September 30, 2013

What Wall Street Is Planning, and Why

A recent Bloomberg article states, "Americans in Poll Doubt Economy Rebound." I tweeted about this recently, pointing out the article because it showed the disconnect between the stock market and what is happening "on the ground."

Millions of investors miss out on stock market rebounds until it is too late. The market climbs a proverbial "wall of worry" and over the past half-decade you'd find few in the mainstream media with a kind word for stocks or their prospects. In this editorial, I will return to an analysis of the bigger picture when it comes to how markets are manipulated via money flows and what we call dominant social themes.

Right now, with a government shutdown looming and various politicians making references to pre-war Nazi Germany and even the Civil War, we could be in for some near-term volatility when it comes to investments and markets. But long-term, trends remain much as they have been.

Western central bankers are in a box of their own making. They cannot reduce their money printing programs very much for fear of higher interest rates that will hurt economies and make current sovereign debt unsupportable. Therefore, one way or another, current conditions will remain in force, at least somewhat. So long as price inflation does not surge entirely out of control, it is apt to drive markets higher over time.

This is not an analysis that is being generally shared with the public at large. Most people have no idea of how money flows and investment cycles interact. It's not something Wall Street ever wants to discuss. While what is ahead of us may be inflationary, most people are still focused on previous disasters. They have taken their losses and removed their investments.

Here's confirmation in a Pew Research study from a few months ago.

Economic recovery favors the more-affluent who own stocks. The surge in the stock market this year – restoring much of the wealth that had been lost during the financial meltdown that struck in 2007 – has masked the unevenness of the recovery among Americans since 2009.

A Federal Reserve board analysis this week spelled out the reason: stock market wealth is held by a relatively small number of the most-affluent and, as a result, "most families have recovered much less than the average amount."

This factor is also made clear in Pew Research Center surveys and analyses that show which Americans do or don't own stocks, and how this dividing line has widened the wealth gap in the period since the recovery began to take hold in 2009.

A Pew Research survey found that 53% of Americans say they have no money at all invested in the stock market, including retirement accounts.

Too bad for those who, quite understandably, removed investments. The market in aggregate has doubled in value since its low after the start of the financial crisis. For most people this upward momentum was an academic event, as they took their losses and got out. There are few who can withstand the psychological pressure of watching the value of their assets erode by a third or even a half.

You can't blame people for not staying in asset classes that are taking a beating. Most people in the US and, in fact, throughout the West live virtually paycheck to paycheck and losing even a little wealth is a terrifying possibility.

Beyond this, most do not understand the differences between economic progress and investment profits. For most, economic conditions define potential stock market profits. Nothing could be further from the case but that is what people have been taught to believe.

Academic studies tell us a different story. Almost all the profit comes from being in the right asset class at the right time. This can be coordinated by understanding the business cycle. Unfortunately, Wall Street and its vested interests will quote John Maynard Keynes a thousand times before they will whisper a word about monetary inflation and how it drives asset classes.

It is free-market economics that tells us the truth about how the modern investment world works and its driving force, central banking. There are about 150 central banks in the world, up from about five at the beginning of the 20th century. And the policies of these banks are coordinated by the Bank for International Settlements out of Switzerland.

The world has embarked on a great fiat-money experiment in which monopoly central banking circulates vast amounts of currency during good times and bad. It is the currency itself that drives modern corporate profits and thus their perceived value in the marketplace.

When there is a great deal of money circulating at high velocity in the economy, then stocks go up. When a crash has occurred and capital circulates slowly and timidly, then the perceived value of various kinds of securities may plummet. The asset classes in this formulation are driven by the quantity and velocity of money in the system.

People are aware of this only dimly. Most still do not understand the dreadful simplicity of the modern money system and how assets inflate and deflate. Adding to the confusion is Wall Street's propensity for focusing on individual instruments in the good times – active management – and the steady drumbeat of announcements about "best performers" during equity-positive portions of the business cycle.

This article in Bloomberg further confirms current trends when it comes to mass investing. If people are not confident in the economy, they will certainly continue to sit on the proverbial sidelines when it comes to investing, especially in the stock market. The article makes Wall Street's near-future fairly clear when it comes to a mass public presence in the stock market.

Americans are losing faith in the nation's economic recovery even as forecasters expect growth to accelerate, according to a Bloomberg National Poll.

Fewer people anticipate improvement in the economy's strength over the next year than in the last survey in June, with 27 percent saying the expansion will be more robust, down from 39 percent who expected improvement three months earlier.

Poll respondents are less optimistic about the job market over the next year than they were in June. Forty-four percent of poll respondents say they expect the economy, which has expanded for nine consecutive quarters, to remain about the same, while 28 percent see it weakening.

The results of the Sept. 20-23 poll reflect public impatience with an economy that has grown at an average rate of 2.1 percent since the recession's June 2009 end, a full percentage point below the 50-year average, according to data compiled by Bloomberg. Growth will slip to 1.60 percent this year, according to the median forecast in a Bloomberg survey of economists, before rebounding to 2.65 percent growth next year.

This economic snapshot encapsulates what I've been pointing out in recent editorials. People have been promoted on the idea that a surging economy drives stocks and if they are doubtful about the economy, they will likely not commit funds to equity opportunities.

In fact, modern markets move in ways that are almost opposite to this common understanding. When markets have lapsed, central bank money printing runs hard. Banks are flooded with "liquidity" and inevitably this finds its way into Western stock markets, pushing them back up.

Much of the rebound in markets takes place soon after loss-making because central banks print so much money. The linkage that would ordinarily exist between a growing economy and stock market progress has thus been severed. People are probably right to see slow growth or no growth in economies for the foreseeable future. But what people don't understand is the lengths to which bankers and brokers will go to move stocks higher once again.

For reasons I've already stated – and these reasons will be available in detail to those who participate with us in utilizing my VESTS model to identify various investment opportunities – there is going to be another leg to current stock performance. We can see this coming due to legislative items like the JOBS Act that is preparing the groundwork for a massive IPO explosion.

Additionally, for all the talk about "tapering," central banks are not likely to do anything that will crush equities at a time when unemployment continues to rise throughout the West, threatening not just increased poverty but also significant violence. When people have little food and no hope, they have nothing left to lose.

These are perilous times. The powers-that-be are not going to let economies and markets further unravel if they can help it. Instead, via various legislative and regulatory moves, they are planning a new "Wall Street Party."

The trouble is, as this Bloomberg article points out, most people won't get involved until it is too late. The average investor is always, unfortunately, the last one in and the last one out.

This time, thanks to the Internet Reformation, we have the ability to understand what Wall Street has in mind. We've already analyzed the larger promotion that's underway and over the next year or so, we'll spend our time examining the various dominant social themes that bankers and brokers have in mind flogging as markets continue to build.

No doubt there will be setbacks and difficulties. But perilous economic times make it almost inevitable that those who control money flows will do everything in their power to continue to inflate markets once again.

If I'm correct, the markets have a long way to go. The surge won't be steady or inevitable, but it will be a determined one. And those who "get it" now are a great deal more likely to profit than those who are oblivious to these larger trends.


September 27, 2013

The Fat Lady Has Yet to Sing for Dimon and JP Morgan

I thought I was late to write about JP Morgan’s $920 million multi-regulator settlement last week on the London Whale, but breathless news of a possible $11 billion settlement of mortgage-related liabilities has pushed the bank and its chief back under the hot lights.

Let’s go in reverse chronological order. The $11 billion settlement, if it comes together, is less of a hit than it seems. JP Morgan’s stock traded up 2.7% when the news broke. First, the $11 billion is really more like $7 billion, which is the cash component. The remaining $4 billion is various forms of borrower relief. If this settlement bears any resemblance to the mortgage settlements of 2011 and 2012, these are junk credits, with the bank being allowed to claim relief for things it would have done anyhow. If the economic value of bona fide borrower relief gets to be as much as 10% of nominal value, that would be a large by historical standards.

The reason the numbers being bandied about are large is that the total includes FHFA putback claims, which the Wall Street Journal puts at $6 billion out of the total. FHFA suits against all the banks were pencilled out as carrying a price tag of as much as $200 billion. But that estimate likely based the total on the value if the agency litigated and prevailed (which frankly was pretty likely, the GSEs have well-defined rights). The Department of Justice is leading the negotiations and the New York state is also a participant.

In addition to an apparently large bid-asked spread (the Morgan bank proposed a mere $3 billion versus the $11 billion bruited as the sought-after figure) and the fact that the bank wants a global settlement for all mortgage-related liability (the DoJ is reluctant to settle criminal liability), another potential sticking point is an admission of wrongdoing.

But in many ways, the $920 million London Whale settlement last week is a much bigger deal. It’s been remarkable to see how much confused or deliberately misleading commentary has been published about the pact. To wit: Jonathan Weil reveals he does not understand that SEC rules implement legislation. Ouch. And Matt Levine wrote such an absurd piece that I don’t need to do a takedown. If he keeps this sort of thing up, he’ll have a great future at the Onion.

I’ll probably have more to say about this in future posts, so let me stick to a few big issues:

JP Morgan is not out of the woods on the Whale matter. This settlement was for the SEC, the FSA, and the OCC. Given how Senate testimony the degree to which JP Morgan flat out lied to the OCC and the severity of the control failures, I’m surprised the dollar value wasn’t bigger. One small consolation is that the CFTC was not part of the deal, and its settlement is likely to be 50% of what JP Morgan has already agreed to pay.

And it’s important to understand how world class terrible JP Morgan’s oversight of the CIO was. The SEC order makes for juicy reading. One of the stunners is that Dimon lied to his audit committee. Some executives were loath to sign valuations that were important components of the CFO’s and Dimon’s certifications of financial statements. And we have this remarkable tidbit:
33. The CIO-VCG staff actively involved in price-testing the SCP’s 132 positions at the end of the first quarter of 2012 consisted of one person, who worked at CIO’s London office. That person was also responsible for price testing all of CIO’s other London-based portfolios.
One person responsible for price testing of a major portfolio? That’s all you need to know that JP Morgan’s controls were utter rubbish. The Globe and Mail adds:
Whale aficionados also now have more information on just how ineffective JPMorgan’s compliance staff were at monitoring their traders. JPMorgan’s senior management did not inform the relevant back-office department in London that it was reviewing the valuation of the Whale portfolio for over two weeks. Given recent rogue trading incidents at Société Générale and UBS, the low regard in which the control function at the bank was held is extraordinary.
An admission of how grossly deficient they were comes in how much the bank is spending to bring them up to snuff. From Reuters:
JPMorgan Chase & Co (JPM.N) plans to spend an additional $4 billion and commit 5,000 extra employees to fix risk and compliance issues after a slew of investigations by regulatory authorities, the Wall Street Journal reported on Thursday. 
JPMorgan will spend $1.5 billion on managing risk and complying with regulations and plans to add $2.5 billion to its litigation reserves in the second half of the year, the Journal reported. 
The bank will also increase its risk-control staff by 30 percent, the WSJ said, citing people familiar with the matter. 
JPMorgan said on Monday that it would add more than $1.5 billion to its legal reserves in the third quarter and 3,000 people had been added to control functions.
Another 2,000 assigned to the bank’s various business lines are also working on compliance issue, a personfamiliar with the matter who would not provide the total cost told Reuters.
Now even though we agree with the Bloomberg editors, who deem the Whale settlement to be too small, why do we still think it’s hugely significant?

Dimon screwed Corporate America. Did you notice the howling about the $920 million settlement from much of the financial media? They may be upset about the precedent set by JP Morgan admitting to wrongdoing. But far more significant is something that the SEC perversely did not play up, which is that JP Morgan ‘fessed up to Sarbanes Oxley violations. And that means that the normal fig leaf of having a complaint auditor say everything was fine is no protection.

Remember, heretofore Sarbanes Oxley has been a dead letter, at least from an enforcement perspective. To my knowledge, there were only two previous times the SEC tried using it: in HealthSouth, where it lost in court (not necessarily a meaningful indicator, since Richard Scrushy had huge home court advantage with an Alabama jury [he went to considerable lengths to taint the juror pool by large donations to and regular appearances in black churches]) and against Angelo Mozilo, where the SEC lost a ruling that seemed to put it off trying to use Sarbox (discussed at length in this post).

The reason that this is a big deal is Sarbanes Oxley was designed expressly to get past the “I’m the CEO and I have no idea what happened” defense. Sarbanes Oxley requires corporate executives, which generally is at least the CEO and the CFO, to certify the adequacy of internal controls. And for a big bank, that includes risk controls. You can’t pretend to have adequate controls when, as the SEC describes, management is shocked to learn that your counterparties are demanding hundreds of millions in collateral because everyone in the market (as well as your own investment bank!) is marking positions differently than your biggest trading unit in the bank. But it isn’t just banks that have to now take Sarbanes Oxley seriously, although they are the most obvious targets. Everyone who signs Sarbox certifications is now at risk, as they were supposed to be all along.

Dimon is not out of the woods. The SEC only settled liability with the bank; it is still looking into charging individuals. The Wall Street Journal reported:
“Our counsel has had discussions with the SEC staff and the staff has informed us that, based on the evidence now known to them, they do not anticipate recommending any actions against our CEO,” a J.P. Morgan spokesman said
A compliance expert e-mailed to say that Dimon met all the conditions for a criminal prosecution under Sarbanes Oxley. So it’s the reluctance of the regulators to take on a TBTF CEO (particularly one that has no credible successor in the wings) that is keeping him safe for now.

But remember, the CFTC’s investigation and resulting order may provide additional damning information. And recall the FBI and the Southern District of New York are trying to extradite two Whale traders. One is likely to be beyond their reach, but the other may not be. If he turns useful state’s evidence, the desire among the officialdom to Do Something About Dimon could change.
I was hearing concerns voiced about Dimon over two years ago. Among other things, he’d browbeaten Ben Bernanke and Mark Carney, then the head of the Bank of Canada, within a span of week (Carney kept his cool and issued what everyone recognized was a dressing down within 24 hours). The concern was that either Dimon was becoming more erratic, or the bank was actually in trouble of some sort, and Dimon was going on the offense to divert attention from his problems. And worse, even though all TBTF are systemically dangerous, if anything JP Morgan is more so by virtue of its massive tri-party repo operation.

Now even if more damning fact emerge about Dimon, they’d have to be awfully damning for him to be the target of litigation. But I could see the threat of litigation to be used to get JP Morgan to clean up its corporate governance act. At a minimum, the bank needs to split its CEO and Chairman roles (Dimon threatened to quit over that, but that was before the Whale shoes started to drop and analyst Josh Rosner released his rap sheet against JP Morgan, cataloguing the astonishing range and costs of regulatory sanctions) and force Dimon to have a real successor lined up, not some candidates who are clearly years away from being ready to take the helm.

It’s way too early to tell how meaningful these actions against JP Morgan will prove to be. One robin does not make a spring. But they are at least an improvement over the abject regulatory dereliction of duty we’ve seen by regulators in the wake of the crisis, and if we are lucky, may represent them re-learning how to use their muscle.


September 26, 2013

RICHARD KOO: Forget Hyperinflation — The Fed Is Now Facing The True Cost Of Quantitative Easing

Last Wednesday, the Federal Reserve shocked markets with a surprise decision to refrain from beginning to taper back the pace of its bond-buying program known as quantitative easing.

In the press conference following the decision, Fed chairman Ben Bernanke cited the recent rise in long-term interest rates — spurred by Bernanke's previous press conference in July, during which he seemed to endorse it — as a reason for the delay. Rates had risen too far, too fast, and they were presenting a threat to sustainable economic growth.

Nomura chief economist Richard Koo calls this a "QE 'trap' of [the Fed's] own making," writing in a note to clients that the Fed's decision last week is a clear sign that a "vicious cycle of rising rates and economic weakness has already emerged."

The yield on the 10-year U.S. Treasury note rose as high as 3.0% in the weeks before the Fed announced its decision not to taper.

"Instead of falling back to 2.0% or lower following the Fed’s decision to delay tapering, the 10-year Treasury yield has settled at around 2.5%, which means the next rise in rates could easily take the 10-year yield into 3.0%-plus territory," says Koo. "I worry that this kind of intermittent increase in rates threatens the recoveries in interest- rate-sensitive sectors such as housing and automobiles. That could lead to renewed hesitance at the Fed and prompt it to temporarily shelve or postpone tapering."

That's how the vicious cycle starts.

"While rates might then decline, reassuring the markets for a few months, talk of tapering would probably re-emerge as soon as the data showed some improvements, pushing rates higher and serving as a brake on the recovery," says Koo. "Then the Fed would again be forced to delay or cancel tapering. In my view, recent events have greatly increased the likelihood of this kind of 'on again, off again' scenario, something I warned about in my last report. To be honest, I did not expect it to occur so soon."

Now that it's here, though, Koo writes that the Fed is facing the true cost of QE:

Given that this would never have been a problem if the central bank had not engaged in quantitative easing, I think the US is now facing the real cost of its policy decision.
Had the Fed not implemented QE, long-term rates would not have risen so early in the rebound, and the economic recovery would have proceeded smoothly. Now, any talk of ending QE pushes long-term rates higher and throws cold water on the economy, making it more difficult to discontinue the policy.
That raises the possibility that by buying longer-term securities the central banks of the US, the UK and Japan have placed themselves in a QE “trap” of their own making and will be unable to escape for many years to come. I have previously described QE as a policy that is easy to begin and hard—even scary— to end. The recent drama over tapering signals the start of the less-pleasant second part.
"Amid all the talk of ending QE, I think hyperinflation is a less likely outcome than a QE 'trap'," says Koo. "As soon as the economy picks up a bit, the authorities begin to talk about tapering, which sends long-term rates sharply higher and nips the recovery and inflation in the bud, effectively preventing them from winding down the policy. In this kind of world the economy never fully recovers because businesses and households live in constant fear of a sharp rise in long-term rates."


September 25, 2013


In a word, no.

Or, at least, not much. While it would be nice to believe that Larry Summers had to withdraw from the race to take over the Fed because of his substantial role in creating the global financial collapse, I think it had more to do with his outsized personality. Before you start celebrating his defeat remember that Goldman Sachs still must approve any choice and President Obama may yet choose one of its anointed candidates over Janet Yellin.

For much more on Larry and the Obama administration’s capture by Goldman, read Greg Pallast’s piece here:

The catch-phrase at the Whitehouse since the days of President Clinton is “What would Goldman think?”. Apparently all policy is subjected to the “Goldman test”—is it good for Goldman Sachs? If not, well, you know what—it gets dumped.

So here’s my thoughts on what we should have learned, as we mark the five-year anniversary of the event that sparked the crisis. An interviewer asked me to identify the three most important lessons, which I thought a bit too ambitious, so here are three important lessons.

1. The crisis exposed the dangerous and lawless culture prevailing at the world’s biggest financial institutions. We now know, beyond any doubt, that it was fraud from bottom to top. For example, every single step in the mortgage backed securities business was fraudulent. The mortgage originations were fraudulent—with the originators lying to borrowers about the terms, and then crudely doctoring the paperwork to make the terms even worse after borrowers had signed. The property appraisers falsified the home values. The investment banks misrepresented the quality of the mortgages as they were securitized. The trustees lied to the buyers of the securities about possession of the proper paperwork. At the urging of the industry’s creation, MERS, the banks lost or destroyed the property records, making it impossible for anyone to know who owns what and who owns whom. The mortgage servicers “lost” payments and illegally foreclosed using documents forged by “robo-signers”, wrongly evicting even homeowners who owed no mortgage. Now those homes are being sold in huge blocks to hedge funds at cents on the dollar so that they can be rented back to the former owners now living on the streets. It is not too much to say that foreclosure and dispossession was the desired result of what President Bush had called the “ownership society”: move all wealth to the top 1%. I’ve just given one example—you will find a similar level of criminality in every line of business undertaken by the biggest banks, from manipulating bond markets to setting LIBOR rates, from manipulating commodities prices to front-running stocks and trading on insider information.

2. The crisis demonstrated that real reform can only be undertaken in the depths of a crisis. Once Wall Street had been rescued behind closed doors by the US Fed and Treasury (it took $29 trillion!), there was no hope of reform. The biggest institutions just got bigger. They are back to doing the same things they were doing in 2007. Even the very weak Dodd-Frank reforms will never be implemented—Wall Street put together armies to delay, water-down, and eventually prevent implementation of any changes that would constrain the financial practices that caused the crisis. Franklin Roosevelt did it the right way in the 1930s: declare a banking “holiday”, demand resignations from all top management, and refuse to allow banks to open until they had a plan that would lead to solvency. Almost all the New Deal financial sector reforms were enacted in the heat of the crisis. The important lesson that should have been learned: in the next crisis, we cannot let the Fed and Treasury meet behind closed doors to rescue the “vampire squids” that are destroying the economy. We must drive the stake through their hearts when they are weakest.

3. The crisis brought into public view the longer term trend toward “financialization” of the entire economy. The FIRE sector gets 40% of corporate profits and 20% of value added. That is, quite simply, crazy. Everything has become financialized—from college education (student loans are a trillion dollars) to homes, healthcare (Obamacare makes this worse), and even death (so-called death settlements and peasant insurance in which employers bet that workers will die early). Wall Street has financialized energy and even crops. It has turned worker’s pensions against them, by using their own retirement funds to bid up the price of gasoline at the pump and bread at the grocery store. Just wait until they use pension funds to drive up the price of water at the meter!

In a very important sense it is wrong to label what happened following Lehman’s bust a crisis. Life at the top has improved tremendously since 2007, as high unemployment has softened labor even as income and wealth gushed toward the top 1%.

Of course, for the bottom 99% it is a crisis, but not a financial crisis. And it did not begin in 2007, but rather in the early 1970s. It is a long-term jobs crisis. It is a long-term wage crisis. It is a long-term education, housing, and healthcare crisis, as necessities are priced beyond the reach of most workers.

So what needs to be done?

Where to begin? Over the medium term I’m pessimistic because I do not think much can be done until Wall Street crashes and we shut down the “dirty dozen” biggest global financial institutions. They will prevent any substantial reform. We need to downsize finance by two-thirds or three-quarters or even nine-tenths. Obviously, that cannot happen until the next crash. I’m reasonably optimistic that will happen in the not too distant future.

But when real economic reform becomes possible, what do we need? First, jobs. We cannot rely on the private sector to produce them. Jobless growth is the future, so we cannot rely on growth to produce the needed jobs. Government has got to get involved. Fortunately, there’s much that needs to be done—public infrastructure, ramping up education and healthcare, environmental restoration, aged care, and improvement of public spaces. We will need a permanent Job Guarantee (or Employer of Last Resort) program to ensure that all who want to work can participate. Second, and related to the first, we need decent wages—which means substantial increases for the bottom two or three quintiles. Again, this cannot be accomplished by relying on the private sector, which will always engage in “race to the bottom” dynamics. The government must play a role—by setting high standards for minimum wages, benefits, and working conditions. This is actually easy to do once the JG/ELR program is in place as its compensation package will become the de facto minimum.

We are all shocked, SHOCKED! that Washington has not gone after Wall Street’s crooks. Actually it isn’t shocking at all. The Wall Street foxes are all spread throughout the Obama administration, running Treasury and the New York Fed and heavily represented in every agency that has any supervisory power over Wall Street. So long as Wall Street sucks up 40% of corporate profits, that is where all the money is, and Washington runs on money. With those foxes guarding the henhouse, you’d have to be a fool to believe that the Obama administration would go after any CEOs of the biggest banks.


September 24, 2013

Why You Should Not Trust the Financials of Private Equity Owned Companies

Yesterday, we saw how Hamilton “Tony” James, the chief operating officer of Blackstone and head of its private equity business, is also a principal in a family private equity firm, Swift River Investments, whose activities overlap with his official duties at Blackstone in ways that are troubling from both fund investor and Blackstone shareholder perspectives. One of the things we discussed was Swift River’s purchase from Blackstone itself, in a related party transaction, of a software company called iLevel Solutions.

Today, we are going to examine iLevel in greater detail. We will see that this company is built from the ground up as vehicle to convince PE investors and the SEC that Blackstone and other PE firms have implemented robust financial controls over the companies they own. The reality, however, is the opposite: by design, iLevel gives PE firms unprecedented ability to cook the books of their portfolio companies while maintaining a facade of compliance.

At first glance, iLevel appears to provide legitimate and important services to PE firms. It extracts, compiles and analyzes the financial and operating data of the dozens of portfolio companies that a firm like Blackstone owns. A large PE firm resembles a conglomerate. Its portfolio companies are the equivalent of operating divisions, each with its own set of books that must be reported back to the PE firm “headquarters” on a regular basis. Unlike a conventional conglomerate, however, a PE firm doesn’t typically implement a shared general ledger accounting system across its portfolio companies. It’s too expensive and complicated, particularly since a PE firm expects to own a portfolio company only for around five years or so. So there is real value added in presenting financial and operating results on a consistent basis across the businesses.

iLevel’s website gives the impression that the purpose of the company’s software is to bridge portfolio companies’ disparate accounting systems. The iLevel website talks about “automated data collection” from the portfolio companies and the value of that data for PE firms performing “cross-portfolio analytics.”

But a closer look shows that one of iLevel’s main claims, that iLevel performs anything that could be fairly labeled as “automated data collection,” is false. Instead, individuals at portfolio companies manually enter data into an Excel spreadsheet on a monthly basis, or use macros to export data from other Excel spreadsheets, and the populated spreadsheet is then uploaded into the iLevel database. The “automated” part of the data collection, to the extent there is any, consists merely of the iLevel software generating the blank Excel spreadsheet template every month and automatically emailing it to the portfolio company employee responsible for inputting the data. The completed spreadsheet then has its data “automatically” extracted into the iLevel database.

As this 2011 video states starting at 1:39:
The iLevel platform replaces the manual, labor-intensive process of assembling data from portfolio companies with an automated, web-based process and a secure central data repository that serves as a single source of truth. First, the iLevel database is configured to contain all relevant chart of account information required for monthly and quarterly data collection and reporting [notice that the video shows someone clicking on empty template pages and inputting information], including industry-specific or unique portfolio company KPIs. 
Next, Excel-based templates for collecting data are created for each portfolio company. The iLevel platform sends automated e-mail notifications and the Excel template to your portfolio companies on a schedule you determine: monthly, quarterly, or on-demand. Once the template has been populated with the required data, portfolio company representatives simply click “Submit” to securely transmit the data back to you. With the data submitted, key stakeholders you identify are notified automatically to verify and approve the data.
This may all seem like a very arcane discussion of reporting workflow, but it is important to understand that the PE firms want your eyes to glaze over. The key issue is that PE firms want their investors and the SEC to believe that their iLevel database has been constructed in a tamper-resistant fashion, which is always a central design goal of accounting software systems. If an accounting system allows people to change entries after the fact, that system is absolutely, utterly worthless. But that’s what iLevel explicitly allows to occur because, rather than extracting the data directly, it requires portfolio company employees to re-enter information into iLevel from their general ledger accounting system. Moreover, iLevel presents as one of its advantages that “key stakeholders” can “verify and approve the data”. That’s code for “tamper with”.

iLevel’s marketing materials to PE firms are explicit about why they should want the product. iLevel downplays any potential utility the software might have for the PE firms in tracking and managing their vast portfolios of companies. After all, the PE firms get the joke that iLevel isn’t designed as a robust financial reporting system that one should rely on, for example, to determine whether a portfolio company CEO met his numbers and earned a bonus. Instead, iLevel’s marketing materials make clear that the primary audiences for the pseudo-data it collects are the SEC and limited partner (LP) investors in private equity funds. For example, an early version of the iLevel website described the rationale for developing the software:
Increasingly stringent regulatory requirements cemented the need for a solution that could automate the industry’s still-manual processes and produce clear, consistent, and timely reporting of company-level data. At the same time, market forces led to increasing demand for transparent reporting to regulatory authorities and to Limited Partners.
Why do LPs and the SEC care about the data that goes into iLevel? In a version of its website that was labeled “test” and never posted live, but which was nevertheless crawled by Google, iLevel lays out its value proposition to PE firms in dealing with the SEC and LP investors:
The SEC has begun its initial ‘interviewing’ of Private Equity firms and their practice of valuing their investment holdings. The questions provided to several PE firms requests information such as supporting evidence for the valuations of all fund assets and any document establishing an assigned value for any assets owned by the fund.
The real purpose for a PE firm using iLevel is to trick the SEC and LP investors into believing that there is a reliable basis for the data underlying a PE firm’s portfolio company valuations, which in turn affects what the PE firm gets paid. As iLevel points out in the quote above, the SEC is asking for documentation to support valuations. With iLevel, the PE firms can say to the SEC and LPs, “The data was provided directly to the iLevel database by the portfolio company, via an automated process.” The SEC and LP investors are likely to hear this statement as, “The data was extracted from the portfolio company general ledger via an automated (and inherently tamper-resistant) process, in which we – the PE firm – had no role.” What the SEC and LPs should interpret this statement to mean is, “The data was manually input by a portfolio company employee whom we – the PE firm – have hiring and firing authority over. There is no process to reconcile or audit the data input to iLevel with a portfolio company general ledger.”

This scheme is actually quite ingenious. Whereas the SEC and PE fund limited partners have various degrees of audit authority over the PE firms themselves, that authority does not extend to the portfolio companies. If the data input into iLevel is inflated at a PE firm’s behest, neither the SEC nor the limited partners have any ready mechanism to compare the iLevel data with the portfolio company general ledger, so the fraud is overwhelmingly likely to go undetected.

iLevel has also been ingenious in its implementation of the “Wall Street Rule” – the idea that bad practices are most untouchable by regulators when they become industry standard. In that spirit, iLevel in late 2011 announced that the Carlyle Group had become a part owner of the company. This is presumably in addition to the continuing partial ownership of the Blackstone COO. Nominally, Carlyle and Blackstone are competitors, yet they teamed up on iLevel. Working together, they have been able to promote the product’s adoption among a large portion of large private equity firms, including Apollo, TPG, and Cerberus, and more than 30 other firms, in addition to Blackstone and Carlyle.

And finally, in a coup de grace of seediness, around the same time as the Carlyle deal, iLevel brought in another investor in the form of Hamilton Lane. This firm is the dominant “gatekeeper” performing due diligence and making recommendations to pension funds and other institutional investors on private equity funds. So, in its fiduciary role advising pension funds, Hamilton Lane sits in judgment of Blackstone and Carlyle. But on the side, Hamilton Lane is also in a deal with the Blackstone COO and Carlyle. Though this appears to be a material conflict of interest, it is worth noting that the conflict does not appear to be disclosed in the “Conflicts of Interest” section of Hamilton Lane’s Form ADV filed with the SEC.

We sent a draft text of this post to Blackstone, Carlyle, and Hamilton Lane last week. Blackstone indicated it would get back to us but has not; we will run their comment if and when they provide one. Carlyle and Hamilton Lane did not reply. We also sent messages to relevant departments at iLevel and did not get a response.

September 23, 2013

How to Justify a Flailing Fed

Warren Buffett has just come out with the statement, about which I tweeted earlier today when I first stumbled on it, that the "Fed Is [the] Greatest Hedge Fund in History." According to Bloomberg, he elaborated with the statement that the Fed's "generating '$80 billion or $90 billion a year probably' in revenue for the U.S. government." Here's more:

Buffett compared the U.S. Federal Reserve to a hedge fund because of the central bank's ability to profit from bond purchases while accumulating a balance sheet of more than $3 trillion.

The central bank has been buying $85 billion of bonds a month to help the U.S. recover as it emerges from the deepest slump since the Great Depression. Chairman Ben S. Bernanke and other Fed policy makers unexpectedly opted this week to sustain that pace of asset purchases instead of tapering it, saying they need to see more signs of lasting improvement in the economy.

... The Fed "is under no pressure, none whatsoever to have to deleverage," Buffett said. "So it can pick its time, and if you have somebody wise there – and I think Bernanke is wise, and I certainly expect his successor to be – it can be handled. But it is something that's never quite been done on this scale. It will be interesting to watch."

For Buffett it will be "interesting to watch," but not for many others. The Fed may not be under pressure to deleverage but only 62 percent of US citizens are working currently, according to some estimates, and up to 50 million or more may be using food stamps. The impoverishment of US Inc. is well underway and it's not an academic exercise but a kind of central banking end game. Europe's pan-central bank has done no better.

Central banking, as the name implies, is a centralizing force. In its operative history over the past 100 years or so it has centralized wealth in the hands of a few financial controllers while consolidating even the largest industries. Even entrepreneurs need to work within the "system" if they wish to have any chance at a profit.

It thrives on bigness and fixing the price and volume of money. As a result, it is gradually organizing the entire world around mercantilism. The current Fed Chairman Ben Bernanke, like all the others, has supported this process via inflationary policies that have sapped the savings and investments of hundreds of millions while propping up large, but technically bankrupt, financial enterprises.

Buffett sees the cup as half full. He wants us to believe that the Fed is doing a good job because it is generating income for the US taxpayer. This avoids any discussion of how Fed policies have devastated both savers and investors – not just in the past five years but over the past century.

It is not in Buffett's self-interest to have this larger conversation. Nor is it, apparently, in the controlled mainstream media's. Buffet wants to focus on the Fed's hedge-fund-like attributes. The media generally wants to focus on the issue of "leadership." The article quoting Buffett then goes on to mention the following regarding the current situation of the Fed:

Fed Vice Chairman Janet Yellen is Obama's leading candidate to replace Bernanke after former Treasury Secretary Lawrence Summers withdrew his name from consideration, people familiar with the matter said this week. The president has also said that he's weighing former Fed Vice Chairman Donald Kohn for the post.

This meme is available all over the Internet, and is surely a good example of how a dominant social theme can be used to distract people from larger issues when it comes to their collective pocketbook.
A recent article appearing over at MSNBC, entitled "How Larry Summers opened the door to a woman," provides us with another example. The article dwells on the differences between Larry Summers and Janet Yellen regarding who would make a better Federal Reserve chairman. Summers, we are informed, comes up short – not just because of his personality but because of his ... maleness. Here's a crux excerpt from the article:

[Some have been] furious that President Obama would favor a man with so many liabilities over a woman with so many measurable and vouched-for credentials. "This is something that women have observed and experienced over and over again in our lives and in our work and it makes us cross-eyed with frustration," NOW president Terry O'Neill told Buzzfeed. "You don't slam the glass ceiling down on the head of a better qualified woman so that you can appoint some man who's less qualified."

Summers' gender problem wasn't just that he wasn't a woman or that he had offended many women, but also that his more alienating qualities were so closely associated with male socialization: His lack of interest or awareness in others' responses to him, his cold-eyed, hyper-empirical approach, his unflinching belief in his own rightness. (There are women who fit this description. But women are more often expected and taught to put others' feelings before their own, to be collaborative, and to be likable.) That hurt his ability to do his job well.

All the tropes of modern feminism are on display in these brief paragraphs, including the most damning of all, "male socialization." This apparently includes "hyper empiricism" and a sense of "unflinching rightness."

Like some sort of 20th century anachronism – reminding us that elites have put various dominant social themes into play for a reason – the idea that men are inferior to women when it comes to cooperation is presented to us as if it were brand new again. The Internet and its alternative media are boiling with denunciations of central banking but you would never guess the virulence of these attacks from mainstream coverage.

Every part of the central banking meme is illogical and economically ruinous. In fact, I would suggest that the seeds of the next great monetary bubble are being laid right now. It is critically important that people understand what is really going on, because when this bubble begins to inflate in earnest, human nature will make us most susceptible to its allure.

All of us who wish to preserve our wealth and ensure our prosperity will have to grapple with what is on its way. I truly believe that the top men who have organized our current economic environment now "get it." They know that the game cannot be extended much further and are preparing for one last "party."

This is one of the reasons we've reorganized this website, to focus closely on coming developments and try to help our readers capitalize from what is about to occur – and to then protect themselves from the inevitable disaster that will follow.

Critical Understanding Provided by Upcoming Conference

The kickoff for our new Daily Bell is going to take place at our first annual High Alert Investment Conference, hosted by High Alert Capital Partners, publisher of The Daily Bell, in Cape Breton, Nova Scotia, where we will be discussing these issues in depth. We have secured a beautiful resort in an exclusive setting from October 16th through 20th and are opening the doors to an absolute maximum of 100 people.

Because of the extremely confidential nature of this opportunity, we have reserved the entire Keltic Lodge resort to ensure utmost privacy, and most of the 100 seats are already spoken for. Many are filled by financial money managers, bankers, asset managers, leading free-market thinkers and senior executives who understand the importance of what is now occurring.

The rest of the audience includes accredited investors who have acted quickly to secure remaining seats – and as indicated, most are already gone, given the importance of the event. On arrival, participants will receive a very special report shedding light on the grand, elite promotion now being planned. It will explain the structured mechanism we've built to take advantage of this moment and the ways we are leveraging this opportunity.

During our time together, you'll learn through insightful presentations and materials – and perhaps most importantly, one-on-one and small group conversations in sessions, over meals and perhaps during a round of golf – how you can participate with us in riding this wave. Those who take advantage of the remaining space for this incredible four-day opportunity will quickly realize that participation at this event could be life changing, as generational wealth-building could be created through this process.

If you have the time and resources to attend, I would truly urge you to make a reservation while there is still space. No one else is approaching these issues in this manner, and no other group has our record when it comes to accuracy and forecasting using our models. What is now occurring is predictable, discouraging and ultimately ruinous but you can make it work in your favor if you are willing to do so. Hope to see you there, if you act soon. Click here for more information: High Alert Investment Conference.


September 20, 2013

Janet Yellen: What A Horrifying Choice For Fed Chairman She Would Be

Are you ready for Janet Yellen?  Wall Street wants her, the mainstream media wants her and it appears that her confirmation would be a slam dunk.  She would be the first woman ever to chair the Federal Reserve, and her philosophy is that a little bit of inflation is actually good for an economy.  She was reportedly the architect for many of the unprecedented monetary decisions that Ben Bernanke made during his tenure, and that has many on Wall Street and in the media very excited.  Noting that we "already know that Yellen is on board with Bernanke's easy money policies", CNN recently even went so far as to publish a rabidly pro-Yellen article with this stunning headline: "Dear Mr. President: Name Yellen now!"  But after watching what a disaster Bernanke has been, do we really want more of the same?  It doesn't really matter whether she is a woman, a man, a giant lizard or a robot, the question is whether or not she is going to continue to take us down the path to ruin that Bernanke has taken us.  As I have written about so many times, the Federal Reserve is at the very heart of our economic problems, and under Bernanke the Fed has created a mammoth financial bubble unlike anything that we have ever seen before.  If Yellen keeps us going down that road, financial disaster is inevitable.

Sadly, Yellen is not a woman that believes in free markets.  She had the following to say back in 1999...
"Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not."
Yellen believes that without the "routine intervention" of the central planners at the Fed, our economy will not produce satisfactory results.

So if you thought that Bernanke was an "interventionist", you haven't seen anything yet.  In fact, according to Time Magazine, Yellen was continually urging Bernanke to do even more "to help stimulate the economy"...
But as the most recent financial crisis proved, a good Fed chief needs to be willing to think outside the box to achieve its goals of low, steady inflation and full employment. This is exactly what Bernanke did — using the powers of his office to launch a massive bond-buying program aimed at lowering interest rates further down the yield curve and promising to keep short-term interest rates at near zero for years. Bernanke, however, didn’t launch these programs immediately. Behind the scenes, it was reportedly Yellen who was the most forceful advocate for the Fed doing more to help stimulate the economy.
It is truly frightening to think that Yellen might turn out to be "Bernanke on steroids".
Let's hope that she is not the choice.

But the media is endlessly hyping her.  They keep proclaiming that she has a "good track record" when it comes to forecasting future economic conditions.

Oh really?

Back in February 2007, before the housing crash and the last financial crisis, she made the following statement...
"The bottom line for housing is that the concerns we used to hear about the possibility of a devastating collapse—one that might be big enough to cause a recession in the U.S. economy—while not fully allayed have diminished. Moreover, while the future for housing activity remains uncertain, I think there is a reasonable chance that housing is in the process of stabilizing, which would mean that it would put a considerably smaller drag on the economy going forward."
And during a speech in December 2007 she offered up this gem...
"To sum up the story on the outlook for real GDP growth, my own view is that, under appropriate monetary policy, the economy is still likely to achieve a relatively smooth adjustment path, with real GDP growth gradually returning to its roughly 2½ percent trend over the next year or so, and the unemployment rate rising only very gradually to just above its 4¾ percent sustainable level."
And in front of the Financial Crisis Inquiry Commission in 2010 she openly admitted that she did not see the last financial crisis coming...
“For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.”
So if she didn't see the last crisis coming, will she see the next one coming?
Right now, she insists that everything is going to be just fine in our immediate future.
Do you believe her?

Meanwhile, economic warning flags are popping up all over the place.  As Zero Hedge recently noted, perhaps this is why a lot of high profile candidates don't want the Fed job.  Perhaps they don't want to be blamed for the giant economic mess that is about to happen...
With so many candidates dropping out of the race, one has to wonder why the attraction of the 'most-powerful' job in the world is fading. Perhaps it is not wanting to stuck between the rock of the 'broken-market-diminishing-returns' of moar QE and the hard place of an economy/market that is sputtering and needs moar. As Bloomberg's Rich Yamarone notes, There’s a little known rule of thumb in the economics world: when the annual growth rate of key U.S. indicators falls below 2 percent, the economy slides into recession in the next 12 months... and more than one of them is flashing red.
But we have far bigger worries on our hands than just another recession.

Over the past several years, Fed intervention has been systematically destroying confidence in the U.S. dollar and has been making U.S. government debt less desirable.  Foreigners are already starting to dump U.S. debt, and it is only a matter of time before the U.S. dollar loses its status as the de facto reserve currency of the world.

By "kicking the can down the road", the Fed has created tremendous structural problems which are going to come back to bite us big time in the long run.

Recklessly printing money, monetizing debt and driving interest rates down to ridiculously low levels may have had some benefits in the short-term, but in the end this giant Ponzi scheme is going to collapse in spectacular fashion.  The following is how James Howard Kunstler puts it...
The Fed can only pretend to try to get out of this self-created hell-hole. The stock market is a proxy for the economy and a handful of giant banks are proxies for the American public, and all they’ve really got going is a hideous high-frequency churn of trades in conjectural debentures that pretend to represent something hidden in the caboose of a choo-choo train of wished-for value — and hardly anyone in the nation, including those with multiple graduate degrees in abstruse crypto-sciences, can even pretend to understand it all. 
When reality crosses the finish line ahead of poor, exhausted Mr. Bernanke, havoc must ensue. All the artificial props fall away and the so-called American economy is revealed for what it is: a surreal landscape of ruin with nothing left but salvage value. Very few people will get a living off of the salvage operations, and there will be fights and skirmishes everywhere by one gang or another for control of the pickings. The utility of money itself may be bygone, along with the legitimacy of anyone or anything claiming institutional authority. This is what comes of all attempts to get something for nothing.
The American people deserve to know the truth.

The Fed is not our "savior".  The truth is that the Fed is the primary cause of many of our biggest economic problems.  For much more on this, please see my previous article entitled "25 Fast Facts About The Federal Reserve – Please Share With Everyone You Know".

Unfortunately, Wall Street and the mainstream media love the Fed and they appear to very much love Janet Yellen.

Yellen would be an absolutely horrifying choice for Fed Chairman, but so would any of the other names that have been floated.

America has embraced the foolishness of the financial central planners at the Federal Reserve, and in the end we will all pay a great price for that.


September 19, 2013

Get Ready: Something Big is About to Happen in the Financial Markets!

This may directly impact how you invest or rebalance your portfolio, view or engage in politics, and how you will attempt to secure your wealth in the future.
I believe this will dramatically impact the dollar, gold and bonds. In addition, it may well create the biggest bull market in decades for several equity sectors while the rest of the market stagnates and withers away into oblivion.
If you have followed The Daily Bell, you know our past track record on foreign affairs, finance and geopolitical and economic trends has been outstanding. Topics ranging from the usual Wall Street and Federal Reserve antics to oil, pipelines, the Middle East and the EU have been covered. In addition, many current events and foreign policy actions have been reviewed and explained from The Daily Bell's free-market perspective.
You also know that The Daily Bell abruptly ceased publication without notice or warning on July 16, 2013 (seeAnthony Wile's "Hasta La Vista").
After analyzing the information coming in, our chief editor, Anthony Wile, quickly organized a conference that's coming up right away and I think it's a terrific opportunity to get an early scoop on these changes and how we can each prosper because of them. For instance:
- You'll learn the specifics of why the Daily Bell, one of the leading free-market political and economic news sites in the world, suddenly shut down, uncertain as to how to address this new information.
- You'll learn how the proprietary trend and sector analysis model utilized by The Daily Bell to follow elite promotions in economics, politics and finance suddenly turned on a dime indicating the possibility of a Major Elite Promotion happening soon! If the model is right, this will likely turn the US markets upside down and, depending on your portfolio, make you very wealthy or very poor during the next four years.
But why did we quickly shut down The Daily Bell without any warning?
  • First, we didn't want to rush to judgment and act too soon or be too late for readers to be protected and benefit.

  • Second, we couldn't just sit on the information and continue to provide analysis without coming clean about what we had discovered.

  • Third, there are certain inherent risks in telling the truth to the public when powerful forces want to keep it under wraps. Could we, and our families, afford to take the risk?
So we shut the site down until we could check out the story and determine how readers could benefit and also take cover from what could happen very soon.
We will tell all at the last minute High Alert Investment Conference to be held on October 16-19th in the dramatic mountain and ocean-side scenery of Cape Breton, Nova Scotia.
  • Note, there is ZERO fee to attend the conference other than meeting the accredited investor rules but understand we also do our due diligence on each and every person, speaker or member of the press that wants to attend for the conference.

  • No one who just shows up at the door without pre-registering will be admitted.

  • The venue is private and secure and NO video or audio will be allowed. The entire resort has been reserved to be sure we are the only ones there and ensure confidentiality.

  • There will be a few press passes available to friendly financial and responsible free-market and alternative media.
Time Is Short!
Click here to find out more and to register, or call us for more information.

September 18, 2013

Median Household Income Has Fallen For FIVE YEARS IN A ROW

If the economy is getting better, then why do incomes keep falling?  According to a shocking new report that was just released by the U.S. Census Bureau, median household income (adjusted for inflation) has declined for five years in a row.  This has happened even though the federal government has been borrowing and spending money at an unprecedented rate and the Federal Reserve has been on the most reckless money printing spree in U.S. history.  Despite all of the "emergency measures" that have been taken to "stimulate the economy", things just continue to get worse for average American families.  Americans are working harder than ever, but their paychecks are not reflecting that.  Meanwhile, the cost of everything just keeps going up.  The Federal Reserve insists that inflation is "low", but anyone that goes grocery shopping or that stops at a gas station knows that is a lie.  In fact, if inflation was calculated the exact same way that it was calculated back in 1980, the inflation rate would be somewhere between 8 and 10 percent right now.  Paychecks are being stretched more than ever before, and that is probably the reason why about three-fourths of the entire country is living paycheck to paycheck at this point.

According to the Census report, the high point for median household income in the United States was back in 1999 ($56,080).  It almost got back to that level in 2007 ($55,627), but ever since then there has been a steady decline.  The following figures come directly from the report, and as you can see, median household income has fallen every single year for the past five years...

2007: $55,627
2008: $53,644
2009: $53,285
2010: $51,892
2011: $51,100
2012: $51,017

How far does that number have to go down before we admit that we have a major problem on our hands?

The new Census report also revealed that 46.5 million Americans are living in poverty. 

As noted, this is far higher than when Barack Obama first entered the White House...
During the four years that marked President Barack Obama’s first term in office, the real median income of American households dropped by $2,627 and the number of people on poverty increased by approximately 6,667,000, according to data released today by the Census Bureau.
So why does Obama continue to insist that things are getting better?

Right now, one out of every five households in the United States is on food stamps.

One out of every five.

How bad does it have to get before we acknowledge that what we are doing economically is not working.

Will half of us eventually end up on food stamps?

In addition, the new Census report also says that 48 million Americans are currently without any kind of health insurance whatsoever.

The biggest culprit for this is the stunning decline of employment-based health insurance.  Back in 1999, 64.1 percent of all Americans were covered by employment-based health insurance.  Today, only 54.9 percent are covered by employment-based health insurance.

And of course as I noted yesterday, even more companies are going to be dumping health insurance plans because of Obamacare.

All in all, what we have been witnessing over the past decade and a half is the systematic evisceration of the middle class.

After accounting for inflation, right now 40 percent of all U.S. workers are making less than what a full-time minimum wage worker made back in 1968.

Over the years, our incomes have certainly gone up, but inflation has increased even faster.

Back when I was growing up, $50,000 a year sounded like a whole lot of money.  I thought that anyone should be able to live a very comfortable lifestyle on that amount of money.

Unfortunately, $50,000 a year doesn't go nearly as far as it once did.

If you take the current median household income ($51,017) and divide it up by 12 months, it comes to just a little bit more than $4000 a month.

And as I noted last year, it is not easy for the average American family to do everything that it needs to do on $4000 a month...
So can an average family of four people make it on just $4000 a month? 
Well, first of all you have got to take out taxes.  After accounting for all forms of taxation you will be lucky if you have $3000 remaining. 
With that $3000, you have to pay for all of the following... 
*At Least One Vehicle
*Vehicle Repairs
*Car Insurance
*Health Insurance
*Dental Bills
*Home Or Rental Insurance
*Life Insurance
*Student Loan Debt Payments
*Credit Card Payments
*Entertainment (although it is hard to imagine any money will be left for that) 
Have I left anything out? 
The truth is that $3000 does not go as far as it used to. 
No wonder American families are feeling so stretched financially these days.
The new Census report also noted that the gap between the wealthiest Americans and the rest of us continues to grow.  There is certainly nothing wrong with making money, but if the economy was working properly all Americans should be able to have the opportunity to better themselves.
According to CNBC, the 400 wealthiest Americans now have more money than the poorest 50 percent of all Americans combined.

So why is this happening?  Well, certainly there are a lot of reasons, but in recent years quantitative easing has definitely played a role.  As I noted in my recent article about the Federal Reserve,
quantitative easing has been incredibly good for those with stocks and other forms of financial investments.  All of that liquidity has juiced the financial markets, and the extremely wealthy have been loving it.

Meanwhile, things just continue to get even tougher for most of the rest of the American people, and the frightening thing is that the next major wave of the economic collapse has not even hit us yet.
How bad will things be for average American families once that happens?

And there are certainly lots of troubling signs as we get ready to head into the fall season...

-Total mortgage activity has dropped to the lowest level that we have seen since October 2008.

-One of the largest furniture manufacturers in America was just forced into bankruptcy.

-According to the Wall Street Journal, the 2013 holiday shopping season is already being projected to be the worst that we have seen since 2009.

Hopefully the slow and steady economic decline that we have been experiencing will not accelerate into a full-blown avalanche any time soon.

But I would definitely get prepared just in case.