Who Reads Financial Reports? Nobody!

A major debate has broken out in the aftermath of Trump’s suggestion to cut down on the number of earnings reports public companies should present to the investing public, from quarterly to semi-annual. And while there are many salient points on both sides of the argument, one interesting tangent that has gotten little attention is how often do investors actually use the information provided by corporations to make informed decisions.

Now, according to a recent article by accountant Baruch Lev we have the surprising answer: not much. In fact not much at all: as he writes in a recent blog post, “take a guess: how many 10-K (annual report) downloads gets the average public company? Thousands? Tens of thousands? Not quite. Would you believe 28? Here are Loughran and McDonald.”

And while Trump’s suggestion to cut back on “short-termism” is likely accurate, if a far better way to express it is not in eliminating quarterly reporting but cutting back on management guidance, perhaps it is also time for investors to take advantage of the information companies provide them in the public realm. Because as of this moment, they certainly refuse to do that.

Here is the blog post by Baruch Lev who explains “Who Reads Financial Reports? Nobody.” This article first appeared at the Lev End Of Accounting Blog

For several years I have argued, based on comprehensive statistical evidence, that corporate financial reports―quarterly and annual statements―have lost most of their relevance and usefulness to investors. Corporate earnings, in particular, are no longer a reliable measure of enterprise value change, nor are they indicators of future performance and growth. In fact, as I have shown on this blog (“The Unbearable Lightness of Earnings,” April 15, 2018), even if you could predict all the public companies that will meet or beat analysts’ consensus estimates next quarter you will barely cover your transaction costs.

Some, though by no means all, of those exposed to my message, still find it unbelievable. “There is still lost of valuable information in financial reports,” is a comment I often hear, though without much evidential support. An article of faith, so to speak.

So how surprised I was to read a recent study by Tim Loughran and Bill McDonald, both respected finance researchers who developed a widely-used software system for textual analysis. Loughran and McDonald documented the number of downloads of annual financial reports (10-Ks) from the SEC EDGAR (Electronic Data Gathering and Retrieval) server log.*  EDGAR is the go to place for corporate financial reports. All public companies have to file their SEC reports through EDGAR, and the SEC makes these filings immediately public. So, if you are an analyst, investor, or a researcher, you go to EDGAR for your information.

So, take a guess: how many 10-K (annual report) downloads gets the average public company? Thousands? Tens of thousands? Not quite. Would you believe 28? Here are Loughran and McDonald (p. 3):

“The punchline of our paper is the surprisingly low number of investors who access the annual reports of publicly-traded companies at the time of their initial filing. The average publicly-traded firm has its annual report requested from the EDGAR site only 28.4 total times by investors on the day of the filing and the following day [28.9 times in five days]. On its filing date, the median publicly-traded firm has only nine 10-K requests.”

28? 9? There are many more people working at the FASB―the accounting regulator―than financial report readers.

Loughran and McDonald mention GE (General Electric) with 40% of its shareholders being retail investors, and with a large pool of retired employees who presumably are interested in the company’s finances. Yet, in June 2, 2015, the Wall Street Journal quoted GE’s CFO noting that its 2013 annual report was downloaded only 800 times from GE’s website during the entire year.

The 10-Ks of large companies with many investors and analysts are downloaded more frequently, of course than 28 times, but not much more. The 20% largest U.S. companies get, on average, 96.2 total 10-K downloads during the filing day and the subsequent four days. 10-Q (quarterly reports) are downloaded even less frequently.

And, as we all know, downloading a document doesn’t necessarily mean that you read and carefully analyze it. All this led the researchers to conclude (p. 4): “Investors do not appear to be trading on information contained in the 10-K at the time of its filing.” That’s what I was saying for quite some time. Most of the accounting-based information is stale by the time it is published, and doesn’t reflect economic reality. No wonder investors shun this information.

In my recent book, The End of Accounting, I (with Feng Gu) devote seven chapters to a detailed statistical analysis demonstrating the sharp decline in the usefulness of corporate accounting information (we also discuss the reasons for the downfall as well as propose improved alternative information). I almost feel that all this evidential effort is redundant in the face of investors’ rejection of financial reports, as documented by Loughran and McDonald. Voting with the feet is the most effective way of voting.  In forthcoming posts on this blog I will discuss more timely and reliable sources of information for investors.

* See Loughran and McDonald, 2018, The use of EDGAR filings by investors, Journal of Behavioral Finance, forthcoming.

Baruch Lev is the Philip Bardes Professor of Accounting and Finance at the Stern School of Business, NYU

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Omerosa Flip-Flops Again: “Not A Racist” Trump Is Now “Looking To Start A Race War”

During her time in Washington, Omerosa Manigault Newman (OMGMAN) appears to have mastered one of the most important attributes of being a politician: the ability to say something completely contradictory of something you have said before with utterly zero shame or cognition of ever having thought differently.

Having already been caught in a lie about whether she heard President Trump use the N-word – claiming in her new book that someone told her pollster Frank Luntz heard Trump say it, which Luntz denied, while later telling NPR that she personally heard Trump say it. Luntz has denied this, calling Omarosa’s fact checking “Very shoddy work.” 

And been called out by the President himself for her hypocrisy:

Today’s jaunt through the Sunday political shows – as she hawks her unhinged book about her time on the campaign and in the White House with Trump – sees OMGMAN claim that President Trump is “disingenuous” in his efforts to help the African-American community, and accused the president of wanting to start a race war.

“We have a lot to lose right now,” Manigault Newman said on MSNBC’s “Politics Nation,” referencing Trump’s appeal to African-American voters during the 2016 campaign.

“I believe he wants to start a race war in this country,” she added.

As The Hill reports, OMGMAN, who rose to fame on “The Apprentice” and was fired from the administration in December, argued she was as an advocate for the black community during her time in the White House.

“Every single time he had some type of issue with the community, I was there,” she said. “The one thing I realized once I was there was he was disingenuous to his commitment to diversity.”

OMGMAN said Trump is a “performer,” and that he’s more interested in using minority leaders as props than for in-depth conversations.

Of course, the only problem with all these ‘horrific’-sounding accusations is that they are 100% diametrically opposed to what she said just eight months ago during an interview with ABC’s Nightline in December 2017, where she vigorously defended Trump against accusations that he doesn’t like people of color.

“Donald Trump is racial, but he is not a racist,” she said. “The things that he says, the types of pushback that he gives, involve people of color. These are racial exchanges,” she added.

“Yes, I will acknowledge many of the exchanges — particularly in the last six months — have been racially charged. Do we then just stop and label him as a racist? No.”

So to sum up, OMGMAN – who was called “the worst hire ever made” after being fired from the Clinton White House, has now been fired from a Republican White House for “significant integrity issues,” has now flip-flopped from vigorously defending Trump as “not a racist” in Dec 2017 to exclaiming – during her book promotion tour – that not only is he a racist but he is “trying to start a race war” in America.

Still – source integrity doesn’t matter to a headline-hungry media desperate to distract from Trump’s soaring approval numbers (especially among the black community).

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How Desperate Is Elon?

Authored by Eric Peters via EricPetersAutos.com,

Elon can’t sell his cars – so he is suing to make people buy them…

Or at least, suing to compel the government to keep on paying people to buy them – if that distinction amounts to any meaningful difference.

Canada had a law – like the one in the U.S. – which greatly subsidized the individual purchase of Teslas and other electric cars via rebates bestowed upon those who did buy them. These purchaser subsidies amounted to several thousand dollars each, and worth a lot more to Tesla, et al, since without them the incentive to buy an electric car dims considerably.

When the subsidies dried up in Denmark, so did Tesla’s sales – by 94 percent. That’s not a typo. With the subsidy in place, 2,738 Teslas were sold in 2015. With the subsidies gone, 176 Teslas were sold the following year.

Elon has admitted openly that he can’t do “business” without these subsidies: “Clean energy vehicles” – as he styles them – “aren’t attractive enough to compete without some form of taxpayer-backed subsidy.”

Elon’s language is always a little fuzzy. The subsidies are not “taxpayer-backed,” which implies something akin to consensual approval. They are government enforced transfer payments, the funds mulcted from unwilling taxpayers. What the government “gives back” – i.e., the subsidy – is taken out of the hide of some other victim. And the receiver of the subsidy is artificially advantaged at the expense of someone else.

In any event, when the government of Ontario, Canada announced this week that it planned to eliminate the subsidies  for EVs – at least, those which pay people with other people’s money to buy Teslas – Elon and his lawyers ran to the courts for succor. Time to call Saul!

“The decision has already inflicted substantial harm on Tesla Canada in the form of lost sales,” the brief contends.

And, it’s true – in the same way that’s it true a burglar is harmed by a homeowner with a baseball bat, who successfully runs the burglar out of his house before the burglar can make off with the TV set.

The real harm has been caused by Elon.

He has singlehandedly perverted the market for electric cars – which aren’t an intrinsically stupid idea – by stupidly building them to be high-performance and luxurious, which has made them much too expensive to be anything other than low-volume indulgences for the virtue-signaling affluent. And – because of the Lemming Effect – steered almost every other car manufacturer in the same stupid direction.

There is only one electric car on the market which stickers for less than $30,000 – and only does so by $10. It is the $29,990 Nissan Leaf.

The next most “affordable” electric car is the $36,620 Chevy Bolt.

In both cases, this is at about twice as much as an IC-engined economy sedan such as the Hyundai Elantra I am test driving this week (base price $16,950).

But electric cars don’t have to cost twice as much as IC economy cars.

They cost as much as they do only in part because they are electric cars. The other part is the cost of Me-Tooing Tesla’s electric cars. Because Teslas are quick and slick and full of gadgets, the manufacturers of other electric cars feel compelled to compete with Teslas, by designing their cars to a similar standard.

They must also be quick – or at least not be “slow” – regardless of the efficiency/cost benefit of slowness, which after all is what electric cars should be about, assuming they are about costing you less to drive than an IC-engined economy car or at the very least, not twice as much.

And if they aren’t about costing less, then why bother? 

Or rather, why subsidize?

One can make a blanket moral indictment against any subsidy for anything since a subsidy is by definition the giving over of money not earned by free exchange to a thief-by-proxy – in order to benefit him at the expense of unwilling victims.

But subsidizing high-performing/high-cost electric cars for virtue-signaling affluent people who ought to be buying their own cars is a species of obnoxiousness akin to rent-controlled luxury apartments in Manhattan. Marie Antoinette is said to have suggested that starving Parisians ought to eat cake – but she at least had the decency not to insist they pay for her cake, too.

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Facebook “Mistakenly” Censors Conservative Education Company For “Hate Speech Violations” 

Facebook says it “mistakenly” removed several videos and censored the reach of conservative educational organization PragerU, short for Prager University. 

On Friday, Prager tweeted evidence that they were being “heavily censored” by Facebook – writing “Our last 9 posts are reaching 0 of our 3 million followers. At least two videos were deleted last night for “hate speech” including our recent video with @conservmillen.

For reference, here’s one video deemed too “hateful” for Facebook – which suggests that when society tries to force men to feminize in order to eliminate “toxic masculinity,” it only creates a more toxic environment vs. encouraging men to harness their inherent masculinity for the sake of good. 

Facebook responded 8 hours afte Prager University’s original tweet with an apology, writing in a tweet: “We mistakenly removed these videos and have restored them because they don’t break our standards. This will reverse any reduction in content distribution you’ve experienced. We’re very sorry and are continuing to look into what happened with your Page.”

PragerU produces short educational videos on a wide varierty of topics from a conservative perspective. While not typically covering current events, Prager provides counterpoints to many liberal talking points – including oppression of women, climate change, gun ownership and trust in the media. In 2017, Google restricted of demonitized 37 PragerU videos, which the university challenged in a lawsuit that was later dismissed by a district court judge. 

Considering the recent high-profile ban of controversial conservative Alex Jones in a seemingly coordinated attack by YouTube, Facebook, Apple and several other social media companies and online services. After resisting calls to ban Jones, Twitter finally handed the Infowars host a week-long suspension for “abusive behavior.” 

President Trump weighed in on the matter on Saturday, tweeting “Social media is totally discriminating against Republican/conservative voices. Speaking loudly and clearly for the Trump administration, we won’t let that happen. They are closing down the opinions of many people on the RIGHT, while at the same time doing nothing to others.” 

Trump called censorship “a very dangerous thing.” 

Trump went on to question “who is making the choices” regarding censorship, “because I can already tell you that too many mistakes are being made. Let everybody participate, good & bad, and we will all just have to figure it out!”

On Saturday, Twitter CEO Jack Dorsey admitted to CNN’s Brian Stelter that Twitter employees have “more left-leaning” bias, though he claims the San Francisco, CA company operates in a neutral manner.

“We need to constantly show that we are not adding our own bias, which I fully admit is…is more left-leaning,” said Dorsey.

Dorsey’s CNN appearance was the latest stop in Twitter’s rehabilitation road-show after evidence emerged that they had been “shadow banning” conservative users through a variety of methods; including hiding tweets from followers and hiding conservative users from search results.

And while Silicon Valley social media companies and their defenders may argue that “it’s a private platform, if you don’t like it, start your own Twitter,” – journalist Tim Pool points out the flaw in that logic: 

Perhaps social media companies should, as President Trump says, “Let everybody participate, good & bad, and we will all just have to figure it out!”  

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Is Poland The Next Turkey? Spotlight On The Zloty And External Debt

Authored by Mike Shedlock via MishTalk,

Emerging markets have taken it on the chin. Is Poland next?

Murray Gunn, Head of Global Research at Elliott Wave International, asks “Is Poland the next Turkey?”

Our outlook for the Polish Zloty suggests that Poland’s developing authoritarianism is likely to accelerate.

In case you have been living on Mars over the last few years and have missed what is going on, people around the world are becoming increasingly angry. This is especially true in the periphery of Europe, where countries like Turkey and Hungary are ruled by governments with an intolerance for people who disagree with them. After long negative trends in social mood, the so-called “populist revolution” has also resulted in the election of governments in Italy and Poland that have radical agendas. In Poland’s case, one policy of the ruling Law and Justice Party (nothing sinister about that name, eh) is to overhaul the judicial system by forcing judges to retire early. This, the European Union argues, is aimed at increasing political influence in the Polish legal system. On Monday, the EU stepped up threats of legal action against the Polish government which remains intransigent on the matter. It’s looking very probable that Poland is on the road to becoming internationally isolated.

Indeed, the chart of the Polish zloty versus the Euro suggests that Poland may be in for the same treatment as Turkey. A multi-year consolidation ended at the beginning of this year. It looks like EUR-PLN is entering a strong advance which should see the pair explode higher. Be prepared for that to be accompanied with a further breakdown in international relations with Warsaw.

The above via email. I do not have a link. The chart, as delivered, had an arrow pointing up. I edited the chart, adding a “? and put in arrows up and down.

Polish Zloty 1999-Present

The above chart better shows the the volatility of the Zloty.

  • Between May 2001 and January 2004 the Zloty declined 33% vs. the Euro.

  • Between January 2004 and May 2008, the Zloty rallied 54%.

  • Between May 2008 and January 2009 the Zloty declined 35%

Poland Battles With EU

Bloomberg offers a Quick Take: How to Understand Poland’s Battles With the EU.

Almost three years into Poland’s populist revolution, the European Union is fighting with its most populous eastern member on two fronts. The bloc is edging toward suing the country over a judicial revamp and has recommended launching an unprecedented disciplinary process that could lead to penalties against the Polish government for failing to respect democratic standards. At stake is the value of Polish assets, with the zloty usually weakening when conflicts with the EU escalate, and the cohesion of the union itself.

What triggered EU action?

A law passed by Poland’s parliament went into effect, forcing out about two-fifths of Supreme Court justices and giving politicians more sway over a council that decides on court appointments. The law seriously jeopardizes independence of “all parts of the Polish judiciary,” according to the Venice Commission, which advises the Council of Europe human-rights group on constitutional law.

What are the possible penalties?

If four-fifths of EU members approve, Poland’s legal standards would be placed under monitoring by national governments in the Council of the EU. If the breach were to persist, fellow members could suspend certain rights that Poland enjoys as part the EU, including its voting rights in collective decisions. Such escalation, however, would require unanimous support from the bloc’s 27 other countries.

Does Poland have any allies?

Yes. It enjoys the support of Hungary, whose prime minister, Viktor Orban, has been steering his country on a similarly illiberal course. If it comes to a vote on sanctions, more nations may side with Poland in the spirit of supporting a fellow maverick state. Other former-communist nations such as the Czech Republic, Slovakia and Romania have strayed from the EU mainstream by rejecting refugees or moving to make it harder for officials to be prosecuted.

Does that mean sanctions are unlikely?

Through Article 7, yes. However, as the standoff escalates, the EU is separately considering limiting access to development funds in the post-2020 budget for countries that disrespect the bloc’s values. That could hit Poland hard since it’s the biggest net beneficiary of the EU’s budget, which may total 1.28 trillion euros ($1.5 trillion) in the 2021-2027 period. The money has helped power the Polish economy, contributing as much as a percentage point of growth to gross domestic product each year.

What could this dispute mean for markets?

While Poland’s economic performance has been robust, the zloty has lagged behind most eastern European peers. The currency has proven vulnerable when the conflict has escalated, as shown during street protests in July 2017 or when concerns about Poland’s sovereign ratings have mounted amid the dispute. More criticism from the European Commission is likely to undermine Poland’s status as a safe investment bet.

External Debt

Poland’s external debt is as bad as Turkey’s. If the EU does limit assistance to Poland, the Zloty is highly likely to come under pressure. The Zloty may come under pressure regardless, based on external debt concerns.

Yet, Poland is not Turkey. It is a member of the EU and nothing can be done about that, ever. Poland can voluntarily leave the EU, but it cannot be kicked out.

It takes unanimous agreement to make major changes, including trade deals. That is a huge, fundamental design flaw of the EU.

A bet against the Zloty vs the Euro seems like a reasonable idea, but it may take time to play out. I have no position in the idea and do not plan one.

Toothless Tiger

Flashback May 17, 2017: EU Opens Article Seven Process Against Poland.

I called the EU a “toothless tiger“.

My closing comment was “Dear EU: Talk is cheap. What are you going to do about any of this?

Clearly the answer was nothing.

Polish Black Hole

For the ironic side of this discussion, please see EU Spent a Trillion Dollars of “Cohesion Money” Seeking Unity: Where’s Is It?

Short answer: There is no unity, but a lot of money vanished in a Polish black hole. The curious aspect is “Both Donor and Recipient Countries are Unhappy“.

EU discontent is high and rising.

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Elon Musk: Changing The Way I Work “Is Not An Option”

The ambien was in full force this morning, when in response to Uber board member Arianna Huffington plea for the Tesla CEO to change his lifestyle and the way he works, Elon Musk ruled out a different approach, tweeting at just after 2:30am Pacific Time that “I just got home from the factory. You think this is an option. It is not.” And in a strange tangent,  Musk also said that “Ford & Tesla are the only 2 American car companies to avoid bankruptcy”, perhaps a rejoinder to his April fool’s joke that Tesla has filed for bankruptcy.

In her “open letter to Elon Musk”, Arianna Huffington accused the CEO of “demonstrating a wildly outdated, anti-scientific and horribly inefficient way of using human energy. It’s like trying to launch us into our clean energy future (or into space) with a coal-fired steam engine. It just won’t work” adding in a tweet that the Tesla founder should change the way he works.

She also compared Musk’s burn out to that of “visionary American leader, FDR” and, by implication, Musk’s effort to build cars to the US war against the nazis:

In 1940, America was at a precarious moment in history. Britain was struggling in the war, with both supplies and money running low. They needed help, but Roosevelt knew Congress would never simply loan Britain the money. So instead of putting in 120-hour weeks, FDR instead took a ten-day break on a naval ship. The trip drew criticism, but FDR knew what he was doing — he needed time and space to refuel. The result was the $50 billion Lend-Lease program, which has been described as his political masterpiece that provided a way for him to sell Congress on helping the Brits continue to resist the Nazis.

Huffington’s appeal follows a wildly erratic interview with the New York Times in which Musk said he sacrificed family milestones in the race to meet Tesla production targets. TSLA shares tumbled 9% on Friday – its worst weekly drop in two years – after Musk described the past 12 months as “the most difficult and painful year of my career.” The ironic part: as Bloomberg notes, references to Ambien use and driving while tweeting are fueling calls for Tesla’s board to step up its oversight of the company’s CEO and largest shareholder. Musk’s response: a tweet sent out at 2:30am in the morning.

In other words, while Musk is clearly against an “intervention” of any sort, unless the Tesla board does something to change the CEO’s increasingly erratic behavior, soon it may be only Ford that has never filed for bankruptcy.

As for Huffington’s “noble” intervention, it comes at a time when she has been campaigning in support of the benefits of sleep, and following the publication of her latest book: “Thrive and The Sleep Revolution.” Her description accompanying the open letter describes her as a “flat shoe advocate and sleep evangelist.”

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Venezuela In Chaos After Maduro Announces Massive 95% Devaluation, New FX Rate Tied To Cryptocurrency

Chaos and confusion erupted across Venezuela, and most stores were shuttered on Saturday, after president Nicolas Maduro announced that the government would enact a massive currency devaluation, implement a new minimum wage, hike taxes, and also raise gasoline prices for most citizens even as the country struggles with the greatest hyperinflation on record, surpassing even that of the Weimar Republic.

As a result of the enacted actions, the new version of the bolivar will be pegged to the value of the state cryptocurrency, the etro, which according to Bloomberg amounts to a 95% devaluation of the official rate, and will trade in line with where the black market was; the government will also raise the minimum wage more than 3,000 percent,  which works out to about $30 a month.

Maduro said the new currency, set to enter circulation on Monday, will be called the “sovereign bolivar” and will be based on the petro, which is valued at $60 or 3,600 sovereign bolivars, after the redenomination planned for August 20 slashes five zeroes off the national currency. The minimum wage will be set at half that, 1,800 sovereign bolivars.  The government would cover the minimum wage increase at small and medium-size companies for 90 days, Maduro added. It was not clear what happens after.

“They’ve dollarized our prices. I am petrolizing salaries and petrolizing prices,” Maduro explained in a Friday televised address. “We are going to convert the petro into the reference that pegs the entire economy’s movements.”

In other words, for the first time ever, an oil-linked cryptocurrency effectively replaces the sovereign currency. As a result the petro, which will fluctuate dramatically, will be used to set prices for goods. The package of measures combine the necessary with the baffling, Luis Vicente Leon, president of the Caracas-based pollster Datanalisis, said in a Twitter post on Friday.

“The government has recognized the need to anchor the economy to an external variable outside of its control, such as the international price of oil. A wise decision, but it does so by hiding it in a vehicle that suffers from lack of confidence and viability, such as the Petro,” Leon said.

“You won’t find the IMF’s claws or ill-gotten prescriptions here,” Maduro said, although after years of socialist torment, it is not clear if Venezuela’s ordinary citizens would not have opted for that alternative. Maduro also said that “no experts were involved who do not feel the clamor of the people”… Just dictators.

Maduro also said he intends to create a unified exchange rate across the country. The new petro-to-dollar-to-bolivar rate would bring the official price of one US dollar to six million (or 60 post-redenomination), which is about the same as the current black market exchange rate and about 25 times worse than the official rate.

To implement the bizarre plan, information Minister Jorge Rodriguez said Saturday the government will open 300 currency exchange kiosks in hotels, airports and shopping malls as part of a bid to supersede the country’s black market. Maduro said Friday that the central bank will increase the frequency of weekly foreign exchange auctions to three and eventually five.

Speaking to Bloomberg, Henkel Garcia, director of the Caracas consultancy Econometrica, said the announcements amounted to a head-scratcher. “This series of measures is a mix of incoherent and contradictory ideas. It is a worrying contraption that generates a lot of uncertainty about how it will be executed.”

Friday’s devaluation, while is merely a formality to allow the official rate to catch up with the black market, ranks among Venezuela’s most significant. In 1983, President Luis Herrera Campins devalued the bolivar for the first time in 22 years after oil prices crashed on a day known locally as “Black Friday.” When in 1989 Venezuela raised gasoline costs, lifted foreign-exchange controls and let the currency plunge, prices soared 21 percent in one month, leading to the “Caracazo” riots that killed hundreds and paved the way for the leftist President Hugo Chavez’s rise to power.

Devaluations have become the de factor norm in Venezuela’s recent history as Chavez and Maduro devalued the bolivar many times in their combined two decades in power. Chavez devalued the currency several times, including by 32 percent in 2013, a month before his death in Caracas. Maduro allowed the bolivar to devalue 80% in currency auctions in February.

The result has been galloping hyperinflation, and according to the Bloomberg Cafe Con Leche index – which tracks the price of a cup of coffee – inflation in Venezuela has hit an annual inflation rate of 108,596%, and is on its way to 1,000,000% according to the IMF.

The announcement led to even more confusion within Venezuela: “on Saturday, shoppers arrived at an eastern Caracas supermarket to stock up on goods before prices rise even further, but a security guard shooed them away.”

The supermarket is now closed, the shelves are almost empty because of the number of people who came early today,” the guard, identifying himself only as Luis, said as he tried to manage the crowd. Some gas stations were closed and others had long lines.

Meanwhile, Maduro failed to offer more details on Friday on the country’s new gasoline price system, saying that he wants a plan that includes direct subsidies to registered public transport operators and individual vehicle owners. Those not registered won’t receive a subsidy and will have to pay international prices. Drivers have until August 30 to register for the subsidy. Venezuela would save $10 billion through the new fuel price system, Maduro said.

Besides the token minimum wage hike, Maduro also raised the value-added tax on luxury items to 16% from 12%, and said a tax on financial transactions would range from zero to 2%.

Venezuela’s economy remains in shambles, with record-beating hyperinflation crushing any purchasing power the locals may have and thousands of people fleeing poverty to nearby countries. Over the past year, the US has imposed increasingly restrictive sanctions on Venezuela’s finances and debt issuance, aiming to drive ‘dictator’ Maduro out of power. However, the US remains Venezuela’s top oil importer and Washington has been reluctant to apply any direct penalties to the country’s oil industry.

Maduro’s actions come as unrest grows over the collapse of the economy, including a foiled coup attempt and a drone attack on Maduro. In May, scores of highly-decorated servicemen and women unsuccessfully conspired to launch a palace coup and put the socialist president on trial. Earlier this month, Maduro survived what the government claimed was a drone attack as explosive-laden devices were detonated during a military parade.

Meanwhile, Venezuela is now in default on  more than $6 billion of its bonds after the government missed a principal payment on one of its bonds for the first time this week. The missed payment, while hardly a surprise for investors, confirmed that creditors creditors are unlikely to get much, if any, of their money as the overdue payments pile up with no resolution in sight to Venezuela’s collapsing economy, cryptocurrency-pegged bolivar notwithstanding.

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Tech Firms Account For 60% Of Profit Margin Growth In The Past 20 Years

It’s official: with the best earnings season since 2010 now essentially over, the numbers are in and S&P500 profit margins are at an all time high of 11.2%.

And yet, as turmoil spreads abroad, while capacity bottlenecks and rising wage pressures grow domestically, and with business tax cuts now behind us, Goldman Sachs ask if the rapid rise in profit margins can continue.

To answer that question, the bank first looks at corporate profits as a share of GNP, as reported in the national income and product accounts (NIPA), and notes that they have been significantly softer recently than S&P 500 profit margins. As the chart below shows, while NIPA margins exceeded S&P 500 margins until early-2015, they are now 1.25pp below S&P 500 margins.

Furthermore, as seen above, NIPA margins have often led S&P 500 margins. Should we therefore expect weaker S&P 500 margins given the softer recent NIPA margins growth?

The answer, it turns out, is most likely yes: while NIPA data are revised, turns in real-time NIPA margins have often preceded turns in S&P margins. The four S&P “margins recessions” – defined as a decline in the 4-quarter moving average of the profit margin that lasts at least two quarters and features at least a 0.5pp cumulative decline – on record were all preceded by NIPA margin recessions, likely reflecting the higher sensitivity of small firms’ margins to changes in  interest rates and wages. However, one key difference with the past is that highly productive superstar firms with significant pricing power now comprise a very large share of S&P profits, but remain a smaller share of NIPA profits.

Why do NIPA profit margins often lead those of the S&P 500?

According to Goldman, the most plausible explanation is that small firms, which make up a larger share of the NIPA sample, have higher sensitivity to changes in interest rates and wage growth. While small businesses rely on short-term, floating-rate bank loans, large firms borrow primarily from public debt markets at fixed rates. Additionally, small firms’ profit margins are also more exposed to faster wage growth, as their payroll costs are a much larger fraction of sales. Firms with sales less than $100M have an average compensation-to-sales share of 23%, compared to only 12% for firms with sales above $100M.

In other words, if relying solely on the historical relationship, S&P 500 profit margin growth is likely to slow.

However, as Goldman cautions, one key difference with the past is the rise of “superstar firms”. While rather self-explanatory, superstar firms are defined as large and highly productive firms with significant bargaining power over consumers and workers as a result of product and labor market concentration. Superstar firms now comprise a large share of S&P 500 margin growth, while they still remain a smaller share of the broader NIPA profits

And here Goldman makes a striking revelation: as shown in the chart below, the information technology sector – which contains the bulk of superstar firms accounts for 60% of the increase in S&P 500 profit margins over the past 20 years, while the “adjacent tech” sector, comprising the health care (including biotech firms) and consumer discretionary sectors (incl. firms such as Booking Holdings and Expedia) accounts for 40% of the rise.

It also means the bulk of the market – i.e., all firms ex. tech, healthcare and consumer discretionary – have seen no margin growth at all since 1998!

The good news is that continued outperformance of superstar firms could lead to continued S&P 500 margin growth through two channels.

First, a further rise in the total S&P 500 sales share of high margin firms would boost margins via a composition effect. Second, the higher sales-to-compensation ratio and wage setting power of superstar firms can dampen the downward cyclical pressure on margins.

On the other hand, recent “superstar” scares such as Facebook and Twitter in the US, and Tencent and JD.com in China, could be a leading indicator that the relentless margin expansion among the tech sector could be coming to an end.

If that is the case, and with NIPA margins suggesting further downside to the S&P bottom line, what is the outlook for margins from here onward?

In its evaluation, Goldman next looks at three alternative scenarios which feature different paths for unit labor costs, foreign growth, interest rates, and the dollar, but all assume core PCE inflation modestly overshoots to 2.3% by end-2019. Goldman also notes that since “the near-term recession odds are relatively low, we don’t consider an outright economic recession scenario.”

The resulting scenario, whose key assumptions are laid out above, are as follows:

Wages warm up:

We assume a hot labor market where (1) wages rise 1 percentage point faster than expected by mid-2019 and (2) the Fed hikes the funds rate twice a quarter in 2019 H2. Profit margins already peak this year and are 1pp lower by end-2020 than in the baseline. Higher wage growth and higher interest rates both weigh significantly on nonfinancial corporate margins because compensation accounts for almost 60% of gross value added and because leverage is now about 20% higher than in 2005.

Turmoil abroad:

We assume turmoil abroad causes (1) a 1.25pp miss in foreign growth, (2) a 0.4pp miss in US growth (reflecting the hit to exports, for instance in a severe trade war), and (3) the Fed to hike two times less than in our baseline. Profit margins end up 0.4pp lower by end-2020 than in the baseline. The drag on NIPA margins is significant but not enormous as rest-of-the-world profits account for less than 25% of total NIPA corporate profits and as lower interest rates soften the blow.

Superstars surge:

We assume (1) a 1pp beat in productivity growth along with (2) still moderate baseline wage growth, possibly reflecting the further expansion of superstar firms. NIPA profit margins rise by 0.75pp to an all-time high of 10.8% by end-2020 as unit labor cost growth continues to run below price inflation.

Goldman’s analysis of the S&P-NIPA margins gap and of the macro-drivers of NIPA profit margins is consistent with the bank’s market forecast that S&P 500 profit margin growth is likely to slow: it forecasts S&P 500 after-tax adjusted profit margins of 11.0% in 2018 (vs. 10.1% in 2017), 11.2% in 2019, and 11.1% in 2020.

However, risks are tilted to the downside as Goldman lays out in its conclusion:

While margins have recently benefited from tax cuts, and exceptionally rapid global growth, these tailwinds are now fading. Further sharp rises in profit margins likely require both continued moderate wage growth along with rapid productivity growth, for instance driven by the continued outperformance of superstar firms.

An abbreviated version of above reads as follows: it’s all about the “superstar” tech companies, those which in the past 20 years have accounted for 60% of overall profit margin growth since 1998.

Should an unexpected event occur, and breach the steady upward sloping status quo, it’s not just the market – where professional investors are highly concentrated in just a handful of tech names – that gets it, but so does the economy as margin collapse in what some may say is a long overdue mean reversion.

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In Stunning Admission, Jack Dorsey Acknowledges Twitter’s “Left-Leaning” Bias

Twitter CEO Jack Dorsey admitted to CNN‘s Brian Stelter on Saturday what has been obvious for some time; Twitter employees have “more left-leaning” bias. And while that’s not exactly a shocker, Dorsey waxed eloquent about the company’s responsibilities, suggesting they operate in a neutral manner and not “according to political ideology or viewpoints.”

“We need to constantly show that we are not adding our own bias, which I fully admit is…is more left-leaning,” said Dorsey.

Dorsey’s CNN appearance was the latest stop in Twitter’s rehabilitation road-show after evidence emerged that they had been “shadow banning” conservative users through a variety of methods; including hiding tweets from followers and hiding conservative users from search results.

At the same time, the company has had no qualms about banning people who resonate with  – the latest victim of which was controversial independent journalist Caitlin Johnstone, whose account was 86’d after she tweeted “Friendly public service reminder that John McCain has devoted his entire political career to slaughtering as many human beings as possible at every opportunity, and the world will be improved when he finally dies.” 

*poof* Johnstone disappeared from the platform. 

Hours later – after word of her banishment began going viral and she published an article about what happened, Twitter finally restored Johnstone’s account. She’s now testing the fences with more of her unfiltered opinions on McCain, and is “Refusing to be bullied into self-censorship.” 

Last week, Twitter suspended Alex Jones for seven days over an “offending tweet” – a link to a video in which the InfoWars host told his followers to prepare “battle rifles” to defend themselves amid a conversation about social media censorship .

And recall in July 2016 that gay conservative Milo Yiannapoulos was permanently banned from Twitter for calling Ghost Busters reboot star Leslie Jones “barely literate,” and tweeting “If at first you don’t succeed (because your work is terrible), play the victim.”

Jones complained, and *poof* – Milo was banished forever from the platform. Ghostbusters, meanwhile, lost $70 million and has a user-review score of 26% on Metacritic.

Peter Fonda, meanwhile, suggested in June that Barron Trump, the 12-year-old son of the President, be placed “in a cage with pedophiles” during a national conversation about separating migrant children from their families (which Obama did, a lot). Fonda got to issue a “just kidding, sorry” apology while keeping his (verified) account.

To review: Strongly dislike an “old guard” establishment Senator who sang “Bomb Iran” to warm up a crowd, or be a conservative and call an actress untalented when her movie bombs, and you’re gone. 

Envision pedophiles raping the president’s 12-year-old son in a cage – or suggest that Homeland Security Secretary Kirstjen Nielsen is a “gash” (which he says is worse than a c*nt) who should be “pilloried in Layfayette Square naked and whipped by passersby while being filmed” – and Twitter has no problem with it. 

About that bias…

Are we to assume @Jack has done something about the type of employees caught on James O’Keefe’s undercover sting, who were gushing over how they hunt down “redneck” Trump supporters and ensure their tweets don’t reach anyone? 

“[T]hey just think that no one is engaging with their content, when in reality, no one is seeing it” – admitted former software engineer Abhinav Vadrevu. 

Meanwhile, former “Direct Messaging Engineer” Pranay Singh (who is now a “Site Reliability Engineer”) revealed one of the ways they do it: 

“Yeah you look for Trump, or America, and you have like five thousand keywords to describe a redneck. Then you look and parse all the messages, all the pictures, and then you look for stuff that matches that stuff.” -Pranay Singh

When asked if the majority of the algorithms are targeted against conservative or liberal users of Twitter, Singh said,I would say majority of it are for Republicans.”

So if Twitter is full of smug, angry, #resisting millennials – who have shown zero compunction about punishing conservatives by applying vastly disproportionate standards to liberals – how, exactly, is Jack going to ensure this doesn’t happen? Some of these people genuinely believe they’re in a war right now.

In the full Project Veritas video from the Twitter sting, Twitter Content Review Agent Mo Nora explains that Twitter doesn’t have an official written policy that targets conservative speech, but rather they were following “unwritten rules from the top“:

“A lot of unwritten rules, and being that we’re in San Francisco, we’re in California, very liberal, a very blue state. You had to be… I mean as a company you can’t really say it because it would make you look bad, but behind closed doors are lots of rules.”

“There was, I would say… Twitter was probably about 90% Anti-Trump, maybe 99% Anti-Trump.”

The full 15-minute video of O’Keefe’s Twitter sting can be seen below: 

Dorsey will forgive us if we remain skeptical that the anti-conservative sentiment harbored by Twitter employees doesn’t translate to their work. 

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Sanctions, Sanctions, Sanctions – The Final Demise Of The Dollar Hegemony?

Authored by Peter Koenig via The Saker Blog,

Sanctions left and sanctions right. Financial mostly, taxes, tariffs, visas, travel bans – confiscation of foreign assets, import and export prohibitions and limitations; and also punishing those who do not respect sanctions dished out by Trump, alias the US of A, against friends of their enemies. The absurdity seems endless and escalating – exponentially, as if there was a deadline to collapse the world. Looks like a last-ditch effort to bring down international trade in favor of — what? – Make America Great Again? – Prepare for US mid-term elections? – Rally the people behind an illusion? – Or what?

All looks arbitrary and destructive. All is of course totally illegal by any international law or, forget law, which is not respected anyway by the empire and its vassals, but not even by human moral standards. Sanctions are destructive. They are interfering in other countries sovereignty. They are made to punish countries, nations, that refuse to bend to a world dictatorship.

Looks like everybody accepts this new economic warfare as the new normal. Nobody objects. And the United Nations, the body created to maintain Peace, to protect our globe from other wars, to uphold human rights – this very body is silent – out of fear? Out of fear that it might be ‘sanctioned’ into oblivion by the dying empire? – Why cannot the vast majority of countries – often it is a ratio of 191 to 2 (Israel and the US) – reign-in the criminals?

Imagine Turkey – sudden massive tariffs on aluminum (20%) and steel (50%) imposed by Trump, plus central bank currency interference had the Turkish Lira drop by 40%, and that ‘only’ because Erdogan is not freeing US pastor Andrew Brunson, who faces in Turkey a jail sentence of 35 years for “terror and espionage”. An Izmir court has just turned down another US request for clemency, however, converting his jail sentence to house arrest for health reason. It is widely believed that Mr. Brunson’s alleged 23 years of ‘missionary work’ is but a smoke screen for spying.

President Erdogan has just declared he would look out for new friends, including new trading partners in the east – Russia, China, Iran, Ukraine, even the unviable EU, and that his country is planning issuing Yuan-denominated bonds to diversify Turkey’s economy, foremost the country’s reserves and gradually moving away from the dollar hegemony.

Looking out for new friends, may also include new military alliances. Is Turkey planning to exit NATO? Would turkey be ‘allowed’ to exit NATO – given its strategic position maritime and land position between east and west? – Turkey knows that having military allies that dish out punishments for acting sovereignly in internal affair – spells disaster for the future. Why continue offering your country to NATO, whose only objective it is to destroy the east – the very east which is not only Turkey’s but the world’s future? Turkey is already approaching the SCO (Shanghai Cooperation Organization) and may actually accede to it within the foreseeable future. That might be the end of Turkey’s NATO alliance.

What if Iran, Venezuela, Russia, China – and many more countries not ready to bow to the empire, would jail all those spies embedded in the US Embassies or camouflaged in these countries’ national (financial) institutions, acting as Fifth Columns, undermining their host countries’ national and economic policies? – Entire cities of new jails would have to be built to accommodate the empire’s army of criminals.

Imagine Russia – more sanctions were just imposed for alleged and totally unproven (to the contrary: disproven) Russian poisoning of four UK citizens with the deadly nerve agent, Novichok – and for not admitting it. This is a total farce, a flagrant lie, that has become so ridiculous, most thinking people, even in the UK, just laugh about it. Yet, Trump and his minions in Europe and many parts of the world succumb to this lie – and out of fear of being sanctions, they also sanction Russia. What has the world become? – Hitler’s Propaganda Minister, Joseph Goebbels, would be proud for having taught the important lesson to the liars of the universe: “Let me control the media, and I will turn any nation into a herd of Pigs”. That’s what we have become – a herd of pigs.

Fortunately, Russia too has moved away so far already from the western dollar-controlled economy that such sanctions do no longer hurt. They serve Trump and his cronies as mere propaganda tools – show-offs, “we are still the greatest!”.

Venezuela is being sanctioned into the ground, literally, by from-abroad (Miami and Bogota) Twitter-induced manipulations of her national currency, the Bolívar, causing astronomical inflations – constant ups and downs of the value of the local currency, bringing the national economy to a virtual halt. Imported food, pharmaceuticals and other goods are being deviated at the borders and other entry points, so they will never end up on supermarket shelves, but become smuggle ware in Colombia, where these goods are being sold at manipulated dollar-exchange rates to better-off Venezuelan and Colombian citizens. These mafia type gangs are being funded by NED and other similar nefarious State Department financed “NGOs”, trained by US secret services, either within or outside Venezuela. Once infiltrated into Venezuela – overtly or covertly – they tend to boycott the local economy from within, spread violence and become part of the Fifth Column, primarily sabotaging the financial system.

Venezuela is struggling to get out of this dilemma which has people suffering, by de-dollarizing her economy, partly through a newly created cryptocurrency, the Petro, based on Venezuela’s huge oil reserves and also through a new Bolivar – in the hope of putting the breaks on the spiraling bursts of inflation. This scenario reminds so much of Chile in 1973, when Henry Kissinger was Foreign Secretary (1973-1977), and inspired the CIA coup, by “disappearing” food and other goods from Chilean markets, killing legitimately elected President Allende, bringing Augusto Pinochet, a horrendous murderer and despot to power. The military dictatorship regime brought the death and disappearance of tens of thousands of people and lasted until 1990. Subjugating Venezuela might, however, not be so easy. After all, Venezuela has 19 years of revolutionary Chavista experience – and a solid sense of resistance.

Iran – is being plunged into a similar fate. For no reason at all, Trump reneged on the five-plus-one pronged so-called Nuclear Deal, signed in Vienna on 14 July 2015, after almost ten years of negotiations. Now – of course driven by the star-Zionist Netanyahu – new and ‘the most severe ever’ sanctions are being imposed on Iran, also decimating the value of their local currency, the Rial. Iran, under the Ayatollah, has already embarked on a course of “Resistance Economy”, meaning de-dollarization of their economy and moving towards food and industrial self-sufficiency, as well as increased trading with eastern countries, China, Russia, the SCO and other friendly and culturally aligned nations, like Pakistan. However, Iran too has a strong Fifth Column, engrained in the financial sector, that does not let go of forcing and propagating trading with the enemy, i.e. the west, the European Union, whose euro-monetary system is part of the dollar hegemony, hence posing similar vulnerability of sanctions as does the dollar.

China – the stellar prize of the Big Chess Game – is being ‘sanctioned’ with tariffs no end, for having become the world’s strongest economy, surpassing in real output and measured by people’s purchasing power, by far the United States of America. China also has a solid economy and gold-based currency, the Yuan – which is on a fast track to overtake the US-dollar as the number one world reserve currency. China retaliates, of course, with similar ‘sanctions’, but by and large, her dominance of Asian markets and growing economic influence in Europe, Africa and Latin America, is such that Trump’s tariff war means hardly more for China than a drop on a hot stone.

North Korea – the much-touted Trump-Kim mid-June Singapore summit – has long since become a tiny spot in the past. Alleged agreements reached then are being breached by the US, as could have been expected. All under the false and purely invented pretext of DPRK not adhering to her disarmament commitment; a reason to impose new strangulating sanctions. The world looks on. Its normal. Nobody dares questioning the self-styled Masters of the Universe. Misery keeps being dished out left and right – accepted by the brainwashed to-the-core masses around the globe. War is peace and peace is war. Literally. The west is living in a “peaceful” comfort zone. Why disturb it? – If people die from starvation or bombs – it happens far away and allows us to live in peace. Why bother? – Especially since we are continuously, drip-by-steady drip being told its right.

In a recent interview with PressTV I was asked, why does the US not adhere to any of their internationally or bilaterally concluded treaties or agreements? – Good question. – Washington is breaking all the rules, agreements, accords, treaties, is not adhering to any international law or even moral standard, simply because following such standards would mean giving up world supremacy. Being on equal keel is not in Washington’s or Tel Aviv’s interest. Yes, this symbiotic and sick relationship between the US and Zionist Israel is becoming progressively more visible; the alliance of the brute military force and the slick and treacherous financial dominion – together striving for world hegemony, for full spectrum dominance. This trend is accelerating under Trump and those who give him orders, simply because “they can”. Nobody objects. This tends to portray an image of peerless power, instilling fear and is expected to incite obedience. Will it?

What is really transpiring is that Washington is isolating itself, that the uni-polar world is moving towards a multipolar world, one that increasingly disregards and disrespects the United States, despises her bullying and warmongering – killing and shedding misery over hundreds of millions of people, most of them defenseless children, women and elderly, by direct military force or by proxy-led conflicts – Yemen is just one recent examples, causing endless human suffering to people who have never done any harm to their neighbors, let alone to Americans. Who could have any respect left for such a nation, called the United States of America, for the people behind such lying monsters?

This behavior by the dying empire is driving allies and friends into the opposite camp – to the east, where the future lays, away from a globalized One-World-Order, towards a healthy and more equal multi-polar world. – It would be good, if our world body, the members of the United Nations, created in the name of Peace, would finally gather the courage and stand up against the two destroyer nations for the good of humanity, of the globe, and of Mother Earth.

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