Michael Snyder
Economic Collapse
December 27, 2013
It is time to crank up the Looney Tunes theme song because Wall Street has officially entered crazytown territory. Stocks just keep going higher and higher, and at this point what is happening in the stock market does not bear any resemblance to what is going on in the overall economy whatsoever.

Image: New York Stock Exchange (Wikimedia Commons).
So how long can this irrational state of affairs possibly continue? Stocks seem to go up no matter what happens. If there is good news, stocks go up. If there is bad news, stocks go up. If there is no news, stocks go up. On Thursday, the day after Christmas, the Dow was up another 122 points to another new all-time record high. In fact, the Dow has had an astonishing 50 record high closes this year. This reminds me of the kind of euphoria that we witnessed during the peak of the housing bubble. At the time, housing prices just kept going higher and higher and everyone rushed to buy before they were “priced out of the market”. But we all know how that ended, and this stock market bubble is headed for a similar ending.

It is almost as if Wall Street has not learned any lessons from the last two major stock market crashes at all. Just look at Twitter. At the current price, Twitter is supposedly worth 40.7 BILLION dollars. But Twitter is not profitable. It is a seven-year-old company that has never made a single dollar of profit.
Not one single dollar.
In fact, Twitter actually lost 64.6 million dollars last quarter alone. And Twitter is expected to continue losing money for all of 2015 as well.
But Twitter stock is up 82 percent over the last 30 days, and nobody can really give a rational reason for why this is happening.

Overall, the Dow is up more than 25 percent so far this year. Unless something really weird happens over the next few days, it will be the best year for the Dow since 1996.
It has been a wonderful run for Wall Street. Unfortunately, there are a whole host of signs that we have entered very dangerous territory.

The median price-to-earnings ratio on the S&P 500 has reached an all-time record high, and margin debt at the New York Stock Exchange has reached a level that we have never seen before. In other words, stocks are massively overpriced and people have been borrowing huge amounts of money to buy stocks. These are behaviors that we also saw just before the last two stock market bubbles burst.

And of course the most troubling sign is that even as the stock market soars to unprecedented heights, the state of the overall U.S. economy is actually getting worse…
-During the last full week before Christmas, U.S. store visits were 21 percent lower than a year earlier and retail sales were 3.1 percentlower than a year earlier.
-The number of mortgage applications just hit a new 13 year low.
-The yield on 10 year U.S. Treasuries just hit 3 percent.
For many more signs like this, please see my previous article entitled “37 Reasons Why ‘The Economic Recovery Of 2013′ Is A Giant Lie“.

And most Americans don’t realize this, but the U.S. financial system and the overall U.S. economy are now in much weaker condition than they were the last time we had a major financial crash back in 2008. Employment is at a much lower level than it was back then and our banking system is much more vulnerable than it was back then. Just before the last financial crash, the U.S. national debt was sitting atabout 10 trillion dollars, but today it has risen to more than 17.2 trillion dollars. The following excerpt from a recent article posted on thedailycrux.com contains even more facts and figures which show how our “balance sheet numbers” continue to get even worse…

Since the fourth quarter of 2009, the U.S. current account deficit has been more than $100 billion per quarter. As a result, foreigners now own $4.2 trillion more U.S. investment assets than we own abroad. That’s $1.7 trillion more than when Buffett first warned about this huge problem in 2003. Said another way, the problem is 68% bigger now.
And here’s a number no one else will tell you – not even Buffett. Foreigners now own $25 trillion in U.S. assets. And yet… we continue to consume far more than we produce, and we borrow massively to finance our deficits.

Since 2007, the total government debt in the U.S. (federal, state, and local) has doubled from around $10 trillion to $20 trillion.

Meanwhile, the size of Fannie and Freddie’s mortgage book declined slightly since 2007, falling from $4.9 trillion to $4.6 trillion. That’s some good news, right?
Nope. The excesses just moved to a new agency. The “other” federal mortgage bank, the Federal Housing Administration, now is originating 20% of all mortgages in the U.S., up from less than 5% in 2007.
Student debt, also spurred on by government guarantees, has also boomed, doubling since 2007 to more than $1 trillion. Altogether, total debt in our economy has grown from around $50 trillion to more than $60 trillion since 2007.
So don’t be fooled by this irrational stock market bubble.

Just because a bunch of half-crazed investors are going into massive amounts of debt in a desperate attempt to make a quick buck does not mean that the overall economy is in good shape.
In fact, much of the country is in such rough shape that “reverse shopping” has become a huge trend. Even big corporations such as McDonald’s are urging their employees to return their Christmas gifts in order to bring in some much needed money…

In a stark reminder of how tough things still are for low-income families in America, McDonalds has advised workers to dig themselves “out of holiday debt” by cashing in their Christmas haul.
“You may want to consider returning some of your unopened purchases that may not seem as appealing as they did,” said a website set up for employees.

“Selling some of your unwanted possessions on eBay or Craigslist could bring in some quick cash.”

This irrational stock market bubble is not going to last for too much longer. And a lot of top financial experts are now warning their clients to prepare for the worst. For example, David John Marotta of Marotta Wealth Management recently told his clients that they should all have a“bug-out bag” that contains food, a gun and some ammunition…
A top financial advisor, worried that Obamacare, theNSA spying scandal and spiraling national debt is increasing the chances for a fiscal and social disaster, is recommending that Americans prepare a “bug-out bag” that includes food, a gun and ammo to help them stay alive.

David John Marotta, a Wall Street expert and financial advisor and Forbes contributor, said in a note to investors, “Firearms are the last item on the list, but they are on the list. There are some terrible people in this world. And you are safer when your trusted neighbors have firearms.”

His memo is part of a series addressing the potential for a “financial apocalypse.” His view, however, is that the problems plaguing the country won’t result in armageddon. “There is the possibility of a precipitous decline, although a long and drawn out malaise is much more likely,” said the Charlottesville, Va.-based president of Marotta Wealth Management.

I will be the first to admit that I don't know squat about "higher economics" yet isn't this creation of artificial "wealth" with nothing real to back it up a form of counterfeiting? And isn't counterfeiting illegal?

Perhaps this all vindicates what Bernie Madoff tried to do.

I wish JTF would join in an clarify this for me because I can't even balance a checkbook.
This is why I never write checks. I just pay by credit card.

Take your pick of music by which to read this thread:

This (for the optimists):
0jTHNBKjMBU

or

This (for the pragmatists):
ZvCI-gNK_y4

No, the price of a stock merely reflects what a free market place thinks the stock is worth. Stocks that seem too high priced simply reflect speculation what the stocks should be worth in the future. With financial rates still so historically low, it's no surprise the DOW and S & P 500 are so high.

Since most of the trading on Wall Street is apparently done automatically, by computer programs, with little actual human intervention, is this a cybercrime, in a deeper sense of the term? Is this the first step leading, eventually an inexorably toward the appearance of The Terminator?

If the SEC ever gets its act together and decides to do something about all this "Phantom Wealth" maybe this could be their theme song.
It would make a good reality TV show . . . along the lines of "Cops".
oL8hvlYOrik


It is almost as if Wall Street has not learned any lessons from the last two major stock market crashes at all. Just look at Twitter. At the current price, Twitter is supposedly worth 40.7 BILLION dollars. But Twitter is not profitable. It is a seven-year-old company that has never made a single dollar of profit. Not one single dollar. In fact, Twitter actually lost 64.6 million dollars last quarter alone. And Twitter is expected to continue losing money for all of 2015 as well. But Twitter stock is up 82 percent over the last 30 days, and nobody can really give a rational reason for why this is happening.


No, the price of a stock merely reflects what a free market place thinks the stock is worth. Stocks that seem too high priced simply reflect speculation what the stocks should be worth in the future. With financial rates still so historically low, it's no surprise the DOW and S & P 500 are so high.

Should we be looking forward to a charge of $100 per Tweet automatically withdrawn from our bank accounts?
Would that be enough to bridge the deficit gap between the "value" and the "reality"?

I've wondered why the stock market is so high. The economy was better in 2007 just prior to the financial crisis than it is today. Back then, we also still had full employment. Today, many pockets of the country still have not recovered from the Great Recession. The real reason is quantitative easing. The Federal Reserve has been quietly printing money out of thin air since 2009. Today's Dow 16,000 isn't worth as much as Dow 14,000 was in 2007.

Here is a more accurate stock market chart that tracks the Dow priced in gold.

http://goldsilverworlds.com/wp-content/uploads/2012/07/dow_jones_to_gold_ratio_1970-20121.gif

Dare I mention a very old prophecy about all this? Hmmmmm...this may not be the Thread for that.

__________________
You Are What You Do

I've wondered why the stock market is so high. The economy was better in 2007 just prior to the financial crisis than it is today. Back then, we also still had full employment. Today, many pockets of the country still have not recovered from the Great Recession. The real reason is quantitative easing. The Federal Reserve has been quietly printing money out of thin air since 2009. Today's Dow 16,000 isn't worth as much as Dow 14,000 was in 2007.

Here is a more accurate stock market chart that tracks the Dow priced in gold.

http://goldsilverworlds.com/wp-content/uploads/2012/07/dow_jones_to_gold_ratio_1970-20121.gif

How is QE the reason? It's a poor remedy for significant structural issues in the economy, but it's not why the economy hasn't recovered.

How is QE the reason? It's a poor remedy for significant structural issues in the economy, but it's not why the economy hasn't recovered.

QE is the reason for the record high stock market. I agree with you it isn't the reason the economy hasn't recovered. QE could eventually lead to runaway inflation if the Fed isn't careful. Don't be surprised if the next major recession is due to the Fed having to hike rates up to 18-20% like Volcker did in the early 1980s in order to save the dollar.

QE is the reason for the record high stock market. I agree with you it isn't the reason the economy hasn't recovered. QE could eventually lead to runaway inflation if the Fed isn't careful. Don't be surprised if the next major recession is due to the Fed having to hike rates up to 18-20% like Volcker did in the early 1980s in order to save the dollar.

Ok. I don't know about runaway inflation because none of that money hits the streets. It originates in financial markets and stays there.

It's high cause it's the only place anyone can make any damn money these days. Even the CD lovers are hanging out there since you get a whopping 1% on a 3 yr CD

Okay...I have a curiosity question for you folks that know what the Stock Market is all about. What would happen if the likes of Warren Buffet, Bill Gates, Boone Pickens, Wal-Mart family and heirs, and the Chinese Government all pulled out of the Market?

I would like to point out that author of this article runs a website called "TheEconomicCollapseBlog.Org". Oh, and he's also got a new book out entitled "The Beginning of The End". You can also find some great links to doomsday prepping cookbooks and other survivalist type stuff. If this guy is SO confident that the economic collapse is going to happen soon, why the hell is he trying to sell a book that will only earn him this currency he is so confident to be useless in the future?

I'm not super knowledgeable on the technicals behind stocks and macroeconomics, but I do buy and trade stocks on Etrade and the stock market this year has been great. Easiest money I ever made. Anybody can do it. I also read the financial news so I can be privy to any upcoming trends. I'm not a Wall-Street "fat-cat" but I've been able to build a nest-egg significantly faster (and easier) by trading stocks. I've been doing so since I was 24 (I'm currently 28)

Many think that the stock market will experience setback in 2014. I believe it will, but nobody can predict the future, and nobody knows how/if/when this market correction will occur. It may not. The clown who wrote this article is certainly cashing in on the fear that a massive depression is going to take place, but he doesn't believe it or else he wouldn't be trying to sell you his book.

This guy over at Forbes is pretty optimistic, and he's not selling anything: The Great Recession Is Dead: 10 Steps For Success In 2014 - Forbes (http://www.forbes.com/sites/johntobey/2013/12/23/the-great-recession-is-dead-ten-steps-for-success-in-2014/)

How long do bull rallies generally last 4,5,6 years at most? Don't they go in cycles? Should be coming up on a change.

How long do bull rallies generally last 4,5,6 years at most? Don't they go in cycles? Should be coming up on a change.

Just as when markets seem overly bearish, you'd be surprised how long markets can remain irrational.

How long do bull rallies generally last 4,5,6 years at most? Don't they go in cycles? Should be coming up on a change.

Ya, It is entirely possible for a rally to last this long, but it isn't so concrete in terms of rally/recession. You'll often see a good quarter, then a bad month/week/quarter, maybe a few small rallies up, a few small ones down. Depends a lot on the industry too. Online retailers were violently shifting up/down in the early 2000's while other sectors grew more with much more stability. I've pretty heavily invested in energy (as a % of my portfolio), but I bought some Chesapeake earlier this year for about $16 bucks a share, now its worth $27. Also bought a little of Devon and it has grown decently.

I do agree that we'll see an end to this current historic rally, but I just don't think it is going to put us back to cowboys & Indians days, nor will we see anywhere near as much fallout as we did during the 2008 recession. I sure hope not!

My plan to deal with the expected "market correction" is to slowly start selling off the 10 or so stocks I own in the coming weeks/months, when the market dips down, I'll re-buy at a lower price. Granted, you never know where the true tops and bottoms are, but over the long-run, being common-sense about investing and not trying to "strike it rich" will result in modest and reliable gains.

Of course treasury bonds are down, for the past year stocks have been on fire and there's been more money to be made there.

Of course store visits were down this Christmas, we just experienced record-setting internet commerce.

Of course gold is down. Gold is crap. Over the long term it has never beaten market returns. It's not an index; it is indexed to nothing. It's merely a hedge bet for funds managers. No one is hedging their bets anymore.

Makes sense to me that housing starts are down; mortgage rates are higher than they've been in years. In the long run that is actually a good thing.

The market is not massively over valued. It's at a new high, but historically it's not much higher than where you'd think it'd be right now. Go pull up your favorite index on Google or CNN Money or whatever your favorite website is. Set the display period to its max (like 75 years). Print it out. Lay a ruler down across the market index lines about where you think the imaginary average is for what you're seeing. Draw a line using that ruler and keep on going out to the right into our future. Take a look at where the market is today compared to that line. Not massively over valued.

If you've ignored the doom and gloomers in recent years and continued investing in the markets then you've doubled or tripled your savings since 2008. If instead you sat on the sidelines or even worse put it all in gold, then I'm very sad for you.

Look at what the market did following the Great Depression and what we have seen since 2008 isn't so different. Some of the best years in market history were those following the depression crash.

Historically December is a great month for stocks like 60%+ of the time. January not so much. I am guessing we are heading toward a correction early next year, but I just don't see it being a "massive" one. Besides if you're in it for the long haul why worry about the short term anyway. If you're worried about the short term you shouldn't be playing stocks to begin with.

Also while you make some valid points on the size of our debt, and our dysfunctional governance system that can't seem to deal with it, our saving grace is that the recession we experienced was worldwide. As bad as it was here, it was worse almost everywhere else. We can't seem to go a month without hearing news of a European country's pending financial demise. That's actually good for us, and is why our currency volume counter intuitively went up following our credit debacle earlier this year... As bad as it is here, global investors think it's a lot worse everywhere else, making our currency and markets a de facto safe haven.

Of course treasury bonds are down, for the past year stocks have been on fire and there's been more money to be made there.

Of course store visits were down this Christmas, we just experienced record-setting internet commerce.

Of course gold is down. Gold is crap. Over the long term it has never beaten market returns. It's not an index; it is indexed to nothing. It's merely a hedge bet for funds managers. No one is hedging their bets anymore.

Makes sense to me that housing starts are down; mortgage rates are higher than they've been in years. In the long run that is actually a good thing.

The market is not massively over valued. It's at a new high, but historically it's not much higher than where you'd think it'd be right now. Go pull up your favorite index on Google or CNN Money or whatever your favorite website is. Set the display period to its max (like 75 years). Print it out. Lay a ruler down across the market index lines about where you think the imaginary average is for what you're seeing. Draw a line using that ruler and keep on going out to the right into our future. Take a look at where the market is today compared to that line. Not massively over valued.

If you've ignored the doom and gloomers in recent years and continued investing in the markets then you've doubled or tripled your savings since 2008. If instead you sat on the sidelines or even worse put it all in gold, then I'm very sad for you.

Look at what the market did following the Great Depression and what we have seen since 2008 isn't so different. Some of the best years in market history were those following the depression crash.

Dang. I didn't think it could be nailed . . .
Yet you managed to so do.
(can you loan me a dime?)

QE is the reason for the record high stock market. I agree with you it isn't the reason the economy hasn't recovered. QE could eventually lead to runaway inflation if the Fed isn't careful. Don't be surprised if the next major recession is due to the Fed having to hike rates up to 18-20% like Volcker did in the early 1980s in order to save the dollar.

Third quarter growth has been upgraded to 4%. How does that not represent recovery?

The recovery we had in the mid-aughts did not precipitate a wave of hiring. Persistent unemployment is a far more complex situation than simple economics. We are in an economic expansion that has lasted for years and is picking up steam. That unemployment remains a problem is a structural one, and something that the Dow or the GDP have little to do with.

I find it ironic that we have never come as close to complete economic armageddon as where we were in the autumn of 2008. Yes, that happened. And we suffered the second worst economic collapse of the last century. Yes, that happened, too. We had unemployment as high as nearly 10%. Yes, that also happened.

So where are we? It appears 2013 will go in the books as 3+ percent growth, the sign of a healthy and sustainable economy. The unemployment rate stands at 7%, by no means full employment but a dramatically better number than we were facing as recently as three years ago.

These hucksters are always peddling doom and gloom but were noticeably absent with prognostications when our country faced a true and very severe economic crisis.

Let's proceed with caution but I'm not breaking out the doomsday prep supplies yet.

Okay...I have a curiosity question for you folks that know what the Stock Market is all about. What would happen if the likes of Warren Buffet, Bill Gates, Boone Pickens, Wal-Mart family and heirs, and the Chinese Government all pulled out of the Market?

The Chinese government owns treasuries, not stocks, or not much. If they wanted to sell all at once they would get pennies on the dollar for the bonds that they hold. A smart Fed would buy those bonds and instantly and greatly decrease our amount of debt.

If the Walton family wanted to sell their ownership stake in Wal-Mart for cash (that's what them "pulling out of the market" would mean) I'm sure they would have buyers, and it would for a time depress the price of Wal-Mart stock. They would suffer a huge loss of wealth and would also incur a massive tax bill on the order of many billions of dollars. The same is true for Buffett selling his stake in Bershire Hathaway or Gates selling what he owns in Microsoft.

Pickens isn't wealthy on the order of these other people, no one cares what he does.

On a macroeconomic scale, outside of China wanting to dump their American bonds, which could be GOOD for us and would be terrible for them, none of this would matter. Bill Gates is worth ~$50 billion, the combined wealth of the Waltons is somewhat more than $100 billion. All these people combined are only worth something like $200 billion which is only something like .2% (yes POINT TWO) of the combined wealth of the US.

The talking heads all complain about the total debt of the US getting close to 100% of GDP and while that sounds bad, the real measure is against total wealth. A company is bankrupt when debt exceeds assets, not when debt exceeds revenue. The massive US debt is still less then 10% of the combined wealth of the US. China owns bonds in the amount of about $1.2 Trillion, but that is makes up less than 1% of US wealth.

This guy is a doomsday nut hoping the world will implode and bring back Jesus trying to sell books to the gullible in the process. He uses scary sounding, but in the end meaningless and fake statistics to back his version of reality.