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Alice in Wonderland

March 23, 2016

Alice in Wonderland 

Everything Is Nonsense

If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t. And contrary wise, what is, it wouldn’t be. And what it wouldn’t be, it would. You see?

– Alice’s Adventures in Wonderland

Mad_Hatter_0011A public service message from the Mad Hatter – bad news is bad. Ominous, even. Hat help us all!     Illustration credit: Bob Kane

BALTIMORE – The Dow rose the fifth week in a row last week, ending with a 120-point jump on Friday. This has put the index firmly in the black for 2016. Well, this is a showdown, isn’t it?

Either us… or the great mass of investors – one of us is wrong. In the weeks to come, we’ll find out who (notice to new readers: It could go either way). But wait a minute…

Our old friend Rob Marstrand, who writes at Of Wealth.com, explains why the great mass of investors has little to do with it. Apparently, corporations have nothing better to do with their money than buy their own shares.

“There’s a dirty little secret in the U.S. stock market. Corporate America is paying out more cash to shareholders than it earns in profits. This means there’s nothing left to invest in business growth. It also means debt levels are going up, increasing risk…

Analysis by Bloomberg shows that those companies are on track to spend $590 billion a year on buybacks in 2016, at the first-quarter rate. That would be even more than the last point of peak buybacks – at the previous market top in 2007, just before the last crash. Put simply, companies are spending record amounts of cash on buybacks at precisely the wrong time (as usual): when stocks are extremely expensive.”

1-Buybacks vs. fund flows

…click on the above link to read the rest of the article…

The Monetary Base, Buybacks and the Stock Market

March 17, 2016

The Monetary Base, Buybacks and the Stock Market 

A Useful Leading Indicator?

We often see charts comparing the S&P 500 to the growth in the Federal Reserve’s balance sheet, or more specifically, to assets held by the Fed. There is undeniably a close correlation between the two, but it has struck us as not very useful as a “timing device”, or an early warning device if you will.

Recently we have come across a video of a presentation by Bob Murphy, in which he uses a slightly different comparison that might prove more useful in this respect. Instead of merely looking at Fed assets, he uses the total monetary base. Here is a chart comparing the monetary base to the S&P 500 Index since 2009:

1-Monetary Base vs SPXThe monetary base (red line) vs. the S&P 500 (blue line) – as can be seen, sometimes one or the other series leads, but in recent years the monetary base has been a leading indicator. It probably lagged the market in 2010/11 due to the fact that traders at the time bought stocks in anticipation of more monetary pumping – whereas nowadays the market appears to be reacting with a slight lag to changes in base money – click to enlarge.

Below is a chart that shows consolidated assets held by the Federal Reserve system for comparison. Since the Fed is currently reinvesting funds from MBS and treasuries that mature, its total asset base is basically flat-lining since the end of QE3. Obviously, all that can be gleaned from this fact is that the central bank is currently not activelypumping up the money supply. Currently money supply growth is therefore largely the result of commercial bank credit growth.

2-Fed AssetsAssets held by the Federal Reserve – flat-lining since the end of QE3. Interesting, but not useful as a short term leading indicator of the stock market – click to enlarge.

 

…click on the above link to read the rest of the article…

Deranged Central Bankers Blowing Up the World

February 15, 2016

DERANGED CENTRAL BANKERS BLOWING UP THE WORLD

It is now self-evident to any sentient being (excludes CNBC shills, Wall Street shyster economists, and Keynesian loving politicians) the mountainous level of unpayable global debt is about to crash down like an avalanche upon hundreds of millions of willfully ignorant citizens who trusted their politician leaders and the central bankers who created the debt out of thin air. McKinsey produced a report last year showing the world had added $57 trillion of debt between 2008 and the 2nd quarter of 2014, with global debt to GDP reaching 286%.

The global economy has only deteriorated since mid-2014, with politicians and central bankers accelerating the issuance of debt. These deranged psychopaths have added in excess of $70 trillion of debt in the last eight years, a 50% increase. With $142 trillion of global debt enough to collapse the global economy in 2008, only a lunatic would implement a “solution” that increased global debt to $212 trillion over the next seven years thinking that would solve a problem created by too much debt.

The truth is, these central bankers and captured politicians knew this massive issuance of more unpayable debt wouldn’t solve anything. Their goal was to keep the global economy afloat so their banker owners and corporate masters would not have to accept the consequences of their criminal actions and could keep their pillaging of global wealth going unabated.

The issuance of debt and easy money policies of the Fed and their foreign central banker co-conspirators functioned to drive equity prices to all-time highs in 2015, but the debt issuance and money printing needs to increase exponentially in order keep stock markets rising. Once the QE spigot was shut off markets have flattened and are now falling hard. You can sense the desperation among the financial elite. The desperation is borne out by the frantic reckless measures taken by central bankers and politicians since 2008.

…click on the above link to read the rest of the article…

Our “Storm Warning” for the Year Ahead …

January 5, 2016

Our “Storm Warning” for the Year Ahead … 

Our “Storm Warning” for the Year Ahead …

Ils viennent jusque dans vos bras / They’re coming right into your arms
Égorger vos fils, vos compagnes! / To cut the throats of your sons, your women!
Aux armes, citoyens / To arms, citizens
Formez vos bataillons / Form your battalions
Marchons, marchons! / Let’s march, let’s march!
Qu’un sang impur / Let an impure blood
Abreuve nos sillons! / Soak our fields!
– “La Marseillaise”

Choppy Waters

PARIS – And so the old year ended…

closerie des LilacsLa Closerie has been around for some time – and it seems it has always been popular.

The Closerie des Lilacs brasserie was packed. Every table was taken. On the corner of the Boulevard de Montparnasse and the Boulevard Saint-Michel, this was one of Hemingway’s favorite restaurants. It is now popular with tourists as well as locals.

Coming in, we heard familiar American accents behind us, but almost everyone else appeared to be native to the city. It was bright, the way brasseries are supposed to be…

“The way things are supposed to be” is our beat at the Diary. The way they really are is beyond us. Far too complex. Infinitely nuanced. Mind-blowingly intricate.

“Is,” as President Clinton noted, is too high a standard. “Ought to be” is the best we can do. Only the gods can know what is really going on. All we can do is to observe certain superficial patterns and rules – like waves on the surface of a deep sea – and wonder how they might slap against our little bark.

One observation: Markets bob up and down. Yes, dear reader, it is a new year… and we face new conditions. New challenges. New threats. But at least we know how the waves work… floating prices up one side and down the other.

 

…click on the above link to read the rest of the article…

There’s No Upside Left

December 16, 2015

There’s No Upside Left

The upside is ephemeral, illusory or wishful thinking; the downside is real and lasting.

There’s no upside left–not just in the real economy, but in jobs, politics or policy tweaks. Yes, there will be huge relief rallies in the stock market–relief that the Fed is still omnipotent, that the Fed didn’t destroy the world by withdrawing liquidity, etc., etc., etc.–but in terms of sales and profits, there’s no upside left: an increasingly nervous upper middle class is reining in profligate spending, while everyone below the top 10% is running out of credit cards, student loans, etc. to tap.

Whatever surplus the real economy generated has been skimmed by financiers, lenders and the central state. Stock buybacks have boosted the wealth of corporate managers and institutional owners while creating zero jobs; lenders have feasted on high-interest credit cards, federally backed student loans and subprime auto loans that are immediately spun off to credulous suckers (Widows and Orphans Fund of Norway, et al.) as high-yield securitized debt.

Anyone working for Corporate America or government has little upside but plenty of downside: bonuses are being slashed, divisions closed, sold off or privatized in the case of government, all to cut costs.

State and local pension funds, bloated by seven years of speculative frenzy, are about to start bleeding from every orifice as reality and risk intrude on the central banks’ fantasy of never-ending asset bubbles.

Whatever pension and bennies you were promised–start practicing your fractions, because only a fraction of the bloated promises made by politicos desperate to get re-elected can be paid in the real world.

Doing a great job will either get you fired or overworked: no upside there. If you have the courage (or foolish devotion to truth) to be honest, then you’ll be fired as a disruptive “non-team-player” who stepped on too many toes in the pursuit of excellence.

…click on the above link to read the rest of the article…

Ignore the Media Bullsh*t–Retail Implosion Proves We Are In Recession

October 15, 2015

Ignore the Media Bullsh*t–Retail Implosion Proves We Are In Recession

Here we go again. The dying legacy media will continue to support the status quo, who provide their dwindling advertising revenue, by papering over the truth with platitudes, lies, and misinformation. I have been detailing the long slow death of retail in America for the last few years. The data and facts are unequivocal. Therefore, the establishment and their media mouthpieces need to suppress the truth.

They spin every terrible report in the most positive way possible. They blame lousy retail results on the weather. They blame them on calendar effects. They blame them on gasoline sales plunging. That one is funny, because we heard for months that retail spending would surge because people had more money in their pockets from the huge decline in gasoline prices.

September retail sales were grudgingly reported by the Census Bureau this morning and they were absolutely dreadful. This followed an atrocious August report. The MSM couldn’t blame it on snow, cold, flooding, drought, or even swarms of locusts. So they just buried the story in their small print headlines. The propaganda media machine had nothing. They continue to spew the drivel about a 5.1% unemployment rate as a reflection of a booming jobs market. If we really have a booming jobs market, we would have a booming retail sector. The stagnant retail market reveals the jobs data to be fraudulent. The 94 million people supposedly not in the job market can’t buy shit with their good looks.

Despite the storyline about consumer austerity being the reason for sluggish spending, the facts prove otherwise. Consumer spending accounted for 68% of GDP in 2008 at the peak. Seven years later it still represents 68% of GDP. The difference is the spending has shifted dramatically towards services since the Wall Street created financial crisis. Spending on services has grown by 31% versus 20% for goods since 2008. Guess what has caused that surge?

…click on the above link to read the rest of the article…

The Rich Get Richer: Titanic Stock Bubble Fueled by Buyback Blitz

May 6, 2015

The Rich Get Richer: Titanic Stock Bubble Fueled by Buyback Blitz

Why are stocks still flying-high when the smart money has fled overseas and the US economy has ground to a halt?

According to Marketwatch:

“For the eighth week in a row, long-term mutual funds saw more money flowing out of U.S. stocks and into international stocks, according to the Investment Company Institute……For the week ended April 22, U.S. stocks saw $3.4 billion in net outflows from long-term mutual funds…For the year to date, net outflows for U.S. stocks are $13.79 billion, while inflows for international stocks are $41.12 billion.

Those figures, however, don’t count exchange-traded funds. In April alone, mutual funds and ETFs that focus on international stocks saw $31.8 billion in net inflows, while U.S.-focused funds and ETFs shed $15.4 billion, according to TrimTabs Investment Research.” (“Why U.S. stocks are near highs even as fund investors flee“, Marketwatch)

So if retail investors are moving their cash to Europe and Japan (to take advantage of QE), and the US economy is dead-in-the-water, (First Quarter GDP checked in at an abysmal 0.1 percent) then why are stocks still just two percent off their peak?

Answer: Stock buybacks.

The Fed’s uber-accommodative monetary policy has created an environment in which corporate bosses can borrow boatloads of money at historic low rates in the bond market which they then use to purchase their own company’s shares.  When a company reduces the number of outstanding shares on the market, stock prices move higher which provides lavish rewards for both management and shareholders.  Of course, goosing prices adds nothing to the company’s overall productivity or growth prospects, in fact, it undermines future earnings by adding more red ink to the balance sheet. But these “negatives” are never factored into the decision-making which focuses exclusively on short-term profits. Now get a load of this from Morgan Stanley via Zero Hedge:

 

…click on the above link to read the rest of the article…

Record Financial Engineering Will Goose Stocks: Goldman

April 29, 2015

Record Financial Engineering Will Goose Stocks: Goldman

GE, in order to paper over a net loss of $13.6 billion and declining revenues in the first quarter, said on April 10 that it would buy back $50 billion of its own shares. That’s on top of the $10.8 billion in actual buybacks last year. The announcement was beat only by Apple’s $90 billion announcement last year, to which it added another $50 billion on Monday.

It’s going to be a great year, not for revenues and earnings, but for share buybacks. Hence for share prices and executive bonuses, despite crummy revenues and earnings. Goldman Sachs says so.

In a note to clients, Goldman predicted that companies would goose share buybacks by 18% over 2014 and dividends by 7%. That would be a $1-trillion banner year.

The year has started out on the right foot. Repurchase plans, including GE’s mega-dose, have already reached $337 billion through April 24, Reuters reported, based on data from Birinyi Associates. That’s a 34% jump over the same period last year.

The next party of actual repurchases will commence in a week or so, Goldman’s chief U.S. equity strategist David Kostin wrote in the note. Turns out, that’s when about 80% of the S&P 500 companies will have exited their blackout period for share repurchases, which stretches from about five weeks before they report earnings to two days afterwards.

So be it if actual earnings, as reported under GAAP, are in the doldrums. By reducing the number of shares outstanding, companies automatically increase their earnings per share. And EPS is the magic metric, particularly “adjusted” ex-bad items EPS. It performs outright miracles.

 

…click on the above link to read the rest of the article…

Money Printing And The Bane Of Financial Engineering—–How The Biggest LBO In History Blew-Up

April 18, 2015

Money Printing And The Bane Of Financial Engineering—–How The Biggest LBO In History Blew-Up

Financial engineering is one of the worst ills perpetuated by the Fed’s regime of cheap debt and money market subsidies for speculation. And these deformations are turbo-charged by the tax code which creates a powerful bias toward loading capital structures with tax deductible debt, and to delivering returns as lightly taxed capital gains rather than ordinary income.  In fact, stock buybacks and LBOs are the bastard offspring of the IRS and Federal Reserve.

Indeed, it would be safe to say that in an honest free market with a neutral tax regime, LBOs in particular would be as rare as a white buffalo. That’s because they inherently cause waste, inefficiency and malinvestment—–the opposite of market driven results.  These deadweight losses to society are, in turn, the product of a symbiotic arrangement of convenience between an avaristic breed of money manger——private equity funds—–and institutional investors, such as pension funds and insurance companies, which have a desperate need for yield in a financial system where returns on conventional fixed income securities are systematically repressed by the central bank.

Private equity managers are tax-enabled speculators. Their winnings come in the form of a 20% carried interest on the thin slice of equity at the bottom of an LBO capital structure. This 20% share of the return earned by the limited partners (LPs), who actually put up the money and bear the extreme risk of being pinned under a mountain of debt, might arguably be considered generous. But there is no way that it should be considered a capital gain. It is nothing more than the service fee earned for managing other people’s money.

 

…click on the above link to read the rest of the article…

It Begins: Energy Giant Chevron Suspends Stock Buyback, Blames “Cash Flow Squeeze”

January 30, 2015

It Begins: Energy Giant Chevron Suspends Stock Buyback, Blames “Cash Flow Squeeze”

It was less than 24 hours after we posted that either oil will double from here allowing energy companies to grow into a normal P/E multiple, or energy stocks will have to crash by over 40% for the ridiculous 23x to return to its normal, long-term average of 13.6x. Moments ago energy giant Chevron admitted that not only does it not see oil doubling any time soon, but that energy prices are almost certain to go far lower from here, and as a result the company decided that after buying back $5 billion of its shares in 2014, i.e., buying high and higher before the stock crashes may not be the best use of dwindling cash flow, and as a result has just suspended its stock buyback program of the rest of 2015. Yes, energy giant Chevron just ended its buyback!

As regular readers know, company buybacks are forecast to be the single biggest source of demandfor stocks in 2015..

 

… which means this may well be the beginning of the end of the 6 year bull market. For now, the realization if only hitting Cheveron stockholders.

…click on the above link to read the rest of the article…

 

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