Month: April 2017

Authored by Chris Hamilton via Econimica,

The change in nations Core populations (25-54yr/olds) have driven economic activity for the later half of the 20th century, first upward and now downward.  The Core is the working population, the family forming population, the child bearing population, the first home buying, and the credit happy primary consumer.  Even a small increase (or contraction) in their quantity drives economic activity magnitudes beyond what the numbers would indicate.

To highlight the linkage of Core populations to economic activity, the chart below shows the European 25-54yr/old population vs. the best indicator of economic activity, total energy consumption (data available starting from 1980).  The implications are pretty straightforward.  European economic activity (& resultant energy consumption) will contract for decades, at a minimum, with the declining Core population.  The pie is shrinking and now it’s simply a fight for who gets bigger slices.

 

Given this, consider Germany was well aware of it’s post WWII collapsing birth rate and the impact of this on economic growth as this shrinking population of young made it’s way into the Core.  Consider Germany’s Core population peaked in 1995 and it’s domestic consumer base has been shrinking since, now down over 3.3 million potential consumers (about a 9% Core decline…remember a depression is a 10% decline in economic activity, which a 9% and growing decline in German consumers would have almost surely induced).

GERMANY

The chart below shows Germany’s Core population from 1950–>2040…but understand this is no guestimate through 2040.  This is simply taking the existing 0-24yr/old population (plus anticipated immigration) and sliding them into the Core through 2040.  Germany’s Core population is set to fall by over 30% or 10+ million by 2040 (far more than the 7 million Germans of all ages who died in WWII).

 

But Germany had a plan.  With the advent of the EU and Euro just as Germany’s Core began shrinking, Germany was able to avoid the pitfalls of a shrinking domestic consumer base, circumvent the strong German currency, and effectively quadruple it’s effective export market across Europe.  German exports, as a % of GDP, have essentially doubled since the advent of the Euro (22% in ’95 to almost 50% in ’16).  The chart below highlights Germany’s shrinking Core vs. rising GDP (primarily via exports) since 1995.

 

And this had the desired effect of turning what was a rising German debt to GDP ratio during re-integration of E. Germany into a falling ratio (chart below).

 

So the German motivation for the EU and Euro are fairly plain as are the resultant economic transfusion from South to North.  But for Germany to be a winner, there had to be a loser in this shrinking pie game.  Hello PIGS (Portugal, Italy, Greece, Spain), you lost.  As the old poker adage goes, when you don’t know who the sucker at the table is…it’s you.  Particularly when you “win big” at first and it all seems so easy…but then it all turns.

PIGS

The chart below shows the PIGS Core population peaking about 15 years later than in Germany but likewise clearly rolling over.  By 2040, the PIGS Core population will be back at it’s 1960 levels…down from the 2010 peak by 17 million or about a 30% decline.

But if we look at the PIGS combined GDP and Core population…we see a very different picture than in Germany.  The chart below shows the PIGS GDP turned down ahead of the Core population peak.  The rise in GDP in these nations was a credit bubble premised on cheap EU wide interest rates more appropriate for Germany.  Exports as a % of GDP (which were higher than Germany’s in ’95) have risen less than half of Germany’s increase (rising as a % primarily due to declining PIGS GDP).  Low German wage increases and high quality German goods helped displace PIGS domestic manufacturing base.

 

To extend the game a bit longer (and multiply the harm), un-repayable government debt has been substituted to keep the PIGS consuming since 2007 (chart below).

 

How it played out…

The chart below shows the impact of the implementation of the EU and Euro on the different parties.  Clearly the PIGS were fattened up on cheap credit.  These nations became used to unsustainably fast growth and the good life, buying really nice German exports and undermining their own national brands.

 

But then the phony PIGS growth turned to real and deep contraction (chart below).  However, the slowdown was quick and shallow for Germany and the BLICS.  French GDP likewise turned upward after a shallow contraction but did so on a large increase in debt and continuing high levels of unemployment.  Quite the opposite of the trends in Germany.

 

The raw trade data confirms Germany’s gain against an ageing domestic population came at the expense of the PIGS.

 

BLICS

And just to square the circle, I need to talk a little about the BLICS (Belgium, Luxembourg, Ireland, Cayman Island, and Switzerland…yes, I understand Cayman Island is not in Europe, but bear with me as it is a British Overseas Territory).  These nations with a total population of about 24 million have been disproportionate beneficiaries of the new EU system.  These financier nations have been the biggest winners of all with huge amounts of money flowing through them (BLICS GDP below).

 

But why would small to tiny financier nations be the greatest beneficiary of the new EU?  Untold quantities of nearly free ECB money & distortions does wonders for those who can get their hands on it.  In this respect, a peek at these nations US Treasury holdings is quite telling.  These tiny nations are now five of the top 13 foreign holders of US Treasury’s (Ireland is #3, and Cayman Island #5, Switzerland #6, Luxembourg #7, and Belgium has slipped to #13).  That these are America’s creditors is laughable really!

I’m just guessing but the timing and size of BLICS Treasury purchases sure looks like it was front running in conjunction with the ECB’s 2011 LTRO and subsequent 2014 TLTRO?!?  The chart below shows the BLICS Treasury holdings back to 2001.  “Financialization” writ large for nations that don’t produce much of anything.

 

In fact, since the July 2011 debt ceiling debate (debacle?!?) when Congress determined the US would never live within it’s means, it has been the BLICS that have done the heavy lifting to maintain the foreign Treasury bid while China (and cumulative BRICS) have been selling despite record dollar surplus’ (chart below).  As an aside, from ’00 through July ’11, China recycled about 50% of it’s dollar trade surplus into Treasury’s…from July ‘ll China only continues to sell Treasury’s despite record trade surplus…but luckily the BLICS stepped up just as China and the BRICS bowed out.

 

The chart below highlights that the BLICS are now, as of January 2017, the largest holder of US Treasury debt overtaking the declining holdings of both Japan and China.

 

Conclusion:

As Europe’s Core population collapses (and economic activity with it), the Euro and ECB seem to be serving a select few at the expense of the majority.  The imbalances and distortions will only grow as the attempts to mask who the Euro and ECB truly serve continue.  What little vitality exists is being transfused to prop up the few.  Hope this has been thought provoking and make of this what you will.

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Snowflakes at the ultra-liberal Northern Arizona University are demanding that their President, Rita Cheng, step down today after a student asked for her opinion on ‘safe spaces’ and got a rather shocking dose of reality as a reply. 

During a forum hosted by Cheng, NAU sophomore Breanna Kramer asked the following (per KPNX):

“How can you promote safe spaces, if you don’t take action in situations of injustice, such as, last week, when we had the preacher on campus and he was promoting hate speech against marginalized students?  As well as, not speaking out against racist incidents like blackface two months ago by student workers followed by no reform and no repercussions?”

And while Kramer expected a softball response from her school’s president, what she actually got was a heaping dose of ‘real life’…which, of course, immediately ‘triggered’ every snowflake within an earshot of the president’s ‘microaggression‘.

“As a university professor, I’m not sure I have any support at all for safe space.  I think that you as a student have to develop the skills to be successful in this world and that we need to provide you with the opportunity for discourse and debate and dialogue and academic inquiry, and I’m not sure that that is correlated with the notion of safe space as I’ve seen that.”

In the aftermath of the atrocity, NAU students took to Facebook to do what all snowflakes do when their bastions of liberalism refuse to bend to their every demand…namely, organize a protest…

 

Meanwhile, the mass-triggering event caused local news agencies to spring into action with a series of accusatory questions…

Q: What does President Cheng think about the NAU SAC asking for her resignation if she doesn’t provide a safe space for all students?

 

A: NAU is safe. Creating segregated spaces for different groups on our campus only [leads] to misunderstanding, distrust and [reduces] the opportunity for discussion and engagement and education around diversity. Our classrooms and our campus is a place for engagement and respect – a place to learn from each other.  NAU is committed to an atmosphere that is conducive to teaching and learning.

 

Q: Does she only bring up diversity and equality on campus when it opens up the school for grant and fund eligibility?

 

A: President Cheng has been addressing diversity and equality in her words and her actions since the day she arrived at NAU. Her leadership in advocating for our students and their success is reflected in the fact that our enrollment mirrors the diversity of our State.

 

Q: Is she willing to sit down with NAU SAC representatives (if she hasn’t already) to hear their concerns and see what she can do to address them?

 

A: Yes. The President is and has always been willing to meet with representatives of student groups. There were hundreds of people at Wednesday’s forum – faculty staff and students.  The few dozen who left, missed the opportunity to hear the questions of others, including several similar to theirs, and the answers that followed.

We’ll set the over/under at 1 week for Cheng’s remaining tenure at NAU….

 

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While today’s market was certainly more exciting than many had expected, first surging on the blockbuster ADP report, then plunging in the biggest intraday drop in 14 months after “some” Fed members warned stock prices are “quite high“, there is a chance that it will get even more exciting tomorrow, should either Trump or Xi utter a word “out of place” during the first summit between the two world leaders at Mar-A-Lago.

How should traders approach tomorrow’s key risk event? Courtesy of Bloomberg’s ex-FX trader Mark Cudmore, here are some thoughts.

With fundamental trading semi-paralyzed ahead of Thursday’s Trump-Xi meeting, it’s only prices that matter for the moment.

• The summit between the Chinese and U.S. leaders could have profound implications, but it’s nearly impossible to have any bias going in to the meeting. There’s genuine potential for both positive and negative surprises.
• As a result, markets are in a holding pattern as we wait to see whether risk-aversion is really ready to step it up a notch. Key levels across assets have not yet broken, with the 2.3% line in 10-year Treasury yields being the most critical.
• The context is a global economy that’s strengthening. Excess liquidity remains in the system meaning that yield and returns will continue to be chased overall. The flip side is that there are flickers of risk-aversion in markets that are not used to volatility.
• That environment leads to an adamantly divided market. On one side are those who cite growth and liquidity as a reason to always buy the dip. On the other, those who fear calamity, citing the idea that low volatility has induced excess leverage to chase returns and a misallocation of capital.
• I have sympathy with both views and while trading each individual asset requires conviction, sensible risk management of a portfolio requires a more balanced perspective. I believe markets are vulnerable to a larger correction this month, but the structural macro story leads me to be bullish longer-term, so I don’t expect a sustained bear market.
• Thursday’s high-profile meeting may not provide any concrete outcomes, but it’s likely to at least provide sufficient excuses for markets to act, even if it is on a pre-ordained path.

Unsatisfied by Cudmore’s take? Here are some more analyst opinions on what to expect tomorrow.

Citigroup Global Markets Asia (Ken Peng, investment strategist)

• “It’s more a bargaining game rather than one where punishments are doled out”
• Markets feel “comfortable” as there isn’t universal support in the Republican Party for a protectionist trade policy. Failure of the president’s health-care bill is also a factor
• Still, hard to predict how talks will pan out

Oanda Asia Pacific (Jeffrey Halley, senior market analyst)

• China will strive for market stability during the talks
• “The chances of the onshore- and offshore-traded yuan being allowed to trade materially weaker while Mr Xi is visiting the U.S. will be almost zero”

Guotai Junan Fund Management (Guo Rui, vice president)

• Don’t anticipate any news that will move markets
• “The meeting will be more likely about two leaders tentatively figuring out each others’ card hands. Trump tends to be hawkish on words, but the meeting itself signals there is common ground for cooperation”

ING (Jingyi Pan, markets strategist)

• “The market’s imagination appears to be running wild with the possibilities of the outcome from this meeting”
• That will likely make many stay on sidelines ahead of the meeting. “A pickup in volatility post event could nevertheless lure traders out”
• Trump’s past colorfulness when it comes to China’s perceived transgressions means talks could go a number of ways

ANZ (Khoon Goh, head of Asia research)

• Still a risk U.S. could take a strong line on China in the Treasury’s semi-annual currency report
• “Hopefully the Xi-Trump meeting will ease some of the tension”
• Lack of concern in markets shows traders don’t expect rhetoric over China being a currency manipulator to be followed through

Mizuho Bank (Ken Cheung, Asia currency strategist)

• Don’t expect any kind of deal out of the talks
• Don’t think China will be slapped with manipulator tag
• “We’re not looking for breaking news that would change the yuan’s outlook at the summit. The meeting will be smooth as Trump has softened his stance against China”

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Yesterday was the deadline for companies to submit bids for Trump’s “physically imposing” yet “aesthetically pleasing” border wall between the U.S. and Mexico.  And while the U.S. government has said they won’t disclose bids, rather just the names of companies actually awarded contracts on June 1st, some of the companies decided to disclose their plans themselves.  Below are a couple of our faves…

Gleason Partners of Las Vegas, for example, revealed its proposal to line the border wall with solar panels so that it could, among other things, sell electricity to Mexico to help pay for the wall.  Per the AP:

The panels would provide electricity for lighting, sensors and patrol stations along the wall. Sales of electricity to utilities could cover the cost of construction in 20 years or less, according to the company. Power could also be sold to Mexico.

 

“I like the wall to be able to pay for itself,” said managing partner Thomas Gleason.

 

Another company, Crisis Resolution Security Services, wants to turn the border wall into a massive tourist attraction with beautiful panoramic views of the desert landscapes.

Crisis Resolution Security Services Inc. of Clarence, Illinois, proposes a wall that is 56 feet (17 meters) high and 22 feet (7 meters) wide at the top — with plenty of room to allow tourists to enjoy desert views.

 

The height — nearly twice what the government envisions — would deter climbers, and its width would give the structure longevity, said chief executive officer Michael Hari.

Clayton Industries had the slightly different idea of storing nuclear waste under the wall.

Clayton Industries Inc. of Pittsburgh proposes storing nuclear waste along the wall in trenches that are at least 100 feet (30 meters) deep.

 

Money already collected by the U.S. Department of Energy from people who benefit from nuclear power would help pay for the wall.

 

The bid includes an option for hardware to convert the nuclear waste to energy.

Meanwhile, a San Diego company decided to focus on the “aesthetically pleasing” component of the RFP…

Concrete Contractors Interstate of San Diego proposed a polished concrete wall augmented with stones and artifacts specific to areas on the 2,000-mile (3,218-kilometer) border.

 

Russ Baumgartner, CEO of the company, says the wall should be “a piece of art.”

 

Customs and Border Protection’s solicitation says the wall should be “aesthetically pleasing” from the U.S. side. Baumgartner wants to decorate both sides.

 

…while DarkPulse Technologies chose to focus on the “physically imposing” part.

DarkPulse Technologies of Scottsdale, Arizona, proposes a concrete wall that can withstand tampering or attacks of any kind.

 

“You could fire a tank round at it and it will take the impact,” said company founder Dennis O’Leary.

 

Fiber sensors would be embedded in the concrete to immediately alert officials to any attempts to climb over or tunnel under the wall. It would be coated with a slick coating that would prevent climbing.

 

Finally, one snowflake organization, Otra Nation, proposed no border wall at all but rather the “world’s first shared co-nation.”

Otra Nation, a group of U.S. and Mexican citizens, proposed the world’s first shared co-nation along the border “open to citizens of both countries and co-maintained by Mexico and the United States of America.”

 

It would also create “nodes of cultural production” such as libraries, museums, galleries and workshops between San Diego and Tijuana, Mexico, and other spots with cities on both sides of the border.

 

It would prohibit oil drilling and mining and create a “hyperloop transportation system” for people and cargo.

We’re almost certain Trump will choose the Otra Nation option and just be done with this whole border wall thing.

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Authored by Mac Slavo via SHTFplan.com,

Whenever seismic activity kicks up on the planet, earthquakes, volcanoes and tsunamis are triggered.

Just how big, and how devastating, depends upon chance, and the build-up of pressures within the earth.

But anyway you slice it, places like Southern California, and globally, the Ring of Fire, are in the danger zone. Many say that it’s just a matter of time.

With that in mind, survival-minded individuals and disaster preppers have been trying to get ready, and help others get ready, too.

That’s sort of what happened when Chris Robinson and his Silicon Valley friends and associates got into ‘sketching ideas for tsunami-proof shelters.’

He says his boss drove home the idea, and brought it up over and over, until he came up with any idea…

… And started building his own tsunami-proof shelter that he hoped could survive a storm of any size, and keep he and his family safe even if the vessel tumbled, or got knocked.

As a one-man crew, Robinson went to town with simple plywood, and a lot of patience, until he came up with this fantastic DIY survival vessel, dubbed the ‘Tsunamiball’, featured on one of the best off-grid sites on the web.

via Kirsten Dirksen:

A couple years ago Chris Robinson was a former Facebook and PayPal art director with no boat-building (nor sailing) experience. Then the Tsunami hit Japan (a place where he’d lived and met his wife). He happened to be working in a startup incubator at the time with some “very smart people”, including an astronaut, and everyone was sketching ideas for tsunami-proof shelters.

 

To be sure, Robinson’s house boat isn’t done, and frankly, wouldn’t survive a disaster of any magnitude in its current condition. It hasn’t even been tested on the water.

But he hopes to use his pet project to inspire others into thinking of better designs, and improving his along the way.

As Wired Magazine reported:

Whether it helps out in a disaster or not, the project is fascinating and breathtaking.

In principle, it is very similar to the ‘Survival Capsule’ that SHTF reported on a little while back:

In the wake of an extreme threat – such as a tsunami or earthquake – this capsule could be the best place to withstand the impact, no matter what.

 

It is water-tight. It is extremely durable. It floats, and it can withstand against the impact of super-strong winds, crashes, heat and many other factors.

 

As the London Guardian reports:

 

This capsule, which features two small porthole windows so the occupants can see what is going on around them, was created to give individual groups and families more control of their survival in emergency situation than traditional ‘safe houses.’

 

It is designed to float so it will never be inundated by water levels rising too high, as they do in tsunami situations.

 

The sphere is designed to withstand the initial impact of a natural disaster, as well as sharp object penetration, heat exposure, blunt object impact, and rapid deceleration.

How’s your plan for survival? It’s time to think one through if you don’t have one.

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For the 40,000 people living in and around Knoxville, TN, Humana was the only insurance company providing healthcare coverage for the 2017 plan year.  That said, even with their monopoly in the market, Humana still couldn’t figure out a way to make money on the Obamacare exchanges in the 16 Tennessee counties where it was the sole insurer.  As such, the company has decided to cancel its coverage in 2018 potentially leaving Knoxville’s 40,000 residents with no healthcare options at all.

Per the map below from the Milwaukee Journal Sentinel, while most of Tennessee is covered by Blue Cross and Cigna, the 16 counties surrounding Knoxville in the eastern portion of the state will have to find a new insurer to fill in for Humana by July 1st or residents there simply won’t have access to healthcare for the 2018 plan year. 

 

And while Blue Cross and Cigna could theoretically expand their coverage map in Tennessee to pick up Humana’s former markets, Insuance Commissioner Julie McPeak said she’s “not optimistic” that would happen absent “some changes to the regulatory system, either by Congress or the administration.”  Which, of course, sets up Knoxville as ‘ground zero’ for the ‘Obamacare explosion’ predicted by Trump.  

Tennessee Insurance Commissioner Julie McPeak said she has had many “challenging conversations” with the state’s two remaining insurers — BlueCross BlueShield of Tennessee and Cigna — about covering the Knoxville market next year. The carriers, however, want more flexibility to limit their exposure to sick, costly enrollees, she said. For instance, they are concerned that Obamacare eliminated their ability to cap their lifetime payouts to their policyholders.

 

“I’m not optimistic that one of our existing insurers would like to expand their coverage area without some changes to the regulatory system, either by Congress or the administration,” said McPeak, who has criticized Obamacare.

 

Insurers have until July 1 to file their 2018 plans in Tennessee, but they’ll likely make their decision in the next month or two. Cigna said its participation depends on market conditions and regulatory approval of its policies. BlueCross BlueShield said it is still reviewing its options.

 

“The current uncertainty makes it difficult to assess what our product offerings for 2018 might be,” said Roy Vaughn, a senior vice president at the insurer, which has lost more than $400 million on the exchange over the past three years. “All options are on the table for 2018.”

Meanwhile, as we pointed out last summer, Humana was apparently still unable to make money in TN despite a 59% increase in premiums for the 2017 plan year… so one can only imagine how much higher rates will have to go in 2018 (data source:  Charles Gaba).

 

In the end, as we’ve noted before, the Obamacare exchanges around the country are stuck in a negative feedback loop where healthy people are refusing to sign up, which leads to losses for insurers, which leads to higher rates, which, of course, leads to even fewer healthy people signing up. 

In conclusion, it appears that Trump was right yet again:

ObamaCare will explode and we will all get together and piece together a great healthcare plan for THE PEOPLE. Do not worry!

— Donald J. Trump (@realDonaldTrump) March 25, 2017

The Democrats will make a deal with me on healthcare as soon as ObamaCare folds – not long. Do not worry, we are in very good shape!

— Donald J. Trump (@realDonaldTrump) March 28, 2017

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In the aftermath of today’s main political event, the removal of Steve Bannon from Trump’s National Security Council, the punditry and the public have been eager to find out if this was a voluntary transition – in Bannon’s own words “I was put on to ensure that [Susan Rice’s NSC] was de-operationalized. General McMaster has returned the NSC to its proper function” – or whether there was a behind the scenes conflict between Bannon and Trump or others in the administration – Reuters reported that Bannon’s removal from the NSC was seen as a boost to H.R. McMaster, who officials said has struggled to work together with Bannon.

And while it will hardly provide a definitive answer, especially to skeptics, moments ago Fox News’ Martha MacCallum sat down with Vice President Mike Pence for a wide-ranging interview. Pence also addressed the major news stories of the day, where of particular interest was the discussion on the removal of Steve Bannon.

Asked if the NSC move was a demotion for Bannon, Pence said “not for Steve, not for Ton. These are very highly valued members of our administration. They’re going to continue to play important policy roles. But I think with H.R. McMaster’s addition as our National Security Advisor – a man of extraordinary background in the military – this is just a natural evolution to ensure the National Security Council is organized in a way that best serves the president in resolving and making those difficult decisions,” Pence said.

TONIGHT – @marthamaccallum interviews @VP Pence on #First100 – Tune in at 7p ET on Fox News Channel! http://pic.twitter.com/opQMZ17RBt

— Fox News (@FoxNews) April 5, 2017

Pence also said that Americans “have a right to know” details about allegations that President Obama’s National Security Adviser Susan Rice asked for the identity of Trump transition team members to be unmasked in intelligence reports.

“Well I think the American people have a right to know what was going on. And we have every confidence that intelligence committees in the House and the Senate will get to the bottom of all of these allegations,” Pence told Fox News. Rice became the subject of ire from Trump allies earlier this week after media reports said the former Obama official requested the identities of transition team members be unmasked in reports about surveillance of foreign targets. Rice on Tuesday did not deny that she requested the unmasking of identities, but said she would not have done so for political reasons.

Pence, when asked if Rice should testify in front of Congress, said such a decision is up to lawmakers. “But I would say the American people have a right to know if there was surveillance of any private citizen in this country,” he added in the Fox News interview.

“And the identity of those citizens was revealed, people ought to have the right to know why. And the fact that it involved out campaign and our transition should be deeply troubling to anyone cherishes civil liberties in this country.”

Trump, in an interview with the New York Times  earlier on Wednesday, said he thought Rice committed a crime.  “Do I think? Yes, I think.” Trump told the newspaper when asked.

.@VP reacts to Susan Rice "unmasking" story: "I think the American people have a right to know what was going on." #First100 http://pic.twitter.com/4G8KK1G897

— Fox News (@FoxNews) April 5, 2017

Another pertinent topic touched upon by Pence was the alleged chemical weapons attack in Syria, which he said appears to be the work of Syrian President Bashar al-Assad’s regime, and which prompted Trump this afternoon to suggest that his Syria policy may change as a result.

“No American can look at those images and not be heartsick,” Pence said. “It is a reflection of the failure of the past administration to both confront the mindless violence of the Assad regime and also hold Russia and Syria to account for the promises that they made to destroy chemical weapons.”

Finally, when discussing Trump’s upcoming meeting with Chinese President Xi Jinping, Pence said he’s expecting a “productive discussion” about the U.S.-China economic relationship. He added that he expects North Korea and its burgeoning hopes of developing nuclear weapons will also be discussed.

“As the president said this weekend, if China won’t deal with North Korea, we will,” Pence said.

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Via Craft.co,

Since 1955, Fortune Magazine has released an annual list of the highest revenue generating companies in the US – the Fortune 500. In 2016, the US Fortune 500 companies generated $12 trillion in combined revenue, accounting for over two-thirds of US GDP, and employed 27 million people worldwide.

In today’s dynamic economy, we know some companies and sectors are growing rapidly and others are struggling. We wanted to see which of the Fortune 500 are growing and shrinking the fastest, and which sectors.

In the Craft company database, we looked up revenue for these 500 companies over 2014-16*, and calculated the average annual growth rate in that 3 year period.

We found that only 62%, 309 companies, had positive revenue growth and 38%, saw their revenues decline. Healthcare was the fastest growing sector, perhaps benefiting from the regulatory environment, and Technology came in second, driven by relentless innovation in Silicon Valley. The Energy sector declined the most, matching a steep drop in the global oil price.

Here are the 50 fastest revenue growth companies in the US Fortune 500.

XPO Logistics, providers of transport and logistic services was the fastest growing company, with a compound average growth rate (CAGR) of 230%. This growth was the result of numerous acquisitions in 2015, and 2016 was the company’s first year in the Fortune 500 list, recording $7.6 billion in revenue.

NGL Energy Partners, an energy conglomerate was the second fastest growing company, with 95% CAGR.

Overall, 83 companies grew revenue at an impressive 10% CAGR or higher during this period.

59 of the Fortune 500 saw their revenues decline by 10% or more. Here are the top 10 fastest shrinking revenue companies from the list. 

The company with the largest decline was Hess, oil and natural gas producers, whose revenue declined 58%. The next fastest shrinking company was Marathon Oil, which declined 38%. With the exception of SuperValu, a Minnesota-based food and drug retail chain, 9 of the 10 fastest shrinking revenue companies were in the energy sector.

Looking further into the fastest growing and shrinking sectors, we calculated average revenue growth weighted by the percentage of total revenue generated by each sector. The table below ranks sectors by growth rate, weighted by total revenue.

We also analyzed the list by geography to see if there were any patterns in terms of where growth was taking place across the United States. We grouped companies by State in which they have their HQ, and calculated average revenue growth weighted by the percentage of total revenue in each state.

The table below ranks the states by fastest revenue growth and decline. Note we only included states with 5 or more companies headquartered there.

California was the fastest growing state, with 51 of the companies headquartered there, growing at an average of 5% annually. 20 of these 51 companies are in the Technology sector, and include Facebook, Salesforce, Netflix, Apple and Alphabet.

The second fastest growing state was Washington. The 12 Washington-based companies grew at an average of 2%, with the fastest company being Amazon, which grew at 20%.

Unsurprisingly, given the dominance of Energy companies, Texas was the fastest declining state, with the 50 companies headquartered there, losing a weighted average of 17.5%. That was followed by New York, where 55 companies lost revenue at a weighted average of 3% annually.

The number of technology companies in the Fortune 500 has steadily increased since 1955, and this sector saw the second highest revenue growth during this period.

The following table shows the growth rates of the 47 companies in this sector.

In this sector, 72% of companies had positive revenue growth, Social networking giant Facebook was the fastest growing company in this sector, with 51% annual revenue growth. Micron Technology, providers of semiconductors came second, with 40% revenue growth.

Netflix, an online video streaming platform was a new entrant to the Fortune 500 List in 2016, had the 4th fastest revenue growth in this sector, at 24%.

The fastest shrinking company in this sector was data communications and telecoms provider Motorola Solutions, declining 19%.

There were more companies in the US Fortune 500 with positive growth than negative, and the fastest growing companies grew at a quicker rate than rates of decline in the shrinking companies. Overall, however, the entire group actually had slightly negative growth in the period. In 2014, the combined revenues of the 500 companies were $12.069 trillion. In 2016, that figure stood at $11.995 trillion, a decline of 0.31%. It’s relatively stable at the top, however, it’s clear that at scale it becomes harder and harder to drive growth. And in the flux of the modern economy, there are plenty of companies whose biggest revenue days are behind them.

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It’s been more than seven years since the ‘great recession’ officially ended, but while Fed policies have successfully generated massive asset bubbles which have accrued solely to the benefit of America’s wealthiest, the majority of American families remain as vulnerable to financial disaster as they were during the height of the crisis.

In fact, a recent study found that some 50% of Americans are woefully unprepared for a financial emergency with nearly 1 in 5 (19%) having absolutely no savings set aside to cover an unexpected expense.  Meanwhile, nearly 1 in 3 (31%) Americans couldn’t write a $500 check to cover an unexpected household emergency expense if they had to, according to a survey released by HomeServe USA, a home repair service.

Moreover, a separate survey released Monday by insurance company MetLife found that 49% of employees are “concerned, anxious or fearful about their current financial well-being” with less than 40% reporting that they’re “in control” of their finances.

 

If you’re like us, then perhaps you’re confused by how the information above jives with the Fed’s assertions that ‘everything is awesome’ which seems to be reinforced by new daily highs in equity markets. 

Of course, the issue is that the overwhelming majority of Americans haven’t participated in the Fed’s latest asset bubbles and are instead still crippled under the same amount of debt as they had during the recession. In fact, the New York Federal Reserve on Monday predicted that total household debt will reach its previous peak of $12.7 trillion this year with lower mortgage balances being offset by much higher student and auto debt.

 

For evidence of ‘main street’ America’s struggles with soaring debt balances, one has to look no further than the shocking delinquencies of 2016 vintage subprime auto ABS structures which are underperforming even 2007/2008 vintage securitizations.

 

And while most have attributed the rising delinquencies solely to deteriorating lending standards and an increasing mix of ‘deep subprime’ loans, UBS Global Macro Strategist, Matthew Mish, thinks there is a better answer, namely failed Fed policies. 

As we’ve also argued over the years, while the Fed’s misguided QE and interest rate policies have done a masterful job of creating asset bubbles around the world they’ve done precious little to actually stimulate economic/wage growth, in real terms.

In our view, the root causes of the rise in delinquency rates can be traced back to US consumer income inequality and aggressive easing in lending conditions, primarily from non-bank lenders. In short, the mosaic we see is one where central bank reflation efforts, namely QE and low interest rate policies, have been more successful at fuelling higher asset prices and wealth creation for a subset of the consumer and less effective in stimulating real income growth (particularly at the median and below). Wealth creation becomes self-reinforcing in an environment of financial repression, with more cash looking for opportunities for deployment. For the financial sector that means more loan growth, and many less regulated, non-bank financial intermediaries have happily filled the void, incentivized by low interest rates that help sustain a lower cost of capital for themselves and lower funding costs for their borrowers.

 

However, the overall credit quality of borrowers has not kept pace with improvement in the aggregate economy. Our prior Evidence Lab work posits that about 38% of US consumers do not generate positive cash flow and roughly 25-30% of US consumers have not seen improving consumer finances (i.e. they do not own their own home or have significant wealth tied to stock markets). As of Q4’16, 18% of US consumers indicated they were likely to default on one loan payment over the next 12 months vs. 13% in Q3’16. This cohort of at-risk consumers reported being about 4x as likely to embark on a major durable goods purchase (e.g. house, car) in the next year.

 

This is not just a theoretical issue, but perhaps a problem already. 37% of those aged 21-34 in Q4’16 stated they were likely to default on one loan over the next 12 months, up from 27% in Q3, and outpacing other age brackets. We have only asked this specific question twice before in our Evidence Lab Survey and will be keen if these trends continue in our Q1 survey

 

And while the subprime auto market, on a standalone basis, may not represent the ‘systemic risk’ that subprime housing did in 2007, when combined with outstanding subprime balances on student loans and other types of debt it’s a $1.3 trillion issue.

Is subprime auto lending too small to matter from a financial stability point of view? In isolation, yes. According to TransUnion, subprime auto lending balances outstanding total $179bn, or 16% of all auto loans outstanding. And subprime balances are about 1.2x above balances as of Q3’09. However, our earlier thesis would suggest subprime auto may be too narrow a lens to view the debate. More broadly, the good news is that subprime mortgage debt outstanding totals $567bn, or 7% of all mortgage loans. Subprime balances are about 0.4x 2009 levels. The bad news is subprime student loans balances total $370bn, or 30% of all loans outstanding. And balances are 2.3x 2009 levels. Subprime credit card debt totals $113bn ($88bn bankcard, $25bn private label) – reflecting 12% and 20% of all loan balances, respectively, and about 0.8x 2009 levels. And subprime personal loan balances total $17bn, or 16% of all debt, and 1.1x levels seen in 2009 (Figure 7).

 

In short, we estimate subprime consumer debt outstanding totals a still significant $1.25tn, comprised primarily of mortgage, student and auto loans.

 

But, as UBS concludes, the next massive subprime debt unwind won’t be that big of a deal because this time around all of the risk has been laid off on taxpayers…

Comparatively, however, debt levels outstanding are down from 2009 peak levels near $1.9tn. In addition, loan loss risk is increasingly borne by the government (e.g., student, FHAbacked mortgage loans), not the banks.

via http://ift.tt/2ncNmC8 Tyler Durden

Authored by Michael Lebowitz via 720Global,

“The record of history is absolutely crystal clear. There is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.”  – Milton Friedman

Whether one thinks of a market as barter, a grocery store, internet commerce or the New York Stock Exchange, the concepts behind each of them are identical.  In all of these marketplaces, people have resources which they are willing to give up in order to gain something else they deem as more valuable.

If I own a coop full of chickens that produces two dozen eggs every week, then I am not likely to pay for eggs in the grocery store.  More likely, a grocer may be willing to buy my eggs for re-sale to his customers.  If my portfolio is over-weighted with technology stocks, then I am less likely to seek new technology stocks to own.  If I need money to pay for my daughter’s college tuition, then I may need to work harder and/or sell some of my assets in order to meet the obligation. This simple set of examples is intended to reflect the decision-making human beings face when considering resource allocation. In the 720 Global philosophy statement we put it this way:

• Human beings have desires and those desires drive decision-making. Given the desire and the means or ability to fulfill those desires, they will do so.  This results in demand.
• At the same time, in order to fulfill one’s desires, human beings will undertake activities that give them the means to fulfill their desires.  This results in supply.
• When human beings interact in a manner that allows their desires and their means to intersect, markets are created.

To emphasize the important linkage between resource allocation, economic success and the role of markets, a basic review of the terms scarcity and prosperity is important:

• Scarcity is defined as a deficiency in quantity or number compared with demand. It is a universal, natural condition whereby resources such as time, labor and material wealth are limited. In a world where desires are, by nature, unlimited, people are required to make prudent decisions about the use of limited resources.

 

• Prosperity is defined as the condition of being successful or thriving; economic well-being. It is a manufactured condition whereby the economic well-being of a person, community or nation is determined by the millions of choices citizens and government leaders make every day.  Prudent decisions regarding the use of our limited resources produce prosperity.

In the opening quote, the free enterprise system to which Milton Friedman refers is the system whereby people are free to engage in a vocation of their choice as a means of fulfilling their desires by producing something others need or want. Economic value, the basis for free market exchange, is subjective.  What has great value to one person may be of little value to another. Because anything a person could desire is to one degree or another scarce, each of us must prioritize our values by our individual preferences and means.  This not only applies to purchases and consumption but, just as important, how much we produce and how we spend our time.

When people are freely allowed to come together and cooperate in pursuit of their own self-interests, everyone benefits. The fewer needless restrictions imposed on a society, the more the individuals in that society are incentivized to innovate and produce as a means of satisfying their desires. This is how human beings deal with scarcity. Given our infinite desires and the natural limitations of time, energy and capital, markets determine how we navigate these exchanges.

From Scarcity to Plenty

According to Adam Smith, “If men work together and cooperate, they can combine their land, labor and capital to greatly multiply their ability to produce even greater and more complex things.”

Although evident in many ways, the power of Adam Smith’s observation is highly apparent in the technology and innovation that drove the industrial revolution and mass production.  The impact of mass production is seen not only in the technology and specialization of tasks, but also in its effect on prices. When goods are mass produced, the increased quantity of goods and lower costs of production drive down prices, which in turn makes them affordable to even more people.  Increasing productive capacity and deflating the cost of production is one of the primary reasons that western civilization so successfully fought scarcity and experienced prosperity.

Law and Liberty

In contemplating how markets allow humans to meet their most basic needs and desires, it is important to discern the mechanisms that have allowed the United States and western civilization in general to be so prosperous. Some nations deprived of resources are prosperous, while others, rich in resources, suffer from acute scarcity. Therefore, one must look to the degree of freedom in markets to determine why scarcity is more problematic in some countries and societies than others.

Law and liberty set the context for how markets function.  The United States is a republic that operates under the rule of law.  The rights and laws as originally established by the Declaration of Independence and U.S. Constitution are the principles of right and wrong by which citizens and the government must abide.  Among these, and vital to the engine of wealth creation, is the right to private ownership of property. Through this, a citizen owns what he or she produces or what they are paid by an employer for their production. As originally constructed and put forth in the founding documents, Americans are protected against unwanted intrusions. Simply put, one cannot take what is rightfully owned by another. In all of the aforementioned documents it is established that the government’s primary purpose is the defense of those rights.  Those documents make it perfectly clear that the unalienable rights bestowed upon all citizens are primarily intended as protections against governmental abuse.

The rights and protections decreed are not just about right and wrong, as they thoughtfully serve as the bedrock for efficient markets and importantly engender the incentives that drive productive work in America.  The ability to fulfill desires in a vocation of one’s choosing inspires individuals to work, save, invest and consume. In a word, it is the path to contentment.  These incentives compel men and women to deliver goods and services as efficiently as possible.  An individual’s productive effort not only renders the resources by which one can meet their own needs and desires, but taken in aggregate, it propels the wealth of the entire populace.

Interestingly, despite simple logic, modern central bankers try to convince the world that deflation is evil. They preach that they must intervene to stoke inflation at all cost for the good of society. The truth of the matter is that deflation is a beneficial by-product of innovation and productivity gains. Said differently, the incentives that inspire work and creative ingenuity produce prosperity and work against scarcity.

Productive deflation, which reduces scarcity as described above, benefits a society.  It especially benefits those at the bottom of the economic ladder as the issue of scarcity is a more profound problem for those with less. So why does modern society give central bankers the benefit of the doubt when they undertake such measures as debauching the currency in efforts to incite inflation?

Summary

The prosperity of a nation and its people comes about through the availability of goods and services to more people. Free markets, upheld by the rule of law, incentivize people to be productive through work and acquire the means to fulfill their desires. It is in this elegant yet simple virtuous cycle that productivity growth, prosperity and contentment flourishes and scarcity diminishes. The benefits do not solely accrue to those most motivated, the wealthy or those politically well-connected, but to everyone in society.

Most local grocers and butchers have been replaced by the likes of Costco and Amazon. The days of trading shares of individual companies has morphed into trading esoteric derivatives, ETFs, and a host of complex products. These intricacies are signs of innovation within maturing markets. The issue with which we must concern ourselves is the friction introduced to markets, not the market’s degree of complexity. When unnecessarily intrusive policies, laws, and regulations restrict our ability to be productive, incentives are diminished. Without proper incentives, productivity falters and the wealth and prosperity of a nation suffers.

As Milton Friedman said, “the record of history is absolutely crystal clear”.  A free market, capitalist system, despite all its imperfections, when properly protected by government as required by the founding documents, produces prosperity that benefits all of society.

via http://ift.tt/2oKnZVs Tyler Durden