The Mike Larson's talk was entitled "The Everything Bubble: Causes, Consequences and the Case for Gold" Mike Larson is Editor of the Safe Money Report.
Druckenmiller got out of the market in May 2016. In June 2016 Bill Gross said that global yields were the lowest in 500 years. Jeff Gundlach in July 2016 said exactly how Mike Larson he feels and he says sell everything. Paul Singer on September 13, 2016 says it us a very dangerous time in the global economy and the global financial markets. This is the Everything Bubble. It is why managers with tens of billions of dollars at stake are so gloomy. They know what we face.
The problem is cheap and plentiful credit. The source is the Central Banks. Cheap dollars help assets. We are at the end game. IPOs in the US in the first half of 2015 had 15 corporations raising $13Billion; M&A's in the US was at $2.6Trillion. Buybacks was at $569Billing in 2015. This was all fueled by debt.
The Junk Bond market has exploded as money is cheap. For the Auto Industry in 2015 17.5 million vehicles were sold and Auto debt hit $9Tillion in the third quarter of 2015. A record 23% of the loans have been going to subprime. Average car loan is 68 months. A record 31% of Auto loans are underwater. Leasing market shares some 31.4% of new sales.
Real Estate commercial property prices have soared 95% eclipsing the 81% surge in the last bubble. REIT's has 34 M&A deals in 2015 doubling the 2014 tally. We have a higher peak in Real Estate that when the bubble burst in 2008.
One by one the bubbles are beginning to deflate. Signs are emerging of a turn in the credit market. For Autos in August 2016 incentives rose 8%, Sales dropped 5% and inventories are high.
There were no IPO's in January 2016 (and also none in December 2008). There were only 63 IPO's through to August 2016 and this is down 50% year over year. Private equity firms are choking on sinking investments. The easy credit systems are breaking down.
Venture capital funding dropped 19% from Q2 2015. Some companies are lying off workers and some are going broke. M&A has some transactions but in Q2 the values are down 33% year over year. Earnings fell 3.7% in Q2 and have been dropping for 6 straight quarters. This is the longest stretch from the Great Recession. There is negative profit guidance for Q3 of 2016. Buy backs are down 3.77M this year. You cannot buy back shares if you do not have the money. We have the widest debt to EBITDA gap in 20 years.
Commercial Real Estate investment is down 13% year over year. Industrial Real Estate is down 47%, Hotel Real Estate down 57% and retail down 21%. Banks are lightening Commercial Real Estate loan standards. Construction employment is down 4 of the last 5 months. This is the first time since the end of the housing bust. Apartment market is now the loosest since January 2014. The last time this happened was in January 2010.
Stock margin debt on the NYSE peaked at $507B in April 2015. It fell to $435B in February 2016. This was the third major top since 2006. Value is extreme in the S&P500 with a P/E Ratio of 18.6. Investors want out of US Stock funds.
How will the Everything Bust impact growth? August job gains of 151,000 missed the forecast of 180,000 of the Fed. Broader labor market indicators dropped 6 of the last 7 months. Service Sector growth falls to lowest in 6 plus years. The investment implications are higher cash and lower stock exposure. We should stay cautious. We should emphasize low volatility, higher recession resistant stocks and sectors.
The best long term acquisition is Snyder's-Lance Inc. (NASDAQ:LNCE), AT&T Inc. (NYSE:T) and Logitech International SA (NASDAQ:LOGI). Logitech's EPS and Revenues beat estimates. Shorting ideas would be Ford Motor Company (NYSE:F), Delphi Automotive PLC (NYSE:DLPH) a parts supplier and
iShares U.S. Real Estate ETF (NYSE:IYR). REITs are vulnerable to rising interest rates, Recession and overvaluation.
What about Gold? It is great as chaos insurance. Buy in a bust. It is also a yield play because in a ZIRP/NIRP world there is $13Trillion in bonds with negative rates. Total demand for gold rose 15% year over year in Q2 2016. Investor demand soared to 448 tones up 141% year over year. Buy miners on pull back. If gold clears $1400 the potential exists for runs to 2011 highs near $2000.
Expect stock market volatility in 2016 and 2017. Buy the physical metal over negative rate sovereign and corporate bonds. He is bullish on gold.
The Bank of Japan just does not know what to do any more.
Go to his website for a free weekly newsletter.
On my other blog I wrote yesterday about Kombat Copper Inc. (TSX-KBT, OTC-PNTZF)... learn more. Tomorrow, I will write about Canadian Pacific Railway (TSX-CP, NYSE-CP)... learn more on Friday, October 21, 2016 around 5 pm.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.