“The narcissist devours people, consumes their output, and casts the empty, writhing shells aside.”
I make it no secret that I find Hillary Clinton to be appallingly dishonest. The manner is which she secured the Democratic nomination is a signature of the Clinton style. The Clinton 'charitable foundation' is a beacon for everything that is wrong with the American economic and political system today.
But that does not mean that I am blind to what is being offered by The Donald.
I consider this upcoming national election to be the signal failure of the two party political system as it is today, choked by a self-referential elite, corrupted by a lust for power and big money.
Seventy-six million Baby Boomers are earning near 0% (or negative rates) and aren’t getting any younger in the process, which is forcing them and others to decide…invest or die. The risk of outliving your savings is becoming a larger reality these days. Demographics and economics are dictating that our aging population is living longer and earning less due to generationally low interest rates.
Richard Fisher, the former Dallas Federal Reserve president, understands these looming dynamics. Fisher has identified how low-interest rates are increasing investor discontent by pushing consumers to save more in order to meet retirement needs. The unintended consequence from low rates, he said, is “you’re going to have to save a hell of a lot more before you consume.”
Besides saving, the other option investors have is to lower your standard of living. For example, you could continually eat mac & cheese and sleep in a tent – that is indeed one way you could save money. However, your kids and/or desired lifestyle may make this way of life unpalatable for all. Rather, the proper approach to achieving a comfortable standard of living requires you to invest more efficiently and prudently.
What a lot of individuals fail to understand is that accepting too much risk can be just as dangerous as being too conservative, over the long run. Case in point, depositing your savings into a CD at current interest rates (near 0%) is the equivalent of burning your cash, as any income produced is overwhelmed by the deleterious effects of inflation. It would take more than a lifetime of CD interest income to equal equity returns earned over the last seven years. Since early 2009, stocks have more than tripled in value.
Given the prevailing economic and demographic trends, investors are slowly realizing the attractive income-producing nature of stocks relative to bonds. It has been a rare occurrence, but stocks, as measured by the S&P 500, continue to yield more than 10-Year Treasury Notes (2.0% vs. 1.6%, respectively) – see chart below. The picture for bonds looks even worse in many international markets, where $13 trillion in bonds are yielding…
I got the idea for this chart from Arthur Hill’s latest commentary about the larger trend for the S&P 500 (higher) being more important than the smaller trend (early September sell-off).
I find that the longer one’s time horizon is, the less susceptible he or she will be to the counter-trend noise that encourages so many ill-advised tactical misadventures among the hair-trigger set – “this is it!”
No, it’s not. Calm down.
Anyway, at this time of year, it’s impossible not to start thinking about the end. How do we finish? For sure, the election could produce all manner of volatility, in addition to the dicketry going on overseas at all times. But the bigger trend is higher, for now.
And besides, chasing will be a big part of how we finish up. In my view, career risk is now at an all-time high. The outflows from professional managers have turned into a tsunami this year. Just last week, a net $7.7 billion was pulled out of US stock mutual funds. That’s in a single week! Redemptions from hedge funds have been historic all year too.
And in the meantime, the major US averages are all more than 5% higher year-to-date. While the Fed just told us they’re on hold until at least December.
Putting these pieces together, my best guess is that a performance chase is more likely than not once again this fall. Charlie Munger talks about incentives being they key to almost everything and I agree. Keeping one’s employment in a high-paid job is the mother or all incentives, after, let’s say, life and sex.
So, the career risk trade is on. And the good news is, it can be charted. Allow me to introduce you to the R.O.C. indicator, or rate of change. In my chart below, I look at the S&P 500 index in the top pane and the percentage gains over the trailing 52 weeks in the bottom pane.
We’re now looking at a double-digit one-year return in the index that everyone is compared with (whether they deem it appropriate or not). And it’s
As I noted on Thursday, the Fed non-announcement gave the bulls a reason to charge back into the markets as “accommodative monetary policy” is once again extended through the end of the year.
Of course, it is not surprising the Fed once again failed to take action as their expectations for economic growth were once again lowered. Simply, with an economy failing to gain traction there is little ability for the Fed to raise rates either now OR in December.
However, it was the docile tones of the once again “Dovish” Fed that saved market bulls from a “bearish” rout. The recent test of the bullish trend line from February lows combined with a move back of the 50-dma clears the way for the markets to retest, and potentially breakout, to new highs.
With economic data remaining extremely weak, and leading indicators continuing to roll over, the “bad news is good news as the Fed stays on hold” scenario continues to play to investor’s favor….for now.
The question that remains, of course, is when does the reality of the weak economic environment begin to impact the fantasy of stock prices.
It was interesting that Janet Yellen mentioned “commercial real estate values” in her latest comments to the press:
“Yes. Of course, we are worried that bubbles will form in the economy and we routinely monitor asset valuations, while nobody can know for sure what type of valuation represents a bubble, that’s only something one can tell in hindsight, we are monitoring these measures of valuation and commercial real estate valuations are high. Rents have moved up over time, but still, valuations are high, relative to rents.”
DO NOT misunderstand the gravity in her statement. Commercial Real Estate (CRE) valuations are a direct function of the economic cycle. The tenants of CRE buildings are companies that are affected by the ebb and flow of the economy. The reason that valuations are high relative to rent is due to the fact we are at a peak of an economic cycle. CRE values FALL during an economic recession as tenants give back space and vacate buildings.
00:03:45 Checking on the Markets
00:04:28 Seeking Alpha: Market News
00:07:03 Checking on the Markets
00:10:38 Fed dot plot
00:13:45 Trade Ideas and Money Opinions
00:21:23 Rate Increase Impact on Oil
00:22:30 Currency Charts
00:24:33 DX Trade Ideas
00:28:44 Interest Rates
00:31:54 TLT Charts
00:32:22 TLT Trade Ideas
00:33:58 Wells Fargo
00:40:33 More Trade Ideas
00:46:19 VXX Trade Ideas
00:51:36 FOMC Meetings
00:52:16 Petroleum Status Report
00:58:50 Checking on the Markets
00:59:17 Change in GDP
01:00:23 Federal Funds rate
01:02:22 More on FOMC Meetings
01:04:22 Checking on the Markets
01:11:46 Active Trader
01:18:50 Other Trade Ideas
01:21:57 5% Portfolio
01:28:20 Short-Term Portfolio
01:29:23 Long-Term Portfolio
01:34:29 Butterfly Portfolio
01:39:35 More Trade Ideas
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I’ve been saying for the past couple years that the next recession here in the US will probably be triggered by an external macro event or cascade of events, coming out of Europe or China. Today’s Outside the Box sharpens our focus on China, which had already got quite a lot sharper with Michael Pettis’s piece in Outside the Box on Sept. 2.
Today’s post comes from Ambrose Evans-Pritchard of the London Telegraph. He is commenting on the recently released quarterly report of the Bank for International Settlements (“the central banks’ bank”), in which the BIS repeats Pettis’s warning that China faces escalating risk of a major debt and banking crisis.
The BIS is also rightly concerned about spillover from China to the global economy. After noting that outstanding loans in China have reached $28 trillion – as much as the commercial banking loan books of the US and Japan combined – Ambrose adds, “The scale is enough to threaten a worldwide shock if China ever loses control. Corporate debt alone has reached 171pc of GDP, and it is this that is keeping global regulators awake at night.”
Total Chinese debt reached 255% of GDP at the end of 2015, a jump of 107% in the past eight years – and still rising fast. Every year, China’s leadership promises to rein in debt growth, and every year the growth just keeps accelerating. That is because China’s GDP growth is fueled by debt, and that debt is becoming increasingly inefficient in producing GDP.
Does China still have the resources to deal with this issue? The answer is a qualified yes – but then there may not be the resources to deal with the other little items on China’s shopping list. The New Silk Road that China seems to be actually in the process of building is estimated to cost $1 trillion, and that’s without cost overruns. Plus, the Chinese leadership has promised massive spending on the interior part of the country to bring up the quality of people’s lives there.
One trillion here and one trillion there, and pretty soon you have run through your reserves and are getting into monetization problems; and then you have all sorts of…
Yellen’s Jackson Hole speech was widely reported, so I’ll spare you the summary.
What wasn’t widely reported was her Footnote 8. Yellen cited approving a mathematical formula that could put interest rates on autopilot. The Fed hasn’t yet followed the rule, but its presence in Yellen’s paper suggests its use is on the table.
Footnote 8 lays the groundwork for negative rates
For Yellen to adopt any fixed rule would be a major strategy shift. She has declined to use the so-called “Taylor Rule” favored by some economists, claiming the Fed should be flexible but “data-dependent.”
The rule described in Yellen’s Footnote 8 uses variables like core PCE inflation, the Fed’s inflation target, and the unemployment rate to calculate an optimal Federal Funds rate target. If the Fed had been following the rule during the last recession, they would have dropped rates to -9%.
Yet, here’s our own Fed chair bringing up a method that would send rates far lower.
To be fair, Yellen didn’t say she endorses this idea or wants to adopt it. She concedes it would have been impossible to drop rates that far in 2008.
So why even bring it up?
A generous interpretation: Yellen wanted to demonstrate that the Fed’s control over interest rates has limits as a tool for stimulating economic growth. And in her speech, she does go on from there to talk about other policy tools.
Still, it was no accident that she mentioned the rule for autopilot rates. This was another in a series of small nods to the idea that negative rates might be appropriate in some situations.
The Fed’s muddled assumptions
The Yellen Fed’s mental status gets clearer every day. They think that their crazed ideas—ZIRP, QE, Operation Twist, and the rest—are what brought the economy back from the brink of collapse. Last December’s one-and-done rate hike was the victory lap. They think everything is fine now and
Financial analysts are constantly seeking the Holy Grail when it comes to financial metrics, and to some financial number crunchers, EBITDA (Earnings Before Interest Taxes Depreciation and Amortization – pronounced “eebit-dah”) fits the bill. On the flip side, Warren Buffett’s right hand man Charlie Munger advises investors to replace EBITDA with the words “bullsh*t earnings” every time you encounter this earnings metric. We’ll explore the good, bad, and ugly attributes of this somewhat controversial financial metric.
The Genesis of EBITDA
The origin of the EBITDA measure can be traced back many years, and rose in popularity during the technology boom of the 1990s. “New Economy” companies were producing very little income, so investment bankers became creative in how they defined profits. Under the guise of comparability, a company with debt (Company X) that was paying high interest expenses could not be compared on an operational profit basis with a closely related company that operated with NO debt (Company Z). In other words, two identical companies could be selling the same number of widgets at the same prices and have the same cost structure and operating income, but the company with debt on their balance sheet would have a different (lower) net income. The investment banker and company X’s answer to this apparent conundrum was to simply compare the operating earnings or EBIT (Earnings Before Interest and Taxes) of each company (X and Z), rather than the disparate net incomes.
The Advantages of EBITDA
Although there is no silver bullet metric in financial statement analysis, nevertheless there are numerous benefits to using EBITDA. Here are a few:
Operational Comparability: As implied above, EBITDA allows comparability across a wide swath of companies. Accounting standards provide leniency in the application of financial statements, therefore using EBITDA allows apples-to-apples comparisons and relieves accounting discrepancies on items such as depreciation, tax rates, and financing choice.
Cash Flow Proxy:Since the income statement traditionally is the financial statement of choice, EBITDA can be easily derived from this statement and provides a simple proxy for cash generation in the absence of other data.
This report is a condensed version of the Macroliqudity Pro Trader European Banking Report, a service of the Wall Street Examiner Pro Trader.
ECB data on bank deposits for the Eurozone shows total bank deposits down sharply in July, breaking the uptrend in force since the low in 2014. That’s shocking considering that the ECB just boosted its money printing QE programs. Deposits should be rising steadily in concert with the amount of QE, not falling. But cash extinguishment and capital flight are increasing faster than the ECB can print.
We continue to see evidence that funds are fleeing the European banks for the relative “safety” of the US. My long running thesis that the US is and will be The Last Ponzi Game Standing is still well supported by the data. The looming problem is that all Ponzi schemes eventually collapse. The only question is the timing, which we deal with in other reports.
The charts below show that the European banking system is in a slow moving disaster. Only smoke, mirrors, and the unwarranted confidence of most Europeans in their banks and the ECB are keeping the system afloat.
The source of all European bank data in the charts that follow is the ECB Statistical Warehouse.
7/1/16 Money printing in the form of the ECB’s asset purchases should cause a euro for euro increase in deposits, but that has not occurred. Sorry to be repeating this, but it’s because a substantial portion of the ECB’s newly printed money flees the Eurozone to avoid the NIRP tax.
The problem grew worse in July when bank deposits in Europe actually contracted in spite of €70 billion per month in QE. Deposits contracted by €95 billion in July and are down by €112 billion since April. Over that span the ECB printed €284 billion. The net effect was that all of that, plus another €95 billion was either extinguished or fled the European banking system. Imagine that! €379 billion gone! Poof! You have to hand it to Super Mario. That is some disappearing act.
Bank deposits should increase euro for euro with the amount of ECB purchases. When the
As migrants continue to flow into Europe, certain cities across the continent have seemingly lost their ability to maintain law and order amid a surge in violent crime. The level of violence within the so-called "no-go zones" has risen to a level such that even the police have abandoned efforts to control the streets. According to RT, one particular example is Sweden's third-largest city of Malmo where more than 70 cars were set on fire by arsonists over the past several days. Meanwhile, au...
The surprise vote in favor of the U.K. leaving the European Union on June 23 unleashed shockwaves across the global economy, wiping trillions off the value of global assets. The referendum reshaped the British political landscape, and genera...
Since the beginning of 2016, ISIS propaganda repeatedly called on Spanish jihadists to take back Spain. It asked terrorists to “reconnoiter airline and train routes for attacks.” It urged followers to “poison food and water” with insecticides.
In July, ISIS started broadcasting videos with Spanish. The quality and syntax of the writing was exceptional, showing command of the language and of Spanish history.
The goal is to conquer Al-Andalus. That is the Arabic name for parts of Spain, Portugal and France occupied by Muslim conquerors (the Moors) from 711 to 1492.
Mainstream media has not reported on any of this. It wouldn’t be pol...
By Knowledge Wharton. Originally published at ValueWalk.
While most of people have already decided whom to vote for in the presidential election, there are still quite a few undecideds. A new app, called ‘Voter,’ promises to help bring more clarity about candidates based on their stances on issues and one’s own beliefs. The app developers say it also automates what could otherwise be a laborious process of determining candidates’ credentials and positions, and reduces human bias in the selection process.
Hunter Scarborough, the creator of the Voter app, says plans call for extending the app beyond the November presidential elections to candidates in races for Senate, House of Representatives and governors’ seats. Next, he plans to take it further to local elections such as for city councils, and may also go international. He discusses th...
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"When you let the free market take over, the little people get screwed and bankers get rich. Chile tried privatizing retirement plans and surprise, surprise, fund manager ate the profits… Pretty sure the results would be the same here..." ~ Jean-Luc
I was so pleased yesterday by the announcement that I have joined the Research team at GoldCore as it meant that I could finally start talking about it and was back in a role that lets me indulge in my passion by researching and geeking out on all things gold, silver and money.
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Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer. One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."
Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.
Genetic components are the DNA sequences that are 'inherited.' Some of these genes are stronger than others in their expression (e.g., eye color). Yet, some genes turn on or off due to external factors (environmental), and it is und...
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