The Final Phase Of The 2008 Crash Dead Ahead: Our Denial Of The Inevitable Is Creating The Inevitable. America Is Obsessed With Cheap Money, Bull Markets, Profits, Consumerism, Fiscal Cliffs. Washington Is Setting Up A New Crash And You’re Not “Going To Get Early Warning Signal When New Bank Meltdown Hits
The “deal” calls for $43 in new taxes for every $1 in spending cuts. What a sellout by the senate republicans.
One can only hope the house republicans have more balls and kill this pathetic sellout.
According to the Congressional Budget Office, the last-minute fiscal cliff deal reached by congressional leaders and President Barack Obama cuts only $15 billion in spending while increasing tax revenues by $620 billion—a 41:1 ratio of tax increases to spending cuts.
One of those occasions when one picture really does speak a thousands words.
Houston, we may have a spending problem.
PAUL B. FARRELL: Stock market will blindside investors in 2013
Let’s look past the typical avalanche of noisy predictions into the insanity that’s ahead in 2013. First, the final phase of the 2008 crash that the Pessimist sees coming. Then, the stock market’s surprising 2012 trouncing of the New Normal’s predicted single-digits returns.
Finally, we’ll examine four unpredictable black swans that can easily spoil Wall Street’s party in 2013.
Pessimist sees the final phase of the 2008 crash dead ahead
Remember, Wall Street’s disastrous 2008 credit crash cost investors over $10 trillion in losses and drove the federal debt above $16 trillion. Whatever the President and Congress do with the fiscal cliff, America’s debt will keep rising.
Bloomberg Market exposed this danger in an article about bond investor Jeffrey Gundlach, who’s doing a flip-flop as we speak: “Bond guru buying stocks. Sees ‘Kaboom’ Ahead,” something overwhelming that will even dwarf the bizarre fiscal-cliff insanity: Yes, there’s a “financial catastrophe on the horizon.”
Gundlach, the CEO of DoubleLine Capital, who predicted the 2008 Wall Street credit meltdown, says it’s real damage is still to come. Earlier at TCW Group, he had a 7.9% annual average return for the 2000-2009 decade. He warns: “The first phase of the coming debacle consisted of a 27-year buildup of corporate, personal and sovereign debt. That lasted until 2008.”
Then all that cheap money “finally toppled banks and pushed the global economy into a recession, spurring governments and central banks to spend trillions of dollars to stimulate growth.” America piled on an estimated $29.7 trillion in debt in the shadow markets.
No early warning signal when new bank meltdown hits
Gundlach’s now predicting an “ominous third phase,” a bigger crash, one whose impact will far exceed the damage of 2008: “Deeply indebted countries and companies” won’t default till after 2013.” Meanwhile, Washington and the Fed will keep kicking the can down the fiscal road. “Central banks may forestall these defaults by pumping even more money into the economy,” but “at the risk of higher inflation in coming years.”
He admits he doesn’t really know exactly when this final phase will trigger, but warns you’re not “going to get some sort of an early warning” signal. He has “no faith” that any fiscal-cliff deal will resolve the deficit.
“Tax hikes on the wealthy wouldn’t bring in enough revenue” and politicians won’t “make major cuts in entitlement programs because the public overwhelmingly supports them.” Yes, Washington is setting up a new crash….
Even if U.S. lawmakers prevent the worst of the so-called fiscal cliff, the brinksmanship in Washington over taxes and spending is likely to continue damaging the fragile economy well into 2013.
A months-long political standoff over fiscal policy has already taken its toll, adding uncertainty that has discouraged consumers from spending and businesses from hiring and investing.
The squabbling seems sure to persist even if the House of Representatives goes along with a partial fix passed by the Senate in the early hours of Jan. 1. Under that plan, taxes will rise on individual incomes over $400,000 and household incomes over $450,000 and on the portion of estates that exceeds $5 million. The House is expected to vote Tuesday or Wednesday.
But lawmakers appear to have postponed tough decisions on government spending, giving themselves a reprieve from cuts that were scheduled to begin taking effect automatically Jan. 1. That just sets the stage for more hard-bargaining later.
On The New Definition Of “Rich”, A $620 Billion Tax Hike Offset By $15 Billion In Spending Cuts, And Much More
We greet the new year with an America that has a Fiscal Cliff deal. Actually no, it doesn’t – not even close. What it does have is an agreement, so far only at the Senate level which voted a little after 2 AM eastern in an 89-8 vote (Nays from Democrats Bennet, Cardin, Harkin, and Republicans – Lee, Paul, Grassley, Rubio and Shelby), to delay the all-important spending side of the Fiscal Cliff “deal” which “can is kicked” in the form of a 60 day extension to the sequester, to be taken up “eventually”, but hopefully not on day 59 at the 11th hour, the same as fate of the all important US debt ceiling, which remains in limbo, and which now effectively prohibits America from incurring any new gross debt as the $16.4 trillion debt ceiling was breached yesterday. In other words, America’s primary deficit sourcing mechanism is now put on hiatus, and all new net debt will come at the expense of defunding various government retirement funds as the 60 day countdown to the real showdown begins: the debt ceiling, as well as the resolution of the spending side of the Fiscal Cliff deal.
What did happen last night was merely the legislating of the inevitable tax hike on the 1%, which was assured the night Obama won the presidential election, something not even the most rabid Norquist pledge signatories had hope of avoiding. This was the first income tax hike in nearly two decades. A tax hike which, regardless of how it is spun, will result in a drag in consumption. It was also the brand new definition of rich, with the “$250,000” income threshold now left in the dust, and “$400,000 for individuals ($450,000 for joint filers)” taking its place. If you make more than that, congratulations: you are now “rich“. You will also be hated for being part of the 1%. and be the target in the ongoing class war.
Who knew that “New Normal” would also bring us the “New Rich” definition.
Ironically, not even the tax hike component of the deal was fully worked out, as it still remains unclear just what the new tax brackets and what the tax increases for the much maligned 1% will be.
What is generally known is that the Senate bill boils down to the following: $620 billion in tax hikes over the next decade offset by $15 billion in spending cuts now. Hardly “fair and balanced.” Anyone who, therefore, thinks this bill is a slam dunk in the House is a brave gambling man….
MAULDIN: Long-Term Economic Growth Has Downshifted, And It’s A Game-Changer For Stocks
We are 13 years into a secular bear market in the United States. The Nasdaq is still down 40% from its high, and the Dow and S&P 500 are essentially flat. European and Japanese equities have generally fared worse.
The average secular bear market in the US has been about 11 years, with the shortest to date being four years and the longest 20. Are we at the beginning of a new bull market or another seven years of famine? What sorts of returns should we expect over the coming years from US equities?
Even if you have no investments in the stock market, this is an important question, in part because the pensions funded by state and local governments are heavily invested in US equities. In fact, they are often projecting returns in excess of 10% per year. How likely is that to happen? Who will make up the difference if it doesn’t? In nearly all states and jurisdictions, it is against the law to change the terms of a public pension plan once it is agreed upon.
Even more important to you personally, what will happen to your taxes if the secular bear persists? On this final day of 2012, let’s take a look at the potential returns of the stock market over the next 7-10 years. In previous Thoughts from the Frontline and in my book Bull’s Eye Investing, I have written that stock market returns are a function of valuations (typically, price-to-earnings ratios). Secular bull markets are periods of rising valuations, while secular bear markets are periods of falling valuations. While stock market returns can vary widely over one-year, ten-year, or twenty-year periods, over the long term stock market earnings have tended to correlate very highly with GDP and inflation.
Since GDP has tended to grow (at least until recently) at 3% per year, predicting long-term returns and secular bull and bear markets has been pretty straightforward. But recently several noteworthy analysts have presented research suggesting that GDP will not grow anywhere close to 3% over the coming decades. In today’s letter we look at the ramifications of slower GDP growth on equity returns. For most investors this is a very important topic, as the stock market tends to be the main driver of their investment returns….
Bloomberg: The fiscal cliff deal will probably ensure that the U.S. avoids recession but it will also help cut GDP growth to 1% in Q1 2013 from 3.1% Q3 2012, JPMorgan and BofA economists forecast. “It’s going to definitely present a headwind for the economy,” says JPM’s Michael Feroli. “We’re looking for a downdraft in growth in the first half of the year, with the economy coming back in the second.”
Raoul Paul sent shock-waves throughout the financial markets in June in what Tyler Durden called the scariest presentation ever, when Paul predicted a complete systemic collapse of the financial system was merely 6-9 months away. Is the Big Reset still imminent?
‘The world has no engine of growth with most of the G20 countries approaching stall speed at the same time. The western world is about to enter its second recession in an ongoing depression…
For the first time since the 1930?s we are entering a recession- before industrial production, durable goods orders, employment, and private sector GDP have made back their previous highs. ‘
As to the timing of the collapse Paul states:
‘2012- 2013 will usher in the end. We have about 6 months left… Assume that no one and nothing is safe. After that, we put on our tin helmets and hide until the new system emerges.
As to what the collapse will look like:
A global banking collapse and massive defaults would bring about the biggest economic shock the world has ever seen. No trade finance, no shipping finance, no finance for farmers, no leasing, no bond market, no nothing…
The END GAME. MUST READ!