Wealthbuilder Stock Market Brief 1st. April 2014.

World Financial InStability. I came across the inverted pyramid below last year which outlines the “asset backing

configuration” between gold, cash and all other financial instruments.

I decided to try to put some real figures behind this graphic. What I discovered is summarized

below.

When you review this summary you begin to understand why many are beginning to believe the

current “fiat” (Fiat = let it be) money system is becoming increasingly unstable and cannot

continue in its present “arrangement”.

The one statistic that I discovered which really worries me is the fact that in 18 years total

currency in circulation (item 2.) has grown from 1 trillion dollars to the current level of 4 trillion

dollars.

This has all the hallmarks of hyper-inflation to me and explains the explosion in food,

commodity and equity prices world –wide despite lackluster economic performance.

Summary: (World: US Dollars: Approx).

11. Total Value of Derivatives (Notional): 1,200 Trillion (1.2 Quadrillion).

10. Total Value of All Assets (Fin. /Real Estate): 318 Trillion (8. Plus 9.)

9. Total Value of Financial Assets: 198 Trillion

8. Total Value of Real Estate: 120 Trillion

7. All Debt. (Owned by Banks): 257 Trillion (5. Plus 6.).

6. Total Priv. Debt. (Owned by Banks): 193 Trillion (Priv./Corporate).

5. Total Gov. Debt. (Owned by Banks): 64 Trillion

4. World GDP: 60 Trillion

3. Total Value of Derivatives (Cash Val.): 20 Trillion

2. Total Value of Circulating Currency: 4 Trillion

1. Total Value of Gold Reserves: 1.5 Trillion

Note1: Nearly 16% of world GDP is income earned on dividends, interest and rent: 9.5

trillion dollars. A further approximately 15 % is earned by banks through “fractional

reserving”: 9 trillion dollars. Thus annually nearly 18.5 trillion dollars, or 31% of world

GDP, is income earned but unworked. This is the financial reality behind the phrase: “the

money system is not physically working and is therefore “virtual”, not “real”.

Note 2: Worldwide the ratio of private debt to public debt is approx. 4:1 respectively.

Note 3: Total Chinese debt: 18 trillion dollars.

Note 4: Euro Dollar debt: 16 trillion dollars.

Note 5: World fractional cash reserve ratio: 64. (257 trillion dollars, total bank debt,

divided by 4 trillion dollars, total cash).

Note 6: World fractional gold reserve ratio: 171. (257 trillion dollars, total bank debt,

divided by 1.5 trillion dollars, total Gold reserves).

Note 7: Hyper-Inflation Trending Up With Growing Momentum: For that last 20 years the

level of “cash in circulation” has doubled every 5 years approx. Cash in circulation as

opposed to debt is a true barometer of hyper-inflation tendencies. (See Von Mises “Human

Action”).

Note 8: Funds under management “off-shore” 18 trillion dollars.

This “off-shore” reality is greatly motivated by the fact that even though the American

corporate tax rate is 35% approx. “International” branches (affiliates) do not pay this tax

until profits are repatriated. In the main most of the American Fortune 500 companies

earn the majority of their income internationally. Very often these trillions of deferred

interest free tax loans remain “abroad” until “tax amnesties” are arranged. Under such

amnesties the 35% rate is adjusted down to the region of 5%. (Reference: 2004 Bush tax

amnesty “Homeland Investment Act”. Adjusted rate was 5.25%).

Such “amnesties” make a mockery of the official American corporate tax rate.

If the correct rate of tax was paid it would greatly assist the American administration to

balance its budget and introduce policies to assist the struggling American citizen escape

from the never ending “Great Recession of 2000”.

This ”Great Recession” is in effect a depression in any man’s normal language. In large

part this depression is a result of the “virtual” financial world summarized above. I.E there

is lots of “money” but no real working activity, no velocity of circulation because the

world’s financial system is broken and is in the process of collapsing in on itself.

Technical Bullish Breakout Signals. On the Dow Industrials, the Dow Transports, the McClennan Oscillator Index, the McClennan

Summation Index, the Advance-Decline Line, the market is giving “buy” signals this Tuesday.

I attach charts of the fore-mentioned for your review.

Dow Industrials: Daily

Dow Transports: Daily

McClennan Summation Index: Daily

McClennan Oscillator: Daily

Advance/Decline Line: Daily

Technically speaking this augurs well for the up-coming earnings season.

Even consumer staples, which have been in a short term bear, gave a gentle bullish break-out

signal.

Consumer Staples ETF: XLP: Daily

As you can see from the chart above, for nearly 20 trading days (4 calendar weeks) the

Consumer Staples ETF: XLP had been caught in a tight trading range (a line).

I told all my students to closely observe where the “break-out” would occur on this ETF. I

pointed out that, on probability, the break-out direction would indicate April’s earning season

trend.

Charts Courtesy Worden Bros.

© Christopher M. Quigley 1st April 2014