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Submitted by Lance Roberts via RealInvestmentAdvice.com,

Retail-Less

Despite all of the cheering by the mainstream media that the economy is “doing great” and “no recession” in sight, a look at small business sales trends and retail sales certainly suggest a very different story.

We recently saw the “retail sales figures” for March which were, to say the least, disappointing. I say this because these numbers expose the flawed economic theories of the mainstream proletariat that the abnormally warm winter and exceptionally low energy prices should boost spending due to the relative savings.

Despite ongoing prognostications of a “recession nowhere in sight,” it should be remembered that consumption drives roughly 2/3rds of the economy. Of that, retail sales comprise about 40%. Therefore, the ongoing deterioration in retail sales should not be readily dismissed.

More troubling is the rise in consumer credit relative to the decline in retail sales as shown below.

What this suggests is that consumers are struggling just to maintain their current living standard and have resorted to credit to make ends meet. Since the amount of credit extended to any one individual is finite, it should not surprise anyone that such a surge in credit as retail sales decline has been a precursor to previous recessions.

We can also see the problem with retail sales by looking at the National Federation of Independent Business Small Business Survey. The survey ask respondents about last quarter’s real sales versus next quarters expectations.

Not surprisingly, expectations are always much more optimistic than reality turns out to be. However, what is important is that both actual and expected retail sales are declining from levels that have historically been indicative of a recession.

Today, consumer credit has surged, without a relevant pickup in spending, to more than 26% of DPI. Given that it took a surge of $11 Trillion in credit to offset a decline in economic growth from 8% in the 70’s to an average of 4% during the 80’s and 90’s, it is unlikely that consumers can repeat that “hat trick” again. 

A Different Valuation Measure

I recently discussed the effect of stock valuations on future long-term returns. To wit:

“I believe in long-term investing. I do think that you should buy quality investments and hold them long-term. However, what Wall Street, and many financial advisors miss, is the most important point of this argument which is ‘at the right valuation.’

 

Valuation, what you pay for an investment, is the single biggest determinant of future returns.

 

According to Dr. Roberts Shiller’s data, the Cyclically Adjusted P/E Ratio is currently hovering around 24x earnings. It is here that the problem for long-term investors currently resides. The chart below shows the average real (inflation-adjusted) 20-year returns of a $1000 investment made when P/E ratios first hit 20x or 10x earnings.”

As you can see, valuations make a huge difference.

However, not surprisingly, shortly after I published the article I received numerous emails citing low interest rates, accounting rule changes, and debt-funded buybacks all as reasons why “this time is different.”  While such could possibly be true, it is worth noting that each of these supports are both artificial and finite in nature.

Currently, the aging U.S. economy, where productivity has exploded, wage growth has remained weak and whose households are weighed down by surging debt, remains mired in a slow-growth funk. This slow-growth funk has, in turn, put a powerful shareholder base to work increasing pressure on corporate managers not to invest, and to recycle capital into dividends and buybacks instead which has led to a record level of corporate debt. 

These actions, as suggested above, are limited in nature. For a while, these devices kept ROE elevated, however, the efficacy of those actions has now been reached.

Importantly, profit margins and ROE are reasonably well-correlated which is what creates the perception that profit margins mean-revert. However, ROE is a better indicator of what is happening inside of corporate balance sheets more so than just profit margins. The current collapse in ROE is likely sending a much darker message about corporate health than profit margins currently. 

While the decline in reported earnings, which are subject to accounting manipulations and share buybacks have indeed declined, it is not nearly to the extent as shown by both ROE and Corporate Profits After Tax.

While traditional P/E ratios have surged to 24x earnings recently, Price to Corporate Profits Per Share (P/CP) has exploded to the second highest level on record.

Historically speaking, it is unlikely that with reported earnings early in the reversion process that we will see a sharp recovery in the second half of the year as currently expected by the majority of mainstream analysts. The suggests that as long as the Fed remains active in supporting asset prices, the deviation between fundamentals and fantasy will continue to stretch to extremes. The end result of which has never “been different this time.” 

Did The Fed Kill The Bear?

Accordingly, the chart above, investor sentiment suggests the market has just completed a recessionary “bear market” with virtually no substantial losses. This can also be seen by looking at just the amount of “bearish” sentiment in the market as well.

As noted, the 13-week moving average of bearish sentiment has reached levels currently that are more normally associated with bottoms to corrective processes as seen in 2010 and 2011 when the Federal Reserve intervened with QE2 and Operation Twist. What is interesting is that all of the support during the current correction has been strictly “verbal” with no real change to market liquidity or accommodation.

“Make me promises, just tell me no lies.”

However, while this surge in bearish sentiment has occurred, which normally denotes a substantial level of fear by investors, there has been no substantial change to actual allocations.

Just some things to think about.

via http://ift.tt/1qWed34 Tyler Durden

In a somewhat stunning decision, SkyNews reports that a US judge has ruled that the families of victims in the 2012 massacre at Sandy Hook Elementary School can sue the maker of the weapon used in the attack, arguing the Bushmaster rifle is a military weapon that should not have been sold to civilians.

As SkyNews reports,

Gun companies had sought to reject the negligence and wrongful death lawsuit filed two years after the attack by nine victims' relatives and a survivor.

 

But Connecticut Superior Court Judge Barbara Bellis said a 2005 federal law protecting gun-makers from lawsuits does not shield the companies from legal action in this case.

 

She ruled that lawyers for the victims' families can still argue the semi-automatic rifle is a military weapon and should not have been sold to civilians.

 

The legal action names Remington Arms, maker of the Bushmaster AR-15 rifle, model XM15-E2S, as well as the distributor and seller.

 

A lawyer for the families, Josh Koskoff, welcomed Thursday's news that the lawsuit can proceed.

 

"We are thrilled that the gun companies' motion to dismiss was denied," he said.

 

"The families look forward to continuing their fight in court."

Gunman Adam Lanza used the Bushmaster to kill 20 children and six adults at the school in Newtown, Connecticut, in December 2012.

Earlier this week a judge ruled that state police do not have to release to media some of Lanza's writings, including his spreadsheet ranking mass murders.

 

Media were also seeking publication of 20-year-old Lanza's notebook titled The Big Book of Granny.

 

It contains a story he wrote in fifth grade featuring a character who likes hurting people, especially children.

So an otherwise totally normal kid driven to massacre by the 'availability' of a weapon? yep makes perfect sense.

via http://ift.tt/1Sd603c Tyler Durden

By EconMatters

 

China Econ Data out tonight at 10:00 p.m. CST including a look at first quarter GDP.

© EconMatters All Rights Reserved | Facebook | Twitter | YouTube | Email Digest | Kindle   

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A recurring oil market theme in the past few months has been the speculation that despite its jawboning that it is ready and willing to boost crude production, Iran has had a hard time getting both the funding and the required infrastructure to substantially boost its production to recapture its supply levels last seen before the recent US sanctions. That however appears to be changing fast.

Recall all those tankers we have profiled before on anchor next to the Iran shore?

 

They have finally started to move.

According to Bloomberg, tankers carrying about 28.8 million barrels of crude, or more than 2 million a day, left the Persian Gulf country’s ports in the first 14 days of April, according to tanker-tracking data. That compares with a rate of about 1.45 million barrels a day in March. As a result, Iran’s crude shipments have soared by more than 600,000 barrels a day this month, adding to the pressure facing producer nations as they prepare to meet in Doha to discuss freezing output to prop up oil prices.

Putting that number in context, 600,000 barrels a day is precisely how much US oil production has declined by since peaking late last year as a result of the collapse in oil prices and the mothballing of various rigs.

Where is all this fresh oil headed? According to Bloomberg, most of these tens of millions in fresh barrels of oil are headed to China which will be the biggest recipient of Iranian crude loaded so far this month, while flows to Japan are resuming after halting in March, the tracking data show.

To be sure Iran is taking advantage of supply disruptions at other OPEC exposrters: Nigeria and Iraq saw a combined decline of 90,000 barrels a day, according to the International Energy Agency.

As Bloomberg notes, and as the IEA stated earlier today, the long-overdue surge in Iran volumes confirm that the much anticipated rebalancing of the oil market will have to come from countries outside OPEC – read US shale – provided that crude prices don’t rise too far, said Ole Hansen, head of commodity strategy at Saxo Bank A/S. If Iran “can keep up sales of that magnitude during the coming months when supply disruptions from northern Iraq and Nigeria begin to fade, we may have to look a bit further out for that rebalancing,” he said.

Of course, there is another problem: what if it is not just a supply problem. What if it is demand, and what if all those skeptics who are warning about a global slowdown are right and the market remains drastically oversupplied (according to Saudi Arabia to the tune of 2-3mm bbl/day, and keep in minda the Saudis have another 2mmb/d in spare capacity that can be turned on rather quickly)?

Just yesterday OPEC cut its estimates for demand growth in 2016 by 50,000 barrels a day because of a slowdown in Latin America, projecting worldwide growth of 1.2 million barrels a day. Other factors for the drop in demand: weakness in Brazil’s economy, the removal of fuel subsidies in the Middle East and milder winter temperatures in the northern hemisphere could prompt further cutbacks.

 

Because if Iran can singlehandedly offset the entire US production decline to date with what modest capacity it has, just how will the oil market “rebalancing” which every has pegged for the second half of 2016 actually take place? And more improtantly, what happens when the contango finally flattens and that 100+ million in oil stored offshore has to be brought onshore.

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Submitted by Claire Bernish via TheAntiMedia.org,

Paralleling the increasingly draconian policies marking a worldwide descent into fascism, are massive protests — born in the Arab Spring, but arguably an angrier, more potent extension of the Occupy movement — indicative of an unprecedented tipping point.

 

We, the people of this planet, now stand together, gazing over the precipice whose murky depths of State repression demand we ask one imperative question: have we finally had enough?

“[W]e have lost the way,” Charlie Chaplin implores us to consider in his renowned and timeless monologue from The Great Dictator, because “Greed has poisoned men’s souls — has barricaded the world with hate; has goose-stepped us into misery and bloodshed.”

And now, 76 years after Chaplin cautioned us to scrutinize our collective humanity, that avarice — evidenced in imperialism championed by the U.S. government — has ossified a lazy apathy in the populace, of seeming impenetrable resolve. Until now.

Though sparks of revolution have sporadically ignited people’s movements countless times before, our present tipping point most likely began with the self-immolation of a young fruit cart vendor in Tunisia in 2011. So incensed by an unjust law and a policewoman’s disrespectful public slap as she attempted to confiscate his only means of supporting a large family, Mohamed Bouazizi set himself on fire in front of a government building  — and set off the tremendous wave of protests for democracy and human rights, which came to be monikered the Arab Spring.

Occupy followed shortly afterward in a moment many believed with certainty would force an unparalleled shift toward freedom. But the government, keen to maintain its maniacal chokehold of control, also knew this — and infiltrated the movement to impart divisive infighting and confusion to effectively quash the threat.

But optimism, kindled by both protests — all sardonic arguments to the contrary aside — kept the vision for a more harmonious, just world burning in hearts and minds everywhere. Waiting.

Now, as the world’s so-called leaders, bereft of laudable intent, disseminate pawns and weapons of the war machine to geostrategically favorable locations — to fight the terrorist group it birthed through war on the concept of terrorism — it has become clear the end of empire’s brutal reign draws near. Though perhaps the greater bulk of people in the United States, under propaganda’s intoxicating spell, remain convinced the battle must be fought against the self-described Islamic State, more and more of us understand the imperialism-fueled root cause must, instead, be dismantled.

If the hardened cynicism Chaplin referred to elicits only doubt — doubt about that end, but also of the potential to maneuver that end in the people’s favor — consider the following, albeit brief and by no means complete, summary of currently-unfolding events.

Crushing austerity and economic collapse in Greece led to an uprising for change last year, as the people categorically rejected further hardship imposed by international creditors stemming from a debt crisis. A stunning reversal by the government of their line in the sand further destabilized the nation, which also continues to contend with an influx of refugees from Syria and the Middle East. In January, a farmer from Crete announced a telling, if perhaps extreme, warning which handily summarizes growing sentiment around Europe and the world.

“It’s war,” Dimitris Vergos declared in the Guardian. “If they [politicians] go on pushing us to the edge, if they want to dehumanise us further, we will come to Athens and burn them all.”

Economic austerity measures fanned flames of outrage — already established with an authoritarian constriction of rights in Europe following the attacks in Paris and Brussels — which have compelled France’s blossoming Nuit Debout (Up All Night) movement into massive protests echoing those similar events in Greece. Nuit Debout called for international solidarity to stand against power, stating in part:

“This movement was not born and will not die in Paris. From the Arab Spring to the 15M Movement, from Tahrir Square to Gezi Park, Republic square and the plenty of other places occupied tonight in France are depicting the same angers, the same hopes and the same conviction: the need for a new society, where Democracy, Dignity and Liberty would not be hollow shells.”

Indeed, the thwarting and exploitation of human rights around the world led one human rights group to issue a startlingly broad, global warning to civilians.

“Your rights are in jeopardy: they are being treated with utter contempt by many governments around the world,” Salil Shetty, Secretary General of Amnesty International, implored. “Millions of people are suffering at the hands of states and armed groups, while governments are shamelessly painting the protection of human rights as a threat to security, law and order or national ‘values’ […]

 

“The misguided reaction of many governments to national security threats has been the crushing of civil society, the right to privacy and the right to free speech; and outright attempts to make human rights dirty words, packaging them in opposition to national security, law and order and ‘national values.’ Governments have even broken their own laws in this way.”

Perhaps attempting to head off global revolution, the recent supposed leak of the Panama Papers has now been intimated to be a clandestine operation by the CIA. The agency has been accused of playing a role, and might have deemed the leak necessary to prevent the people’s usurpation of power — a paltry quelling so imperative, the agency could have felt it acceptable to allow “collateral damage” in the downfall of various world leaders and CIA-associated organizations.

As repercussions from the leak rang out worldwide, Americans remained fixated on the glorious conflagration that is the shit show dominating the 2016 presidential election. Bernie Sanders’s and Donald Trump’s challenges to the establishment political paradigm reinforce growing calls for an end to the Democrat-Republican duopoly’s vise grip on American politics. Mounting blatant instances of election fraud and realizations brought by the two parties’ employment of superdelegates to install establishment leaders — no matter the people’s feelings on the matter — have, perhaps, finally laid bare that elections are but an illusion used to deceive the masses into believing they have a say in who rules the nation.

Accordingly, that epiphany sparked ongoing protest in Washington, D.C., calling for nothing less than a drastic overhaul of the entire corrupt system, which targets moneyed influence of not only elections, but government, itself. Democracy Spring marched to Washington to stage a peaceful, nonviolent sit-in at the Capitol building — where protesters agreed to be, and thus were, arrested simply for speaking truth to plutocratic power. While the corporate media napped, hundreds were hauled away in cuffs on the first day of the sit-in — and hundreds more the following day.

It’s arguable the U.S. has finally taken to heart Nuit Debout’s statement, which ends:

“This movement is yours too. It has no limit, no border and it belongs to all of those who wish to be part of it. We are thousands, but we can be millions.”

Outrage, desperation, ire, utter frustration — on an unprecedented, global scale. Will we be millions?

“You, the people, have the power! The power to create machines; the power to create happiness. You, the people, have the power to make this life free and beautiful; to make this life a wonderful adventure. Then, in the name of democracy, let us use that power. Let us all unite!

 

“Let us fight for a new world — a decent world — that will give men a chance to work; that will give youth a future, and old age a security. By the promise of these things, brutes have risen to power. But they lie! They do not fulfill that promise — they never will!”

Will we finally — finally — heed the warnings Chaplin suggested we should over three-quarters of a century ago?

Gazing into the abyss of worsening future authoritarian control, will we turn and walk away, ignoring our differences for the sake of our mutual betterment around the planet — or will we scoff, succumb, and tumble over the edge in our complacency?

The choice is ours.

via http://ift.tt/22xJC7p Tyler Durden