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Not a day passes without some pundit opining on financial comedy TV how it is not the Fed but impressive corporate profit growth that is keeping the markets afloat. We can’t help but laugh every single time. Why? Because with every reiteration, these pundits confirm they are clueless about just how it is that “profits” are created in the US – one way is from actual operations, another –  from accounting gimmicks, especially when one includes the epic black boxes of bottom-line fudgery that are financials (and their tens of billions in quarterly loan loss reserve release “profits”). It is the latter (i.e., unbridled accountant imagination) that is the reason for profits “growing” at an impressive rate. As for actual earnings, when stripped away of all tangential one-time, non-recurring boosts, things are far, far worse. In fact, true earning growth matches the already abysmal growth pace of both revenues and cash flows.

But don’t take our word for it: here is SocGen’s Albert Edwards with the explanation.

US profits have begun to decline on a MSCI trailing basis – one of the key measures we monitor. We have long believed that the profits cycle is probably the most important leading indicator for the economic cycle as profits drive the highly volatile business investment component of GDP. The consensus believes that the US has just begun a long economic recovery, whereas we believe it is already quite advanced and vulnerable to events in Asia. Falling US MSCI profits are an extremely important straw in the wind that investors will ignore at their peril.

So what does the difference between reported and actual earnings look like? It looks like this:

My colleague Andrew Lapthorne published an update on the US profits situation in the wake of the Q4 reporting season. He writes “?At first look, growth in US net income last year looks remarkably good. With nearly all S&P 500 names having reported year-end figures, net income grew 14% last year, or 12.8% on an ex-financial basis. This is fairly impressive growth given  the lacklustre economic backdrop. So should we be celebrating? Well we?re not so sure, as the source of this growth is not a robust improvement in operating cash flow, but is to be found in the large goodwill write-downs of 2012?.”

 

Andrew then shows that the vast majority of this 14% growth in profits was driven by company-specific write-downs made back in 2012 ? with Hewlett Packard, AT&T and Verizon Communications leading the way.

And in chart format:

So what should one do if one wishes to get a sense of “clean” net income growth? Reading the following is a good start:

Most of the market tends to focus on profits on a pro-forma basis. We have never been big fans of this. These are the earnings numbers companies like to publish that steer attention away from the ?bad stuff?. My former colleague James Montier used to be highly scathing, describing them as “undefined, unregulated and untrue”. But because of their ready availability most in the market tend to quote pro-forma earnings numbers from the likes of Bloomberg and I/B/E/S and many base their equity valuations on this dodgy earnings metric. Yet even on this artificially inflated measure, trailing EPS grew only a paltry 5½% yoy in 2013, and 3% on a non-financial basis.

 

 

Andrew states that ?when looking at profit growth, a better profit series comes from MSCI. This definition of earnings is not as harsh as the S&P earnings definition incorporated into the likes of Robert Shiller?s cyclically adjusted PE (CAPE), but neither is it as overly generous as the pro-forma numbers supplied by I/B/E/S. To give you an example of the difference, during the 2009 profit slump S&P core earnings fell peak-to-trough by 92%, MSCI defined earnings fell by 55%, and I/B/E/S pro-forma earnings fell by 36%.

 

As we show above, not only are MSCI reported profits no longer growing, but the gap in thegrowth rate between these numbers and the pro-forma numbers is widening, with the proforma number considerably more ?optimistic?. ?This is a phenomenon that often precedes a more significant profit slump. It is also an indication that the quality of earnings is deteriorating.”

What does all of the above mean? Simple: management teams realize that while the numbers presented for public consumption as pure BS, the true, unreported picture is far worse. And it is the “truth” that determines s management team capital allocation decisions, especially when it comes to deciding between buybacks, or a quick shareholder friendly sugar rush, and CapEx or business fixed investing, which is merely a confirmation that the corporate results are indeed accurate and the company itself foresees growth in the future. It is the latter which is the case, and is why CapEx has not only refused to rise – the biggest missing piece supporting a broad economic recovery and is why sellside strategists always “forecast” a surge in CapEx spending just around the corner – but why as income statement numbers continue to be fudged, CapEx will remain barely above the flatline, and as the economy slows further, is sure to contract, being the final missing link sending the economy into all out recession.

Per Edwards:

If MSCI profits are starting to fall then it?s more than just equity strategists who should be getting worried, for the growth in profits is closely associated with the business investment cycle

His conclusion:

So where does this leave us? This cycle is already long in the tooth at 56 months and the resultant slowing productivity growth is beginning to impact profits adversely. While profits growth is so anaemic, any adverse shock such as an Asian currency devaluation that we have discussed previously (including both Japan and China), will be enough to deepen that profits recession and send US investment expenditure into decline. While most equity investors appear to believe that the US economy has reached escape velocity, a recession carries a far higher risk than the market supposes.

Q.E.D(ead?)

via Zero Hedge http://ift.tt/1jql9Qu Tyler Durden

From GoldCore

Iraq Buys Massive 36 Tonnes Of Gold In March

 

Gold rallied from the lowest price in more than four weeks on safe haven demand after the G7 nations threatened more sanctions against Russia after the annexation of Crimea.

Meeting for the first time since last week’s annexation of Crimea by Russia, G7 leaders said they won’t attend a G8 meeting that had been set for Sochi, on Russia’s Black Sea coast, and will instead hold their own summit in June in Brussels. The G7 said in a statement that they remain ready to “intensify actions”, including coordinated sectoral sanctions.

Trading volumes on the COMEX in New York today are 49% higher than the average for the past 100 days for this time of day, according to data compiled by Bloomberg.

Palladium fell 1% to $786.20 an ounce. The precious metal rose above $800/oz yesterday, the highest  since August 2011, on concern that supplies from top producer Russia will be disrupted.

The Central Bank of Iraq said it bought 36 tons of gold this month to help stabilise the Iraqi dinar against foreign currencies, according to a statement from the bank that was emailed this morning.

It is very large in tonnage terms and Iraq’s purchases this month alone surpasses the entire demand of many large industrial nations in all of 2013. It surpasses the entire demand of large countries such as France, Taiwan, South Korea, Malaysia, Singapore, Italy, Japan, the UK, Brazil and Mexico. Indeed, it is just below the entire gold demand of voracious Hong Kong for all of 2013 according to GFMS data (see chart).

 
Demand By Country (GFMS via Thomson Reuters)

Iraq had 27 tonnes of gold reserves at the end of 2013 according to the IMF data and thus Iraq has more than doubled their reserves with their allocations to gold this month. Gold remains less than 5% of their overall foreign exchange reserves showing that there is the possibility of further diversification into gold in the coming months. 

The governor of the Iraqi Central Bank, Abdel Basset Turki, told a news conference that, “the bank bought 36 tonnes of gold to boost reserves and this move is to strengthen the financial capacity of the country and increase the elements of security and insurance reserves of the Central Bank of Iraq.”

He said, “the purchase quantity comes with the aim of achieving the highest stages of the financial soundness for Iraq”. He pointed out that the measure comes within the purview of the central bank in the use of the fiscal policy tools  of Iraq.

“The Bank has purchased large quantities of gold bullion with a very high purity and in accordance with the approved international standards,” according to the Iraqi central bank.

He added that “the central bank seeks through the purchase of large quantities of gold to stabilize the Iraqi dinar against foreign currencies.”

Iraq quadrupled its gold holdings to 31.07 tonnes over the course of three months between August and October 2012, data from the International Monetary Fund shows. The IMF’s monthly statistics report showed the country’s holdings increased to some 23.9 tonnes in August 2012 to 29.7 tonnes.

That was followed by a 2.3-tonne rise in September to 32.09 tonnes and then a cut of 1.02 tonnes in October 2012 to 31.07 tonnes. 

It is Iraq’s first major move to bolster its gold reserves in months.

The central bank of Iraq’s doubling of its gold reserves this month is important as there are many oil rich nations in the world with sizeable foreign exchange reserves, primarily in dollars, and only a small allocation to gold by these central banks alone could lead to higher gold prices.

36 tonnes is a lot of physical gold, however in terms of dollars it is worth just $1.522 billion which is a tiny fraction of the $80 billion of foreign exchange reserves that Iraq holds.

Energy rich Russia alone has foreign exchange reserves of some $440 billion. Should they decide to allocate a sizeable portion of their reserves to gold, it would rapidly result in materially higher prices.

Signs that the global economy is slowing down and the most serious confrontation between Moscow and the U.S. and its allies since the end of the Cold War is likely to lead to central banks continuing their foreign exchange diversification.

Central banks and the smart money will continue to dollar cost average and accumulate bullion on dips.

via Zero Hedge http://ift.tt/1glOYP9 Tyler Durden

• Putin Threatened With More Sanctions as Russia Out of G-8 (BBG)
• China Faces ‘Mini Crisis’ on Debt Defaults, Ex-PBOC Adviser Says (BBG)
• Don’t laugh too hard: Obama to propose ending NSA bulk collection of phone records (Reuters)
• Japan GPIF asset review not aimed at supporting domestic stocks (Reuters)
• Chinese families clash with police, slam Malaysia over lost plane (Reuters)
• Russian Capital Flight Surges in First Quarter, Fueled by Ukraine Crisis (WSJ)
• SEC Is Probing Dealings by Banks and Companies in Loan Securities (WSJ)
• Democrats ditch Nate Silver after data whiz predicts dismal midterm outcome (DN)
• China’s Urbanization Loses Momentum as Growth Slows (BBG)
• German Confidence Falls for First Time in Five Months (BBG)
• Loneliness of Kiev Bond Trader Shows Market Was Wiped Out (BBG)
• Japan Firms Continue to Hoard Cash (WSJ)
• China Internet Funds Called Vampires Draw Calls for Rules  (BBG)
• UK satellite operator used 19th century physics to trace missing plane (Reuters)
• Grand Central: A Stein on the Fed’s Easy Policy Path  (WSJ)

 

Overnight Media Digest

WSJ

* The heads of state of the world’s largest advanced economies moved Monday to isolate Russia, severing a key link between Moscow and the Western world after nearly two decades. The leaders of the Group of Seven, or G-7, nations effectively disbanded the larger G-8 by excluding Russia until it changes course in Ukraine. (http://ift.tt/1fWuAPB)

* Seventeen days after a Malaysian jetliner disappeared, authorities for the first time said they believed they knew what happened to the plane and the 239 people aboard: It crashed in the southern Indian Ocean, one of the world’s most remote and turbulent seas. (http://ift.tt/1eHTiXE)

* The Securities and Exchange Commission is investigating whether a Wall Street boom in complicated bond deals is creating new avenues for fraud, according to people close to the probes. (http://ift.tt/1eHTgiw)

* Bernard L. Madoff has maintained for years that his decades long Ponzi scheme was a one-man show. On Monday, a jury concluded instead that it was a team effort. Jurors found five former employees of Madoff guilty of aiding and hiding the fraud in a trial that painted the money manager’s Manhattan offices as a hive of illegal activity, where employees cooked up lies and manufactured fake documents to keep afloat a scam that ultimately cost investors $17 billion. (http://ift.tt/1eHTgiD)

* Box Inc on Monday revealed plans to raise up to $250 million in an initial public offering as the unprofitable startup tries to ward off intensifying competition in the online storage market. (http://ift.tt/1eHTiXI)

* Walt Disney Co on Monday named ABC News President Ben Sherwood as the next head of its television-entertainment networks, marking a rapid climb for a news producer who just four years ago was out of the media business entirely. (http://ift.tt/1eHTiXK)

* General Motors Co engineering managers knew about ignition-switch problems on the 2005 Cobalt that could disable power steering, power brakes and air bags, but launched the car because they believed the vehicles could be safely coasted off the road after a stall, according to court documents. (http://ift.tt/1eHTiXM)

 

FT

Russia’s government is braced for capital outflows to jump to $70 billion in the first three months of the year as investors seek to soften the blow from international sanctions after President Vladimir Putin’s Ukrainian land grab.

Five of investment manager Bernard Madoff’s former aides have been found guilty of helping him carry out and cover up multibillion-dollar investment fraud for years.

The European Commission shelved plans to relax cross-border rules that could leave schemes with a multibillion pound funding gap, dashing the Scottish government’s hopes that EU pension reforms would smooth a transition to independence, sources said.

Data storage company Box said it hoped to raise about $250 million in an initial public offering after posting a wider net loss than last year despite doubling its revenue.

Rating agency Moody’s cautioned that changes to the rules on buying an annuity in Britain had “credit negative implications” for the country’s life insurers, dealing them a further blow following George Osborne’s pensions overhaul

 

NYT

* The Obama administration is preparing to unveil a legislative proposal to end the National Security Agency’s once-secret bulk phone records program – a systematic collection of data about Americans’ calling habits. If approved by Congress, phone companies would not be required to retain bulk data for any longer than they normally would. The N.S.A. could obtain specific records only with permission from a judge, using a new kind of court order.(http://ift.tt/NMWzu3)

* At a meeting on May 15, 2009, engineers at General Motors Co learned that data in the black boxes of Chevrolet Cobalts confirmed a potentially fatal defect that existed in hundreds of thousands of cars. But in the months and years that followed, as a trove of internal documents and studies mounted, GM told the families of accident victims and other customers that it did not have enough evidence of any defect in their cars, interviews, letters and legal documents show. (http://ift.tt/1nW727g)

* A federal jury on Monday found five associates of the convicted swindler Bernard Madoff guilty of 31 counts of aiding one of the largest Ponzi schemes in history. (http://ift.tt/NMWzub)

* The Walt Disney Co acted quickly to put a new top executive in place at its ABC Television Group, naming Ben Sherwood on Monday to succeed Anne Sweeney, who announced her resignation two weeks ago. (http://ift.tt/NMWzud)

* Herbalife Ltd said on Monday it agreed to give its biggest shareholder Carl Icahn three additional seats on the board. Icahn, one of the company’s most outspoken supporters, who already had a 16.8 percent stake in the company and two board seats, requested the additional representation last week. (http://ift.tt/NMWzuh)

* Online storage service company Box Inc expects to raise about $250 million in its initial public offering. Box was valued at $2 billion in a recent round of private funding, but would most likely be worth several times that after the IPO. Many more cloud businesses, for both business and consumers, are expected to follow this year. (http://ift.tt/NMWCpQ)

* Google Inc on Monday announced a partnership with the Luxottica Group, the largest eyeglass company in the world, to design, manufacture and distribute frames for Google Glass, the Internet-connected eyewear.(http://ift.tt/1nW6Zsi)

 

Canada

THE GLOBE AND MAIL

* Ontario’s Liberal government is planning a budget crafted to be hard for the New Democratic Party to defeat, including left-friendly measures such as better welfare benefits. Despite Premier Kathleen Wynne’s bullish posturing in recent weeks, government sources say the Liberals are wary of a spring vote – particularly after two by-election losses last month – and will design a budget New Democrats can support in order to prevent one. (http://ift.tt/1fdSyqc)

* The Alberta Progressive Conservative party leadership vote to replace Alison Redford will take place on Sept. 6, with a potential run off vote scheduled for Sept. 20. The PC party, which has formed the government in Alberta continuously for more than four decades, made the announcement about the leadership contest after a long board meeting on Monday. (http://ift.tt/1gltxOa)

Reports in the business section:

* Canadian companies operating in Russia are pleading with Ottawa to ensure they aren’t hurt by sanctions as the federal government puts global security ahead of commercial interests in the region. On Monday Prime Minister Stephen Harper said commercial interests are now secondary in the consideration of responses to the Russian moves. (http://ift.tt/1gltuSu)

NATIONAL POST

* Prime Minister Stephen Harper and his fellow G7 leaders have indefinitely suspended Russia from the Group of Eight until President Vladimir Putin “changes course.” The G7 “condemned” Russia’s annexation of Crimea in a brief document called “The Hague Statement” that was more strongly worded than had been expected. It described the referendum held in Crimea eight days ago that resulted in a 96.7 percent support for union with Russia as “illegal.” (http://ift.tt/1fdSw1B)

* Prime Minister Stephen Harper has endorsed controversial Calgary Conservative MP Rob Anders, who faces a serious challenge from a well-known former Alberta provincial minister as he seeks his party’s nomination for the 2015 election. (http://ift.tt/1fdSwhS)

FINANCIAL POST

* British Columbia’s Liberal government has followed through with its promise to table back-to-work legislation for unionized truckers on strike at Port Metro Vancouver, with heavy penalties for not complying. The legislation includes penalties of up to $400 per day for workers and $10,000 per day for the union or employer for contravening the legislation. (http://ift.tt/1fdSyGv)

* The clock is still ticking on BlackBerry Ltd’s attempted turnaround, but it is clear Chief Executive John Chen has managed to buy some time for the embattled technology company. Chen has moved quickly to jumpstart BlackBerry’s transition from primarily a seller of smartphones to a specialized provider of enterprise grade software and services. (http://ift.tt/1glty4D)

 

China

SOUTH CHINA MORNING POST

— Occupy Central activists may block roads in Hong Kong’s financial district this summer if authorities make decisions that rule out any hope for “genuine” universal suffrage. Campaign organiser Chan Kin-man said supporters became impatient since protests against a cross-strait trade pact began in Taiwan. (http://ift.tt/1gU9MIB)

— Bets on yuan appreciation have long been deemed the key reason for accumulation of yuan deposits in offshore banking systems, but Hong Kong regulators say growth in yuan deposits in the city had instead been driven by the interest rate difference between yuan and Hong Kong dollar. (http://ift.tt/1gU9MID)

— Sinopharm, China’s largest drug distributor, plans to boost retail sales to more than 10 billion yuan ($1.62 billion) in 2016, said president Li Zhiming. Last year, the state-owned firm’s drug retail sales rose 17.5 percent to 4.83 billion yuan. (http://ift.tt/1gU9Ms8)

THE STANDARD

— The Housing Authority will put up 85 Home Ownership Scheme flats in Tai O on Lantau Island for sale in June, all costing below HK$1 million ($128,900) each. The prices are based on a 30 percent discount to market value and reflect the remote location of the flats. (http://ift.tt/1gwgcDJ)

— Chongqing Bank plans to boost micro loans to comprise 40 percent of its total business by 2015 from 33 percent now. (http://ift.tt/1gwgfz7)

HONG KONG ECONOMIC JOURNAL

— Tongda Group Holdings Ltd is seen to sell 420 million new shares at up to HK$1.19 apiece in a share placement, raising up to HK$500 million ($64.45 million), according to a term sheet.

HONG KONG ECONOMIC TIMES

— Yanzhou Coal Mining Co Ltd had trimmed its work force by 5,400 in 2013 in a move to reduce cost and the firm is set to cut up to another 5,000 this year, according to senior management.

 

Britain

The Telegraph

RBS ‘IN TALKS’ TO SELL CITIZENS TO JAPANESE BANK

One of Japan’s largest banks has approached Royal Bank of Scotland to buy its U.S. retail business ahead of its stock market flotation this year. (http://ift.tt/1h3IhAU)

ENERGY COMPETITION PROBE ‘WILL INCREASE RISK OF BLACKOUTS’

The risk of blackouts will be increased by a two-year probe into the energy market that will deter companies from building new power plants, a leading analyst has warned. (http://ift.tt/1h3Iggc)

MONITISE TO RAISE 110 MLN STG IN SHARE PLACING

Monitise, the online payments provider, announced plans to raise more than 110 million pounds ($181.4 million) on London’s junior AIM market to fund a shift to subscription-based services that is expected to slow its growth. (http://ift.tt/1h3IhAW)

GATWICK MISSES OUT ON DIRECT ROUTE TO JAKARTA

An Indonesian airline which was due to launch a direct service from Gatwick to Jakarta in May will now operate the service via Amsterdam to pick up passengers, it has emerged. (http://ift.tt/1h3Iggh)

The Guardian

LLOYDS’ TOP MANAGEMENT BONUSES POTENTIALLY WORTH MORE THAN 27 MLN STG

Bailed out Lloyds Banking Group has handed its top management team – including Chief Executive Antonio Horta-Osorio – bonuses potentially worth more than 27 million pounds. (http://ift.tt/1h3Iggn)

ASDA TO AXE AROUND 200 JOBS

Asda is to cut around 200 jobs as it forges a new five-year plan to tackle increasing competition from rival supermarkets and discounters. (http://ift.tt/1h3Iggp)

The Times

CO-OP’S STAKE IN BANK SLIPS AFTER 400 MILLION POUND CALL

The Co-operative Group’s grip on its troubled banking division appeared to weaken further last night after a stack of mis-selling costs forced the lender into a surprise 400 million pound emergency cash call. (http://ift.tt/1h3IhRm)

SCOTLAND ‘WOULD FACE HIGHER TAXES OR IMMIGRATION TO FUND PENSIONS’

An independent Scotland would have to raise taxes or attract hundreds of thousands of immigrants to pay the state pension currently offered within the UK, a new study has found. (http://ift.tt/1h3Iggr)

PHONES4U TRIES TO GATECRASH CARPHONE MERGER WITH DIXONS

Merger talks between Dixons Retail and Carphone Warehouse have hit a potential hurdle after the owners of Phones4u approached the retailer about an alternative deal. (http://ift.tt/1h3IhRx)

LLOYDS ACCUSED OF USING LOOPHOLE TO CUT PPI BILL

A fresh payment protection insurance scandal is set to engulf Lloyds Banking Group amid accusations that it used a loophole to cut compensation awards to customers. (http://ift.tt/1ivKJQy)

ALL THAT GLISTERS COULD NOW TURN TO DUST FOR ALBEMARLE

Troubled pawnbroker Albemarle & Bond, which has been seeking a buyer for the business for months while its lenders kept the company afloat, is set to collapse after its banks called time on the turnaround of the business. (http://ift.tt/1ivKK6M)

The Independent

FURY AS FCA IS ACCUSED OF WIMPING OUT OF TOUGH NEW REGULATIONS ON PAYDAY LOANS

Members of Parliament and consumer groups have criticised the London’s financial watchdog, the Financial Conduct Authority, for lacking teeth ahead of its taking over responsibility for payday lenders next month. (http://ift.tt/1ivKK6O)

 

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled today include:
S&P Case-Shiller 20-city home price index for January at 9:00–consensus up 0.6% for month
Consumer confidence for March at 10:00–consensus 78.4
New home sales for February at 10:00–consensus down 4.9% to 445K rate

ANALYST RESEARCH

Upgrades

Domtar (UFS) upgraded to Buy from Neutral at Goldman
Eni SpA (E) upgraded to Outperform from Market Perform at Raymond James
Exa Corp. (EXA) upgraded to Outperform from Neutral at RW Baird
Farmers Capital upgraded to Outperform from Market Perform at Keefe Bruyette
PACCAR (PCAR) upgraded to Buy from Neutral at Goldman
Palo Alto (PANW) upgraded to Outperform from Market Perform at FBR Capital
Rackspace (RAX) upgraded to Overweight from Equal Weight at Morgan Stanley
ReneSola (SOL) upgraded to Buy from Neutral at Roth Capital
Sinopharm Group (SHTDF) upgraded to Outperform from Neutral at Credit Suisse

Downgrades

Alpha Natural (ANR) downgraded to Hold from Buy at Jefferies
Arch Coal (ACI) downgraded to Hold from Buy at Jefferies
BioMarin (BMRN) downgraded to Neutral from Buy at Goldman
CST Brands (CST) downgraded to Neutral from Overweight at JPMorgan
KBR (KBR) downgraded to Neutral from Buy at Goldman
MSCI (MSCI) downgraded to Neutral from Buy at UBS
Navistar (NAV) downgraded to Neutral from Buy at UBS
PulteGroup (PHM) downgraded to Underweight from Equalweight at Barclays
Timken (TKR) downgraded to Hold from Buy at KeyBanc

Initiations

Alliance Fiber Optic (AFOP) initiated with a Buy at Needham
Convergys (CVG) initiated with a Buy at SunTrust
Fifth Street Senior (FSFR) initiated with a Buy at UBS
FireEye (FEYE) initiated with an In-Line at Imperial Capital
NPS Pharmaceuticals (NPSP) initiated with a Buy at Goldman
Sapient (SAPE) initiated with a Buy at SunTrust
Spirit Airlines (SAVE) initiated with a Buy at SunTrust
Varonis (VRNS) initiated with a Buy at Jefferies
Varonis (VRNS) initiated with a Buy at Needham
Varonis (VRNS) initiated with an Equalweight at Barclays
Varonis (VRNS) initiated with an Outperform at RBC Capital

COMPANY NEWS

Disney (DIS) announced a deal to acquire Maker Studios for $500M. The deal also includes up to an additional $450M in performance-based payouts for Maker
Online file sharing and content management service Box (BOX) filed with the SEC for an IPO
RealD (RLD) announced an agreement with Wanda Cinema to install 780 additional 3D screens in China
Sonic (SONC) said it expects FY14 SSS to grow by low-single digits and earnings for the year to grow 14%-15%
Orthofix (OFIX) implemented an internal audit program and announced the filing of restated financial results
Safeway (SWY) declared special stock dividend to spin-off Blackhawk (HAWK)

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
McCormick (MKC), HD Supply (HDS), Sonic (SONC)

Companies that matched consensus earnings expectations include:
CTI Industries (CTIB), Exa Corp. (EXA)

NEWSPAPERS/WEBSITES

SEC launching investigation into complex bond deals (BCS, C, DB, GS, MS, UBS, RBS), WSJ reports
Yahoo (YHOO) shareholders eyeing a big Alibaba payday, FT reports
Luxottica (LUX), Google (GOOG) collaborating on new versions of Google Glass, WSJ says
HP (HPQ) may not release news on first 3D printer until October, GigaOM says
Sanofi (SNY) joins bidders for Merck’s (MRK) consumer health unit, Bloomberg reports 
U.K. PS4 (SNE) sales up 106% since launch of ‘InFamous’ game, MCV says
RBS (RBS), Sumitomo (SMFG) hold talks on RBS Citizens, WSJ says
Mitsubishi UFJ Financial Group (MTU) has considered bid for RBS’s (RBS) Citizens, Reuters reports
General Motors (GM) engineers knew about ignition problems, WSJ reports

SYNDICATE

Actinium Pharmaceuticals (ATNM) files $200M mixed securities shelf
Arlington Asset Investment (AI) files to sell 2.75M common shares
Box, Inc. (BOX) files registration with SEC for IPO
CommScope (COMM) files to sell 17.5M shares of common stock for holders
Crestwood Midstream (CMLP) files to sell $300M in common units
CyrusOne (CONE) files $600M mixed securities shelf
CyrusOne (CONE) files to sell 44.48M shares of common stock for holders
Farmland Partners (FPI) files 4.67M share IPO
MoneyGram (MGI) files to sell 8M shares of common stock
MoneyGram (MGI) files to sell 8M shares of common stock for holders
PRO-DEX (PDEX) announces commencement of rights offering
PennyMac (PFSI) files to sell 5.55M shares of common stock for holder
SciQuest (SQI) files to sell 3M shares of common stock
Veeva (VEEV) files to sell 12M shares of common stock in an amended S-1 filing
Western Asset Mortgage (WMC) files $400M mixed securities shelf

via Zero Hedge http://ift.tt/1jBct5o Tyler Durden

In 2007, reporter Charles Davis asked then-Chairman of the Senate Intelligence committee – Jay Rockefeller – about clandestine U.S. operations against a foreign government.

Here’s the exchange (listen to the minute plus recording or just listen to the 20-second money quote):

DAVIS: Reports quote administration officials as saying this is going on and it’s being done in a way to avoid oversight of the Intelligence Committee. Is there any way—

ROCKEFELLER: They’ll go to any lengths to do that, as we’ve seen in the last two days [during hearings on FISA].

DAVIS: Is there anything you could do in your position as Chairman of the Intelligence Committee to find answers about this, if it is in fact going on?

ROCKEFELLER: Don’t you understand the way Intelligence works? Do you think that because I’m Chairman of the Intelligence Committee that I just say I want it, and they give it to me? They control it. All of it. ALL of it. ALL THE TIME. I only get –  and my committee only gets –  what they WANT to give me.

This is shocking … but not new.

The NSA was created in secret … and Congress wasn’t even notified.

During the Vietnam war, the NSA spied on two prominent politicians: Senators Frank Church and Howard Baker.  Church was the chairman of the committee investigating wrongdoing by the NSA and other intelligence agencies.

Reuters notes:

This power struggle burst into public view during the Church Committee hearings of the  mid-1970s. The Senate hearings stunned the nation with revelations about CIA assassination plots and illegal activities. The result was the creation of congressional committees designed to give the lawmakers greater control over intelligence.

 

In the aftermath of the horrific September 11 attacks, however, President George W. Bush, aided and abetted by his powerful vice president, Dick Cheney, essentially gave the CIA [and all other intelligence agencies] a free pass to fight the  ”war on terrorism.”

 

***

 

The battle erupted on the Senate floor on Tuesday when Senator Diane Feinstein (D-Calif.), the intelligence panel’s chairwoman and normally a staunch CIA defender, denounced it for allegedly spying on committee investigators and violating the constitutional separation of powers.

 

***

 

The Senate investigators in that basement had discovered an internal CIA study that appeared to agree with many of the Senate report’s critical findings. Senator Mark Udall (D-Colo.) said the internal study “conflicts” with [CIA head] Brennan’s rebuttal. CIA officials suspected that the Senate investigators had obtained unauthorized access to the internal study, and yanked the documents from the  basement computers. Feinstein said Tuesday that the CIA had not only searched the committee’s computers but had referred the matter  to the Justice Department as a criminal case.

The White House has also withheld 9,400 documents from the Senate’s CIA torture investigation.

The Washington Times reported in 2006 that – when high-level NSA whistleblower Russell Tice offered to testify to Congress about this illegal spying – he was informed by the NSA that the Senate and House intelligence committees were not cleared to hear such information:

Renee Seymour, director of NSA special access programs stated in a Jan. 9 letter to Russ Tice that he should not testify about secret electronic intelligence programs because members and staff of the House and Senate intelligence committees do not have the proper security clearances for the secret intelligence.

(And see this.)

Former high-level NSA executive Bill Binney points out how absurd that statement is:

Russ Tice … was prepared to testify to Congress to this, too, and so NSA sent him a letter saying, we agree that you have a right to go to Congress to testify, but we have to advise you that the intelligence committees that you want to testify to are not cleared for the programs you want to speak about. Now, that fundamentally is an open admission … by NSA that they are violating the intelligence acts of 1947 and 1978, which require NSA and all other intelligence agencies to notify Congress of all the programs that they’re running so they can have effective oversight, which they’ve never had anyway.

It was widely reported in 2009 the CIA had hidden a major program from Congress.

To this day, Congress members get more information about NSA spying from reading the newspaper than they get in classified NSA briefings.

Congressman Justin Amash said that the NSA would only divulge information in classified briefings if Congress guessed at the right questions:

Amash said that intelligence officials are often evasive during classified briefings and reveal little new information unless directly pressed.

 

“You don’t have any idea what kind of things are going on,” Amash said. “So you have to start just spitting off random questions. Does the government have a moon base? Does the government have a talking bear? Does the government have a cyborg army? If you don’t know what kind of things the government might have, you just have to guess and it becomes a totally ridiculous game of twenty questions.“

A senior staffer for the Chair of the Senate Intelligence Committee – one of the biggest apologists for NSA spying- confirms Amash’s statement:

Sen. Dianne Feinstein (D-Calif.), chairman of the Senate Intelligence Committee, said in August that the committee has less information about, and conducts less oversight of, intelligence-gathering that relies solely on presidential authority. She said she planned to ask for more briefings on those programs.

 

“In general, the committee is far less aware of operations conducted under 12333,” said a senior committee staff member, referring to Executive Order 12333, which defines the basic powers and responsibilities of the intelligence agencies. “I believe the NSA would answer questions if we asked them, and if we knew to ask them, but it would not routinely report these things, and in general they would not fall within the focus of the committee.”

In other words, the intelligence agencies are rogue.

Congress Not Informed that the Constitution Was More Or Less Suspended

But perhaps the most dramatic example of the Executive branch wholly stonewalling Congress occurred when Dick Cheney implemented “Continuity of Government” plans on 9/11.  This created a “shadow government” which largely sidelined Congress and suspended the Constitution.  But Congress wasn’t even informed.

As CBS pointed out, virtually none of the Congressional leadership knew that Continuity of Government (“COG” for short) had been implemented or was still in existence as of March 2002:

Key congressional leaders say they didn’t know President Bush had established a “shadow government,” moving dozens of senior civilian managers to secret underground locations outside Washington to ensure that the federal government could survive a devastating terrorist attack on the nation’s capital, The Washington Post says in its Saturday editions.

 

Senate Majority Leader Thomas A. Daschle (D-S.D.) told the Post he had not been informed by the White House about the role, location or even the existence of the shadow government that the administration began to deploy the morning of the Sept. 11 hijackings.

 

An aide to House Minority Leader Richard A. Gephardt (D-Mo.) said he was also unaware of the administration’s move.

 

Among Congress’s GOP leadership, aides to House Speaker J. Dennis Hastert (Ill.), second in line to succeed the president if he became incapacitated, and to Senate Minority Leader Trent Lott (Miss.) said they were not sure whether they knew.

Aides to Sen. Robert C. Byrd (D-W. Va.) said he had not been told. As Senate president pro tempore, he is in line to become president after the House speaker.

CNN reported:

Senate Majority Leader Tom Daschle, D-South Dakota, said Friday he can’t say much about the plan.

 

“We have not been informed at all about the role of the shadow government or its whereabouts or what particular responsibilities they have and when they would kick in, but we look forward to work with the administration to get additional information on that.”

Indeed, the White House has specifically refused to share information about Continuity of Government plans with the Homeland Security Committee of the U.S. Congress, even though that Committee has proper security clearance to hear the full details of all COG plans.

Specifically, in the summer 2007, Congressman Peter DeFazio, on the Homeland Security Committee (and so with proper security access to be briefed on COG issues), inquired about continuity of government plans, and was refused access. Indeed, DeFazio told Congress that the entire Homeland Security Committee of the U.S. Congress has been denied access to the plans by the White House.

 

(Or here is the transcript).

The Homeland Security Committee has full clearance to view all information about COG plans.

DeFazio concluded: “Maybe the people who think there’s a conspiracy out there are right”.

University of California Berkeley Professor Emeritus Peter Dale Scott points out that – whether or not COG plans are still in effect – the refusal of the executive branch to disclose their details to Congress means that the Constitutional system of checks and balances has already been gravely injured:

If members of the Homeland Security Committee cannot enforce their right to read secret plans of the Executive Branch, then the systems of checks and balances established by the U.S. Constitution would seem to be failing.

 

To put it another way, if the White House is successful in frustrating DeFazio, then Continuity of Government planning has arguably already superseded the Constitution as a higher authority.

Postscript: Whistleblowers allege that the intelligence agencies are blackmailing Congress.

In any event, the courts don’t have any oversight over the intelligence agencies either:

• A Federal judge who was on the secret spying court for 3 years says that it’s a kangaroo court

• Even the current judges on the secret spying court now admit that they’re out of the loop and powerless to exercise real oversight.

• When these judges raised concerns about NSA spying, the Justice Department completely ignored them

 

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Submitted by Dingding Chen of The Diplomat,

via Zero Hedge http://ift.tt/1h3HmAo Tyler Durden

In the land of the free and the home of the entitled, the sad (but true) nature of income inequality’s inexorable rise in the past few years has a somewhat more startling impact on the future. With work being punished for the marginal employee and the wealth effect concentrated in the hands of the great and good, the following two charts show clearly the sad fact that those who need to save for the future the most don’t (and likely can’t) and those with all the income save the most (and thus ‘spend’ the least). As we noted previously, the rich have the assets and the poor have the debt (and debt is not wealth).

 

As MarketWatch’s Matthew Heimer notes, a recent study shows that 36% of Americans had saved $1,000 or less for retirement.

The following charts show just how intensely the problem of scanty retirement savings is concentrated among lower earners.

 

Among households that earn less than $25,000 a year, around 75% have less than $1,000 saved, and almost 95% have less than $25,000.

 

Once you get to the middle income range, the outlook brightens a little: About half of all households earning between $50,000 and $75,000 have at least $25,000 put away, and around 20% of that group have saved at least $100,000.

 

Among six-figure earners, as you’d expect, the retirement balances look healthier still: More than 40% have saved at least $250,000, and 10% have saved at least $1 million.

 

…

 

Of course, just because you’re earning well doesn’t mean you’re saving much; about 12% of this high income group has saved less than $25,000 for retirement. 

 

 

So there it is – those that need to save can’t (or won’t) and those that don’t need to save do… so why again is Fed policy aimed at pumping up the assets of the wealthy (who are relative over-savers and under-consumers) in an economy reliant on the marginal consumer to bring home the bacon for everyone?

 

As we noted previously,

 

Why is it important? Simple – contrary to the Fed’s flawed DSGE models, it is the poor who
are more likely to consume. And logically with their purchasing power
being funneled to the rich with every additional billion in monthly debt
monetization, they purchase less and less. As the slow but steady contraction in the economy over the past five years has proven beyond a reasonable doubt.

But hey: at least Hamptons’ houses have never been more expensive and the Russell 2000 keeps on hitting daily all time highs. Thank you “wealth effect.”

 

Source: Marketwatch

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