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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

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.

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

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

Last week, we described how as a result of the recent violent move away from momentum and growth stocks and into value names, momentum traders got crushed in a sharp drawdown, which Nomura’s Charlie McElligott described as a 4 sigma move.

It has only gotten worse since then.

As a reminder, while on one hand most institutional investors have stayed on the sidelines so far in 2019, those who did take the plunge, ended up buying up the traditional “slowdown” favorites: growth and momentum names, while shunning or outright shorting value. This was a mistake.

As McElligott writes in his daily note, as the Fed pivoted violently away from the 2018 volatility-inducing regime of “QE to QT,” the collective embrace of outright “QE” thinking of lower rates and flatter curves, saw equities investors go back to their “Slow-flation” comfort blankets—as + Sec Growth + Defensives / (-) Cyclicals has been a massive positive performance driver for the majority of the past 5+ year period.

However, do note that the latest move higher in markets was not precipitated by further weakness, or “bad news is good news”, but rather sizable beats in economic indicators, starting with China’s dramatic Manufacturing PMI rebound; as a result, we have now seen global growth getting re-priced higher in the nine days since the peak of the Rates “overshoot” following beats in China Mgf PMI, US ISM, EZ Retail Sales and Service PMIs, US NFP and Claims all last week). This sent the “value” factor exploding higher in conjunction with the latest US yield curve “bear-steepening” (which has seen the front-end EDM9EDM0 cut in half, from -42bps on March 27th to today’s -23.5bps, while the long-end has again steepened with 5s30s back to 60bps from 56bps last week, as per McElligott.

And as global growth re-priced higher, we have seen the “perpetually underweighted/placeholder shorts of predominantly “Cyclical” sectors” ripping higher in April (Materials +4.3% MTD, Financials +3.5%, Energy +2.8%, Industrials +2.2%) while the “Slow-flation Barbell Longs” act as a relative “source of funds”: “Secular Growth” high flyers like “Tech Momentum Longs” are -4.2% MTD extending on the momentum carnage discussed last week; some more details on this violent reversal of the most crowded positions:

• Sofware 8x’s EV / Sales -1.5% (after being +36.4% YTD); and
• “R&D / Sales” factor struggles -0.4% MTD (after being +29.7% over the past year),

… with “Low Vol” Defensives languishing as well (Utilities -0.9% MTD vs +8.9% YTD, Staples -0.6% MTD vs +10.5% YTD, Healthcare +0.2% MTD vs 6.4% YTD, REITS +0.4% MTD vs +17.1% YTD).

Meanwhile, another relevant topic is that while investors have been positioned incorrectly in the context of the recent growth/value reversal, many have stayed out of the market in the first place, with hedge and macro funds barely responding to market moves. Or, as McElligott points out, “you still don’t have many market players “participating” in this equities move to the extent they want, especially in the leveraged-fund space”:

Equities Long-Short HF “Beta to S&P” is down to 12th %ile since 2003

“Cyclical Beta / Value” discussion, Long-Short “Beta to Nomura Beta Factor” is down to just 9th %Ile since 2003

Conversely, the crowding into Long Growth and Quality / Defensives, Short Value is incredibly extended—particularly with Mutual Funds—and thus, susceptible to “tipping-over” even on just a modest “rebalancing”: in fact, Mutual Fund “Beta to Momentum Longs” is up to the 98th %ile since 2003

 

These exposures, and the precarious positioning discussed above is especially dire for hedge funds, which have once again missed much of the recent move in stocks, and as McElligott puts it, the recent moves have been “just another pain trade as bursts in  the “value/momentum” ratio have tended to correspond with hedge fund performance drawdowns over the past five years.”

But wait, there’s more (pain for momentum chasers): as the Nomura strategist furhter adds, as-opposed to what is a very positive seasonal backdrop for Cyclicals and thus Value, “seasonality is a massive NEGATIVE PERFORMANCE DRIVER for “Momentum” factor in April as it is the worst month of the year for the factor since 1984: “1Y Price Momentum” shows April on average -2.2% / median return of -0.5% and “just” with a 43% “hit rate”—as the “Momentum Shorts” (i.e. “Cyclical Beta” / “Value Longs”) tend to EXPLODE higher, +3.3% on average since 1984.”

Finally, there is the possibility that the upcoming Fed announcement of a “Reverse Twist” will only add to the suffering of “growth/momentum” longs. Specifically, the last twist in the knife to momos, and the latest boost to the “macro/technical” tailwind to this “Positive Value, Negative Momentum” dynamic could come in the form of an expected “Reverse Operation Twist” from the Fed, which as the Nomura strategist explains is “by definition, a curve “Steepener” as reinvestments are moved “across the curve” but by-and-large concentrated into the front-end in order to shorten the weighted average maturity of the SOMA portfolio”, which as shown in the charts below will further boost Value factor (especially Banks / Financials)…

… and act as a further headwind to Momentum factor, as said legacy positioning is forcibly rebalancing to a more pro-cyclical/reflationary worldview.

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

Authored by Patrick Buchanan via Buchanan.org,

During an Iowa town hall last week, “Beto” O’Rourke, who had pledged to raise the level of national discourse, depicted President Donald Trump’s rhetoric as right out of Nazi Germany.

Trump “describes immigrants as ‘rapists’ and ‘criminals’” and as “‘animals’ and ‘an infestation,’” said Beto.

“Now, I might expect someone to describe another human being as ‘an infestation’ in the Third Reich. I would not expect it in the United States of America.” The crowd lustily cheered the analogy.

By week’s end, Beto’s Third Reich comparison had been matched in nastiness by Bernie Sanders’ description of the president to the cheering activists of Al Sharpton’s National Action Network:

“It gives me no pleasure to say this but today we have a president who is a racist, sexist, a homophobe, a xenophobe and a religious bigot.”

Sanders managed to appeal to almost all elements of the Democrats’ coalition by accusing Trump of hating blacks, women, gays, foreigners and Muslims.

Sanders’ outline of Trump calls to mind Hillary Clinton’s now-famous attack on the white working-class folks who would give Trump his victory:

“(Y)ou could put half of Trump’s supporters into what I call the basket of deplorables … racist, sexist, homophobic, xenophobic, Islamophobic — you name it … he has lifted them up.”

Where Hillary’s slander of the Donald’s MAGA constituents as a thoroughly rotten crowd of Americans came two months before the 2016 election, Bernie’s assault on Trump’s character comes fully 20 months before the 2020 election.

If this is the level of discourse from Beto and Bernie, two of the leading candidates for the nomination, two years from Election Day, 2020 looks to be one of the ugliest campaigns in American history.

And what does it say about democracy if this is the character of politics at the highest level in the world’s leading democracy?

When such language is deployed without admonition from the major media, what does that say about the sincerity of the media’s calls to unite and heal the country?

And if Democratic leaders are openly massaging the hatreds of the party base with such slanders, what does it tell us about those leaders?

If they believe such charges – “It is the truth and we need to confront that,” said Sanders – why do Democrats not impeach and remove such a ogre? Why has Nancy Pelosi ruled that out?

At the end of a week where he withdrew his nominee to head Immigration and Customs Enforcement and saw the departure of his Secretary of Homeland Security, Trump, referring to the 175,000 migrants apprehended crossing the U.S. border in February and March, protested repeatedly, “Our country is full.”

Echoes of Hitler’s Germany, said The Washington Post:

“Adolf Hitler promised ‘living space’ for Germans as the basis of an expansionist project, which historians said distinguishes the Third Reich from today’s xenophobic governments. Still, experts found parallels.

“‘The echoes do indeed remind one of the Nazi period, unfortunately,’ John Connelly, a historian of modern Europe at the University of California at Berkeley, said in an interview with The Washington Post.

“‘The exact phrasing may be different, but the spirit is very similar. The concern about an ethnic, national people not having proper space — this is something you could definitely describe as parallel to the 1930s.’

“The president’s words became even more freighted when he repeated them on Saturday before the Republican Jewish coalition in Las Vegas, saying, ‘Our country is full, can’t come. I’m sorry.’”

Trump’s actions and words last week do seem to portend tougher action on illegal immigration, but one need not look to Nazi Germany for precedents. They may be found in our own history.

The 1924 immigration act restricted legal immigration into the U.S. and imposed ethnic quotas. That was American, not Nazi, law and was enforced by Presidents Coolidge, Hoover, FDR, Truman, Eisenhower and Kennedy.

Eisenhower, who led the Allies to victory over Germany, sent Gen. Joseph Swing to the U.S. border to remove a million people who had entered Texas illegally from Mexico, which the general proceeded to do.

Ike had crushed fascism and understood that securing the homeland against illegal mass migration is fascism only in the minds of those who have forgotten, if ever they knew, what a country is.

From his words and actions, Trump clearly senses that this may be the existential issue of his presidency: Can he secure the border against what seems to be an unstoppable invasion from the global south?

Nor is this only an American issue.

In the capitals of Europe – Budapest, Berlin, Paris, Rome, London, Madrid – the gnawing fear is not of Vladimir Putin leading a mighty Russian army back to the Elbe to recreate Stalin’s empire, but of the African and Muslim hundreds of millions looking hungrily north to the pleasant lands of the former mother countries.

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

We noted Monday that just hours after President Trump formally designated Iran’s Islamic Revolutionary Guards Corps as a terrorist organization, Iran’s foreign ministry responded in kind, immediately put forward a bill placing US Central Command on a list of organizations designated as terrorists, akin to Daesh. 

A number of analysts were quick to point out how this sets the stage for further unnecessary tit-for-tat escalation inevitably making things messier for US forces in the Middle East, and significantly increases the changes of direct war. Soon after the White House’s IRGC designation, Israeli Prime Minister Benjamin Netanyahu thanked President Trump in a tweet, the Hebrew version of which bragged it was all the prime minister’s idea. 

Netanyahu said in the Hebrew-only tweet that he was glad Trump “answered another one of my important requests” which will keep the world safe from Iran. It’s unclear what the prime minister mean from “another” of his requests, but less than two weeks ago Trump made a dramatic decisions to overturn decades of official US policy and bestow formal recognition of Israeli sovereignty over the Golan Heights after receiving a “quickie” history lesson.  

It’s well known that Netanyahu had personally lobbied for weeks and months for that decision, and on Monday appeared to be touting both as his initiative on the eve of Israel’s election.

According to The Intercept’s translation the statement said: “Thank you, my dear friend, President Donald Trump,” Netanyahu tweeted in Hebrew, “for answering another one of my important requests.”

Netanyahu is taking credit for Trump’s decision to designate the Revolutionary Guard as terrorists. “Thank you for responding to another important request of mine,” Bibi says.

He got the Golan 2 weeks ago and now this 1 day before Israel’s election. https://t.co/PAvX22o4Y5

— Raf Sanchez (@rafsanchez) April 8, 2019

Likely the statement was not made in English in order to avoid making President Trump look weak in front of US political leaders and the American public, while at the same bolstering (in Hebrew to Israel’s domestic audience) Netanyahu’s ability to immediately make Washington bend to Israel’s interests. 

Though Trump has clearly thrown his full support behind a Netanyahu victory, it doesn’t bode well for “America First” having the Israeli leader essentially bragging that Washington policy can be dictated from Jerusalem. 

Unlike his English tweet simply saying thanks, Netanyahu reveals in Hebrew that Trump agreed to designate Iran’s IRGC as a terrorist organization ”as another important request of mine”.

In other words, Trump gets dangerous policy directives from Netanyahu https://t.co/iLxfwML0f8 pic.twitter.com/lppZ2W2Wo6

— Dan Cohen (@dancohen3000) April 8, 2019

On the further significance of the statement, The Intercept observed:

Joe Dyke, an Agence France-Presse correspondent, pointed out that Netanyahu omitted the claim that Trump’s move was made at his request in a subsequent tweet in English. That left the prime minister open to the charge often leveled at Palestinian leaders by Israelis, that they placate the international community in English and then say something quite different for domestic consumption in their native tongue.

A(nother) misguided election-eve gift to Netanyahu. A(nother) dangerous U.S. misadventure in the region.

— Javad Zarif (@JZarif) April 8, 2019

Israelis head to the polls to elect a prime minister on Tuesday, and one key feature of Netanyahu’s campaign — lately beset by no less than three corruption charges as prime minister — has been his warm relations with the American president and close cooperation. 

via ZeroHedge News http://bit.ly/2D5M2qO Tyler Durden