Tag: news

Submitted by Bill Bonner, courtesy of Acting-Man

We live in a world of sin and sorrow, infected by a fraudulent democracy, Facebook, and a corrupt money system. Wheezing, weak, and weary from the exertion of trying to appear “normal,” the economy staggers on.

Staggering on…., Image credit: David Sidmond

Last week, we gained some insight into the ailment. Something in the diagnosis has puzzled us for years: How is it possible for the most advanced economy in the history of the world to make such a mess of its most basic bodily functions – getting and spending?

By our calculations – backed by studies, hunches, and deep research – the typical American man (it is less true for women) earns less in real, disposable income per hour today than he did 30 years ago.

He goes to buy a car or a house, and he finds he must work longer to pay the bill than he would have in the last years of the Reagan administration. How is that possible? What kind of economic quackery do you need to stop capitalism from increasing the value of workers’ time?

What kind of policies and circumstances are required to stiffen its joints… clog up its innards… and rot its brain? Globalization? Financialization? Bad trade deals? Too much red tape? Too many cronies? Too many zombies?

We can identify at least one source of the quackery…

All of those things played a role. But our answer is simpler: poison money. The bigger the dose… the sicker it got. When you say you “have some money,” you usually believe that there is, somewhere, an electronic database in which it is recorded that you are the owner of some amount of currency.

You have $100,000 in your account, right?   Does it mean that there is a little cubbyhole somewhere, with your name on it, in which you will find a stack of 1,000 Ben Franklins? Nope. Not even close. No cubbyhole. No stack of money. No nothing.

Does it mean the bank is carefully guarding some 1s and 0s, digital information proving that it at least “stores” your money in its database? Nope again! What it means is there is a financial institution of uncertain integrity… with a complex electronic balance sheet of uncertain accuracy… listing alleged financial claims and contracts of uncertain quality…

…and that you are one of the many thousands of entries on the debit side… with a claim to a certain number of dollars… which the institution may or may not have, each of uncertain value.

When prolific American bank robber Willie Sutton was asked why he robbed banks, he reportedly said “Because that’s where the money is”. Not anymore, not really, Photo credit: Allan Grant

Today, banks – and this could be said of the entire financial system – no longer have “money.” They have credits and debits. Your deposit is your bank’s liability and your asset.

But look at the balance sheet. You don’t know how many of the claims shown on the left are right… or whether, when the other creditors get finished with it, any of the assets shown on the right are left. All you know is that the system works. Until it doesn’t.

System Seizure

For many months, we have urged readers to prepare themselves for problems. One day, the accumulation of contradictions, misinformation, and plain old “trash” in the system will cause a seizure. You will go to the ATM, and it won’t work.

That day, your life could take a big turn to the downside… depending on how widespread the problem is… the cause of it… and how you prepared for it. Of course, we don’t know for sure that that day will ever come. We are always in doubt, especially about our own forecasts.

And then, one morning…, Photo credit: sxc

Still, the potential problem seems likely enough… and grave enough… to justify some minimal precautions. You might cross the street blindfolded without getting run down, but it is still a good idea to look both ways. Usually, we look to the right… where we see the problems inherent in a credit-based money system.

The feds can create all the credit they want. But real people can’t pay an infinite amount of debt service. Like a junkyard dog reaching the limit of his chain, the credit cycle has a way of jerking people back to reality.

Real Money

But there are other potential problems coming from the left. An electronic, credit-based money system is fragile. It can be hacked by thieves. It can be attacked by terrorists. It can be shut down by accident. Even a “bug” could bring it to its knees.

And then what? How will you get money? How will you spend it? How will you buy gasoline or food? Our advice: Keep some cash on hand. Make sure you own some gold, too – real gold, coins that you can hold in your hand and you can flip to your grandchildren.

“Hey kid,” you say with a knowing and superior air, “take a look at this. This is real money. You don’t have to plug it in.” By the way… Gold just had its best quarter in 30 years. Do buyers know something? Maybe.

via Zero Hedge http://ift.tt/25LJ3eG Tyler Durden

By EconMatters

We had nearly a 5 Million drawdown in Oil Inventories during what is technically still the building season for Oil Stocks.

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In what was shaping up to be a low-volume snoozer of a day, things changed dramatically at 10:30am when the DOE confirmed last night’s API data according to which US crude inventories had their biggest weekly decline since January even as distillates and gasoline stocks rose. That headline sent WTI soaring by 5.4%, the most since March 16.

 

The crude spike was all the “momentum ignition” that futures needed to stage a dramatic surge, soaring from 2035, jumping as much as 20 points higher to 2055 before the slightly more hawkish than expected FOMC Minutes reported pushed ES lower by 10 point. And then, out of nowhere, a massive buying program emerged out of nowhere, and sent the E-mini tofresh highs.

 

It wasn’t just oil: an even more notable notable move took place in the biotech sector, which surged by over 5%, its biggest intraday gain since November 2011, and accounted for nearly half of the S&P500’s gain. The reason was the collapse of the Valeant-Allergan deal. No really: while talking on CNBC, Brent Saunders said that now that the deal has been pulled, Allergan could weigh deals. That is all the slgos needed to hear and unleashed a massive frontrunning spree, buying up every N/M PE company they could find.

 

To be sure, as equity algos were scrambling into risk, the VIX was getting crushed, and while it was a last second VIX slam that prevented the S&P from closing red for the year yesterday, today’s the selling started early, and from 16 the VIX was back at just around 14 at last check.

 

Not everyone was rushing into a Risk On mode, however: while the 10Y sold off modestly, it was at 1.75%, back to Monday’s levels.

 

But that didn’t stop the S&P500 from closing at the day highs, some 1.1% higher, while the Nasdaq raked in 1.6%, just 80 points away from the “psychological 5000 level” and the highest of 2016, on hope the biotech bubble may be rekindled.

All this took place as the dollar tumbled from overnight highs, sending the JPY and the EUR surging, and resulting in even more headaches for Kuroda and Draghi, with the latter now once again forced to think how to create another Bund “hit” like last May as the yield on the 10Y Bund is almost at all time lows.

The USDJPY plunged below the critical support of 110, sliding as low as 119.30, and at last check was trading around 109.70, virtually assuring that the BOJ will have to do something in the coming weeks to push the Japense currency weaker once again.

 

The bulk of the sector moves were summarized by Credit Suisse as follows:

• Biotech outperforms as investors try and find what companies PFE targets next…and what AGN does next with the $30bn they get from TEVA –likely keeps M&A interest in biotechs, especially smid caps alive
   
• Asset Managers outperform – DOL Fiduciary Standards less burdensome (Longer phase in time through April 2018…Grandfathering for existing plans …Disclosure requirements were relaxed) – WETF, LPLA, RFJ, SF etc
• Ferts holding in despite weak MON #s; some debate about whether they would have to update guidance again today (on FX and/or glyphosate) so maybe relief no further guide down but I don’t think many expected a change
• Energy ripping — Crude at day’s high and Oil E&P, Oil Servs and most subgroups all rallying.  We highlighted Dislocation between HY cash and energy prices this morning – most thought it read bearish for HY (as opposed to bullish for energy) but maybe not
• Lighting plays hit on CREE (-19% on warning) …ETN read thru
• Paper names down on BAML call –initiates KS at UP and downgrades UFS to UP
• Banks underperform;  Several street downgrades (brokers #s continue to get cut)
• German bunds near record lows on a flight to safety
• Industrial short cycle names hit on MSM read thru; March Sales being worse than February is driving conversations with clients about “short cycle trends weakening sequentially” as a potential sign that the rally we have seen in short cycle stocks can’t be sustained
• Casinos weak on WYNN #s – Macau just below expectation

Finally, some observations from CS on what to look forward to as we are about to enter the prime of earnings season: here’s what stands out

One of our favorite ways to gauge sentiment around earnings at the sector and industry group level is by tracking the pace of upward EPS estimate revisions.  At the sector level, revisions weakness has been broad based, with no sectors seeing more than 50% of revisions to the upside in the past 13 weeks. However, two of the weakest sectors – Materials and Industrials – have started to rebound off of post financial crisis lows. Consumer Discretionary revisions trends have also seen an uptick in recent weeks.  Revisions in many defensive oriented sectors – Staples, Telecom and Utilities – had been in decline but have recently begun to show signs of improvement. Banks, Diversified Financials and Real Estate have seen revisions trends fall to levels near or below past lows (post ’09), but the latest data shows signs of an uptick so we are watching for a bottom. Banks in particular recently saw revisions hit extreme lows.  Pharma/Biotech revisions have fallen to post ’09 lows, with no signs of a bottom emerging as of yet.

So it’s all really bad news (but thankfully there are buybacks, and non-GAAP adjustments, and multiple expansion, and of course, the Fed) but because the terrible is becoming a little less terrible for a few companies, just BTFD.

And now we sit back and watch what crazy things Peter Panic may do tonight to offset the collapse in the USDJPY to levels not seen in one and a half years, which have made a total mockery out of Japan’s QQE and NIRP.

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

Having pounded the table on buybacks as the only marginal source of stock purchasing since some time in 2013, we were delighted one month ago when Bloomberg finally got it, writing an article titled “There’s Only One Buyer Keeping S&P 500’s Bull Market Alive.” The answer: corporate stock repurchases of course.

This is what it found:

Demand for U.S. shares among companies and individuals is diverging at a rate that may be without precedent, another sign of how crucial buybacks are in propping up the bull market as it enters its eighth year. Standard & Poor’s 500 Index constituents are poised to repurchase as much as $165 billion of stock this quarter, approaching a record reached in 2007. The buying contrasts with rampant selling by clients of mutual and exchange-traded funds, who after pulling $40 billion since January are on pace for one of the biggest quarterly withdrawals ever.

 

“Anytime when you’re relying solely on one thing to happen to keep the market going is a dangerous situation,” said Andrew Hopkins, director of equity research at Wilmington Trust Co., which oversees about $70 billion. “Over time, you come to the realization, ‘Look, these companies can’t grow. Borrowing money to buy back stocks is going to come to an end.”’

But, when you have the ECB backstopping purchases of corporate bonds, giving companies a green light to issue debt at will and use the proceeds to buyback even more stock, it won’t end just yet.

However, now that it is common knowledge that over the past several years the market has been conducting the most elaborate acrobatic example of pulling itself up by its bootstraps, by conducting a slow motion LBO in which just over 1% of the S&P has been purchased with incremental leverage, another question which bears answer is how much of S&P EPS growth comes from buybacks?

This is important because with Q1 earnings season starting and expected to post the worst, -8.5% drop in EPS since the financial crisis, and one in which collapsing energy and financial will be routinely ignored, we asked what would happen to “earnings” if one also excluded the benefit from buybacks.

Here is the answer courtesy of Deutsche Bank:

About 25% of S&P 500 EPS growth comes from buybacks on average since 2012. The S&P 500 companies on aggregate pay out 2/3 of their earnings through dividends & buybacks.

 

 

Buybacks are an important part of the earnings payout and a significant driver of total shareholder return and EPS growth in a slow sales world. However, the complexities in correctly measuring buyback payout ratios, buyback yields and buyback flows cause investor confusion. Just as option expense shouldn’t be excluded from EPS or from any FCF measures used for valuation, it should not be neglected in net buyback activity measures. Buyback yield estimates should reflect the continuous issuance of stock to employees at option exercise prices that are well below the market price at which shares are repurchased. This is why we estimate buyback yield as: (net dollars spent on buybacks less option expense) / market cap. This is because although companies report net dollars spent on buybacks, they spend more per share repurchased than what they receive per share issued.

In other words, since the financial world now openly excludes everything it does not agree with, if one were to exclude the contribution of buybacks to Q1 earnings, the S&P would be down not 8.5% but double digits. And, more troubling, if excluding energy and buybacks, then Q1 EPS would be not only negative (7 of 10 sectors are projected to decline in Q1, so energy and 6 others), but even more negative. We expect this to be addressed by the mainstream media some time in 2018.

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

Recently, White House Press Secretary Josh Earnest said the following: “One of the key legacy achievements of this presidency will be the important reforms of Wall Street. Those reforms have led to a financial system that is more stable and ensures that taxpayers are not on the hook for bailing out financial institutions that make risky bets.”

Evidently the Obama administration has a different definition of “risky bets”, and “taxpayers not on the hook” than most people, because as the Washington Post reports:

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.

 

… administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

So on one hand the Obama administration is touting the fact that they are sure they’ve cleaned up the financial system to the point where it’s more stable, and taxpayers “definitely” won’t be on the hook for bailing out banks making risky bets. On the other hand, the administration is pushing banks to loan to sub-prime borrows again, less than eight years after completely blowing up the global financial markets for doing precisely that.

For the banks, this is clearly great news – make more loans + more government guarantees = risk free profits…

Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.

 

The FHA, in coordination with the White House, is working to develop new policies to make clear to banks that they will not lose their guarantees or face other legal action if loans that conform to the program’s standards later default. Officials hope the FHA’s actions will then spur Fannie and Freddie to do the same.

… for those who, however, still pay taxes and will be tasked to bail out banks during the next crisis, not so much.

It appears as though the US isn’t just competing with China for jobs and market share, but also to see who will be the fastest to blow up the global financial markets again.

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

The following chart from the Paragon Real Estate Group, showing median house prices in San Francisco, is troubling, for reasons which do not need an explanation.

 

And here is a bonus chart:it shows the minimum amount of qualifying income one needs to purchase a “median priced house” based on prevailing prices and mortgage interest rates, with 20% downpayment, including taxes and insurance.

Source: Paragon

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

Submitted by Mike “Mish” Shedlock of MishTalk

In the wake of an expected victory in Wisconsin, Ted Cruz gave the expected victory speech.

“Tonight is a turning point. It is a rallying cry,” said Cruz to an elated crowd of his supporters.

Nonsense. What happens in Wisconsin stays in Wisconsin.

Nomination Analysis

Cruz won 36 of 42 Wisconsin delegates. In the Path to a Trump Victory, Nate Silver estimated Trump needed to win 18 Wisconsin delegates.

Trump won six, leaving him 12 short.

New York has 95 delegates. Silver estimates Trump needs 58 of then.

I expect Trump will pick up 70 putting him back on track. I made that estimate on April 4 in Rumors of Trump’s Demise Overblown; Wisconsin May Not Matter if Trump Sweeps New York.

Recent Polls

 

Silver’s Poll’s Only Projection

If those numbers for Trump come in, and we will find out on April 19, the momentum will clearly have shifted back to Donald Trump.

Still on Course

Financial Times writer Edward Luce sees things pretty much the way I do. In an article today, Luce says Donald Trump Still Just About on Course.

Despite having self-inflicted the worst two weeks of his campaign, and provoking the opposition of almost every senior Republican in Wisconsin, Mr Trump still took more than a third of the vote — and in a state that he was likely to lose.

 

Wisconsin’s demographics, which skew towards educated conservatives, are similar to that of Iowa, which Mr Cruz won at the start of the primary season two months ago. New York’s are closer to that of New Hampshire, which Mr Trump won handily the following week.

 

It is anybody’s guess what Mr Trump will say, or tweet. His capacity for self-destruction can never be underestimated. But it takes a leap of faith to believe he will be defeated on his home turf by a Texan conservative who denigrates “New York values”.

 

Wisconsin does not drastically alter the bigger picture. Republicans are probably heading towards a contested convention in Cleveland in which they will confront a choice between Mr Trump and Mr Cruz.

Contested Convention

It’s a bit premature to come to the conclusion a contested convention is the odds-on-favorite, but it is increasingly likely.

In January, I stated the only likely way Trump could be stopped was a contested convention. That was long before media glommed onto the idea. Today the notion of a contested convention is mainstream.

Hell to Pay

It remains to be seen if we do have a brokered convention but a Talking Points Memo accurately says there will be Hell to Pay, if we do. Emphasis is mine.

I certainly knew that election night was not the end of the delegation selection process in most states – especially in caucus states. But I confess I did not realize how many states do not allow a candidate any direct control over who ‘their’ delegates even are. So Donald Trump could win all the delegates in a particular state but have party functionaries pick the actual people who will serve as ‘Trump’s’ delegates. So they’re bound on the first ballot but actually there to support Cruz or Kasich or some other unicorn candidate.

 

I think many people imagine a raucous and wild scene where the Trump delegates walk out of the hall after the convention gives Mitt Romney or maybe Jeb Bush’s son ‘P.’ the nomination. But in fact there may be no Trump supporters there to walk out. Now, obviously there will be some. But maybe not that many.

 

The ‘Trump delegates’ who agree to vote for someone else on the second ballot may not be former Trump supporters. They may be Cruz supporters or just party regulars.

 

All of this is why this is bounding toward a wildly destructive conflagration in Cleveland. Elections of all sorts rest not fundamentally on rules and bylaws but on legitimacy. An RNC national committeeman recently complained that the press had given people the wrong impression that voters decided who the nominee was rather than the party. By the rules, he may be right. But good luck sailing that ship across any body of water.

 

TPM Readers know, because it’s been one of the site’s core perennial issues for 15 years, that people’s right to their vote gets disregarded all the time. But it is by definition almost always the votes of the marginalized and those lacking power, almost always those most loosely tied to the political system. And usually it either does not or cannot be proven to swing an actual election. It is quite another thing, under the bright lights of intense national press scrutiny to take the win away from the guy who unambiguously won the most votes.

 

Trump’s constituency is the part of the electorate which Republican politicians have been marinating in grievance and betrayal politics for decades. Only it’s not coming from Al Sharpton or Hollywood elites or limousine liberals or Feminazis. It will be coming from their supposed protectors, their party.

 

It won’t go down well. There will be hell to pay.

Hell to pay indeed!

This is precisely why Trump feels marginalized to the point he may not support the Republican candidate if he doesn’t win.

And why should he?

Can Cruz Beat Hillary?

Can Cruz or some alternative “hand-picked” candidate defeat Hillary?

It seems dubious, at best. To win the election, the Republican nominee will have to pick up votes from some independents and some traditional Democrats.

What votes can Cruz pick up? Anything? I challenge anyone to explain what inroads Cruz, Kasich, or any other hand-picked Republican Neanderthal can deliver from either Democrats or Independents.

Appealing to the core is the road to ruin, and Trump proves it.

And if Trump runs on a third party ticket, it will be next to impossible for Cruz or any other Republican candidate win.

Can Trump Beat Hillary?

Despite the talk, Trump will retain nearly all of the traditional Republican vote. Sure, some may vote Hillary or sit the election out. But the strong anti-Hillary sentiment will overcome almost all of that.

On the plus side, Trump will pick up votes from anti-war Democrats, anti-war independents, anti-establishment independents, anti-Fed independents, and most importantly – angry white Democrats who blame China and Mexico for our problems.

On the minus side, Trump has offended a lot of people. However, there will be some time for him to make amends and sound more presidential.

Destructive Republican Party Breakup

Whether Trump wins the nomination or it is stolen from him, a destructive breakup of the holier-than-thou, war-mongering, neocon pseudo-conservative hypocrites running the Republican party is potentially at hand.

For that we can all thank Trump, whether you like the guy or not. It’s time to rebuild the Republican party, and this is a good start.

If the nomination is stolen from Trump, he can finish the job with a third-party candidacy.

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

As Bloomberg reports, the Stockholm International Peace Research
Institute is out with their latest military spending report, and it looks as though many countries around the globe are preparing for more conflict in the coming years, if only based on the recent jump in military-related spending.
   
In aggregate, world
military expenditures rose to $1.7 trillion in 2015, an increase of about 1%
from last year. According to SIPRI, this was the first increase in
global military spending since 2011. Unsurprisingly, the United States
earned the top spot by a ridiculous margin, spending a gargantuan $596
billion in 2015 (for which the military industrial complex – the recipient of the funds – is eternally grateful). The US is followed by China, and Saudi Arabia who spent
an estimated $215 billion and $87.2 billion respectively.

Here is how the top fifteen countries rank.

 

Bloomberg summarized two troubling developments in the following charts, first with countries in Southeast Asia, presumably concerned with China’s activity in the South China Sea, and then with countries in Eastern Europe, on fears of Russian aggression (even though it is NATO which most recently announced it would be aggressively shifting its positioning in Eastern Europe).

Here is the pace in which Southeast Asian countries are increasing their military spending.

 

And here is what’s happening in Eastern Europe. Ironically, Russia, where slumping oil receipts have weighed on the economy, fell to fourth position in the global rankings, with Saudi Arabia taking third spot. The Mideast country, also hurt by the lower price of crude, would have cut spending too had it not been for the $5.3 billion cost of its military campaign in Yemen.

 

India, courted this year by contractors including BAE Systems Plc, Boeing Co.,Lockheed Martin Corp. and Saab AB, had the sixth-biggest defense budget in 2015, after the U.K. in fifth. IHS Jane’s analysts forecast it will advance to fourth in 2017, with a 13.1 percent boost to spending for a total $50.7 billion.

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