Stock Market Another Tax

By: Captain Hook

Make no mistake about it; at this point the stock market is just another tax on the little people, where insiders and oligarchs run wild over them. Unless you are a high frequency trader, unicorn, or billionaire activists you don't have a chance at winning against the forces at work here, making participation for most high-risk stupidity. Even the mighty quants and billionaire activists are starting to feel the pain now however, which can't be good for the average Joe.

Zero interest rates has people fooled into thinking they need to have their money in the stock market to make a return, when they should be more concerned with the return of their money.

That's why interest rates are being forced negative - to force the foolish into a situation that will lose them more.

Because one day an 'accident' will happen -- something unthinkable to most market participants today. Then these people will realize they are going to lose money. And for many it will be life-altering amounts. Not that any of this should be news for most investors, both old and new. Many who were burned in the 2000 and 2008 bubbles have not returned to stocks, and never will, possibly having lost half their savings as panicked sellers at the bottom - their sensibilities fully taxed. But newbies are feeling it too, in these smoke and mirrors markets, with an up year for momo stocks, but average investors see a loss. These investors are being exploited by Wall Street parasites, which in effect can be viewed as a tax enjoyed by the privileged class.

But hey, don't tell that to the talking heads. They will have you believe if you buy into the fraud you too can go to Elysium. You can be just like the momo's you see on TV. Only problem is with the collapse of the real economy, the financialized economy, of which the stock market is central, has never been more expensive. So the likelihood all the dreaming and denial on the part of the public will be shattered one day is high. Again, make no mistake about it, the investing public's sensibilities will be fully taxed again at some point in the not too distant future, because the status quo in America is under attack, and this will have a material effect on their little dream world - better known as the financialized economy.

Rebellion, revulsion, and revolution are occurring at increasing frequency across the political economy these days, with no facet more important than what is happening in American politics.

The status quo is in serious trouble here with disenfranchised Millennials now the largest demographic, and using it's voting power to affect radical change. In this regard, policy will shift from pandering an aging baby boomer generation to a working class youth eager to get in the game, which will play havoc on Wall Street as inflation rates will rise sufficiently to burst both debt and equity bubbles up and down the spectrum. Crazy talk? Premature?

Take a good look around, because change is coming fast and furious, which again should be a truly taxing experience for stock market investors. Fed (central bank) policy has little to do with economy anymore. Instead it's a ruse to affect and control currency exchange rates, which in turn are used as an attempt to throttle stock markets. Again however, a combination of collapsing real economy constraints set against what is likely to involve highly inflationary fiscal and monetary policy coming down the pike catering to Millennials and the disenfranchised will blow the present Frankenstein economy / markets apart. Even the more rational hedge fund managers see this coming now - it's QE for the people or die.

And it's not just the hedge funds that are starting to show the pain - pension funds are buckling as well. Zero interest rate policy (ZIRP) has brought this about. So just imagine what Negative interest rate policy (NIRP) is doing to the pension funds right now. It's called 'unintended consequences', but the all-knowing central banks should know better - right? What do they care? Jamie Dimon's salary was up 35% last year to $27 million. That's who the Fed really works for - not the government or public. This is why it's all going to come unraveled this year - in politics, economy, and especially the markets.

Because NIRP and going cashless won't work as it's too late. In fact, I would be surprised if we go cashless based on the way things are accelerating here. What's more likely is the Fed abandon's its bullshit story in a hurry the next time stocks tumble - quickly followed by QE for the people. This is the only hope the status quo has to maintain power. So watch for this right after the election - likely at the beginning of next year. Can't see something like this getting through the House this year with the election, but you never know I guess. Based on the price action in precious metal shares over the past few days - speculators certainly this it's a go sooner rather than later. They may be getting a little ahead of themselves. Still, let's hope for another good monthly close to cement the buy signal(s) triggered last month.

Looking above it's certainly difficult envisioning otherwise, however as warned last week, once the matrix loses the support of aggressive speculators buying puts on NUGT and calls on DUST (see here) post options expiry this week, the largest influence on pricing in terms internal influences switches over to the futures market until we click over into the new month, and the COT numbers (gold and silver) are not supportive of further gains to say the least. So even if the primaries in South Carolina turn out precious metal friendly, this might not be enough to sustain prices into month end. If the Dow / XAU Ratio were allowed to correct back up to the 200-day moving average (MA) I'm sure the bearish COT profiles would get better, however with hedge fund types now looking to cover broad market exposures with precious metal hedges, things could get more stretched before this happens. (See Figure 1)

Figure 1

  Anything to get that good monthly close - right? Not so fast, because we haven't broken out on a monthly basis yet, where it might be better to back and fill a bit first in order to gain the energy to do so. I will put up the monthlies next week (closer to month end) to show you what I mean. Basically we need to see two monthly closes either above or below (depending on the chart) the 21-month exponential moving average (EMA) to accomplish monthly buy signals in respective markets, which has not taken place yet with COT profiles at points that normally signal lasting reversals. The difference this time around is of course the ETF gamblers - they had their heads caved in over the past four years and can only think down now (or hedging if long), which is the sentiment change we have been waiting for all these years - so we remain optimistic. (See Figure 2)
Figure 2

Confirming such thinking we have the above, the Franco Nevada (FNV) / Gold Bugs Index (HUI) Ratio, which appears to have finally turned lower as well, signaling investors are now seeking growth over income - or aggressiveness over defensiveness. Again however, while it could definitely continue to decline into extremes, it's important to note it's already there in many important measures on a 'weekly basis'. Such conditions are in fact what one would expect in a bull market, and heaven knows there are a plethora of fundamental reasons coming to the forefront sufficient to draw legions of new participants into precious metals right now, however I would be amiss as systematic observer of the sector not to point these things out to you at this time. (See Figure 3)

Figure 3

Because again, although many junior stocks have doubled over the past few weeks, on many measures, precious metals are still not out of the soup just yet, as can be seen above. But please don't get me wrong, because I like the look of the above chart as you can see in the annotations, with the big message being we actually don't want to see the juniors outperforming to a large degree this early in a new run. Such an outcome would show excessive bullishness. In this regard, one should notice we would not have seen the strength we have these past weeks if aggressive speculators had kept bidding up premiums in the juniors going into year-end 2015, giving us what looks to be a bullish double bottom. Sentiment, as measured by open interest put / call ratios could have been better at the turn, however, we will deal with it as long as the aggressive speculators playing NUGT and DUST remain skeptical.

Good investing is possible in precious metals.

Fatso Tony and the Abuse of Accounting Razzle-Dazzle to Overstate Profits

Tony Sagami

“You’d be handsome if you lost 50 pounds.”

One of my friends set me up on a blind date with a woman he worked with (and who, as an aside, would never be mistaken for Twiggy), and that is exactly what she said within two minutes of meeting me.

Sure, it was a rude thing to say, but she was right—I am heavier than I should be.
However, unlike the financial magicians aka chief financial officers that run America’s largest corporations, I can’t snap my fingers and “ex” away the things that don’t make me look good.

I’m talking about the change from the use of Generally Accepted Accounting Principles (GAAP) earnings, to Pro Forma earnings.

Pro Forma earnings are when you adjust for unusual, non-recurring, one-time expenses. Examples:

·         Minus or “ex” one-time costs of layoffs

·         Minus or “ex” one-time costs of an asset write-down

·         Minus or “ex” one-time costs associated with a takeover

·         Minus or “ex” one-time costs of currency losses

In my case, my “ex” is the 50 extra pounds I need to lose. In corporate America’s case, it is the creative use of Pro Forma accounting rules to make them appear more prosperous than they really are—because the use of “extraordinary items” and “non-cash charges” has turned corporate earnings reports into a bag of lies.

When I first got into the investment business, the overwhelming majority of companies followed GAAP rules. Now most companies report earnings based on Pro Forma rules. Worse yet, the trend is still growing.

In 2010, 70% of the companies in the S&P 500 were reporting earnings based on Pro Forma results. That percentage has increased to more than 90% today.

The simple reason is that Pro Forma—or “ex” 50 pounds—calculations make it easier for companies to manipulate their earnings and make profits appear higher than they really are.

As a result, there is a huge difference between how corporations are advertising performance and how they actually did.

If corporate America were forced to use GAAP rules, S&P 500 earnings would have been 12.7% less than reported. The last time the gap between “real” and “massaged” profits was that wide was back during the 2009 Financial Crisis.

Let’s put those profits in perspective. The P/E ratio of the S&P 500 using Pro Forma accounting is 16.5 times forward earnings estimates. However, the P/E ratio balloons to 21.5 time earnings using GAAP rules.

Despite what you hear on CNBC and Bloomberg, stocks are not reasonably priced.

That’s disgraceful, but even with the use of liberal Pro Forma accounting, the profits of the companies in the S&P 500 have declined for the last three quarters in a row.

The last time this happened was Q1, Q2, and Q3 of 2009… oops, that pesky 2009 Financial Crisis again!

What should really worry you is that despite the brutal start to 2016, stocks are much more expensive than they seem and very vulnerable to even more pain.

This accounting razzle-dazzle scam wouldn’t work without the cooperation of three parties:

1.    Dirt-bag accountants who will do whatever it takes to make profits look bigger than they really are;

2.    Dirt-bag Wall Street analysts that give a wink-wink to the phony numbers;

3.    Gullible investors who think corporate America and Wall Street are on their side.

Don’t worry about corporate America and Wall Street; they are making lots of money.
The odd man out could very well be you. But heck, two out of three isn’t bad… in their eyes.

I hope you are using this mini-rally to take some of your stock market chips off the table. I don’t want you to run off a Wall Street cliff like Wile E. Coyote.

That these shenanigans are going on doesn’t mean you’re powerless, though. On the contrary, there’s an utterly gratifying way to stick it to the scamsters—and it involves making bearish bets on big corporations that aren’t doing as well as they claim.

For example, I just identified a great way to make money from the sequel to America’s great housing bubble burst for my Rational Bear subscribers. Subprime liar’s loans are on the rise again, and all the signs point to the distinct possibility that this may not end well.

$lammed by ObamaCare

My Bronze plan’s monthly premium jumped $194 this year. I never thought I’d look forward to Medicare, but I do now.

By Christopher E. Press

This year my family joined millions of others whose health-insurance premium has become their biggest annual expense. More than our mortgage. More than our property taxes. More than our state income tax. More than our annual food or energy costs. With this year’s $194-a-month premium increase, I could roughly buy a Chevy Sonic or Ford Fiesta. Since 1999 our premiums are up 350%. Bad as this is, the story gets worse.

Each year our family is subject to paying health-insurance premiums and, if we see a doctor, deductibles and copays. Think of this total exposure as “health-care cost risk”—the sum of certain payments (premiums) plus the potential payments you could incur (copays and deductibles). Since early 1999 my family’s health-care cost risk has increased 1,190%. Over the same period, the Dow Jones Industrial Average is up about 80%, the consumer-price index is up 42%, gold is up 200%, median new home prices are up 74%, and the average cost per gigabyte of hard drive is down 99% to under three cents from $22.

Here’s the math behind my whopping increase. In 1999, having gone into business for myself, I needed health insurance for my then-young family. To enroll, I met a Blue Cross Blue Shield agent at Starbucks. SBUX -0.19 % (Quaint, huh?) We insured our family of four for $274 a month with a $250-per-person deductible.

Our annual health-care cost risk was $274 x 12, plus $1,000 in deductibles for a total of $4,288.

My individual risk (that is, my personal share, excluding my dependents) was $1,072. By 2009, those figures had jumped to $10,716 in annual premiums for our family of four, plus $2,000 in deductibles—a threefold increase in health-care cost risk.

Since ObamaCare became law, the increase has been more than fourfold. The kids are “OTP”—off the payroll; just my wife and me now. In December 2014, I shopped on the Internet (not so quaint) for new health insurance. I bought a Bronze plan for two people that cost $1,037 a month and had a $12,600 family deductible ($6,300 each). We were blessed last year; we didn’t have perfect health but never filed a claim.
So I was shocked when my 2016 renewal notice showed a 19% monthly premium increase to $1,231—with a higher deductible. All comparable Bronze plans were within dollars of each other, so I grudgingly renewed. My individual health-care cost risk for 2016? It is $1,231 x 12, plus $12,900 in deductibles, for a grand total of $27,672. My individual share is half—$13,836.

Nearly 13 times more than the $1,072 of 1999.

I accept that inflation accounts for some of this increase. And, being older, I present a higher actuarial risk. But 13 times more? The increase reflects an enormous shift of economic risk from the insurer to . . . me. One might think that this would lower my premium, not raise it.

Alas, no. Risk assessment has gone kablooey.

I never thought I’d look forward to Medicare. If I were eligible today, my premium would be $122 a month, about one-tenth of my current premium. I have 21 months to go.

Many in the workforce have been shielded by their employers from the full effects of these changes. Small businesses, the self-employed, pre-Medicare retirees, part-timers and the unemployed have no shield. Who can be surprised if they go uninsured? If you can’t afford $14,000 in premiums, why pay them when all it buys is the exposure to another $14,000 (in deductibles) you don’t have?

I know the idea is that, over time, higher premiums and deductibles will lead to lower health-care prices, more competitors and better value. But “over time” reeks of the economists’ adage “in the long run”—when we’re all dead and, notably, have no health-care costs.

Meanwhile, how can we claim to have the world’s best health-care system when a healthy family’s insurance premiums are its largest household expense?

Mr. Press, a former president of Blanchard Valley Hospital in Ohio, is a health-care consultant and adjunct professor at Emory University’s Rollins School of Public Health.

Iran’s Economy After the Elections

Hassan Hakimian

 Hassan Rouhani
LONDON – Recent gains by pro-government reformist candidates in Iran’s parliamentary elections have given President Hassan Rouhani a welcome midterm boost. But huge economic challenges remain. And in the coming months, these challenges are what will determine the battle lines between the president and his hardline adversaries inside and outside the parliament.
Elections are normally won and lost along political lines, and Iran’s recent vote is no exception.

But, on this occasion, there is reason to believe that economic concerns were a major driver of political change, as evidenced by the massive turnout at the electoral booths. Ever since July, when Iran signed a landmark nuclear deal with the five permanent members of the United Nations Security Council and the European Union, popular expectations for an improvement in the state of the economy have reached a fever pitch.
Rouhani is well aware of the importance of economic expectations; indeed, they were what swept him into the presidency in 2013. The recent election campaign once again drew strength from the promise to fix an economy battered by years of tough economic sanctions and domestic mismanagement. That is why he placed a high priority on reaching a deal with the outside world that would close the nuclear file and pave the road to economic recovery.
The economy that Rouhani inherited from his predecessor, Mahmoud Ahmadinejad, had been distorted by years of generous redistributions of oil revenues to the president’s supporters and then hit with stagflation, as what US Vice President Joe Biden called the “toughest economic sanctions in history” began to take hold. In 2013, the year Rouhani assumed office, inflation exceeded 40%, and GDP contracted by 6%.
Rouhani’s woes were exacerbated by the economic destabilization that followed the introduction of comprehensive financial sanctions that cut Iran off from the international banking system. Unable to sell oil, and faced with a blockade of the central bank by the United States and the EU, Rouhani faced the momentous challenge of trying to kick-start growth and tame spiraling prices.
Rouhani has had some success in lowering inflation, which is now down to 13%. But rekindling growth has proven to be a tougher challenge. With the International Monetary Fund predicting that GDP will either stagnate or contract this year, Iran’s economy might well be set for a double-dip recession.
With sanctions lifted, however, the IMF now expects GDP growth to reach roughly 5% next year – a rate that would make Iran the Middle East’s best-performing economy. Attaining this level of growth will be essential if jobs are to be created; Iran habitually suffers from a double-digit unemployment rate, with official youth unemployment above 25%.
But several obstacles stand in the way. The first is the collapse in oil prices, which have tumbled by 70% since mid-2014. A similar misfortune occurred in 1999, when President Mohammad Khatami was attempting to carry out his own reformist experiment, and prices fell below $10 per barrel. Then, as now, the first two years of a reformist administration were thwarted by adverse external developments in the international oil markets.
The last crisis was driven by demand-side factors relating to the Asian financial crisis. This time, supply-side factors are creating a global oil glut, with similar results. Failing to understand this, conspiracy theorists can be forgiven for noticing that reform-minded presidencies seem to be negatively correlated with international oil prices.
Rouhani’s main challenges, however, are internal. They come from Iran’s complex post-revolutionary institutional architecture, which is beset by a labyrinth of decision-making entities interlaced with yet more bodies and agencies created to ensure compliance with Islamic tenets and revolutionary standards. In recent decades, this system has produced tremendous political fragmentation, if not open factional fighting, at all levels. It is in this labyrinth of power that Rouhani is fighting an intense battle with his conservative adversaries – a battle that may be far from over.
In fact, Rouhani’s economic remedies – attempting to open the economy to foreign trade and investment flows, and introducing economic reforms to foster the private sector following the lifting of sanctions – are at odds with the vision of Iran’s hardline conservatives. For these so-called Principlists – who advocate a “resistance economy,” based on years of austerity marked by self-sufficiency and reliance on domestic resources – Rouhani’s desire to declare Iran “open for business” and to encourage foreigners to take an active role in Iran’s economy raises as much alarm as the nuclear deal.
The decline of the Principlists’ power bloc in the next parliament is undoubtedly a powerful message from Iran’s youthful electorate. This resonates with what former US President Bill Clinton told Charlie Rose in 2005: Iran is the only country with elections “where the liberals, or the progressives, have won two-thirds to 70% of the vote in six elections….There is no other country in the world I can say that about, certainly not my own.”
A decade later, Clinton will no doubt find it heartening to see this trend continue. But, while the Principlists might be down, they are certainly not out, as the looming battle over the future of the economy attests.
It is here that Rouhani will face his most difficult challenge. His electoral victory might raise the stakes for him, by increasing pressure to deliver on popular expectations. But, as Khatami found when he lost to Ahmadinejad in 2005, growth and economic recovery cannot come at the expense of the electorate’s aspirations for greater equality and social justice.