Bad Hair Day #WillNeverGoOutOfStyle

When you just gotta go with the flow.

 

Select your favorite caption for this photo.

1.  I always wanted a photo of the eye of a tornado.

2.  Note to self: Buy hair spray.

3.  Anybody got a scrunchie?

4.  Should have gone with a ponytail today.

Enjoy!

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#BeforeTheInternetExisted – There Were #Bubbles

When you just gotta pop something.

 

Select your favorite caption for this photo.

1.  These bubbles are bigger than me!

2.  Can I take one home?

3.  Okay.  How about two?

4.  What is the Internet?

Enjoy!

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Special thanks to Sergei Supinsky of AFP/Getty Images.

 

 

#Jokes4Votes – When You Think You Are In A Bubble

You usually close your eyes.

biggest_bubble_jerome_favre_european_pressphoto_agency

Select your favorite caption for this photo.

1.  I hate getting soap in my eyes.

2.  I hate being surprised when the bubble pops.

3.  I hope this doesn’t ruin my hairstyle.

4.  Crap, I think we are in a bond bubble, debt bubble and a housing bubble, oh my.

Enjoy!

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Special thanks to Jerome Favre of European Pressphoto Agency.

Why GLD Is Bad and GOLD Is Good

Friends, here is why the GLD fund aka ETF is the worst investment if you like GOLD.

gold2confetti

1.  GLD Is Paper Gold

GLD is actually the SPDR Gold Trust Electronic Traded Fund.  It is a promissory note for GOLD.  It is backed by physical gold but the real ratio is controversial.  See

http://www.forbes.com/sites/afontevecchia/2011/11/15/is-gld-really-as-good-as-gold/#7b10e4f93ca1

2.  GLD Is Supported By The Fed Which Wants the US Dollar High and Gold Low

In a previous post, I discussed how the US Dollar and GOLD move in opposite directions.

In that post, I explained that the Federal Reserve wants to keep the dollar high so to do that, it depresses GOLD prices by encouraging the sales of paper GOLD.  See

https://michaelekelley.com/2015/07/20/dear-fed-plz-raise-gold-price/

3.  GLD is a CDO aka Tranche

Remember the Great Recession of 2008?  It was brought on by CDOs and tranches based on bundled mortgages.  GLD is a tranche aka a bundle of paper gold.

Statistics prove that 13% of CDOs before the Great Recession were sold to multiple buyers.  It is like selling an acre of land in Florida multiple times.

https://michaelekelley.com/2015/01/28/remember-cdos-theyre-baaaack/

4.  Paper Gold is rumored to be oversold by 200 times

You need to read this.

http://www.zerohedge.com/news/2015-11-30/paper-gold-dilution-hits-294x-comex-registered-gold-drops-new-all-time-low

5.  GLD Has Lagged Gold Mining Stocks Year To Date

NEM, a gold mining stock, is up 34% from 01/01/2016 to 2/5/2016.

Meanwhile GLD is up only 10% from 01/01/2016 to 2/5/2016.

That is probably because investment companies are avoiding GLD.  So NEM is a GOOD investment right now not GLD.

 

Here are Solutions when a Recession Comes

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

 

Here is Some More Information

Lessons From How The Great Recession Happened and What A CDO Is

http://www.ase.tufts.edu/gdae/Pubs/te/MAC/2e/MAC_2e_Chapter_15.pdf

Good luck!

PS  I own NEM and care about you but I cannot be held responsible for your decisions.

Pick The Bubble Boy Caption

Take a look at this picture.  Can you pick your favorite caption?

bubble_man

Here are the choices.  Please pick your favorite.

1. Whew! It smells like a men’s locker room in here.

2. Is that the edge of the cliff behind me?

3. Maybe someone should have put air holes in this thing.

4. Is my time up yet?  I am more phobic than I thought.

5. Does this come with a barf bag?

6. I am definitely taking a shower and washing my clothes after this.

7. If this thing pops, do I get a refund?

Hope you enjoyed this.

Bubble Gum and Baseball Captions

Here is a whopper of a bubble by Bobby Abreu. Which is your favorite caption?

bubble_gum_bobby_abreu_getty

1. I was hoping to intimidate the pitcher.  Next time I will pop it at the plate.

2. I dedicate this pink rose to my Mom.

3. Let’s see my competition do this.

4. I hope I didn’t scare anybody.

5. I am able to do this because I played trumpet in grade school.

6. Next time I will shave first.  This could get messy.

Thanks to Getty Images, Bobby Abreu and my followers.

Why Another Recession Is Coming – In English

Friends, here is a tutorial on how we got here and how to prepare for the worst.

ssminnow
Easy Money

The Federal Reserve (Fed) offered Quantitative Easing (QE) 3 times.  At first it saved the big banks and the stock market started going up.  But then the Fed kept giving out easy money to the big banks.

Leveraged Loans and Junk Bonds

The banks, that received the QE money, issued junk bonds and leveraged loans that were used for debt creation not real products and services.  Specifically QE went to Mergers and Acquisitions (M & A) and oil investments.  Here is an example.

Richard Baker, chief executive, along with his investment firm, NRDC Equity Partners, relied heavily on borrowed [leveraged loan] money. Of the $1.2 billion that it paid for Lord & Taylor, only $25 million [2%] came in the form of equity, with the remainder made up of debt financing. [The New York Times]

Do you think any of us could buy a house with 2% down? Nope.

New Bubbles

For 2014, three things happened.  The dollar reached a new record high, the Dow Jones hit a record 32 times and leveraged loans went back to 2008 pre-recession levels.  Some economists are calling this a bubble.  Here is a chart to prove it.

See https://michaelekelley.com/2014/12/20/leveraged-loans-predict-crash/

Some Good News

The good news is the stock market is up, gas prices are low and unemployment is back to 2003 levels.

But the Economy Struggles

The economy is struggling for several reasons.  First, the easy money went into debt rather than real products which creates jobs.  Secondly, very little money went into infrastructure which also creates jobs.

And Wage Inequality Is Greater Than Ever

The CEO to worker compensation ratio is 296 to 1 today versus 20 to 1 in 1965.   The rich have gotten richer.  Unfortunately the upper class does not change its spending patterns.  Several studies have proved this despite what politicians say.

So the economy has stalled even though the stock market is up.  Only the middle and upper classes have money to invest in the rising stock market.

Oil Price Drops and Leveraged Loan Bubble Bursts

Oil prices have dropped because of excess supply and over-leveraged oil investors.  For more information see this easy to understand website.

http://wolfstreet.com/2014/12/07/bloodbath-in-oil-patch-junk-bonds-leveraged-loans-defaults/

Solutions for the Federal Reserve and Congress

Here are some solutions because blogs should offer solutions rather than just complain about our problems.

There is still time for the Federal Reserve to pump up the economy by providing funding specifically for infrastructure which will create jobs and kick start the economy.  Also Congress, or better yet, each state can raise the minimum wage.  The economy will only take off if new jobs are created or lower class or middle class people get pay raises.

Here is a list of 7 suggestions that will not soak the rich.

http://www.marketwatch.com/story/7-ways-to-help-the-middle-class-without-soaking-the-rich-2015-02-05?page=1

But if the government drags its feet or does more of the same Quantitative Easing, here is what you can do to prepare for the worst.

Solutions for the Rest of Us

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

Lessons From How The Great Recession Happened and What A CDO Is

http://www.ase.tufts.edu/gdae/Pubs/te/MAC/2e/MAC_2e_Chapter_15.pdf

Good luck!

Would You Pay 39% More Than The Asking Price?

Of course you wouldn’t pay 39% more.  But Pfizer recently did.

gold_coins

New York-based Pfizer (PFE) agreed to acquire Hospira (HSP).  Pfizer will pay $90 per share in cash, which represents a 39% premium to HSP’s closing price from the day before.  The companies put the deal’s enterprise value at about $17 billion.

This is a new definition for insane.

I wonder how much the executives of each company got to approve this deal.  I also wonder who will pay for this.  Hmmm

Here is another similar deal.

Richard Baker, chief executive, along with his investment firm, NRDC Equity Partners, relied heavily on borrowed money when it bought out another company recently.

Of the $1.2 billion that it paid for Lord & Taylor, only $25 million came in the form of equity [2%], with the remainder made up of debt financing, secured by the department store estate. [The New York Times]

When was the last time you bought something with only a 2% down payment?

For more information on the leveraged loan bubble, see this

https://michaelekelley.com/2014/12/20/leveraged-loans-predict-crash

Thanks

Fed Warns of Two Bubbles

Hidden in recent Fed remarks by Yellen, are fears that CDM and CRE are bubbles.

comm_real_estate_2015

CRE stands for Commercial Real Estate. In terms of CRE prices and change, the above chart from Gerdau shows investments across the country are soaring.

For example the General Motors building just sold for an amount that values it at $3.4 billion, the most expensive office building in the United States.

Also William Ackman and other investors purchased a penthouse apartment at One57 in Manhattan for over $90 million, the highest price ever paid in New York City, as an investment to flip for a profit.

The CRE bubble did not burst in 2008, but evidently is bigger now.

corp_debt_mkt_2015

CDM stands for Corporate Debt Markets also known as Debt Capital Markets. In terms of CDM, the above chart by Dealogic, dated February 5th, 2015, shows a 30% increase in the spread for the year.

Specifically, the average spread to benchmark on 30-year global debt issuance peaked at 193bps in January 2015, a 30% increase on January 2014 (148bps), marking the highest monthly average benchmark spread since October 2009 (206bps).

Here is exactly what the Fed minutes said on 2/19/2015.

“However, the staff report noted valuation pressures in some asset markets. Such pressures were most notable in corporate debt markets (CDMs), despite some easing in recent months. In addition, valuation pressures appear to be building in the CRE sector.”

At least the Fed is aware of the bubbles and not totally focused on interest rates.

 

Home Equity Bubble To Burst

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.