I believe our fiscal situation is much worse than most people realize. True, the situation might be resolvable with a hard-nosed turnaround specialist in charge [Romney?] but, even here, the emphasis is on “might”! In a political context, where citizens have been conditioned to believe they are entitled to live at the expense of government (i.e other citizens because, after all, government has nothing that it first does not take from someone else), the situation is beyond hopeless. Let me address the true economic situation of the U.S. by way of an email I received from a regular reader recently. Words: 615

So says Monty Pelerin’s World (www.economicnoise.com) in edited excerpts from the original article* which Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.Below is the email which reads, in part:

Evidence shows that the U.S. money supply trend is in the early stages of hyperbolic growth coupled with a similar move in the price of gold. All sign point to a further escalation of money-printing in 2012…followed by unexpected and accelerating price inflation, followed by a rise in nominal interest rates that will bring a sovereign debt crisis for the U. S. dollar with it as the cost of borrowing for the government escalates…[Let me show you the evidence.] Words: 660

So says Alasdair Macleod (www.goldmoney.com) in edited excerpts from his original article*.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) edited the article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Macleod goes on to say:

The one chart which defines the background to all the events [that will unfold] in the coming years is the Mises Institute’s True Money Supply (TMS) for the US dollar. TMS consists of cash, checking accounts and no-notice deposit accounts, as well as a few other minor cash balances. It represents the actual cash and electronic cash in the system that is instantly available for purchases of goods and services, and the chart goes back to 1959.

The Hyperbolic Course of the True Money Supply

The dotted line [in the graph above] is the exponential growth trend, in other words the maximum rate of growth that can continue for ever. This trend was valid until mid-2002…[at which time the] TMS began accelerating at a faster rate telling us that TMS growth [had] entered a hyperbolic phase when the Fed eased rates in the wake of the dot-com collapse. Put another way, TMS is already hyperinflationary.

Bear in mind that economists are now telling central banks to accelerate monetary growth even faster to offset the tendency for bank credit to contract. They see no other way to avoid a bank balance sheet implosion with all the deflationary consequences that implies. [As such,] the prospects for 2012 and thereafter are for TMS to continue its hyperbolic trend…[as it] supply funds for a government deficit completely out of control. Also bear in mind that when such a trend becomes established it becomes almost impossible to stop, since the whole debt-based economy and the banking system would collapse.

The Hyperbolic Course of the Price of Gold

The chart [below] shows gold’s established hyperbolic course…[as] put together by Armand Koolen… In Koolen’s words, the hyperbola fits in with the official gold price in the early 1900s, the revaluation to $35 in 1934, the onset of the secular bull market in 2001, the bottom in October 2008 and its approximate track since then.

His discovery is interesting. Singularity for this curve, or the point where the gold price goes to theoretical infinity, is in February 2014, only 26 months away. Unless this long-term trend is somehow broken, gold is also telling us the dollar is heading for hyperinflation.

It would be a mistake to vest magical powers in such an extraordinary discovery, but given [that] TMS itself is showing signs of going hyperbolic we must sit up and take notice… [It will prove to be virtually impossible] to stop printing money at an accelerating rate [as evidenced by the fact that when the ECB showed a reluctance to do so it threatened]… to collapse the eurozone. Will the Fed pull the trigger on the US economy or chicken out? The answer is clear.

What Does the Future Hold?

We can expect:

1.  a further escalation of money-printing in 2012…
2. followed by unexpected and accelerating price inflation
3. nominal interest rates will then rise at the market’s behest
4. bringing a sovereign debt crisis for the dollar with it as the cost of borrowing for the government escalates…

*http://www.goldmoney.com/gold-research/alasdair-macleod/money-supply-explosion-will-lead-to-accelerating-inflation.html

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Related Articles:

1. Egon von Greyerz Interview on Future QE, Hyperinflation and the Price of Gold

3. Continuing High Unemployment = More Money Printing = Higher Gold & Silver Prices

 

The Federal Reserve has a dual mandate set by Congress of maximum employment and stable prices. During Chairman Bernanke’s most recent press conference he indicated that the Federal Reserve has done a better job of maintaining price stability while falling short of fostering maximum employment. [As such,] we believe the Federal Reserve will continue to increase the monetary base and weaken the dollar as long as unemployment remains elevated. While the economy (measured by real GDP) and the unemployment rate have not benefited from a substantial increase in the monetary base, the price of gold and silver have benefited from money printing. We believe this statement is quite important for monetary policy and for investors. [Let us explain further.] Words: 388

4. The U.S. is Headed Toward a Complete and Utter Collapse of its Financial System

 

The U.S. is headed inexorably toward a systemic failure, a complete and utter collapse of the financial system. TARP and all the other machinations have not improved the underlying insolvency of the banking system. They have, however, deferred a collapse and ensured that it will ultimately be worse. [Let me explain.] Words: 1385

 

5. There Are 2 Ways Out of Global Economic Mess – Hope for One of Them & Prepare for the Other

 

 

It all comes down to this: We have to match growth to debt. If we can’t create miracles from growth, we have to consider inflation to reduce the value of our debt. [Those are the] only two ways out of our current global economic mess – innovation and inflation. As the saying goes, we should hope for the best (more innovation) and prepare for the worst (higher inflation). [Let me explain why that is the case.] Words: 1195

 

6. Alf Field’s 7 “D’s” of the Developing Disaster Revisited

 

When the supply of something is increased sharply relative to demand, the value of that commodity will decline. If the supply continues to increase rapidly and indefinitely, then that item will become worth less and less, with the potential to finally become nearly worthless. This is the Developing Disaster facing the US Dollar and the world. This is the factor that could become the single most important criterion in investment allocation decisions and possibly even for individual financial survival…[Let me explain this further by reviewing the 7 major problems facing the U.S. (and thus the world) and how they all will lead to problem #7 - devolution.] Words: 1520

 

7. New Boom-bust Cycle Risks Hyperinflationary Depression and Much Higher Gold Price – Here’s Why

 

 

It is my view that the world has entered a new boom-bust cycle driven by oil prices. Oscillating oil prices – as opposed to credit cycles – will repeatedly stimulate and crash the highly levered global economy. Governments have not recognized this new cycle, and as part of a fruitless effort to retain control over deteriorating real growth and rising unemployment central banks will print more and more money, risking a hyperinflationary depression (stagflation at best). [As such,] the only respite for many investors is gold. [Let me explain.] Words: 925

 

8. Why Negative Real Interest Rates + Stimulative Money Supply = $10,000/ozt. Gold

Question: What do you get when you mix negative real interest rates with stimulative money supply efforts by global central banks? Answer: An exceptionally potent formula for higher gold prices that could send gold to the unimaginable level of $10,000 an ounce. [Let me explain further.] Words: 1049

9. Niall Ferguson: U.S. Playing “Russian Roulette” Assuming Interest Rates Will Remain Low

Countering Krugman’s argument that today’s low interest rates show that no one is worried about lending money to us and, therefore, that we should borrow and spend our way to prosperity, Ferguson argues that today’s interest rates are irrelevant. When countries get into trouble, he says, they get into trouble quickly – the way Greece and…

10. Debt Bubble: We’re in a Dangerous New Phase – Here’s Why

 

The head of the International Monetary Fund, Christine Largarde, said Friday the world economy is entering a “dangerous new phase.” Lagarde is referring to a debt bubble, the likes of which the planet has never seen before, and the possibility that it could all unravel at any moment. Uncertainty over the debt crisis in Europe is what caused the Dow to crash more than 300 points at the end of last week. What is Lagarde going to do about the debt problem? Words: 1752

 

11. Brace for Impact: U.S. About to Go Off a Financial Cliff!

 

 

The kind of impact [our economy is] going to have will not be like flying into the side of a mountain. It will be the kind of crash that skids over land, clipping trees and buildings until the plane ends up wingless in a smoldering heap. I just hope the fuel tanks don’t ignite when the long rough ride is over. [Let me explain.] Words: 832

 

12. Another Economic Collapse and Great Depression are Coming! Here’s Why

 

 

It really is hard to find the words to describe the true horror of the national debt of the U.S. The U.S. government has been on the greatest debt binge in all of human history, and a day of reckoning is coming that is going to be so painful that it is going to shock America to the core. We have lived so far above our means for so long that none of us really has any concept of what “normal” is like anymore. The United States has enjoyed the greatest party in the history of the world, but now this decades-old party is ending and the bills are coming due. Our current system is headed for an inevitable collapse. There is no way of getting around it – a horrific economic collapse is coming [and] it is going to change the world. You better get ready. [Let me explain further.] Words: 1771

 

13. America’s Future: Growing Deficit, Shrinking Economy, Imploding Dollar and Exploding Inflation

 

 

The new [debt ceiling deal] legislation will add $2.4 trillion to the $14.3 trillion national debt in a little over a year – and we don’t even start saving money until after the debt reaches $16.7 trillion! This bill doesn’t even cut the deficit. It just slows the growth of government spending to around 8% a year! So, even if Congress cuts $2.1 trillion out of the budget over the next 10 years, we will still be running annual deficits of more than $1 trillion…[That means that in addition to a deficit that will continue to grow we can look forward to a shrinking economy, an imploding U.S. dollar and exploding inflation. Some future! Let me explain.] Words: 827

 

14. What Would USD Collapse Mean for the World?

 

I came to the conclusion several years ago that it was just a matter of time before the world realized that the relative functionality of the U.S. dollar was about to go belly up – to collapse – and that that time happened to coincide with that fateful date all the prophecies are going crazy about – 2012! Words: 881

 

15. The U.S. Dollar Crisis is About to Accelerate! Here’s Why

 

 

If the debt ceiling deal agreement is fully implemented [it is only going to exacerbate America's financial and economic woes and accelerate the demise of the U.S.] Dollar Standard which is inherently flawed and increasingly unstable. Its demise is imminent. The only question is will it be death by fire—hyperinflation—or death by ice—deflation? Fortunes will be made and lost depending on the answer to that question. [Let me explain how the collapse of the dollar could well unfold.] Words: 944

 

Countering Krugman’s argument that today’s low interest rates show that no one is worried about lending money to us and, therefore, that we should borrow and spend our way to prosperity, Ferguson argues that today’s interest rates are irrelevant. When countries get into trouble, he says, they get into trouble quickly - the way Greece and other European countries have. Taking on huge new debts now with the assumption that interest rates will remain low forever, is like playing “Russian Roulette.” The time to get our fiscal house in order is now, before the crisis, not once interest rates begin to climb and it’s too late. Words: 439

So conveys Henry Blodget (http://finance.yahoo.com/blogs/) of Niall Ferguson’s view about how the U.S. should deal with its lousy economy and debt-and-deficit problem. Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited Blodget’s original article* below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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On the one hand are the “austerians,” who think the U.S. should immediately cut government spending to balance its budget, “taking our medicine” in one painful dose. On the other hand are the Keynesians, like Paul Krugman, who think the U.S. should launch more government stimulus, increasing the debt in the near-term, but helping the economy to grow out of the problem. One of Krugman’s nemeses over the past few years has been Harvard professor Niall Ferguson, the author of a new book called CIVILIZATION: The West And The Rest who has been screaming from the rooftops about the risks of piling up too big a debt-mountain, and he’s not backing down now.

Importantly, Ferguson says he is not in favor of radically chopping government spending in the next year or two, clobbering the economy in the process. Rather, he says, the government should develop and implement a sound 10-year plan, one that phases in the cuts and eventually gets on solid footing. If we don’t, Ferguson says, we’ll eventually pass the point of no return and then we’ll be forced to do what Greece has done – make such drastic cuts that we get into a “death spiral” in which the each new cut shrinks the economy and increases the deficit and the debt–the very problems that such cuts are supposed to address.

*http://finance.yahoo.com/blogs/daily-ticker/niall-ferguson-u-playing-russian-roulette-debt-deficits-165633013.html

Related Articles:

1. In Defense of Paul Krugman – Sort of

I have a great deal of respect for Paul Krugman as an economist. He has a unique talent among economists for being able to make complex economic issues both understandable and interesting for the average person. [That being said,]…I am far less impressed with his abilities as a public policy commentator. [Let me explain.] Words: 567

The debt ceiling deal agreement [is only going to exacerbate America's financial and economic woes and accelerate the demise of the U.S.] Dollar Standard which is inherently flawed and increasingly unstable. Its demise is imminent. The only question is will it be death by fire—hyperinflation—or death by ice—deflation? [Let me explain how the collapse of the dollar could well unfold.] Words: 944

Richard Duncan presents below excerpts* taken from his book, The Dollar Crisis, Chapter 20: Bernankeism, which was written in December 2004 to remind his readers what is coming down the pike that much more assuredly as a result of the recent debt ceiling agreement.He could have written a new article but there was absolutely no need to do so as the following excerpts from his book read as though they were just written yesterday! Duncan’s comments are presented below by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), in a further edited ([  ]), abridged (…) and reformatted manner for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Duncan’s chosen excerpts are as follows:

It is almost certain that policymakers will respond to the approaching crisis by applying the two great economic policy tools of the last century: Keynesianism and Monetarism. The abuse of those tools will prolong and exacerbate the death throes of the Dollar Standard.

The first recourse will be to employ more fiscal stimulus. With prices falling and in light of the extraordinary amount of paper money that has been created in recent years, interest rates will be very low and there will be little difficulty in paying interest on a much larger amount of government debt. It would not be surprising to see the U.S. budget deficit surpass $1 trillion by 2007 or 2008 if the U.S. current account deficit has come down significantly by that time.

If, at that point, the U.S. current account deficit has been reduced, foreign central banks would not have a sufficient inflow of dollars to finance such a large deterioration in the U.S. budget deficit, even assuming that Fannie and Freddie have ceased issuing any new, competing, debt of their own.

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The Fed, however, as Governor Bernanke explained, has already put considerable thought into how to deal with such a contingency and stands ready, in Bernanke’s opinion, to support “a broad-based tax cut” through “a program of open-market purchases to alleviate any tendency for interest rates to rise”.

How long could such “cooperation between the monetary and fiscal authorities” underpin the global economy? For quite a number of years most probably. Economic trends play themselves out over very long periods of time. Moreover, US policymakers will use every last tool at their disposal to prevent, or, at least, delay a global depression. An economic system underpinned by large-scale fiscal stimulus financed by central bank monetization of government debt could hardly be described as capitalism (perhaps the term Bernankeism would be appropriate) but, with any luck, it could stave off disaster for a considerable length of time.

Nevertheless, despite the best efforts of policymakers to keep the Dollar Standard alive and to stave off the depression that would most probably follow its collapse, ultimately, one of the following scenarios is likely to overwhelm even Bernankeism.

1. A protectionist backlash against free trade, resulting in a trade war similar to that which occurred during the Great Depression.
2. A US asset price bubble (as interest rates fall toward zero), that drives property prices so high that they can’t be financed even at very low interest rates. This is similar to what occurred in Japan at the end of the 1980s.
3. A meltdown of the $200 trillion derivatives market. $200 trillion is roughly six times global GDP.
4. A  loss of nerve by policy makers that deters them from undertaking ever more unorthodox economic policies, resulting in a “deer in the headlights” kind of policy freeze.
5. A decline in interest rates to 0% or very near 0% as in Japan at present.

Any one of the first four scenarios could undermine the Dollar Standard, but the final scenario, where interest rates fall very near 0%, would certainly deal it a fatal blow. From that point, the only option left to stimulate aggregate demand would be to drop paper money from helicopters. That too would fail, however, for who would accept paper dropped from helicopters in exchange for real goods and services?

Hyperinflation would quickly set in. Economic transactions would then be conducted through barter rather than via the medium of a debased script.

A gold standard would eventually re-emerge.

A “Deer In The Headlights” Policy Freeze?

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Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above

I’ve heard and seen my share of specious arguments, fantastical predictions, moronic conclusions, and positively farcical objectives — from all measures of wannabe (and practicing) politicians and economists [that we are in a deflationary environment]. This idea, however, that consumers aren’t spending because they are waiting for lower prices is just absurd. Furthermore, the ensuing leap of logic, that consumers are responsible for a so-called “deflationary” environment is positively imbecilic. [Let me explain.] Words: 1582

So said Paco Ahlgren of BottomViolation.com in an article* back in 2010 that warrants reposting as nothing has changed over the ensuing year. Lorimer Wilson, editor of munKNEE.com (It’s all about Money!), has further edited ([  ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article reposting to avoid copyright infringement. Ahlgren had the following to say:

Understanding the Difference Between Inflationary and Deflationary Environments

If you ask the average person to define an inflationary environment, you get this response: “Rising prices.” Similarly, the same person would likely define a deflationary environment as” falling prices”. Both answers are incorrect, though. In fact, they’re gross misrepresentations of the words, and this simple, but popular misconception of the true meanings of inflationary and deflationary is the root of every single economic problem we face today.

Rising prices do not cause inflation, nor are they inflation. On the contrary, rising prices are the result of an increase in (or inflation of) the money supply – through printing currency, and/or the manipulation of interest rates by any entity controlling the money supply (like the Fed, The ECB, or whatever).

Simply put, inflation is always monetary. Likewise, pulling currency out of circulation constitutes the deflation of the money supply. Falling prices are not, in and of themselves, deflationary. Indeed, if prices are falling, but the government is printing more money, then the economic environment is properly described as inflationary.

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You may be unaware of the fact that the authorities controlling the status quo – namely Ben Bernanke, Barack Obama, and all their little elves – actually want you to use the words inflationary and deflationary incorrectly. You might also make the claim that I’m merely splitting semantic hairs – that these definitions are insignificant in the grand scheme of things. That’s not really a good argument, though, because if the majority of people believe we are in a deflationary period, despite the fact that the Fed is printing money at the fastest rate ever, well, then we’re not preparing for the inevitable. We are certainly not in a deflationary period – nor have we been for many, many decades and the “inevitable” to which I am referring is an incalculably rapid rise in prices across the globe.

If you think about it, it makes sense: more dollars in the economy mean less valuable dollars. Money is just like everything else — it has value, and the laws of supply and demand are every bit as applicable to currencies as they are to everything else: the larger the supply of money, the lower its value.

Deflationary Environment

In the midst of all this misapplied talk about a deflationary environment, one of the main arguments I keep hearing is that the main reason prices are dropping — on everything from real estate to electronics – is that consumers are waiting for bargains; as such, they won’t spend now. That consumers are responsible for a so-called “deflationary” environment is positively imbecilic for at least two reasons:

1. It’s a misapplication of the word deflationary — as I pointed out above.

2. While it is true that the average consumer isn’t (and won’t soon be) spending as much as he used to, it’s not because he’s waiting for bargains. No, it’s because he’s out of credit, he’s unemployed, his house, car, motorcycle, boat, and plasma television have all either been repossessed or foreclosed upon, and his wife just left him. He’s not exactly in the mood for shopping. He’s not waiting for bargains. He’s waiting for a miracle – and I don’t think they sell those at the mall.

You think consumers really stop spending in anticipation of lower prices later? Really? Ever heard of Moore’s Law? The one that says the price of technology will be halved every 18 months? Buy a computer today, it will be worth 50% of that value in a-year-and-a-half. So, in an industry like technology — where real prices consistently fall — do you really believe that most people put off buying products in anticipation of lower prices? I mean, it happens, but it’s not the exception, not the rule.

Consumers, for the most part, do not postpone purchases — even in an industry like technology. This is only borne out by the fact that the technology industry has been one of the fastest growing and profitable in our economy for decades. People will pay today – even in the face inevitable obsolescence.

So let the pundits talk about a deflationary environment all they want, but we know (or should know) the truth: the money supply is not shrinking. Even if the prices of most asset classes are still falling – which is arguable, at best, in real dollars — consumers do not postpone purchases in anticipation of lower prices. They are not causing “deflationary” environment.

Inflationary Environment

Say it with me: we are in an inflationary environment [not a deflationary one]. How do you think the government is going to pay for all of the trillions of dollars it has promised to spend over the next two (or more) years? I’ll tell you how: it’s printing dollars. Lots of them. The money supply has been increasing for decades — lately, at a faster clip than ever.

What did we just say about supply and demand? That’s right — the value of dollars is going down, not up. It may feel like we’re in a deflationary environment more than an inflationary environment, but I promise you we are not, and even if you don’t feel it now, you will. You can rest assured, the very nanosecond Ben Bernanke suspects that the effects of this rapidly increasing money supply are causing upward pressure on prices in our economy, he and his gang of calculator-toting dandruff eaters are going to start jacking up interest rates every way they know how. Then they’re going to huddle in the middle of the room and start praying it works. Which it won’t.

Still not convinced? Have you seen what precious metals, agriculture, and oil have been doing for the last twelve months? They’ve been going up and it isn’t because consumers are expecting prices to fall. Commodities are the best predictors of future prices. I don’t care what the Dow 30 are doing; look at commodities. That’s where the story is.

The Fed – by way of John Maynard Keynes — is the main instigator of this preposterous idea that we must fight falling prices with everything at our disposal. Lately, they’ve even attacked the long end of the yield curve by buying long-term Treasuries in the open market. Some of you may not understand the implications of this behavior, so I’ll give you a little help: if the Fed thinks it can maintain lower long-term rates by buying Treasuries, it’s going to have to use dollars, and those dollars will have to come from somewhere. Can you hear the printing presses groaning?

So this brings us to four final questions (as well as their answers, which I am thrilled to provide at no extra charge):

1. If the Fed is going to (attempt to) hold down long-term rates by using printed money to buy Treasuries, isn’t that going to cause downward pressure on the value of the currency? (Yes!)

2. As the dollar loses value, won’t U.S. creditors be reluctant to loan us more money – or even to hold existing American debt? (Yes!)

3. Won’t that necessarily mean rising interest rates? (Yes!)

4. So how, exactly, is that going to keep long-term Treasury rates lower? (It won’t!)

Look, if you ignore everything else I’ve said, try to remember this: the Fed is comprised of a decidedly small number of people, who make decisions that will affect you, your job, your family, and your life for years to come. They are not gods; they are human beings, and their perception of reality is just as subject to error as yours and mine.

Conclusion

Your currency is more vulnerable than at any other time in history, and you should be scared. Actually, you should be terrified. I know I am!

[Repeat after me:

• There is nothing deflationary about our environment – it is inflationary
• There is nothing deflationary about our environment  – it is inflationary
• There is nothing deflationary…

*http://www.bottomviolation.com/consumer-driven-deflation-not-even-close/

Related Articles:

1. These Indicators Say Inflation to Go to 4% Soon – and 6% by 2014 
2. Official and ShadowStats Monthly Inflation Rates: 1872 to Present 
3. Understanding Inflation: It’s Here – and It’s Going to Get Worse, Much Worse! 
4. What Inflation? Take a Look At All the Deflation Around You! 
5. Inflation Coming? Treasury Market Says Otherwise! 
6. Real-time Inflation Data is Now Available – Finally 

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

 

The S&P 500 is Worth Only 910: Get Out – or Lose Big!

At the beginning of 2011 USA Today reported…[that] Ned Davis Research says the S&P 500 will make a run at the 2007 high of 1,565, hit a “midyear peak”  [and] then it will crash as interest rates rise…concluding that “the midyear peak could mark the end of the cyclical bull market that began in March 2009 and the start of a new cyclical bear market.”

So says Paul B. Farrell (www.marketwatch.com) in an article which Lorimer Wilson, editor of www.munKNEE.com  (It’s all about Money!), presents below, in part, with a link to the full article should you wish to read it in its entirety.  Farrell’s concluding remarks are as follows:

Warning, even though your brain doesn’t want to hear it, there is a high probability a new cyclical bear market will begin this summer … and overshadow the 2012 elections.

The Journal’s also warning: “Inflation jitters spread through emerging markets, prompting China’s central bank to raise interest rate for the third time in four months amid worries that a drought threatening the country’s wheat crop will put further pressure on global food prices.”

Wake up America: With commodity prices rising rapidly, all the bizarre rationalizations Wall Street uses to keep Bernanke’s interest rates low are rapidly vaporizing. Yes, Ned Davis’ prediction of a bear will soon be a painful reality.

S&P 500 inflated, worth just 910, get out before it tops 1,500

[Jeremy] Grantham also sees inflation and rising interest rates killing the lies, popping the bubble and ending the rally: “As a simple rule, the market will tend to rise as long as short rates are kept low. This seems likely to be the case for eight more months and, therefore, we have to be prepared for the market to rise and to have a risky bias.”

With $107 billion at stake [his firm manages that amount] Grantham better be concerned. He predicted the 2008 meltdown, now sees a repeat dead ahead: “Be prepared for a strong market and continued outperformance of everything risky, but be aware that you are living on borrowed time as a bull.”

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Yes, the bubble will pop this year says Grantham: “If the S&P rises to 1,500, it would officially be the latest in the series of true bubbles. All of the famous bubbles broke, but only after short rates had started to rise.”

So keep a close watch on those two tipping points in your planning, interest rates breaking to the upside and the S&P closing near 1,500. When inflation pushes interest rates up they’ll choke off this bull market. If you’re active, better stop chasing higher returns, especially emerging markets.

Bottom line: In what sounds like a direct shot at super-bull Jeremy Siegel, Grantham says that GMO’s research warns that “the market is worth about 910 on the S&P 500, substantially less than current levels” just above 1,300.

Then Grantham throws his fast ball right down the middle: “The speed with which you should pull back from the market as it advances into dangerously overpriced territory this year is more of an art than a science, but by October 1 you should probably be thinking much more conservatively.”

Translation: Get the heck out of Wall Street’s stock market casino soon, maybe as early as July 4th, and definitely get out by Christmas.

[Editor's Note: To read Farrell's excellent article in its entirety please go here]

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1. S&P 500 Likely To Top Out at 1400 – 1500 & Then Topple to 400! Here’s Why http://www.munknee.com/2011/02/uncanny-relationship-with-nikkei-1929-crash-suggests-sp-500-about-to-top-out-and-then-tumble/
2. Stock Market is Due for a 15-20% Correction – Here’s Why http://www.munknee.com/2011/06/stock-market-is-due-for-a-15-20-correction-heres-why/
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You think the problems are bad now? You wait until we don’t have any more credit. You wait until the currency is collapsing. You wait until interest rates are going through the roof and inflation is going through the roof. It’s not going to be a pretty picture. There will be social unrest. [See below for the link to the interview.] Words: 477

So says Jim Rogers in an interview* with Lucy Kafanov (Russia Today) about the pending US debt ceiling issue and what all this really means for the future of the U.S. economy and for the average American in general. The following transcribed excerpts** of some of the interview by www.TheDailyBell.com have been  further edited ([  ]), abridged (…) and reformatted by Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Kafanov asks Rogers, “When you say that even if we do reach this [debt ceiling] deal everthing [will] look good for a little while but [that] six months to a year [from now] it [will] get worse, what do you mean when you say it gets worse? I mean it’s easy to talk about these abstract terms but if you look at the facts, 14.1 million Americans unemployed, over half of all American families living from paycheck to paycheck, more than 44 million on food stamps. What is it going to look like for those of us who can’t afford to move to Singapore [where you live]?”

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Rogers replies, “We are all going to continue to get deeper and deeper into debt. … The overall situation is getting more and more serious. America is now the largest debtor nation in the history of the world. This cannot go on forever. …

You think the problems are bad now? You wait until we don’t have any more credit. You wait until the currency is collapsing. You wait until interest rates are going through the roof and inflation is going through the roof. It’s not going to be a pretty picture. There will be social unrest. It’s going to be a mess [so] the sooner we deal with it the better.”

* An actual video of the interview can be seen here

**http://www.thedailybell.com/2738/Jim-Rogers-Americas-the-Largest-Debtor-Nation-in-the-History-of-the-World-and-Its-Just-Getting-Worse

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Editor’s Note:

1. The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
2. Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above

Right now, interest rates are near historic lows.  The U.S. government is able to borrow gigantic mountains of money for next to nothing.  U.S. consumers are still able to get home loans, car loans and student loans at ridiculously low interest rates.

 When this low interest rate environment changes (and it will), it is going to absolutely devastate the U.S. economy.  Without low interest rates, the U.S. financial system dies.  [Let me explain.] Words: 1529

A Solid Case for the Dow Reaching 20,000 by 2014

To move up from the current 12,600 level to 20,000 by the summer of 2014, the Dow would need to rise about 16.5% each year or about 58% in a three-year period and in the past 25 years the Dow has risen by this much on at least 13 occasions. During those times, there was only one period of sustained annual gains, when the Dow rose an average of 26% from 1995 through 1999. The key question: what would it take to justify a three-year, steady, robust gain? It all comes down to corporate profits [and the extent to which] multiple investors are willing to assign [dollars] to these profits. [Let me explain.] Words: 761

So says David Sterman (www.StreetAuthority.com)  in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Sterman goes on to say:

Right now, the S&P 500 trades for about 13 times projected 2011 profits of $103 a share and this is a reasonable number in light of very strong corporate profit margins in a time of real economic concerns. One could even argue the current multiple could expand to above the norm if the economic concerns receded and the economy started to grow at a steady 3.5% clip.

Let’s Make Some Assumptions and Do the Math

To be sure, corporate profit margins have peaked but if history is any guide, then 3.5% gross domestic product (GDP) growth would translate into 7% to 10% annual sales growth for many companies, accompanied by 15% profit growth. These are admittedly rough estimates and round numbers, but it would be in the ballpark. If profits indeed grew 15% annually, then the S&P 500′s aggregated earnings would reach $157 a share by the 2014.

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Let’s also assume inflation remains largely in check and the Federal Reserve hikes rates by only 200 to 300 basis points from current levels. In this environment, investors might be willing to assign a slightly more robust multiple to the market, perhaps 15 times aggregated earnings. Apply this to the projected $157 a share, and the S&P 500 would rise to 2,500 — a roughly 75% gain during the next three years. Note, that when we looked at the prospect of the Dow hitting 20,000 before, we were talking about a 58% total gain. So Dow 20,000 is surely within reach by 2014 if the chips land the right way.

What Could Go Wrong?

1. Unemployment stays above 7%. Companies — especially those selling to consumers — would be hard-pressed to grow at a solid clip if unemployment remained at stubbornly high levels. The key swing factor in the economy involves hiring trends that would steadily reduce unemployment below 7%. This was the case in the middle of the 1990s. As companies finally expanded payrolls, consumer spending soared and the Dow posted a robust five-year run, as mentioned above.

2. Interest rates spike above 5%. In an ideal world, the economy grows at a moderate enough pace…to avoid bottleneck and pricing pressures but, in a worst-case scenario, the Fed’s extended balance sheet and the government’s ongoing borrowing needs could eventually lead to a spike in rates that would help find buyers for our debt. If inflation sharply moved up and the Fed needed to hike rates well past 5%, then there’d be no way investors could afford a slightly rich multiple for stocks. In such a scenario, “Dow 10,000″ would be the buzzword.

Conclusion

The second half of 2011 is going to determine where we are likely to be in 2014 because the economy is showing both signs of life (as evidenced by recent robust data in capital goods spending) and signs of weakness (as seen by weekly jobless claims that can’t seem to fall below the all-important 400,000 level). One of these forces will eventually win out.

If the economy is indeed creating jobs at a decent clip later this year (consistently above 200,000 a month), then it may end up on a self-sustaining growth path — and the Dow would be on its way to 20,000.

*http://www.streetauthority.com/investing-basics/why-dow-could-hit-20000-3-years-458415

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1. Dow 20,000: the Latest in Hype, Happy Talk and Irrational Exuberance   http://www.munknee.com/2011/06/dow-20000-the-latest-in-hype-happy-talk-and-irrational-exuberance/
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Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

S&P 500