Curious why Michael Dell was so eager to take the company he founded private? So he could do stuff like this without attracting too much attention. According to the Channel Register, the recently LBOed company is “starting the expected huge layoff program this week, claiming numbers will be north of 15,000.” Of course, with a private sponsor in charge of the recently public company, the only thing that matters now is maximizing cash flows in an environment of falling PC sales, a commoditisation of the server market and a perceived need to better serve enterprises with their ever-increasing mobile and cloud-focused IT requirements – things that do not bode well for Dell’s EBITDA – and the result is perhaps the largest axing round in the company’s history. But at least the shareholders cashed out while they could.

More on the upcoming layoffs:

We heard from people close to the Round Rock Dell HQ area that Dell management has every conference room booked, and every HR person and security staff member is at work. There are cuts in all departments, according to one of our sources, who says some of these have already been downsized and are now being told to cut 15 per cent more heads.

We hear the worldwide layoff number is now greater than 15,000 people.

Our insider commented: “It’s going to be a bloodbath.”

So what can those on the receiving end of said bloodbath expect? Not much. “The severance package is two months’ pay plus an extra week of pay for each year of service, a bonus at 75 per cent, obligated COBRA health insurance for 18 months in the United States, and outplacement services (in the US at least).”

The internal justification for th move:

… Dell has started its Stateside layoffs this week. Internal company
emails seen by The Reg mention “simplifying client support structure –
both basic and up sell,” “client support structure combined – Consumer
and Commercial come under one umbrella,” and “Up sell offers will align
with Pro Support and will “evolve”. The “evolve” word could mean that
further changes are coming.

Also known as trying to remain cash flow positive in a world that has long since moved on and left Dell in the dust. We wish the company’s billionaire founder well as he progresses with the bloodbathing, just as we wish the BLS the best of luck in the coming weeks as they use every seasonal adjustment gimmick known under the sun to make the 15,000 mass termination disappear.

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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

It is not coincidence that these two unofficial taxes–healthcare and college tuition–are soaring in cost, outpacing all other household expenses.

I have long argued that to make an apples-to-apples comparison of real tax rates in the U.S. and other equivalently developed advanced democracies, we have to include two enormous expenses that are funded by the central state in countries such as Denmark and France: healthcare and college tuition/fees.

In The Real-World Middle Class Tax Rate: 75% (July 5, 2012), I estimated that healthcare insurance (if paid out of gross income, as we self-employed workers do) in the U.S. is roughly equivalent to a 15% tax.

Now that the Orwellian-named Affordable Care Act (ACA) is raising costs and deductibles, the true cost of healthcare (a.k.a. sickcare, because being chronically sick is so darned profitable for the cartels) is more like 20% in America.

Correspondent Tim L. (whose daughter is attending a prestigious STEM–science, technology, engineering, math–university) recently called $40-$50,000 per year college tuition what it really is: a tax:

College tuition is just another tax. If you can afford to pay it, you have to. If you cannot, you do not. Anytime you have to pay more for something because you can, you are paying a tax. Between traditional taxes, the college tuition tax, and the health insurance tax (also paid only by those who can afford to), I figure this year and the next three I'm in a 100+% tax bracket.

Middle-class Scandinavians famously pay around 65% to 75% of their gross incomes in taxes, but these taxes fund national healthcare for all and nearly free college tuition and fees. Add $200,000 (four years of tuition/fees at $50,000/year) in tax to the already-high U.S. real tax rate, and the real tax rate for middle-class households exceeds 100% of gross income.

Since only those with significant savings can possibly afford to pay a $200,000 tuition tax, the average-income household is left with one choice: the debt-serfdom of student loans. This is the acme of a morally bankrupt system of higher education: you need a college degree to have any hope of succeeding in America, but the only way to get that degree is to enter debt servitude, with no guarantees of future income needed to pay off the debt.

It is not coincidence that these two unofficial taxes–healthcare and college tuition–are soaring in cost, outpacing all other household expenses. The only other household item that is skyrocketing is debt:



The two unofficial taxes–paid by debt, either student loans, or Federal deficits– have no restraints: if you can't pay, then the upper-middle class taxpayers who are paying most of the Federal tax will, one way or another:



Meanwhile, guess what's been flat to down for the past 40 years–yup, the earned income of the bottom 90%:



With an unofficial tax rate for healthcare and college tuition that makes Scandinavian countries look like low-tax havens, no wonder the middle class in America is vanishing like mist in Death Valley. The political class is now bleating about the erosion of the middle class and rising wealth inequality. There are two primary sources of rising inequality in America: the Federal Reserve and the higher-education and healthcare cartels that so generously fund the campaigns of the bleating politicos.

Want to Reduce Income/Wealth Inequality? Abolish the Engine of Inequality, the Federal Reserve (January 28, 2014)

Healthcare "Reform": the State and Plutocracy Stripmine the Middle Class (Again)(November 9, 2009)

Higher education needn't be a bloated, ineffective, obsolete, morally bankrupt cartel: we could have a Nearly Free University system that is available to all.

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Wolf Richter   http://ift.tt/NCxwUy   http://ift.tt/Wz5XCn

Kudos to the Bank of Japan. Its heroic campaign to water down the yen has borne fruit. The Japanese may not have noticed it because it is not indicated in bold red kanji on their bank and brokerage statements, and so they might not give their Bank of Japandemonium full credit for it, but about 20% of their magnificent wealth has gone up in smoke in 2013. And in 2014, more of it will go up in smoke – according to the plan of Abenomics.

What folks do notice is that goods and services keep getting more expensive. Inflation has become reality. The scourge that has so successfully hallowed out the American middle class has arrived in Japan. The consumer price index rose 1.6% in December from a year earlier. While prices of services edged up 0.6%, prices of goods jumped 2.6%.

It’s hitting households. In December, their average income was up 0.3% in nominal terms from a year earlier. But adjusted for inflation – this is where the full benefits of Abenomics kick in – average income dropped 1.7%. Real disposable income dropped 2.1%.

Abenomics is tightening their belts. But hey, they voted for this illustrious program. So they’re not revolting just yet. But they’re thinking twice before they extract with infinite care their pristine and beloved 10,000-yen notes from their wallets. And inflation-adjusted consumption expenditures – excluding housing, purchase of vehicles, money gifts, and remittances – dropped 2.3%.

But purchases of durable goods have been soaring. Everyone is front-loading big ticket items ahead of April 1, when the very broad-based consumption tax will be hiked from 5% to 8%. Pulling major expenditures forward a few months or even a year or so is the equivalent of obtaining a guaranteed 3% tax-free return on investment. That’s huge in a country where interest rates on CDs are so close to zero that you can’t tell the difference and where even crappy 10-year Japanese Government Bonds yield 0.62%. It’s a powerful motivation.

And it has turned into a frenzy. In December, households purchased 32.2% more in durable goods than the same month a year earlier, in November 25.2%, in October 40.4%. These front-loaded purchases have been goosing the economy in late 2013. But shortly before April 1, they will grind to a halt. The Japanese have been through this before.

In 1996, after the consumption tax hike from 3% to 5% was passed and scheduled to take effect on April 1, 1997, consumers and businesses went on a buying binge of big-ticket items to dodge the extra 2% in taxes. The economy boomed. But it ended in an enormous hangover. In the spring 1997, as the tax hike took effect, business and consumer spending ground to a halt, and the economy skittered into a nasty recession that lasted a year and a half!

First indications of a repeat performance are already visible. The Japan Automobile Manufacturers Association (JAMA) forecast last week that sales of automobiles, after an already lousy 2013, would plunge 9.8% this year to 4.85 million units, the lowest since 2011 when the earthquake and tsunami laid waste to car purchases.

In response, automakers will curtail production for domestic sales. Other makers of durable goods – those that still manufacture in Japan – will prepare for the hangover in a similar manner. Housing and construction will get hit. Retailers will get hit too. During the last consumption tax hike, many large retailers tried to keep their chin above water by not passing the 2% tax hike on to their customers but shove it backwards up the pipeline to their suppliers. This time, having learned its lesson, the government is insisting on inflation, and it passed legislation last year that would force retailers to stick their customers with an across-the-board 3% price increase.

In 2014, the hangover will be even worse than in 1997. Businesses and consumers are dodging a hike of three percentage points, not two percentage points. Hence, the motivation to front-load is even stronger, the payoff greater, and the subsequent falloff steeper. This, on top of the already toxic concoction of stagnant wages and rising prices. Oh, and the plight of the retirees, whose savings and income streams are gradually getting eaten up by inflation. The glories of Abenomics.

But there are beneficiaries. Japan Inc. benefits from lower cost of labor. The government, without having to reform its drunken ways, might somehow be able to keep its out-of-control deficits and its mountain of debt from blowing up in the immediate future. Throughout, the Bank of Japan, which is buying up enough government bonds to monetize the entire deficit plus part of the mountain of existing debt, will remain in control of the government bond market, what little is left of it – even if it has to buy the last bond that isn’t totally nailed down. But for the real economy the party is now ending, and by spring, a pounding hangover will set in. 

According to Japan’s state religion of Abenomics, devaluing the yen would boost exports and cut imports. The resulting trade surplus would jumpstart the economy and induce Japan Inc. to invest at home. It would save Japan. But the opposite is happening. Read…. Why Japan’s Trade Fiasco Worries Me So Much

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The farewell performance of Ben
As his band of the Swindlermen
These thieves have made good
A reverse Robin Hood
It’s time to say: “Never Again!”
The Limerick King

 

Behold, Robber Ben and his Seven Merry Swindlermen of Moral Hazard, led by the Maestro of Financial Mayhem himself, Alan Greedspam.

We can all shake our heads in wonderment and disgust at the showers of tributes and accolades now being bestowed on the newly departed Chairsatan of Fraud, Robber Ben Bernanke. The man who saved the global economy by enabling the greatest upward transfer of wealth in history. He who printed enough shitty QE paper to allow the financial swindling class to kick the subprime can by ZIRPing their tracks in mountains of cheap fiat.

We all know what the end of this will be. Precisely when, who can predict? Last time I checked on Twitter and Instagram, the laws of financial gravity have not been rewritten.

Those of us who know better (and our numbers are growing), will not stand by and allow this thieving crew of serial PhD liars, conniving Harvard Soviets and crony corporatists to quietly waltz off the stage of history into their Wall Street feathered nests of sociopathetic self aggrandisement.

Their day to be called to the people’s carpet to answer for their shameful crimes against future generations will finally come.

Until that day, look at this picture and remember just “who stole the people’s money.”

Judge Rackoff recently published a very thoughtful article titled: The Financial Crisis: Why Have No High-Level Executives Been Prosecuted? This is highly recommended reading.

The following excerpts are apropos in relation to the miserable lot depicted above:

“Five years have passed since the onset of what is sometimes called the Great Recession. While the economy has slowly improved, there are still millions of Americans leading lives of quiet desperation: without jobs, without resources, without hope.

Who was to blame? Was it simply a result of negligence, of the kind of inordinate risk-taking commonly called a “bubble,” of an imprudent but innocent failure to maintain adequate reserves for a rainy day? Or was it the result, at least in part, of fraudulent practices, of dubious mortgages portrayed as sound risks and packaged into ever more esoteric financial instruments, the fundamental weaknesses of which were intentionally obscured?

If it was the former—if the recession was due, at worst, to a lack of caution—then the criminal law has no role to play in the aftermath. For in all but a few circumstances (not here relevant), the fierce and fiery weapon called criminal prosecution is directed at intentional misconduct, and nothing less. If the Great Recession was in no part the handiwork of intentionally fraudulent practices by high-level executives, then to prosecute such executives criminally would be “scapegoating” of the most shallow and despicable kind.

But if, by contrast, the Great Recession was in material part the product of intentional fraud, the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years…

I submit, one of the reasons the financial fraud cases have not been brought, especially cases against high-level individuals that would take many years, many investigators, and a great deal of expertise to investigate. But a second, and less salutary, reason for not bringing such cases is the government’s own involvement in the underlying circumstances that led to the financial crisis…

Please do not misunderstand me. I am not suggesting that the government knowingly participated in any of the fraudulent practices alleged by the Financial Inquiry Crisis Commission and others. But what I am suggesting is that the government was deeply involved, from beginning to end, in helping create the conditions that could lead to such fraud, and that this would give a prudent prosecutor pause in deciding whether to indict a CEO who might, with some justice, claim that he was only doing what he fairly believed the government wanted him to do.”

Link: http://ift.tt/1fGuOxo…

Intermediate that Squid Face!

WB7

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A few days ago Bloomberg made a big splash with a story about an unknown trader who was so enamored in the BTFD mentality, or for whatever other reason, that he sold a substantial $18 million in VIX calls, betting that the market downdraft would promptly normalize. Alas, while he may have pocketed the cash up front, since then things have not worked out quite as expected for the variation margin requirements of the intrepid seller of vol.

From Bloomberg:

The trade included the sale of 250,000 February 22 calls for about 70 cents each, according to data compiled by Bloomberg and Trade Alert LLC. It happened after the VIX reached an intraday high of 18.99 around 12:20 p.m. New York time. The investor will keep the proceeds if the VIX stays below 22 and the calls expire worthless

We can only suspect the seller believed that the EM FX debacle was a storm in a teacup and that the Turkish rate hike would solve things as he entered the position soon after news broke of the Turkish Central Bank’s emergency meeting’s timeline.

While the big seller must have been cock-a-hoop for a day, his MTM is starting to hurt now…

 

and today saw some volume going through but nothing compared to the 250,000 call position he entered…

(click image for large legible version)

 

As the implied vol of VIX surges.

 

Of course – only one thing matters…

 

Charts: Bloomberg

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

The price cycle is the path prices take from low to high and back to low again. I use investor sentiment to define the price cycle. At market lows, investors are typically bearish, and at market highs, they are overly bullish. For 6 weeks now investors have been extremely bullish, and while it does pay to run with the bulls, investors will eventually bail on the markets marking an end to the up portion of the price cycle. This is what happened last week as the market finished lower for a second consecutive week!

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So investor sentiment has rolled over as the “dumb money” indicator (see figure 2 below) has crossed below the upper trading band. Investors are no longer extremely bullish. The price cycle has likely peaked, and the next buying opportunity should come when investors turn extremely bearish in their outlook. The price cycle “dictates” that every sell signal should be followed by a buy signal and so forth. But before we get to that eventuality (i.e., the next buy signal), we need to exit our current equity positions. When I backtested the “best” exit strategy, there were two things that I found. One, it was best to wait for sentiment to unwind (like it has with the “dumb money” indicator crossing below the upper trading band), and two, we had to wait for the first week where the closing price was greater than the opening price. This is what we determined as “best” as in optimal, and it should not be construed as meaning this is what is going to happen this week or next. In essence, you need to be selling strength or the “dead cat” bounce that is likely to happen as prices are short term oversold.

We turned bullish 21 weeks ago when investors were extremely bearish on the stock market. This marked the bottom of the current price cycle and the lows of the current market move. We are now looking to sell that position as we believe the price cycle has peaked. It is our expectation that lower prices will be required to turn investors bearish. This will provide us with another buying opportunity which will most likely reset the price cycle once again. Wash, rinse, repeat. There you have it.

This market narrative, whatever it may be, is only starting to play out. There will be both bullish and bearish talk. The investing mindset remains such that investors belief in the Federal Reserve or other central banks has yet to be shattered. I think that moment is a long ways off, and will coincide with a technical failure in the markets. So what do I mean by this? The markets will sell off at some point in the future and investor sentiment will turn bearish. We will become buyers when everyone else is bearish. The markets will lift like they do 80% of the time under such dynamics, and there might even be an announcement by the Fed that supports the markets and investors beliefs that the Fed has their back. But for whatever reason, the bounce will fail and the markets will move (crash?) lower not only violating those important technical levels that brought in the buyers in the first place but also destroy the notion that the Fed has control. That’s how I see a top in the markets. For now, I view the current top as an intermediate term top. It is too early to determine if this is going to be “the top”.

As a reminder, we have moved our stop loss up to SP500 1706.92.

The Sentimeter

Figure 1 is our composite sentiment indicator. This is the data behind the “Sentimeter”. This is our most comprehensive equity market sentiment indicator, and it is constructed from 10 different variables that assess investor sentiment and behavior. It utilizes opinion data (i.e., Investors Intelligence) as well as asset data and money flows (i.e., Rydex and insider buying). The indicator goes back to 2004. (Editor’s note: Subscribers to the TacticalBeta Gold Service have this data available for download.) This composite sentiment indicator moved to its most extreme position 10 weeks ago, and prior extremes since the 2009 are noted with the pink vertical bars. The March, 2010, February, 2011, and February, 2012 signals were spot on — warning of a market top. The November, 2010 and December, 2012 signals were failures in the sense that prices continued significantly higher. The current reading is neutral but heading towards bearish (as in too many bullish investors).

Figure 1. The Sentimeter

Dumb Money/ Smart Money

The “Dumb Money” indicator (see figure 2) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. The indicator shows that investors are NEUTRAL.

Figure 2. The “Dumb Money”

Figure 3 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: “Market-wide sentiment continues to move further into Neutral territory, away from a Sell Bias, as transactional volume continues a seasonal decline. With earnings season beginning shortly, most companies have closed trading windows, limiting the ability of insiders to transact non-10b5-1 purchases and sales.”

Figure 3. InsiderScore “Entire Market” value/ weekly

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We touched upon the disappointing GM car sales number reported earlier, which were promptly blamed on snow in the winter in some part of the country, which supposedly also meant that California’s ravenous car buyers didn’t purchase vehicles due to drought or something. Either way, one thing is clear: there was a big drop in auto demand which was to be expected from an overextended consumer whose plight we have been following for years. However, where GM did surprise, is that despite its apparent realization of climatic conditions, the company decided to plough through with abnormal production levels and flooded its dealer network with inventory. So much inventory, in fact, that in January, GM’s channel stuffing pipeline rose by another 42K cars (a quarter of total sales in January), increasing the stock of cars parked at dealer lots and collecting dust to 780K from 748K in December, the second highest ever!

Shown otherwise, post-reorg GM had a record 114 days supply in inventory, compared to “only” 81 at the end of the year.

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