

But when there is some sort of unforeseen event that suddenly causes a massive shift in the marketplace, that can cause tremendous problems.  This is something that Buffett discussed during his recent interview…

“The problem arises when there is a discontinuity in the market for some reason or another.

“When the markets closed like it was for a few days after 9/11 or in World War I the market was closed for four or five months – anything that disrupts the continuity of the market when you have trillions of dollars of nominal amounts outstanding and no ability to settle up and who knows what happens when the market reopens,” he said.

So if the markets behave fairly calmly and predictably, the derivatives bubble probably will not burst.

But no balancing act of this nature ever lasts forever.  Just remember what happened in 2008.  Lehman Brothers collapsed and then the financial system virtually froze up.  According to Forbes, at that time almost everyone was afraid to deal with the big banks because nobody was quite sure how much exposure they had to these risky derivatives…

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 crisis, we were promised that something would be done about the “too big to fail” problem.

But instead, the problem of “too big to fail” is now larger than ever.

Since the last financial crisis, the four largest banks in the country have gotten approximately 40 percent larger.  Today, the five largest banks account for approximately 42 percent of all loans in the United States, and the six largest banks account for approximately 67 percent of all assets in our financial system.  Without those banks, we would not have much of an economy left at all.

Meanwhile, smaller banks have been going out of business or have been swallowed up by the big banks at a staggering rate.  Incredibly, there are 1,400 fewer small banks in operation today than there were when the last financial crisis erupted.

So we cannot afford for these “too big to fail” banks to actually fail.  Even the failure of a single one would cause a national financial nightmare.  The “too big to fail” banks that I am talking about are JPMorgan Chase, Citibank, Goldman Sachs, Bank of America, Morgan Stanley and Wells Fargo.  When you total up the exposure to derivatives that all of them currently have, it comes to a grand total of more than 278 trillion dollars.  But when you total up all of the assets of all six banks combined, it only comes to a grand total of about 9.8 trillion dollars.  In other words, the “too big to fail” banks have exposure to derivatives that is more than 28 times the size of their total assets.

I have shared the following numbers with my readers before, but it is absolutely crucial that we all understand how exceedingly vulnerable our financial system really is.  These numbers come directly from the OCC’s most recent quarterly report (see Table 2), and they reveal a recklessness that is almost beyond words…

JPMorgan Chase

Total Assets: $2,573,126,000,000 (about 2.6 trillion dollars)

Total Exposure To Derivatives: $63,600,246,000,000 (more than 63 trillion dollars)

Citibank

Total Assets: $1,842,530,000,000 (more than 1.8 trillion dollars)

Total Exposure To Derivatives: $59,951,603,000,000 (more than 59 trillion dollars)

Goldman Sachs

Total Assets: $856,301,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $57,312,558,000,000 (more than 57 trillion dollars)

Bank Of America

Total Assets: $2,106,796,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $54,224,084,000,000 (more than 54 trillion dollars)

Morgan Stanley

Total Assets: $801,382,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $38,546,879,000,000 (more than 38 trillion dollars)

Wells Fargo

Total Assets: $1,687,155,000,000 (about 1.7 trillion dollars)

Total Exposure To Derivatives: $5,302,422,000,000 (more than 5 trillion dollars)

Since the United States was first established, the U.S. government has run up a total debt of a bit more than 18 trillion dollars.  It is the biggest mountain of debt in the history of the planet, and it has grown so large that it is literally impossible for us to pay it off at this point.

But the top five banks in the list above each have exposure to derivatives that is more than twice the size of the national debt, and several of them have exposure to derivatives that is more than three times the size of the national debt.

That is why I keep saying that there will not be enough money in the entire world to bail everyone out when this derivatives bubble finally implodes.

Warren Buffett is entirely correct about derivatives – they truly are weapons of mass destruction that could destroy the entire global financial system at any time.

So as we move into the second half of this year and beyond, you will want to watch for terms like “derivatives crisis” or “derivatives crash” in news reports.  When derivatives start making front page news, that will be a really, really bad sign.

Our financial system has been transformed into the largest casino in the history of the planet.  For the moment, the roulette wheels are still spinning and everyone is happy.  But sooner or later, a “black swan event” will happen that nobody expected, and then all hell will break loose.

Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode

Bubble World - Public DomainWarren Buffett believes “that bonds are very overvalued“, and a recent survey of fund managers found that 80 percent of them are convinced that bonds have become “badly overvalued“.  The most famous bond expert on the planet, Bill Gross, recently confessed that he has a sense that the 35 year bull market in bonds is “ending” and he admitted that he is feeling “great unrest”.  Nobel Prize–winning economist Robert Shiller has added a new chapter to his bestselling book in which he argues that bond prices are “irrationally high”.  The global bond bubble has ballooned to more than 76 trillion dollars, and interest rates have never been lower in modern history.  In fact, 25 percent of all government bonds in Europe actually have a negative rate of return at this point.  There is literally nowhere for the bond market to go except for the other direction, and when this bull market turns into a bear it will create chaos and financial devastation all over the planet.

In a recent piece entitled “A Sense Of Ending“, bond guru Bill Gross admitted that the 35 year bull market in bonds that has made him and those that have invested with him so wealthy is now coming to an end…

Stanley Druckenmiller, George Soros, Ray Dalio, Jeremy Grantham, among others warn investors that our 35 year investment supercycle may be exhausted. They don’t necessarily counsel heading for the hills, or liquidating assets for cash, but they do speak to low future returns and the increasingly fat tail possibilities of a “bang” at some future date. To them, (and myself) the current bull market is not 35 years old, but twice that in human terms. Surely they and other gurus are looking through their research papers to help predict future financial “obits”, although uncertain of the announcement date. Savor this Bull market moment, they seem to be saying in unison. It will not come again for any of us; unrest lies ahead and low asset returns. Perhaps great unrest, if there is a bubble popping.

And the way that he ended his piece sounds rather ominous…

I wish to still be active in say 2020 to see how this ends. As it is, in 2015, I merely have a sense of an ending, a secular bull market ending with a whimper, not a bang. But if so, like death, only the timing is in doubt. Because of this sense, however, I have unrest, increasingly a great unrest. You should as well.

Bill Gross is someone that knows what he is talking about.  I would consider his words very carefully.

Another renowned financial expert, Yale professor Robert Shiller, warned us about the stock bubble in 2000 and about the real estate bubble in 2005.  Now, he is warning about the danger posed by this bond bubble…

In the first edition of his landmark book “Irrational Exuberance,” published in 2000, the Yale professor of economics and 2013 Nobel Laureate presciently warned that stocks looked especially expensive. In the second edition, published in 2005 shortly before the real estate bubble crashed, he added a chapter about real estate valuations. And in the new edition, due out later this month, Shiller adds a fresh chapter called “The Bond Market in Historical Perspective,” in which he worries that bond prices might be irrationally high.

For years, ultra-low interest rates have enabled governments around the world to go on a debt binge unlike anything the world has ever seen.  Showing very little restraint since the last financial crisis, they have piled up debts that are exceedingly dangerous.  If interest rates were to return to historical norms, it would instantly create the greatest government debt crisis in history.

A recent letter from IceCap Asset Management summarized where we basically stand today…

Considering:

1) governments are unable to eliminate deficits

2) global government debt is increasing exponentially

3) 0% interest rates are allowing governments to borrow more to pay off old loans and fund deficits

4) Global growth is declining despite money printing and bailouts And, we’ve saved the latest and greatest fact for last: as stunning as 0% interest rates sound, the mathematically-challenged-fantasyland called Europe has just one upped everyone by introducing NEGATIVE INTEREST RATES.

As of writing, over 25% of all bonds issued by European governments has a guaranteed negative return for investors.

Germany can borrow money for 5 years at an interest rate of NEGATIVE 0.10%. Yes, instead of Germany paying you interest when you lend them money, you have to pay them interest.

These same negative interest rate conditions exist across many of the Eurozone countries, as well as Denmark, Sweden and Switzerland.

Negative interest rates are by nature irrational.

Why in the world would you pay someone to borrow money from you?

It doesn’t make any sense at all, and this irrational state of affairs will not last for too much longer.

At some point, investors are going to come to the realization that the 35 year bull market for bonds is finished, and then there will be a massive rush for the exits.  This rush for the exits will be unlike anything the bond market has ever seen before.  Robert Wenzel of the Economic Policy Journal says that this coming rush for the exits will set off a “death spiral”…

Anyone who holds the view that the Fed will not soon raise interest rates,and soon, fails to understand the nature of the developing crisis. It will be led by a collapse of the bond market.

Market forces, somewhat misleadingly called bond-vigilantes, will lead the charge.

I am not as bearish in the short-term on the stock market. The equity markets will be volatile because of the climb in rates and look scary at times but the death spiral will be in the bond market.

As this death spiral accelerates, we are going to see global interest rates rise dramatically.  And considering the fact that more than 400 trillion dollars in derivatives are directly tied to interest rates, that is a very scary thing.

And in case you are wondering, the stock market will be deeply affected by all of this as well.  I believe that we are going to witness a stock market crash even greater than what we experienced in 2008, and other experts are projecting similar things.  For example, just consider what Marc Faber recently told CNBC…

“For the last two years, I’ve been thinking that U.S. stocks are due for a correction,” Faber said Wednesday on CNBC’s “Trading Nation.” “But I always say a bubble is a bubble, and if there’s no correction, the market will go up, and one day it will go down, big time.”

“The market is in a position where it’s not just going to be a 10 percent correction. Maybe it first goes up a bit further, but when it comes, it will be 30 percent or 40 percent minimum!” Faber asserted.

Where we are right now is at the end of the party.  There are some that want to keep on dancing to the music for as long as possible, but most can see that things are winding down and people are starting to head for the exits.

The irrational global financial bubble that investors have been enjoying for the past few years has stretched on far longer than it should have.  But that is the way irrational bubbles work – they just keep going even when everyone can see that they have become absolutely absurd.  However, eventually something always comes along and bursts them, and once that happens markets can crash very, very rapidly.

This Is What Employment In America Really Looks Like…

Warren Buffett - Photo by Mark HirscheyThe level of employment in the United States has been declining since the year 2000.  There have been moments when things have appeared to have been getting better for a short period of time, and then the decline has resumed.  Thanks to the offshoring of millions of jobs, the replacement of millions of workers with technology and the overall weakness of the U.S. economy, the percentage of Americans that are actually working is significantly lower than it was when this century began.  And even though things have stabilized at a reduced level over the past few years, it is only a matter of time until the next major wave of the economic collapse strikes and the employment level goes even lower.  And the truth is that more good jobs are being lost every single day in America.  For example, as you will read about below, Warren Buffett is shutting down a Fruit of the Loom factory in Kentucky and moving it to Honduras just so that he can make a little bit more money.  We see this kind of betrayal over and over again, and it is absolutely ripping the middle class of America to shreds.

Below I have posted a chart that you never hear any of our politicians talk about.  It is a chart that shows how the percentage of working age Americans with a job has steadily declined since the turn of the century.  Just before the last recession, we were sitting at about 63 percent, but now we have been below 59 percent since the end of 2009…

Employment Population Ratio 2014

We should be thankful that things have stabilized at this lower level for the past few years.

At least things have not been getting worse.

But anyone that believes that “things have returned to normal” is just being delusional.

And nothing is being done about the long-term trends that are absolutely crippling our economy.  One of those trends is the offshoring of middle class jobs.  As I mentioned above, Fruit of the Loom (which is essentially owned by Warren Buffett) has made the decision to close their factory in Jamestown, Kentucky and lay off all the workers at that factory by the end of 2014…

Clothing company Fruit of the Loom announced Thursday that it will permanently close its plant in Jamestown and lay off all 600 employees by the end of the year.

The Jamestown plant is the last Fruit of the Loom plant in a state where the company had once been a manufacturing titan second only to General Electric.

This isn’t being done because Fruit of the Loom is going out of business.  They are still going to be making t-shirts and underwear.  They are just going to be making them in Honduras from now on…

The company, owned by Warren Buffett’s Berkshire Hathaway but headquartered in Bowling Green, said the move is “part of the company’s ongoing efforts to align its global supply chain” and will allow the company to better use its existing investments to provide products cheaper and faster.

The company said it is moving the plant’s textile operations to Honduras to save money.

So what are those workers supposed to do?

Go on welfare?

The number of Americans that are dependent on the government is already at an all-time record high.

And doesn’t Warren Buffett already have enough money?

In business school, they teach you that the sole responsibility of a corporation is to maximize wealth for the shareholders.

And so when business students get out into “the real world”, that is how they behave.

But the truth is that corporations have a responsibility to treat their workers, their customers and the communities in which they operate well.  This responsibility exists whether corporate executives want to admit it or not.

And we all have a responsibility to our fellow citizens.  When we stand aside and do nothing as millions of good paying American jobs are shipped overseas so that the “one world economic agenda” can be advanced and so that men like Warren Buffett can stuff their pockets just a little bit more, we are failing our fellow countrymen.

Because so many of us have fallen for the lie that “globalism is good”, we have allowed our once great manufacturing cities to crumble and die.  Just consider what is happening to Detroit.  It was once the greatest manufacturing city in the history of the planet, but now foreign newspapers publish stories about what a horror show that it has become…

Khalil Ligon couldn’t tell if the robbers were in her house. She had just returned home to find her front window smashed and a brick lying among shattered glass on the floor. Ligon, an urban planner who lives alone on Detroit’s east side, stepped out and called the police.

It wasn’t the first time Ligon’s home had been broken into, she told me. And when Detroit police officers finally arrived the next day, surveying an area marred by abandoned structures and overgrown vegetation, they asked Ligon a question she often ponders herself: why is she still in Detroit?

Of course this kind of thing is not just happening to Detroit.  The truth is that it is happening all over the nation.  For example, this article contains an incredible graphic which shows how the middle class of Chicago has steadily disappeared over the past several decades.

Once again, even though we have never had a “recovery”, it is a good thing that things have at least stabilized at a lower level for the past few years.

But now there are all sorts of indications that we are rapidly heading toward yet another economic downturn.  The tsunami of retail store closings that is now upon us is just one sign of this.  The following is a partial list of retail store closings from a recent article by Daniel Jennings…

  • Quiznos has filed for bankruptcy, USA Today reported, and could close many of its 2,100 stores.
  • Sbarro which operates pizza and Italian restaurants in malls, is planning to close 155 locations in the United States and Canada. That means nearly 20 percent of Sbarro’s will close. The chain operates around 800 outlets.
  • Ruby Tuesday announced plans to close 30 restaurants in January after its sales fell by 7.8 percent. The chain currently operates around 775 steakhouses across the US.
  • An unknown number of Red Lobster stores will be sold. The chain is in such bad shape that the parent company, Darden Restaurants Inc., had to issue a press release stating that the chain would not close. Instead Darden is planning to spin Red Lobster off into another company and sell some of its stores.
  • Ralph’s, a subsidiary of Kroger, has announced plans to close 15 supermarkets in Southern California within 60 days.
  • Safeway closed 72 Dominick’s grocery stores in the Chicago area last year.

And the following are some more signs of trouble for the retail industry from one of my recent articles entitled “20 Facts About The Great U.S. Retail Apocalypse That Will Blow Your Mind“…

#1 As you read this article, approximately a billion square feet of retail space is sitting vacant in the United States.

#2 Last week, Radio Shack announced that it was going to close more than a thousand stores.

#3 Last week, Staples announced that it was going to close 225 stores.

#4 Same-store sales at Office Depot have declined for 13 quarters in a row.

#5 J.C. Penney has been dying for years, and it recently announced plans to close 33 more stores.

#6 J.C. Penney lost 586 million dollars during the second quarter of 2013 alone.

#7 Sears has closed about 300 stores since 2010, and CNN is reporting that Sears is “expected to shutter another 500 Sears and Kmart locations soon”.

#8 Overall, sales numbers have declined at Sears for 27 quarters in a row.

#9 Target has announced that it is going to eliminate 475 jobs and not fill 700 positions that are currently empty.

#10 It is being projected that Aéropostale will close about 175 stores over the next couple of years.

#11 Macy’s has announced that it is going to be closing five stores and eliminating 2,500 jobs.

#12 The Children’s Place has announced that it will be closing down 125 of its “weakest” stores by 2016.

But it isn’t just the retail industry that is deeply troubled.

All over America we are seeing economic weakness.

In this economic environment, it doesn’t matter how smart, how educated or how experienced you are.  If you are out of work, it can be extremely difficult to find a new job.  Just consider the case of Abe Gorelick…

Abe Gorelick has decades of marketing experience, an extensive contact list, an Ivy League undergraduate degree, a master’s in business from the University of Chicago, ideas about how to reach consumers young and old, experience working with businesses from start-ups to huge financial firms and an upbeat, effervescent way about him. What he does not have — and has not had for the last year — is a full-time job.

Five years since the recession ended, it is a story still shared by millions. Mr. Gorelick, 57, lost his position at a large marketing firm last March. As he searched, taking on freelance and consulting work, his family’s finances slowly frayed. He is now working three jobs, driving a cab and picking up shifts at Lord & Taylor and Whole Foods.

So what does Abe need in order to find a decent job?

More education?

More experience?

No, what he needs is an economy that produces good jobs.

Sadly, the cold, hard reality of the matter is that the U.S. economy will never produce enough jobs for everyone ever again.

The way that America used to work is long gone, and it has been replaced by a cold, heartless environment where the company that you work for could rip your job away from you at a moment’s notice if they decide that it will put a few extra pennies into the pockets of the shareholders.

You may have worked incredibly hard for 30 years and been super loyal to your company.

It doesn’t matter anymore.

All that matters is the bottom line, and in the process the middle class is being destroyed.  But by destroying the middle class, those corporations are destroying the consumer base that their corporate empires were built upon in the first place.

Read more here: http://www.kentucky.com/2014/04/03/3177378/fruit-of-the-loom-to-close-jamestown.html#storylink=cpy
Read more here: http://www.kentucky.com/2014/04/03/3177378/fruit-of-the-loom-to-close-jamestown.html#storylink=cpy

They Are Going To Make It Nearly Impossible To Pass On A Farm Or A Business To Your Children

If you have a farm or a small business, would you like to pass it on to your children when you die?  Well, unless Congress does something, it is going to become much, much harder to do that starting next year.  Right now, there is a 5 million dollar estate tax exemption and anything above that is taxed at 35 percent.  But on January 1st, the exemption will go down to 1 million dollars and the tax rate will go up to 55 percent.  A lot of liberals are very excited about this, because they believe that the government will be soaking wealthy people like Warren Buffett and Bill Gates.  But the truth is that a lot of farms, ranches and small businesses will be absolutely devastated by this change in the tax law.  There are many farmers and ranchers out there today that do not make much money but are sitting on tracts of land that are worth millions of dollars.  According to the American Farm Bureau, approximately 97 percent of all farms and ranches in the United States would be subject to the estate tax if the exemption was reduced to just a million dollars.  That means that the children of these farmers and ranchers would be faced with a very cruel choice when it is time to inherit these farms and ranches.  Either they come up with enough money to pay the government about half of what the farm or ranch is worth, or they sell the farm or ranch that may have been in their family for generations.  Needless to say, most farm and ranch families do not have that kind of cash lying around.  Most of them are just barely making it from year to year.  So this change in the tax law is going to greatly accelerate the death of the family farm in America.  This is also going to devastate many family-owned small businesses.  Many small businesses don’t make much money, but they have buildings or land or assets worth millions of dollars.  Children that may have wanted to continue the family legacy will be forced to sell because of the massive tax bill that they get from Uncle Sam.  This is an insidious cruelty, and it shows just how broken our system has become.

The desire to leave the wealth that you have worked so hard to accumulate all your life to your children is something that is common to virtually all human societies.  We want to know that future generations will be taken care of.

It is simply immoral for the federal government to swoop in and tax farms, ranches and small businesses that were intended to be passed down from parents to their children at a 55 percent tax rate.

A lot of the people that are going to be affected by this change are not “wealthy” at all.  A recent Fox News report examined what this change in the law is going to mean for rancher Kevin Kester and his family…

Rancher Kevin Kester works dawn to dusk, drives a 12-year-old pick-up truck and earns less than a typical bureaucrat in Washington D.C., yet the federal government considers him rich enough to pay the estate tax — also known as the “death tax.”

Kester told Fox News that he has no doubt that his ranch will have to be sold when he dies just to pay the tax bill…

“There is no way financially my kids can pay what the IRS is going to demand from them nine months after death and keep this ranch intact for their generation and future generations,” said Kester, of the Bear Valley Ranch in Central California.

Two decades ago, Kester paid the IRS $2 million when he inherited a 22,000-acre cattle ranch from his grandfather. Come January, the tax burden on his children will be more than $13 million.

Reading that should make you angry.  Every single year, thousands upon thousands of farms, ranches and small businesses are going to be lost to the federal tax monster.

It is almost as if the federal government does not want income-producing assets to remain in the hands of the “little guy”.

What in the world are we supposed to do?

It isn’t as if all of those farmers and ranchers can go off to the big cities and find good jobs.  As I wrote about yesterday, our politicians are standing aside as millions of our good jobs are shipped out of the country.

The cold, hard truth is that our system does not work for average Americans any longer.  Those that roll out of bed every morning, work hard and never complain always seem to get the short end of the stick.

The people that are the backbone of America are the ones that the government is always the hardest on.

Unfortunately, we have gotten to a point where the government is searching for more “revenue” from anywhere it can because it desperately needs more money.  U.S. government finances are a complete and total mess and we are drowning in the biggest ocean of debt the world has ever seen.

We are more than 16 trillion dollars in debt and there are more than 100 million Americans that are enrolled in at least one welfare program.

Someday has to pay for all this.

Middle class Americans are already hit with dozens of different taxes each year, and you can be certain that our politicians will continue to invent ways to extract even more “revenue” out of us.

And of course our politicians will never stop their wild spending.  Despite all of the negotiations that have taken place over the past couple of years, our spending problems just continue to grow.  For example, the federal budget deficit for the month of October was $120 billion, which was more than 20 percent larger than the federal budget deficit for October 2011 was.

So what is the solution?

Well, Treasury Secretary Timothy Geithner now says that he wants to eliminate the debt ceiling entirely.  He says that we should just have no limit and that the federal government should just be able to go into debt as much as it wants.

In the end, all of this debt is going to absolutely crush us.  We have literally destroyed the future of America, and yet most of the country still seems clueless about all of this.  The blind are leading the blind, and we are headed straight for complete and utter disaster.

One day, when people look back on this period in American history, what do you think people are going to say about us?

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