THE FINANCIAL SYSTEM IS PRIMED FOR A CRISIS WORSE THAN 2008

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Trillions in US household wealth has evaporated

by PHOENIX CAPITAL RESEARCH | INVESTMENTWATCH | AUGUST 4, 2014

Over the last 30 years, the US has built up record debts on a personal, state, and national level. Consumers thought they were financially stable so long as they could cover the interest payments on their credit cards, states created program after program few if any of which they could afford, and the Federal Government issued $30-50 trillion in debt and liabilities (counting Social Security and Medicare).

This all came to a screeching halt when the housing bubble (arguably the biggest debt bubble in history) imploded in 2007. Since that time, stocks have staged one of their worst years on record (2008), one in five us mortgages has fallen underwater (meaning the mortgage loan is worth more than the home itself), and some trillions in US household wealth has evaporated.

These issues seem to be distinct, but in reality they all stem from a debt problem. And as you know, there is only one legitimate way to deal with a debt problem:

Pay it off.

However, instead of doing this, the Feds (the Federal Reserve, Treasury Dept, etc.) have been producing EVEN MORE DEBT. Here’s a brief recap of their moves thus far:

The Federal Reserve cuts interest rates from 5.25-0.25% (Sept ’07-today)
The Bear Stearns deal/ Fed buys $30 billion in junk mortgages (March ’08)
The Fed opens various lending windows to investment banks (March ’08)
The SEC proposes banning short-selling on financial stocks (July ’08)
The Treasury buys Fannie/Freddie for $400 billion (Sept ’08)
The Fed takes over AIG for $85 billion (Sept ’08)
The Fed doles out $25 billion for the auto makers (Sept ’08)
The Feds’ $700 billion Troubled Assets Relief Program (TARP) (Oct ’08)
The Fed buys commercial paper (non-bank debt) from non-financials (Oct ’08)
The Fed offers $540 billion to backstop money market funds (Oct ’08)
The Feds backstops up to $280 billion of Citigroup’s liabilities (Oct ’08).
Another $40 billion to AIG (Nov ’08)
The Fed backstops up $140 billion of Bank of America’s liabilities (Jan ’09)
Obama’s $787 Billion Stimulus (Jan ’09)
The Fed’s $300 billion Quantitative Easing Program (Mar ’09)
The Fed buying $1.25 trillion in agency mortgage backed securities (Mar ’09-’10)
The Fed buying $200 billion in agency debt (Mar ’09-’10)
QE lite buys $200-300 billion of Treasuries and mortgage debt (Aug ’10)
QE 2 buys $600 billion in Treasuries (Nov ’10)
Operation Twist reshuffles $400 billion of the Fed’s portfolio (Oct ’11)
QE 3 buys $40 billion of Mortgage Backed Securities monthly (Sept ‘12)
QE 4 buys $45 billion worth of Treasuries monthly (Dec ’12
And that’s a BRIEF recap (I’m sure I left something out).

In a nutshell, The Feds have tried to combat a debt problem by ISSUING MORE DEBT. They’re pumping trillions of dollars into the financial system, trying to prop Wall Street and the stock market. They’ve managed to kick off a rally in stocks…

But they HAVE NOT ADDRESSED THE FUNDAMENTAL ISSUES PLAGUING THE FINANCIAL MARKET.

Stocks are headed for another Crash, possibly as bad as the one we saw in October-November 2008. As you know, that Crash wiped out $11 trillion in household wealth in a matter of weeks. There’s no telling the damage this Second Round will cause.

The Feds have thrown everything they’ve got (including the kitchen sink) at the financial crisis… and things are fundamentally no better than they were before: most major banks are insolvent, one in five US mortgages is underwater, and the stock market is being largely propped up by in-house trading from a few key players (Goldman Sachs, UBS, etc).

Regarding stock investing, it’s important to take a big picture of stocks as an asset class. The common consensus is that stocks return an average of 6% a year (at least going back to 1900).

However, a study by the London Business School recently revealed that when you remove dividends, stocks’ gains drop to a mere 1.7% a year (even lower than the return from long-term Treasury bonds over the same period).

Put another way, dividends account for 70% of the average US stock returns since 1900. When you remove dividends, stocks actually offer LESS reward and MORE risk than bonds. If you’d invested $1 in stocks in 1900, you’d have made $582 with reinvested dividends adjusted for inflation vs. a mere $6 from price appreciation.

So as much as the CNBC crowd would like to believe that the way to make money in stocks is buying low and selling high, the reality is that the vast majority of gains from stocks stem from dividends.

The remaining gains have come largely from inflation.

Bill King, Chief Market Strategist M. Ramsey King Securities recently published the following chart comparing REAL GDP (light blue), GDP when you account for inflation (dark blue), and the Dow Jones’ performance (black) over the last 30 years. What follows is a clear picture that since the mid-70s MOST of the perceived stock gains have come from inflation.
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Which brings us to today. According to official data, the S&P 500 is currently trading at a CAPE ratio of 25 and yields 2.3%. In plain terms, stocks are expensive (historic average for CAPE is 15) and paying little.

In other words, there is little incentive, other than future inflation expectations, for owning stocks right now.

By most historic metrics, the market is showing signs of a significant top. Here are just a few key metrics:

1) Investor sentiment is back to super bullish autumn 2007 levels.

2) Insider selling to buying ratios are back to autumn 2007 levels (insiders are selling the farm).

3) Money market fund assets are at 2007 levels (indicating that investors have gone “all in” with stocks).

4) Mutual fund cash levels are at a historic low.

5) Margin debt (money borrowed to buy stocks) is at a new record high.

This final point is key. Mutual funds are the “big boys” of the investment world. If they have become fully invested in the market, this means there are few buyers left to push stocks higher. This is evident in the fact that every time mutual fund cash levels dropped, stocks collapsed soon after.

In plain terms, the odds are high that a Top is forming in stocks. With that in mind,

if your portfolio is heavily invested in stocks, now is a time to be taking some profits. If you can, consider moving a sizable chunk into cash.

The market is extremely tired and the systemic risks underlying the Financial Crisis are in no way resolved. With investor complacency (as measured by the VIX) at record lows, the Fed withdrawing several of its more significant market props, and low participation coming from the larger institutions, this market is ripe for a serious correction.

Be prepared.

This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio athttp://phoenixcapitalmarketing.com/special-reports.html.

This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

Best Regards

Phoenix Capital Research

GAO Launched an Obamacare Sting Operation—and Almost All Fake Insurance Applications Were Approved

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The report suggests the health care law’s eligibility verification system isn’t working.

By Sophie Novack
Follow on TwitterJuly 23, 2014

An undercover operation found that the majority of fake Obamacare applications submitted were approved by the health law’s enrollment system.

Fake applicants were able to get subsidized insurance coverage in 11 of 18 attempts, according to a report from the nonpartisan Government Accountability Office. The agency conducted the sting operation to test the strength of the Affordable Care Act’s eligibility-verification system.

The findings will be discussed at a House Ways and Means hearing Wednesday. They were revealed in an advance copy of the testimony from Seto Bagdoyan, head of GAO’s Forensic Audits and Investigative Service, provided to the Associated Press.

The undercover investigators created fake identities by inventing Social Security numbers, income, and citizenship, and by counterfeiting documents.

Eleven of 12 fake online or telephone applications were approved, according to Bagdoyan. Five of six phone applications were successful, with the exception of one caller who declined to give a Social Security number. Six online applications were initially blocked by the verification system, but the investigators were able to find a workaround by going through the call center.

“The total amount of these credits for the 11 approved applications is about $2,500 monthly or about $30,000 annually,” Bagdoyan said, according to a report from NBC. “We also obtained cost-sharing reduction subsidies, according to marketplace representatives, in at least nine of the 11 cases.”

The investigators did not have the same luck with in-person assistors: They were unable to get help in five of six cases, and the last was told by the assistor that the income reported was too high for subsidized coverage.

The accuracy of the health law’s eligibility verification system has been an ongoing concern among lawmakers and officials, and Republicans have repeatedly pointed to it as evidence that the law leaves the government vulnerable to fraud.

The GAO investigation was requested by several Republican senators and representatives before the insurance exchanges launched in the fall, according to The Washington Post.

The administration, meanwhile, maintains that it is working to improve the process.

“We are examining this report carefully and will work with GAO to identify additional strategies to strengthen our verification processes,” said administration spokesman Aaron Albright.

THE ROT WITHIN, PART I: OUR PONZI ECONOMY

Dependent on inflating bubbles to evince “economic strength”

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by CHARLES HUGH-SMITH |ZERO HEDGE | JULY 22, 2014

Depending on blowing the next bubble to temporarily prop up the economy is the height of foolhardy shortsightedness.

All the conventional policy fixes proposed by Demopublican politicos, technocrats and the vast army of academic/think-tank apparatchiks are the equivalent of slapping a coat of paint on a fragile facade riddled with dryrot. All these fake-fixes share a few key characteristics:

1. They focus on effects and symptoms rather than address the underlying causes, i.e. the dryrot at the heart of our government, society and economy.

2. They maintain and protect the Status Quo Powers That Be–no vested interests, protected fiefdoms or Financial Elites ever lose power as a result of these policy tweaks.

3. They are politically expedient, meaning they assuage the demands of vested interests rather than tackle the rot undermining the nation.

4. They ignore the perverse incentives built into current systems and the incentives of complicity, i.e. to cheer another coat of paint on the dryrot rather than face the costs of real reform.

The financial underpinnings of the economy and society are rotting from within:finance, higher education, defense, healthcare, law, governance, you name it.

This week I want to highlight a few key causes of this pervasive and eventually fatal systemic rot.

Let’s start with Our Ponzi Economy. There are three primary examples of our Ponzi Economy: pay-as-you-go social programs (Social Security, Medicare, Medicaid, etc.); housing and the stock market. All are examples of financial Ponzi schemes.

All Ponzi schemes rely on an ever-expanding pool of greater fools who buy into the scheme and pay the interest/gains due the previous pool of greater fools. Ponzi schemes fail because the pool of greater fools is finite, but the scheme demands an ever-expanding pool of participants to function.

All Ponzi schemes eventually fail, though each is declared financially soundbecause this time it’s different. The number of greater fools required to keep the scheme going eventually exceeds the working population of the nation.

Here’s why Pay-As-You-Go Social Programs are all Ponzi schemes:

1 retiree consumes the taxes paid by 5 workers.

Those 5 workers when they retire consume the taxes paid by 25 workers.

Those 25 workers when they retire consume the taxes paid by 125 workers.

Those 125 workers when they retire consume the taxes paid by 625 workers.

Those 625 workers when they retire consume the taxes paid by 3,125 workers.

You see where this goes: very quickly, the number of workers required to keep the Ponzi scheme afloat exceeds the entire workforce.

The only way to keep the Ponzi scheme going is to keep raising payroll taxes on the remaining workers, which is precisely what welfare states (i.e. every developed economy on the planet) has done.

But raising taxes merely extends the Ponzi scheme one cycle. Eventually, taxes are so high that the remaining workers are impoverished. Right now, the U.S. has reached a ratio of 2 full-time workers for every retiree. As the number of retirees rises by thousands every day and the number of full-time jobs stagnates, the ratio will slide toward 1-to-1:

The Problem with Pay-As-You-Go Social Programs: They’re Ponzi Schemes (November 5, 2013)

Estimates are even worse in other developed nations. In Europe, the ratio of retirees over 65 to those between 20 and 64 will soon reach 50%–and that’s of the population, not of people with full-time jobs paying taxes to fund social welfare programs. (source: Foreign Affairs, July/August 2014, page 130)

As the percentage of the working-age populace with full-time jobs declines, the worker-retiree ratio will become increasingly unsustainable. The taxes paid by each worker are nowhere enough to fund the generous pension and healthcare benefits promised to every retiree.

In the U.S., the number of people of working age who are jobless is 92 million; the number of full-time jobs is 118 million. This chart of labor participation includes almost 30 million part-time employees who don’t earn enough to pay substantial taxes and millions of self-employed people making poverty-level net incomes.

Courtesy of STA Wealth Management, here is a chart that shows full-time workers are less than half the labor force:

Housing is also a classic Ponzi scheme: prices can only go up if there is an ever-expanding pool of greater fools willing and able to pay even more for a house than the previous pool of greater fools.

As I have explained many times, the only way the Status Quo has been able to expand the pool of greater fools is to lower interest rates to near-zero, drop down payments to 3% and loosen previously-prudent lending standards.

The Housing “Recovery” in Four Charts (May 27, 2014)

These tricks extend the Ponzi for a cycle by artifically expanding the pool of greater fools, but that pool is not infinite. (Foreign buyers are currently enlarging the pool, but their participation is dependent on the Ponzi schemes in their home economies not blowing up.)

The stock market has been made the official metric of the nation’s economic health; too bad it’s a Ponzi scheme. Financial bubbles are what economist Robert Shiller calls “naturally occurring Ponzis” because the psychology of ever-rising prices and profits fuels an inflow of greater fools that sustains the bubble until all available greater fools have sunk their cash and credit into the bubble.

Here is what a market that is increasingly dominated by Ponzi bubbles looks like: this is the S&P 500 (SPX):

(source: Gordon T. Long, Macro Analytics)

Depending on blowing the next bubble to temporarily prop up the economy is the height of foolhardy shortsightedness. Yet that’s our Status Quo, increasingly dependent on inflating bubbles to evince “economic strength” when the Ponzi paint will soon peel off the rotten wood of the real economy.

Federal Tax Revenues Set Record Through June; Feds Still Running $385.8B Deficit

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By Terence P. Jeffrey

(CNSNews.com) – Federal tax revenues continue to run at a record pace (in inflation-adjusted dollars) in fiscal 2014, as the federal government’s total receipts for the fiscal year closed June at an unprecedented $2,258,565,000,000 according to the Monthly Treasury Statement.

With $323.646 billion in revenue coming into federal coffers in June alone, the federal government spent $253.127 billion, and ran a surplus for the month of $70.519 billion.

However, despite this one-month surplus, the government has still run a cumulative deficit of $385.855 billion in the first nine months of fiscal 2014. (The federal fiscal year began on Oct. 1, 2013 and will end on Sept. 30, 2014.)

Record tax revenues through June 2014
In fiscal 2013, the federal government also ran a one-month surplus in June (amounting to $75.114 billion). However, it ended fiscal 2013 with a full-year deficit of $680.221 billion.

The White House Office of Management and Budget has estimated that in the full fiscal 2014, the federal government will collect $3.001721 trillion in taxes and spend $3.650526 trillion, while running a deficit of $648.805 billion.

The OMB has also estimated that, while running that deficit, the federal government will collect a record amount in inflation-adjusted tax revenues.

When adjusted for inflation (to constant 2014 dollars), the second-greatest federal tax haul through June was in fiscal 2007. By the end of June that year, the federal government had taken in approximately$2.232 trillion in total receipts in constant 2014 dollars.

The single largest source for the federal government’s record tax receipts in the first nine months of FY 2014 was the individual income tax, which brought the Treasury approximately $1.0458 trillion.

The second largest source was what the Treasury calls “Social Insurance and Retirement Receipts,” which includes the Social Security payroll tax, the unemployment insurance tax and other retirement taxes. This accounted for $784.479 billion in tax revenue.

The third largest source of federal revenue in the first eight months of fiscal 2014 was the corporation income tax, which brought in $235.018 billion.

As CNSNews.com has previously reported, federal tax revenues for fiscal 2014 set records through February, through March, through Tax Day, through April, and through May.

Democrat Blasts An Elephant Pinata With Shotgun In Political Ad

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Brian Anderson, July 13, 2014

Estakio Beltran is a democrat running for office in Washington state’s 4th Congressional district. He is considered a long shot in the highly-conservative area so he decided to set himself apart from the pack with a unique political ad in which he blows the hell out of an elephant shaped piñata with a shotgun. Get it? The elephant is the symbol of the Republican party, so he plans to kill off the GOP or something.

Now, if you are trying to appeal to Latinos, piñatas, violence, and GOP hatred are all proven vote getters. However, attempting to sway conservative voters this way…not so much.

Unfortunately Beltran removed his ad from YouTube because he’s not only insane but also a chickensh*t so we’ll have to let The Seattle Times describe it for us:

The video opens with the blue-jeans wearing Beltran posing with hands on hips alongside an arid landscape by a country road. “They call me a long shot. They say I can’t win in this district,” Beltran says. “But what happens to an elephant when it stands around, doing nothing, for too long?”

The camera pans to an elephant pinata, and then back to Beltran, who shoulders a pump-action shotgun and blasts the Republican Party symbol in the rear. “My name is Estakio Beltran,” the candidate says, racking the shotgun. “And I approved this message.”

Beltran then rides off on a burro toward a sign pointing toward the U.S. Capitol.

Nice, huh? Can you imagine if a Republican candidate did an ad where he/she shotgunned a stuffed donkey? The liberals would have a freak-out on par with their hysterical reaction to the Hobby Lobby Supreme Court decision.

In this fictional Republican ad, however, when the donkey piñata was busted open, food stamps, welfare checks, and social security cards for illegal aliens would fall out. After all, those are the treats democrats give out to entice support.

I’m actually surprised the liberals aren’t freaking out on this ad as they tend to take imagery and metaphors way too literally. First, the democrats areEBT
the antigun/anti-violence party so the shotgun and subsequent firing of it should have them demanding; Not one more piñata should die from gun violence.

Then, where the hell is PETA on this? Beltran shoots an innocent elephant. As you may know, big game hunting is no laughing matter on the left. The Obama administration just outlawed the trading of antique ivory, which will destroy the collectables market for antique guns, musical instruments, and just about anything containing ivory that was made well before elephant hunting was banned.

There is one image in this ad that I think is entirely appropriate. When Beltran rides a donkey towards the Capitol Building, he’s saying, “Send another jackass to Washington.”

No thanks, we have too many already.

Mother of officer killed by illegal immigrant writes Obama

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MESA, AZ (CBS5) -
The mother of a fallen Mesa police sergeant is writing President Barack Obama in hopes of changing immigration laws in the U.S.

Police said Mary Ann Mendoza’s son, Sgt. Brandon Mendoza, was hit head-on by a driver who had been living in the country illegally for two decades.

Officials said for much of that time Raul Silva-Corona was wanted for charges including burglary, assault and leaving the scene of an accident. When he was finally captured in 2002, he took a plea deal and was allowed to stay in the United States. That’s something Mendoza believes needs to change.

“There are just a lot of issues that have welled up inside of me and are festering now that I’ve had time to think clearly,” said Mary Ann Mendoza.

At the forefront of her concerns are the president’s policies on immigration.

“The people who are coming here looking for jobs and who are wanting to make a difference in their life, I support them. I mean that’s what this country is made of. But when you start breaking the law there is no reason for those people to be here,” said Mary Ann Mendoza.

Another issue Mendoza wants addressed has to do with driving.

“I don’t think anyone who doesn’t have a social security number and is here illegally who cannot obtain a driver’s license should be allowed to register a vehicle anywhere in the United States and be able to drive it,” said Mendoza.

Mendoza told CBS 5 News she’s hopeful she will get a response from President Barack Obama.

Here is Mendoza’s letter:

“President Obama,

“I am writing this letter to you regarding illegal immigrants.

“As a tax paying, law abiding citizen of the United States, I WANT my voice heard on this issue. My son, Sergeant Brandon Mendoza, an officer who was with the City of Mesa, Arizona police department, was killed in a tragic head on collision on May 12, 2014 by a wrong way driver on our freeways. This man happened to be an illegal immigrant, was in this country illegally, convicted of previous crimes, no Social Security number, no valid driver’s license BUT he had purchased a vehicle and registered it to drive in Maricopa County Arizona.

“I had my son’s life STOLEN from me by a man who didn’t value his life, was 3X the legal limit drunk, was high on Meth, drove for over 35 miles THE WRONG WAY on 4 different freeways and had NO BUSINESS BEING IN THIS COUNTRY!!!

“The Federal Government knew he, Raul Silva Corona , was an illegal immigrant when he was convicted on crimes in 1994 in Colorado. The prosecutors were “lenient” on him and several charges were dismissed. When he was convicted of these crimes and 1994 and the government knew he was in the country illegally, why wasn’t he deported? Why are any of these illegal criminals in this country ??

“I am furious that the Federal Government allowed this criminal to stay in this country and KILL my son! I have attached several articles for you to PERSONALLY read about my son. He was an Icon with the City of Mesa Police Department. He was instrumental in making life better for people of all walks of life in the park project he took on. He was humble, selfless, worked many hours off the clock helping disadvantaged children and often used his own money to do things for the community, including “adopting” children at Christmas to provide them with gifts….out of his own money!!

“I have attached numerous articles for you to read about my son. This was not a life that should have been taken so early. The good he was doing in our community is remarkable, the difference he made in people’s lives is amazing and the comfort he brought people in friendship was unmeasurable.

“All you have to do is Google ” Sgt/Officer Brandon Mendoza” and you will have plenty of reading material about my wonderful son who had just passed his Sergeant’s exam to become a Sgt. The Chief of Police posthumously promoted him during the week of his funeral but that highlight of his life was stolen from him!!! He was officer of the year last year. Officer of the quarter for the first quarter of 2014. He was only 32 years old and had done more in his life than most of us have done in a lifetime!

“I am going to have my voice heard and I want to you to know what my personal feeling is on whether CRIMINAL ILLEGAL IMMIGRANTS should be allowed in this country. I have been DIRECTLY affected by this. I am sure if your life had been affected like mine has been, you would have a different view of this situation. I have lived in Arizona most of my life. My son, Brandon Mendoza, was half Hispanic. It’s not the color of skin that my son or I see, it’s the person and how they conduct their lives. If you can’t enter this country legally then you shouldn’t be here. If you commit crimes, you should pay the time any of us as US Citizens would have to serve. Letting these illegal criminals out of our jails before their time is served and turning them loose on the streets to commit further crimes and KILL our loved ones is NOT ACCEPTABLE TO ME!! AND it shouldn’t be acceptable to any US Citizen. Mr. President, you don’t have the right to make this decision yourself……I have a say, even if it is for one moment. Maybe that one moment will light a spark with another citizen who can then light a candle, who can then light a bonfire, who can then light a city up and so on. My light has just been lit and I am not going to back down when so many of these illegal immigrants have more rights than we do. My son’s death will not be ignored as another statistic.

“I want laws to change that would not allow illegal immigrants to purchase vehicles in our country and register them to drive them in our states WITHOUT having driver’s licenses to drive them legally. How is this happening??? I want laws changed that will force the removal of illegal immigrants who break our laws. This man, this repeated law breaker, was allowed to be released and he continued breaking the laws in our country until what???? UNTIL HE WAS STOPPED BY MY SON IN A HEAD ON COLLISION THAT NEVER SHOULD HAVE HAPPENED!!!! HE KILLED AN OFFICER OF THE LAW AS HIS LAST ACT!!! When are you going to see the flip side to this issue? When will you realize the hurt and pain and destruction these illegal immigrants who break the law will continue to cause???? Until you live in a state that deals with this on a daily basis, you will not understand it.

“I want answers that make sense. I want answers from you personally as to why this criminal was allowed to stay in our country until he took my son’s life.

“Sincerely,

“Mary Ann Mendoza”

This Chart Shows How Many Obamacare Enrollees’ Self-Repor​ted Citizenshi​p Status Doesn’t Match Federal Data

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John Fleming / @john_w_fleming / July 08, 2014 /


According to a report released by the Office of Inspector General at the Department of Health and Human Services earlier this month, “the online federal marketplace could not resolve nearly 90 percent (or 2.6 million) of its 2.9 million data ‘inconsistencies,’ which include citizenship status, income, incarceration status, and Social Security numbers,” as Marguerite Bowling reported last week for The Daily Signal. This chart breaks down those numbers.




John Fleming is the senior data graphics editor at The Heritage Foundation.