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Have We Just Reached Peak Stock Market Absurdity? April 26, 2017

Have you ever wondered how tech companies that have been losing hundreds of millions of dollars year after year can somehow be worth billions of dollars according to the stock market?  Because I run a website called “The Economic Collapse“, there are naysayers out there that take glee in mocking me by pointing out how well the stock market has been doing.  This week, the Dow is flirting with 21,000 and the Nasdaq crossed the 6,000 threshold for the first time ever.  But a lot of the “soaring stocks” that have been fueling this rally have been losing giant mountains of money every single year, and just like the first tech bubble this madness will eventually come to an end in a spectacular fiery crash in which investors will lose trillions of dollars.

Anyone that cannot see that we are in the midst of an absolutely insane stock market bubble simply does not understand economics.  Every valuation indicator that you can possibly point to says that we are in a bubble of epic proportions, and history teaches us that all bubbles inevitably come to an end at some point.

Earlier today, I came across an article by Graham Summers in which he persuasively argued that the price to sales ratio indicates that stock prices are far more inflated than they were just prior to the great stock market crash of 2008…

Sales cannot be gimmicked. Either money comes in the door, or it doesn’t. And if a company is caught messing around with its sales numbers, someone is going to jail.

For this reason, Price to Sales is perhaps the single most objective and clear means of measuring stock valuations.

This metric, above all others, you can point to and say, “this is definitively accurate and has not been messed with.”

On that note, as Bill King recently noted, today the S&P 500 is sporting a P/S ratio that is massively higher than it was in 2007 and is only marginally lower than it was during the Tech Bubble (the single largest stock bubble of all time for most measures).

To me, looking at profitability is even more important than looking at sales.

Large tech companies such as Twitter certainly have lots of revenue coming in, but many of them are deeply unprofitable.

In fact, Twitter has never made a yearly profit, and over the past decade it has actually lost more than 2 billion dollars.

But despite all of that, investors absolutely love Twitter stock.  As I write this article, Twitter has a market cap of 11.5 billion dollars.

How in the world is that possible?

How can a company that has never made a single penny be worth more than 11 billion dollars?

Twitter is never going to be more popular than it is now.  If it can’t make a profit at the peak of its popularity, when will it ever happen?

And guess what?  ABC News says that Twitter actually just reported a decline in revenue for the most recent quarter…

Twitter has never turned a profit, and for the first time since going public in 2013, it reported a decline in revenue from the previous year. Its revenue was $548.3 million, down 8 percent.

Net loss was $61.6 million, or 9 cents per share, compared with a loss of $79.7 million, or 12 cents per share, a year earlier.

The only reason why financial black holes such as Twitter can continue to exist is because investors have been willing to pour endless amounts of money into them, but now that bubble is starting to burst.

In his most recent article, Simon Black discussed how Silicon Valley investors are starting to become more cautious because so many of these “unicorns” are now going bust.  One of the examples that he cited in his article was a company called Clinkle…

(Given that investing in an early stage company is high-risk, investors might provide a few hundred thousand dollars in funding, at most. Clinkle raised $25 million.)

The company went on to burn through just about every penny of its investors’ capital.

There were even photos that surfaced of the 21-year old CEO literally setting bricks of cash on fire.

At the end of the farce, Clinkle never actually managed to build its supposedly ‘world-changing’ product, and the website is now all but defunct.

Most of you may have never even heard of Clinkle, but I bet that you have definitely heard of Netflix.

Netflix has revolutionized how movies are delivered to our homes, and that revolution helped drive movie rental stores to the brink of extinction.

There is just one huge problem.  It turns out that Netflix is losing hundreds of millions of dollars

Netflix might be my favorite example.

The company’s most recent earnings report for the period ending March 31, 2017 shows, yet again, negative Free Cash Flow of MINUS $422 million.

Not only is that a record loss, it’s 62% worse than in Q1/2016, and over twice as bad as Q1/2015.

Netflix just keeps losing more and more money.

But even though Netflix is losing money at a pace that is exceedingly difficult to imagine, investors absolutely love the company.

I just checked, and at this moment Netflix has a market cap of 68.4 billion dollars.

Sometimes I just want to scream because of the absurdity of it all.

Companies that are losing hundreds of millions of dollars a year at the peak of their popularity should not be worth billions of dollars.

Nobody can possibly argue that these enormously inflated stock prices are sustainable.  Just like with every other stock market bubble in our history, this one is going to burst too, and I have been warning about this for quite a long time.

But for the moment, the naysayers are having their time to shine.  Despite the fact that U.S. consumers are 12 trillion dollars in debt, and despite the fact that corporate debt has doubled since the last financial crisis, and despite the fact that the federal government is 20 trillion dollars in debt, they seem to be convinced that this irrational stock market bubble can keep inflating indefinitely.

Perhaps they can all put their money where their mouth is by pouring all of their savings into Twitter, Netflix and other tech company stocks.

In the end, we will see who was right and who was wrong.

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The Dow Falls Another 138 Points As Geopolitical Shaking Forces Investors To Race For The Exits April 13, 2017

Stock prices just keep on falling, and many analysts are now wondering if a full-blown stock market crash is in our near future.  On Thursday, the S&P 500 and the Dow both closed at 2 month lows after Donald Trump dropped “the mother of all bombs” in Afghanistan.  It was the first time that one of these bombs has ever been used in live combat, and it is being reported that each of these bombs weighs 22,000 pounds and costs 16 million dollars to make.  Of course Trump was trying to send a very clear message to the rest of the world by dropping this bomb, and investors interpreted it as a sign that we are getting even closer to war.

The financial markets will be closed on Friday for the long holiday weekend, and with so much uncertainty about what may happen in Syria and in North Korea, many investors wanted to get their money out of the market while they still could.  The historic losing streak for S&P 500 tech stocks extended to 10 days in a row on Thursday, and all of the major stock indexes are now below their 50 day moving averages for the first time since the election.

And the VIX closed above 16 to close the week, which many analysts saw as a sign that more market volatility is on the way

The fear index on Thursday hit 16.22, its highest since Nov. 10, after closing above its 200-day moving average on Monday for the first time since Nov. 8.

“The VIX confirmed a breakout above its 200-day moving average [Tuesday], supporting a pickup in volatility in the days ahead,” BTIG’s chief technical strategist, Katie Stockton, said in a Wednesday note.

On Tuesday, I wrote about how geopolitical instability is causing many investors to seek out safe havens such as gold and silver, and that trend continued on Thursday.  As I write this, the price of gold is sitting at $1289.20, and the price of silver is up to $18.50.  Of course if the French election goes badly for the globalists or we see a full-blown shooting war erupt in either Syria or North Korea, those prices will go far, far higher.

For quite a while I have been very strongly warning that these ridiculously inflated stock prices were not sustainable.  It was inevitable that they would start to decline, because the underlying economic numbers simply did not support them.

And just today we got some more bad news.  According to Zero Hedge, the mortgage business at one of America’s biggest banks has been absolutely crashing…

When we reported Wells Fargo’s Q4 earnings back in January, we drew readers’ attention to one specific line of business, the one we dubbed the bank’s “bread and butter“, namely mortgage lending, and which as we then reported was “the biggest alarm” because “as a result of rising rates, Wells’ residential mortgage applications and pipelines both tumbled, specifically in Q4 Wells’ mortgage applications plunged by $25bn from the prior quarter to $75bn, while the mortgage origination pipeline plunged by nearly half to just $30 billion, and just shy of all time lows recorded in late 2013 and 2014.”

Fast forward one quarter when what was already a troubling situation, just got as bad as it has been since the financial crisis for America’s largest mortgage lender, because buried deep in its presentation accompanying otherwise unremarkable Q1 results (EPS small beat, revenue small miss), Wells just reported that its ‘bread and butter’ is virtually gone, and in Q1 the amount of all-important Mortgage Applications has tumbled by a whopping 23% to just $59 billion, below the lows hit in early 2014, and at fresh lows since the financial crisis.

Unfortunately, what is going on at Wells Fargo is just part of an enormous “loan collapse” that we are witnessing all over the nation.

This is exactly what we would expect to see if a new recession was beginning.  When economic conditions show down, banks and other lending institutions begin to get tighter with their money, and a tightening of credit causes economic activity to slow down even further.

It can be exceedingly difficult to break out of such a cycle once it starts.

But the mainstream media doesn’t seem to understand these things.  Instead, they are pointing the blame at other sources for the emerging economic slowdown.  For example, consider the following excerpt from a CNN article entitled “Americans have become lazy and it’s hurting the economy”

Americans have become lazy, argues economist Tyler Cowen.

They don’t start businesses as much as they once did. They don’t move as often as they used to. And they live in neighborhoods that are about as segregated as they were in the 1960s.

All of this is causing the U.S. to stagnate economically and politically, Cowen says in his new book: “The Complacent Class: The Self-Defeating Quest for the American Dream.” Growth is far slower than it was in the 1960s, 70s and 80s and productivity growth is way down, despite everyone claiming they are working so hard.

No, our economic problems are not the result of Americans being too lazy.

Rather, the truth is that we have accumulated way too much debt as a society, we have been way too greedy, and there has been way too much manipulation by the Federal Reserve and other central banks.

For decades we have been living way above our means.  We have been able to do this by stealing trillions upon trillions of dollars from future generations of Americans, and now a day of reckoning is rapidly approaching.

Unfortunately for Donald Trump, he just happens to be the president at this moment in history, and so much of the blame for what is about to happen will be pinned on him.  The following comes from a recent interview with Peter Schiff

Trump doesn’t want to preside over a major decline in our standard of living, but ultimately that has to happen. Because this is the consequence of all this excess consumption that went on before he was president. You know, we sacrificed our future to indulge our past. The future is now the present. We’re here, and it’s time to pay the piper.

Schiff is precisely correct.

For decades we have just kept sacrificing the future in order to inflate our current standard of living.

But the funny thing about the future is that it always arrives at some point, and now we are going to pay an enormously high price for being so exceedingly reckless all these years.

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Tech Stocks Experience Their Longest Losing Streak In 5 Years As Panic Begins To Grip The Market April 12, 2017

S&P 500 tech stocks have now fallen for 9 days in a row.  The last time tech stocks declined for so many days in a row was in 2012, and that was the only other time in history when we have seen such a long losing streak.  As I have stated before, the post-election “Trump rally” is officially done, and the market is starting to roll over as investors begin to realize that all of the buying momentum has completely evaporated.  Tech stocks tend to be particularly volatile, and so the fact that they are starting to lead the way down should definitely be alarming to many in the investing community.

Of course it isn’t just tech stocks that are falling.  The Dow was down another 59 points on Wednesday, and the S&P 500 has closed beneath its 50 day moving average for the very first time since the election.  For those that have been waiting for a key technical signal before getting out of the market, there is one for you.

The price of gold was up again, and that is definitely not surprising in this geopolitical environment.  The closer we get to war the higher gold and silver prices will go, and if we actually get into a major conflict we will see them blast into the stratosphere.

Another key indicator that I am watching very closely is the VIX.  On Wednesday it shot up above 16 for the very first time since the day after Trump’s election victory, and many believe that it could soon go much higher.  The following is an excerpt from a CNBC report

The VIX measures the size of the S&P 500’s expected moves over the next 30 days, and consequently tends to run just a bit hotter than volatility over the past 30 days. Yet one-month realized volatility is just 6.7, meaning the VIX is at a roughly 9-point premium, which Chintawongvanich calls “highly unusual.”

That said, he notes that implied volatility was also at a large premium preceding the U.K. referendum to leave the EU and the U.S. presidential election. The obvious conclusion is that the market is now similarly preparing itself for the French presidential election, which is set to be held on April 23. Some fear that a populist candidate could prevail, which may cause more problems for the European Union and thus for economic stability.

As noted in that excerpt, the upcoming French election is absolutely huge.  If the election goes “the wrong way” according to the globalists, it could literally mean the end of the European Union as it is configured today.

And of course of even greater concern is the global march toward war.  It is being reported that North Korea is on the verge of a major nuclear weapons test, and such an act of defiance could be enough to push Donald Trump into conducting a major military strike.

But if Trump does hit North Korea, it is quite likely that North Korea will hit back.  The North Koreans are promising to use nuclear weapons in any conflict with the United States, and if Trump bungles this thing we could easily be looking at a scenario in which millions of people end up dead.

Things also continue to get more tense in the Middle East.  The Russians and the Iranians are promising to respond to any additional U.S. strikes “with force”, and on Wednesday Trump declared that our relationship with Russia “may be at an all-time low”.

Of course this came shortly after Secretary of State Rex Tillerson used similar language following his face to face meeting with Russian President Vladimir Putin

Secretary of State Rex Tillerson and Russian President Vladimir Putin held more than two hours of “very frank” talks Wednesday in the Kremlin amid tensions over a U.S. airstrike against a Syria air base blamed for last week’s deadly chemical attack.

In remarks to reporters after the meeting, Tillerson said he told the Russian leader that current relations between the two countries are at a “low point.”

If the Trump administration conducts any more strikes on Syria, it is quite likely that the Russians and Iranians will make good on their threats and will start firing back.

And once U.S. aircraft or U.S. naval vessels come under fire, the calls for war in Washington will become absolutely deafening.

Unfortunately, Trump is not likely to back down any time soon because the recent missile strike in Syria has dramatically boosted his popularity.  According to every recent survey, the American people overwhelmingly approve of what Trump did…

A Morning Consult/Politico poll released Wednesday found that 57% of Americans supported airstrikes in Syria, 58% supported establishing a no-fly zone over parts of Syria including strikes against Syria’s air-defense systems, and 63% of Americans thought the US should do more to end the Syrian conflict. Even more, 66% of respondents said they supported the Trump administration’s strike last week specifically.

This mirrored results of another recent poll from CBS News in which 57% of Americans said they approved of the US strike. A Pew Research Center survey from this week showed a similar level of support, with 58% of Americans approving of the strike.

Sadly, this is a time when the majority is dead wrong.  Many of those that are supporting military action against Syria now were vehemently against it when Barack Obama was considering it.

Even Donald Trump spoke out very strongly against military intervention in Syria in 2013, and he was quite right to do so, and so what has suddenly changed that now makes it okay?

There is nothing to be gained in Syria, but we could very easily end up in a direct military conflict with Russia, Iran and Hezbollah which could ultimately prove to be the spark that sets off World War III.

And of course a military strike on North Korea could also potentially spark a global war.  The first Korean War resulted in a direct military conflict between the United States and China, and the second Korean War could easily result in the exact same thing happening again.

Do the American people really want war with both Russia and China at the same time?

It has been said that you should be careful what you wish for, because you just might get it.

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