Tag: news

Submitted by David Stockman via Contra Corner blog,

That didn’t take long. We’ve just had another short-covering rip from the 1820 Bullard Bottom on the S&P 500 and it’s already petered out. Not even another one of the St. Louis Fed President’s bouncing billiard balls could keep the machines slamming the buy key.

And that’s why there is a monumental market storm brewing dead ahead. Yes, James Bullard is a complete joke who gives zig-zagging a whole new meaning. After yesterday’s about face from rate increase hawk to dove, I’d even be inclined to designate him as a “monetary whirling dervish”. His policy pronouncements fit the urban dictionary’s definition perfectly:

(n.) A person whose behavior resembles a rapid, spinning object. These actions are often spastic fidgeting and incessant babbling. The actions of the whirling dervish are irritating and annoying, often exhausting other people in the immediate vicinity.

You can’t disagree with that, but the issue isn’t Bullard; its the entire central bank policy regime that is now racing towards a fiery dead-end. Bullard is just idiomatic—–the least reluctant of what will soon be a desperately flailing gaggle of Fed heads trying to explain that recession has returned, but that they are out of dry powder without a clue on what to do next.

So it won’t be long before we get the big breakout to the downside. The stock market has been churning and cycling in no-man’s land between 1870 and 2130 on the S&P 500 for 700 days now. There have been upwards of 35 rally attempts and all of them have failed, including this most recent machine driven three-day spasm.

^SPX data by YCharts

It is a sheer understatement to say that the market’s generals are in full retreat and that the internals are looking ever more precarious. As to the latter, fully 60% of the S&P 500 members are down 20% or more and are thereby already wrestling hard with the bear.

Likewise, the FANGs haven’t been able to keep it up, either. After last year’s classic market top—-during which they gained upwards of $500 billion of market cap versus an equal decline for the other 496 companies in the S&P index——they closed down today by $150 billion from year-end levels. Even the generals—-who shed $20 billion of market cap today alone—– are out of firepower.

What is wanted now is the proverbial catalyst—–the take cover alarm that inevitably arouses Wall Street from its bullish slumber. Needless to say, it won’t be found in the technicals or even the earnings season results.

After all, we have just had another down quarter, and based on honest GAAP earnings that you can’t go to jail for reporting to the SEC, the LTM net income per share for the S&P 500 appears to be coming in at about $90. That’s down 15% from the $106 per share cyclical peak posted for the LTM ended in September 2014.

But technicals and earnings do not faze the casino because there is always another take on the stock charts; and reported earnings aren’t even noticed. It’s all about next year’s ex-items hockey stick, and that’s always 10-15% higher than the present.

In fact, for the completed year of 2015 the street consensus for ex-items earnings started out at $137 per share back in March 2014 and appears to be coming in at just $106. But then, what’s a 23% slippage factor when investors have not yet demanded a recall of the sell side hockey sticks.

In fact, the street 12-month consensus for 2016 now stands at $124/share (already down from $135 last spring); and $141 per share for 2017. Presumably, all of the economic headwinds and hiccups will have dissipated by then——-so what’s not to like about a two-year forward multiple of 13.6X?

The water’s warm, jump right in!

Then again, ponder this. The global economy is now visibly faltering under its incredible $225 trillion deposit of debt. The Red Ponzi has clearly entered the crack-up phase of its massive credit boom, and you don’t need Beijing’s medicated numbers to know the truth.

Global trade has started out the year in a pure disaster mode, and one way or another it all links back to China’s collapsing construction site and vastly over-built export machine. Last night Japan reported that exports had plunged by a stunning 13% from last year—–notwithstanding the BOJ’s unstinting efforts to destroy the yen and goose the fading export machine of Japan Inc.

But what is significant is that Japan’s exports to China were down 18%. At the same time, China’s own exports fell by nearly 11% from last January, while the export figure for India was down nearly 14%.

Indeed, there is no better bellwether of the global economy than Korea Inc, yet it reported that sales to foreign customers had come in at negative 18.5%. Likewise, not only were export’s from Asia’s second most important trading hub, Singapore, down 10% from last January, but shipments to China were down by a staggering 25%.

Let’s see. Which central bank is going to revive what is clearly a faltering EM world economy that is staggering under massive, unprecedented debts, and also an incredible surplus of everything?

Not the Peoples Printing press of China, which is desperately trying to stem a tidal wave of fleeing capital. They can for a time pretend that they are supporting the Yuan’s external value while injecting massive gobs of overnight cash into the domestic banking system, but that’s a hard and fast monetary contradiction.

Sooner or latter, and likely very soon, the red suzerains of Beijing will loose control of their exchange rate and face the mother of all capital outflows; or be forced into a domestic credit tightening that will bring down the entire $30 trillion mountain of debt. Either way, there is no avoiding a hard landing—–nay, a thundering crash—–in China, and with it a seismic shock to the phony global economy that has been erected on the back of the Red Ponzi over the last two decades.

Among other things, pick any German exporter to China and short it until der Kuhe komm nach hause ( the cows come home). That is to say, the unfolding breakdown in China will bring Japan and Europe to its knees as their high end machinery, technology and luxury goods export volumes continue to shrink

Needless to say, the NIRP twins are not remotely equipped to rollback the tide of global deflation and the resulting recession in trade and depression in CapEx investment.  Draghi and Kuroda have succeeded only in generating a veritable catastrophe in their home banking systems—-a fact that even the casino punters have noticed by taking their bank shares down by 25% and 36%, respectively.

Meanwhile, the fatuous notion that none of this disorderly global slump will lap upon these purportedly prosperous shores is living on fumes. It’s actually not even surprising that the Wall Street talking heads continue to appear on bubblevision peddling the “decoupling” myth. After all, they still have inventories of stock and other toxic risk assets to sell.

But where the Bullard Whirling Dervish factor comes in is among the Fed heads themselves. These clueless Keynesian money pumpers are looking straight into the jaws of recession, yet are entirely oblivious.

Thus, a few hours ago San Francisco Fed President John Williams weighed in with the following gem:

“….the U.S. economy “is, all in all, looking pretty good”

What is this man smoking? Certainly something a lot stronger than what I may legally procure at my current abode in Aspen Colorado!

But then the Fed has never seen a downturn coming. Read the minutes of the May 2008 Fed meeting and you will find no mention of the fact that the US economy was already six months into a recession, and especially not from Yellen or other Fed heads still serving today. Here’s what happened next——employment plunged by 6.5 million in less than 12 months:

That was then, but it’s actually worse now. That’s because the Fed has been totally hijacked by Keynesian simpletons in the interim. It turns out that Williams is so very sanguine about the US economy because of the following:

“When I look at my December forecast and compare it with my outlook for unemployment and core inflation today, there’s virtually no change,” Williams said.

May the economic gods be with us. Those two variables are not the main street economy; they are the fetishistic preoccupation of the Fed’s posse of Keynesian ideologues.

What does the arbitrary noise embedded in the swiggles of the BLS’ “core inflation” index have to do with anything?

Here’s the CPI less food and energy. It was up exactly 2.08% during the year ending in December, and that’s roughly on trend with the 1.94% annual rate of change during this entire century. No one has survived without food and fuel that long, of course. But the point is that the Fed’s 2% inflation target is made from whole cloth, and is utterly irrelevant to the ingredients of true prosperity and wealth gains.

Williams’ unemployment observation is even more ridiculous. Why would any one put stock in the U-3 measure of unemployment in light of the fact that 102 million adult Americans are not employed and the labor market participation rate has fallen out of bed? The chart below shows the radical break between the U-3 unemployment rate and the more comprehensive civilian employment/population ratio.

Enough said. And that’s even before we get to the issue of job quality (bad) and the obsolete convention of basing the employment metric on head counts rather than the hours and gigs based reality of the real world.

The fact is, there is a far more reliable indicator of the labor market than the trend-cycle projected/seasonally maladjusted/ five times revised junk data published by the BLS. Namely, the daily payroll tax collections of the IRS.

It can be taken with a high level of confidence that employers do not send in a single dime in behalf of birth/death payrollers or seasonally adjusted workers who are on layoff. And recently the trend rate of tax collections has started falling sharply. According to my colleague, Lee Adler, the inflation adjusted collections rate has fallen to negative 4.5% on a year over year basis.

In any event, payrolls are and always have been a lagging indicator. That is even more true after nearly two decades during which the C-suite has been turned into a stock trading room by the Bubble Finance regime of the Fed. Top corporate executives are so busy buying stock and doing massive, pointless, debt-financed M&A deals in order to goose their stock prices that they implicitly hoard labor until the stock market bubble collapses.

Only then do they begin wholesale “restructuring” and job-slashing programs designed to rescue their battered stock options packages. Someone should send Williams the memo.

Once upon a time, by contrast, practical men knew that when sales turn down and inventory ratios start rising sharply, there is trouble around the corner. After the recent release on December business sales and inventories, there can be little doubt that we are exactly there now.

Total business sales including manufacturing, wholesale and retail were down 4.4% in December compared to the July 2014 peak, and the inventory/sales ratio has now climbed to 1.39X. That is well above where it stood last time the bottom dropped out in 2008.

 

The list of similar recession indicators is long and getting longer. Corporate profits are falling; high yield credit is tanking; the freight index is down 7% over prior year; exports have plunged by 11% on an overall basis, and 20% for industrial materials and other front of the supply chain goods.

Nor can any comfort be taken from the fact that auto sales have remained strong. As is made dramatically clear in the chart below, the boom in junk financed sub-prime auto lending has made it possible for any one who can fog a rearview mirror to buy a car. But when the junk market shuts down completely, they will be fogging far fewer mirrors.

At the end of the day, however, there is no growth without strong capital investment, but that can’t happen in a world drowning in more excess capacity for everything than the world has ever previously known.  It is not surprising, therefore, that new orders for nondefense CapEx less aircraft are now down 10.4% from their August 2014 peak; and, in fact, have dropped below the April 2007 level attained prior to the last economic plunge.

Here’s the thing. The Fed doesn’t see it coming and would be petrified by the prospect of a Wall Street hissy fit were it actually to express doubts about the sustainability of this so-called recovery.

At the same time, Wall Street fails to recognize the obvious truth that the Fed is out of dry powder. If it attempts QE4, it will be a confession of total failure and lack of efficacy. If it actually seeks to launch negative interest rates, it will ignite a political firestorm of untold intensity.

So both parties are unprepared for what is coming down the pike, and that makes this time truly different. There will be no massive liquidity injection and quick reflation of risk assets because even the Fed can’t push on a string when it is out of dry powder.

At length, the straggling remnants in the casino will look at 1870 and say, “support”, we hardly knew ya.

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

“Get back to work, Mr.Draghi…”

 

Not only are stock markets (and bank bonds) collapsing, so is European consumer confidence…

 

Eurozone consumer confidence fell more than expected in February, the first estimate by the European Commission showed Friday. Consumer confidence in the euro area fell to -8.8 in February from -6.3 in January, the Commission said. The decline was much sharper than the fall to -6.8 forecast by economists surveyed by MNI.

*  *  *

Nothing that more refugees, more QE, and more negative interest rates won’t fix.

For context, it appears the Europeans are not a ‘confident’ bunch very often…

 

Charts: Bloomberg

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

As we showed one week ago, it has been a deplorable year not only for the broader market, but for some of the marquee “hedge” fund names, who once again have shown they “hedge” only in name. We followed up with a report on the world’s largest hedge fund, Bridgewater, whose Pure Alpha strategy we further showed has gotten slammed in the first two weeks of February, losing a whopping 10% in half a month.

Why the hedge fund rout? JPM’s head quant, Marko Kolanovic, who recently called the violent rotation out of momentum stocks just before it hit several weeks ago, and the bursting of the second tech bubble, is here to explain.

YTD performance of CTAs has been strong on account of their short S&P 500 equity exposure (see Figure 3). Over the last 2 days, short term (1-month) equity momentum turned positive, and limited CTA short covering likely contributed to the market rally. Overall, medium and long term equity momentum remain negative and are more likely to stay so. To turn momentum significantly positive, the S&P 500 would need to go significantly higher, which is hard given current EPS and multiple forecasts. With every additional week, short Oil and long USD momentum signals are becoming more vulnerable.

 

YTD performance of equity long-short Hedge Funds was likely dragged down by their net long equity exposure and heavy exposure to popular growth and momentum stocks. As a result, the HFRXEH index performed in line with passive investors (S&P 500). The momentum selloff in the first week of February negatively impacted equity quants who are on average overweight  momentum/low volatility factors. This has erased the positive performance of HFRXEMN index accumulated since August (Figure 3).

 

It is unclear how much of the momentum/low vol blow up has had to do with either the Citadel Surveyor unwind first noted here, or the dramatic drop in Pure Alpha performance and/or deleveraging.

Finally, here is Kolanovic on one of his favorite long positions: gold.

… recently established positive gold momentum is becoming more robust with time.

Which means the BIS will be busy doing everything in its power to halt gold’s surging momentum higher, although even they may be powerless considering Goldman recently gave the “all clear” to buy gold when it advised muppets to go short the yellow metal.

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

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The confidence that risk can be quantified and mitigated is misplaced.

If there are limits on what we can know of the future–and clearly there are–this sets limits on our ability to quantify and mitigate risk. Longtime correspondent Lew G. submitted this thought-provoking riff on the system's intrinsic capacity for cascading decisions (for example, selling everything not nailed down) that upend our understanding of risk.

Here is Lew's commentary on risk:

There is a tradeoff of importance, detail and distance into the future, sort of a Heisenberg's uncertainty principle. The cost of certainty and detail at any future time goes up as the economic importance goes up because so many more people are trying to understand and control that small part of the future. This introduces more variables and more uncertainty because many of those variables will be linked in unknown ways. (emphasis added by CHS)

 

Estimating risk is inherently a matter of dealing with those links. The number of paths through a net which must be evaluated to determine risk is exponential, as cascades can start from anywhere and rapidly take down connected nodes in the network.

 

One would expect that a bank's internal risk analysis programs will try to do some of this, but they can only know the bank's point of view, not the exposure of any other financial nodes in the network, or the fantasy level of their accounting.

 

Because everyone is super-optimistic in a boom, crashes are inevitable, and the size of the crash is proportional to the fuzz/misinformation in information flows, e.g. mark-to-fantasy entries in banks' assets, details of all the outstanding derivatives, swaps and contracts, etc.

Thank you, Lew, for describing the complex nature of risk. There are a number of ways to uncrate the dynamics of risk addressed here, and I'd like to address two specific instances.

1. Lew conjectures a risk-equivalent of Heisenberg's uncertainty principle, which holds that the more precisely the position of a particle is determined, the less precisely its momentum can be known, and vice versa.

In a financial setting, a great many analysts and programs are seeking precise forecasts on GDP, capital flows, future profits and revenues, valuations and so on–all the components needed to forecast the likely range of outcomes.

This information is needed to properly hedge risk, and to profit from markets moving in the anticipated direction.

But if Lew is right about a Heisenberg analog in finance, this suggests the greater the certainty in the forecast, the less precisely the risks can be accurately estimated.

This limitation in our knowledge of the future helps us understand why "impossible" cascades of selling and the implosion of "safe" assets occur with regularity, despite the widespread use of sophisticated risk-management tools.

(Given the concentration of talent seeking certainty in a narrow slice of financial data, the potential for group-think, both in humans and in the software written by humans, is another potential source of risk.)

2. If the linkages between variables and nodes are incompletely known or understood, disruptive cascades can arise in areas thought to be low-risk. As the cascade spreads through the network, it starts taking out nodes that participants suddenly discover are connected in unexpected ways to other nodes that were considered only lightly connected to risky nodes.

In a Heisenberg analog network, risk can never be nailed down with any certainty. The confidence that risk can be quantified and mitigated is misplaced. A system riddled with various forms of misinformation and links that are not apparent until the cascade has begun is intrinsically prone to crashes that take down every node in the network.

This is not "impossible;" it is an excellent description of what happened in 2008-09.

via Zero Hedge http://ift.tt/1TqmPJ2 Tyler Durden

The latest Lipper fund flow data is an and it is not pretty: in the latest week, there was $12.2 billion in equity outflows, the largest weekly redemption in 5 months…

… and more importantly, this represents 7 straight weeks of outflows: the longest streak since 2008.

 

Concurrent with the flight from US equities, we have seen the biggest European equity redemptions since October 14:

 

This was offset by an inverse 7 consecutive weeks of government bond inflows, with $1.69bn in fund deposits in the last week up from $0.98 billion, and explains who has been buying all those Treasurys that SWFs, EMs and China have been selling.

And the punchline: we just had the biggest 2-week gold inflow ($3.2bn) since May’10, which according to BofA is a “hedge against “risk-off” & “dollar-off”

Michael Hartnett’s summary:

Equity outflows closer to “capitulation” levels: $53bn equity outflows past 7 weeks (0.8% of AUM) exceeds $36bn outflows during Aug’15 sell-off; approaching prior bear market levels of Aug’11 debt ceiling outflows ($90bn), ’08 GFC outflows ($85bn) & ’02 bear market outflows ($65bn); note BofAML Feb FMS also showed big reduction in equity exposure, albeit not yet to the UW position in equities that coincided with 2002/2009/2011 lows.

The only problem is that while this capitulation shoudl have led to buying at the 1812 bottom, the surge in stocks had nothing to do with bulls buying, and everything to do with shorts covering. And now that shorts have largely covered, even as buybacks continue, all those who have delevered and unwound position, have a choice: buy at ridiculously high valuations at a time when the S&P is facing 7 consecutive quarters of negative annual earnings…  or wait for the market to once again crash before stepping in.

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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Their imminent departure from evening news programmes is not just a loss to their profession; critics say they were forced out as part of a crackdown on media dissent by an increasingly intolerant prime minister, Shinzo Abe, and his supporters.

 

Only last week, the internal affairs minister, Sanae Takaichi, sent a clear message to media organizations. Broadcasters that repeatedly failed to show “fairness” in their political coverage, despite official warnings, could be taken off the air, she told MPs.

 

Momii caused consternation after his appointment when he suggested that NHK would toe the government line on key diplomatic issues, including Japan’s territorial dispute with China. “International broadcasting is different from domestic,” he said. “It would not do for us to say ‘left’ when the government is saying ‘right’.”

 

From the Guardian article: Japanese TV Anchors Lose Their Jobs Amid Claims of Political Pressure

I’ve commented on the spectacular failure of Japan’s “Abenomics” several times in the past, most recently in last summer’s post, Japan’s Economic Disaster – Real Wages Lowest Since 1990, Record Numbers Describe “Hard” Living Conditions. Here’s what we learned:

Prime Minister Shinzo Abe came to power vowing to drag Japan out of deflation and stagnation. His logic was that rising prices would drive higher salaries and increased consumption. More than two years on, prices are rising, but wages adjusted for inflation have sunk to the lowest since at least 1990.

 

A record 62 percent of Japanese households described their livelihoods as “hard” last year in a survey on incomes. A sales-tax increase in 2014 helped drive up living costs faster than wage gains.  At the same time, the Bank of Japan’s quantitative easing drove down the currency, boosting the cost of imported energy.

Fast forward a few months and things aren’t getting any better.

Earlier this week, Bloomberg reported:

Let’s take stock of what we just read. Shinzo Abe promised the Japanese people a glorious economic recovery, but the economy sucks. Nevertheless, Shinzo Abe wants to stay in power as long as possible and the best way for him to achieve this is to call for snap elections this summer. This presents quite the dilemma. How does Abe prevent his popularity from slipping further in order to give himself a chance of winning early elections?

It seems he found his answer. Crackdown on the media by ensuring anyone who dares criticize him or him idiotic, failed polices is fired.

As the Guardian reports:

Many British politicians would doubtless rejoice at the news that Andrew Marr, Emily Maitlis and Andrew Neil were to leave their jobs almost simultaneously.

 

That is the fate that has befallen what could loosely be described as their counterparts in Japan – Ichiro Furutachi, Hiroko Kuniya and Shigetada Kishii – three respected broadcasters with a reputation for asking tough questions.

 

Their imminent departure from evening news programmes is not just a loss to their profession; critics say they were forced out as part of a crackdown on media dissent by an increasingly intolerant prime minister, Shinzo Abe, and his supporters.

 

Only last week, the internal affairs minister, Sanae Takaichi, sent a clear message to media organizations. Broadcasters that repeatedly failed to show “fairness” in their political coverage, despite official warnings, could be taken off the air, she told MPs.

Americans should heed this warning, so we understand that whenever someone argues for enforced “fairness” in the media, it means only one thing. If you criticize the government, you’ll be fired. 

Under broadcast laws, the internal affairs minister has the power to suspend broadcasting that does not maintain political neutrality.

 

What passes for a probing interview in Japan would be unlikely to set political pulses racing in Britain. But the three Japanese anchors have all courted controversy for refusing to follow the anodyne approach many of their colleagues take towards political coverage.

 

As the host of Hodo Station, a popular evening news programme on TV Asahi, Ichiro Furutachi was at the centre of a row last spring over claims by one of the show’s regular pundits, Shigeaki Koga, that he had been forced to quit under pressure from government officials angered by his criticism of the Abe administration.

 

Shigetada Kishii, who appears on News 23 on the TBS network, angered government supporters last year after criticizing security legislation pushed through parliament by Abe’s Liberal Democratic party (LDP).

If you need to get up to speed on the “security legislation,” see:

Video of the Day – Brawl Breaks Out in Japanese Parliament Over “War Bill”

Unusually Massive Protests Erupt in Japan Against Forthcoming “War Legislation”

Perhaps most striking of all is the departure of Kuniya, the veteran presenter of Close-up Gendai, a current affairs programme on public broadcaster NHK.

 

Her “crime” had been to irritate Yoshihide Suga, the chief cabinet secretary and a close Abe ally, with an unscripted follow-up question during a discussion about the security legislation.

 

While the anchors themselves have refused to comment, experts say Abe and his allies had made their feelings known about the broadcasters during secretive dinners with top media executives.

 

“It was not their decision to leave,” said Sanae Fujita of the Human Rights Centre at Essex University. “But their bosses gave in to pressure from their senior colleagues, who are ‘friends’ with Abe.

 

When he called a snap election in late 2014, the LDP wrote to TV networks in Tokyo demanding that they “ensure fairness, neutrality and correctness” in their coverage.

 

Momii caused consternation after his appointment when he suggested that NHK would toe the government line on key diplomatic issues, including Japan’s territorial dispute with China. “International broadcasting is different from domestic,” he said. “It would not do for us to say ‘left’ when the government is saying ‘right’.”

I mean, wow.

Attempts to intimidate the media as well as the passage of a state secrets law in 2013 under which reporters can be imprisoned for up to five years have battered Japan’s international reputation.

 

Last year it came 61st out of 180 countries in Reporters Without Borders’ global press freedom rankings. That compares with 12th place in 2010.

As always, when all else fails, silence the press.

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