America’s Silent Crisis

This post America’s Silent Crisis appeared first on Daily Reckoning.

I ran into some disturbing news recently. News that makes me both angry and perplexed.

And it has to do with America’s pensions.

But here’s why it’s so important — even if you don’t have a pension:

Your tax bill could explode as governments around the country seek to bail out insolvent pension plans. And you know how much politicians like to use your tax money to bail out some constituent. They like to prove their “compassion” with your money!

And frankly, the disturbing news I recently discovered could wreck your retirement plans.

All because some bozos on Wall Street are completely inept at investment management. Actually, I’m not sure it’s it’s incompetence… or sheer laziness. But frankly, it really doesn’t matter.

What matters is that millions of retirees are going to wake up one day and realize that their pension fund payments stopped coming. At the same time, tens of millions of retirees are going to wake up to a market calamity.

And it all ties back to the miserable job U.S. pension fund managers are doing.

Let me explain…

As you know, we’re currently in a long-term bull market for stocks. Ever since the market bottomed following the financial crisis, stocks have been moving steadily higher. The current bull market is one of the longest-standing bull markets in history, now approaching eight straight years of advances.

In fact, I read where this is currently the third-longest bull market in modern history.

You would think that pension funds would be benefiting from this extreme bull market, right? After all, we know that there is a pension crisis in the U.S., with an estimated $414 billion shortfall in what corporations need to be able to pay retirees.

But instead of investing in the stock market, allowing strong returns to make up pension shortfalls, pension fund managers have been underweighting U.S. stocks.

Regardless of whether the market is in a Fed-inflated bubble, no one can deny that it’s been an impressive run. And pension plans are missing the boat.

You see, when the financial crisis hit, pension funds reduced their exposure to stocks to the lowest level since the 1960s. Ironically, this is the exact time that pension funds should have been increasing their exposure to stocks!

Over the next eight years, not much changed. As the market plowed steadily higher, pension fund managers kept their portfolios conservative — allocating capital to things like Treasury bonds and “investment-grade” corporate bonds that paid next to nothing.

Remember, this is an eight-year period with interest rates at or near zero percent! What a horrible time to be invested in bonds!

So during one of the greatest bull markets in history, pension fund managers have put their investors’ capital on the sidelines, missing out on huge potential gains and investing in bonds that pay next to nothing in interest.

Can you see why I’m so angry?

But if you somehow think your Social Security retirement package is any better, think again. The Social Security trust fund has zero exposure to …read more

The Best Income Opportunities as Wall Street Shifts Course

This post The Best Income Opportunities as Wall Street Shifts Course appeared first on Daily Reckoning.

Don’t look now, but there’s a major shift underway on Wall Street. One that is poised to grow your profits and accelerate your income over the next few months.

That is, of course, if you know how to take advantage of this shift.

Today, I want to explain how the winds of change are blowing on Wall Street… how speculative investors are already starting to lose money… and, finally, how you can protect yourself from this shift and actually grow your retirement wealth in the process.

Now let me explain what’s happening.

Speculative Stocks Falling out of Favor

It was bound to happen eventually.

Earlier in the month, shares of Wall Street’s favorite growth stocks began falling fast. During this dive over the last two weeks of June, more than $50 billion of investor wealth had been lost!

In case you’re wondering which of Wall Street’s favorite stocks I’m talking about, I’m referring to the FANG growth stocks, or Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOG).

These four stocks have been trading sharply higher this year and are responsible for a large portion of the market’s gains. So the sudden drop in price for all four of these stocks certainly caught investors off guard.

Take a look at the damage to each of these stocks below:

Hopefully, the pullback in these stocks didn’t catch you off guard. After all, considering how quickly these stocks have moved higher (and how expensive the shares are compared with earnings), investors should have realized there was a lot of risk in these names.

Still, the pullback got the attention of many traditional investors, and it certainly gave the talking heads on CNBC and other media outlets something to talk about.

But one thing these reporters were not talking about is where investors are flocking toward after selling their shares of these speculative stocks.

Where Is the FANG Money Going?

Whenever investors pull money out of one area of the market (causing prices to drop), that capital is usually reinvested in another area.

That’s what makes this business of investing so great! There’s always a bull market somewhere. And often, conservative, cash-paying dividend stocks become extremely attractive to investors who have sustained losses in other areas of the market.

And that’s exactly what is happening right now.

Dividend stocks are starting to get the attention that they deserve.

After nearly a year of underperformance, dividend stocks are starting to accelerate. You can see this trend shifting in the chart below, which plots the relative performance of dividend stocks to the broad S&P 500:

Now, I should explain that just because this chart moved lower throughout the last year does not mean that my recommended dividend stocks have been losing money. It just means that shares have not been trading higher as quickly as the broad market.

That’s largely because the S&P 500 has been fueled by the speculative rise in the FANG stocks pictured above.

But now that those speculative stocks are starting …read more

Macro Liquidity Time Bomb Ticks Toward Zero

Composite Liquidity Indicator

This post Macro Liquidity Time Bomb Ticks Toward Zero appeared first on Daily Reckoning.

[This post is from Lee Adler. To find out more about his work – visit Wall Street Examiner.]

US macro liquidity has grown slowly over the past year. Meanwhile, stock price inflation has surged, setting up a large divergence versus liquidity. It suggests that the market has become overextended due to excessive bullish sentiment. This is the mirror image of the oversold reading in February 2016.

The difference today is that the Federal Reserve has announced that it will soon begin withdrawing liquidity from the system. The Composite leading indicators (CLI) will flatten later this year and probably turn lower next year. Today’s market overextension represents an extreme level of risk.

My proprietary macro liquidity indicator combines 5 different measures of US systemic liquidity. The most important of these is a measure of the cash flowing from the Fed to the Primary Dealers. Other components include a measure of the change in bank deposits not resulting from flows from money market funds, and several measures of commercial bank trading and investment activities. Finally, I include a measure of direct foreign central bank purchases of US securities.

The current wave bandwidth from overbought to oversold has expanded to around 400 points or around 20%. That’s about the same percentage bandwidth as at the start of of this chart in 2009. With liquidity likely to turn down next year, the implication is that the market is likely to decline more than 20% from around current levels. How much more can’t be predicted at this point, but 20% looks like a minimum.

Over the past 12 months, the Liquidity Composite has risen by 3.1%. Stock prices have inflated by nearly 15% over that time. Since July of last year, liquidity has grown by just 2.4%. Stock prices have risen 14.1% over the same period. Stocks are now the most overbought they have been relative to macro liquidity since the market bottomed in 2009.

That was a very different environment with the Fed going full blast on quantitative easing (QE). The Fed took its foot off the accelerator at the end of 2014. Soon it will begin to actually siphon gas from the tank.

Macro Liquidity Components

The Fed continues to push more cash into Primary Dealer accounts through replacement purchases of its paid down mortgage-backed security (MBS) holdings. These settlements come every month at mid month. Those payments diminished when mortgage rates fell late last year. The Fed’s purchases rose slightly when rates backed down a bit and have been stable at low levels since then.

Net bank deposits (not coming from money market funds) continue to be a positive factor. While US bank loan growth has slowed, deposit growth hasn’t. We can deduce that that’s because of inflows from Europe and elsewhere as foreigners buy US assets. But deposit growth has fallen back to its long term trendline. Any slowing from here will break that trend.

That’s likely to happen as the Fed …read more

The China Tech Bull is Back!

This post The China Tech Bull is Back! appeared first on Daily Reckoning.

Tech stocks stumbled once again yesterday…

The semiconductor sector – one of the bull market’s strongest fortresses – was besieged by sellers Monday morning.

After opening higher, the Philadelphia Semiconductor Index slipped and fell 1% by the closing bell while the S&P 500 finished the day near breakeven.

While one losing day isn’t the end of the world for these high-tech standouts, some traders are concerned about the drop. After all, these tech winners are supposed to rise every single day. No one has time for consolidation. Or worse – a pullback!

But we shouldn’t complain about a soft day from the semis. Many of these stocks are sitting on double-digit gains during the first half of the year. Aside from the FAANG brigade, it’s almost impossible to find returns that even come close, right?

Think again.

While the financial media have pounded the table for semiconductors and the big tech stocks for the better part of the past six months, the biggest momentum stocks of 2017 are all coming from one place: China.

China’s tech ADRs continue to rip higher at we barrel toward the end of the second quarter. If you’ve been following along this year, you already know that we’ve booked gains on Momo Inc. (NASDAQ:MOMO). We were able to harness a fast 50% gain in just a few weeks with this quick trade. And MOMO isn’t the only Chinese name lighting up the market this year…

Alibaba (NYSE:BABA) is another solid winner from our trading portfolio. We cashed in our chips on this trade in early May for gains of 23%. The stock continues to prove all the naysayers wrong as it pushes to new all-time highs once again this month. In fact, Alibaba stock has posted gains every single month of the year so far. It’s now up an incredible 62% in 2017.

Even lesser-known Chinese tech ADRs like Weibo Corp. (NASDAQ:WB) are getting love from short-term traders.  Weibo is the most popular of China’s Twitter-like microblogging platforms (Twitter and Facebook are both banned in China). This stock is up more than 75% year-to-date.

There’s no question that these Chinese tech stocks are attracting new buyers this year. It’s the perfect place to look for your next hot momentum trade.

But before I get to today’s play, we need to check up on a Chinese ADR that’s sat idle in our trading portfolio for the past several weeks. When we first jumped onboard Baidu Inc. (NASDAQ:BIDU) back in May, I mentioned that the stock has been a bit of laggard so far this year.

“China’s Google” couldn’t seem to get over the hump. We hopped on the stock as it was breaking out to new year-to-date highs. But it hasn’t followed through just yet. As of this morning, BIDU remains stuck in a choppy range.

The stock is up about 9% so far this year. That’s not terrible. But it’s also not very exciting. While I haven’t totally lost hope for BIDU, …read more

Why the Fed Will Fail Once Again

This post Why the Fed Will Fail Once Again appeared first on Daily Reckoning.

[Ed. Note: Jim Rickards’ latest New York Times bestseller, The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis, is out now. Learn how to get your free copy – HERE. This vital book transcends rhetoric from the Federal Reserve to prepare you for what you should be watching now.]

John Maynard Keynes once wrote, “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

Truer words were never spoken, although if you updated Keynes today, the quote would begin with “practical women” to take account of Fed Chair Janet Yellen. The “defunct economist” in question would be William Phillips, inventor of the Phillips curve, who died in 1975.

In its simplest form, the Phillips curve is a single-equation model that describes an inverse relationship between inflation and unemployment. As unemployment declines, inflation goes up, and vice versa. The equation was put forward in an academic paper in 1958 and was considered a useful guide to policy in the 1960s and early 1970s.

By the mid-1970s the Phillips curve broke down. The U.S. had high unemployment and high inflation at the same time, something called “stagflation.” Milton Friedman advanced the idea that the Phillips curve could only be valid in the short run because inflation in the long run is always determined by money supply.

Economists began to tweak the original equation to add factors — some of which were not empirical at all but model-based. It became a mess of models based on models, none of which bore any particular relationship to reality. By the early 1980s, the Phillips curve was no longer taken seriously even by academics and seemed buried once and for all. RIP.

But like a zombie from The Walking Dead, the Phillips curve is baaaack!

And the person who has done the most to revive it is none other than Janet Yellen, the 70-year-old liberal labor economist who also happens to be chair of the Federal Reserve.

Unemployment in the U.S. today is 4.3%, the lowest rate since the early 2000s. Yellen assumes this must result in inflation as scarce labor demands a pay raise and the economy pushes up against the limits of real growth. Yellen also agrees with Friedman that monetary policy works with a lag.

If you believe that inflation is coming soon and that policy works with a lag, you better raise interest rates now to keep the inflation from getting out of control. That’s exactly what Yellen and her colleagues have been doing.

Meanwhile, back in the real world, all signs point not to inflation but to deflation. Oil prices are declining, intermediate-term interest rates are falling, labor force participation is falling, demographics favor saving over spending and logistics and supply-chain giants like Wal-Mart and Amazon are relentlessly squashing price increases wherever they appear.

Even traditional high-price sectors like college tuition and health care have been cooling off …read more

Revealed: The Exact Date of the Coming Apocalypse

The Dying Global Credit Impulse

This post Revealed: The Exact Date of the Coming Apocalypse appeared first on Daily Reckoning.

We now have — on some authority, no less — the precise hour of the coming financial collapse.

We’ve circled the judgment day on our calendar, in funereal black.

We’re hurrying our last will and testament in preparation thereof… arranging our affairs… bending every effort to get right with our almighty maker.

When does the terrifying day arrive?

Answer anon.

But let us first check in on today’s markets… while there’s still time remaining.

Stocks don’t seem to realize they go on borrowed time…

The Dow was up 15 points today to 21,409. The S&P’s up just a point… but still up.

Only the Nasdaq shows any inclination of its fate — down 18 points today.

Even gold, the doomsday metal, fails to heed the doomy chimes. It’s down $11 today… as if all is peace with the world.

But we suspect the end must be near when the likes of Goldman Sachs, JPMorgan, Citi and Bank of America all implore their clients to “go to cash.”

Which they’ve done.

“It’ll be a cascade, an avalanche,” wails Eric Peters, CIO of One River Asset Management.

Peters is the Nostradamus of today’s reckoning. He’s the seer who peered into the future and jotted down the apocalyptic date.

What rings the knell of doom according to Mr. Peters?

The global credit impulse.

Peters says a collapse of the global credit impulse signals the end.

The credit impulse is the change in new bank credit as a percentage of overall GDP. It measures the amount of borrowing in the economy.

Deutsche Bank economist Michael Biggs, who coined the term, says the credit impulse gives a highly accurate EKG of the beating economic heart.

And it’s currently flashing cardiac arrest.

UBS analyst Arend Kapteyn warned earlier this year that the global credit impulse — covering some 77% of global GDP, no less — had “suddenly collapsed.”

And now he writes:

From peak to trough, the deceleration in global credit growth is now approaching that during the global financial crisis [-6% of global GDP]…

The EKG of a seizing heart:

Disconcerting.

Returning to our prophet of apocalypse, Zero Hedge reports that Mr. Peters believes the cataclysm “will begin with an increasingly tighter Fed.”

We remind you that the Fed raised rates earlier this month — the third in six months — with more in prospect.

Janet Yellen certainly does appear… determined.

Jim Rickards knows why:

Not because [the Fed] believes the economy is getting stronger, but because it is desperately trying to catch up — before the next crisis.

Jim seems to confirm the dying credit impulse and indicates the attempted cure:

The economy is slowing. Even without any action, retail sales, real incomes, auto sales and even labor force participation are all declining. Every important economic indicator shows that the U.S. economy is slowing right now…

They’re getting ready for a potential recession where they’ll have to cut yet again. Then it’s back to QE. You could call that QE4 or QE1 part two.

Jim says the Fed’s now embarking on quantitative tightening, or …read more

URGENT: Big Opportunities In Pot Stocks

Ray Blanco

This post URGENT: Big Opportunities In Pot Stocks appeared first on Daily Reckoning.

The past few weeks has been very exciting for pot stocks — and you have a front-row seat to the action!

If you’ve been watching the price action, you’ve seen the buying frenzy that’s been taking shape in the last several sessions.

Today, I want to give you a top-level view of what’s happening in the pot market — but first, there’s something we need to talk about…

While I’m thrilled with the momentum we’ve seen over the past couple of sessions, I just want to re-emphasize that for very small stocks, it’s extra important not to chase shares, even if they remain below your chosen buy-up-to price.

That helps to ensure that everyone has a chance to get into a trade.

When you get a buy recommendation for a thinly traded OTC stock, like many cannabis stocks are, be sure to use a limit order and exercise patience if shares start to make a run.

Now, that said, last week’s massive upside in pot stocks clearly wasn’t sparked by over buying. As I’ve been telling you for the last few weeks of quiet, do-nothing price action, pot stocks have been a coiled spring ready to pop — and pop they did!

Have a look at our Penny Pot Index:

See that spike in the last few days?

That’s the sort of move that’s caused by the entire penny pot ecosystem jumping higher together, not just pops in a couple of tiny names.

But why?

The cannabis market often moves to the beat of it’s own drum. And the beat that moves cannabis stocks most is legislation. And there has been some very exciting legislative developments this month.

First, big news from our neighbor to the south. In April, Mexico passed a measure, in an overwhelming 371-19 vote in their Lower House, to legalize medicinal marijuana, opening up the door to a huge new market for medical marijuana companies. The legislation was just signed by President Enrique Peña Nieto this week, and the Mexican Ministry of Health is already drafting proposed implementation guidelines.

Here in the U.S. the cannabis industry is continuing to see strong support for growth as well. Nevada is set to allow recreational use by July 1 of this year, making “Sin City” one of the largest new recreational markets in the country.

In other news around the country, South Carolina, a state typically viewed as a last bastion of marijuana prohibition, has a bill under review in the state senate for medical marijuana approval, and reports claim it is gaining significant traction leading up to their latest recess. The state also has recently approved a plan to become the nation’s next large-scale hemp producer with a pilot program going into effect this summer.

Another exciting bit of legislation comes out of Vermont. The state has just approved doubling the amount of approved licensed medical marijuana dispensaries. This new legislation also adds new diseases to the list of those that can be treated by cannabis …read more

5 Things We’ve Learned Since China Entered the World Money Basket

China gold imports

This post 5 Things We’ve Learned Since China Entered the World Money Basket appeared first on Daily Reckoning.

Beginning in October of last year, China’s renminbi was added to the International Monetary Fund’s currency basket known as the Special Drawing Rights, or SDR.

The IMF, founded after Bretton Woods, established the SDR to be its own international reserve asset – what many have identified as world money.

Prior to Chinese inclusion, the elite currency basket was calculated with the U.S dollar, Euro, Japanese yen and British pound sterling. While China joining the SDR may have been largely status-driven at the time, the yuan and the Chinese economy have become open to heightened concern.

Significant worries over debt, wasted investments and threats of sweeping deflation left macroeconomists seeing a Chinese financial crisis on the horizon. Financial commentators ranging from hedge fund manager Kyle Bass to economist Jim Rickards highlight that the Chinese economy is on a dangerous course.

So what does that mean for China and its inclusion with the SDR’s world money basket?

Here’s five things we’ve learned from the Chinese entrance into world money:

1. October 2017 is Crucial

This October, the 19th National Congress of the Communist Party of China will be held. Thousands of lawmakers will gather in Beijing for the Congress.  The Chinese Communist Party (CCP) does hold ultimate power, but certain influencers are beginning to rise.

For the upcoming gathering, the result will be the largest leadership turnover seen in China in decades. The outcome is expected to be a test to President Xi Jinping. As he begins the start of his second term, the leader is expected to consolidate power.  President Xi could be poised to be one of the most powerful Chinese leaders in recent memory.

The gathering and power moves could make waves in the economy and even impact the Chinese status in the SDR.

Advocates have called for a floating currency.  A floating currency would result in the Chinese yuan’s value being determined by foreign exchange markets.  As China has already signaled its willingness to internationalize the currency by joining the SDR, it could be set to take policy moves a step further in October or later this fall.

However, if it does take the risk of floating its currency it could also put its currency value at significant risk to devaluation.  In the instance a drastic fall in currency value was to happen, it could shock China’s economy and change the balance on the SDR basket values as well.

Paying attention to October’s meetings and the outcomes for the foreign exchange reserves held by China will be vital to understanding the Chinese economy.

2. World Money Hasn’t Eased Geopolitical Tensions

By including China in the world money basket, the United States and major voting members of the IMF believed that internationalization could deescalate tensions in the region.

To put it simply, leaders believed that integrating China could open the doors for greater dialogue and cooperation. That hope vanished quickly after multiple skirmishes in the South China …read more

The Forgotten Depression of 1920–1921

This post The Forgotten Depression of 1920–1921 appeared first on Daily Reckoning.

The year is 1921…

America is less than three years removed from triumph on the Western Front. It’s the dawn of the Roaring Twenties… and the Jazz Age.

Warren Gamaliel Harding is America’s czar.

And the nation is sunk in depression…

U.S. industrial production plunged 31% between 1920 and 1921. Stock prices plummeted 46%… and corporate profits a crushing 92%.

Unemployment ran as high as 19%. Storefronts everywhere gaped empty.

It was the grand migraine of the day.

Then suddenly it was over. The pain was acute… but the pain was brief.

By 1922 prosperity was finding its legs again.

Welcome to the Forgotten Depression of 1920–1921…

How America avoided depression in the early ’20s is a story seldom told.

But had it been otherwise, the Forgotten Depression may have become known to history as the Great Depression.

Why wasn’t it?

The economic doctors of the day mostly let the ailing patient be.

Despite the Progressive Era’s encroachments and WWI’s assaults laissez-faire still had roots in American soil — roots both deep and wide.

In the America of 1921 the stock market looked after itself… and buried its own dead.

Business was on its own hook. And banishing the business cycle was not the work of government.

Just eight years old, the Federal Reserve was still in knee pants.

Its role at the time was simple and it knew it — to provide liquidity to the banking system in the event of another banking crisis. Little more.

Inconceivable today, the Fed sat back as the economic machinery seized heading into 1921.

In the words of one economic historian, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.”

Believe it or not (you might not), they actually increased rates.

The Fed raised rates from 4% in 1919 to 7% in 1920. And to 6% in 1921… right in the teeth of the depression.

Angels of mercy! Raising interest rates in a depression. Didn’t they know?

Not until 1922, after the recovery was well along, did they reduce rates to 4% again.

Remarkable.

And once depression broke upon the scene, Harding broke every one of today’s commandments.

Did he try to spend the country into recovery? Did he raise taxes on the rich?

No and no.

Harding nearly sawed the federal budget in half between 1920 and 1922. He shriveled the national debt by a third. He slashed taxes A through Z.

If Paul Krugman were around he would have screamed blue murder and set Mr. Harding down as an enemy of the people.

But Harding followed a different set of lights than the good Dr. Krugman…

Imagine — if possible — a contemporary president pounding this drum:

We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity…

Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive …read more

When the “Fix” Increases Systemic Fragility, Things Fall Apart

This post When the “Fix” Increases Systemic Fragility, Things Fall Apart appeared first on Daily Reckoning.

All the “fixes” have fatally weakened the real economy, and created a dangerous illusion of “wealth,” “growth” and solvency.

The “fix” of the last eight years worked, right? This was the status quo’s “fix”:

1. Massive expansion of debt: sovereign, household and corporate, all in service of a) bringing consumer demand forward b) fiscal stimulus funded by debt c) corporate stock buybacks to boost stock valuations d) asset bubbles in real estate, bonds, stocks, bat guano futures, etc.

2. Monetary stimulus, i.e. creating and distributing money at the top of the wealth/power pyramid so corporations and the super-wealthy could buy more assets with free money for financiers issued by central banks.

3. Gaming statistics such as unemployment and metrics such as stock indices to generate the illusion of “growth,” “stability” and “wealth.”

4. Saying all the right things: the “recovery” is creating millions of jobs, inflation is low, virtue-signaling is more important than actual increases in inflation-adjusted wages, etc.

This “fix” has fatally weakened the real economy.

The cost of maintaining the illusions of “growth,” “stability,” “wealth” and solvency is extremely high, and hidden from view: systemic fragility has increased to the point of brittleness.

What is fragility?

Fragility is the result of an erosion of resilience, redundancy, adaptability, accountability, honesty, feedback and willingness to sacrifice today’s consumption for tomorrow’s productivity and systemic stability.

The status quo “fix” has gutted resilience, redundancy, adaptability, accountability, honesty, feedback and willingness to sacrifice today’s consumption for tomorrow’s productivity.

Can anyone who isn’t a lackey on the payroll of the Powers That Be provide any credible evidence that the U.S. economy is more resilient after eight years of debt-dependent “recovery”?

For the past several years, central banks have funneled credit and liquidity into the banks at the top of the wealth-power pyramid. Very little of this new “wealth” has trickled down to the bottom 90% of households in the real economy who have seen their earnings stagnate and their costs rise.

Now that debt and essentials are absorbing much of the bottom 90%’s earnings, there’s little fuel left for additional debt-based consumption. This is why we see auto sales plummeting, for example.

You see the conundrum facing central banks. All the new money did was inflate asset bubbles in assets owned largely by the wealthy.

Bottom line: the next recession won’t be “fixed” with the central bank playbook of more free money for financiers.

The entire status quo is based on the delusion that rapidly rising debt will never generate any negative consequences.

America’s national debt, extended a mere dozen years into the future, is expected to double from the current $20 trillion to $40 trillion. And that assumes 1) trillions of dollars in private and local government pensions don’t implode and have to be bailed out by the federal government, a bail-out that will have to be paid by borrowing more money, 2) a recession doesn’t slash federal tax revenues.

Color me skeptical that doubling the debt in 12 years won’t have …read more

How to Own Your Own Gold Mine

This post How to Own Your Own Gold Mine appeared first on Daily Reckoning.

Public equity markets are in many ways a sophisticated game of pump-and-dump. Your stocks soared in 1996-1999, then crashed in 2000. They soared again in 2002-2007, then crashed in 2008. They’re soaring again now.

Guess what comes next?

For the most part, wealth managers are more interested in their wealth than yours. All kinds of fees and commissions are designed to separate you from your money. When markets turn with a vengeance, you’re the one left holding the bag.

Think passive investing and indexing are the answer?

Guess again. Active managers do difficult work in research, asset allocation, capital commitment, and price discovery. Active investors are a beast of burden like an elephant.

Passive investors, including ETFs, are like parasites on the back of the elephant. A few parasites do just fine, and the elephant doesn’t notice at first. Eventually there are so many parasites that the elephant dies, and the parasites die too.

Today, passive investors make up more than 50% of total assets under management. The parasites are winning. When markets correct, passive investors are like deer in the headlights — they can’t short or go to cash. They have to ride the index down.

When investors call for redemptions to salvage what’s left, the passive funds will have to sell into weakness to raise cash. There won’t be many active capital committers around to take the other side of the trade. Markets will go “no bid” with no bottom in sight. The resulting bloodbath for investors will make 1929 and 1987 look like hiccups.

So, if public equity markets are a roach motel, what do the very rich do with their money? How do the rich get richer?

The answer is private deals.

Major investment banks like Goldman Sachs have always run private pools for partners only to invest in the best deals they see. Major private equity funds like KKR take a proprietary stake in their best deals and organize “co-invest” funds for family and friends to invest side-by-side in those deals.

Private deals are offered on the 19th hole at the country club, in table talk at charity galas, and on tennis courts in the Hamptons. You won’t hear about them from your broker. And you won’t see them on CNBC.

I should mention that private equity investments are how I’ve personally built my wealth.

And it’s my mission to level the playing field and show you some of the best private deals available from my extensive network of entrepreneurs, technologists, billionaires, Washington elites, and other plugged-in insiders.

I see quite a few opportunities right now, but only a few make the cut. Those few are the best of the best, or what I call, “the best deal in the books.”

And lately, I’ve come across one of the best. I have only one word to describe it — amazing.

This new deal involves gold. If you’re familiar with my work, that probably comes as no surprise to you. I write and speak extensively …read more

How Safe Is Your Money?

Rick Pearson

This post How Safe Is Your Money? appeared first on Daily Reckoning.

Suppose you receive an email which pretends to be from Yahoo, Google or wherever else. It tells you your account has seen some suspicious activity and you must change your password right away.

This is no longer some klutzy looking email with typos and bad grammar telling you to send money to claim your winnings in some Nigerian lottery.

No, instead, these emails are sophisticated copies of real emails sent by real US tech companies. Even the address in the “From” box will appear legitimate. The only difference is that the link that you click on takes you to a phony site.

The phony site is also absolutely identical to a real site from Google, Yahoo or whoever else’s customers hackers are targeting.

Then under the impression you’re on the correct site, you willingly enter in your username and password. You absolutely have zero reason to be suspicious because the site is truly identical to an authentic site (at least on the outside it is….)

Then a series of things start to happen. They’re all bad.

First, the hackers use your credentials to login to your account. They are not sitting there typing anything in by hand. It is all automated and it happens instantaneously. Next, they immediately change your passwords and recovery options (such as phone numbers and secret questions).

This locks you out of your account. Once that happens, you generally have no way to access your accounts. EVER. IF you don’t believe me, try contacting Yahoo or Google and telling them “I am locked out of my account, and my password phone number and secret questions are all not working”. I assure you, you will be completely out of luck because those automated recovery options are the only ones offered for free accounts.

In the meantime, the hackers have full access to everything in your account. They now know your password that you used on that account, meaning they can try using the same password on your other accounts, like you credit and bank accounts.

Next Comes the Real Damage…

Those things all happen instantaneously. But the real damage often takes a few weeks. As the hackers run these scripts on hundreds of millions of emails, they start automatically creating large file dumps containing the actual details of the underlying account (email contents, user names, passwords, bank accounts, etc.)

Periodically, they will check in on the contents of each of those file dumps and then make individual targeted attacks. In many cases, rather than do this leg work themselves, hackers sell the contents of their identity theft files to any willing buyer via “The Dark Web”. This is particularly true for hackers who are in China or Russia and don’t speak English.  (They can’t read the contents of your files, so they just sell them to those who can.)

Either way, the initial phase of the attack is so perfectly convincing that many people will have no idea that they have been hacked. …read more