Edward Snowden’s Unaired Remarks About September 11

There was much said in last week’s primetime interview between Edward Snowden and NBC’s Brian Williams. But perhaps more interesting than what was said in the one hour time-slot, was what was contained in the three extra hours of conversations that were not broadcast, such as Snowden’s questioning of the American intelligence community’s inability to stop the September 11, 2001 terrorist attacks. One such segment, as transcribed by RT, involves the former NSA contractor’s response to a question from Williams on how to prevent further attacks from Al Qaeda and other “non-traditional enemies” in which Snowden suggested that United States had the proper intelligence ahead of 9/11 but failed to act.

“You know, and this is a key question that the 9/11 Commission considered. And what they found, in the post-mortem, when they looked at all of the classified intelligence from all of the different intelligence agencies, they found that we had all of the information we needed as an intelligence community, as a classified sector, as the national defense of the United States to detect this plot,” Snowden said. “We actually had records of the phone calls from the United States and out. The CIA knew who these guys were. The problem was not that we weren’t collecting information, it wasn’t that we didn’t have enough dots, it wasn’t that we didn’t have a haystack, it was that we did not understand the haystack that we have.”

Or, as some have suggested over the years, it was not that “we” did not understand the haystack. Quite the contrary. Which is precisely why the attacks took place. But back to the accepted narrative:

“The problem with mass surveillance is that we’re piling more hay on a haystack we already don’t understand, and this is the haystack of the human lives of every American citizen in our country,” Snowden continued. “If these programs aren’t keeping us safe, and they’re making us miss connections — vital connections — on information we already have, if we’re taking resources away from traditional methods of investigation, from law enforcement operations that we know work, if we’re missing things like the Boston Marathon bombings where all of these mass surveillance systems, every domestic dragnet in the world didn’t reveal guys that the Russian intelligence service told us about by name, is that really the best way to protect our country? Or are we — are we trying to throw money at a magic solution that’s actually not just costing us our safety, but our rights and our way of life?

This goes to the fundamental argument that made Snowden blow the whistle in the first place: by overreaching to a level not fathomed even by the author of “1984”, and by scrambling to collect every piece of electronic communication and data exchange, or said otherwise, shotgunning and focusing on the bulk instead of isolating actionable data, what is the tradeoff?

We do know that handing all private data to the NSA on a silve platter has certainly resulted in an abuse of personal privacy by those tasked with protecting Americans as we detailed in the past in “NSA Agents Used Company Resources To Spy On Former Spouses.” Who knows how else this epic trove of private data is being abused by the government for its own ulterior motives, while letting, as Snowden suggested, critical information about the protection of US citizens – the very premise behind the NSA’s existence – slip through its fingers.

Indeed, the director of the NSA during Snowden’s stint there, Gen. Keith Alexander, reportedly endorsed a method of intelligence gathering in which the agency would collect quite literally all the digital information it was capable of.  “Rather than look for a single needle in the haystack, his approach was, ‘Let’s collect the whole haystack,’” one former senior US intelligence official recently told the Washington Post. “Collect it all, tag it, store it. . . .And whatever it is you want, you go searching for it.”


In recent weeks, a leaked NSA document has affirmed that under the helm of Alexander, the agency was told it should do as much as possible with the information it gathers: “sniff it all, know it all, collect it all, process it all and exploit it all,” according to the slide.  “They’re making themselves dysfunctional by collecting all of this data,” Bill Binney, a former NSA employee-turned-whistleblower himself, told the Daily Caller last year. Like Snowden, Binney has also argued that the NSA’s “collect it all” condition with regards to intelligence gathering is deeply flawed.


“They’ve got so much collection capability but they can’t do everything. They’re probably getting something on the order of 80 percent of what goes up on the network. So they’re going into the telecoms who have recorded all of the material that has gone across the network. And the telecoms keep a record of it for I think about a year. They’re asking the telecoms for all the data so they can fill in the gaps. So between the two sources of what they’ve collected, they get the whole picture,” Binney said.


Although NBC neglected to play Mr. Snowden’s remarks to Williams in which he questioned the efficiency of modern intelligence gathering under the guise of being a counterterrorism tool, it did air on television other remarks from the former contractor concerning the terrorist attacks.

Stepping back, this really is a debate about government efficiency, incentives and motives. The biggest problem with the NSA, or rather its modus operandi, according to Snowden is not that it does not have the architecture to use the data already in its possession to isolate and prevent incidents of terrorism: it did, and arguably it had enough facts in its (and the CIA’s) possession to prevent the September 11 attack, and it certainly was equipped with enough surveillance to prevent the Boston Marathon bombing, yet it didn’t. In the meantime, the information grab is expanding until Big Brother, under the guise of (failed) protection now knows everything about its citizens. Simply said: this is merely government bloat in its most purest – spending ever greater amounts of money to become increasingly more inefficient, in the process destroying the concept of individual privacy.

Or as Snowden himself said it in a fragment that was aired,

It’s really disingenuous for the government to invoke and scandalize our memories to sort of exploit the national trauma that we all suffered together and worked so hard to come through to justify programs that have never been shown to keep us safe, but cost us liberties and freedoms that we don’t need to give up and our Constitution says we don’t need to give up.”

Sadly, until the people themselves wake up to this conclusion which prompted one person to speak up against a broken system, all of his efforts will have been largely in vain.

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Euro Sold on ECB Speculation, Will it be Bought on the Fact ?

The European Central Bank meeting is on June 5.  It is among the most important events of the first half and possibly the entire year.  After much preparation and jawboning, the ECB is widely expected to take unconventional measures counter the low inflation and risk of deflation.  It may also announce fresh initiatives to help facilitate financing for small and medium sized businesses. 


In anticipation of this, the euro has been sold.  It declined by about 1.8% on the month.   The net speculative position in the futures market swung to favor shorts.   We suspect the market is particularly vulnerable to “sell the rumor and buy the fact” activity.  This is what has happened when the Fed has announced its quantitative easing programs:  the dollar would sell off in anticipation and then rally on the announcement. 


The euro’s four cent decline pushed it below $1.3600 briefly.   The 38.2% retracement objective of the rally off last July’s lows is found near $1.3520.  However, the decline has stretched the technical indicators.  The RSI has already turned up, and the MACDs are about to cross higher.  


This dovetails with our suspicion of “sell the rumor buy the fact” behavior in response to the ECB.  This may be counter-intuitive, but this is essentially what happened in the past.  When the Fed announced QE, it was often well anticipated, and the dollar sold off until it was announced and then rallied.   We suspect that the challenges the ECB faces are not something that 10-15 bp of rate cuts, and even a negative deposit rate, will convincingly address.   Once the event risk passes, investors may return to form and chase yield. 


If this analysis is correct, what kind of bounce can the euro have?  The first objective is the $1.3720-40 area,    The next target would be in the $1.3780-$1.3820 area.  If  the ECB does genuinely surprise, the $1.3520 is the initial target on a break of $1.3580. 


Sterling declined 3 cents against the dollar in May.  This was among its worst monthly performances in the past year.  The technical outlook is somewhat similar, though sterling’s 200-day moving average (just below $1.6400) was not tested.  The RSI has turned up, but the MACDs do not appear as close to turning as the euro’s.  The initial upside objective is the $1.6810-40 band.  On the downside, a break of the $1.6700 area risks a move toward $1.6625. 


There are two forces underpinning the yen.  First, the US 10-year premium over Japan has fallen to its lowest level since last August.  Second, market expectations of new stimulus by the BOJ are being reconsidered.  Previously the overwhelming majority expected new measures by the end of July.  We have long argued this was jumping the gun and, if there is to be more monetary stimulus, it would likely be later. 



The technical indicators for the yen are broadly neutral.  The two yen range that confined the dollar in May looks set to continue.  A trend line off the April high near JPY104.10 and the May high near 103 caught the past week’s high near JPY102.15.  On the downside, the dollar, the market appear cautious about pushing the dollar much below the 200-day moving average found near JPY101.40. 


Over the past two week, the euro has carved out a shelf near JPY138.  Technical signals here seem clearer than against dollar-yen.  Provided the shelf holds, the euro can rise toward JPY139.65 and possibly JPY140.  This fits in well with a sell the rumor buy the fact activity around the ECB meeting. 


The Canadian dollar was the strongest major currency in the month of May, appreciating 1% against the US dollar.  However, the US dollar recorded a low near CAD1.0815 on May 8-9 and the retest at the end of last week was aborted after the weaker than expected Q1 GDP figures (1.2% rather than 1.8% consensus) and industrial product prices actually declined (-0.2% whereas the consensus anticipated a 0.4% rise).  


The Bank of Canada, which meets on June 4, is particularly sensitive to the downside risks of inflation.  It follows soft retail sales and jobs report.  No rate cut can be reasonably expected, but a dovish statement could see the US dollar move back toward CAD1.0950. 



The Australian dollar was the best performing major currency last week, rising about 0.8% against the greenback.  This was roughly four times the advance of the yen, which was the strongest currency.  The decline in global interest rates helped solidify the $0.9200 base, which was tested half a dozen times in May.   The downtrend line drawn off the April and May high comes near $0.9375 at the end of next week.  However, more immediate resistance near $0.9335 held Aussie upticks in check ahead of the weekend.  Support is pegged near $0.92870-85. 


The Mexican peso was flat in the past week, though the dollar saw its recent losses extended toward MXN12.825, which represents the new 2104 low.  The RSI and MACDs look neutral, but fresh downticks have been difficult to sustain.   There has been a large build-up of speculative peso longs in the futures market.  A dollar advance through the MXN12.90 would encourage a test on the down trendline drawn off the late-January high, the March high and the late April high.    It comes in near MXN12.95.  


 Observations from the speculative positioning in the CME futures market:  


1.  With a couple week lag behind the euro, the net speculative position swung to the short side for the Swiss franc in the latest Commitment of Traders report that covers the week through May 27.  It is the first net short franc position in three months.  


2.  The net speculative position is short four of the seven currency futures we track here:  euro, yen, Swiss franc and Canadian dollar. 


3.  There were no major (10k contract shift of more) gross position adjustment over the past week.  The largest position adjustment was the gross long peso positions, which grew 9.1k contracts to 101.8k. This is the largest gross long position since last June.  The net position of 83.3k contracts is also the largest since last June.


4.  The general pattern in the latest reporting period was for the gross short currency futures positions to have increased.  The only exception was for sterling.   Gross shorts were pared by 3.8k contracts to 43.1.  The gross long positions were cut for the euro (-4.3k contracts to 70.8k), the yen (-1.7k contracts to 17.0k), sterling (-1.6k contracts to 78.4k) and the Swiss franc (-5,8k contracts to 11.6k). 


5.  The other three currencies saw an increase in the gross long positions: Canadian dollar (+6.1k to 32.6k contracts), the Australian dollar (+1.9 to 52.k contracts), and the Mexican peso, that we already discussed as the largest gross position adjustment. 


6.  The month of May saw the net speculative position for both the euro and franc shift to the short side. During the month, the net short yen and Canadian dollar positions were reduced, while the net long sterling position was also cut.  The net position in the Australian dollar was little changed.  The net long peso position grew. 


7.  Given the focus on the US bond market rally, we looked at the Commitment of Traders for the 10-year Treasury note futures.  There was a large adjustment to positions.  Both long and shorts were cut. The latter more than the former and this led to sharp reduced in the next short position to 19.1k contracts from 97.9k.  The gross short position was slashed by 131k contracts to 398.4k.  This is the largest short covering since December 2012.  The gross short position returned to late April levels. The gross long position was cut by 52.1k contracts to 379.3k.  Up until now there was no evidence from the futures market that the bond rally was a product of short-covering.  The reporting week ending May 20 saw the net short position rise to it highest level since before the financial crisis.

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Home Equity Loans Spike As Americans Scramble For Cash

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

With real incomes stagnant and the cost of everything from food, school tuition and healthcare premiums skyrocketing for millions of Americans, it appears that borrowing against one’s home is once again a key source for consumption, if not survival, for the nearly extinct socio-economic demographic known as the middle-class.

The Wall Street Journal reported yesterday that home-equity lines of credit (Helocs) had increased at a 8% rate year-over-year in 1Q14. Some banks are more aggressive than others, and perhaps we shouldn’t be surprised to see TBTF government welfare baby Bank of America leading the charge, with $1.98 billion in Helocs in the first quarter, up 77% versus 1Q13.

What could possibly go wrong?


As HELOC delinquencies are off their highs (for now) but remain elevated… (we are sure this renewed ATM usage on the back of created wealth and stagnant wages won't harm that downward trend at all…) – will we never learn?


From the WSJ:

A rebound in house prices and near-record-low interest rates are prompting homeowners to borrow against their properties, marking the return of a practice that was all the rage before the financial crisis.


Home-equity lines of credit, or Helocs, and home-equity loans jumped 8% in the first quarter from a year earlier, industry newsletter Inside Mortgage Finance said Thursday. The $13 billion extended was the most for the start of a year since 2009. Inside Mortgage Finance noted the bulk of the home-equity originations were Helocs.


While that is still far below the peak of $113 billion during the third quarter of 2006, this year’s gains are the latest evidence that the tight credit conditions that have defined mortgage lending in recent years are starting to loosen. Some lenders are even reviving old loan products that haven’t been seen in years in an attempt to gain market share.


Some individual banks have seen their Heloc originations rise much faster than the national average. Bank of America Corp., which has increased marketing for Helocs, said customers opened $1.98 billion in Helocs in the first quarter, up 77% from the first quarter of 2013. Matt Potere, who leads Bank of America’s home-equity business, said many customers are taking out Helocs to pay for home-improvement projects that were delayed during the housing bust.


Some lenders are even bringing back “piggyback” loans, which serve as a second mortgage and cover part or all of the traditional 20% down payment when purchasing a house. Piggybacks nearly vanished during the mortgage crisis.


For consumers in need of cash, Helocs offer an alternative to “cash-out refinancings” in which a homeowner taps equity by taking out a new loan that is bigger than the existing mortgage.


Ian Feldberg planned to open a $200,000 Heloc this week with Belmont Savings Bank to help pay his son’s college tuition. The medical-device scientist purchased his home in Sudbury, Mass. for a little over $1 million in 2004, and estimates that its value dipped as low as $800,000 during the financial crisis. However, after applying for the line of credit, he found that its value had completely recovered.


“I’m very pleased about that. My options for tuition fees were either that or to cash in on my pension prematurely,” he said.

Think about that for a minute. A “medical-device scientist” can’t send his kid to college without either a Heloc or cashing in on his pension.

The new American Dream.

Full article here.

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All The “Dislocation, Dislocation, Dislocation” Charts You Can Eat

US stocks continue to breach record levels while highly rated government bond yields slide – – all with the prospect of continued support from the world’s central banks.

Indeed, expectations that the European Central Bank would unveil a package of supportive policy measures when it meets next week were bolstered by the release of select weak eurozone stats. It must be noted that all this cheap money is finding its way into various asset classes, most notably equities and debt products. Hence, record levels for Wall Street alongside historically low sovereign bond yields.

This wild euphoria is supported somewhat by signs of an improving economic environment, notably in the US, but remains way ahead of market fundamentals. U.S. government bonds are heading for a fifth monthly gain, the longest since 2006, as growth — but not rapid growth — underlined an appetite for long-term debt of all stripes. The new ranking of global competitiveness has just been released and underscores some of the key themes in these pages. The US leads, Europe struggles to recover, and big emerging markets grapple with some new realities.

Given the ever tighter spreads and the relentless march of markets, some, including the European Central Bank, have warned that investors’ wild pursuit of higher returns could be creating new price bubbles, sounding the alarm as financial markets chase quick gains. In a strongly worded message they clearly underscored concerns that have been penned in these pages as well, There may be an ugly downside to runaway market enthusiasm. The ECB cautioned that the dash for higher returns could suddenly unravel, sending the investor herd charging in the opposite direction.

Easy money and the timing of the Fed’s policy shift continue to dominate across the globe. Recovery is widely assumed for the next two years. But deep-seated weaknesses have also become more evident.



Very obvious financial vulnerabilities, repercussions from various political stalemates and serious geopolitical concerns are aggravating the problems of clearly insufficient growth in the world economy. And let’s not forget that many of the challenges cannot be resolved easily…

Full Abe Gulkowitz The PunchLine letter below…

TPL May 29 14

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A Candid Look At New Normal Jobs

Welcome to the new normal reality of job-hunting in 2014… “Our venture-funded vertical-driven content prosumer phablet platisher is rapidlygrowing and we need to add some Ninja Rockstar Content Associates A.S.A.P. See below for a list of open positions!”


Originally posted at Medium.com, written by Paul Ford,

As explainer sites like Vox.com and FiveThirtyEight.com grow in importance, we are seeking a first-class EXPLAINER EXPLAINER to help readers make sense of the people who would make sense of the world for them. You will have the enviable position of capturing recent trends in explainers by writing between five and ten blog posts a day outlining those trends. While most of your time will be spent creating explainer explainers, you will also occasionally round up other explainer explainers to create explainer explainer explainers. To apply, explain yourself.

The modern newsroom is data-driven and traffic-driven. That’s why we’re looking for a DATA CHURNALIST. Like John Henry battling against the steam hammer, you will be responsible for tunneling through mountains of Excel spreadsheets and government FTP files to produce at least two dozen articles a day illustrated with pie charts. Also like John Henry you won’t be in a union. The ideal candidate has proven experience in correlating.

Feminism is changing—we’re changing with it! Our legendary women’s vertical launched as “Dworkinville” (2001-2007), was renamed “Ladies.biz” after a rollup (2008-2009), then re-rebranded as “Slutbox Junction” (2010-2014). Now we’re just calling the site “Tits” and targeting it to men 15-79. Our last editor (aka Edit Queen) left to work for some magazine with salaries, so we need a new QUEEN, TITS. Who is the ideal candidate? He or she is a fifth-to-ninth wave feminist who can speak with authority about the patriarchy while mollifying advertisers and reviewing panties, simultaneously appealing to men but never mentioning the issue of class. If that’s you, send us a photo of you at the beach.

To the entire media establishment BuzzFeed is a big deal—its traffic is besting that of more established peers and it has hired nearly one-third of the people in New York City. That’s why we need an EDITOR, BUZZFEED. You will not edit BuzzFeed (apparently someone does that already) but instead will edit a new vertical totally dedicated to repeatedly explaining how BuzzFeed, despite simply being a very large and well-funded blog, represents the future of the media. Articles we’d like to see include: “Is this the future of media?” “Is the future of media this?” and “Media’s future?” The ideal candidate can work the words “platform” and “ecosystem” into anything.

Are you a native full-stack visiongineer who lives to marketech platishforms? Then come work with us as an in-house NEOLOGIZER and reimaginatorialize the verbalsphere! If you are a slang-slinger who is equahome in brandegy and advertorial, a total expert in brandtech and techvertoribrand, and a first-class synergymnast, then this will be your rockupation! Throw ginfluence mingles and webutante balls, the world is your joyster. The percandidate will have at least five years working as a ideator and envisionary or equiperience.

Come help maintain viral aggregation’s secret shame! As READER, REDDIT, you will read Reddit and create the Redditorial that drives most of our traffic! Successful applicants will demonstrate the ability to avoid eye contact.

Our enterprise is seeking a full-time FAT SHAMER who can work across social media and blogs. Every day you will identify celebrities who have gained small or large amounts of weight and make remarks like “step away from the buffet table” &c., including the classic “oink!” Truly great fat shamers will not limit themselves to criticizing the bodies of famous women but will also draw attention to regular women who have been forced into the news cycle, including victims of violence and the mothers of slain children—because who couldn’t stand to lose a few? Successful candidates will be able to write the words “just sayin’!” seven thousand times per month without killing themselves. No fatties.

#Trendit! We have an immediate opening for a world-class OUTRAGE OPTIMIZATION EXPERT to furyhack our traffic across social media. The ideal candidate has proven abilities at composing rage pegs for any story and has demonstrated the ability to prefix any tweet with “THIS.” or “LISTEN.” Candidates will be required to flame out in two years and disavow their past views while encouraging their still-seething acolytes to “moderation.”

As our animal-based verticals have grown we are in need of someone with a liberal-arts-degree who can blog in the voice of a MEERKAT NAMED PHILBIN. For whatever reason the meerkat is like 80% of our traffic and the last person left to run the new Quantum Physics vertical at BuzzFeed. Help.

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What To Expect From June’s Major Economic & Central Bank Events

By EconMatters  



Since the last Employment report things have been relatively quiet on the economic and Central Bank front but all that is set to change over the next three weeks. Volatility should pick up and many of these events could be potentially market m
oving for certain asset classes. 


Week One Events

On Monday June 2nd we have some construction and manufacturing economic reports, and these have been coming in slightly ahead of expectations. However, on Wednesday the ADP Payroll Report will be a precursor at least in theory to the Friday Employment Report, and traders often position themselves based upon the outlook provided by ADP. 


Thursday, June 5th will be dominated by the ECB Meeting and what Mario Draghi`s actual stimulus announcement is and this has been much telegraphed to the markets, but no real fine details seem to be known for sure by markets. There has been a lot of positioning prior to the event that markets could react in a myriad of ways to the announcement. Is it fully priced in, is it more groundbreaking than markets expected, a disappointment, sell the news event? This is hard to call but my best intuition is that far too much positioning went on in bonds in Europe before the event, and I expect they sell off in reaction to the news.


On Friday, it is the big employment report for the US, a high frequency and co-location`s wet dream as they are guaranteed to make money by speed alone on any news. We expect another 200k plus report but the doom and gloom crowd will look for any weakness in the report to justify their positions on the market, so some of the inner workings of the report might be more relevant for this crowd. If we see improvement in the labor participation metric or wages these might be more important for bulls than the headline number and the unemployment rate. Of course the Algos immediately trade on the headline number, but the staying power of any directional moves comes from the complete report with its underlying metrics.


Week Two Events


The following week gives traders a couple of days to digest two really big market moving events, and some repositioning might occur in portfolios. On Wednesday, June 11th the 10-Year Note Auction occurs in the middle of the day and this is going to be an especially important auction given where rates are in relation to the previous week’s news. This is followed by Retail Sales and Jobless Claims numbers on Thursday June 12th; and on Friday PPI comes out and this is important given some of the higher than expected inflation numbers of late in other economic data. Again I think this week will have a pivotal impact on the bond market depending upon where technical levels are in relation to hotter or colder data results in these reports.



Week Three Events


The following week on Monday June 16th has the Empire State Manufacturing Survey with Industrial Production and the Housing Market Index, more Econ news than usual for a Monday. On Tuesday June 17th there is the CPI and Housing Starts data that hits the wire as the FOMC Meeting begins. A hot CPI the day the Fed meets should have more impact given the recent hotter CPI reports, maybe even getting mentioned in the Fed Statement the following day. On Wednesday June 18th the FOMC Meeting Announcement is followed by the FOMC Forecasts and Chair Press Conference with many potential market moving messages coming out of those three events. 


Inextricably Linked Events


The interesting part is how the Econ Data and Central Bank events for the next three weeks all directly affect the next event, and how the market digests all these events as a whole. A couple of hot PPI & CPI Reports for instance affects the way the FOMC message is tailored, a strong Employment Report and better than expected Retail & Vehicle Sales may convince the doom and gloom crowd to reposition some of their portfolios relative to economic growth. 


Summer Boredom Breakouts


I would expect volatility to pick up and markets to move on many of these events, and after several weeks of relative ‘snooze fest’ things should get quite interesting for financial markets, and certain asset classes and portfolio rebalancing towards the end of the quarter might need more than a little fine tuning.


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Groupthink 101: What All Goldman Clients Believe Will Happen

At the beginning of the year, all – as in all – of the smart money expected a rising yield environment and a recovering economy. They were all wrong. Oddly enough, they still believe pretty much the same, using seasonal scapegoats to explain away their mistakes. As for what the most selective subset of the smart money believes, here is Goldman’s David Kostin with the summary: “Almost all clients have the same outlook: 3% economic growth, rising earnings, rising bond yields, and a rising equity market.” Goldman’s own view doesn’t stray much: “Our S&P 500 targets of 1900/2100/2200 for end-2014/2015/2016 are slightly more conservative but generally in line with consensus views.” And of course, when everyone expects the same, the opposite happens… even if this is one of those financial cliches we wrote about yesterday.

More observations on Groupthink 101 from Goldman:

This week we met with a large cross section of our institutional clients and everyone agrees with the following consensus outlook: (1) the US economy will reaccelerate to a 3%+ GDP growth rate beginning in the current quarter; (2) S&P 500 earnings per share will rise by roughly 8% to $116; and (3) the US equity market currently trades around fair value.

S&P 500 has advanced 4% YTD and stands at an all-time high of 1920. Our multi-year S&P 500 targets remain 1900 at year-end 2014 (-1% versus
today), 2100 at the end of 2015 (+9%), and 2200 at the end of 2016 (+15%). Most clients agree with our outlook of rising US equity markets but expect the targets will be reached sooner than we anticipate, in many cases by about 12 months. If S&P 500 climbs to 2100 by the end of this year and bottom-up earnings converge to our top-down forecast, the market will have a bottom-up forward P/E of 16.8x vs. 15.7x today.

Clients also have a consensus outlook for the bond market. Although interest rates have confounded most fund managers this year with 10-year Treasury yields falling from 3.0% to 2.4%, investors uniformly expect rates will rise by year-end 2014. Most cite a target of 3.0% to 3.25%. According to Consensus Economics, disagreement about rates is low relative to postcrisis history. The mean 12-month expectation for 10-year Treasury yields equals 3.5%, with a standard deviation of 27 bp. With the exception of a few outliers, almost all estimates fall between 3.4% and 3.8%.

Ten-year US Treasury yields are at the lowest level in nearly a year. Debate exists whether the 2.4% yield reflects (1) weak 1Q GDP, (2) shortage of AAA-rated assets, or (3) a deteriorating long-term economic outlook. Regardless of the reason, measures of implied interest rate volatility suggest low uncertainty and dispersion about current interest rate levels. Our bond strategists continue to forecast a 3.25% yield by year-end 2014.

The ultimate reason for the fall in yields does have implications for our medium-term equity outlook. If rates are lower due to a growth soft-patch or thanks to supply/demand imbalances there is a benign, and perhaps even positive, impact on the stock market as growth improves. However, risks to long-term growth would outweigh any short-term benefit from lower yields. In terms of the economic outlook, minimal difference exists between Goldman Sachs US Economics GDP forecast and consensus. We forecast 2Q annualized GDP growth rate will surge to 3.7%, up from -1.0% in 1Q, and growth will exceed 3% during the balance of 2014 and in 2015. Consensus expects 2Q growth of 3.5% and growth of 2.5% in 2014 and 3.0% in 2015.

In terms of profit growth, our forecasts of sales, margins, and earnings are close to bottom-up consensus estimates. Our top-down model forecasts 2014 year/year revenue growth of 6% compared with consensus of 5%. We anticipate flat margins of 8.9% this year while analysts expect margins will climb to 9.3%. However, from an EPS perspective, our top-down 2014 forecast of $116 per share is nearly in line with the bottom-up consensus of $117. Our 2015 forecast of $125 is slightly below consensus of $130. That difference stems from a nearly 100 bp gap in margin views (we expect 9.0% vs. consensus of 9.9%). Information Technology is the key sector to watch.

In terms of valuation, most of the metrics we use suggest the S&P 500 trades around, if not slightly above, fair value. In aggregate, S&P 500 trades at 15.7x forward 12-month EPS, above the 35-year average, and at 17.7x trailing EPS, about one turn above the average trailing P/E since 1921. The median stock trades at 16.9x forward earnings which is more than one standard deviation above the long-term average.

Other valuation metrics such as the Shiller cyclically-adjusted P/E ratio suggest the market is 30%-45% overvalued while our Normalized EPS framework suggests a more modest 10% premium to fair value. Valuation approaches based on interest rates (both real and nominal) lead us to the similar conclusion using either Treasury or corporate bond yields.

The constructive consensus outlook for the equity market masks the fact that 2014 has been an extremely difficult stock picking environment. As noted previously, dispersion of returns across the S&P 500 and within sectors ranks in the first percentile relative to the past 30 years. In addition weak performance in Consumer Discretionary and strong returns in Utilities run counter to the positioning of mutual funds and hedge funds. Both sector performance and dispersion have improved very modestly over the past two weeks, offering some hope.

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Britain’s Next Credit Crunch on the Books Already


Let’s imagine that you’re a thirty-something, just bought the first house and now it’s 2016. The elections in the UK will have taken place, leaving the country in disarray because there will be a hung parliament yet again and the Conservatives will have probably tied the noose with UKIP and Mr. Farrage. Europe will be teetering on implosion because even the French will be wanting to get out of it after voting for Marine Le Pen and the anti-European Front National (always surprising how you can be against something and yet work in it). But, there are worse things happening. That thirty-something will be experiencing the second credit-crunch in their so-far short life. They’ll be suffering from the consequences of yet an over-inflated real-estate market that will have fuelled nothing but the bank accounts of the richest.

Crunch Time

Crunch time will hit in Spring 2016 according to some economists in the UK. That’s the time when the British will suffer the consequences of the rising annual house-price rate in the country standing at 17% per year. Oh, the people are rejoicing that their houses are worth hundreds of thousands and increasing every year. They are rejoicing that the Cameron government has got the unemployment rate to below 7%. But what about the part-time workers, Mr. Cameron? That was the point that the Governor of the Bank of England, MarkCarney stated that he would raise interest rates. Raising interest rates might be a recipe for disaster some will say, but Carney’s not there to take political decisions; he should be taking and implementing policies that are independent of politics. If only it were true, however! The people are rejoicing but they will be the ones that end up with egg on their faces.

When the key rate of the Bank of England reaches 3%, which according to the Deputy Governor of the BankCharlie Bean will take place in about 2018 (after rising in small increments over the next few years), then one in every three borrowers in the UK will be at breaking point in their finances.

The Resolution Foundation in the UK has calculated that there will be 770, 000 households in the country that will find it impossible to remortgage and to renegotiate their loans for property because they will be low-income or self-employed people. Perhaps the difference this time round will be the mere fact that the governments around the world have done everything in their means to shore up the banks and make them money rich. It’s not the banks that will stop lending this time because they won’t have the money. It’s simply the banks that won’t lend because they won’t trust your solvability. The second credit crunch in the UK will be just the one that gets felt by the ordinary person. What will ensue will be red-letters, final warnings, repossession, forced sale and the collapse yet again of the market. The politicians, including populist scare-mongering UKIP will be standing around saying “oh, my, my, whatever happened this time?”. They will never learn.

• The UK’s Financial Stability report in November 2016 showed that 16% of mortgage debt was owned by households that are cash-strapped with only £200 at the end of the month after paying out all bills. 
• Those very same households have a mortgage to the tune of £100, 000 and they have a borrowing rate of3.6% (variable, of course).

But, it won’t just be the mortgage-borrowers that won’t be able to pay; it will be the entire country. The British borrowed all over the country in the great years prior to the 2007 crash. They were earning so much that the good times were supposed to never end. Borrow today and keep borrowing a I’ll always have the money to pay it back was the order of the day back then. But, it wasn’t like that. Then, even when the credit-crunch came the lenders (loan sharks) were granting just under 50% of all loans for property to people without even asking them to prove their income. But, even David Cameron has confused debt and deficit of the UK, telling people that he is “paying down Britain’s debts”. His administration is making an attempt to down just the deficit; British debt will continue to rise and will explode with the 2016 credit crunch.

• National Debt stood at £1,185 billion in 2012/2013.
• That’s £18,606 per person in the UK. 
• In 2013, the UK coalition government borrowed £91.5 billion, but it only invested £23.7 billion in big projects to boost the economy.

The last on out needs to turn out the lights, please.

Originally posted: Britain’s Next Credit Crunch on the Books Already

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Has The Next Recession Already Begun For America’s Middle Class?

Submitted by Michael Snyder of The Economic Collapse blog,

Has the next major economic downturn already started?  The way that you would answer that question would probably depend on where you live.  If you live in New York City, or the suburbs of Washington D.C., or you work for one of the big tech firms in the San Francisco area, you would probably respond to such a question by saying of course not.  In those areas, the economy is doing great and prices for high end homes are still booming.  But in most of the rest of the nation, evidence continues to mount that the next recession has already begun for the poor and the middle class.  As you will read about below, major retailers had an absolutely dreadful start to 2014 and home sales are declining just as they did back in 2007 before the last financial crisis.  Meanwhile, the U.S. economy continues to lose more good jobs and 20 percent of all U.S. families do not have a single member that is employed at this point.  2014 is turning out to be eerily similar to 2007 in so many ways, but most people are not paying attention.

During the first quarter of 2014, earnings by major U.S. retailers missed estimates by the biggest margin in 13 years The "retail apocalypse" continues to escalate, and the biggest reason for this is the fact that middle class consumers in the U.S. are tapped out.  And this is not just happening to a few retailers – this is something that is happening across the board.  The following is a summary of how major U.S. retailers performed in the first quarter of 2014 that was put together by Jim Quinn

Wal-Mart Profit Plunges By $220 Million as US Store Traffic Declines by 1.4%


Target Profit Plunges by $80 Million, 16% Lower Than 2013, as Store Traffic Declines by 2.3%


Sears Loses $358 Million in First Quarter as Comparable Store Sales at Sears Plunge by 7.8% and Sales at Kmart Plunge by 5.1%


JC Penney Thrilled With Loss of Only $358 Million For the Quarter


Kohl’s Operating Income Plunges by 17% as Comparable Sales Decline by 3.4%


Costco Profit Declines by $84 Million as Comp Store Sales Only Increase by 2%


Staples Profit Plunges by 44% as Sales Collapse and Closing Hundreds of Stores


Gap Income Drops 22% as Same Store Sales Fall


American Eagle Profits Tumble 86%, Will Close 150 Stores


Aeropostale Losses $77 Million as Sales Collapse by 12%


Best Buy Sales Decline by $300 Million as Margins Decline and Comparable Store Sales Decline by 1.3%


Macy’s Profit Flat as Comparable Store Sales decline by 1.4%


Dollar General Profit Plummets by 40% as Comp Store Sales Decline by 3.8%


Urban Outfitters Earnings Collapse by 20% as Sales Stagnate


McDonalds Earnings Fall by $66 Million as US Comp Sales Fall by 1.7%


Darden Profit Collapses by 30% as Same Restaurant Sales Plunge by 5.6% and Company Selling Red Lobster


TJX Misses Earnings Expectations as Sales & Earnings Flat


Dick’s Misses Earnings Expectations as Golf Store Sales Plummet


Home Depot Misses Earnings Expectations as Customer Traffic Only Rises by 2.2%


Lowes Misses Earnings Expectations as Customer Traffic was Flat

That is quite a startling list.

But plummeting retail sales are not the only sign that the U.S. middle class is really struggling right now.  Home sales have also been extremely disappointing for quite a few months.  This is how Wolf Richter described what we have been witnessing…

This is precisely what shouldn’t have happened but was destined to happen: Sales of existing homes have gotten clobbered since last fall. At first, the Fiscal Cliff and the threat of a US government default – remember those zany times? – were blamed, then polar vortices were blamed even while home sales in California, where the weather had been gorgeous all winter, plunged more than elsewhere.


Then it spread to new-home sales: in April, they dropped 4.7% from a year ago, after March's year-over-year decline of 4.9%, and February's 2.8%. Not a good sign: the April hit was worse than February's, when it was the weather’s fault. Yet April should be the busiest month of the year (excellent brief video by Lee Adler on this debacle).


We have already seen that in some markets, in California for example, sales have collapsed at the lower two-thirds of the price range, with the upper third thriving. People who earn median incomes are increasingly priced out of the market, and many potential first-time buyers have little chance of getting in. In San Diego, for example, sales of homes below $200,000 plunged 46% while the upper end is doing just fine.

As Richter noted, sales of upper end homes are still doing fine in many areas.

But how long will that be able to continue if things continue to get even worse for the poor and the middle class?  Traditionally, the U.S. economy has greatly depended upon consumer spending by the middle class.  If that continues to dry up, how long can we avoid falling into a recession?  For even more numbers that seem to indicate economic trouble for the middle class, please see my previous article entitled "27 Huge Red Flags For The U.S. Economy".

Other analysts are expressing similar concerns.  For example, check out what John Williams of shadowstats.com had to say during one recent interview

We’re turning down anew. The first quarter should revise into negative territory… and I believe the second quarter will report negative as well.

That will all happen by July 30 when you have the annual revisions to the GDP. In reality the economy is much weaker than that. Economic growth is overstated with the GDP because they understate inflation, which is used in deflating the number…


What we’re seeing now is just… we’ve been barely stagnant and bottomed out… but we’re turning down again.


The reason for this is that the consumer is strapped… doesn’t have the liquidity to fuel the growth in consumption.


Income… the median household income, net of inflation, is as low as it was in 1967. The average guy is not staying ahead of inflation…

This has been a problem now for decades… You were able to buy consumption from the future by borrowing more money, expanding your debt. Greenspan saw the problem was income, so he encouraged debt expansion.


That all blew apart in 2007/2008… the income problems have continued, but now you don’t have the ability to borrow money the way you used to. Without that and the income problems remaining, there’s no way that consumption can grow faster than inflation if income isn’t.


As a result – personal consumption is more than two thirds of the economy – there’s no way you can have positive sustainable growth in the U.S. economy without the consumer being healthy.

The key to the health of the middle class is having plenty of good jobs.

But the U.S. economy continues to lose more good paying jobs.

For example, Hewlett-Packard has just announced that it plans to eliminate 16,000 more jobs in addition to the 34,000 job cuts that have already been announced.

Today, there are 27 million more working age Americans that do not have a job than there were in 2000, and the quality of our jobs continues to decline.

This is absolutely destroying the middle class.  Unless the employment situation in this country starts to turn around, there does not seem to be much hope that the middle class will recover any time soon.

Meanwhile, there are emerging signs of trouble for the wealthy as well.

For instance, just like we witnessed back in 2007, things are starting to look a bit shaky at the "too big to fail" banks.  The following is an excerpt from a recent CNBC report

Citigroup has joined the ranks of those with trading troubles, as a high-ranking official told the Deutsche Bank 2014 Global Financial Services Investor Conference Tuesday that adjusted trading revenue probably will decline 20 percent to 25 percent in the second quarter on an annualized basis.


"People are uncertain," Chief Financial Officer John Gerspach said of investor behavior, according to an account from the Wall Street Journal. "There just isn't a lot of movement."


In recent weeks, officials at JPMorgan Chase and Barclays also both reported likely drops in trading revenue. JPMorgan said it expected a decline of 20 percent of the quarter, while Barclays anticipates a 41 percent drop, prompting it to announce mass layoffs that will pare 19,000 jobs by the end of 2016.

Remember, very few people expected a recession the last time around either.  In fact, Federal Reserve Chairman Ben Bernanke repeatedly promised us that we would not have a recession and then we went on to experience the worst economic downturn since the Great Depression.

It will be the same this time as well.  Just like in 2007, we will continue to get an endless supply of "hopetimism" from our politicians and the mainstream media, and they will continue to fill our heads with visions of rainbows, unicorns and economic prosperity for as far as the eyes can see.

But then the next recession will strike and most Americans will be completely blindsided by it.

via Zero Hedge http://ift.tt/RMXgWq Tyler Durden