The best financial advice anyone will give you in 2016

From my Facebook post:

Very few times in my life have I held such strong conviction that I was right, despite the vast expert opposing view. The last time was in 2008, when the financial world melted down like nothing we have seen since 1929 and the Great Depression. The experts had the audacity to claim “nobody” saw the crisis coming. In corporate speak, we call that CYA – cover your ass. A synonym for bullshit. The signs were obvious and everywhere. 

The time before that was in 2000, during the height of the internet frenzy and bubble. Experts were surprised at that one too. C-Y-A-Exclamation point. New companies with no viable business model, no profits or revenue, valued at billions of dollars – how could anyone with at least 3 brain cells be surprised it all crashed?

Today we have built up a situation globally that is like the 2000 internet bubble, plus 2008 debt bubble, times 10. Today we disguise the internet technology bubble. Instead of companies going IPO, we have dozens and dozens of even more absurdly valued tech startup companies – funded through private capital and Fed easy money policy. They call these private companies valued at over a billion dollars, unicorns. It’s fitting because unicorns are fantasy. They don’t exist, just as 99% of these companies will be in a few years.

If I have one piece of financial advice for you folks, never listen to the financial “experts”. It is fact that concensus economist’s opinions have never been able to predict a single recesssion coming since WW2, including the US Federal Reserve and IMF. Pretty sad record. If they were a Premiere Football League team or coach, they would have been fired decades ago. But this is government and institutions. Why people place such undeserving faith in these types of institutions is a mystery I will never understand. It makes understanding the cosmos seem trivial by comparison.

I have been saying for months a recesssion will start in the first half of 2016. The trends are as clear as ever. Don’t be fooled by the strong US employment report from Friday – employment is a terrible lagging indicator and recesssions start at peak employment strength. 

There is going to be a lot of pain, for a lot of people. So be careful. Save your money. Or learn how to profit from the chaos.

I have hundreds of reasons (literally) why I believe I’m right. I say this not to boast but to warn. I will list a few of the first order indicators below:

– Today’s global central bank stimulated economy has created more bubbles worldwide than at any time in human history. The sense of a bubble is being masked by erroneous metrics based on non-statistically possible trends or sustainable conditions. This is the greatest aggregate bubble in human history by any metric. It’s no surprise when you print trillions and trillions of new dollars out of thin air and try to give it away for free at 0%, and say, we want to increase all asset prices, everywhere.

– Bubbles in real estate and housing, stock markets (still), private bond markets, goverment bond markets, private equity. Commodities were in a bubble and started crashing a year ago. It’s been catastrophic. But this is the sign of more things to come, the canary in a coal mine. The remaining bubbles will lag and begin to crash in the coming days and months.

– Global trade fell faster and greater than at any other time in modern history last year, second only to 2009, due to the financial crisis. The oil prices near $30 isn’t bullish for anything. The benefits to the consumer with lower gasoline prices is dwarfed by the negative global consequences to investment, corporate profits, sovereign nations financial health and social stability. 

– China has to unwind their historical record debt. It starts this year. The markets are forcing Beijing’s hand, initially through a stock market collapse, subsequently through a weakening yuan currency, which even Beijing’s $3.3 trillion in remaining cash reserves are powerless to stop (it used to be $4 trillion). They wasted  $500 billion trying to prop up the yuan last year, with an accelerating trend, spending $108 billion just in December. In one year they would bankrupt their foreign reserves, since they need to maintain at least $2 trillion of foreign currency reserves just to be able to trade with other countries. The epic bubble will collapse. It must. It doesn’t matter what Beijing does.

– US gasoline demand, which I track weekly, collapsed in December. It is now well below 2014 consumption levels. This is a terrible indicator. Even with falling domestic gas production and imports, inventories rose far more than anyone expected – because demand collapsed. Nothing happens in the economy without gasoline and energy. 

– Freight traffice (trains, trucks) that move every kind of goods for our economy is sharply down. If products and goods aren’t being moved from factories to stores, it signals end demand is weak.

– Corporate earnings have been in decline since mid-2015. Earnings are the fundamental driver of stocks. The declines have been accelerating and expanding into far more sectors beyond just oil and commodity related companies. This coming quarter earnings announcements for the just completed Q4 will be down even more.

– High yield corporate default rates and sharply rising junk bond yield rates. Stress and risk is rising exponentially in a fragile intertwined system. The sub-prime housing crisis that precipitated the global financial meltdown in 2008 was small by comparison and numbers to the exposure today. 

– Rising dollar denotes global risks everywhere else. Dollar based loans in the trillions of dollars in emerging markets such as Brazil will not be repayable as the payments get more exensive, refinancing is not an option any longer, and their economies are collapsing, at a time of rising inflation in these emerging markets due to the currency weakness. 

Don’t be fooled by the media’s descriptions or excuses for why stocks are falling now: Chinese stock circuit breakers, the Fed raising rates by 0.25% from zero, warm weather, strong dollar, yada yada. These are merely the magician’s tricks. The story is much deeper and far more fundamental. 

I’ve written in great detail (outside of Facebook) about the complex global economy and the gross warning signs that are flashing red. You can choose to ignore my advice. Or you can prepare and benefit.

I wish you all well. Be very careful this year and next!! This isn’t going to be a plain vanilla recesssion.