Gartman Flip-Flops Again: Two Days After “Covering Shorts”, Is Now Reducing Longs

If it’s a day ending in -day, it means a Dennis Gartman flip-flop is on deck. Here is a brief reminder of his “calls” from just the last few days:

Friday, February 26: Gartman covers his shorts, turns bullish.

We have been short one unit of equities in rather global terms, by being short one third of a unit of US equities; one third of a unit of the EUR STOXX 50 and one third of a unit of the Nikkei. The trade started off properly and almost immediately we were profitable; however we are now almost at a small loss on the trade… We wish to cover the position immediately upon receipt of this commentary, taking a very small profit and refraining from taking a loss and living to fight another day and in the end succeed.

Tuesday, March 1: Gartman is “selling the market short again.”

We are selling the markets short once again, having been short recently and having covered that short only a “short” while ago. But we are sellers once again this morning, noting that as the global markets have rallied they have done so on lesser volume on balance. Volume should follow the trend and the trend and volume are pointing lower, not higher.

Wednesday, March 2: Gartman says “we were stunningly, shockingly, stupidly wrong” as he covers shorts, goes long… again.

In our retirement funds here at TGL we moved swiftly to cover our short positions and we moved just as swiftly to buy what we could, when we could and where we could. We covered our derivatives positions and we urge everyone to do the same… immediately. We held on to our long positions in tanker stocks and we actually bought some of the oldest of the old guard dividend paying stocks mid-day just  because the market was loudly telling us that we had no choice but to do so.

This is the same day that Gartman also said he “ran to cover our US dollar denominated gold position mid-day and we shall argue strongly that those still long of gold in US dollar terms, as noted above, should do the same.” Gold soared, especially after the whole Blackrock share creation fiasco.

* * *

Which brings us to today and the following latest flipflop, when we find Gartman once again “reducing our long positions” as it would be “ill advised to suddenly turn bullish of equities”:

At this point, it would be ill advised to suddenly turn bullish of equities but instead at this point it might even be rational and reasonable to consider reducing long positions and become more and more neutral of equities…. we are “short” of a small but important position in derivatives that has reduced our net long exposure to the markets to something only modestly long. Likely we shall be adding to our derivatives positions while reducing our long positions today in order to bring our “net” exposure to something far smaller than it is.

And then this pearl:

Turning to gold, we are obviously not about to change our position here, having been long of gold in EUR and Yen denominated terms for years in the case of the later and for nearly a year in the case of the former, putting to bed, we hope, the reports amongst the blogs that we change our tune rather often. Clearly we do not.

Clearly.

And then the always amusing performance update:

For those who wish to follow our progress, we are up 12.3% for the year-to-date, outperforming our International Index rather pleasantly and outperforming the S&P too by 14.4%. We have been quite lucky thus far this year. We are simply hoping that our good fortune thus far obtains through the remainder of the year. If we continue to “Do more of that which is working and less of that which is not”… perhaps our most important Rule of Trading…

Because flip-flopping every other day pays.

Sarcasm aside, with JPM saying to short, and now Gartman joining on the short side, this makes “life”foralgos difficult, as they are not sure how to trade a market in which the otherwise credible JPM equity team is aligned with the Gartman pemafade. We are confident Goldman will break us out of this unpleasant deadlock soon enough.

However, all of the above is meaningless, if oil continues to surge: with WTI approaching $37, it means that Gartman has only $7 left to live.

We hope oil crashes promptly, or else the market may soon lose what has become the one most flawless leading “indicator” alive.


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Is This Whole Rally Just One Big TRAP?

I don’t trust this rally.

 

Few analysts realize that the sharpest, most aggressive rallies occur during bear markets. The reason for this is that during bear markets, investors tend to go short (borrow shares to bet on a collapse).

 

So when the market rallies even a little bit, it often will go absolutely vertical as these individuals panic and cover their shorts (which increases the buying).

 

Consider the Tech Bubble. When it burst, we had THREE monster rallies of 17%, 33% and 16% in just SIX months time!

 

 

Anyone who bought into these moves for the long-term ended up get crushed as the market soon rolled over and worked its way down. The below chart gives some perspective on just how much further stocks would fall relative to these traps.

 

 

Smart investors, however, used those rallies to prep for the next round of the drop. They didn’t get suckered into believing that it was the beginning of the next bull market.

 

They took action to prepare to protect their wealth from the bear market.

Smart investors are preparing now.

We just published a 21-page investment report titled Stock Market Crash Survival Guide.

 

In it, we outline precisely how the crash will unfold as well as which investments will perform best during a stock market crash.

 

We are giving away just 1,000 copies for FREE to the public.

 

To pick up yours, swing by:

http://ift.tt/1HW1LSz

 

Best Regards

 

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 


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Deutsche Bank Discovers Kuroda’s NIRP Paradox

Last October, BofA looked at Europe’s €2.6 trillion in negative-yielding debt and discovered something “stunning”: Savings rates were going up not down.

Don’t believe us, just have a look at these three charts:

But how could that be? By all accounts – or, should we say, by all conventional Keynesian/ textbook accounts – negative rates should force people out of savings and into higher yielding vehicles or else into goods and services which “rational” actors will assume they should buy now before they get more expensive in the future as inflation rises or at least before the money they’re sitting on now yields less than it currently is.

Well inflation never rose for a variety of reasons (not the least of which was that QE and ZIRP actually contributed to the global disinflationary impulse) and nothing will incentivize savers to keep their money in the bank like the expectation of deflation.

Well, almost nothing. There’s also this (again, from BofA): “Ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.

Why that’s “perverse,” we’re not entirely sure. Fixed income yields nothing, and rates on savings accounts are nothing. Which means if you’re worried about your nest egg and aren’t keen on chasing the stock bubble higher or buying bonds in hopes that capital appreciation will make up for rock-bottom coupons (i.e. chasing the bond bubble), then as Gene Wilder would say, “you get nothing.” And that makes you nervous if you’re thinking about retirement. And nervous people don’t spend. Nervous people save.

Deutsche Bank has figured out this very same dynamic. In a note out Friday, the bank remarks that declining rates have generally managed to bring consumption forward.

The impact of interest rates (nominal or real) on consumption is generally derived from a two-period consumption model. Under a given budget constraint, declining interest rates front-load consumption in the current period at the expense of the second-period consumption (inter-temporal substitution effect). Japan’s household saving rate has been constantly falling since the early 1990s.

 


 

But, there’s a limit.

Essentially, the bank argues that NIRP may be the shocker that wakes the public up to the fact that if negative rates exert a negative (no pun intended) effect on long-term household balance sheets, they will stop spending. To wit:

Even if inter-temporal consumption substitution occurs from now on, if the introduction of negative interest rates reminds households of a slower pace of their future accumulation of financial assets, namely suggesting a worsening of lifetime household budget constraints, households would be forced to cut back on consumption in both the current and next periods.

So there it is again. More evidence that Europe’s (and soon to be Japan’s) adventures in NIRP are destined to fail. Surprise, surprise.

But double-, triple-, and quadruple- down they most certainly will (starting this week with Draghi) until either one of two things happens: 1) they eliminate physical cash and take rates so punitively low that saving money in a bank will wipe out your nest egg in the space of a year, or 2) they drop money from the sky in a desperate attempt to inflate away all of this debt, a move which will be swiftly followed by the ultimate Keynesian endgame or, as one might call it, “a triumphant return to Weimar.”


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Declan McCullagh on the Apple vs. FBI Encryption Fight

The fight over encryption between the FBI and Apple isn’t just about the FBI and Apple. Declan McCullagh writes:

There’s an excellent reason why just about everyone in Silicon Valley is alarmed by the FBI’s demands for encryption backdoors: we expect the feds will show up at our doorsteps next.

That’s why Google, Twitter, Facebook, Microsoft, WhatsApp, and other software companies are backing Apple publicly. They filed a brief in federal court this week warning that requiring a backdoored fbiOS would kick off an unprecedented wave of surveillance demands. They say, with some understatement, that “investigative tools meant for extraordinary cases may become standard in ordinary ones.”

This is not merely a convenient intersection of marketing and customer privacy. Given the existence of scores of federal police agencies, it’s simple self-preservation. Once an fbiOS precedent is set, the U.S. Marshals, Homeland Security, postal inspectors, Secret Service, and military police will also invoke the All Writs Act to demand that companies build equally extensive backdoors. Local and state police won’t want to be left behind.

View this article.

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Will Russia End Up Controlling 73% of Global Oil Supply?

Submitted by Rakesh Upadhyay via OilPrice.com,

Russia has played a master stroke in the current oil crisis by taking the lead in forming a new cartel, but it’s a move that could spell geopolitical disaster.

The meeting between Russia, Qatar, Saudi Arabia and Venezuela on 16 February 2016 was the first step. During the next meeting in mid-March, which is with a larger group of participants, if Russia manages to build a consensus—however small—it will further strengthen its leadership position.

Until the current oil crisis, Saudi Arabia called the crude oil price shots; however, its clout has been weakening in the aftermath of the massive price drop with the emergence of US shale. The smaller OPEC nations have been calling for a production cut to support prices, but the last OPEC meeting in December 2015 ended without any agreement.

Now, with Russia stepping in to negotiate with OPEC nations, a new picture is emerging. With its military might, Russia can assume de facto leadership of the oil-producing nations in the name of stabilizing oil prices.

Saudi Arabia has been a long-time U.S. ally, but that, too, is changing. Charles W. Freeman Jr., a former U.S. ambassador to Riyadh, recently noted that “We've seen a long deterioration in the U.S.-Saudi relationship, and it started well before the Obama Administration.”

U.S.-Saudi relations further soured due to the Iran nuclear deal that ended in January with the U.S. lifting sanctions—a move the Saudis vehemently opposed. The Saudis had to look for a new ally to safeguard their interests in the Gulf, considering the threats they face from the Islamic State (ISIS) and Iran. Though both Russia and Saudi Arabia are on opposing ends in Syria, with Russia supporting Syrian leader Bashar al-Assad and the Saudis supporting the Sunni rebels, the large drop in prices seems to have opened a window of opportunity for Russia to ally with Saudi Arabia.

This is not the first time that Russia and Saudi Arabia have sought a close partnership. Even in 2013, The Telegraph had reported an attempt to form a secret deal, which did not go through. Iran has been a trusted ally of Russia for a long time, and if Russia can broker a deal between Iran and Saudi Arabia, it can also push through some sort of secret OPEC deal.

The production freeze to January levels that was bandied about last month carries no significance in concrete terms because Russia, Saudi Arabia and most other nations on board are pumping close to their record highs. Barclays’ commodity research chief Kevin Norrish said it was “vital to note” that there was not much incremental production expected from Russia, Qatar or Venezuela this year anyway. It was the Saudi’s that really mattered, as reported by Forbes.

Though Iran hasn’t committed to a production freeze, since it wants to ramp up production to pre-sanction levels, Russian Energy Minister Aleksander Novak has noted that "Iran has a special situation as the country is at its lowest levels of production. So I think, it might be approached individually, with a separate solution."

With all the major Gulf nations agreeing, Iraq, which is without a credible political leadership, will also likely follow suit if Russia assures them of stronger support against ISIS.

If the above scenario plays out, Russia will emerge as the de facto leader of the major oil producing nations of the world, accounting for almost 73 percent of the global oil supply.

Along with this, Russia has been in the forefront of plans to move away from Petrodollars, and Moscow has formed pacts with various nations to trade oil in local currencies. With this new cartel of ROPEC (Russia and OPEC nations), a move away from petrodollars will become a reality sooner rather than later.

Russia is smart. Vladimir Putin is genius. Moscow senses the opportunity that is almost tangibly floating about in the low crude price environment and appears to be ready to capitalize on it in a way that would reshape the geopolitical landscape exponentially.

Though a solution in Syria is welcome, a large cartel of major oil producing nations of the world with Russia as the head would be a major upset to the current balance of power. With this potential in mind, the mid-march meeting should be very interesting for the global oil patch—well beyond talk of production cuts and supply gluts.


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The Republicans’ Three-Way Split

Daniel McCarthy has a pithy summary of the state of the Republican race:

THREE FACTIONS. THREE STARS. THINK ABOUT IT, MAN.The GOP is split not two ways, but three: between populists who mix right-wing and moderate positions, in defiance both of political correctness and conservative orthodoxy; and conservative activists who want a reliable ideologue—Cruz—regardless of his lack of charm; and finally a narrow elite of suburban Republicans, high-dollar donors and conservative verbalists who pride themselves on their own sophistication. Trump is the candidate of the populists, Cruz that of the conservative activists, and Rubio that of an embarrassed elite that wishes to be both right-wing and progressive at the same time.

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Why We Should Honor Ray Tomlinson, Inventor of Email, But Will Probably Forget Him Anyway

I didn’t know who Ray Tomlinson was until he died over the weekend at age 71. I’m betting you didn’t know either, even though he helped to radically transform the everyday world nearly as much as anyone I can think of.

Tomlinson is “widely credited with inventing email as we know it,” eulogizes Jon Fingas at Endgadget. In the early 1970s, he created the first mail system on the first iteration of the Internet (Arpanet) and created the format of user-name, the @ symbol, and host-name that remains standard across the planet. Fingas:

Tomlinson received his share of formal recognition. He’s a cornerstone of the Internet Hall of Fame, and he received everything from a Webby Award to a Prince of Asturias Laureate. However, he almost doesn’t need those. Much like fellow internet pioneers Tim Berners-Lee or Vint Cerf, you’re encountering his legacy virtually every time you hop online. And barring a sea change in communication, it’s likely that the effect of his work will be felt for decades to come.

More here.

Do you even remember the first emails you sent? For me, it would have been sometime in 1990, at SUNY-Buffalo (which like most university systems, had a totally awful interface and set of naming protocals), and within a couple of the vast majority of my written communications were done via email. In the mid-1990s, when I started telecommuting to Reason in Los Angeles from Huntsville, Texas I got an HP All-in-One printer/fax/copier because we still traded printed galleys for proofing tasks. Do you know who invented the fax, another technology that revolutionized all sorts of things (and now has largely been relegated to the dustbin of history)?

Commercial fax operations only kicked into high gear in the mid-1960s, after Xerox got into the game (one more blue-chip stock impervious to market forces that is a sliver of its former self, just like Kodak, Sears, IBM, and others). But the fax is credited to Alexander Bain, circa 1843, which is kind of staggering.

We incorporate successful technology seamlessly into our lives and apart from folks such as Edison (and maybe Tesla), we quickly forget about its creators. Sometimes those inventors linger on in the public imagination in weird ways, kind of like orphaned radio transmissions beaming around the universe. Speaking of radio, I can remember my parents, who were born in the 1920s, occasionally referring to the “Marconi,” by which they meant the radio, an homage to the inventor of wireless transmissions. And my father, well into the 1970s, would sometimes call the telephone (an old thousand-pound rotary dial number leased from Bell of course) as the “Don Ameche”: The actor had played Alexander Graham Bell in a 1939 biopic and Ameche’s name became slang for the phone.

So it goes. Our world is built on the sacrifices and successes of those who come before, whom we rarely honor properly (or for very long). We make sure that we know the great generals of the past and the kings and queens of Europe and the ancient world whose legacy is typically more about conquest and plunder than about actually creating a richer, better world.

We’d do better to remember the Ray Tomlinsons of the world (remember: he’s the guy who came up with email) and not simply because we should give credit where credit is due.

As Peter Thiel  noted trenchantly in his 2014 book Zero to One, we wrongly assume techological progress as a given. That’s an attitude, he argues, that gives rise to lassitude when it comes to pushing for the next great breakthrough that might radically improve all of our lives. “[Where] the ancients,” he wrote, “saw all of history as a never-ending alternation between prosperity and ruin, only recently have people dared to hope that we might permanently escape misfortune.”

But that doesn’t happen on its own. It happens because of specific people with specific mind-sets in specific contexts. Knowing their histories isn’t just a guide to where we’ve come from but where we might head next.

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Young Republicans Mourn Rand Paul, Trash Trump, and Pledge to ‘Make America Dope Again’ at CPAC 2016

“I just got a selfie with Rick Santorum!” squeals a young woman to her friend as I pass them in crowded corridor at the Gaylord National Resort and Convention Center. It’s the opening morning of this year’s Conservative Political Action Conference (CPAC), an annual event for right-leaning leaders, activists, and media, as well as rank-and-file Republicans. And unlike most GOP gatherings, this one tends to be heavily populated with young people, especially conservative college students—in previous years, at least 40 percent of CPAC attendees were students and more than half of all attendees were between the ages of 18 and 29.

Overall, the vibe at this year’s conference—which included a well-attended Republican debate watching party on the ballroom big-screen Thursday night—was decidedly anti-Trump. Whether it was Sen. Marco Rubio teasing Trump during the debate or panel speakers obliquely criticizing the party frontrunner, taking shots at the Donald drew ample affirmation from CPAC crowds, who had much more love for Rubio and Texas Sen. Ted Cruz. The young people of CPAC seemed to share these sentiments, with perhaps even less love for Trump, plus a heartening dose of support for Libertarian Party (LP) candidates and mourning for the failed candidacy of Kentucky Sen. Rand Paul.

Caroline Craig, a 21-year-old student at East Carolina University (ECU), says her school has a significant student-conservative population, but “it’s really mixed” which presidential candidates they like. “A lot of people at ECU tended to be Rand Paul supporters” and “were very, very sad when he dropped out,” she tells me on the closing afternoon of the conference. There are some Trump supporters in ECU’s conservative quarters, “but they tend to be more the fraternity boys.”

Make America Dope Again

Craig is one of around two dozen young women walking around the conference in matching red elephant-print skirts, generally paired with high-heels and bright lipstick. They are part of an organization called Future Female Leaders of America (FFL), which seems to have a dual mission of being an online hub for young conservative women and hawking FFL merchandise. The FFL website describes its mission as helping to “inspire young women to become more politically aware and informed.” 

Nearby FFL at CPAC is Turning Point USA, a college conservative group that dominates the middle of the expo floor with an energetic horde of male and female representatives dressed in red polos and khaki pants. On the opening day of CPAC, the group blasts pop and hip-hop music and dances enthusiastically, students brandishing “Big Government Sucks” signs and hoisting large cardboard cutouts of the GOP presidential candidates above them like foam glow sticks at a bad club. It might sound cringe-inducing, but they actually bring a nice dose of spunk and youthful energy to the otherwise same-old, same-old CPAC scene—the Heritage Foundation, the NRA, the tables featuring pictures of flags and fetuses and bald eagles.

“The only thoughts I had during CPAC had to do with how awesome it is that so many young conservatives were there to make America dope again,” tweeted student Danielle Butcher during the conference (she also called for Rand Paul to please come back). Another young attendee referred to CPAC on Twitter as “coachella for conservatives.”

“I was not prepared for so many people to be in one area, and so many big names to be in one area,” says Marie Pecher, a first-time CPAC attendee from the University of Pittsburgh, when I talk to her in front of the FFL booth on Saturday. On her campus, Pecher says there was a lot of support ofr Paul and New Jersey Gov. Chris Christie. But “as more candidates jump out, a lot of [conservative students] are jumping on the Cruz and Rubio train, as opposed to Trump.” 

The Missing Candidates

Trump was slated to speak at CPAC Saturday morning but canceled on Friday, the same day Ben Carson announced that he was suspending his campaign. In the straw poll called at the end of the conference,Texas Sen. Ted Cruz won with 40 percent of attendee votes, followed by Rubio with 30 percent, Trump with just 15 percent, and Ohio Gov. John Kasich with 8 percent.

Pecher missed seeing Cruz speak at CPAC but had seen Rubio’s talk that morning and Kasich the day before. “I really think that the ‘Marcomentum’ has definitely come to CPAC,” she says. During Kasich’s speech, “he had a lot of support but it wasn’t like Rubio. There was a lot of standing ovations for Rubio, much more high energy for Rubio than for Kasich.”

Among students I talked with at CPAC, ​​that was the most anyone said about the Ohio governor. They were similarly silent about recently resigned candidates Jeb Bush, Ben Carson, Carly Fiorina, and Rick Santorum. But quite a few mentioned regrets—either personal or predominant among their conservative student friends—that Sen. Paul had dropped out of the presidential race.

University of Minnesota Duluth (UMD) sophomore Kalley Erickson says there’s mostly been mixed support for Cruz, Rubio, and Trump among young CPAC attendees she talked with, although “people are still talking about Rand” and are disappointed he’s no longer running for president. “I’m sad that he’s out too,” says Erickson, who serves as vice chair of her school’s College Republicans club.

Paul visited UMD in November “and he was pretty popular.” But during Paul’s talk, “his approach, his presence, the way he talked… he seemed angry,” she says. While Paul wasn’t exactly mean, “he just seemed a little… scary.”

“I’ve never seen him smile,” adds Erickson. “He didn’t even smile in the picture I took with him.”

Prickliness and a short temper were accusations lobbed at Paul throughout his campaign, most notably during debates. It was a source of sore disappointment for those who hoped Rand would share the charisma and ability to generate enthusiasm that his dad, former Sen. Ron Paul, did. 

Where the Libertarians Are

Ian Taylor is a student and vice chair of finances for the College Republicans club at Dordt College. In straw polls taken by the group, “it’s different than national polls,” says Taylor. “For instance, Donald Trump usually comes in single digits. We had a big students for Rand group, where he would come in double digits over Donald Trump.” A lot of those Paul supporters are now supporting Cruz, he tells me, “and then some of them have switched over to more libertarian candidates like Gary Johnson.”

I run into a Johnson enthusiast a few minutes later, alongside a peer who hopes that Johnson doesn’t get the 2016 LP nomination. Justin M., a student at Manhattan College and founder of the website Liberty Hangout, supports libertarian presidential hopeful Austin Petersen. “I think his heart is really in it,” which you can see through Peterson’s “social media presence,” he says. Like Donald Trump, Petersen is “anti-establishment,” but unlike Trump “he’s pro-liberty.”

Petersen launched and runs the website The Libertarian Republican and is a past employee of the Libertarian National Committee and Andrew Napolino’s Fox Business show, FreedomWatch. Though Petersen has never held office before, the 35-year-old is challenging Johnson—the former governor of New Mexico and the LP’s 2012 presidential candidate—for the party’s nomination this year.

“When Ausin entered the race, no one thought he had a fighting chance. Now he’s number two in the polls,” says Justin, presumably referring to an online poll conducted during the International Students for Liberty conference in late February. Johnson came in third in that poll, while first place went to Ted Cruz.

Justin and his friend, Roberto Chamorro, are anxious to go find controversial Canadian blogger Stefan Molyneux, whom they have heard rumors is somewhere nearby.

Chamorro, a student at Maryland’s Montgomery College, says he considered himself a Republican until last year, when he “started becoming a libertarian.” As such, Chamorro appreciates Paul’s efforts in Congress around things like the NSA, but he was put off by Paul’s “flip flopping” on certain issues and perceived politicking. Chamorro’s presidential support now lies with Gary Johnson, whom Chamorro thinks is “more Republican” than any of the other candidates.

“Look at his record as the governor of New Mexico,” he says. “He vetoed so many bills, including raising taxes and such.”  

Unfortunately, that’s translated to little support for Johnson within the Republican mainstream. At CPAC, an opening-morning speech from Johnson draws only tepid applause and garnered Twitter comments like “this Gary Johnson speech is rather bizarre” and “what the actual hell?”

#NeverTrump

According to Politico reporter Kyle Cheney, “some libertarian backers of Sen. Rand Paul’s now-defunct presidential candidacy suggested [at CPAC] that Trump’s subtle dovishness—his rejection of regime change in Libya, Iraq and Syria”—was behind his appeal with young people. “I think he’s an authoritarian definitely, very far right,” 21-year-old CPAC attendee Josh Paladino told Cheney. “But for some reason his foreign policy has that streak of non-intervention.”

But reporters from the The Washington Times and The Huffington Post found little love for Trump among millennials at the conference. And Washington Post reporter (and former Reason staffer) Dave Weigel reported from CPAC that “Trump sympathizers, and Trump fans, were outnumbered but not invisible” and “skewed older than the College Republican fans of Rubio or Cruz.” 

Arie Hoekstra, a student and College Republicans club officer at Iowa’s Dordt College, saw Cruz and Rubio speak at CPAC and both had a lot of crowd support. He says he was disappointed “not to see Trump here to get a comparison of the three.”

Millennial support for Trump has been mixed so far in the real world. In the first four states to hold their primaries or caucuses, Trump won millennials in just one, New Hampshire. In Nevada and South Carolina, he led with all age groups except millennials, whom he lost to Rubio, and in Iowa, Cruz dominated among millennials voters, followed by Cruz and then Trump. On Super Tuesday, Trump won voters under 30 in six states, according to Red Alert Politics

Matthew Mailloux, who heads Students for Rubio at La Salle University, told Red Alert that voting for Trump may be “the cool thing to do” in certain youth circles, but among “the truly principled millennials who are involved in politics and who pay attention to the news” you will see “very, very low support for Trump.”

Alas, outside of CPAC, “the truly principled millennials who are involved in politics and who pay attention to the news” seem vastly outnumbered by those who appreciate the “authenticity” of Trump or—much more likely—of Demorcatic presidential candidate Bernie Sanders. Sanders has routinely earned large swaths of the potential youth vote (at least the potential white youth vote) in state and national polls. As one elephant-skirt-clad FFL member puts it, “Bernie Sanders has just taken control” of the student electorate in 2016. To this, another FFL member says, “More power to ’em. At least they’re politically active.” 

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Non-GAAP Earnings Are About To Plunge The Most Since 2009; As For GAAP Don’ Even Ask…

Now that Q4 EPS is almost in the history books with 494 S&P500 companies reporting, we can look at the numbers: blended 4Q EPS is $29.49 (-2.9% y/y) with GAAP EPS of $19.92. As DB admits, a 67% GAAP-to-non GAAP ratio is well below the normal ~90% ex. recessions, exacerbated by asset impairments and restructuring costs especially at Energy.

This is how DB shows this almost unprecedented divergence between GAAP and non-GAAP:

 

This is merely a recreation of charts we first showed one week ago, when we commented on the widest spread between GAAP and non-GAAP since the financial crisis:

 

The chart below shows where the GAAP to non-GAAP divergence is most acute.

 

Ok, we get it: on a GAAP basis it is not a recession any more, it is a depression, just as that Houston CEO letter explained.

But what if we only look at adjusted, gimmicky non-GAAP? Even when looked at purely “pro forma”, things are bad. Recall that in the middle of 2015 when the full severity of the oil collapse was finally becoming apparent, the sellside was absolutely certain that the clouds would blow away by 2016, and as a result as recently as December 31, consensus expected Q1 EPS to post a modest 0.3% rise. That is not going to happen. Instead, as aof this moment, Q1 EPS is expected to collapse by a near record 8.0%, which would be the biggest annual decline since Q3 2009.

To all those saying “it’s all just energy”, we would say “yes… and 6 other sectors” as shown in the chart below. In fact, as of this moment, the only industries which are expected to post an EPS increase in Q1 are Telecom, Consumer Discretionary and Healthcare.

As Factset summarizes:

The estimated earnings decline for Q1 2016 is -8.0%. If this is the final earnings decline for the quarter, it will mark
the first time the index has seen four consecutive quarters of year-over-year declines in earnings since Q4 2008
through Q3 2009. It will also mark the largest year-over-year decline in earnings since Q3 2009 (-15.7%).
Three
sectors are projected to report year-over-year growth in earnings, led by the Telecom Services and Consumer
Discretionary sectors. Seven sectors are projected to report a year-over-year decline in earnings, led by the Energy,
Materials, and Industrials sectors.

So four consecutive quarters of declining earnings, or two earnings recessions back to back: recall what JPM said last night: “periods of consecutive EPS contractions are often followed by
(or coincide with) economic recessions (~80% of the time over the past
~120 years).” What about periods of two consecutive earnings recessions?

Don’t answer that, because it gets worse:

During the first two months of Q1 2016, analysts lowered earnings estimates for companies in the S&P 500 for the
quarter. The Q1 bottom-up EPS estimate (which is an aggregation of the estimates for all the companies in the index)
dropped by 8.4% (to $26.69 from $29.13) during this period. How significant is an 8.4% decline in the bottom-up EPS
estimate during the first two months of a quarter? 

 

During the past ten years, (40 quarters), the average decline
in the bottom-up EPS estimate during the first two months of a quarter has been 3.6%. Thus, the decline in the
bottom-up EPS estimate recorded during the first two months of the first quarter was larger than the 1-year, 5-year,
and 10-year averages.

 

In fact, this was the largest percentage decline in the bottom-up EPS estimate over the first two months of a quarter
since Q1 2009 (-24.0%).

As the WSJ summarizes it “Wall Street’s earnings estimates for S&P 500 companies are falling at the fastest pace since the height of the financial crisis.”

As for the guidance, it is is just as abysmal:

Guidance: Negative EPS Guidance (79%) for Q1 above Average
At this point in time, 115 companies in the index have issued EPS guidance for Q1 2016. Of these 115 companies,
91 have issued negative EPS guidance and 24 have issued positive EPS guidance. Thus, the percentage of
companies issuing negative EPS guidance to date for the first quarter is 79% (91 out of 115). This percentage is
above the 5-year average of 72%.

In other words, we are about to have our 4th consecutive annual decline in S&P earnings. And here we make a bold prediction: while Wall Street traditionally expects a sharp hockeystick into outer quarters, which explains why consensus expects a 1.8% increase in ful year earnings (down from 4.3% at the start of the year), we on the other hand are clling Q2, Q3 and Q4: the next three quarters are all about to post EPS declines, leading to an unprecedented 8 consecutive quarters in declining S&P500 EPS. Actually precedented: the last time it happened was during the Great Depression.

Only this time it’s not even a recession, because when you “exclude energy”, add a near record number of non-GAAP addbacks, and hockeystick the result, everything is quite ok.


via Zero Hedge http://ift.tt/1RwxXzR Tyler Durden

Even “Flim-Flam Accounting” Can’t Hide This Profitless Recession

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Since stock markets are ultimately underpinned by corporate profits, let's ask: What factors could crush profits in 2016?

The basic idea of a balance sheet recession (attributed to Richard Koo) has been well-publicized: when the liability (debt) side of household and business ledgers reach danger heights, stakeholders respond by reducing debt and increasing savings rather than increasing spending and debt.

The result is a slowdown, a balance sheet recession.

What do we call a recession triggered by a collapse in profits? Corporate profits have soared to unprecedented heights in the "recovery" of 2009-2015: it's certainly been more than a recovery in terms of corporate profits:

What's left to push profits even higher? The mainstream answer is: just more of the same: more global growth, more expansion in emerging markets (EM), renewed monetary and fiscal stimulus in the developed markets (DM), and the tailwind of lower energy costs.

The possibility that the era of unprecedented profits might have been an aberration and is now drawing to a close does not register in the mainstream financial media. If we look at the red line I drew on the chart, it's easy to see the incredibly abnormal rise in corporate profits in the era of rapid globalization and financialization, both driven by cheap-money policies of central banks.

Note that profits literally exploded once central banks opened the credit spigots, and lending standards were loosened to the point there were no real standards (2002 onward).

This globalized flood of nearly-free money pushed asset valuations to absurd heights everywhere. These insanely high asset valuations supported additional debt, which then fueled higher asset prices, a virtuous cycle of expanding debt pushing asset prices higher, when then enabled more debt, and so on.

The problem with bubble valuations is revealed when participants must sell to pay down debt. When the debt-monkey can't be dislodged from the debtor's back, assets must be sold. And in the thin, rarefied air of most markets, any real selling quickly crashes valuations, which were predicated on more buyers, not more sellers.

The initial wave of selling assets to pay down debt has already crushed emerging markets. Relatively modest selling in developed markets pushed many markets into Bear territory (down 20% or more).

Since stock markets are ultimately underpinned by corporate profits, let's ask: What factors could crush profits in 2016?

1. stronger U.S. dollar: as many of us foresaw, the stronger USD has pummeled U.S. corporate profits, much of which are earned overseas in other currencies:

The USD Bull in the Global China Shop (February 4, 2015)

Anyone who thinks the USD will give up its gains is dreaming:

Why the Dollar May Remain Strong For Longer Than We Think (September 17, 2014)

2. Emerging markets consumption is weakening. Crush a nation's currency and stock market, and spending atrophies. When spending sags, so do profits.

3. Oil exporters are reducing their spending. Tightening belts means fewer imported luxury goods and fewer profits for exporters who feasted off oil-exporting wealth for years.

4. China. Imports to China are cratering. Profits will crater, too.

5. Diminishing returns on cost-cutting. All the low hanging fruit has been plucked; shipping manufacturing overseas–done. Reducing head-count: done. Buying software to increase productivity: done. What's left: slash payroll (again), cancel company 401K contributions, etc.–in a word, devastate employment.

6. Diminishing returns on lower interest rates. Refinancing old debt at super-low rates boosted profits wonderfully the first time around, now, not so much: rates have been low for so long, there's no juice left in that lemon.

7. Energy savings have been banked. Airlines have feasted on record profits resulting from plummeting fuel costs, but the big gains have already been banked. If oil drops below $30/barrel, a few dollars can be picked up, but they won't match the gains reaped when oil fell from $100 to $30/barrel.

8. Risk-on borrowing is drying up. The global booms from 2002 – 2008 and 2009- 2015 were both driven by trillions of dollars of new (borrowed) money being dumped into risk-on assets–real estate development, stocks, junk bonds, shadow banking loans, etc.

This tide is now receding.

9. Much of the profit was accounting gimmickry. Jim Quinn recently dismantled the illusory nature of corporate "profits," drawing upon John Hussman's analysis: Corporate Profits Vaporizing: (excellent job, John and Jim):

Elevated corporate profits since 2009 have largely reflected mirror image deficits in the household and government sectors, as households have taken on debt to maintain consumption despite historically low wages as a share of GDP, and government transfer payments have expanded to fill the gap, with 46 million Americans now on food stamps – a five-fold increase in expenditures since 2000.

Essentially, corporations are selling the same volume of output, but paying a smaller share in wages, with deficits in the household and government sectors bridging the gap. As households and government have shoveled themselves further into the hole, corporate profits have climbed higher on the adjacent pile of earth. Deficits of one sector emerge as the surplus of another.

If you think all this is a solid foundation for ever-higher profits, by all means go buy stocks with all four feet. But don't be surprised if the rest of the market disagrees at some point–for example, when even flim-flam accounting can't hide the fact that profits are in a free-fall back to "normal" levels 60% below current levels.


via Zero Hedge http://ift.tt/1nrhq86 Tyler Durden