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W. E. Messamore

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The BLS revealed CPI jumped in August as Jerome Powell announced a 2 percent-plus inflation target. Alan Greenspan warns it will get out of control.

  • The Bureau of Labor Statistics revealed Friday that CPI, its measure of consumer inflation, ticked up in August.
  • On Thursday, former Federal Reserve Chair Alan Greenspan joined a growing chorus of economists warning of inflation ahead.
  • Billionaire hedge fund manager Stanley Druckenmiller, who worked for George Soros, says we have a five-year inflation hangover coming.

This week’s brutal equity selloff might be leaving some investors with buyer’s remorse. The Dow Jones and S&P 500 Index declined sharply last week, with the Nasdaq entering correction territory as tech shares plunged.

But if a growing chorus of inflation warnings are on the money, it will be all of us who pick up the tab with rising costs of living. And the chorus includes some of the most well-regarded authorities in financial markets.

Alan Greenspan warned in December that inflation would “inevitably rise” as federal deficits balloon. This followed months of alarming yield curve inversions in U.S. Treasury bonds. He also stood by previous statements that the U.S. faces stagflation ahead and that Washington finances look “downright scary.” Watch:

This was before Congress, the Treasury, and the Federal Reserve joined together this year to stomp deflation. They made Bush, Obama, Pelosi, Paulson, and Bernanke look AWOL by comparison. Trump, Pelosi, Mnuchin, and Powell launched a preemptive strike of unprecedented fiscal and monetary magnitude.

The 2009 ARRA was $787 billion when Bush signed it (creeping up to $831 billion). The 2020 CARES Act starts at $2 trillion. White House chief economist Larry Kudlow revealed that the Fed is deploying a $4 trillion intervention in financial markets. We’re living in the blast of history’s mother of all emergency stimulus bombs.

Meanwhile, things are just as dovish across the pond, with the European Central Bank as worried about deflation as the Fed.

Former Fed Chair Alan Greenspan Warns: “Negative” Inflation Outlook

On Thursday, Former Federal Reserve Chair Alan Greenspan joined CNBC’s “Squawk on the Street” to discuss the future of consumer prices.

In the rare television interview, Greenspan warned that inflation is now a looming threat. He blames ballooning federal budget outlays for hogging up financing that could fuel GDP:

My overall view is that the inflation outlook is unfortunately negative and that’s essentially the result of entitlements crowding out private investment and productivity growth.

Hours later, the Bureau of Labor Statistics revealed CPI ticked up in August. Last month, Jerome Powell announced the Fed is willing to overshoot its inflation target of 2%.

Greenspan’s predecessor, Paul Volcker, famously tamed soaring levels of inflation with high interest rates. In the late 1970s, the U.S. experienced severe inflation while the economy was contracting. This “stagflation” shocked many mainstream economists who didn’t believe it was possible. It was until then, an off-the-charts worst-case scenario for the economy.

The “stagflation” nightmare may have had something to do with ballooning federal spending over three decades through the end of the 1970s. Greenspan chalks up this decade’s inflation threat to ballooning fiscal outflows to retirees from the creation of new debt:

We do have a great deal of knowledge on the extraordinary increase in the size of the retirement area. We are, if anything underestimating the size of the budget deficits that are down the road.

Greenspan is an elder statesman of the financial regime. But he disagrees with sitting Fed Chair Powell and others who fear deflation will lead to a protracted, severe depression. But he’s not the only financial legend warning about inflation.

Euro Pacific Capital CEO Peter Schiff predicted the housing crash and how it would unfold into the 2008 financial crisis. He’s also worried about the looming fiscal debt bomb, and warned in April that catastrophic inflation “is very much on the table.

Billionaire Hedge Fund Manager and George Soros Protégé Warns of Dollar Crash

Stanley Druckenmiller is a billionaire investor who worked as the lead portfolio manager for George Soros’ Quantum Fund from 1998 to 2000. He has made a lot of money in leveraged trades in futures and currency markets over the years. Watch him tell CNBC on Wednesday that the Fed is fueling a massive bubble in equities:

The merging of the Fed and the Treasury, which is effectively what’s happening during Covid, sets a precedent that we’ve never seen since the Fed got their independence. It’s obviously creating a massive, massive, raging mania in financial assets…

Druckenmiller added he’s worried inflation could hit 10% in the next four to five years. He said it’s “dangerous” for Powell to lobby Congress to spend more with a $3.5 trillion deficit. He warned the U.S. has a five-year inflation hangover ahead.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the securities mentioned.

Author: W. E. Messamore

Source: CCN: Fmr. Fed Chair Greenspan Joins Growing Chorus Of Inflation Warnings

Jeff Bezos sold $4 billion worth of Amazon stock over the last week because AMZN P/E ratios show the stock is doomed to face a reality check.

  • Jeff Bezos unloaded $4 billion worth of Amazon stock last week.
  • Rumor has it, Bezos and girlfriend Lauren Sanchez are shopping for a swanky L.A. house. But he doesn’t need $4 billion even for a mega mansion.
  • He’s taking profits while Amazon stock is inflated beyond all reason. AMZN’s insane P/E ratio of 90 is a total break with reality.
  • Jeff Bezos has been on an Amazon stock (NASDAQ:AMZN) selling spree. In the last week, he dumped $4 billion worth of shares in the company he founded.

(As an aside, Bezos will take home about $3 billion of that after paying taxes. Something to include in the conversation about Amazon’s low corporate taxes.)

Speculation has abounded as to why.

Jeff Bezos Has Some Expensive Habits

A Los Angeles high-end real estate broker says Bezos and girlfriend Lauren Sanchez are looking at houses in Bel Air and Beverly Hills. But the mega mansions on their shopping list are in the $100 million range, nowhere near Jeff Bezos’ $4 billion selloff.

Others have pointed out that Bezos has said funding space travel is his only option for putting a dent in his unprecedented personal fortune. Perhaps all of that money will go to Blue Origin, the space travel company in question. But this year’s offloading is unlike anything from previous years.

So why is Jeff Bezos selling so much Amazon stock? And why now?

Amazon Stock Is In A Massive Bubble

Watch the following CBS News segment, which outlines Amazon’s strengths, but examines the threats to sustained growth at recent years’ levels over the long term.

Amazon stock is now one of five powerful tech companies that account for 18% of the entire S&P 500 Index’s market cap today. When the stock market gets this top heavy, it’s a terrifying indication that there’s a dangerous equities bubble.

The last time only five companies made up 18% of the S&P 500 was during the Dot Com bubble in the year 2000:

Back in 2000, Microsoft, Cisco, General Electric, Intel, and ExxonMobil traded on a rich 47 times price-to-earnings multiple… realized sales turned out diving 7%.

In better news for the S&P 500 Index and Nasdaq Composite today:

Apple, Microsoft, Amazon, Google and Facebook [2020’s big five] trade at a forward price-to-earnings multiple of 30 times versus a healthy 14% expected sales growth rate.

You can count Amazon stock out of the rosy picture because its current P/E ratio is soaring like a Blue Origin rocket at an incredible 90.36(!). Compared to its big tech peers, Amazon’s multiples are nothing close to reasonable.

Apple’s (NASDAQ:AAPL) is 25.41.

Microsoft’s (NASDAQ:MSFT) is 32.03.

Alphabet’s (NASDAQ:GOOG) is 30.09.

Facebook’s (NASDAQ:FB) is 33.02.

Compared to its retail peer, Walmart (NYSE:WMT), with a P/E ratio of 23.29, Amazon stock is three times overweight. Sure, Amazon has a lot of room to grow. Its cloud business, for one, is very promising. But who seriously thinks Amazon will grow profits at three times the rate of Apple or Alphabet? Especially with threats like these…

Threats To Amazon’s Growth

Because of its sheer size and the rapid pace of its growth, Amazon is a major political target. It faces a number of political threats to the already razor thin margins of its operating cost structure. These range from the potential threat of tough new rules on taxes and labor from the potential Democratic president, to the already actual threat of the current administration’s new anti-counterfeit goods policies.

Fierce competition from Walmart will also keep future Amazon growth in check. The Dow 30 retailer isn’t taking Amazon’s growth laying down. Walmart’s ecommerce sales saw a massive surge last year, 41% in the third quarter alone. And Walmart and Target are even gaining (a little) ground on Amazon over online retail.

In order to maintain its fierce growth, Amazon has to stay committed to tiny margins at volume. Sometimes the thin margins don’t translate to more profit. As with one-day shipping for Prime members, which translated to top line growth last year, but fulfillment costs that grew just as fast.

Amazon was always a smart business and probably always will be, but AMZN stock has dropped over 90% before, during the Dot Com crash. When its multiples are this far out of line with any of its peers, it’s no surprise that Jeff Bezos would rather have the cash.

Author: W. E. Messamore

Source: CCN: Jeff Bezos Is Selling Because Amazon Stock Is In Serious Trouble

A 2012 CNBC interview might clue us in to what Warren Buffet is waiting for with Berkshire’s $128B cash pile, a housing market crash.

  • Warren Buffett’s Berkshire Hathaway entered the fourth quarter with a $128 billion in cash. That’s five times more than Berkshire’s cash in 2009.
  • The growing cash pile has left investors mystified. Many think he’s waiting for lower stock prices to make an “elephant-sized acquisition.”
  • But in a 2012 CNBC interview, Warren Buffett said he’d love to “load up on” single-family homes. Is he waiting for a housing market crash?

Warren Buffett is waiting to swing at something big.

But he’s been waiting for years.

And Berkshire Hathaway’s (NYSE:BRK.A) cash pile is growing to cartoonish proportions ($128 billion as of the company’s latest public report [Business Insider].)

That’s left investors scratching their heads. But it should be no surprise that the intensely patient Buffett has waited to make a big move with Berkshire’s growing cash pile.

In one of his earliest televised interviews (1985), he said [CNBC]:

There may be wonderful pitches to swing at, but if you don’t know enough, you don’t have to swing. And you can sit there and watch thousands of pitches and finally you get one right there where you want it … and then you swing.

Is “The Oracle of Omaha” waiting to swing at a housing market crash?

After its worst decade in history, that could knock Berkshire’s profits out of the park.

Warren Buffett’s Elephant-Sized Acquisition

Warren Buffett’s investing philosophy is simple. He likes to invest for the long term, in businesses with really great future prospects. But he likes to wait until they’re in financial distress so he can get a really great bargain on them.

In the 2018 Annual Report to Berkshire Hathaway shareholders, Buffett wrote that prices for “businesses possessing decent long-term prospects” were too high:

In the years ahead, we hope to move much of our excess liquidity into businesses that Berkshire will permanently own. The immediate prospects for that, however, are not good: Prices are sky-high for businesses possessing decent long-term prospects.

Many have taken his words to mean that stocks are too expensive [The Motley Fool] for Berkshire to make a big acquisition. But he doesn’t say that it’s stocks he’s waiting to buy at a better price. In fact, in the very next sentence, he says he’ll just have to settle for stocks until what he’s really interested in isn’t priced so high:

That disappointing reality means that 2019 will likely see us again expanding our holdings of marketable equities.

Berkshire did buy $900 million worth of Amazon (NASDAQ:AMZN) shares in 2019. But that likely wasn’t what he was referring to in the 2018 annual report, when he wrote:

We continue, nevertheless, to hope for an elephant-sized acquisition.

Not with the company’s cash piling up to $128 billion.

Is Berkshire Saving For A Housing Market Crash?

In Feb 2012, Warren Buffett told Becky Quick in a live interview on CNBC’s Squawk Box:

If I had a way of buying a couple hundred thousand single family homes, and had a way of managing. The management is really the problem. Because they’re one by one. They’re not like apartment houses. But I would load up on them.

I think that’s probably as attractive an investment as you can make.

He could be waiting for the housing bubble to reach capacity– and burst. Then take a $100 billion swing at the housing market crash and load up on a couple hundred thousand single family homes. The economics of a residential real estate empire like that would be a perfect match for Warren Buffett’s investing philosophy.

But to get the best bargain on such a massive acquisition, he would have to wait for a housing market crash. Prices for housing are indeed “sky-high.”

In 2018, half of the biggest housing markets in the U.S. were overvalued, and home price growth outpaced income growth [Business Insider]. A year later, 40% of America’s top 50 housing markets were overvalued [CNBC]. Maybe that’s why the cash pile grows.

Why Not During The 2008 Housing Crisis?

So why didn’t Berkshire Hathaway load up on homes during the Great Recession, after the housing market crashed under the weight of the subprime mortgage crisis?

During that 1985 interview, Warren Buffett also said:

There are all kinds of things I’m not competent to value … There are few I am competent to value.

Buffett might not have felt comfortable enough at the time with Berkshire’s level of expertise in real estate. He was more familiar with financials and sugary treats.

So Berkshire Hathaway invested in Goldman Sachs, Bank of America, and Mars [The Week] at Great Recession discount prices.

But since then, Berkshire has put itself into a perfect position for a major entry into residential real estate. In 1999, Berkshire acquired real estate brokerage firm, HomeServices of America [Wall Street Journal]. By 2018, Buffett had built the second-largest U.S. real estate broker [Yahoo Finance]. Berkshire Hathaway HomeService also offers mortgage loan origination, home warranties, and property insurance.

If the housing market crashes, we might see Warren Buffett’s last big swing– taking Berkshire Hathaway from selling houses, to buying them.

Author: W. E. Messamore

Source: CCN: Is Warren Buffett Saving His Cash Pile to Buy a Housing Market Crash?

Jack Dorsey’s Square Crypto says bitcoin was just warming in the 2010s. Here four reasons why this dramatic prediction holds true.

Despite calls for its imminent demise, bitcoin has printed higher lows almost every year since it was born. Here are four reasons why the leading cryptocurrency is just getting started. | Image: shutterstock.com

  • Bitcoin delivered investors the highest return on investment (ROI) of any security in any asset class in the 2010s.
  • Jack Dorsey’s Square Crypto says, “This decade was just bitcoin warming up.”
  • Here are four reasons to expect even more from bitcoin in the 2020s.

Square Crypto, the bitcoin division of Twitter founder Jack Dorsey’s Square Payments, rang in the new decade with a prediction.

Here are four reasons why Square Crypto’s assessment holds true.

Now why should you take any of these reasons seriously? Before you read this list, you may want to review this article I wrote in Feb 2019…

The headline was, “10 Reasons Bitcoin Will Party Like 2017 for a Massive Bull Run in 2019,” and in it I correctly predicted the 2019 bitcoin bull market.

The bitcoin price on Jan 1, 2019 was $3760. On Feb 21st, when the article was published, bitcoin was trading at $3893. As of New Year’s Day 2020, that figure is $7222.

I told you this was likely to happen, and I told you why.

1. The Bitcoin Price Floor Is Rising Exponentially

Bitcoin skeptics howl with glee every time the price swings wildly downward.

But the statement “bitcoin is down,” begs the question, “Since when?” And over its one decade-long existence, you don’t have to go back far to find that, “bitcoin is up.”

As popular crypto YouTuber Carl The Moon pointed out last August:

(Carl’s was one of the channels that got swept up in YouTube’s apparently coordinated attack against crypto YouTube creators in December for posting “harmful or dangerous” content.)

This multi-year trend of rising key support (fancy word that means something like “price floor”) for bitcoin’s price looks doggone near exponential to me.

2. Bitcoin Hasn’t Hit The Fattest Part Of The Fish

And there’s more than plenty of room left for that trend to continue. This innovative fintech product has hardly reached market saturation in 2020. In fact, the opposite is the case.

It’s still in the early stage of market adoption.

An Oct 2019 Crypto Radar survey (of 5,000 U.S. adults aged 18 – 65) found that only 6.2% of Americans own bitcoin. The results suggest that number is about to double, as 7.3% of respondents say they plan to own bitcoin.

The U.S. Census estimates the 18-64 population in 2020 at 202,621,000. So the survey finds roughly 12.5 million American adults own bitcoin.

Author: W. E. Messamore

Source: CCN: 4 Reasons Why Bitcoin Was Just Warming Up in the 2010s

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