Porter Stansberry: Get ready... The worst is yet to come

Today, I'd like to simply point out one very unpleasant fact. I'd like to give you some insight into why it's so important and what it really means.

Here's the fact: America's standard of living is falling at a faster pace today than at any time since the Great Depression. Specifically, the real median income is down 9.8% since the fall of 2008. Additionally, Americans have lost roughly $5.5 trillion in asset value, or about 8.6% of their wealth.

When you talk about a depression, what you're really talking about is a collapse in the standard of living. That's what's happening today, right now, in our country. But people continue to go about their lives as though nothing is happening. Certainly, our politicians don't want to draw attention to the problem. Instead, they are behind the campaign to "paper over" these losses with schemes like "quantitative easing."

These schemes do nothing to make our economy more productive. They're designed instead to make prices rise so people (hopefully) won't notice how poor they're becoming.

If you've been reading my newsletters since 2008, none of this is a surprise to you. I've been warning month after month, year after year, that the government's efforts to paper over our bad debts won't work. And they won't work for two primary reasons…

First, soaring levels of high-powered money (like the Federal Reserve's asset base) will eventually cause prices to rise. That means the savings of millions of Americans – and the value of their wages – will fall in real terms. That's exactly what's happening. That's why our standard of living is falling so precipitously.

Second, the impact of this inflation and the uncertainty about its impact on the economy will cause entrepreneurs and corporations to delay or cancel major capital investments. That's the primary reason we have yet to see any rebound in employment.

The best way to see what's really happening in our economy and to our standard of living is to look at the value of the stock market through a sound-money lens. You can pick whatever sound money you like. Of course, most people won't ever do this… It would never even occur to them that the dollar is not sound and that it's distorting the value of everything in our economy.

Here's the real situation in America:


That's what the S&P 500 looks like when you price stocks in ounces of gold instead of in U.S. dollars. You'll see we are now below the lows we saw in 2009. Unfortunately, few people understand this… They've never thought about it this way before. And as a result, they're simply not doing enough to protect themselves.

They don't know this is what's really happening, because Washington keeps papering over these problems with more borrowing and more printing. But you can't solve a debt crisis by going deeper into debt. You can't reverse inflation by printing more money.

If I could magically wave a wand and change just one thing about my fellow citizens… I'd make them realize paper money is a crime.

It allows politicians to rob creditors to bail out debtors. It's a tool that's used to take value away from savers and give it to reckless borrowers. It's how both political power and economic power remain vested in Washington D.C.

Now… the politicians and their backers on Wall Street will swear up and down that their policies and the actions of the central bank (which has more than doubled its assets via nearly $3 trillion of asset purchases) aren't causing the inflation. It's as if, in their minds, printing trillions of dollars in new money has no impact on our economy.

It's simply a lie.

But that's not the worst part. The worst part is all that new money will end up in the hands of the people who caused this crisis in the first place.

Let me give you one example. Below, you'll find a chart of Genworth Financial. It's a mortgage-insurance/life-insurance company. It was spun out of GE Capital during the midst of the 2000s financial boom.

Without the bailout of the financial system, via $700 billion in TARP money and more than $2 trillion in quantitative easing, there's no doubt in my mind that Genworth would have gone bust because of losses in its mortgage-insurance unit. But that's not what happened. Instead, Genworth Financial became the No. 1-performing stock in the U.S. from the spring of 2009 until the spring of 2010.

It held on to those gains as long as the Central Bank continued its quantitative easing policies. And when QE finally ended in the summer of 2011… guess what happened to Genworth? I bet you can guess without even looking at the chart.



Paper money took the biggest loser, the company that had made the worst bets with the most leverage… and turned it into the biggest winner… at least, temporarily. For this, we all paid a massive, invisible tax: the largest decrease in real wages since the Great Depression.

This isn't how America should work. The rich and the powerful in New York and Washington D.C. shouldn't have the right to impoverish the rest of us simply to bail out their backers and their cronies.

My guess is… sooner or later… our creditors and the American people will wake up to what's happening to our money. And as I've been warning, they will be furious. What's scariest to me is to see how this anger is manifesting itself in the Occupy Wall Street movement. These folks are blaming capitalism for these kinds of problems. But this has nothing to do with capitalism. Paper money was Marx's idea. But try explaining that to any of those folks…

What's happening to our country is a crime. The ramifications of these kinds of manipulations will be decades of mistrust and social unrest. Unfortunately, this is a long way from being over. The price inflation that will inevitably result from the Fed's actions of 2009, 2010, and 2011 are only now beginning to manifest. The worst is yet to come. And it's going to be a lot worse.

What A JP Morgan “Mistake” Will Do To The Price of Silver

So as we sit here pondering the myriad of Global Monetary Implosions happening as we speak one thing always seems to come back to the forefront..

What happens to the price of SILVER if JP Morgan is caught up in all this mayhem and goes down?

Zerohedge.com just posted a very plausible scenario where the CDS’s that are imploding in Europe could easily destroy the top 5 US banks that trade 97% of these toxic derivatives.

http://www.zerohedge.com/news/how-us-banks-are-lying-about-their-european-exposure-or-how-bilateral-netting-ends-bang-not-whi

Clearly JP Morgan is in the cross-hairs of the current derivative implosions…but what does that mean for SILVER? A LOT!

I believe that JPM is the ONLY large seller of silver left on the COMEX and LBM. They are also in charge of the “silver short hot potato” that has destroyed many companies that tried to control the silver bull including Bear Stearns, AIG, Drexal Burnham and more going back decades. No one in their right mind would take the short side of silver unless they had to defend “the system” which is precisely what JPM is trying to do.

So while JPM fights to keep the price of silver down with massive derivative shorts their multi-trillion dollar CDS book is blowing up! JPM is on the edge of the cliff and will drag everyone to the depths of the abyss as they go down.

Remember…if JPM is destroyed then there will be NO SELLERS left in the silver pits.

NOT ONE SELLER!

None at $50.

None at $100

None at $500

None at $1,000

NONE!

Of course the global market for silver will shut down before the EXCHANGES are exposed as the corrupt entities that they are. Watch for claims of “FORCE MAJEURE” to be used in their defense.

Very soon we will know the REAL “Fair Market Value” of silver and you can bet it will start with 4 DIGITS!

The end game is upon us so stock up on all the physical silver you can and trade every single electronic blip and every scrap of paper money for SOMETHING REAL….

McAlvany Weekly Commentary

Ian McAvity: Interview in New Orleans

Posted on 02 November 2011.

A Look At This Week’s Show:
-The biggest mistake a gold buyer can make is to watch the price every day. Buy for the long term preservation of buying power and don’t watch it like a day trader would.
-Looking forward beyond the current currency crises, the ultimate currency solution will likely be a currency backed by a “Basket of Commodities” discipline.
-Harry Brown’s wisdom from days gone by still applies. Don’t ever bet the whole farm in any one direction. Build a correctly allocated portfolio based on a long term outlook and reallocate as necessary based on the big picture.

About the guest: Ian McAvity, CMT, has been writing his DeliberationsTM on World Markets newsletter for a global readership since 1972. He draws on 48 years of experience in the world of finance–as a banker and broker since 1961 and as an independent advisor and entrepreneur since 1975. Principally a technical analyst, Mr. McAvity has written on global inter-market relationships since the 1970s, including original research on relationships between gold mining shares and gold bullion. In the 1980s and 1990s he served as a director of many junior mining and exploration companies.
He has been profiled by most of the major North American financial media including the Wall Street Journal, Barron’s, and the Financial Post. Mr. McAvity has been a special guest on Louis Rukeyser’s Wall $treet Week, as well as on CTV’s Canada AM morning show and CBC’s Business World.

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China Runs Out of Money

Companies' cash is drying up, with dire consequences for their workers ... Unpaid wages in China ... Efforts to curb inflation in China are having some painful side-effects. A squeeze on bank lending has prompted some businesses short of cash to stop paying wages to blue-collar workers. Even the much-vaunted state sector is feeling the pinch. Work has all but ground to a halt on thousands of kilometres of railway track, and many of the network's 6m construction workers have been complaining about not being paid for weeks or sometimes months. – Economist

Dominant Social Theme: One thing is for sure, the Chinese communists know how to run a capitalist economy and have done a helluva lot better job than Europe or America! Something about socialism really gives people the "smarts."

Free-Market Analysis: The editors of the Economist "newspaper" – who never met a tin-pot dictatorship or dictator that they couldn't find some way to praise – have apparently "hit a wall" when it comes to China. That great hope of capitalism (Communist China) is broke and heading for a hard landing.

After singing the praises of China and its vibrant "free market" for years, the Economist editors have now run smack into reality, giving rise to this squib of a story that indicates the ChiComs are hitting the proverbial brick wall when it comes to their hyperactive and impossibly stimulated economy.

We're not supposed to understand this, of course. It's an elite dominant social theme, after all, that the ChiComs' murderous command-and-control economy has much to recommend it that the West's anarchic and "free" economies (sarcasm off) do not. Here's some more from the article:

Migrant workers from China's vast countryside are usually the first to suffer when employers find themselves strapped for cash. In February a revision to the criminal law made it illegal for a company to withhold salary if it had the means to pay. This has done little to protect the more than 150m rural migrants who perform most of the country's manual labour ... The $600 billion stimulus launched in 2008 is all but spent. Indeed, the central government has urged state banks to cut back on lending in order to curb inflation, which in the year to July reached a three-year high of 6.5%, before dropping to 6.1% in September.

In recent weeks a credit crisis in the eastern city of Wenzhou has led to the flight of dozens of businessmen, leaving thousands of workers at private companies unpaid. State firms are little better off. After two record years of track-laying, the problems now facing the railway-building industry are severe. The government has had a change of heart about rapidly expanding the high-speed rail network following a fatal crash of two high-speed trains in July.

But bank credit drying up has also played a big part. China Daily, an English-language newspaper, says many of the industry's migrant workers have not been paid for months. Complaints have been growing. A senior railway official quoted in the state media said workers at China Railway Engineering Corporation, one of the country biggest civil-engineering firms, had submitted more than 2,000 petitions to the authorities since July. Another newspaper, Economic Information Daily, said wage arrears and protests by rail workers had "alarmed" top leaders in Beijing. Only a third of railway construction projects were continuing normally, it said.

The power elite had evidently and obviously hoped to contrast China's "vibrant" quasi-controlled economy (their description) to the West's chaotic and uncontrolled one (their description). But China appears to be unraveling faster than expected. The Chinese central bank (state owned) doesn't seem to managing that ole "soft landing" very well.

In fact, as we've been pointing out for several years now, there's not going to be a Chinese soft landing. The rotting, empty Chinese cities and shoddy, tipsy skyscrapers, profligate and corrupt Chinese central bank, entrepreneurial flight (see yesterday's article) and rising civil violence across the country (so bad it's not being reported formally anymore) should be red flags (no pun intended) that explain what one needs to know.

The Chinese miracle is dead. It never existed anyway, anymore than the West's late-20th century consumer mania was a product of Anglo-American "genius." No, the story of modern directed history is the story of elite-controlled money stimulation and central banking largess. Control tens of trillions and you can control the world. And they have. Not just in the US but in China, too.

What is "real" in China? The current state of development? Or is it Money Power? The central bank, like Western central banks, has tens of trillions to float the pretense of the Chinese Miracle. Sure, the Chinese people constitute an ancient, wise and powerful culture. But you don't develop an entire country in 30 years. Do you?

Not in our opinion. Not without central banking super money you don't. But we are supposed to believe it anyway. Just as we are supposed to believe the big-brain central banking technocrats of the Chinese central banking authority can bring that large and populous country in for a "soft landing." Whatever that means. Would the elites lie to us? Would they?

When the bust comes – and it is coming – all three legs of the stool will have been knocked away. America, Europe AND China will be no longer capable of firing the cylinders of the modern central banking economy. The world will sink into the deepest depression it has ever known. Chaos and worse will sweep across the world. And what then?

Conclusion: Are the elites waiting in the wings with their next fancy project? And what will it be called? World government?

Data Suggests Market Overvalued from 22% to 54%

Here is a summary of the four market valuation indicators :

● The Crestmont Research P/E Ratio (more)

● The cyclical P/E ratio using the trailing 10-year earnings as the divisor (more)

● The Q Ratio, which is the total price of the market divided by its replacement cost (more)

● The relationship of the S&P Composite to a regression trendline (more)

To facilitate comparisons, I've adjusted the two P/E ratios and Q Ratio to their arithmetic means and the inflation-adjusted S&P Composite to its exponential regression. Thus the percentages on the vertical axis show the over/undervaluation as a percent above mean value, which I'm using as a surrogate for fair value. Based on the latest S&P 500 monthly data, the market is overvalued somewhere in the range of 22% to 42%, depending on the indicator.

Given the 10.77% monthly gain in the S&P 500 in October, it should come as no surprise that all of the indicators are showing increased overvaluation from last month's numbers. However, as I pointed out in my separate Q commentary, the Flow of Funds data on which the Q Ratio based is increasingly stale. The new Flow of Funds report will be released on December 8th, at which time I'll post a Q update.

I've plotted the S&P regression data as an area chart type rather than a line to make the comparisons a bit easier to read. It also reinforces the difference between the line charts — which are simple ratios — and the regression series, which measures the distance from an exponential regression on a log chart.

Click for a larger image

The chart below differs from the one above in that the two valuation ratios (P/E and Q) are adjusted to their geometric mean rather than their arithmetic mean (which is what most people think of as the "average"). The geometric mean weights the central tendency of a series of numbers, thus calling attention to outliers. In my view, the first chart does a satisfactory job of illustrating these four approaches to market valuation, but I've included the geometric variant as an interesting alternative view for the two P/Es and Q. In this chart the range of overvaluation would be in the range of 31% to 54%.

Click for a larger image

As I've frequently pointed out, these indicators aren't useful as short-term signals of market direction. Periods of over- and under-valuation can last for years. But they can play a role in framing longer-term expectations of investment returns. At present they continue to suggest a cautious long-term outlook and guarded expectations.

Source: Advisor Perspectives

James Turk: What You Need to Know About Gold Suppression

from King World News:

With central bank intervention in gold becoming widely accepted as reality around the globe, today King World News interviewed James Turk out of Spain to get his take on central bank interference in the gold market. Turk started by giving a brief lesson on the history of these failed manipulations, “Yeah, it’s an important part of monetary history. It (the London Gold Pool) was established in 1961 by central banks around the world in order to try to make the Bretton Woods system, which had been created near the end of the Second World War in 1944, it was trying to make that system work.”

James Turk continues: Read More @ KingWorldNews.com

The Best Energy Stock You've Never Heard of: MUR

Energy stocks are often wickedly volatile, especially now with all the uncertainty about the economy. Still, long-term returns may be enormous for those with enough patience to ride out the rough patches.

A fine example of this is the stock of oil giant Chevron Corp. (NYSE: CVX). Despite short-term volatility, the stock has done beautifully, posting annual returns of 16.7% during the past three years, 12.1% during the past five years and 10.3% during the past 10 years. One of my favorite energy stocks, Range Resources Corp. (NYSE: RRC), sports annual returns of 29.4% during the past three years, 23.4% during the past five years and 38.6% in the past 10 years, even though shares of the Texas-based natural gas producer have been known to fluctuate wildly.

Because of their long run-ups, Chevron and Range Resources are trading close to multi-year highs. I think they are unlikely to deliver above-average returns for several years, perhaps longer, based on current prices. (I should note that my colleague, Nathan Slaughter, may disagree with me on Range Resources. Earlier this month he recommended this stock for his Scarcity & Real Wealth subscribers -- and it looks like it was a good move. As we go to press, the stock is up about 16% already.) Regardless, plenty of other intriguing buying opportunities exist in the energy sector, though. One mid-cap stock I have my eye on particularly stands out.

The company is Murphy Oil Corp. (NYSE: MUR), an integrated oil company that, like Chevron and Range Resources, has done very nicely over the long haul. The stock has delivered yearly returns of 11.1% during the past 10 years, and 13.6% during the past 15 years. Yet less impressive are the three and five-year returns of 6.1% and 1.8%. The stock has been subjected to periodic selloffs recently, which have hit most mid-caps, including this one, very hard. As usually occurs in uncertain times, many investors have stampeded out of mid-cap stocks and other assets they consider risky and put their money into things they see as safer. But instead of seeing this as a negative, I see this as an opportunity for long-term investors.

In the process of panic selling, investors have dumped shares of perfectly good smaller companies like Murphy Oil, which has seen its stock drop more than 20% in the past three months and nearly 30% year-to-date. But instead of casting the stock aside simply because it's a mid-cap, I recommend closely examining its fundamentals. They show Murphy Oil for what it is -- a high-quality energy company with enormous potential to enrich shareholders.

Indeed, analysts believe the stock is capable of soaring from about $55 per share currently to between $95 and $130 a share in the next five years, a projected gain of 72% - 136%.

These estimates are feasible mainly because Murphy Oil has been doing an excellent job of executing plans to reinvent itself from a United States/United Kingdom-focused firm to one that seeks opportunities in fast-growing emerging markets. (This sort of global presence is something I usually look for in a company because, when done right, it vastly improves the chances of long-term outperformance.) A key part of those plans is divestiture of U.S./U.K. assets -- like the sale of the company's oil refinery in Superior, Wis. to Calumet Specialty Products Partners on July 29 for $475 million. On September 2, Murphy Oil's Meraux, La. refinery was sold to a subsidiary of Valero Energy Corp (NYSE: VLO) for $625 million. In June, the company confirmed plans to sell the three refineries it owns in Great Britain and reportedly already has buyers for one of them.

Moves like these are meant to free up resources for more profitable exploration and production (E&P) projects in high-growth areas such as Malaysia, Indonesia, Iraq and the Democratic Republic of the Congo, as well as in the Gulf of Mexico and Canada. "The fast-growing Malaysian E&P unit centered at Kikeh and Sarawak fields is Murphy's primary near-term growth engine," say analysts at Morningstar. Because it's shifting focus to overseas E&P, the company is expected to raise production immensely -- from 185,000 barrels of oil equivalent per day (boe/d) currently to 500,000 by mid-decade.

It will also continue growing an existing network of discount gas stations, which now number nearly 1,100 and are located at Wal-Mart (NYSE: WMT) stores in 23 states. By allowing the company to draw on Wal-Mart's huge customer base, this alliance gives Murphy Oil an advantage in establishing profitable new gas stations. The company plans to retain enough refining capacity domestically to support these retail operations.

Analysts project earnings will grow quickly in the near-term, jumping 20% between this year and next, from $5.25 to $6.30 per share. Earnings growth is then expected to slow down but remain very solid, averaging 8.5% annually for the following four years. I suspect that estimate is on the conservative side.

Risks to consider: A greater focus on E&P in developing countries may expose Murphy Oil to political turmoil that ultimately hurts profits. Also, delays or disruptions in project startups could hinder growth and profits more than they would for larger competitors like ExxonMobil (NYSE: XOM).

Action to Take --> Although you may never have heard of Murphy Oil, you should consider buying shares if you're looking for a long-term energy holding. The company is capable of outstanding long-term growth and might even be a mega-cap energy giant of tomorrow. Or, at its current market capitalization of $10.4 billion, Murphy Oil may well be ripe for takeover by one of the meg-cap energy firms of today.

BNN: Top Picks

BNN speaks to Charles Oliver, Sr. Portfolio Manager, Sprott Asset Management. FOCUS: Canadian Resource Stocks & Precious Metals


click here to view

U.S. Food-Stamp Use Reaches Record 45.8 Million, USDA Says

The number of Americans receiving food stamps reached a record 45.8 million in August, the government said.

The figure was 1.1 percent higher than the previous month and 8.1 percent more than a year earlier, the U.S. Department of Agriculture said today in a report on its website. Assistance rolls are increasing as joblessness remains at 9.1 percent of the workforce.

Texas had the most food-stamp recipients in August, at 4.12 million, followed by California with 3.82 million, according to the USDA. Spending was a record $6.13 billion.

The number of Americans receiving food stamps under the Supplemental Nutrition Assistance Program has set records every month but one since December 2008.

Gold price recoups losses as Italy’s woes grow

There was further pandemonium in the markets yesterday, as traders came to terms with Greece’s referendum decision, and the fact that Italy appears to be on the brink of a serious financial crisis. The spread between 10-year Italian government debt and equivalent German debt spiked to 459 basis points yesterday, before the European Central Bank intervened – buying Italian bonds with new money in order to stop Italian yields soaring higher still.

As Ambrose Evans-Pritchard reports in the London Telegraph, “the point of no return” for Italy could come when LCH.Clearnet introduces higher margin requirements for those trading Italian government bonds. The trigger for this would be if Italian yields moved to 450 basis points over a basket of AAA benchmark bonds. Yesterday, the spread reached 388 points. Andrew Roberts from RBS notes that Italy’s debt stress is “dangerously close to a level that could cause pandemonium in financial markets.”

The effluence appears to be well and truly hitting the fan as far as the eurozone is concerned, with Italy’s woes placing new European Central Bank president Mario Draghi in a tricky position. Draghi, an Italian, cannot be seen to be acting in a partial manner towards Italian debt – yet monetisation of that debt remains essentially the last desperate option open to the eurozone. As one trader wryly notes in Pritchard’s article, Draghi “better find himself a German grandmother fast.”

The gold price staged a $40 rebound from yesterday’s intraday lows around $1,680 per ounce, and has moved back above $1,730 in trading this morning. Silver has also recovered ground following a move back below $33 per ounce. Gold is holding up better than equities and commodities such as copper and crude oil, with safe-haven buying providing support for the yellow metal. That said, in the short-term, the dash for cash – specifically US dollars – in the face of eurozone problems and concerns about possible bank failures means that gold and silver prices are facing headwinds.

However, over a longer time frame, a slow-and-steady devaluation of the greenback relative to other currencies remains the US Federal Reserve’s chosen plan for dragging the US back to health. With this objective in mind, speculation has been increasing that the Fed may announce the start of another round of quantitative easing later today, following the conclusion of its latest two-day Federal Open Market Committee meeting.

This remains unlikely, however, given the rises in consumer and producer prices in the US in recent months, and the increasing political controversy surrounding “quantitative easing”. Expect instead that Bernanke will reiterate the Fed’s attentiveness to the “threat” of deflation, and that it stands ready to engage in further easing should this be warranted.