Tag: finance

“They Will Not Silence Me”: McAfee Vows To Wage Presidential Campaign From Venezuela As He Flees Tax-Evasion Charges

Since he stopped issuing promo-tweets about ICOs (after allegedly being threatened by the SEC), one-time PC security pioneer turned crypto true believer has been relatively quiet (emphasis on relatively). To wit, he hasn’t issued any more outrageous promises about his willingness to consume a certain appendage in front of a live audience should the price of bitcoin not eclipse a certain level, and he hasn’t elaborated on an anecdote detailing his penchant for sexual congress with one of the ocean’s mightiest mammals.

In fact, he hasn’t said much of anything that would be considered headline-worthy. That is, until today.

In a video published on his twitter account, McAfee, who famously fled from murder charges brought by authorities in Belize, revealed to that he is officially on the lamb after a grand jury was allegedly convened in Tennessee to pursue unspecified federal tax charges against McAfee and his family.

But don’t worry, McAfee fans. Because he isn’t giving up on the battle against tyranny. Which is why he will be waging his ‘McAfee 2020’ campaign in exile…from his boat.

But why exactly is the federal government coming after McAfee? Well, this might be one explanation: According to McAfee, for the last eight years, he has refused to pay federal income taxes. The government’s decision to prosecute himself, his family and – according to McAfee – several of his campaign workers – is just the latest indication that McAfee’s prophesy about cryptocurrencies eventually leading to conflict with governments is finally becoming a reality.

“Cryptocurrency will at some point come head to head with government. Why? Because when privacy coins are widely used, governments will no longer be able to collect income taxes. This is a good thing. We will some day be at war.”

But the government’s reason is flawed, McAfee says, because refusing to pay taxes isn’t actually illegal (according to McAfee).

“I have not paid taxes for eight years, I have not filed returns…I’ve been fine. It’s not illegal. Today…Jan. 22…the IRS has convened a grand jury in the State of Tennessee to charge myself, my wife Mrs. McAfee and four of my campaign workers with unspecified IRS crimes of a felonious nature.”

After piercing the government’s transparent ruse, the true motivation behind McAfee’s persecution should be obvious to all. The government is trying to silence McAfee for having the courage to boldly advocate for people to abandon fiat currency and switch to crypto. But rather than simply allowing the government to toss him in prison (where he presumably wouldn’t have access to twitter), McAfee is taking his battle to the high seas.

“They want to silence me. I will not allow that. So I am running my campaign in exile on this boat for the duration…I will not allow them to imprison me and shut my voice down, which they will do immediately. Why? I am a flight risk – obviously, I am in flight.

“I will be putting out videos every day to explain what has happened.”

We’re very much looking forward to hearing more from McAfee, soon to be the first presidential candidate to run for higher office while remaining a fugitive from justice.

Call him the Dread Pirate McAfee.

But where is McAfee going to seek refuge from the tyrannical US government? Why to Venezuela, of course!

And he’s bringing a few campaign workers with him.

We imagine President Maduro will welcome McAfee with open arms, if only for his crypto expertise.

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

Stocks Jump On Kudlow Denial: “There Is No Cancellation. None. Zero.”

“There are no cancellations. None. Zero. Let’s put that to rest.”

Hours after a headline from the FT about the US cancelling a round of trade talks with two senior Chinese ministers send stocks reeling to their lows of the day, the administration has dispatched Larry Kudlow (who apparently had to wait until 20 mins before the close thanks to CNBC’s wall-to-wall Davos coverage) to jawbone the markets back into the green by denying the story.

Kudlow said the only meeting that matters is the meeting with Liu He in Washington at the end of January.

It’s working so far, stocks are shooting higher with less than 20 minutes left in the trading day.

K

Unfortunately for the administration, the Kudlow bump was short-lived.

Kudlow

via ZeroHedge News http://bit.ly/2S3xLn9 Tyler Durden

Peter Schiff: “The Recession Is A Done Deal” Thanks To The Fed’s Rate-Hikes

Via SchiffGold.com,

Optimism about a trade deal with China along with increasing expectations that the Federal Reserve will slow the pace of interest rate hikes buoyed the markets last week.

This has led many pundits to declare that the correction is over. Some have even declared its a new bull market. In his latest podcast, Peter Schiff said that’s not what’s happening at all. What we’re seeing is a typical bear market correction and a recession is right around the corner.

All day Friday, pundits on CNBC emphasized that the Dow has risen out of “correction” territory, meaning it is no longer 10% below its highs. Peter took issue with this analysis.

First of all, we didn’t enter a correction. We entered a bear market. Now, bear markets have corrections too. They’re called rallies. Except the people and CNBC don’t get that. They think the only correction is a move down in a bull market.”

Peter said this correction is actually helping this bear market fall a “slope of hope.”

So, what is driving this bear market correction? Just like Peter predicted – the Federal Reserve.

As I’ve been saying, I began forecasting, even before the first rate hike in December of 2015, that if the Federal Reserve ever tried to normalize interest rates, it would never succeed. It would never be able to get rates back to normal because somewhere along the way they would tip the stock market into a bear market, cause a recession, and the Fed would back off. And that’s exactly what happened. The minute the stock market went into a bear market in the fourth quarter of last year, by early this year, everybody did an about-face, and all of a sudden, there are no more rate hikes, no more autopilot. They’re just, you know, being patient.”

We’ve been reporting on the Powell Put, but the Fed chair isn’t alone in his dovishness. In fact, San Francisco Fed President Mary Daly said rate hikes are “on pause” last week, even though she sees no sign of a recession.

Peter said they if they are pausing now, what will they do when they realize a recession really is staring them in the face?

Of course, stock market investors are clueless about that. They’re just having a party because the Powell Put is back on the table. And they think simply because the Federal Reserve is no longer hiking rates that they no longer have to worry about the Fed pushing the economy into a recession. Well, it’s too late for that. The rate hikes of the past have already guaranteed that the economy is headed for recession. It doesn’t matter whether they continue to raise rates in the future. The recession is a done deal. It’s just now you have that calm between the storm while investors are still clueless and haven’t yet connected those, what should be, very obvious dots.”

The bottom line is this economy was built on zero percent interest rates.

Two-and-a-quarter percent is much too high. That’s not enough stimulus. Even though that’s very low, when you’re used to zero and now you’ve got two-and-a-quarter, that’s not low enough.”

Peter talked about the possible resolution of the trade war. He said markets can rally on the anticipation of a truce, but it will likely end up “buy the rumor sell the fact.” He said the trade deal will ultimately be a nothing-burger.

Peter also talked about the recent news that China plans to buy billions of dollars of US products to eliminate the trade deficit, and took a TV analyst to task for claiming that gold has “not practical uses.”

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

This Is The Longest Government Shutdown Ever; For The Market It’s Also The Greatest

Officially a month long today, the (partial) US government shutdown that began on Dec. 22 is now the longest in US history, surpassing both the 1995-96 shutdown (21 days) and 2013 shutdown (16 days), and with both Trump and the Democrats digging in, it shows no signs of ending any time soon. Indeed, Trump’s latest proposal over the weekend to offer extended protections for “Dreamers” in exchange for border wall funding was rejected by Democratic leaders as a non-starter, suggesting both sides remain far apart.

And with some analysts speculating whether instead of days or weeks, the current shutdown may last 2, 3 or even more months, pundits are starting to be increasingly concerned about its direct impact to GDP. According to BofA economists the impact to US growth from the partial government shutdown will be -0.1% for every two weeks the shutdown drags on, and as a result they have trimmed their 4Q GDP by 0.1 (to 2.8%), while their Q1 estimate of 2.2% will likely be downgraded similar to what JPMorgan did last week.

In addition to the direct drag, indirect impacts are likely: furloughed workers may slow consumption and businesses could delay capex spending due to uncertainty. Companies who are suppliers to government contractors are also impacted, and SBA lending to small businesses/entrepreneurs has also been halted. Additionally, the delayed release and/or distortion of certain economic data creates more uncertainty for markets.

Still, according to what high frequency economic data continues to be reported, there has yet to be a major hit to the economy, suggesting the stalemate will continue until the economic pain – for either side – becomes unbearable.

One place where no pain has emerged, yet, is in earnings season, which while early suggests little impact so far, but risks increase the longer the shutdown drags on. Most Banks saw limited impact, but noted that overall uncertainty around trade, the shutdown, Brexit, etc. have hurt consumer sentiment, and that that activity/fees related to IPOs/M&A will increasingly be impacted the longer it drags on. Some were more explicit: Delta cited a $25mn revenue hit from lower govt. travel and operational impacts, and while United Airlines saw no impact on business bookings, it noted the shutdown has created some uncertainty in their 1Q outlook. BofA’s Gaming & Lodging team noted potential risks for hotels with exposure to the D.C. area, and while its Hardlines Retail team expects limited impact (larger tax refunds this year are likely a bigger catalyst), they highlight companies with the highest exposure to the D.C. area,

One place where the shutdown has certainly not had an impact is the market.

Historically stocks have shrugged off shutdowns (median S&P 500 return of +0.3% during government shutdowns since 1981), and has been up following the shutdown (median return of +2.1% the month after); the longest shutdown prior to now was 1995-96 (21 days), followed by 2013 (16 days). During these two longer shutdowns (where the rest since 1981 were five days or less), the market was flat during the 1995-96 shutdown, +2% during the 2013 shutdown, and +4-5% in the month after both.

And even though we’re now off the grid, and risks to both the US economy and the market are rising the longer the current shutdown drags on, one wouldn’t know it by looking at the S&P’s performance in the past month, when starting on the day after the shutdown, through today, the S&P is up a whopping 11%.

This is the best market performance during a government shutdown in history, outperforming the average shutdown performance nearly 20x.

In other words, this may be the longest government shutdown ever, but for the market it’s also the best… ever.

Unfortunately for president Trump, who finds particular delight in stocks rising, the market outperformance during the last month may finally be rolling over, and as BofA Rates & FX Strategist David Woo notes, the impasse is a prelude to a potentially bigger fight over the debt ceiling later this year, where in his view, the US could be at risk of default this summer if the Trump administration and the Democrats cannot cooperate. (Spoiler alert: they won’t).

So as bullish sentiment gives way to bearishness, which stocks will be hit first? According to BofA, here is a list of the top 100 Federal government contractors that fall within the S&P 500, and which will likely be impacted the most as the shutdown enters its 2nd (and 3rd, and 4th) month. Note that while Aerospace & Defense companies dominate the list, the Department of Defense remains funded – though some of these companies may also have exposure to departments which are impacted by the shutdown (e.g. NASA, Homeland Security, etc.)

via ZeroHedge News http://bit.ly/2S0Ie2D Tyler Durden

This single stat shows why the wave of socialism is only growing

Every so often throughout history, the peasants grab their pitchforks and come for the elite. It happens when the wealth gap grows too extreme… when people feel like they are getting left behind, with no opportunity to advance.

Now the central bank has been pumping out cash for the last decade, and keeping interest rates low. Where do you think all that easy money went?

Since 2009, the world’s billionaires more than DOUBLED their combined wealth. All the billionaires in the world had $3.4 trillion in 2009. By 2017, they amassed $8.9 trillion.

Mark Zuckerberg multiplied his wealth almost 20 times over, from $3 billion in 2009, to over $58 billion in 2019.

$8.9 trillion is a massive, almost incomprehensible amount of wealth.

But it really shouldn’t be that surprising if you think about it… these people are wealthy for a reason. It’s like the snowball effect. Give them more time, they will probably make even more.

In this case their growth has been rocket-propelled by a central bank that printed an absurd amount of money and caused an asset-price boom.

The easy money has inflated investments, the stock market, real estate prices, even fine art and rare wine.

But if you’re a laborer who doesn’t own assets, this boom hasn’t helped you. Wages and median household wealth have stagnated.

The combined wealth of the poorest half of the world–3.8 billion people–fell by 11% just last year, according to Oxfam, a group working to alleviate poverty.

The New York Times claims the richest 8 people on the planet have more wealth than the poorest 3.8 billion.

And Forbes says the 3 richest Americans have as much wealth as the poorest half of the country’s population.

It’s no surprise that we are seeing this socialist backlash. People feel trapped, like they have no path to prosperity. They see money thrown around by the government, and the rich. They see stocks and real estate boom… but where is theirs?

It’s the lack of MOBILITY that really gets people worked up.

3.4 billion people got poorer last year.  How many more stayed exactly where they were, or barely budged? The vast majority of the global population is the same or worse off than they were 12 months ago.

Meanwhile a tiny little group got embarrassingly rich.

I’m not trying to sound like some radical left-wing social justice warrior. I just know that throughout history, whenever the wealth gap gets large enough, it gets corrected.

Sometimes that happens through legislation, and sometimes it happens through violence. The people demand that the politicians forcefully redistribute the wealth. And the politicians are happy to step up to the plate.

Just on cue, here they come, right here in America.

Last week we talked about New York City Mayor Bill de Blasio’s speech in which he said: “Brothers and sisters, there’s plenty of money in the world. There’s plenty of money in this city. It’s just in the wrong hands.”

What he meant was that the people who earned the money shouldn’t get to keep it.

Then there’s the new star of Congress, Alexandra Ocasio-Cortez. She supports hiking income taxes up to 70%, providing free medical care, free college, a chicken in every pot and a unicorn in every garage.

And, of course, she blames capitalism for everything wrong with the United States… and says “it will not always exist in the world.”

Ray Dalio, manager of Bridgewater, the worlds largest hedge fund, is hobnobbing with the global elite at a Swiss ski resort in Davos. He says that among the attendees, the ideas of this 29-year-old freshman Congresswoman are taking root.

Nobel Laureate economist Paul Krugman think’s AOC’s 70% is too low.

Somewhere between 73% and 80% is the optimal tax rate he says. Under his plan, the government will graciously let you keep up to 27% of what you earn.

Unfortunately, the public like what it hears.

According to Gallup, 51% of 18-29 year olds view socialism favorably.

Only 45% view capitalism positively. That’s down from 68% in the same age group just a few years ago.

And membership in the Democratic Socialists of America has swelled 7x just in the last two years.

 Their candidates are certainly crowding the 2020 primary.

There’s Elizabeth “you didn’t build that” Warren. Bernie Sanders and his tens of trillions of dollars worth of promises for free-stuff.

Former Obama cabinet secretary Julian Castro is one Presidential contender who wants “free” two-year college. Like Bernie, he has also endorses Medicare for all, a government run socialized healthcare scheme.

Other likely contenders, Senator Corey Booker and Senator Kirsten Gillibrand, want a federal guaranteed jobs program to hand out cushy government job with benefits to anyone who wants one.

And now Kamala Harris is officially in the race.

Harris is an ultra-liberal Senator from California. Already she endorsed AOC’s call for a 70% tax rate, and won’t rule out BANNING private car ownership to address climate change.

Her campaign slogan is “For the people.” And the campaign colors are red and yellow… just missing the hammer and sickle.

All of these candidates want to take your money and redistribute it to the people who keep them in power. It is SO obvious what is going to happen next.

There will be more government spending that they can’t afford. More bureaucracy, more central planning…

As de Blasio said, he thinks people have a socialistic impulse which makes them want the government “to determine which building goes where, how high it will be, who gets to live in it, what the rent will be.”

And unfortunately the statistics are supporting this view.

These are the new socialist candidates for the presidency who all promise to take your money and do with it what they see fit.

But here’s the thing, none of this stuff works. Central planning doesn’t work. Bureaucracy doesn’t work.

It drags everyone down, and lifts up only the politically connected. We’ve seen it a million times before, across the world, throughout history.

Unfortunately, it seems like the trend of American socialism is picking up steam. These candidates and a large chunk of voters are determined to go down this doomed path, and turn America into yet another failed experiment in socialism.

Source

from Sovereign Man http://bit.ly/2CF7bXX
via IFTTT

Dow Tumbles 450 Points, All Major US Indices Break Key Technical Support

But, but, but, we thought everything was awesome again?

Dow futures down 450 points accelerating on US-China trade talks headlines…

 

And all of the major US equity indices are back below their 50-day moving average…

The question is – will they close below? Or will a well-timed quote from Trump or Mnuchin about how well things are going spark another buying panic for the algos?

via ZeroHedge News http://bit.ly/2FPCDG1 Tyler Durden

Ocasio-Cortez Gives “Zero F*cks”; Claims World Will End In 12 Years, US Should Pay Reparations To “Heal”

Rep. Alexandria Ocasio-Cortez (D-NY) had had quite a lot to say lately – making the rounds at a Martin Luther King Day event before appearing on Late Night with Stephen Colbert. 

First, appearing at the fourth annual MLK event, Ocasio-Cortez told an audience at the Riverside Church in Harlem that the world is going to end in just over a decade, and that for millennials and Gen Z, climate change is “our World War II.” 

And I think the part of it that is generational is that millennials and people, in Gen Z, and all these folks that come after us are looking up and we’re like, the world is gonna end in 12 years if we don’t address climate change. You’re biggest issue, your biggest issue is how are going to pay for it? — and like this is the war, this is our World War II. 

Ocasio-Cortez then suggested that the United States pay reparations like Germany did “after the Holocaust” in order to heal. 

“Until America tells the truth about itself, we are not going to heal.” 

Appearing Monday evening on The Late Show With Stephen Colbert, Cortez said she gives exactly “zero” fucks about people who say she shouldn’t “make waves” in Washington, then defendered her call for a 70 percent marginal tax on the ultra-wealthy. 

“It’s on your ten-millionth-and-one dollar,” Ocasio-Cortez explained. “At what level are we really just living in excess? And what kind of society do we want to live in? And do we want to live in a city where billionaires have their own personal uber helipads when people are working 80 hour weeks and can’t feed their kids? 

via ZeroHedge News http://bit.ly/2CDE1s9 Tyler Durden

“Don’t Look Down”: Highlights From SocGen’s “Woodstock For Bears” Conference

Authored by Robert Huebscher of Advisor Perspectives, who shares his perspectives from SocGen’s latest Global Strategy Presentation, hosted by the bank’s legendarily pessimistic strategist, Albert Edwards and SocGen’s (no less bearish) market quant Andrew Lapthorne. It is also known as the “Woodstock for Bears.”

Expect a recession in the next 18 months, said Albert Edwards. Bond yields will converge with those in Germany and will go negative. The economy will be in deflation – or at least face a significant deflationary “scare.” Those factors, he said, will create a terrific opportunity for fixed-income investors.

Edwards is the global strategist for Société Générale and is based in London. He spoke at his firm’s annual investment conference in London on January 15. Also speaking were Andrew Lapthorne, who runs quantitative analysis for the firm, and Gerard Minack, an Australian-based global strategist.

In addition to his forecast for the U.S. economy and markets, Edwards said two countries are poised to deliver destabilizing shocks to global growth: Italy and Japan.

The ice age and the threat of a recession

Edwards is known for his “ice age” thesis, which posited that, beginning in 1996, the correlation between bond and stock yields would break down, and 10-year bonds would outperform stocks. His template was Japan and its lost decade of growth, which began in 1990. While his forecast has been largely accurate, he noted that it has been disrupted by quantitative easing (QE) since 2011. Now, with the Fed, ECB and Bank of Japan all tightening, he expects the ice age to continue.

But Edwards cautioned against underestimating the effect of central-bank tightening. Recessions are more likely to be caused by events in the markets – not the other way around, he said, as is commonly assumed.

The economist Brad de Long has noted that three of last four recessions were from unforeseen shocks in financial markets (the collapse of the dot-com bubble, the real estate bubble and the S&L crisis). The exception was the 1979-1982 recession. Edwards pointed out that the very minor episode of quantitative easing (QT) that started in October 2018 caused a very rapid unwinding of equity valuations – illustrating the outsized effect such actions can have on markets.

“We underestimate the amount of QT,” he said. He cited an academic study that shows that QE effectively pushed the Fed funds rate to -3.0%. The effect of QT has been to push the rate to effectively 5.5%, according to Edwards.

Edwards noted that the fiscal policy deficit has gone to 4% of GDP. He said that it is not the level, but rather the change in the deficit, that matters. In the U.S., there was a 1% discretionary expansion in fiscal policy last year, but this is now reversing. In Q4 of last year, he said the change in the deficit went form 0.5% of stimulus to 0.5% of tightening in Q1 – “a massive foot on the brake.”

“The U.S. will follow everyone else with a very rapid economic slowdown,” Edwards said.

The economist Larry Summers has asked rhetorically, with 3% growth last year, “How could there be a recession?” Edwards answered by pointing out that 75% of recessions have had 3% or greater growth in the previous year.

The IMF is predicting “barely a slowdown at all,” he said, “but commodities – particularly base metals – are telling us it could be a lot more severe.” Edwards added that metrics such as CEO confidence and the manufacturing ISM are poor, and that the ECRI also suggests a very sharp slowdown.

Ten of the last 13 Fed tightening cycles have ended in recession, Edwards said. Ahead of a downturn, as the Fed tightens, the yield curve steepens. “That is the phase we are in now,” he said. “Just because the jobs market is buoyant, as it was preceding the last two recessions, doesn’t mean there won’t be a recession.” Typically payrolls accelerate ahead of recessions, he said. “Strong payrolls don’t necessarily mean a recession is not coming.”

In terms of the bond market, there was a lot of panic when the 10-year broke out of the upper bound of its long-term downtrend, he said. There were extreme speculative shorts, he said, which led him to believe yields could snap back sharply. The same happened in June 2006, and six months later the economy was in deep recession.

“Little did we think that Fed Chair Powell would encourage the whip-around in interest rates that we’ve seen,” he said. Other Fed speakers have since echoed the dovish posture, helping prop up equity valuations.

His key prediction was that over the next 12- to 18-month period, U.S. bonds yields will decline and converge with those in Germany and Switzerland. Those yields will end up in negative territory, according to Edwards.

Italy

Don’t accept the explanation that the weak data in Europe is due to a tightening of emission standards, Edwards said. There is a deeper, structural problem.

The core of that problem is weak productivity and Italy is “in a league of its own” on that basis, he said. One possible explanation is that Italy suffers from poor student performance in its schools, and that has led to high unemployment. Edwards cited survey data which showed that, among all Eurozone countries, Italy was the only one where unemployment was cited as one of the top two concerns of its citizens.

“But the real problem is Italy is locked in the Eurozone,” Edwards said. Every single year its effective exchange rate goes up because its labor costs are rising. That happened in the last decade, he said, and France is not far behind Italy.

“The Eurozone will split up,” he said adding that the core problem in Italy is youth unemployment, now at 32%, which he said was astounding given the ECB’s QE.

Italy is unique, he said, in that a majority of those under 45 years old want to leave the EU. That is the opposite of public opinion in the UK, Germany, France and Holland. Italy is swinging towards leaving the EU, he said, even before next recession when unemployment “will go above 50%”, he predicted.

China

Every year since 1990, people have been calling for a Chinese “hard landing,” Edwards said. “Now they are calling for an adjustment from an investment to a consumption bias in China’s economy.”

It is going slowly, he said, and China is still hugely reliant on consumption, especially compared to other emerging markets at this stage of their development.

Policymakers are not going to open the floodgates to credit in response to the slowdown, according to Edwards. One can see this in the data, which shows that reserves have leveled off, he said, so China is actually engaging in monetary tightening. This is “grinding away in the background,” he said.

Most of the economic data is very, very weak. Industrial profits are at the lowest level in two years, down 20% year-over-year.

“The current unraveling in China is much harder than people suppose,” Edwards said.

The PMI data shows that export orders slumped sharply in the last three months, and there is “a lot more weakness to come.”

Unemployment is the problem in China, he said. “Everything else is peripheral. This is where the social unrest comes from.” The slide below illustrates this problem.

Edwards cited a little-known data source, the Chinese “beige book,” which has been around since 2010. It surveys thousands of companies. A key conclusion from it is that “risk is going up as plentiful borrowing is failing to produce growth”, he said.

The risk is that China overtightens and loses control, according to Edwards. “There is far too much confidence in policymakers’ ability to control everything.”

The full presentation used by Edwards and Lapthorne is below

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

Macro Hedge Fund Atreaus Shutting As Paulson Contemplates Switch To Family Office

Three weeks into the new years and hedge funds are already having a miserable time: while the sharp rebound in the market has been a boon for the active investing community which is getting crushed every day as billions in funds flow out of active and into passive vehicles, today a prominent hedge fund hotel blew up, when Arconic announced it had abandoned its sale process even as dozens of hedge funds had expected the deal to go through…

… sending its stock tumbling over 26%.

And as the slow, painful death of the industry – which remains on death watch in a time when central banks act as Chief Risk Officers of the entire market, thus making hedging obsolete – continues, one fund decided to throw in the towel when macro hedge fund Atreaus Capital has called it quits, the latest firm to succumb to what Bloomberg called “a hostile environment.”

The hedge fund will shut its New York and London offices and stop trading in its main money pool, according to an investor letter seen by Bloomberg.

The Atreaus Master Fund, which bet on macroeconomic events and commodities, hit $2 billion at its peak, however it has suffered three straight years of declines, losing 4.5% through November 2018.

“There’s more than a little irony in making the decision to close down as we actually feel that the environment for what we do is as good as it has been for some time,” Founder and Chief Investment Officer Todd Edgar said in the letter. “Closing a fund does not equal death (although it may feel a little like that sometimes).”

Prior to founding Atreaus, Edgar was a Managing Director of Barclays as the Global Head of Macro Proprietary trading beginning in 2009. He joined Barclays Capital from JP Morgan where he was Managing Director and Global Head of the Commodities and FX Proprietary Trading group and stayed for about four years. Todd was previously a Portfolio Manager at Tudor Investment Corp, based in Greenwich, CT, and also worked at Morgan Stanley as Global Head of Metals Trading. He started his career at Bankers Trust trading metals and FX in 1993.

Yet while Atreaus is hardly a household name, that of Paulson is, and according to a separate update by Bloomberg, John Paulson – who had one very lucky trade during the financial crisis when alongside Goldman he shorted a bunch of MBS, and who has barely had any positive years since – plans to decide in the next two years whether to turn his hedge fund into a firm that solely manages his personal wealth.

During an interview on Mike Samuels’ “According to Sources” podcast, Paulson said he may split his firm into two parts – one managing his own money and the other running client capital with a type of “profit sharing arrangement with my partners” if they want to continue overseeing the outside capital.

Of course, some will counter that Paulson already is a family office because following massive redemptions in recent years, roughly 80% of the assets at his Paulson & Co. belong to him, something he confirmed in the podcast released Monday. His hedge fund, which at its peak in 2011 managed $38 billion, was down to about $8.7 billion at the beginning of November.

Once Paulson also admits that he too no longer has a clue how to trade this “market”, he will join a long procession of veteran hedge fund managers who have also converted their hedge funds into “family offices” after investors asked for their money back following years of mediocre performance.

And in other news, Paulson will likely be running his own money from Puerto Rico: in November he said he was considering becoming a resident of Puerto Rico in the next few years to avoid taxes, once his teenage children go to college.

via ZeroHedge News http://bit.ly/2S5ET2g Tyler Durden

Fundamentally Speaking, 2019 Estimates Are Still Too High

Authored by Lance Roberts via RealInvestmentAdvice.com,

” So far in fourth quarter reporting season, with 11 percent of the results reported for the S&P 500, three-quarters of companies have actually surprised Wall Street’s forecasters. Earnings are shaping up to be better than people expected.” – CNBC

While it is a correct statement, it is also shows the problem with the “earnings silly season.”

As I noted in this past weekend’s Real Investment Report:

“With earnings season underway, there is support in the short-term for asset prices but remember that earnings are only beating sharply downgraded estimates. (This is the equivalent of companies scoring a 71 after the level for an “A” was reduced from 90 to 70)”

In other words, while the media is pounding the table screaming “buy, buy, buy,” investors should take a step back and remember that investing is ultimately a function of “actual” earnings, revenues, and cash flow. Or, as Warren Buffett once quipped:

“Price is what you pay. Value is what you get.”

To explain the issue, which ultimately becomes a major problem for investors, we have to jump into a DeLorean for a quick trip back to January 1, 2018.

At that point, Wall Street analysts were predicting earnings were going to rise to $156.75 per share by the end of 2019. With the S&P 500 trading at 2695.81 forward P/E’s were a “bargain” at just 17.19x earnings.

However, by May, analysts were chasing each other to be the highest estimate on Wall Street (bullish headlines get clicks) and pushed the 2019 number to a whopping 170.48 per share. With the market at 2734.62 at the end of May, it was time to “buy, buy, buy” as the market was “cheap, cheap, cheap” at just 16x earnings.

The only problem is that if you bought the market in June of 2018 based on its “cheapness,” it was a poor decision as forward earnings estimates turned out to be grossly wrong.

Over the last couple of years I have repeatedly produced the following chart which shows the problem with forward estimates. In just the last month, Wall Street earnings estimates fell by more than $3 per share pushing the total decline to more than $17 per share from the peak.

The red-dashed line is from an early 2018 where I discussed the fallacy of “tax cuts.” In reality estimates must eventually reflect real, organic, economic growth. Tax policy changes do not boost revenue growth at the top line.

Not surprisingly, such has been exactly the case, and despite a 20% correction from the peak of the market last year, consequently at a time when investors were told to “buy, buy, buy” because profits were exploding, investors are paying more today for each dollar in earnings today than they were in June, 2018.

To get a better sense of just how much those forecasts have been downwardly revised, the chart below compares where estimates were at the beginning of 2018 for the end of 2019.

In other words, equities have gotten MORE expensive over the last 6-months rather than less. However, given that bottom line earnings per share is grossly manipulated through share repurchases, accounting gimmicks, and outright “fudging,” more on this in a moment, top-line revenue gives us a much more accurate picture of the excessive prices being paid for stock ownership. Currently, investors are paying 2x sales which exceeds the peak paid in 2000.

However, investors quickly dismiss fundamental realities for the promise of future riches. Of course, this is the “modus operandi” of Wall Street to bring gamblers into the casino. As I discussed in “The Problem With Wall Street Forecasts,:”

“The biggest problem with Wall Street, both today and in the past, is the consistent disregard of the possibilities for unexpected, random events. In a 2010 study, by the McKinsey Group, they found that analysts have been persistently overly optimistic for 25 years. During the 25-year time frame, Wall Street analysts pegged earnings growth at 10-12% a year when in reality earnings grew at 6% which, as we have discussed in the past, is the growth rate of the economy.

This is why using forward earnings estimates as a valuation metric is so incredibly flawed – as the estimates are always overly optimistic roughly 33% on average.”

Yet, even while this data is readily apparent, Wall Street analysts continue to same game of starting with wildly exuberant estimates and then lowering estimates until companies can beat them.

Since investors don’t hold analysts accountable, it is a game which is played out each quarter so that Wall Street can sell their wares. The reality is that if analysts were held to their original estimates, instead of 70-80% of companies beating estimates every quarter, it would be exactly the opposite.

As noted above, the biggest drivers to bottom line earnings has been accounting gimmicks, share repurchases, and tax cuts. Revenue growth, as a percentage of the total, has shrunk to just 14% even though reported earnings per share surged by almost $3/share from repurchases.

However, even with the recent decline of forward estimates, they still remain far too lofty for 2019. Economic growth is slowing and, as I penned just recently (see article for composite index makeup), the domestic economy has already shown early signs of a more significant slowdown. Given that corporate profits are a function of economic activity, it should not be surprising that the rate of change of the S&P 500 is closely tied to annual changes in the Economic Output Composite Index.

The “sugar high” of economic growth seen in the first two quarters of 2018 was from a massive surge in deficit spending and the rush by companies to stockpile goods ahead of tariffs. While those activities create the “illusion”of growth by pulling forward “future” consumption, it isn’t sustainable and profit margins will follow suit very quickly.

The point here is simple, before falling victim to the “buy the market because it’s cheap based on forward estimates” line, make sure you understand the “what” you are actually paying for.

Wall Street analysts are always exuberant hoping for a continued surge in earnings in the months ahead. But such has always been the case.

Currently, there are few, if any, Wall Street analysts expecting a recession at any point in the future. Unfortunately, it is just a function of time until the recession occurs and earnings fall in tandem.

Wall Street is notorious for missing the major turning points of the markets and leaving investors scrambling for the exits.

2018 should have been a wake-up call. 2019 could well be the problem.

via ZeroHedge News http://bit.ly/2FJ3PH3 Tyler Durden