Category Archives: Consulting

Leveraged Loans Predict 2015 Crash

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Multiple charts exist which predict another recession soon!

us_overleveraged_201501

 

Normally I am a very positive person.   But recently I found not one but two charts which show we could have a repeat of the recent Great Recession.

The first chart above shows how the Federal Reserve and Quantitative Easing have allowed financial institutions to run wild again.  In summary, leveraged lending is out of control.   For two years, leveraged loans have risen as fast and to a greater level than 2007, the year before the Great Recession.

The New York Times reports that leveraged lending is greater and the associated rules more lax than in 2007.  Here is a portion of a news report.

What can’t be denied, however, is that standards in the leveraged loan market have become much looser in recent years. The companies that have taken out the loans are on average much more indebted than in recent years. Companies that have done deals this year have debt that is 4.9 times as large as their annual cash flows, measured using earnings before subtracting expenses like interest, taxes and depreciation, according to data from Standard & Poor’s Capital IQ. That multiple is up from 3.9 times in 2011 — and it is the same as the number for 2007, when the last boom in leveraged loans peaked.

This time around, however, one aspect of leveraged lending is much more aggressive. The special provisions within loan agreements that were once thought crucial for protecting creditors are fast disappearing. So far this year, 63 percent of leveraged loan deals lack such provisions, far higher than 25 percent in 2007, according to data from S.&P. Capital IQ. “Contractually, things are really at their weakest,” said Christina Padgett of Moody’s Investors Service.

You can read more details at one of these websites:

http://dealbook.nytimes.com/2014/11/04/a-recent-surge-of-leveraged-loans-rattles-regulators/?_r=0

http://www.zerohedge.com/news/2015-04-09/oil-hedges#comment-5977321

http://www.bloomberg.com/news/2015-01-06/private-equity-deals-spur-leveraged-loan-surge.html

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A second chart shows that recent Dow Jones record increases also occurred in 2008.

http://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_Dow_Jones_Industrial_Average

Unfortunately 10 out of 20 increases of 400 or more of the Dow occurred in 2008, the year of the last recession

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Can another Great Recession be stopped?  No.  Apparently the Federal Reserve did not act fast enough nor aggressive enough in 2014 to stop the out of control leveraged loans.

To protect yourself, read this website:

https://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

Thanks for reading this.

First Google Cars Will Be Free

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That’s right!  How about a free car?  But how is that possible?

google_car2

Remember when newspaper websites were free in the beginning?

That is because of all the advertisements.

With the Google Car you will have lots of time to see – ads.  And these ads will be displayed non-stop in the virtual reality space right in front of you.

The good news is this means the end of all those ugly billboards! You know like the 300 foot high ones between Atlanta and Macon, Georgia.

Finally our civilization has moved beyond billboards!

8 Things To Do When Recession Happens

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Yeah it is not a matter of IF but WHEN the next recession will happen.  Sorry.  You could go ride a roller coaster to get your mind off of it.  Or you could do these things.

rollercoaster

Recessions occur every 4 to 8 years in a society with capitalism and little regulation.  And since the last one was in 2008….

Here’s what you should do.

1. DON’T PANIC – Stay calm.  Most people will be doing one thing – panicking. You won’t.

2. THINK, THINK, THINK – Be smarter than the rest. Know when to sell, when to buy and, like Kenny Rogers, when to hold.

3. SET UP ALERTS – Get an E*Trade or other brokerage account and set up messages when Dow (DJIA) goes up 3% or goes down 3% in a day.

4. RECALIBRATE AT NOON EASTERN TIME – If you have time, think about your next sell or buy of what and for how much before the market closes.

5. IF UP, SELL – When there is a jump up in stocks, sell your stock and funds 25-35% at a time.  You may have to wait to use the money.   Time is on your side.

6. IF UP AND GOLD IS DOWN, BUY GOLD – Gold usually moves opposite of stocks, so buy gold or gold mining funds such as NEM which will move up when stocks crash.

7. IF UP, BUY SHORTS – Shorts are stock buys that you expect to go down.  Pick losers on purpose.  Also choose bearish ETFs such as PILS and TECS that rise if the stock price of pharmaceutical or tech companies goes down.

8. IF DOWN, WAIT – Remember we agreed to not panic.

There will be four 400+ gains or losses of the DOW before a recession happens.  Anybody can take advantage of them. And I know you will. (There have been 4 days in August and September 2015 with over 400 point ups and downs.)

Or you can go ride a roller coaster to get your mind off of the market’s ups and downs.

P.S. I care about you, but can’t be held responsible for your results.

Revised: 04/10/2016 DUG is volatile since oil producers are considering fixing output quantities.

Warren Buffett Is Completely Wrong About Clinton

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Warren may make great stock picks but he is not a politico.

buffettand hillary

Buffett has announced that Hillary Clinton will win the 2016 Presidential Election.

Not gonna happen and here is why.

 

His prediction is based on the list of divisive Republican Presidential candidates which has no standout candidate.  That much is obviously correct.

But his prize candidate, Hillary Clinton, has tons of baggage which will eliminate her.

First off she is too closely aligned with Obama who picked her as his Secretary of State.  Second, she has a black eye for messing up Benghazi as she left the State department.  Third, she is not known as a champion of the working class.  And fourth, she is aligned with old politics and business as usual.

What does this mean?  Americans are ready for change and the new majority of millennials and generation-x folk are looking for a new hero/heroine to lead the United States to the next level of hope and greatness.

Who can rise to the occasion?  Elizabeth Warren can.

elizabethwarrenShe fought harder than anybody for regulation of out of control banks. Elizabeth is not considered establishment.  She has a proven Congressional record of making progress not suppressing it.  Elizabeth fights for working class people.  And she is not aligned with Obama.

So Elizabeth Warren will be the next President of the United States.

Warren Buffett is not exactly winning when it comes to politics.  He picked Hillary in 2008.

Wall Street Goes Frothy – No Not Starbucks

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I am talking about huge swings in the market.

swing

No, not that type of swing.  I am talking about the huge daily changes in market value.  See the chart below courtesy of bigcharts.marketwatch.com.

djia_frothy

Specifically, this chart shows huge daily changes in the Dow Jones Industrial Average (DJIA) during the week of Sept 22-26.

Monday 9/22 down 105

Tuesday 9/23  down 100

Wednesday 9/24 up 150

Thursday 9/25 down 250

Friday 9/26 up 167

The summary is the market is frothy.  Why?  Because the QE3 is winding down, the economy is still struggling and the financial sector has been over stimulated.  Thus there is a lot of nervousness.

The conclusion: we are overdue for a big correction.

Human Wheel Desk for Ultimate Multitaskers

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They say what goes around, comes around.

human_wheel_desk

Now you too can simultaneously work out and work in your home office.

Ultimate multitaskers can finally burn those calories and burn the midnight oil.

While we are on the subject of humans, take a look at this blog.

https://michaelekelley.com/2014/09/19/why-humans-are-more-important-than-workplaces/

Thanks

Central Bank of Central Banks Warns Of Crash

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The Bank for International Settlements, BIS, warns that silence is NOT golden.

golden-gun-hd-wallpapers

The BIS has been warning for years of the dangers of very low interest rates.

“A common mistake is to take unusually low volatility and risk spreads [aka silence] as a sign of low risk when, in fact, they are a sign of high risk-taking,” said Claudio Borio, head of the monetary and economic department at the BIS.

Borio added that the last time uncertainty was this low was in 2007 — just before one of the largest forecast errors the economics profession has ever made [aka Great Recession].

Now the BIS has warned the world again.  This time with specifics.

The BIS said 55% of collateralised debt obligations (CDOs) now being issued are based on leveraged loans, an “unprecedented level”. This raises eyebrows because CDOs were pivotal in the 2008 crash. “Activity in the leveraged loan markets even surpassed the levels recorded before the crisis: average quarterly announcements during the year to end-September 2014 were $250bn,” it said.

See the following link for more information.

http://www.marketwatch.com/story/low-volatility-is-a-sign-of-high-risk-taking-bis-official-says-2014-09-14?siteid=nwham

Does the BIS have to get out its big guns to make its point?

Retirement Plan That Mutual Funds Do Not Want You To See

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Social Security is a blessing in disguise.  It is the one thing that Congress does not dare cut.  It is the one benefit millions of Americans count on for retirement. It is a hole in one.

retire_golf_man

Many people could retire if they withdrew their pensions and 401Ks early and delayed getting Social Security until they are 71.  That is what Mutual Fund Companies don’t want you to know.  That is because Social Security payments can increase 8% a year if you wait.  And withdrawing from 401Ks reduces Mutual Fund Company profits.

But do not take my word on this great secret.  Here is an article from the former President of Boeing Aerospace that agrees with delaying the collection of Social Security benefits until the age of 71.

http://www.marketwatch.com/story/how-to-profit-from-social-securitys-quirks-2014-08-07

Here is another one from a USAToday Personal Finance Journalist recommending you use your 401K before Social Security.

http://www.usatoday.com/story/experience/weekend/lifestyle/2014/10/30/use-401k-before-social-security/18008107/?csp=managingmoney

Free Ultimate Retirement Spreadsheet

An easy to use spreadsheet has been developed that can help you calculate your future retirement.  Just fill in a few boxes and your future income, taxes and net worth are automatically calculated.

retirement_spreadsheet_input

If you want to change the start and stop dates, just change the values in a few boxes.  Adjust the values all you want and as many times as you want until the ultimate retirement is right before your eyes.

This valuable yet free spreadsheet even takes into consideration the 50% tax if you earn more than the maximum income Social Security allows. No other calculator does this for you!

How To Get This Powerful Free Tool

Simply fill in the following form and this Ultimate Retirement Spreadsheet will be sent to you.  We will NOT sell your email address and we will NOT flood you with stupid offers.

So do not waste another minute.  You could enjoy retirement sooner than you think.

Go back

Your message has been sent

retire_tennis_women

Results may vary and are not guaranteed due to changes in inflation and tax laws.

Home Equity Bubble To Burst

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Homeowners, that are PAYING ONLY INTEREST, are in for a shock.

home_equity_bubbleMany people bought homes during the crazy days before the Great Recession.  Many of them have been paying only interest on those mortgages.  Now their payments are about to jump up to include the principal.  Many people will have their house PAYMENT DOUBLE!

The number of homes involved constitutes a bubble as seen in the graph above.

For 2014 about $22 billion worth of homes are involved in home equity loans.  If the average house is $215 thousand, then that means a little over a 100 thousand homes are involved.  That is about 2.5% of the current home sales.

For 2015 the amount of home equity loans involved doubles from the previous year.  Thus over 200 thousand homes could be involved or about 5% of current home sales.

This could result in a lot of foreclosures again if they are not refinanced.

Then with Quantitative Easing ending by January 2015, we could see a return of cash payments to normal levels which could result in a 10% drop in home sales.

The 5% increase in home inventory combined with a 10% drop in buyers could be a double whammy to the housing recovery.  Let’s hope for the best.

Another Shocking Chart Predicts 2014 Crash

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Multiple charts exist which predict another recession this year!

net_margin_bubble

Now, I am normally a very positive person.  In fact my first post for the new year was very hopeful.  But recently I found not one but two charts which show we could have a repeat of the recent Great Recession.

The first chart above shows how the Federal Reserve and Quantitative Easing have allowed Credit to run wild again.  In summary, the Net Margin (Credit minus Debt) is out of control.   For the past year it has risen as fast and to the same level as the year before the 2008 Great Recession.  Daniel Fisher of Forbes reported this as found by Ricardo Ronco of Aviate Global.  Ronco says, “…equities are running away from borrowing levels.”

How do we fix this bubble? We convince the Federal Reserve to issue loans to cities and states rather than financial institutions that only buy stocks and bonds. Cities and states will use the money for infrastructure which will create jobs.

Here is another prediction for the S&P 500 to drop 30%.  See http://blogs.marketwatch.com/thetell/2014/04/03/sp-500-will-peak-around-1900-to-1950-then-drop-30-saxo-bank-strategist/

But based on the above chart, I predict a drop of 50% not merely 30% in the S&P 500.

scary_djia_chartThe second chart above shows how the Dow Jones Industrial Average (DJIA) is the same as 1929.   It has followed almost identically as it did in the years leading up to the Great Depression in 1929.

Big name investors like Warren Buffet and George Soros have cut their stock investments or shorted the market.

If another Great Recession occurs, riots will take place that are greater than the Occupy Wall Street demonstrations and President Obama will face impeachment.

Can another Great Recession be stopped?  Yes, the Federal Reserve can take two actions.

1. Put restrictions on QE funds to minimize leveraged lending.

2. Stop issuing QE funds to institutions that use “expected rent” as collateral.

You can make a difference by voting for the following White House Petition.

wh.gov/lQLCi

Thanks for reading this.