TIVOLI, New York – Chinese stocks fell hard yesterday.

The Shanghai Composite plunged more than 6% – the biggest fall in three weeks.

Our research team in Beijing is downcast.

“Nobody here wants to hear about stocks,” they tell us.

And the junkiest – and riskiest – part of the U.S. bond market has taken a dive too.

Here’s that chart of the big U.S. junk bond ETF that Chris highlighted in yesterday’s Market Insight. It has completely rolled over this year…

081815 DRE HYG

Meanwhile, U.S. corporate earnings have plateaued.

And according to Deutsche Bank’s David Bianco, earnings are actually falling when you exclude companies’ slick accounting adjustments to “smooth” their numbers.

The only thing left propping up Wall Street stocks, as we explained yesterday, is insider trading.

Retail Rot

Recent sales figures from America’s retailers show how deep the rot has become.

Sales have been rising at an alarmingly slow rate – just 0.5% since 2007.

Between 2000 and 2007, they went up four times as fast. In the 1990s recovery, they went up six times as fast.

Especially rotten are sales at America’s four largest mall retailers – Macy’s, Kohl’s, Sears, and JCPenney. Together, their sales are falling at a 10% rate per year… or four times faster than the fall in department store sales generally.

What is interesting about these four companies is that they have been among the most aggressive of the stock market manipulators.

Between 2005 and 2014, they earned a combined total of $13 billion. But their top execs spent $34 billion deceiving investors about the true value of their firms, by way of share buybacks, pocketing billions for themselves in the process. (More on how this works below…)

If you’re counting on the markets to reveal the right price for a stock, you may have a long wait.

To paraphrase Lord Keynes, the cronies can falsify the data longer than you can remain solvent.

A Rigged Market

The Fed rigs the bond market. The cronies rig the stock market.

Here is how it works…

The C-suite cronies buy shares of their own companies in the open market and then cancel them. This increases the earnings per share of the remaining shares, pushing up their value. In turn, this makes the cronies’ stock options more valuable… triggering big bonus payouts.

Bearish money manager John Hussman at Hussman Funds elaborates:

Screen Shot 2015-08-19 at 11.55.01 AM

The cronies wouldn’t be able to rig stock prices to the same extent without the feds’ ultra-low interest rates.

Putting the price of money below what 19th-century Swedish economist Knut Wicksell called the “natural rate” – the rate of return on capital – turns every number in capitalism into a lie.

Overdoing It

Look what has happened to retail space…

Do you remember 1990?

There was no shortage of places to spend money. But in retail – as in dot-coms, houses, mortgage-backed derivatives, oil, and commodities – cheap financing makes overdoing it irresistible.

Retail space has doubled since 1990, even though household income fell. We now have about the same household buying power as the Germans… and four times as much retail space per person.

What are they going to do with all that space?

Mall vacancies were running at about 5.5% a year in 2007. Now, they’re running at more than 9% a year.


U.S. households are still wary of taking on debt. According to figures from Bloomberg, the level of overall household debt remains 6.5% below its peak of $12.7 trillion reached in the third quarter of 2008.

That leaves corporate America and Washington to keep the credit bubble inflated.

Only government and corporations are willing to keep pouring good money after bad, in other words. Small wonder. It’s not their money!

Yes, dear reader, consumers have pulled back. The median household income has fallen, in inflation-adjusted terms, since the 2008 financial crisis.

Without wage rises, households can’t increase spending – except by going further into debt. And they saw what happened to them the last time they did that.

So, that leaves the feds… and the corporate sector.

A gridlocked Washington doesn’t seem to be taking its responsibility very seriously. Deficits have gone down to just 2% of GDP. That’s equal only to about one-fifth of the 2009 fiscal stimulus package.

As for monetary stimulus, it’s gone way down, too. After expanding its balance sheet by about $4 trillion, the Fed’s QE is on hold. Of course, a fair amount of liquidity leaks in from Japan, Europe, and China… but not enough to keep this credit bubble fully inflated.

That leaves Wall Street running out of time… and money.

Risky corporate bond yields are rising… and stocks are beginning to roll over.

The cronies are taking advantage of the summer lull to rig the markets… but it might be the last time for this go-round.





Are gold miners bottoming?

Today’s chart is of the Market Vectors Gold Miners ETF (NYSE:GDX). This tracks the performance of a broad basket of leading precious metals mining stocks.

After getting absolutely shellacked in 2015 – a nearly 43% peak-to-trough plunge – the tide seems to be turning in favor of the gold miners.

081915 DRE GDX

As you can see above, after hitting the year’s low of $13 a share on August 5, GDX is now selling at $15.17 a share – a nearly 17% increase.

P.S. If this is the kind of bottom in gold miners we saw in 2001 and 2008, the next market phase could be a huge surge for precious metals.

Our friends at Casey Research specialize in precious metals research. They’ve put together a brief presentation for Bonner & Partners readers explaining everything you need to know about what’s next for gold… and how you can profit in the next bull run.

Click here to see the short presentation, before it is taken offline.

Featured Reads

S&P 500 On Track for 2015 Buyback Record
The companies in the S&P 500 are poised to spend more than $1 trillion on buybacks and dividends in 2015, shattering the record set last year, according to a new report.

Top Bond Guru: Fed Rate Hike Will Open Pandora’s Box
Bond manager Jeff Gundlach warns that if the Fed starts to hike rates next month, “it opens the lid on Pandora’s box of a tightening cycle.” And he says junk bonds are particularly vulnerable…

Legalizing Marijuana Does Not Increase Use Among Teens
A nationwide study of 24 years of data from over one million Americans has found no evidence that legalizing marijuana for medical purposes leads to increased use among teenagers…


Your comments keep coming in response to Bill’s issue on the curse of modern technology.

Your letter reminded me of a story my mother told me. She was born in Co. Donegal, Ireland, in 1928 and grew up during the Great Depression.

From the age of six onwards, my mother spent a week every summer with her aunt, who lived on the coast about 30 miles away. There was a direct train line linking the two towns. My mother’s aunt lived outside the town several miles from the station, but the train passed very close to her house on its way into the town.

When my mother was expected, her aunt informed the stationmaster. That evening, the train would stop behind her house to let my mother off. And a week later, when my mother was going home, the train would stop to pick her up.

One cannot help asking if we have lost more than we have gained.

– D.B.

About four years ago, my wife and I purchased a small cottage in the mountains (okay… hills) west of Winchester, Virginia.

It was a wonderful find for us in terms of style and privacy. What REALLY sold us, though?

This location was off the information/technology grid. Yes… we had all the accoutrement of modern life – heating, A/C, hot water, electricity, indoor plumbing (although we did build an outdoor shower), a well providing wonderful freshwater and privacy on quite a few acres – but only the sounds of the forest around us.

Quiet – how peaceful it is!

What the cottage DIDN’T have, though, was any connection to the outside world via technology – no cable, no Internet, no mobile phone service, no landline either. No service of any kind – period! The only things we could view on TV were DVDs we brought with us for our stay.

We had good old-fashioned radio reception in case we needed to hear about some “crisis” in the world. It took some time to get used to! We found ourselves (out of habit) grabbing our cellphones to listen to voice mail and hitting our laptop to check email – all to no avail!

Once we adjusted to this radical change of life, we found ourselves reading more, spending time outside (imagine that!), and just recapturing more peaceful moments in our lives.

We slept better each night – maybe because there were fewer daily distractions to ponder as we tried to get to sleep.

It’s become our fortress of solitude, a place to clear the brain, as close as we can imagine to Utopia!

– Paul V.

Do you have a story to add about how you’re personally dealing with the intrusion of modern technology into your life?

We’d love to hear it. Write to Bill and the team at[email protected].