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Disasters Can Happen

How to Cash In On the Economic Sweet Spot

Europeby MN Gordon

Economic Prism

By all accounts, the U.S. stock market is expensive. Not only is it hitting new nominal highs, its valuations are also off the charts. How can one tell?

Fortunately, there are several metrics to guide us. The Shiller’s Cyclically Adjusted Price Earnings (CAPE) ratio, for instance, is currently 27.5. That’s 65 percent higher than the CAPE’s long-term historical average.

What’s more, there have only been two occasions over the last 100 years that saw the CAPE at a higher valuation than today. One was during the late 1920s…right before the stock market crash. The other was the late 1990s…just prior to the popping of the internet bubble.

The Buffett indicator, which is a ratio of the total market capitalization over gross domestic product, also shows that stocks are significantly overvalued. The ratio currently stands at about 125 percent. A fairly valued market is a ratio somewhere between 75 and 90 (Read More....)

. . . → Read More: How to Cash In On the Economic Sweet Spot

What Comes After the Boom

United States Collapseby MN Gordon

Economic Prism

Last week Fed Chair Janet Yellen opted to keep the Fed’s zero interest rate policy in place. Wall Street cheered the news and bid stock prices up to near record levels. After more than six years, and over $3 trillion of direct asset purchases, what could the Fed really do?

Sure they could have begun the difficult task of walking credit markets back from their policies of mad insanity. But that would destroy something the Fed’s worked very hard to create. In short, it would explode a financial H-bomb and crash the perilous stock market edifice it has constructed.

This real possibility has the Fed parsing its words out like Bill Clinton at a Congressional impeachment hearing. “Just because we removed the word ‘patient’ from the statement doesn’t mean we are going to be impatient,” (Read More....)

. . . → Read More: What Comes After the Boom

China’s Economy is Doomed

Warningby MN Gordon

Economic Prism

Sometime early last summer, Hui Ka Yan, chairman of Evergrande Real Estate in China, displayed his brilliant deal making abilities. He took time off from developing and selling residential real estate buildings to sell China’s most popular soccer team to fellow billionaire, and chairman of Alibaba Group, Jack Ma.

“By accident I got him drunk,” recounted Yan, of how the deal went down with Ma. “I told him my Evergrande soccer team is planning to issue shares and raise money to support strategic development, will you join? He said I will. We finished it in 15 minutes.”

Surely, such stellar business dealings have been fundamental in Yan accumulating a net worth of $6.4 billion. Likewise, for Ma this $192 million soccer team purchase may have been nothing more than an act of philanthropy. Ma’s net worth – (Read More....)

. . . → Read More: China’s Economy is Doomed

Not in a Million Years

United States Collapseby MN Gordon

Economic Prism

Storylines serve a valuable purpose. They round out the incongruences and give meaning to things in a way people can quickly comprehend. This is especially true when it comes to the economy.

The popular narrative of the day is that the U.S. economy is moderately improving while the world’s other major economies – Japan, China, and Europe – are bittering over like a cold cup of coffee. But is this positively fact or is it mere fiction? Have the raconteurs missed the plot?

Stock market investors can’t make up their mind. They want to believe the story. But they have their doubts. One day the DOW runs up 200 points. The next day it gives it all back…and then some.

Anxiety over what the Fed will do with the federal funds rate is of particular interest these days. Will they raise rates? Will they hold them at zero? Perhaps later this week we’ll find out more.

The notion that the U.S. economy is strengthening is the storyline that will prompt the Fed to raise rates sooner (Read More....)

. . . → Read More: Not in a Million Years

Bet Against the House at Your Peril

Price Fixingby MN Gordon

Economic Prism

The stock market’s on edge. After dropping 278 points last Friday and climbing back 139 points on Monday…the DOW purged 332 points on Tuesday. Wednesday the DOW gave back another 27. By yesterday the storm had past. Sunny skies were out…the DOW bounced back 259 points.

From what we gather, signs of an improving economy are considered bad for stocks. The initial selloff, which began last Friday, was triggered by the Bureau of Labor Statistics February jobs report. According to the government bean counters, 295,000 jobs were added for the month. All the new jobs pushed the official unemployment rate to 5.5 percent.

Speculators understood this good news for the economy to be the rationale the Federal Reserve needs to finally raise its federal funds rate from practically zero. If you recall, the federal funds rate has been pushed down to the floor for six plus years. Not by coincidence, the current big bad bull market run just turned six years old on Monday.

Raising the federal funds rate increases the cost of (Read More....)

. . . → Read More: Bet Against the House at Your Peril

The Beginning of the End for the European Union

The Beginning of the End for the European Union Picture Credit Pixabayby MN Gordon

Economic Prism

The European Central Bank initiated a new mass money debasement scheme yesterday. If you recall, this involves buying €60 billion ($66 billion) a month of European government bonds. Somehow this is supposed to improve the economy.

No doubt, the European Union is absurd for many reasons. According to J.P. Morgan, the differences of its member countries are greater than a reconstruction of the territories of the former Ottoman Empire, all countries on Earth five degrees north of the Equator, and all countries beginning with the letter “M.” Conveniently, the ECBs effort to cheapen the currency merely holds the absurdities up for ridicule. Here are several questions that come to mind…

Where does the ECB get the money to (Read More....)

. . . → Read More: The Beginning of the End for the European Union

The Die is Cast

Another Highby MN Gordon

Economic Prism

“Alea iacta est” – Julius Ceasar

The NASDAQ crossed the 5,000 mark for the first time since the year 2000 on Monday. What a journey it has been. The world hardly resembles itself just fifteen years later. Practically everything has changed.

Back then, pre-9/11, the world was still our oyster. We just knew we’d attain whatever we dreamed with a little hard work and determination. But we never could’ve imagined how hard it would actually be just to scratch for our scraps. Naturally, with this latest NASDAQ milestone, we have some questions…

What does NASDAQ 5,000 really mean, anyway? Does it stand for something? Does what’s standing behind it have the strength to hold things up this time? Or will it roll over and crash by 80 percent again?

No one really knows. But here at the Economic Prism we have a hunch the NASDAQ will have a significant correction sometime soon. Perhaps it will fall by 20 percent…or possibly 40 percent, or even more.

Certainly, NASDAQ stocks are much stronger (Read More....)

. . . → Read More: The Die is Cast

Dillweed Economics

Moneyby MN Gordon

Economic Prism

After more than a decade of studying, documenting and cautioning on the great fraud of our time we’re as shocked as we’ve ever been. In the year 2015, the entire essence of economic and financial management the world over has been reduced to a single policy…

Thou shalt degrade money and expand debt in perpetuity.

Here in the United States, as in Europe, Japan, China, and most everywhere else, this policy is carried out with earnest zeal. No limitations are holding back policy makers and politicians. Consequences have disappeared from practical prudence or consideration.

New credits are borrowed into existence by the Federal Reserve and spent by the Treasury. All the while the old debts are never paid down. The interest is merely serviced and the old debts are rolled over by issuing new debts…which are purchased by borrowing new credits into existence.

How does this wonderful scheme continue in broad daylight? Are people just not aware of it? Or is the broad population completely apathetic?

Anyone who earns their (Read More....)

. . . → Read More: Dillweed Economics

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