Market Update - Russell 2000 Index Is Now Discounting 50 Years Of Earnings & Is Sovereign Debt Entering A New Phase?
I just have to giggle at the level of insanity that defines Wall Street and the investor class. Everything, it seems, is being manipulated or is so distorted by the corporate state. What truly is real? Apple was trading at a value more than all of the stock in Italy, by one measure Boeing is trading at 8-10x what the average stock was trading at in 1929 before the collapse, Amazon is running a Boston Chicken payables float scheme to generate working capital (This scheme has become very common in almost all corporations. Olstein is being generous. Amazon is likely to fall well more than 50% and may be fighting for its life when this global crisis hits critical mass again.), Google’s revenue is wildly distorted by the largest ad bubble in history, well more than half of corporate cash flow in the U.S. is at the hands of usury and debt serfdom including very substantially in nonfinancial firms, and IBM, not Boeing, is the most expensive company in the Dow. Those are just a few examples of a financial system so distorted from any kind of reality that there is no historical precedence. As I have noted on here many times, the only thing we can glean from financial assets is if the status quo believes it is in control. In other words are assets rising or falling. The intrinsic value of any tradable assets we see today has no reflection of reality. As of this past week, the Russell 2000 equity index is sporting a price to earnings ratio of 50. That’s right dog breath. 50 years worth of earnings at today’s level are now discounted into the average value of two thousand stocks comprising this index. That doesn’t even speak to the sustainability or quality of those earnings. At least 80% of those companies are almost certainly not even going to exist in 50 years. In fact, I would just about bet that the stock market as we know it won’t be here in a dozen years or even less let alone in 50 years.
Mind you, if we back out financialized earnings in both financial and nonfinancial companies, aka usury and debt enslavement, sustainable earnings on the S&P sport an astronomical price to earnings ratio as well. And if you back out corporate rent-seeking and capitalist overproduction/overconsumption in nonfinancial industries, the ratio is even more insanely astronomical. ie, It’s not just the Russell 2000 that is in the stratosphere. It’s all tradable assets that have been manipulated by private capital with the assistance of political dunces around the world.
ECRI has come out this past week and said they believe the U.S. has been in recession since the middle of last year. That is consistent with my remarks on here last year and many more since that the global economy is experiencing a slowdown at a much broader and deeper pace than what led to the 2008 collapse. And while no one person or organization can certainly appreciate all of the dynamics we see unfolding in the world today, ECRI’s track record is far better than Wall Street or the economics community or the White House propaganda. In other words, that they have corroborated my work is more validation of the slowdown I have been writing about.
Additionally, this past week we had data out of China that showed its manufacturing sector had surprising strength in official government statistics yet the same day another privately collected statistic showed its manufacturing hit an eleven month low. The same Orwellian dynamic essentially happened with manufacturing data in the U.S. this week which showed diametrically-opposite readings from two different sources. The trend over the last year has been one towards lower earnings, lower commodity input prices due to falling economic demand and lower production output so it doesn’t take a rocket scientist to see which way the true trend is headed without some artificial or external factor changing that trend.
I noted early this year when many were calling a top in the stock market that it was well too early. That we wouldn’t likely see a top until the second half of this year. All new U.S. equity indices have hit new highs in recent months and days. But as noted some weeks ago with my post on Blackstone’s residential real estate IPO, this is indicative of topping behavior by the investor class. This week we have seen another similar IPO come to market similar to the Blackstone real estate IPO. This one by American Homes 4 Rent.
We are now living in what is the most repressive corporate capitalist environment in American history. This is far worse than the Robber Barons. Because during that time, we were still essentially an agrarian economy and many Americans were still self-sufficient to varying degrees. In today’s world, we are all reliant on corporate rent that provides individual wages and corporate-provide economic opportunity or lack thereof. Today we are all corporate serfs. Even those who are self-employed. That we have had two massive IPOs in the last few weeks that are based on financial predators having bought huge amounts of residential real estate, enabled through Wall Street and Washington, is very disconcerting. Americans were kicked out of their homes by private capital and now they are being forced back into those homes under rent-seeking corporate ownership as debt serfs. So, not only are we now denied a living wage in this nation, but corporate capitalism has enslaved us to buy our food at the company store (corporate-produced toxic industrial food) and now live in the company-provided housing. This truly is unprecedented in scope and scale of usury and enslavement to capitalism with the U.S. This is unprecedented.
As noted in that prior post regarding Blackstone’s IPO, it is typical of irrational exuberance by the predatory, rent-seeking investor class that they are willing to step up and buy these real estate IPOs just a handful of years after we saw a real estate crash. The fundamentals have not changed but their appetite for rent certainly has. There is a level of substantial confidence that must exist for investors to lap up these IPOs. A confidence that this crisis in 2008 was simply a point in time issue rather than a systemic and permanent collapse.
It’s very hard to predict price projections at peaks and turn dates for financially-trade assets, be it stocks, real estate, bonds, commodities or whatever. Different mechanisms are used to predict both and both are very esoteric being driven by factors not well understood. ie, When it comes to turn dates, it’s just that time and there is nothing anyone can do to change that time. But, if I were to guesstimate a top in equities, it would be in late August or September. Later this year we will hit what I believe may be the most substantial turn date in human social history. If that is indeed the case, from that point forward we could very well see unstoppable change for years to come as the world as we know it ceases to exist. This is new for all of us so we shall just have to watch what happens.
Before I close, let me make a few remarks about bonds now that Detroit has declared bankruptcy. For some years now I have been stating that 2013 was my predicted date for the U.S. to either default on some portion of their debt (likely select foreign holdings) or to monetize much of its debt and expose the fraud of this debt serfdom monetary and banking system. I wrote an update on the topic in May of this year. Generally since May, but in some debt/bond markets it started a few months earlier, we have had a mini crash in bonds of all types. It has been worse in some segments or some markets than others but it has been all inclusive and global. 2013 is now the largest negative global bond-debt move since the 2008 collapse. Something has definitely changed in 2013 with respect to debt. It is temporary? Well, I’ve been writing that 2013 is a key date for some years now, while only time will tell, I suspect this is the beginning of something much more fun. You know, like cotton candy and Ferris wheels. Like a carnival. Except we are the carnival and the laugh is on us.
Over the years I have consistently stated on here that as long as the Federal Reserve was standing on the Treasury market, that bond rates would stay low. While change in the Treasury market may or may not be imminent in coming months, I am now retracting that statement. 2013 has seen many bond market crashes in heretofore stable markets. Sovereign bond market debt has started turning toxic on a global scale in 2013. There is ample evidence that we are near a sustained change in trend and I’m changing my position on Treasuries. I see enough evidence today that central banks, corporations and politicians around the world are in the early phases of losing nearly complete control and that all sovereign debt around the world is now becoming high risk. Politicians in the U.S., China and Europe are now willfully allowing bonds-debt in localities and states fail. (all acts of state violence against the people living in these nations.)
The U.S. economy is far, far larger than GDP as I have noted on here many times. Far, far larger. Its global impact is massive and beyond the comprehension of any single person. If a sovereign debt-bond crisis develops here, (as noted many times, it would be either malicious or based on incompetence/ignorance) depending on its scope and actions taken, it could shake every corner of every nation on earth. The potential for a global chain reaction is very real and quite plausible. It could be especially compounded since globalization itself is now in crisis.
Remember, long term, any failure in the status quo’s predatory control, especially private banking and private money creation and its debt/corporate slavery, will be a very good thing for the U.S. from a true democracy, true quality of life and true wealth perspective. But it will suck to be you if you have been any of the nations or corporations or class-based predators who have mooched off the backs of the American people for decades or longer. The end of empire and corporate capitalism will create massive dislocations, crises and even the possibility of widespread death around the world but progress has never come without cost. Life is uncertain - Death is not.