Mish's Global Economic Trend Analysis

Global PEs and Price-to-Book Valuations; Bubble Debate Revisited
MH-17 Yet Again, Poring Over the Data (and Translations); Serious Factual Errors by Time and Western Media
German Central Bank Lists All It Gold in 2,302 Page Report
Ben Bernanke: Superman or Fool?

Global PEs and Price-to-Book Valuations; Bubble Debate Revisited

Posted: 07 Oct 2015 05:22 PM PDT

In JP Morgan's Quarterly Market Guide a pair of charts on page 31 caught my eye.

Forward PE Estimates

click on chart for sharper image

I don't have any faith in forward PE estimates. They tend to be overly optimist and subject to numerous "one-time" writeoffs.

Instead, I recommend watching 10-year smoothed PE ratios. See discussion below.

Nonetheless, please note that even on a forward-basis, the S&P 500 ratio is well above most other markets.

Price to Book Valuations

On a price-to-book basis, US equities are twice as expensive as numerous other markets.

Case-Shiller Smoothed PE

The Case-Shiller PE is a Cyclically Adjusted Price-to-Earnings ratio, commonly known as CAPE, Shiller P/E, or P/E 10 ratio.

To calculate "CAPE", you divide the current price by the inflation-adjusted average of the last ten years of earnings.

Here is a link to the Current Shiller PE, updated daily. A better-looking chart is shown below.

Bubble Debate Revisited

Doug Short at Advisor Perspectives does periodic updates to the Shiller PE. His latest was on October 1 in Is the Stock Market Cheap?

On a PE/10 basis stocks are in the fifth quintile range signalling extreme overvaluation. Higher smoothed PEs happened in 1929, the dot-com bubble, 1902, and earlier this year.

The historic P/E10 average is 16.6. After dropping to 13.3 in March 2009, the ratio rebounded to an interim high of 23.5 in February of 2011 and then hovered in the 20-to-21 range. It began rising again in late 2013 and hit a new interim high of 27 in February of this year. It has now dropped below that high.

Of course, the historic P/E10 has never flat-lined on the average. On the contrary, over the long haul it swings dramatically between the over- and under-valued ranges. If we look at the major peaks and troughs in the P/E10, we see that the high during the Tech Bubble was the all-time high above 44 in December 1999. The 1929 high of 32.6 comes in at a distant second. The secular bottoms in 1921, 1932, 1942 and 1982 saw P/E10 ratios in the single digits.

For further discussion on just how over-valued US equities are, please see Bubble Debate; Equity Allocations vs. Shiller PE; Simple World.

Mike "Mish" Shedlock

MH-17 Yet Again, Poring Over the Data (and Translations); Serious Factual Errors by Time and Western Media

Posted: 07 Oct 2015 11:47 AM PDT

For most, the shoot-down of flight MH-17 over Ukraine is a forgotten memory. Western media has continually trumped up one of three stories.

Russian-backed rebels did it
Russia did it
Russian-backed rebels did it with Russia's help

The extent to which Western media fabricated all sorts of lies to make those claims is still not widely known or understood.

Reader Jacob Dreizin, a US citizen who speaks and reads Russian, and who works for the US government (but speaks only for himself), just recently decided to review some video footage and translations offered by Time Magazine on July 17: Russia Is Blocking Justice for the Victims of Flight 17.

Dreizin emailed Time about factual errors in the article a few days ago. He sent this letter to Time.

Dear Sir or Madam,

I have found a serious factual error—in fact, a complete fabrication—in your July 17, 2015 piece titled How Russia Is Blocking Justice for the Victims of Flight 17, which is posted here:

http://time.com/3963346/mh17-malaysia-airlines-flight-17-russia-ukraine/

In the piece, your author, Simon Shuster, states as follows:

On the day of the tragedy, the Ukrainian State Security Service, which is known as the SBU, released what it claimed to be an intercepted phone conversation between Kozitsyn and one of his fighters. According to the SBU's recording, the fighter reports to Kozitsyn that they have shot down a civilian plane by mistake. "There's a whole sea of corpses, women and children," the fighter says. The voice identified as that of Kozitsyn does not seem moved by this information. "They shouldn't have been flying," the voice says. "There's a war going on here."

I am a native Russian speaker and I have listened to this recording, which commences at around 1:50 at the following link:

https://www.youtube.com/watch?v=MCMFhiqp9R0

I can tell you that in this recording, despite the allegations of your author, who claims to be a native Russian speaker (as per his LinkedIn account), at no time does either party to this particular conversation claim to have shot down an airplane.

Rather, as per the SBU's accurate translation, which is shown in subtitles on the YouTube link, and which I confirm is correct, the unnamed alleged rebel speaking with a person alleged to be Kozitsyn merely recounts his observations of the wreckage of a plane that he believes has been shot down. He takes no credit for shooting it down, nor does he state or suggest who shot it down.

Why, then, does your writer, Simon Shuster, state "According to the SBU's recording, the fighter reports to Kozitsyn that they have shot down a civilian plane by mistake"?

Mr. Shuster's account substantially departs from his own source material. Why?

Of course, the SBU's intent is to showcase a number of alleged rebels talking about an aircraft going down and to imply (by way of their interest in the matter) that they were responsible for the MH17 disaster. Mr. Shuster, like so many others over the last 14-some months, seems to have taken that implication and ran with it, to the point of actually putting words into the recording that are simply not there!

Another point of interest: In the first recording in the above link, which starts at around 0:18 in the link, the SBU allegedly presents the rebel commander Igor Bezler talking with his alleged Russian handler as to his knowledge of a certain rebel unit shooting down a plane around 30 minutes prior to the conversation occurring. The SBU translation subtitles also suggest that Bezler can see smoke coming from the crash site, although to me that part is indiscernible.

Given that Bezler's headquarters and main zone of control (the city of Gorlovka) was roughly 25 to 30 miles northwest of the MH17 debris field, it is highly likely that—assuming it is in fact him on the recording—the conversation relates to a prior shoot-down of a Ukrainian combat plane in the Gorlovka area, i.e. something that did in fact take place before the downing of MH17.

In any case, there is nothing within the recording itself to identify a place, date, time, or even the parties to the conversation—we have only the SBU's word as to who these people are and when the conversation is taking place.

Also of interest, the second recording in the link (starting at 0:43) is unnatural in places and, to a Russian speaker such as myself, seems to be either a splice of two or three separate conversations, or else one conversation that has been condensed (i.e. pieces of it have been removed, possibly to present an inaccurate picture of the whole.)

Last but not least, the fact that this diverse montage (totaling three separate conversations) was jumbled together in one video, subtitled in English, and posted to YouTube, not to mention pitched to the media, all just a few hours after MH17 went down (note the date on the link), is suspicious to say the least. I work for the U.S. Government, and (though I am not speaking for the Government or any of its agencies or offices in any way whatsoever) I have never seen Government move so fast—it is simply inconceivable.

My main point in writing you is to inform you that your writer, Simon Shuster, has made a bold, significant claim on your website that is patently and demonstrably false—and moreover, one that he must have known to be false.

Thus, I request that you issue a public retraction on this matter.

Thank you for your attention.
Respectfully,

Jacob Dreizin

Video in Russian - English Subtitles

Link if video does not play: Malaysia Airlines: Phone calls of terrorists intercepted by Security Service of Ukraine.

I commend Dreizin for taking a stand for the truth, and I hope it does not cost him his job.

Bottom Line

Neither the US nor Ukraine is interested in the truth if Ukraine is responsible.
Neither Russia nor the Rebels are interested in the truth if the rebels or Russia is responsible.
Blatant lies and sloppy media reporting by Ukraine and Western media is clearly rampant.
Most have jumped to conclusions believing biased reporting and outright fabrications by their government.
A small subset of us would like to know what really happened, regardless of whom is to blame.

Shortly after the incident, allegations similar to those made by Simon Shuster were widely trumped up as "proof" the rebels did it. The ensuing propaganda campaign was an unfortunate success, at least to the small subset of us who want the truth be known, no matter which side is to blame.

Mike "Mish" Shedlock.

German Central Bank Lists All It Gold in 2,302 Page Report

Posted: 07 Oct 2015 09:51 AM PDT

In response to numerous allegations of missing gold, stolen gold, gold filled with tungsten, rehypothecated gold, leased gold, etc., Germany's Central Bank has Listed All of Its Gold.

In 2012 the Bundesbank found itself at the center of a storm when the German Federal Court of Auditors called on the central bank to physically take stock of its gold holdings outside the country as they had never been assessed. The Bundesbank opted not to accede to the auditors' request and do a stock take on its gold, noting that there were "no doubts about the integrity, reputation and safety of these foreign depositories."

This response proved to be ill-judged as it only served to fuel speculation over the safety of German gold and even questions about whether it exists at all.

In response to the backlash, the Bundesbank announced in January 2013 that they would begin repatriating gold from vaults in Paris and New York. A year later there was another change of heart following the federal election which resulted in the Free Democratic Party, which was in favor of full repatriation, being dropped from Angela Merkel's government.

Budget spokesman for Merkel's CDU/CSU bloc declared "the Americans are taking good care of our gold."

That might have been that, if not for the tenacity of campaigners such as Peter Boehringer, whose "repatriate our gold" blog continued to seek answers on how much gold there was in New York. He was particularly concerned that the Bundesbank claimed to have a full list of all its gold holdings but was refusing to publish it due to security reasons.

Well, this morning Germany's central bank appears to have had yet another change of heart and has published on its website the full list of all its gold holdings and where they are located.

It is very detailed, listing the location, inventory number, weight and fineness of every single bar. It is also very, very long. 2,302 pages long, to be precise.

Gold Listing

Those who wish to slog through 2,302 pages, can do so in this report: The Deutsche Bundesbank's gold holdings as per 31 December 2014.

There is nothing much to see really, just pages, and pages, and pages that look like this:

Will This Stop the Critics?

Of course not. They will demand an audit, want every bar checked, then returned, then audited periodically.

After all, a paper list that details where every bar should be, does not prove the bars are precisely where the report says they are.

That said, in regards to central bank gold holdings, I never believed any of the tungsten stories, missing stories, rehypothecated stories, etc.. But the only way to prove it is to have the gold returned.

So, the stories won't stop.

Mike "Mish" Shedlock

Ben Bernanke: Superman or Fool?

Posted: 07 Oct 2015 12:53 AM PDT

Ben Bernanke would like you to believe he is superman.

In the grandest self-serving article in history, Ben Bernanke wrote an op-ed for the Wall Street Journal How the Fed Saved the Economy.

Not once did Bernanke comment on who created the crisis. Not once did Bernanke self-assess as to his own shortcomings.

The truth of the matter is Ben Bernanke is attempting to re-write history.

Bernanke: Why are we still listening to this guy?

The following video should make people think twice about listening to anything that Chairmen of the Fed Ben Bernanke says. It's a compilation of statements he made from 2005-2007 that will have your head spinning. Please play!

Link if video does not play: Ben Bernanke - Why are we still listening?

The answer to why we are listening should be obvious: Wall Street is enamored with and bows to power. It does not matter one bit how economically illiterate those in power may be.

Superman or Fool?

So, is Bernanke a superman or a fool?

Actually, Ben Bernanke is a very bright man. He sees a chance to sway public opinion and is doing it.

However, Bernanke cannot and will not self-assess. He will not admit that absurd Fed policies helped span the dot-com bubble and 100% created the housing bubble.

Instead he writes a book that may as well be entitled "Ben Bernanke, Superman: My Biography".

This is an attempt to lay the blame for whatever happens next on Janet Yellen. But she may be forced to step down before the next crisis hits.

I wrote about that on September 26 in How Long Will Janet Yellen Last as Fed Chair? Fed Declines to Comment on Her Health, I Will.

One reader commented I should not be so cold about this. There is nothing cold here, just the simple truth that Yellen is in poor health.

Twice Removed

So here we are. Bernanke is no longer Fed chair, and assuming Yellen lasts long enough to hike, Bernanke has a scapegoat. Better yet for Bernanke, if Yellen steps down, Bernanke will be twice removed as Fed chair.

He sees an opportunity to whitewash his hands and he just took it. Is there a better way to kick off the offense than writing a self-serving, pompous op-ed in the WSJ?

Don't buy his book. History will not be so kind.

Mike "Mish" Shedlock

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Mish's Global Economic Trend Analysis

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