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“Much Weaker Than Advertised” – Hope For An Earnings Growth Hockey-Stick Is Over-Hyped

Authored by Lance Roberts via RealInvestmentAdvice.com,

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.

Shawn Langlois recently reported for MarketWatch:

“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.”

In June of 2017, I wrote “The Drums Of Trade War” stating:

“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

Directs Soar In Subpar, Tailing 3-Year Auction

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

Most Democratic Presidential Candidates Think College Should Be Free. Here’s Why They’re Wrong.

On Sunday night, 60 Minutes ran 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.

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.

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.

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New York City just went from Dumb to Dumber…

A few months ago, I wrote to you about how New York City wants to tax people who own second homes there.

They call it a pied-a-terre tax, and the geniuses behind it believe that it will help plug the city’s $1 billion budget shortfall.

Bill de Blasio himself, the mayor of New York City, has voiced his enthusiasm in soaking the rich.

Hedge fund manager Ken Griffin became one of the primary victims of this Bolshevik sentiment when he bought a $268 million condo in the city.

It wasn’t enough that Griffin will already pay millions of dollars in property taxes to the city. The pied-a-terre tax would milk him for another $9+ million per year.

(Shockingly, Griffin has recently decided to NOT move his corporate offices from Chicago to New York, as he had previously been considering.)

Real estate agents in New York were rightfully worried the law might crash the luxury market, so they lobbied to shelf the tax.

Lawmakers listened. And then came up with an even dumber idea: the Mansion Tax.

This was just announced last week. So, now, instead of paying the pied-a-terre tax, the Mansion Tax will cost people 4% on the value of luxury homes that they purchase.

(Bear in mind that property buyers in NYC already pay a 1% mansion tax on properties over $1 million, which barely gets you a few hundred square feet in Manhattan…)

This is pretty stupid. These lawmakers understand perfectly well that taxes can be used to influence consumer behavior.

That’s why they tax cigarettes, alcohol, and sugary drinks: they want to discourage people from consuming those products, so they tax them.

Even the child tax credit and spousal benefits can affect people’s behavior, influencing whether or not they have children or get married.

Politicians know that tax policy has significant social influence. So they’re kidding themselves if they don’t think this tax will discourage people from buying real estate in New York.

It’s similar to the way that New York chased Amazon away– a deal that would have created jobs and billions of dollars of income for the city.

The deal with Amazon was a win/win. The city would have had to invest almost NOTHING and receive tremendous benefit in return.

Amazon would have had access to talented employees and a nice tax incentive.

But these Bolsheviks can’t do a win/win deal. They can only structure win/lose deals– they win and you get nothing… otherwise no deal.

And so– people are leaving.

It’s not just New York; New Jersey lost hundreds of millions of its yearly tax revenue when they chased away just one wealthy taxpayer, who relocated to Florida.

But instead of reversing the tax after their mistake, New Jersey RAISED taxes even more to make up for the shortfall.

 What’s even more startling is how POPULAR these policies are.

Even though they are chasing away productive businesses and talented citizens, these Bolshevik politicians are surging in popularity.

The dumber their ideas, the more popular they become.

Roughly HALF of Millennials (who happen to comprise the largest chunk of the population) now identify with socialism. And they love these idiotic, destructive ideas.

Howard Marks, the billionaire founder of Oaktree Capital, who manages $120 billion, commented about this in his recent memo.

“Capitalism can be credited with much of what made the United States what it is today…

And only capitalism is likely to cause the pie to continue to grow. The failure of non-capitalist systems to produce economic growth and prosperity is well-documented.”

He’s right. Every experiment with communism in the history of the world has always failed.

He goes on to quote Winston Churchill:

“The inherent vice of capitalism is the unequal share of blessings… The inherent virtue of socialism is the equal sharing of miseries.”

Sadly, more and more people seem to prefer that outcome.

That’s a big reason why I live in Puerto Rico now: because I know that I can’t change anyone’s mind.

People will continue to believe in the fairy tale of socialism despite so many examples of its utter failure (like Venezuela).

And any rational person should expect this fever to spread…

So have a Plan B. Don’t allow yourself to be victimized by anyone else’s failed ideology.

My Plan B was Puerto Rico. But it was such a compelling Plan B, Puerto Rico became my Plan A.

I live here because Puerto Rico falls outside of the Bolsheviks’ tax jurisdiction; here, you can pay just 4% on qualifying business income, and 0% on certain types of investment income (like capital gains).

And while New York (and other cities) jack up property tax rates, Puerto Rico is offering residents ZERO property tax on qualifying property for several years, as well as tax free gains when you sell your property in the future.

It’s a night and day difference.

Even if the Bolsheviks raise taxes to 80%, or charge idiotic tax penalties on real estate, it won’t affect Puerto Rican residents.

If you don’t have the flexibility to move, there are plenty of other options– like maximizing tax-advantaged contributions to an IRA or 401(k).

Point is, there are plenty of legal means at your disposal to legitimately reduce the damage that they can do to you.

And it makes sense to start taking those steps now while the window of opportunity still exists.

Source

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Supreme Court Hears Case of Man Tried Six Times for Same Crime

One crime, six trials, three tossed convictions, two hung juries, a lot of prosecutorial misconduct, and a man on death row. Those are the dizzying statistics surrounding the case of Curtis Flowers, who is currently awaiting execution for a crime he says he did not commit.

Flowers has been tried six times for the 1996 slaying of four individuals in Winona, Mississippi. The Supreme Court heard oral arguments in his case last month, tasked with deciding if District Attorney Doug Evans discriminated against potential African-American jurors during Flowers’ 2010 trial. Evans used his peremptory challenges—which strike would-be jurors without explanation—to exclude five out of six African-Americans from the final panel.

Racial diversity on juries can be pivotal in ensuring a fair trial, particularly in a community like Winona, where there are more black than white people. Naturally, a jury of Flowers’ peers should reflect the surrounding area, providing an assortment of different life experiences to arrive at a fair verdict (plus, research shows diverse juries are better equipped to reach accurate conclusions).

Flowers’ case is a prime example of that: The two trials resulting in hung juries had the greatest number of black jurors.

Evans has prosecuted each trial—spanning from 1997 to 2010—and has used 41 out of 42 peremptory challenges to block African-Americans from serving on the various juries. That move likely conflicts with Batson v. Kentucky, a 1986 Supreme Court precedent that prohibits barring a juror based on race alone. And it was Evans’ long and troubled track record that seemed most likely to sway the justices in Flowers’ favor.

“We can’t take the history out of the case,” Associate Justice Brett Kavanaugh said.

Justice Elena Kagan outlined inconsistencies in Evans’ questioning toward whites versus his inquiries toward blacks, calling the disparity “staggering.” During jury selection in 2010, Evans asked 12 questions to the 11 white jurors who were ultimately impaneled, and asked 145 questions to the five prospective black jurors who were kept off the jury.

Kagan also highlighted a potential black juror named Carolyn Wright who was blocked from serving, even though she expressed support for the death penalty. Prosecutors are known for striking jurors who may not be able to come to an unbiased conclusion: In a capital murder trial—where the state seeks the death penalty—a would-be juror would be disqualified, then, if he or she had a moral opposition to the ultimate punishment. Wright did not, nor did she have ties to the Flowers family.

“Except for her race, you would think that this is a juror that a prosecutor would love when she walks in the door. Isn’t she?” Kagan asked.

Evans has committed a slew of prosecutorial infractions, including the use of faulty testimony from Odell Harmon, a jailhouse snitch who falsely implicated Flowers after the state offered him a deal. He has since recanted. That drew mainstream outrage after the release of the second season of “In the Dark,” a podcast profiling Flowers’s jaw-dropping journey through the legal system.

But it isn’t the Supreme Court’s responsibility to render a verdict on Flowers’ guilt, nor are Evans’ other sketchy tactics under their current purview. Regardless, they seem poised to give Flowers yet another chance at justice—one that might ensure he secures a fair trial the seventh time around.

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New York City Orders Mandatory Vaccinations Amid Worst Measles Outbreak Since 1991

As New York City’s largest measles outbreak since 1991 worsens, Mayor Bill De Blasio on Tuesday declared a public health emergency mandating that any unvaccinated children living in certain ZIP codes must receive the measles-mumps-rubella vaccine or their family could face heavy penalties.

Just days after a judge threw out Rockland County’s emergency order to ban unvaccinated kids from all public places, NYC’s Deputy Mayor for Health and Human Services Herminia Palacio has, with the mayor’s approval, declared a state of emergency as the number of measles cases since the fall nears 300, with 21 cases resulting in hospitalizations, and nearly 250 in children.

Measles

Palacio blamed anti-vaxxers for spreading false information among Brooklyn’s Hasidic Jewish community, which has been identified as the epicenter of the outbreak, per the WSJ:

Public health officials said they were taking the unusual step in response to an antivaccination campaign that has included measles parties, phone calls and voice mails targeting the community with “intentional efforts to give misinformation,” said Herminia Palacio, New York City’s deputy mayor for Health and Human Services.

“There are frank untruths being propagated,” said Dr. Palacio.

The emergency order covers ZIP Codes 11205, 11206, 11211 and 11249.

City officials will be checking medical records to try and track down children who haven’t been vaccinated.

Officials with the city’s Department of Health and Mental Hygiene will be checking vaccination records and tracking down adults and children who have been in contact with infected patients. People who have not received the MMR vaccine, or don’t have evidence of immunity, could be fined $1,000.

City officials said on Tuesday that there have been 285 cases of measles in New York City since October, with 246 cases in children. Twenty-one people have been hospitalized, with five ending up in the intensive care unit, but there have been no deaths. Some children younger than 6 months—who are too young to receive an initial dose of the MMR vaccine—have been exposed to measles. Nearly all cases have been in the Orthodox community, according to New York City Health Commissioner Oxiris Barbot.

According to the New York Times, across the country, there have been 465 measles cases since the start of 2019, with 78 new cases in the last week alone. New York and New Jersey have accounted for more than half of these.

via ZeroHedge News http://bit.ly/2UnydhY Tyler Durden

Everybody Hates Howard Schultz

Like college basketball players from Virginia, would-be independent presidential candidate Howard Schultz has been on television an awful lot over the past week. Unlike the Cavaliers, though, Schultz sure has a habit of getting dunked on.

This testy exchange Friday with MSNBC anchor Ali Velshi, greeted with the requisite “Ali Velshi WRECKS Howard Schultz” headlines, gives a sense:

Schultz has also made the TV rounds with Fox News Channel’s Gillian Turner, CNN’s S.E. Cupp, Fox Business Network’s Liz Claman, Cheddar’s Baker Machado, and most notably in a Fox News town hall last Thursday co-anchored by Bret Baier and Martha McCallum. It was there, while discussing the complex issue of immigration policy, that the get-‘er-done pragmatist married the hoariest of bipartisan do-something clichés—”we’re not going to leave that room until we solve the problem”—to, uh, Clint Eastwood’s infamous (if underrated) empty-chair routine at the 2012 Republican National Convention:

The reviews from across the political spectrum have not been flattering. A sampling: “Howard Schultz only has one idea about politics, and it’s bad,” “Howard Schultz Needs An Issue To Run On,” “Dumb Starbucks Man Has Precisely Two Thoughts,” and so on. And while some of the revulsion is either spoiler-based or tethered to Schultz’s persistent foregrounding of debt and deficits being an urgent problem—a notion that is no longer welcome even rhetorically in the two major parties—some criticism does hit the mark. Particularly when it comes to Schultz’s ideas about the Supreme Court.

To break the cycle of high-intensity partisan polarization around Supreme Court nominees, Schultz vowed last month that he would only pick prospective justices if they can be confirmed by a two-thirds majority in the U.S. Senate. “The courts have become yet another battlefield in the ongoing war between Democratic and Republican leaders,” he declared. “These battles have undermined our faith in the rule of law and the impartiality of the entire judicial system. All of this has to change.”

Well. That standard, applied retroactively, would remove from the court Brett Kavanaugh (who was confirmed by a 50-48 vote), Neil Gorsuch (54-45), Elena Kagan (63-37), Samuel Alito (58-42), and Clarence Thomas (52-48). Jacking up the approval bar will almost surely embolden, rather than disincentivize, opposition senators to let nominees for high-court vacancies lapse until a more congenial president wins the White House. As GQ‘s Charles P. Pierce acidly observed, “This idea is so stupid—so brainlessly, soft-headed, unicorn-farting-rainbows idiotic—I’m amazed that the No Labels crowd didn’t pitch it years ago.”

Undeterred, the prospective appointer in chief shared this deep Supreme Court thought:

There is a positive interpretation of this—of course it’s good if appointees are fundamentally committed to the Constitution! But the sentiment also reflects the kind of exasperated ignorance one frequently finds among frustrated outsider (or even insider) centrists the world over. Politicians would surely do the thing I favor if it wasn’t for those pesky corruptions!

In our populist and alienated times, there can and will be electorally winning combinations of outsider messenger and unsated issue. It’s what Donald Trump did to the GOP with immigration and trade, what Bernie Sanders has been doing with Democrats on economic and regulatory progressivism, what Ron Paul tried to do with ending wars and the Federal Reserve.

As a messenger, Howard Schultz has been generating the highest unfavorability ratings in the presidential field. And in terms of a signature issue, it seems less to do with a specific policy or two, and more to do with a hunch—not unlike what Gary Johnson and Bill Weld campaigned on in 2016, though the latter eventually backed away from the approach—that there should be ample middle ground between the nativism of Trump and the democratic socialism of the Green New Deal.

Which is true enough. But whether that insight, absent a rallying cry, can be converted into effective politics, either by Howard Schultz or someone else, is very much an open question 574 days before Election Day.

from Hit & Run http://bit.ly/2UBpxnJ
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Here We Go Again: Tech Bubble 2.0… But “This Time It’s Different”

Authored by Charles Hugh Smith via OfTwoMinds blog,

The doses of Delusionol(tm) required to believe “this time it’s different” are becoming dangerous.

Here we go again, another tech bubble is expanding like a supernova and the financial media is declaring (as it does during every bubble) “this time it’s different.” File Tech Bubble 2.0 under memories are getting shorter or this time is never different:

The “Uber of dog-walkers” is worth a cool $1 billion pre-IPO. Or maybe it’s the AirBNB of dog-walkers, but who cares? Just as any company with no hope of profits skyrocketed once it put blockchain or crypto in its name during the cryptocurrency mania of late 2017, now calling a dead-on-arrival start-up “the Uber of….” is enough to justify a billion-dollar valuation.

A scooter-rental company in a very crowded field of never-will-be-profitable scooter start-ups is worth a cool $1 billion–but heading to a $10 billion valuation because… well, it’s the Uber of scooters.

Meanwhile, Uber and Lyft will never be profitable because their market is already commoditized. Companies only generate billions of dollars of profit when they scale up within a moated sector to become a quasi-monopoly with pricing power and the ability to buy up or crush any competitors. Without a defensible quasi-monopoly, margins are low and pricing power is zero.

The truth is neither Uber nor Lyft will ever be profitable: their fixed cost structure is high, their pricing power is essentially zero and there is no way to establish a quasi-monopoly in a sector with a wide range of commoditized competing transportation options.

The cost of operating a very complex vehicle will never be near-zero, and neither will the liability. Many other transport options will always be available to customers, starting with walking, public transport, biking, arranging a ride with a friend and the “black market” ride-sharing options that are inevitably arising to cut out Uber’s fee.

Then there’s Apple, now north of $200 a share again despite a deterioration of their core profit center and the absurdity of their “strategy” of entering low-margin commoditized sectors already dominated by entrenched competitors: payments (banking) and content creation and subscriptions.

Apple is slashing iPhone prices in weakening markets, and those discounts come right off the bottom line. Then there’s the cratering of iPhone sales in China, previously a bright spot, and Apple’s continuing dependence on iPhone margins for its massive profits.

If it were any company other than Apple, this doomed-to-low-or-no-profit “strategy” of entering low-margin commoditized sectors would be correctly derided as delusional for these fundamental reasons:

1. The “services” Apple is entering are commoditized and extremely competitive, markets in which it has very little proprietary territory to defend. Payment systems and credit cards are commoditized markets: there is very little differentiating the options and the host of competitors is expanding rapidly.

2. Many competitors are well-funded and experienced in maintaining customer loyalty. Payment systems and credit cards aren’t a sideline as they are for Apple; these are the banks’ bread and butter and they will not make it easy for Apple to carve off a proprietary territory.

3. Commoditized products and services have low profit margins. Apple generated its tens of billions of dollars in profits by reaping extraordinary margins; those margins cannot be transferred to commoditized services.

4. The content creation and delivery sector is also commoditized and fiercely competitive. There is very little to differentiate the services, near-zero scarcity value to Apple’s offerings, and as the global recession deepens, consumers will be paring back their subscriptions, not adding them. There is quite a lot of free content out there and those on a budget have many options–for example, ignoring a few ads and getting content without paying any subscription to anyone.

Laughably, the financial media is claiming “this time it’s different” because the companies doing IPOs are “older and bigger.” Right, which means their losses are correspondingly gargantuan and if they were actually in a profitable business, they’d already be profitable.

But instead, the losses pile up and the doses of Delusionol(tm) required to believe “this time it’s different” are becoming dangerous. The money managers hooked on Delusionol(tm) also believe they have the magical ability to sell all their tech stocks at the very top, before they crash to reality-based valuations.

Delusionol is a parody. It is not a real drug.

*  *  *

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via ZeroHedge News http://bit.ly/2WYBv8o Tyler Durden

Will Dimon Triumph Over AOC, “Kerosene Maxine” During Wednesday’s Washington ‘Circus’?

For the first time since 2009, the CEOs of America’s largest banks will gather in Washington to testify before the House Financial Services Committee, which in the new era of Democratic control has fallen under the sway of some of the chamber’s most progressive, anti-business members – case in point: Chairwoman Maxine Waters, who hopes to make the excoriation of Wall Street fatcats a hallmark of her tenure.

To say that Wednesday’s hearing is expected to be highly dramatic would be an understatement. As both moderate Democrats and Republicans have privately groused, a free-for-all with 60 lawmakers and seven executives isn’t exactly an environment conducive to substantive policy discussions. And that’s likely by design.

Rather, Waters and some of the committee’s other high-profile members – including Alexandria Ocasio-Cortez, who is expected to attend the hearing and has reportedly refused to meet with the CEOs’ lobbying group – will almost certainly try to treat the CEOs like pinatas in a public showing of just how tough they are on special interests.

Banks

And following Tim Sloan’s scalping at the hands of Elizabeth Warren earlier this year, the CEOs have reason to be anxious – and not just because they will be forced to mingle with the plebs on the Acela on their way to the Hill (their PR teams have reportedly forbade them from flying in their jets).

Though the Wall Street Journal reports that the executives are planning to make the case that the American financial system is less risky (that’s debatable) and more tightly supervised than it was before the crisis, Bloomberg reveals that many of the CEOs are nervous that they might do or say something that Ocasio-Cortez & Co. could use against them.

But despite being outnumbered and outgunned, the CEOs will walk into tomorrow’s hearing with at least one ace up their sleeve, according to BBG.

His name is Jamie Dimon.

As the only Big Bank CEO who has kept his job since the crisis, Dimon is also the only member of the group who was in the room when the leaders of Wall Street were last hauled before Congress in 2009. He also recently published a manifesto – his annual missive to JPM shareholders – laying out a common-sense reforms to mitigate the problem of inequality, a missive that reads almost like the platform for a third-party run at the presidency. Expect Dimon and AOC to go head to head about socialism’s ability to destroy prosperity, and her successful campaign to drive Amazon out of NYC, which Dimon has publicly criticized.

“There is no doubt that the strength, stability and resiliency of the financial system has been fundamentally improved over the course of the last 10 years,” Dimon reportedly said in prepared remarks. “Postcrisis reforms have made banks much safer and sounder in three important areas: capital, liquidity and resolution and recovery.”

Dimon’s ability to mesmerize lawmakers is legendary. His denunciation of the “London Whale” scandal as a “tempest in a teapot” saved his bank’s reputation, and quite possibly his job, while seemingly erasing the public’s memory of the massive multi-billion-dollar loss. And though Dimon’s compensation has risen to its highest point since the crisis, he has gone on record to say he would have no problem paying more in taxes…so long as the money was being put to good use.

As untested CEOs like State Street’s CEO Ronald O’Hanley have spent hours practicing with “war committees” (groups of aides who play the role of lawmakers) and endless briefings with their PR staff, lawyers and consultants, BBG says the group has an unofficial plan if the hearing goes sideways: ‘Keep calm, and let Jamie take over.’

Expect Dimon to expound on the idiocy of Democratic proposals to ban corporate share buybacks, insist that, even though he opposed it at the time, Dodd-Frank ended up being good for the financial system (but that doesn’t mean some of its more restrictive constraints on lending and trading shouldn’t be eased) and even explain away the widening gulf between CEO wages and the average worker by deferring to his widely publicized thought leadership on the subject. Also expect Dimon and his peers to highlight their efforts to improve diversity and improve lending in low-income communities (subjects Dimon also touched upon in his letter).

But even Dimon’s aptitude for tangling with lawmakers can only get the group so far. And there are some issues that the JPM CEO likely won’t be able to confront – but fortunately for him, they mostly pertain to scandals at other banks. One example: Goldman’s facilitation of the massive 1MDB scandal. Lawmakers will almost certainly have questions about this for CEO David Solomon, who is relatively new in his position and has been struggling to clean up the mess left by his predecessor, something that Lloyd Blankfein, if he’s watching, will undoubtedly find endlessly amusing.

via ZeroHedge News http://bit.ly/2Kou7S8 Tyler Durden

WTF Chart Of The Day

Having surpassed the key 200-day moving-average (and $200 level), risen for 10 straight days, and up almost 43% from the start-of-January lows, Apple’s Tim Cook must be laughing all the way to the bank…

 

But, amid price-cuts, uninspiring product launches, and overseas demand concerns, analysts don’t seem to be buying what Cook is selling…

Behold, the miracle of buybacks!!

WTF indeed?

via ZeroHedge News http://bit.ly/2G2vvo7 Tyler Durden