Tag: news

Well this is a little awkward…

The Taliban-supporting, gay-punishing, father of Orlando mass-murderer Omar Mateen appeared to find the words of Presidential candidate Hillary Clinton appealing as he cheered her on at a campaign rally in Kissimmee (just south of Orlando!).

His reason for being there… Simple:

"Hillary Clinton is good for United States versus Donald Trump, who has no solutions.."

Hillary Clinton spoke to a crowd in Kissimmee, just south of Orlando.  She was supposed to be talking jobs, but started the speech off paying tribute to those affected by the Pulse Nightclub shooting.

"I know how many people, families, loved ones, and friends are still grieving, and we will be with you as you rebuild your lives."

But local media WPTV happened to notice the man, who has a mustache and was wearing a red hat, behind Clinton. It was Seddique Mateen, the father of Orlando mass shooter Omar Mateen.

NewsChannel 5 asked Mateen what he was thinking about when Clinton spoke about the Orlando incident.

 

"We've been cooperating with the federal government, and that's about it," he said. "Thank you."

Mateen didn't want to answer any other questions, but just hours later, WPTV ran into him by chance at a rest stop on the way back to West Palm Beach.  He wanted to do an interview…

…and show us a sign he made for Clinton.

Finally when asked if he thought some people would be surprised to see him there, especially given the proximity to Orlando.

"Why should they be surprised?  I love the United States, and I've been living here a long time," Mateen said.

Of course, the fact that the mass-shooter's father was so perfectly placed seated right behind her is probably just a coincidence… but The Clinton campaign was very quick to deny it once social media noticed…

"The rally was a 3,000-person, open-door event for the public. This individual wasn't invited as a guest and the campaign was unaware of his attendance until after the event."

Still, we are sure if Matteen's appearance had been embraced by the nation's liberals (for being brave enough to appear and support real change in America or something like that) then the campaign spin may have been different.

One final piece of food for thought…

Imagine Osama Bin Laden's father seated directly behind Bush at a rally right after 9/11 in NYC. That's what just happened in Orlando.

— The_Real_Fly (@The_Real_Fly) August 9, 2016

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Over the past several months, the topic of GAAP vs non-GAAP number (and specifically the near-crisis gap that has formed between the time series) has gotten increasingly prominent attention by both regulators and the mainstream media. But while attention has focused on the difference between GAAP and non-GAAP earnings, and EPS, few have paid attention to intermediate financial data, such as profit margins. Perhaps this is a substantial oversight, because as the following charts from Deutsche Bank show, on a GAAP basis, trailing 12 month GAAP margins have now tumbled to the lowest level since before the global financial crisis; in fact the last time GAAP net margins were here was some time in 2006, when the S&P was trading about 700 points lower.

In other words, profit margins are not only sliding on a non-GAAP basis, they are crashing if observed on an unadjusted, “unaddbacked”, un-proforma GAAP basis. This is important because as we first wrote last October, five of the past six times corporate margins dropped by a similar amount, the US ended in a recession. Conveniently, in the past week, Barclay’s Joanthan Glionna issued a note reminding readers of precisely this. Here is what he said.

Late-cycle rallies that last are supported by expanding profit margins. This was clear in 1988, 1998, and 2006. So where do profit margins go from here? We see 40bp of upside, but not much more than that and certainly not a new record. We expect margins will recover over the next two quarters because oil prices are now above $40 per barrel and that should alleviate operating distress and impairment charges from the energy sector. Our upside case envisions S&P 500 profit margins increasing from 8.8% back to 9.6% in a scenario of $55 oil.

 

But outside of the energy sector we see scant improvement forthcoming. It is true that economic conditions are stable and the fears of a recession that prevailed during the first few months of the year are gone. The dollar rally has stalled and even manufacturing data looks healthier. But there are a few convincing reasons to believe we are past the cyclical peak for profit margins. First, top-line growth is too slow. Second, wages are rising. Third, margins in the all-important tech sector are falling.

 

Slow growth hinders possible margin expansion. When modeling earnings, revenue growth and changes to profit margins are often considered separate. They are not. Because of operating leverage the best predictor of the direction of profit margins is top-line growth. When growth is strong, margins expand. Costs just need to be contained. In contrast, when growth is absent margins must be boosted through cost cuts, which are more difficult to enact. Global economic data are providing a strong indication that top-line growth for America’s largest and most international companies will remain subdued. We forecast 2% revenue growth for the S&P 500 in 2016.

 

The biggest secular change in profit margins has been the decline in labor costs in relation to revenue. We have discussed this frequently in prior reports but the portion of gross value added paid out in compensation expenses by non-financial corporations have declined from 66% to 60% over the last 15 years. This trend is unlikely to continue. Wage growth has picked up. The Bureau of Economic Research’s data show that compensation costs at nonfinancial corporations are increasing significantly faster than sales. Considering that labor is the largest aggregate expense, a continuation of this mismatch would surely lead to lower profit margins. To be sure, we do not expect compensation costs to continue growing faster than revenue, but it is a risk.

 

Lastly, we would highlight the declining profit margin of the technology sector as a downside risk for the profit margin of the S&P 500. Recall, the technology sector is responsible for 19% of the S&P 500’s net income. Over the last few years the profit margins of technology companies have soared to great heights. The profit margin of the sector reached almost 18%, which is double its long-term average. But, the future may be less bright as the net profit margin of the sector has been declining for more than a year.

Finally, putting it all in visual context:

It is important to note that profit margins climbed to a new high during each of the prolonged late-cycle rallies we analyzed. This is shown in Figure 8. We believe this additional expansion in margins played a critical role in extending the bull markets of these periods. But we do not envision the profit margin of the S&P 500 reaching a new high again during this business cycle. The contraction has been too severe and even with a recovery in the energy sector we believe a rational upside case for margins is 9.6%, which remains below the peak of 9.9% reached in 2014.

Now the punchline: all of the above assume non-GAAP margins. If one uses “real” data, which factors in actual revenues and costs, what one gets is a profit margin of just over 8%, or a drop of nearly 200 bps from the recent highs, back to a level last observed when the S&P was some 700 points lower. More importantly, there has never been a GAAP margin drop as steep as this one, without a recession following immediately after.

As for Barclays’ contention that margins rebounding to sub all time high of 9.6% (non-GAAP), the only way that can feasibly happen is if the price of crude returns to $80 or higher, or companies lay off millions to cut overhead and boost margins, both outcomes that would have a substantially adverse impact on the broader consumer economy. 

So stocks or the economy: Pick your non-GAAP poison.

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So far the failure of any single Brexit doomsday prediction to materialize has led to even more embarrassment for all the “experts” which forecast doom and gloom should the UK dear to divorce from Europe. Last week even Mark Carney had to admit his dire warnings were wrong, when the BOE toned down its immediate “technical recession” forecasts, now seeing “only” a 0.7% growth rate in 2017, a far cry from the outright contraction it had warned about (that did not stop it however, from cutting rates to a record low and launching the latest corporate bond monetization program). And now, thanks to the ongoing drop in the sterling, another fringe benefit of Brexit has emerged.

As Sky News reports, the slump in the pound since the Brexit vote has produced an immediate boost for UK tourism with flight bookings into the country up on last year, according to a new report.

As closely documented, the sterling has fallen by about 10% against both the US dollar and the euro in the wake of the poll, making trips to Britain cheaper for international visitors. As a result International net bookings rose 4.3% in the 28 days to 21 July according to travel information firm ForwardKeys.

It reverses a trend in the month before the referendum when bookings were 2.8% lower.

ForwardKeys chief executive Olivier Jager said: “Brexit had an immediate, positive impact on inbound tourism to the UK, which is converting into better than anticipated arrivals.”

A rise in UK visitors attracted by the cheaper pound could translate to a better summer for tourist attractions, restaurants, hotels and shops – who are already expecting to benefit from a growth in domestic “staycation” breaks as Britain’s consumers tighten their belts amid Brexit uncertainty.

The ForwardKeys figures showed bookings from outside Europe up 8.6% in the four weeks after the poll, having been down 0.1% in the month before. The rise was driven by visitors from Hong Kong, the US and Canada. Bookings from Europe were 1.8% lower, an improvement on the 6.8% decline recorded in the pre-Brexit month.

In summary, it is looking increasingly likely that George Soros, who infamously predicted that “the Brexit crash will make all of you poorer” days before the Brexit vote, was dead wrong while outspoken, if mocked contrarians, like SocGen’s Albert Edwards, were spot on in suggesting that Brexit is just what the US economy so urgently needed.

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Submitted by Matthew Borin via CFA Institute blog,

Negative interest rates are unsustainable and once investors decide to stop paying for the privilege of holding government debt, a banking crisis could result, says James Grant.

The founder of Grant’s Interest Rate Observer was one of several speakers at the New York Society of Security Analysts (NYSSA)’ Annual Benjamin Graham Conference to remark on the ramifications of unprecedented loose monetary policy.

Historic Lows

Central banks are treading in uncharted waters. Sidney Homer and Richard Sylla, the authors of A History of Interest Rates, found no instance of negative rates in 5,000 years. Now there are $11.7 trillion invested in negative-yield sovereign debt, including $7.9 trillion in Japanese government bonds and over $1 trillion in both French and German sovereign debt.

Grant posed a tongue-in-cheek question: “If these are the first sub-zero interest rates in 5,000 years, is this not the worst economy since 3,000 BC?”

This is not a bad economy by most measures. Household wealth in the United States has grown steadily since the Great Recession. If these gains were the result of greater productivity, interest rates would not need to stay at historic lows. Grant says they are “a sign of someone’s thumb on the currency.” Negative rates are propping up risk assets. He critiqued US Federal Reserve chair Janet Yellen’s touting of the bull market in equities as a sign of prosperity by alluding to Brexit voters.

“Asset prices have failed to pacify the world’s unprofitable voters,” Grant said.

The War on Cash

Investors have fallen into the trap of thinking that the future will be like the past, Grant says. The period of falling yields and rising bond prices that began in 1981 is entering its 35th year. He noted that a 35-year bear market preceded this. Yet the yield curve for Swiss bonds is sub-zero for the next 30 years, thereby implying that investors expect negative rates to persist for a long time.

Another reason to think rates must begin to rise: Bonds with negative yields are worse investments than cash. That has always been the reason for zero lower bound in monetary policy. So far, investors have been willing to pay for the convenience and security of storing wealth in banks and bonds, but if yields become sharply negative, some savers will no longer be able to accept guaranteed compounded losses. Then, conventional wisdom says, they will hoard cash, which returns 0%.

To maintain increasingly lower interest rates would require a “war on cash,” Grant said. He envisions a means by which the Fed would discourage and stigmatize using cash, and ultimately implement an unfavorable exchange rate on physical currency.

Central Bank Acrobatics

Central bankers have taken the evolution of currency from a measure of value to a macro-policy tool to, and perhaps beyond, its limits, Grant says. A federal funds rate below zero charges banks to store deposits at the central bank. These negative rates are passed on to depositors, which incentivizes them to spend rather than save. To avoid paying negative rates, banks and individuals buy bonds, so yields fall below zero when demand and price spike.

These “central bank acrobatics” create distortions, like inflated equity prices. Another example: Italian 10-year notes yield roughly 20 basis points (bps) less than US notes. If this is not evidence of the European Central Bank (ECB)’s currency manipulations, Grant said, then investors must expect “a return to the glory of Rome.” Even as the pound fell 12% after Brexit, 10-year gilt yields fell below 1%.

“Where is the pushback from the market?” Grant asked.

Yellen has said the Fed could set the funds rate below zero in the event of a recession. Grant put the odds of sharply negative rates in the case of a recession at “perhaps not 60%,” but noted a confidence in negative rates among central bankers. After the Great Recession, a near-zero funds rate and quantitative easing (QE), which raised inflation expectations, had already reduced real yields to below zero.

Looming Crises

Though savers are yet to hoard cash in their mattresses, negative rates could have other consequences. Negative funds rates squeeze banks’ profit margins. Low enough rates could cause many to become unprofitable. Pension funds depend on bond yields to meet their payment requirements. Grant says it is now impossible for them to hit 7% return targets. Insurance companies invest their premiums in fixed income, and are “dying on the vine” according to Grant.

If interest rates rise due to inflation or pushback from the market, several countries could have difficulty coping with the higher costs of borrowing. Italian stocks tumbled after Brexit, indicating that investors may fear a debt crisis. Japan will have even more difficulty disposing of its debt. Japan has the highest debt-to-GDP ratio in the world at over 200%, in part due to Abenomics intended to prop up stock prices and inflation. Grant also thinks China’s wealth management products are a threat to default.

Gold: An Investment in Monetary Disorder

Grant acknowledged that gold is “the asset class of choice for calamity hounds,” but suggested that investors consider it. The case for gold, he says, has more to do with the state of money and credit than with Brexit. Grant characterizes the value of gold as the reciprocal of the world’s trust in central banks.

“Radical monetary policy begets more radical policy,” he said. “It seems to me, at some point, markets or voters will put a stop to this.”

If and when that time comes, investors will be looking for physical stores of wealth.

“The case for gold is not as a hedge against monetary disorder, because we have monetary disorder, but rather an investment in monetary disorder,” Grant said.

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Perhaps in indirect response to the Kahn family attacks on Donald Trump, Pat Smith and Charles Woods, parents of Sean Smith and Tyrone Woods who were killed in the Benghazi terrorist attacks on September 11, 2012, have filed a lawsuit against Hillary Clinton alleging, among other things, that her “negligent and reckless” actions with regard to her private email server resulted in the “wrongful death” of their sons.  The lawsuit, filed in the District of Columbia, also accuses Clinton of “defamation” and “intentional infliction of emotional distress” as they claim she has launched a “smear campaign” against the Plaintiffs in an effort to cover up the facts and save her Presidential campaign.

The suit alleges that Clinton’s use of a private email server is what allowed terrorist groups in Libya to obtain the whereabouts of Ambassador Christopher Stevens which ultimately led to the “wrongful death” of their sons:

This information was compromised from the second that it left Defendant Clinton’s private e-mail server and easily found its way to foreign powers including, but not limited to Russia, Iran, China, and North Korea. As a direct result of Defendant Clinton’s reckless handling of this classified, sensitive information, Islamic terrorists were able to obtain the whereabouts of Ambassador Christopher Stevens and thus the U.S. State Department and covert and other government operations in Benghazi, Libya and subsequently orchestrate, plan, and execute the now infamous September 11, 2012 attack.

The suit also alleges that Clinton has gone a “defamatory smear campaign” to paint the Plaintiffs as liars and discredit their claims that Clinton blamed the attacks on a YouTube video in the aftermath of the Benghazi attacks.  The suit goes on to highlight specific instances where Clinton denied that she originally attributed the deaths of the Americans in Benghazi on the YouTube Video.

Defendant Clinton made false and defamatory statements negligently, recklessly, purposefully, and/or intentionally with actual malice as set forth in paragraphs 23(a), (b), (c), and (d) concerning Plaintiffs by stating that Plaintiffs were lying about Clinton having told them that the Benghazi Attack was caused by an anti-Muslim YouTube video.

 

Now, Defendant Clinton, in an attempt to save her reputation and intimidate Plaintiffs and their surviving family members into silence as she attempts to be elected President in the November, 2016 election, has gone on a defamatory smear campaign to paint Plaintiffs as liars in the public eye in order to discredit Plaintiffs, who have been vocal about Defendant Clinton’s pattern and practice of dishonesty regarding what caused the Benghazi attack, its aftermath, and the death of their sons.

 

March 9, 2016 – Democratic Presidential Debate – When asked about Plaintiff Smith’s allegation that Defendant Clinton lied to her by blaming the Benghazi Attack on the YouTube video, Defendant Clinton responded by saying, “I feel a great deal of sympathy for the families of the four brave Americans that we lost at Benghazi, and I certainly can’t even imagine the grief that she has for losing her son, but she’s wrong. She’s absolutely wrong.”

The suit points out the various instances where Clinton did in fact reference the YouTube video as the potential cause of the attack:

After the Benghazi Attack, Defendant Clinton attempted to blame an anti-Muslim YouTube video for inciting the Benghazi Attack. On September 11, 2012, Defendant Clinton stated in a Press Statement, “Some have sought to justify this vicious behavior as a response to inflammatory material posted on the Internet.” Again, on September 12, 2012, in a public speech, Defendant Clinton states, “Some have sought to justify this vicious behavior, along with the protest that took place at our Embassy in Cairo yesterday, as a response to inflammatory material posted on the internet.”

 

On September 14, 2012, Defendant Clinton met privately with the family members of the four Americans who were killed during the Benghazi Attack, including Plaintiffs Pat Smith and Charles Woods (“Woods”) at Joint Base Andrews in Maryland. During the private meeting, Defendant Clinton lied to Plaintiffs and told Plaintiffs that the Benghazi Attack was the result of the anti-Muslim YouTube video that had been posted online and that the creator of the video would be arrested.

 

Woods contemporaneously recorded this September 14, 2012 interaction with Defendant Clinton by writing in his diary, stating that “I gave Hillary a hug and shook her hand, and she said we are going to have the film maker arrested who was responsible for the death of my son.”

Paradoxically, she simultaneously admitted the attack “had nothing to do with the film” to the Egyptian Prime Minister:

In another email the day after the Benghazi Attack, Defendant Clinton directly told the Egyptian Prime Minister “we know the attack in Libya had nothing to do with the film. It was a planned attack, not a protest.”

Unfortunately, video of remarks made by Mrs. Clinton seem to support the claims made by Pat Smith.  Below is a video of comments made by Secretary of State Clinton on September 14, 2012, as the bodies of Tyrone Woods and Sean Smith were arriving home, in which she clearly blames the attacks on a YouTube video (fast forward to about the 1:00 mark for the specific comments).

And then we have the video of Clinton from a recent Democratic Presidential Debate saying the Mrs. Smith is “wrong.” We guess we should just ignore the video above then?  That never happened…nothing to see here.

But we’re sure this was just another couple of “short-circuits” that will conveniently fade away.

Full complaint below

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