Things are about to get more interesting in the EU as a review of budget procedures shows the UK, Greece, and Italy owe more money, but Germany and France will get money back.
Curiously, this came about following a review of non-profit organizations from churches and universities to trade unions, charities and sports clubs. The time period is 2002-2009. Cameron’s Obvious Bluff
UK prime minister David Cameron is already battling French President Francois Hollande abroad, and UKIP at home.
In a vivid display of public fury at European Union technocrats, British Prime Minister David Cameron refused to pay a surprise 2.1-billion-euro bill on Friday as EU leaders ordered an urgent review of how the budget figures were arrived at.
“It’s an appalling way to behave,” Cameron said. “I’m not paying that bill on Dec. 1. If people think I am they’ve got another thing coming. It is not going to happen.”
EU ministers will hold an emergency meeting on the issue next month. Cameron said he wanted to understand the technical calculations and was also ready to mount a legal challenge.
EU officials insisted the revision, which also saw Italy and even crisis-hit Greece asked to pay more while France and Germany would get rebates, was part of an annual statistical exercise handled by civil servants, not politicians.
Cameron noted that annual revisions to the payments had never been so great – an effect, EU officials said, of a once-in-a-generation review of how national incomes are calculated that found Britain was richer than it had previously declared.
Officials at EU statistics office Eurostat said that was a result mainly of taking more account of money flowing in 2002-09 to non-profit organizations – from churches and universities to trade unions, charities and sports clubs.
Cameron has demanded reforms and plans a referendum on EU membership if he manages to secure re-election next May….
Jack Delano. Cars being precooled at the ice plant, San Bernardino, CA Mar 1943
Large and/or institutional investors, your pension funds, your market funds, you name them, have one glaringly obvious and immense Achilles heel that they very much prefer not to talk about. That is, they MUST invest their funds, in something, anything, they can’t NOT invest. They are trapped in the game. They have to roll over debt, investments, all the time.
In today’s markets, they can move into Treasuries, as we see bond funds (and undoubtedly others) do recently, and while that’s already a sign of unrest in the ranks, at the same time it exposes the funds. And not only because everyone knows it won’t allow them to meet the targets they must meet. Oil, gas and gold are unattractive alternatives.
The big funds can play the game, but they really shouldn’t, because they can’t win. Not in the end. Not when the chips are down. The reason is that they cannot fold. And the others at the table know this, and immediately recognize this for the fatal flaw it is. No matter how smart and sophisticated institutional investors and their fund managers may be, in ultimo they are, to put it in poker terms, the ‘designated’ fish.
It may take a long time before this plays out, and they realize it for what it is (fish don’t recognize themselves for what they are, other than, and even that’s a maybe, once they’ve been exposed as such by others), since in times of plenty there is no urgent need for the other players to catch and filet the fish.
As long as there’s enough to eat at the table, the ‘solid’ players can bide their time and let the fish fatten themselves (as long as it’s not from their money), only to gut them when times get leaner. In a way, the solid players use the fish as a way to stow away for a rainy day some of the ultra cheap QE money has made available, the money without which there would be no markets left, if only so their own actions don’t become too conspicuous.
It is no secret that we have been long-standing believers in deflation being a more probable outcome of the 2008-09 crisis than high inflation. What has changed over the past six months is that the world has begun to move in different directions. Whereas rising unit labour costs in the U.S. make outright deflation in that country quite unlikely, the same cannot be said of the Eurozone.
Japan-style deflation across the Eurozone is no longer an outrageous thought. As you can see from chart 1, there is a close link between CPI and demographics. That has certainly been the case in Japan and I don’t see any reasons why it should be any different in Europe. The negative demographic trends are perhaps not as acute in Europe as they were in Japan in the early to mid 1990s, so one might expect a less dramatic outcome here, but the writing is on the wall. Furthermore, Japan’s problems were multiplied due to an almost complete lack of political recognition and willingness to take drastic action. At least, with Mario Draghi in charge of the ECB, there seems to be a willingness to do something.
Deflation and “Willingness To Do Something”
Jensen is mistaken about Japan’s willingness to take action. Japan has a debt-to-GDP ratio of 250%, highest of any major developed country, as a direct consequence of fighting deflation.
Japan piled on debt, built bridges to nowhere, and engaged in other wasteful spending, all of which made matters worse. Taking on debt to fight deflation is insane. Yet that is exactly what France and Italy want now!
Japan’s QE certainly did not help either. Both policies addicted Japan to 0% interest rates forever (until of course Japan blows up).
To suggest that the ECB can do something meaningful with European demographics being what they are, the flaws in the euro being what they are, and lack of willingness for France and Italy to initiate badly-needed structural reforms, is simply wrong.
Holding down interest rates and state-sponsored stimulus will have the identical
The Federal Reserve’s latest asset purchase program, QE3, is coming to an end. What was once an $85 billion a month program, one in which at its peak had been goosing the financial markets and economy at an annual rate of $1.0 trillion – and over its 27 month life will have pumped $1.7 trillion of money into the economy – is going to zero. Given the outsized impact QE has had on the growth of U.S. money supply and thus the economy, investors take note, especially if you're far out on the risk curve: What was once your primary tailwind could soon become your greatest headwind.
Recapping the tenets we presented here, here, and here, once an economy is subjected to a bout of monetary inflation, whether that be via direct central bank money creation or via money (and credit) creation by the fractional reserve banking system, an unsustainable, artificial economic boom is born, whereby malinvestments (bubbles) are created that sooner or later must be liquidated. And whether that bust takes the form of a hyperinflationary bust or a deflationary bust, a bust we will get.
The form the bust takes will depend on the course of the inflation. If the central bank/banking system pursues an inflationary course, by throwing continual and importantly ever larger doses of money (and credit) into the economy, the bust will take the form of a hyperinflationary bust – a collapse in the value of the currency and with that a breakdown of the entire economy. If instead the central bank/banking system ends its money creation activities or even moderates that increase in a material way, the bust will take the form of a deflationary bust – a healthy liquidation of the malinvestments made during the boom and with that a commensurate fall in the prices of those same malinvestments.
Austrian Business Cycle Theory (ABCT) in a nutshell.
Thus, when an economy is subjected to a bout of monetary inflation, investors can enhance their performance by correctly positioning their portfolios on the right side of the boom-bust cycle. Though easier said than done, one should buy claims to the malinvestments of the boom; i.e., when the money supply is surging; then sell those same claims after…
Unfortunately, many people have a cavalier attitude about infections and how to protect themselves and others, possibilty because it has been a long time, if ever, since the majority of us have been truly frightened about catching a disease. We have not seen corpses piled up in the streets due to deadly viruses; most of us have not seen pathogens kill our loved ones way too early.
But experience, especially painful experience, is a great educator. Without that, we need a more comprehensive plan. Cops tossing their protective gear into an open trash cannister is an example of education failure. Another example of failure can be seen in the movement to stop vaccinating our children. ~ Ilene
If there was one theme from last night's Cuomo/De Blasio Ebola press conference it was 'how everyone has been preparing for months' for Ebola. We can all be reassured, right? Wrong! As The Daily Mail reports (and these stunning photos show), the police officers involved in securing Dr. Spencer tossed their gloves, masks and the caution tape used to block off access to his apartment in a public trash can.
Not just any trash can, but one on a public street corner…
While it is unclear whether the police entered the apartment (which is now locked down and isolated), some are suggesting that for the sake of safety – not to mention public sanity – it would have made sense to discard of these masks and gloves and tape in a biohazard bag.
* * *
Seems like not everyone has been preparing for months (since August) for Ebola… no matter, we are all assured by Cuomo's reassuring words that Ebola is very hard to catch (just don't tell the hundreds of healthcare workers who have been infected despit all their precautions).
My title above is only half-kidding. Because everytime Wall Street pronounces “The Death Of” anything, that’s pretty much when it starts working again. But there is an important point being made in a new article at the Wall Street Journal about the current state of some of our biggest stalwart stocks and their underlying businesses, a point I made two days ago here…
Here’s the Journal:
A third of the companies in the Dow Jones Industrial Average have posted shrinking or flat revenue over the past 12 months, according to data from S&P Capital IQ. Revenue growth for nearly half the industrials didn’t outpace the U.S. inflation rate of 1.7%.
Each company has its own idiosyncratic problems—changing consumer tastes at Coke, for example, or technology-industry shifts at IBM—and each is taking steps to address them.
But underlying it all is a sense of malaise for companies whose once powerful formulas for success left them too big to switch tack quickly when market conditions changed.
In my relatively short time on The Street, I’ve seen several former blue chip stocks disappear or become disgraced to the point of no return. Companies like Woolworth’s and Sears and Eastman Kodak and Xerox and Lucent and MCI – all of which, for a long time, were considered automatics for investors seeking reasonable, reliable returns in evergreen businesses.
Unfortunately, it doesn’t actually work that way. Change is the only constant.
With today's exuberance around earnings (notably forgetting the reality of various bellwether fails), we thought it appropriate to get some context on just what the "market stalwarts'" results look like in context.
A third of the companies in the Dow have posted shrinking or flat revenue over the past 12 months, as WSJ notes,
"steady has become stagnant as companies once considered among the market’s most reliable post poor growth, quarter after woeful quarter."
The Markit Flash Eurozone PMI shows the steepest fall in output prices since global crisis and renewed job losses, in spite of an otherwise stable PMI.
The Eurozone saw a marginal upturn in growth of business activity in October, according to the flash PMI results. The headline Markit PMI ™ rose from September’s ten-month low of 52.0 to 52.2, signalling the first upturn in the pace of expansion for three months. However, the index remained below the average seen in the third quarter, and was the second-weakest reading seen so far this year.
Backlogs of work fell at the fastest rate since June of last year, dropping in both services and, to a lesser extent, manufacturing.
Service providers reported the first cut in payroll numbers since March, though manufacturers reported a slight upturn in employment. Prices were increasingly being cut in order to help boost sales. Average prices charged for goods and services showed the largest monthly fall since February 2010, having now fallen almost continually for just over two-and-a-half years. Charges for services fell at the steepest rate since January 2010 while a more modest decline was seen in the manufacturing sector, where prices fell only marginally and to a lesser extent than in September.
Price cuts occurred despite overall input costs rising in October, pointing to a further squeeze on operating margins. That said, manufacturing input prices fell for the second month running. Finally, business optimism about the year ahead in the service sector fell to the lo west since June of last year.
“The Eurozone PMI rose in October but anyone just watching the headline number misses the darker picture painted by the survey’s other indices, which show the region teetering on the verge of another downturn. Growth of new orders slowed closer to stagnation and backlogs of work fell at a faster rate, causing employment to be cut for the first time in nearly a year. Business confidence in the service sector also slid to the lowest for over a year and prices charged fell at the fastest rate since the height of the global financial crisis, adding to an increasingly downbeat assessment of business conditions.”
“While the survey suggest s the euro area has so far
IBM went down hard on its quarterly earnings report this week. This made a splash in the news because, well, it’s IBM, and also Warren Buffett owns it, so it was a rare moment of human fallibility for him. But there is a lot more to the story than that. Very sophisticated people have been keeping an eye on IBM for some time.
In particular, Stanley Druckenmiller—former chairman and president of Duquesne Capital, former portfolio manager of Soros’s Quantum Fund, and, honestly, one of the greatest investors in modern times—went public about a year ago saying that IBM was his favorite short (which says a lot) and that it was the poster child for, well, the type of stock market we have nowadays.
What was Druckenmiller referring to?
Some Quick History
Ten years ago, during the housing boom, the consumer was the most leveraged entity, taking out negative amortization mortgages, cashing out home equity, things like that. The consumer got a margin call, which was ugly—you know the story—and has spent the last six years deleveraging.
While the consumer was taking down leverage, the US government was adding leverage, taking the deficit to over 10% of GDP at one point. But even the government is deleveraging (for the moment), and now it is America’s corporations that have been adding leverage, at a furious pace. We’ve had trillions of dollars in corporate bond issuance in the last few years.
So when corporations sell bonds, what do they typically use the proceeds for?
In theory, the proper use for debt is to finance capital expenditures. Growth. But in this last cycle, that’s not what the money has been used for. It’s primarily been used for stock buybacks and dividends.
Robbing Peter to Pay Paul
Now, there are good corporate finance reasons to lever up a balance sheet and conduct stockholder-friendly actions, like buying back stock or paying dividends. You can read about it in the corporate finance textbooks. For any company, there is an optimal amount of leverage. It’s even possible to be underleveraged.
But you see (and this is the important thing), when you
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
The S&P 500 oscillated a bit during its opening hour, hitting its -0.23% intraday low in the first 30 minutes of trading. The index then rose in a couple of waves to its 0.71% closing gain, fractionally off its 0.74% intraday high. This was a big week for the 500, surging 4.12% and nearly erasing its October loss, which now stands at -0.39%. It is now only 2.33% from its record close on September 18th.
The yield on the 10-year Note closed at 2.29%, unchanged from yesterday's close and up 7 bps from last Friday's close.
Here is a 15-minute chart of the week.
On the daily chart below we see that volume was relatively light -- the first daily gain with volume below its 50-day moving average since September 26th. Today's closing price is just a hair below its 50-day day moving average.
If you're following Valeant's proposed takeover (or merger) of Allergan and the lawsuit by Allergan against Valeant and notorious hedge fund manager William Ackman, for insider trading this is a must-read article.
Linette Lopez describes the roles played by key Wall Street hedge fund owners--Jim Chanos, John Paulson, and Mason Morfit, a major shareholder in Valeant. Linette goes through the con...
There is lots of action in Southwest Airlines Co. November expiry call options today ahead of the air carrier’s third-quarter earnings report prior to the opening bell on Thursday. Among the large block trades initiated throughout the trading session, there appears to be at least one options market participant establishing a call spread in far out of the money options. It looks like the trader purchased a 4,000-lot Nov 37/39 call spread at a net premium of $0.40 apiece. The trade makes money if shares in Southwest rally 9.0% over the current price of $34.32 to exceed the effective breakeven point at $37.40, with maximum potential profits of $1.60 per contract available in the event that shares jump more than 13% to $39.00 by expiration. In September, the stock tou...
Last week brought even more stock market weakness and volatility as the selloff became self-perpetuating, with nobody mid-day on Wednesday wanting to be the last guy left holding equities. Hedge funds and other weak holders exacerbated the situation. But the extreme volatility and panic selling finally led some bulls (along with many corporate insiders) to summon a little backbone and buy into weakness, and the market finished the week on a high note, with continued momentum likely into the first part of this week.
Despite concerns about global economic growth and a persistent lack of inflation, especially given all the global quantitative easing, fundamentals for U.S. stocks still look good, and I believe this overdue correction ultimately will shape up to be a great buying opportunity -- i.e., th...
Now that bitcoin has subsided from speculative bubble to functioning currency (see the price chart below), it’s safe for non-speculators to explore the whole “cryptocurrency” thing. So…is bitcoin or one of its growing list of competitors a useful addition to the average person’s array of bank accounts and credit cards — or is it a replacement for most of those things? And how does one make this transition?
With his usual excellent timing, London-based financial writer/actor/stand-up comic Dominic Frisby has just released Bitcoin: The Future of Money? in which he explains all this in terms most readers will have no tr...
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
Note: The material presented in this commentary is provided for
informational purposes only and is based upon information that is
considered to be reliable. However, neither PSW Investments, LLC d/b/a PhilStockWorld (PSW)
nor its affiliates
warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither PSW nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance, including the tracking of virtual trades and portfolios for educational purposes, is not necessarily indicative of future results. Neither Phil, Optrader, or anyone related to PSW is a registered financial adviser and they may hold positions in the stocks mentioned, which may change at any time without notice. Do not buy or sell based on anything that is written here, the risk of loss in trading is great.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Site owned and operated by PSW Investments, LLC. Contact us at: 403 Central Avenue, Hawthorne, NJ 07506. Phone: (201) 743-8009. Email: email@example.com.