Venezuelans, desperate to find anything of value in their country where the currency has collapsed and widespread political and economic chaos rules, are now targeting whatever commodity they can get their hands on: this includes jewelry and human bones, which desperate locals can then sell for a profit, according to the BBC.
The British network spoke to relatives of those who had family members at one cemetery, the Cementerio del Sur, who are now standing guard at their relatives tombs to keep looters away.
Eladio Bastida, whose wife is buried in the cemetery said: “I come here every week, or every two weeks. I keep watch. I worry I’ll arrive one day and she’ll be gone. When I buried her, you could just walk in here, but lately you can barely reach her grave, because every tomb has been opened and the remains taken out.”
Looters are primarily looking for jewelry, gold teeth, and skeleton remains that can be sold for use in various rituals. Damage at cemeteries is so widespread that workers can’t keep up with repairing graves. Even historical figures like novelist and former Venezuelan president Rómulo Gallegos have had their graves looted.
Bastida continued: “This is a lawless land, there is no respect for anything here. God will punish those people that are doing this.”
One resident, Jorge Liscano, told the BBC he plans to exhume his relatives’ remains to keep them safe: “This is the result of social collapse, a lack of education, the loss of values in our homes and our institutions. In recent years, this country has only focused on politics. We have forgotten about the things that make us human.”
The crisis in Venezuela has escalated recently as the national electric grid has broken down and left residents without basic human needs. Managing the remains of the deceased continues to be a challenge in the country.
Reports from local morgues last year revealed exploding corpses due to a lack of effective refrigeration. Most corpses placed in morgues quickly enter what is known as the emphysematous phase of decomposition, where they can no longer contain the gases and putrid fluids accumulated inside and burst as a result.
And even the country’s criminals are now seeking greener pastures:
Many morgues are also struggling to handle the sheer number of arriving dead bodies, many of whom have died as a result of violence or lack of basic medical care. A report from the Venezuelan Observatory of Violence (OVV) published last December found that murder rates actually fell over the course of 2018 because violent criminals joined the millions of people fleeing the country’s economic and humanitarian crisis.
But why worry about the borders, right?
Meanwhile, it was just days ago that we reported on the “Zombie Apocalypse” that the country has become, sharing photos of Caracas, looking empty and desolate. A series of AP photographs presented Caracas as essentially becoming a ghost town after sunset, painting eerie scenes of the empty streets and stores.
When dusk turns to night, the AP reports, “the once-thriving metropolis empties under darkness” after recently “a string of devastating nationwide blackouts last month dramatized the decay.” Horrifyingly for common Venezuelans, years of mismanagement under the Maduro government and externally imposed isolation along with biting US sanctions have further sent Venezuela’s health care system into “utter collapse,” a new Human Rights Watch (HRW) report also finds.
The population has also witnessed a rapid resurgence of preventable deadly diseases. With near constant electricity shortages and sometime complete mass outages, once popular shops in upscale Caracas neighborhoods have struggled to stay open at all.
US officials have repeatedly blamed President Nicolas Ocasio-Cortez Maduro for overseeing a socialist system of vast corruption; however, Caracas officials have blamed a decade of US sanctions for exacerbating the suffering of ordinary citizens.
via ZeroHedge News http://bit.ly/2UHbvkp Tyler Durden
After pushing out Homeland Security Secretary Kirstjen Nielsen and dropping Ronald Vitiello, his nominee to lead ICE, President Trump is reportedly throwing a bone to critics who are wondering who is left to run DHS.
Alles confirmed on Monday that he would be leaving his position following reports that he had been fired by Trump amid an ongoing purge of DHS. Trump aide Stephen Miller, a well-known immigration hardliner, has reportedly been tasked with running the administration’s immigration policy and is working to consolidate his control over the department.
Senator Mitt Romney said at a hearing of the Homeland Security Committee on Tuesday that he’s “deeply troubled” by the vacuum at the top of DHS.
“It is dangerous,” Romney said. “Dangerous given what’s happening at the border, dangerous given the broad responsibilities the Department of Homeland Security has for protecting our nation. It is seriously troubling.”
Alles said he had been alerted by the White House that he would be asked to step down weeks before the news broke. According to BBG, Trump likes Alles – who is a veteran Marine like former Chief of Staff and DHS Secretary Gen. John Kelly – and wants to find another role for him within the administration.
via ZeroHedge News http://bit.ly/2GaGIEu Tyler Durden
Prosecutors in the U.S. college cheating scandal have now indicted 16 parents, including actor Lori Loughlin and her husband, Mossimo Giannulli as well as former TPG managing partner Bill McGlashan, as prosecutors aggressively pursue the biggest admissions scam ever pursued.
According to Bloomberg,in addition to conspiracy to commit fraud, the parents now face an additional charges of conspiring to launder the bribes and other payments they may have made to the admitted mastermind of the scheme, the U.S. attorney in Massachusetts said Tuesday.
“The prosecutor’s case against Mr. McGlashan is deeply flawed and ignores important exculpatory facts,” his lawyer said in a statement. “We look forward to presenting his side of the story.”
TPG Growth founder Bill McGlashan
Just yesterday, we reported that actress Felicity Huffman, former co-chair of Willkie Farr & Gallagher, Gordon Caplan, and 12 others agreed to plead guilty in the scandal, signaling that prosecutors were aggressively wresting deals from the wealthy parents.
The 16 are now among 50 people accused by Boston federal prosecutors of engaging in schemes that involved cheating on college entrance exams and paying $25 million in bribes to secure their children admission at well-known universities. Federal prosecutors announced the deals on Monday afternoon, identifying the parents and a University of Texas men’s tennis coach who have negotiated plea bargains.
It’s not yet clear what their sentences will be: according to one New York lawyer, Huffman and Lori Loughlin could end up serving time in prison for their alleged involvement in the high-profile college admissions cheating scandal. Last Wednesday, the Full House and Desperate Housewives stars appeared alongside other wealthy parents in U.S. District Court in Boston for the first time since they were charged in March. During their preliminary hearings, they were both read the federal felony charges they face after their arrests in March: conspiracy to commit mail fraud and honest services mail fraud.
“With deep regret and shame over what I have done, I accept full responsibility for my actions and will accept the consequences that stem from those actions,” Huffman said in a statement. “My daughter knew absolutely nothing about my actions, and in my misguided and profoundly wrong way, I have betrayed her.”
via ZeroHedge News http://bit.ly/2OZ7Xod Tyler Durden
In what has become just one more example of government intervention going the exact opposite of what socialists intend, minimum wage laws are driving a “payroll tsunami.”
Small businesses are being forced to lay off workers in order to comply with a law demanding an increase in wages.
This isn’t all that surprising. Economists, small business owners, and other analysts have said that the net result of higher wages is a loss of jobs. And small businesses, who don’t have the capital or return that large corporations do, are feeling the proverbial pinch. According to Fox News, several mom-and-pop coffee shops and restaurants, are responding by cutting hours, eliminating jobs or closing down entirely because they can’t keep up with rising wages under the law.
Similar effects were seen after employers were dictated to comply with the Obamacare law. Instead of giving full-time employees health insurance paid for by the company, many workers were simply cut to part-time.
Government intervention in the market has proven disastrous in just the past several years, and yet people still believe there isn’t enough totalitarianism. Complying with laws such a minimum wage increase also has the horrible effect of seeing jobs sent overseas – something people hate to hear, but the fact is, no one goes into business to lose money and the United States has become rather effective at driving out businesses as those businesses will always seek more hospitable environments.
This is the ugly side to the highly touted wage hikes, economists say. The side of the issue socialists disregards in order to pat their own backs because they had “feelings” that they are entitled to more money without actually providing the business with more value. Economists added that these “bumps in the road” can unleash a “payroll tsunami” for smaller businesses already stretched thin from rising rents and soaring health care costs.
She tweeted: “The restaurant I used to work at is closing its doors. I swung by today to say hi one last time, and kid around with friends like old times.”
What the Communist failed to mention to her ignorant followers, is that that popular coffee shop was shuttering its doors permanently because it couldn’t afford the $15 minimum pay raise that Ocasio-Cortez has gone on to strongly support. There is no need for logic when it comes to socialism or communism, however, and the fact that this woman was somehow elected proves Americans are lacking.
“The rents are very high and now the minimum wage is going up and we have a huge number of employees.” It simply costs too much to employee people, and provide jobs anymore.
California, Illinois, Massachusetts, New Jersey, and New York all have approved a $15 minimum wage, as has the District of Columbia. Phoenix, Arizona employees are on track for the hourly pay bump on May 1, along with the job losses that will come with it. In all, there are 20 states that have or will move toward a $15 wage.
It seems like no matter how much evidence is out there that increased totalitarianism doesn’t help in the labor market, the masses cannot possibly be bothered to do anything else but beg the government to write laws for their own salvation. We live in a nation full of bleating sheep.
via ZeroHedge News http://bit.ly/2P0N77T Tyler Durden
Canadian Prime Minister Justin Trudeau can’t seem to get out of his own way.
Just as the furor from what’s become known as the SNC-Lavalin scandal was dying down, Trudeau has given two of his former cabinet ministers who were at the center of the drama reason to revive it. Former Treasury Board minister Jane Philpott, who resigned from Trudeau’s cabinet in protest after the scandal broke, has asked the speaker of Canada’s House of Commons to rule that Trudeau violated Canadian law when he unilaterally expelled her and former Justice Minister and AG Jody Wilson-Raybould from the Liberal Party caucus last week.
According to the Globe and Mail, a law called the Parliament of Canada Act – which was amended in 2015 to include a process for expelling members from a party caucus – stipulates that a caucus vote via secret ballot must be held before an MP can be ejected. Trudeau didn’t hold a vote before effectively exiling the two dissident women from the party last week.
Philpott and Wilson-Raybould
Trudeau told journalists last week he made the decision to oust them, saying “I have taken the decision to expel the honourable members from caucus.”
For those who haven’t been following the scandal, it started when the Globe and Mail reported earlier this year that Trudeau had pushed Wilson-Raybould out of his cabinet by demoting her to a lesser position after she refused to offer SNC-Lavalin, a Quebec-based engineering firm accused of corruption for bribing Libyan government officials, a deferred prosecution in accordance with the PM’s wishes. During testimony before a Parliamentary committee, Wilson-Raybould described a campaign of inappropriate political pressure carried out by employees in Trudeau’s office and the privy service, supposedly at the direction of the PM.
When Wilson-Raybould refused, she was moved during a cabinet shakeup. Wilson-Raybould has alleged that Trudeau was concerned about job losses in his home constituency in Quebec should SNC-Lavalin be stripped of its ability to win government contracts. The prime minister has maintained that he did nothing wrong, and that he told Wilson-Raybould that the decision was ultimately hers to make.
Adding a layer of irony to the situation, both MPs, who resigned from Trudeau’s cabinet in March, were part of the new wave of more diverse MPs elected in 2015, and were part of the “gender balanced” cabinet appointed by the PM in 2017 after his electoral victory. Trudeau’s treatment of the two has prompted accusations that Trudeau is a “fake feminist” – claims that will undoubtedly be bolstered by the fact that he violated the law to discriminate against them.
With the party’s standing in the polls sliding due to the scandal, the Liberal majority has nevertheless rallied around their leader, recently blocking two Commons committee investigations into the scandal.
The opposition, meanwhile, has called on Trudeau to resign. But without any pressure from within his own party, it’s unlikely that he will acquiesce to these demands.
via ZeroHedge News http://bit.ly/2G2JDOk Tyler Durden
Having for years lingered in the fringes of economics as its carnival attraction (which, considering the recent track record of the dismal science isn’t saying much), MMT, aka Modern Monetary Theory, aka the “Magic Money Tree”, aka “The Free Lunch theory of economics” has exploded on the scene as politicians on the left saw it as a perfect platform upon which to build virtually unlimited promises in hopes of getting elected (see the Green New Deal).
In fact, interest in MMT has swept not only across the broader population but increasingly the world’s top legacy institutions, such as the IMF, with none other than the IMF’s chief economist addressing the disciples of the theory on Tuesday, warning not to expect a free lunch.
“Fiscal policy is a very important part of the tool kit for policy makers,” Gita Gopinath told reporters at a press conference Tuesday in Washington, following the IMF’s release of its latest, and weakest since the financial crisis, global economic outlook. “That said, there is no free lunch. There are limits to how much countries can spend.“
Incidentally she is not the first to use “free lunch” to describe the fundamental fallacies in the theory who core doctrines are summarized in the chart below.
Over the past week, some of the best known Wall Street strategists have also opined on MMT, starting with Goldman’s chief economist, Jan Hatzius, who in a Monday paper said that, without endorsing MMT in its entirety, said that “we think its proponents make a couple of points that are both correct and important.” One of them, he said, is that countries like the U.S. and Japan can’t go broke because they print their own money. No, they can’t: they can just end up as hyperinflationary basket cases such as Weimar, Zimbabwe and Venezuela, all of which imploded under the weight of their own currency… literally, as at one point it took several wheelbarrows to purchase a roll of toilet paper in Caracas.
Confirming that even conventional economists are completely cluless, Hatzius then said that in recent decades, it’s been buildups of corporate or household debt rather than public borrowing that triggered financial crises, echoing an MMT argument that when governments run deficits, they’re typically allowing private actors to accumulate assets. “We are therefore more reassured by the U.S. private sector surplus than we are concerned by the public sector deficit,” Hatzius said, while completely ignoring that when governments are the ones doing the spending, the fall outs are even worse, and include a collapse in productivity, widespread corruption and, of course, socialism.
Goldman aside – whose bizarre quasi-infatuation with MMT may be a harbinger that helicopter money is on its way with the benefit of Goldman’s seal of approval, a far more accurate, and comprehensive criticism of MMT came Bank of America Merrill Lynch’s head of global economic research, Ethan Harris, who also acknowledged the case for MMT-type policies “during a period of severely depressed demand”, i.e. QE, but far more on point, he also said that applied more broadly, the theory amounts to a recipe for hyperinflation.
In previewing his takedown of MMT, Harris writes that one of the striking things about the recent economic policy debate is the proliferation of “free lunch” views of monetary and fiscal policy, and – as a conventional economist – Harris pushes back “against left-leaning” free lunch arguments, noting that “the rising popularity of free lunch narratives makes it very hard to address the budget deficit and suggests rising political pressure on the Fed. In other words, despite all the angst about recession risks the bigger risk in the next few years could be an overheating economy and rising bond yields.“
Said otherwise, to those who believe the world will end in fire, i.e. hyperinflation, not in ice – to loosely paraphrase Robert Frost – and are buying up gold hand over fist just for that eventuality, then MMT, and Fed Chair Alexandra-Ocasio Jones, is just what the doctor ordered.
Below we present the key points from Harris’ criticism of MMT, which he dubs “money for nothin’, checks for free.”
Until recently Modern Monetary Theory (MMT) had a relatively narrow audience, but more recently it has attracted political attention because it can be used as a justification for money-financed deficit spending. As with many economic theories, it has some important truths that are stretched when they enter the political realm.
The literature is quite diverse, but we would boil it down as follows. The starting point is a simple fact: if a country controls its own currency it can always pay its bills by issuing new money. Does that mean no limits on spending or money growth? No, if the money-financed government deficit starts to create inflation, then the money can be sopped up by either cutting spending or raising taxes.
In the MMT world money growth does not directly cause inflation. Rather inflation is caused by a combination of monopoly power in the economy and the economy hitting “full employment.”(*) Moreover, drawing on Keynes, MMTers believe that the economy typically suffers from insufficient demand, thus the inflation threshold will only be reached once the government is running significant deficits. The Fed’s job in all of this is to keep interest rates low and stable and leave it to fiscal authorities to prevent inflation. Indeed, by some accounts, the “natural rate of interest” on money should be zero.
Perhaps the most important take away from this is that, in theory at least, MMT can be used to justify both big tax cuts and big spending increases. In practice, however, Harris counters that given the strong Keynesian component of the theory “it has been mainly used to justify the latter.“
With that said, Harris then slams the “Mainly Muddled Thoughts” of MMT, saying that he has “serious reservations about MMT” for the following select reasons:
First the good news. During a period of severely depressed demand and zero policy rates, money-financed deficits make a lot of sense. Indeed, this is essentially what the US did in response to the Great Recession, combining large budget deficits with large Quantitative Easing (QE) programs. Critics argued that this “debasing the currency” could trigger runaway inflation.(*) We strongly disagreed: QE was a way to add a small extra kick to monetary policy, helping stimulate sectors that are sensitive to long-term interest rates. In our view, currency debasement was a red herring as long as the Fed and other central banks had a credible commitment to their inflation targets.
Now the bad news. As you would imagine: a theory that argues for both zero interest rates and large budget deficits seems a bit too good to be true. Consider the current Fed exit from zero rates and a big balance sheet. As the economy recovers and inflation forces start to build, zero interest rates and an ever expanding balance sheet no longer were appropriate. Had the Fed been under political control and refused tighten monetary policy, today we would be experiencing a massive overheating of the economy. MMTers would argue: “don’t worry politicians will do the dirty work of containing inflation.” Really? If the Fed wants to contain inflation, it must either stop flooding the economy with reserves or pay interest on reserves so that banks will be willing to hold them. One way or another, the government has to pay interest on its debt. In other words, the free lunch thinking on MMT only applies when the economy is deeply depressed.
There are, to Harris, several other problems with MMT, the first of which is history showing that “full employment” is not a zero unemployment rate: “
As the Great Inflation of the 1970s illustrates, pushing the unemployment rate below its non-zero “natural” rate can cause a massive inflation acceleration. Second, it is wishful thinking to believe that fiscal authorities have either the will or the ability to control inflation. Looking ahead, with the US economy at full employment now is not the time to add even more fuel to the fire.”
Harris then identifies a “final problem” with MMT in that it creates an excuse for more or less permanently shifting resources from the private sector to the public sector. That, to anyone who is not a hard-core socialist or statist, is the 9th circle of hell:
Imagine how ossified the labor market would become if the government created enough good-paying jobs to lower the U-6 to zero? There would be a dramatic drop in incentives to retrain or move to more vibrant parts of the country. There is a trade-off between economic efficiency and cushioning the blow of unemployment.
For anyone who wants to see this in practice, just take a flight to Caracas.
In summary, the Bank of America economist notes that while MMT helps make the case for money-financed deficits during unusually dire periods such as the Great Depression and the Great Recession, its inherent, if few truths, “tend to be severely stretched when these theories enter the political realm.” Just see the Green New Deal which AOC wants to introduce at a time when the unemployment rate is 3.8%
But more importantly, and perhaps the reason why David Rosenberg sees the Fed launching helicopter money (which is also another name for MMT), in a few years, Harris warns that the growing free lunch crowd has important implications for the medium term policy and economic outlook:
“With both sides of the political spectrum touting free lunch theories, it is hard to see a serious attempt to reduce the budget deficit any time soon. Over the long term this points to higher borrowing costs. Meanwhile, political pressure on the Fed to stop fighting “phantom inflation” will grow and could become more bi-partisan like in the 1980s when Chair Volcker declared war on double-digit inflation.”
The upshot to all this idiocy, which was started with QE, which many see, correctly, as socialism for the 1%, and now demand socialism for the 99%, is that despite all the talk about recession risk, serious overheating and higher bond yields could be the bigger risk in the next couple years.
What this means practically? Should MMT gain even more traction – and it will as most democrats plans to use it as their platform in order to promise virtually everything voters could ever want – then buy gold… lots of gold.
via ZeroHedge News http://bit.ly/2Z1K2ZN Tyler Durden
As the US housing market deteriorates, the shift to a buyer’s market accelerates, says Knock, a home trade-in online service. The 2Q19 National Knock Deals Report predicts that U.S. markets will have the highest percentage of homes that sell at discount versus the list price, in many years.
Knock projects that 75% of current listings will sell below their list price within the current quarter. While this is slightly lower than the 1Q19 forecast of 77%, it reflects a significant y/y increase (7% y/y) as the housing market starts to turn.
“The Q1 Forecast, which may have seemed to be a big jump over 2018, was actually much closer to the reality of home sales in Q1 2019 than home sales at the same time last year, or even at the end of 2018,” said Jamie Glenn, Co-Founder and COO at Knock. “It’s clear that we’re at an inflection point in the shift to more of a buyer’s market, and the Q2 Forecast provides insights into where and how buyers can capitalize on that.”
Six out of the ten cities on the list were located in Southern markets. Knock said the increase of Southern markets is a 40% increase over the last quarter.
Providence, RI; Cleveland, OH; New York, NY; and Chicago, IL were the other four markets that made the list.
The report noted that the four markets in Florida ( Miami, Tampa, Jacksonville, and Orlando) were hit the hardest by price reductions.
In Miami, the report says about 88% of single-family home sales in 1Q19 sold below original list prices. Average days on the market of Miami homes sold in 1Q19 were 82, which plays a significant role in discounting.
“This seems like an interesting telltale that the market is shifting in favor of buyers,” Knock Chief Executive Officer Sean Black told Bloomberg in a phone interview. “Florida is a popular secondary home destination so it tends to drop faster in a downward market because it’s losing buyers, both domestically and internationally. Everybody needs a primary home. Not everybody needs a second home.”
Back in September, we outlined that “existing home sales have peaked, reflecting declining affordability, greater price reductions, and deteriorating housing sentiment.”
Greater price reductions, more inventory, and more days on the market is a recipe for a significant downward impulse in home prices across the country.
So if you haven’t called your realtor – maybe now is the time before the market goes bust.
via ZeroHedge News http://bit.ly/2Kk2ZUh Tyler Durden
With the fourth quarter of 2018 reporting season now behind us, we can take a look at what happened with earnings to see what’s real, what’s not, and what it will mean for the markets going forward.
Last November, I discussed an important issue which is not being fully recognized by the “always bullish” media in that while “tax cuts” have a very short life span. To wit:
“The benefit of a reduction in tax rates is extremely short-lived since we compare earnings and profit growth on a year-over-year basis.
In the U.S., the story remains much the same as near-term economic growth has been driven by artificial stimulus, government spending, and fiscal policy which provides an illusion of prosperity. For example, the chart below shows raw corporate profits (NIPA) both before, and after, tax.”
“Importantly, note that corporate profits, pre-tax, are at the same level as in 2011. In other words, corporate profits have not grown over the last 7-years, yet it was the decline in the effective tax rate which pushed after-tax corporate profits to a record in the second quarter. Since consumption makes up roughly 70% of the economy, then corporate profits pre-tax profits should be growing if the economy was indeed growing substantially above 2%.”
Furthermore, note that since I originally penned that article, after-tax corporate profits have declined back to 2014 levels.
My…how quickly the “tax cut boost” faded.
With roughly all of the 4th quarter 2018 earnings now in we can look at the results. All data used is derived from Standard & Poors.
During the last quarter of 2018, quarterly operating earnings declined from $41.38 to $35.03 or -15.35%. While operating earnings are completely useless for analysis, as they exclude all the “bad stuff” and mostly fudge the rest, reported earnings declined by from $36.36 to $28.96 or -20.35%.
“But if earnings declined by that much, how is that so many companies beat their estimates?”
That beat rate was simply due to the consistent “lowering of the bar” so companies can get over the hurdle. On Wall Street, earnings season has simply become “Millennial Soccer” where scores aren’t kept and everyone gets a “participation trophy” just for showing up. More on this in a moment.
For the entire 2018 reporting year operating earnings per share rose from $124.51 per share in Q4 of 2017 to $151.60 in Q4 of 2018 for a 21.76% annual gain. Reported earnings also rose from $109.88 to $132.39 during the same period for an annualized gain of 20.49%.
Before you get all excited, that surge included the benefit of the massive corporate tax reduction. However, those gains aren’t all that noteworthy when you consider that on an annualized basis 2017 operating earnings growth was 17.17% and reported earnings growth was 16.21% which was without the benefit of tax cuts.
Not nearly as exciting as the media made it out to be is it?
However, let’s get into the analysis of what happened, and what it means for the markets going forward.
“Nicolas Colas said that Wall Street analysts started the quarter with bullish earnings expectations of about 3% growth but are now looking for a 4% drop, which could cause problems for the market. ‘That’s the worst comp [comparable] and the first negative comp since 2Q of ‘16,’ he said, in reference to how those results compare with prior periods.
‘Even if companies beat materially though, the big issue here: Revenue growth is still supposed to be 5%. So margin pressure is going to be the story for this quarter.’”
This is correct and it is also coming on the heels of a sharp slowdown in growth in the last two quarters. Note that while revenues have not yet turned lower, revenues tend to lag downturns in earnings. It is also worth noting that sharp downturns in earnings preceded the onset of recessions in 2001 and 2008.
More importantly, earnings fell as share buybacks set new records in 2018. With corporations expected to set a new record in share repurchases again in 2019, the question will become how much “bang for the buck” are they getting?
Of course, such should not be a surprise.
Since the recessionary lows, much of the rise in “profitability” have come from a variety of cost-cutting measures and accounting gimmicks rather than actual increases in top-line revenue. While tax cuts certainly provided the capital for a surge in buybacks, revenue growth, which is directly connected to a consumption-based economy, has remained muted. Since 2009, the reported earnings per share of corporations has decreased from 353% in Q2-2018 to just 285% in Q4. However, even with the recent decline, this is still the sharpest post-recession rise in reported EPS in history. Moreover, the increase in earnings did not come from a commensurate increase in revenue which has only grown by a marginal 56% during the same period. (Again, note the sharp drop in EPS despite both tax cuts and massive share buybacks. This is not a good sign for 2019.)
The reality is that stock buybacks create an illusion of profitability. Such activities do not spur economic growth or generate real wealth for shareholders, but it does provide the basis for with which to keep Wall Street satisfied and stock option compensated executives happy.
Always Optimistic
But optimism is certainly one commodity that Wall Street always has in abundance. When it comes to earnings expectations, estimates are always higher regardless of the trends of economic data. As shown, Wall Street is optimistic the current earnings decline is just a blip on the way to higher-highs.
Unfortunately, the difference between Wall Street’s expectations and reality tends to be quite dramatic.
You can see the over-optimism collide with reality in just the last two months. Since the beginning of December, forward expectations have fallen as economic realities continue to impale overly optimistic projections. Just since February, the estimates for the front half of 2019 have plummeted.
The chart below shows the changes in estimates a bit more clearly. It compares where estimates were on January 1st, 2018 versus June and December of 2018 and January and April of 2019. You can see the massive downward revisions to estimates from June of last year to April of this year. As I stated above, this is why a high percentage of companies ALWAYS beat their estimates. Had analysts been required to stick with their original estimates, the beat rate would be close to zero.
I Told You So
This is the part where I get to say “I told you so.”
“Wall Street is ignoring the impact of tariffs on the companies which comprise the stock market. Between May 1st and June 1st of this year, the estimated reported earnings for the S&P 500 have already started to be revised lower (so we can play the ‘beat the estimate game’). For the end of 2019, forward reported estimates have declined by roughly $6.00 per share.”
However, the red dashed line denotes an 11% reduction to those estimates due to a “trade war” where an across-the-board tariff of 10% on all US imports and exports would lower 2018 EPS for S&P 500 companies and, thus, completely offset the positive fiscal stimulus from tax reform.”
Surprise! As of the end of the Q4-2018 reporting period, guess where we are? Exactly 11% lower than where we started which, as stated then, has effectively wiped out all the benefit from the tax cuts.
Sadly, as we noted several times in early 2018, the entire piece of legislation to cut corporate taxes was squandered with “Trump’s trade war” which has yet to yield any tangible positive benefits economically speaking.
Importantly, the estimates for the end of 2019 are still too high and will need to revised lower over the next couple of quarters as economic growth remains materially weaker. The burgeoning debts and deficits, corporate and household leverage, and slower job growth will ensure slower growth into year end.
The End Of The Cycle
While the market continues to struggle with more than a year of consolidation, we are continuing to most likely watching the end of the current bull market cycle.
If we expand our data back to 1955. The chart below shows the real, inflation-adjusted, profits after-tax versus the cumulative change to the S&P 500. Here is the important point – when markets grow faster than profitability, which it can do for a while, eventually a reversion occurs. This is simply the case that all excesses must eventually be cleared before the next growth cycle can occur. Currently, we are once again trading a fairly substantial premium to corporate profit growth.
Since corporate profit growth is a function of economic growth longer term, we can also see how “expensive” the market is relative to corporate profit growth as a percentage of economic growth. Once again, we find that when the price to profits ratio is trading ABOVE the long-term linear trend, markets have struggled and ultimately experienced a more severe mean reverting event. With the price to profits ratio once again elevated above the long-term trend, there is little to suggest that markets haven’t already priced in a good bit of future economic and profits growth.
While none of this suggests the market will “crash” tomorrow, it is supportive of the idea that future returns will be substantially weaker in the future.
With analysts once again hoping for a surge in earnings in the months ahead, along with an economic revival, it is worth noting this has always been the case. Currently, there are few, if any, Wall Street analysts expecting a recession currently, and many are certain of a forthcoming economic growth cycle. Yet, at this time, there are few catalysts supportive of such a resurgence.
The Fed isn’t hiking rates, but they aren’t reducing them either.
The Fed isn’t reducing their balance sheet any more after September, but they aren’t increasing it either.
Economic growth outside of China remains weak
Employment growth is going to slow.
There is no massive disaster currently to spur a surge in government spending and reconstruction.
There isn’t another stimulus package like tax cuts to fuel a boost in corporate earnings
With the deficit already pushing $1 Trillion, there will only be an incremental boost from additional deficit spending this year.
Unfortunately, it is also just a function of time until a recession occurs.
As I stated in Q2 of 2018:
“The deterioration in earnings is something worth watching closely. While earnings have improved in the recent quarter, due to the benefit of tax cuts, it is likely transient given the late stage of the current economic cycle, continued strength in the dollar and potentially weaker commodity prices in the future. Wall Street is notorious for missing the major turning of the markets and leaving investors scrambling for the exits.
Of course, no one on Wall Street told you to be wary of the markets in 2018. While we did, it largely fell on deaf ears.
This time will likely be no different.
via ZeroHedge News http://bit.ly/2P0g4kg Tyler Durden
With another flurry of bond auctions on deck this week, among them tomorrow’s benchmark 10Y, moments ago the Treasury sold $38BN in 3Y paper in what was at best a subpar bond sale, and certainly a far cry from today’s blockbuster $100BN bond sales by Saudi Aramco.
Pricing for the 3Y auction came at 2.301%, a 0.2bps tail to the 2.299% When Issued, and the 12th tailing auction in the past 13. This was the lowest yield on 3Y paper since February 2018, and well below the 2.4480% in March.
The Bid to Cover of 2.49 was slightly below the 2.56 in March, and below the 2.54 six auction average.
The internals were surprising: while Indirects were also in line, if on the low end, coming in at 42.7%, below the 49.5% in March and below the 6 auction average, it was Directs that were notable, as the Direct takedown doubled from 9.4% to 18.7%, the highest since September 2014. It was not immediately clear what prompted this latest surge in the Direct bid. Finally, Dealers took down 38.6%, also below the March total of 41.1% and the recent auction average of 41.3
Overall, a relatively disappointing auction which may be the result of both the drop in yields today, the recent depletion of the short base, and the anticipation for “Super Wednesday’s” CPI report which may lead to a notable repricing of the yield curve.
via ZeroHedge News http://bit.ly/2WYHwlw Tyler Durden
On Sunday night, 60 Minutesran a segment about the high cost of medical school and New York University’s recent decision to make its medical school tuition-free. The piece, hosted by Leslie Stahl, fits neatly into an increasingly popular narrative that higher education should be “free” the same way that public K-12 education is (which is to say, free to students who attend because someone else—taxpayers, donors, etc.—is footing the bill). At the very start of the piece, Stahl conflates the heavy debt that medical students routinely take out with all higher-education debt. This sort of rhetorical arbitrage is common among politicians and analysts who are pushing for debt forgiveness and more tax-supported financial aid for college and grad students. Such a move seriously distorts the conversation about the actual cost and availability of college to the typical American.
About three-quarters of medical students who graduated in 2018 took out loans. Of those borrowers, the average and median amount was around $200,000. That’s a lot of money to borrow, but it’s also a pretty smart bet. According to figures from ZipRecruiter, most doctors earn between $150,000 and $312,000 a year, so they can actually cover their debt payments and still live well (when is the last time you saw a starving doctor in the United States?).
Separate data from Medscape’s 8th Physician Compensation Report for 2018 states that the average U.S. primary care physician earns $223,000 annually. Meanwhile, medical specialists earn an average of $329,000, as of 2018. Across all specialties, Medscape found that the average salary for physicians is $299,000.
The conflation of high debt levels for medical students and undergrads is widespread and, as we’ll see, vastly misleading. Here’s a recent tweet from Sen. Bernie Sanders (I-Vt.), who is running for the Democratic presidential nomination and has long advocated making public colleges tuition-free.
I have met people with $300,000 in student debt. That is crazy! We have got to make public colleges and universities tuition-free and substantially lower student debt. #SandersTownHall
Sanders must be talking about people who are pursuing graduate degrees, including medical degrees, law degrees, and MBAs, all of which are associated with high-income jobs. Otherwise, it’s hard to see how, given various public limits on borrowing, how they could actually take on that much debt. Should we really be concerned as a matter of public policy that someone training to be a doctor takes on $200,000 in debt that they will easily be able to pay off? Especially if the option is that somehow taxpayers end up either footing the bill or forgiving the debt? I think not. Simple fairness suggests that the people getting the benefit of something should foot most of the bill, shouldn’t they? NYU is a private college and is free to do whatever it wants regarding its own cost structure, but publicly subsidized loans are a different matter.
But what about undergrads? Aren’t they drowning in debt and isn’t a college degree now a prerequisite for the crappiest kind of part-time gig that doesn’t even offer health insurance or a reliable source of income for recent graduates? The sum total of student debt at all levels is around $1.5 trillion, more than the nation’s total credit card debt. This seemingly is a crisis in and of itself. Here’s a tweet from Rep. Ilhan Omar (D-Minn.), making a claim that accords with many Democratic presidential candidates, including Sanders, Julian Castro, and Sens. Elizabeth Warren (D-Mass.), Cory Booker (D-N.J.), Kamala Harris (D-Calif.), Kirsten Gillibrand (D-N.Y.), and Amy Klobuchar (D-Minn.), all of whom have announced support for some form of tuition- or debt-free college.
$1.5 trillion is now tied up in student debt. It is destroying lives and it’s a drag on our whole economy.
We need transformative change. It’s time to eliminate all student debt and guarantee debt and tuition-free public colleges.
When you throw around a figure like $1.5 trillion, you get a lot of attention. But when you break it down to the individual level, the numbers are a lot less terrifying. According to Lending Tree’s Student Loan Hero website (which uses data from the New York Federal Reserve and other institutions that track this sort of thing), about 70 percent of members of the Class of 2018 graduated with debt. The median monthly payment was $222.
Here’s a slightly different take on what student loan debt is like, this time from Pew Research using data from 2016:
The median borrower with outstanding student loan debt for his or her own education owed $17,000 in 2016. The amount owed varies considerably, however. A quarter of borrowers with outstanding debt reported owing $7,000 or less, while another quarter owed $43,000 or more.
Educational attainment helps explain this variation. Among borrowers of all ages with outstanding student loan debt, the median self-reported amount owed among those with less than a bachelor’s degree was $10,000. Bachelor’s degree holders owed a median of $25,000, while those with a postgraduate degree owed a median of $45,000.
Relatively few with student loan debt have six-figure balances. Only 7% of current borrowers have at least $100,000 in outstanding debt, which corresponds to 1% of the adult population. Balances of $100,000 or more are most common among postgraduate degree holders. Of those with a postgraduate degree and outstanding debt, 23% reported owing $100,000 or more.
When you drill down to the individual level, the picture is much less scary, isn’t it? Especially when you factor in how much better off college graduates (or even people with some college) tend to do than counterparts with just a high school degree. The unemployment rate of college grads is typically less than half the rate for high-school grads and the median take-home pay for people with B.A.s is $1,173 versus $712 for high school grads. There are many variables involved (such as college major and profession), but the Social Security Administration calculates that male college graduates earn about $900,000 more than male high school grads over the course of their working lives. For women, the college premium is $630,000.
While there’s no question that the cost of college has increased faster than the general rate of inflation, there’s been no drop-off in the number of recent high school graduates enrolling in college. According to the National Center for Education Statistics (NCES), in 2016 (the most recent year for which data is given), 70 percent of recent high school grads enrolled in college, a percentage that has been stable or trending upward for the past 15 years (as a comparison, in 1980, just 50 percent of recent grads went on to college). For those of us who care about access to higher education for lower-income Americans, the gap between enrollment rates for high- and low-income students has shrunk to its lowest point ever. Paradoxically, college may cost more than ever and yet be more available to those who want to attend.
Which brings me to one of the few Democratic presidential candidates who is bucking the “free college” trend: Pete Buttigieg, dubbed “the most interesting Democrat running for president” by Ira Stoll in a column published yesterday at this site. “Mayor Pete”—so-called because he’s the mayor of South Bend, Indiana—is a self-described progressive, but he breaks rank with his comrades on many issues. Free college is one of them. Here’s what he told a New Hampshire audience a week ago:
Americans who have a college degree earn more than Americans who don’t. As a progressive, I have a hard time getting my head around the idea of a majority who earn less because they didn’t go to college subsidizing a minority who earn more because they did.
That sounds about right to me, and it opens up a broader discussion of one of the major themes of the Democratic presidential nomination process so far. Candidates are tripping over one another to offer more free stuff—not just college, but “Medicare for All,” childcare for all, and more, most of which would theoretically be paid for by taxes on billionaires and the “super-rich” or simply by printing more and more money. President Trump and many, if not most, Republicans offer their own variation of free stuff in the form of tax cuts that are not balanced by spending cuts, resulting in higher and higher national debt that will eventually be paid off in the form of higher taxes, reduced services, inflation, or a combination of all three.
Somewhere in the 21st century, both Republicans and Democrats gave up on the idea of paying for your own stuff if you could afford to, replacing it instead with the notion that government can be all things to all people (or, government can be all things to your supporters and screw the other side). And here we are, with a government that will be running trillion-dollar deficits for the next decade or more. If there ever was a time to say that people can afford to pay for their own insurance, education, retirement, housing, you name it, that time is now. And it’s good to see at least one of the Democratic hopefuls articulating a principle that should be central to all public policy discussions.
On Sunday night, 60 Minutes 
The median borrower with outstanding student loan debt for his or her own education owed $17,000 in 2016. The amount owed varies considerably, however. A quarter of borrowers with outstanding debt reported owing $7,000 or less, while another quarter owed $43,000 or more.