$5T+6×0% = -4.75%

Confused by the title?  Doesn’t seem to make any sense?  Wonder how mathematically it can be true?  Well it is so let me explain.  Prior to the collapse in the fall of ’08 S&P Real Sales were $1200 per share.

We then had the fall out from years of financial idiocy.  A fall out that was predicted by several prominent experts including Ron Paul who spoke to congress on several occasions as early as 2001.  In that speech to congress Ron Paul explains to congress that the every minority own a home program that started under the Clinton administration and continued through the Bush years was going to end in disaster.  He rightfully explained that the effect would be overvalued home prices leading to mass consumption on credit ending in a crash of all assets taking the economy with it.  So it was absolutely predictable and the right people who needed to hear that did hear that but chose to ignore that.

These same people who decided to ignore the warnings were the same folks that stepped up to fix the problem they created.  Well the strategy they implemented for recovery actually killed any chance of a recovery and you can see my proof in the article I wrote over at Voices of Liberty.  But we can see it another less complicated way.  Namely, in real sales.  Remember sales equates to consumption and it is much more difficult than earnings to falsify by corporations.  So let’s take a look at real sales for the S&P 500 companies, which is generally considered the overall market.

S&P 500 Real Sales Chart

The disturbing truth is that despite all the cheering about all time high stock prices and profits these have not come by way of a strong consumer.  Sales (otherwise known as consumption) have actually declined since mid 2008 in real terms (so adjusted for inflation).  Note that Profits = Sales – Costs.  If profits went up but sales went down it means the profit growth we keep hearing about has come by way of cost cutting i.e. job cuts.  And that doesn’t sound as great as the pundits are suggesting.  The reality is that real sales have declined by -4.75% and that is despite the Fed having printed $5T dollars and holding interest rates at 0% for 6 years now ($5T+6×0%=-4.75%).  If you figure in that the population grew by 5% over that same period you have almost a 10% decline in sales per capita. So you ask what did we get from all that money printing and interest manipulation?  Although the Fed policy is not generating any economic growth it did manage to double the nations debt from $9T at the beginning of ’08 to about $18T today not to mention the plundering of interest income for retirees.

So to wrap this up I wanted to show how ineffective the Fed has been.  Since 2000 the Fed has created 3 bubbles and 2 economic crashes.  That leaves us one crash short.  Well I’ve been talking about the coming crash and it is nearing.  Volatility has been spiking.  The amount of down days over the past couple weeks is outnumbering the amount of up days almost 2:1.  Over the past 18 months the reverse was true.  Today short bids (betting on market decline) out numbered long bids (betting on market rise) 7:1.  Billionaires are sitting on an aveage of $600M in cash meaning they have now left the market.  Guys like George Soros have put on their largest bets against the US market in history.  In fact, the volumes right now are so low it appears the only buyer remaining in the market is the Fed itself.

I would suggest those of you who are listening to the market pundit euphorians talk about a 10 year bull run to take a step away from CNBC for a while, take a look around the economy, take a deep breath and figure out just how much risk you want to take.  Because risk is ripe right now.  6 years ago most folks lost huge amounts of their wealth and six years before that it also happened.  Wouldn’t it be prudent to protect your money this time around before the crash and then pick up cheap assets with your cash after it all goes tits up.  You’ll make much more than the potential 3% you might give up to the upside by staying in the market.  Investing is all about your risk versus your return and right now there seems to be a great deal of risk for a little bit of return.