by ilene - November 30th, 2016 6:05 pm
Courtesy of Urban Carmel, The Fat Pitch
Summary: A year ago, profits for companies in the S&P had declined 15% year over year (yoy). Sales were 3% lower. Margins had fallen more than 100 basis points. The consensus believed all of this signaled the start of a recession in the US.
How has that dire prognosis worked out? In a word: terrible. Jobless claims are at more than a 40 year low and retail sales are at an all-time high. The US economy continues to expand.
In the past year, S&P profits have grown 12% yoy. Sales are 2.4% higher. By some measures, profit margins are at new highs. Why were the critics wrong? They confused a collapse in one sector – energy, where sales dropped by 60% – with a general decline in all sectors. Energy was considered the same as financials in 2007-08; events since then show that it is nothing like financials.
Where critics have a valid point is valuation: even excluding energy, the S&P is highly valued. With economic growth of 3-4% (nominal), it will likely take exuberance among investors to propel S&P price appreciation at a significantly faster annual clip.
* * *
A year ago, profits for companies in the S&P had declined 15% year over year (yoy). Sales were 3% lower. Margins had fallen more than 100 basis points. The consensus believed all of this signaled the start of a recession in the US.
The chart below was from Barclays at the start of the 2016, who said that big drops in profitability like those last year have coincided with a recession 5 of the last 6 times since 1973 (read further here). Enlarge any chart by clicking on it.
How have these dire prognoses for the US worked out? In a word: terrible. Jobless claims are at more than a 40 year low (first chart below) and retail sales are at an all-time high. US demand growth, measured a number of different ways, has been about 3-4% nominal yoy during the past two years (second chart below).
by ilene - November 29th, 2016 11:35 pm
Courtesy of John Hempton of Bronte Capital
Valeant Announces The Initiation Of A Primary Care Sales Force For Xifaxan® And Relistor®
LAVAL, Quebec, Nov. 29, 2016 /PRNewswire/ — Valeant Pharmaceuticals International, Inc. (NYSE: VRX and TSX: VRX) ("Valeant") today announced that it has initiated a significant sales force expansion to focus on potential primary care physician (PCP) prescribers of Xifaxan for irritable bowel syndrome with diarrhea (IBS-D) and Relistor for opioid induced constipation (OIC.) With the launch of the expanded sales force effort over the coming weeks, the company expects to reach a significant majority of likely Xifaxan and Oral Relistor primary care prescribers. The costs of this program were considered in previously announced guidance for the full year 2016.
"Our goal in building a primary care sales force is to maximize opportunities for Xifaxan and Relistor to help our products reach full potential. Xifaxan and Relistor are integral to our gastrointestinal franchise which remains a core asset for future growth potential in the hands of Valeant," said Joseph C. Papa, chairman and chief executive officer. "With approximately 70% of IBS-D patients initially presenting with symptoms to a primary care physician, our dedicated PCP sales force will be better able to reach the patients in need of IBS-D treatment and in doing so will further advance our mission to improve people's lives with our healthcare products."
There are several implications.
First the stories that say Valeant is selling Salix are almost certainly false. These stories are responsible for the stock rising 30 percent recently.
Secondly it puts the acid to the idea that Mike Pearson (Valeant's former CEO) was good at cutting costs. As this story makes clear Salix had a Primary Care Sales Force when Valeant acquired it. However they were debating whether to keep it. (Obviously they gutted it and are now being forced to reinstate it.)
This happened all over Valeant. Lots of businesses are melting ice cubes where the sales force has been neutered or where drugs have had prices pushed up to
by ilene - November 28th, 2016 7:14 pm
Since the election this month of Donald Trump as the US president, something considered to be a new phenomenon has become a focus of attention. Some suspect that false news may have swayed the election. Perhaps equally as important, some claim this false news was planted by Russian intelligence under orders of President Vladimir Putin, who allegedly supported Trump’s election.
Given that a recount of votes in some states is likely—with some saying Russians might have hacked voting machines—it increasingly is not simply a matter of politics but of geopolitics.
During the Korean War, the Soviets planted a false story that the United States was using biological weapons in Korea. In those days, such stories were planted in newspapers.
For example, an Indian journalist might be induced to publish a story quoting American generals who had visited India, stating that Korea was a perfect testing ground for germ warfare. Once the article was published, other newspapers might begin quoting the Indian story.
As the news circulated around the world, the reference became prestigious British or French newspapers. The story would no longer quote its forgotten origins in India and would now be treated as credible—if not quite news. The quoted generals would be asked for interviews and refuse them.
By the time the story made US newspapers, it would focus on the generals’ refusal to confirm or deny the use of chemical weapons in Korea. A lie had become accepted truth. But it’s actually not true. The story was adopted full-bore by communists around the world, as well as sympathizers, and those whom Vladimir Lenin called “useful idiots.”
These useful idiots were not communists, but were prepared to believe whatever they heard that portrayed the West as monsters. They were priceless to the Soviets since communists were always suspected of being pro-Soviet for some reason. But the useful idiots were not communists. They simply would believe anything. But alas, over time, the public came to know who they were, and they were lumped in with the communists.
by ilene - November 27th, 2016 6:28 pm
Ever heard of an Alpha quote? That’s how best to classify, “Show me the money!!!”
It didn’t take you but a nanosecond to picture Jerry Maguire screaming that line into his phone. The shame, for lack of a better word, is that another quote from the same movie, that’s almost as good, will only live on to minor fame.
Getting to the not quite as famous quote requires that you navigate not one, but two scenes in the 1996 Tom Cruise blockbuster. Sports agent Maguire has landed an Odessa, Texas high school superstar quarterback. In perfect stereotypical form, the boy’s father is chief negotiator. Out Maguire drives to dusty West Texas to seal the deal, on paper, to which the father replies: “You know I don’t do contracts, but what you do have is my word. And it’s stronger than oak.” One firm handshake later, we see an elated Maguire driving off singing and pounding his steering wheel to the beat of Tom Petty’s “Free Falling.”
Of course, a betrayal follows as sure as night follows day and the father signs, yes signs, with a rival agent offering a sweeter as in “Sugar” deal. But what about the strength of that oak? A pumped-up Maguire arrives for the young star’s big moment and learns that in all likelihood Cushman Senior does sign contracts. To that Maguire bitterly retorts, “I’m still sort of moved by your, ‘My word is stronger than oak’ thing.” The moral we saw coming: Always get it in writing.
But what happens when those written words still aren’t good enough? The occasion of the release of most Federal Open Market Committee (FOMC) Meeting Minutes would seem to be a great opportunity to get a behind-the-scenes take on all those round the table machinations. Minutes of lame duck meetings – no press conference, no action – hold even greater appeal, especially if multiple dissents accompany the decision. Hence the media jockeying for instant live reaction at 2 pm EST three weeks to the minute from the moment the statement is released. Hey, it beats waiting around five years for the meeting transcripts.
by ilene - November 25th, 2016 8:30 pm
Black Friday – the name elevates images of people standing in long lines, fighting the crowds to grab the best bargains of the year, and filling the shopping carts to the rims. But, as FreeShippingCode.com notes, from another perspective Black Friday is the day when retailers try to push their sales to the last limits in order to maximize their profits, i.e. move from red (loss) column to the black (profit).
While the shoppers try to grab the best bargains of the year, the retailers, on the other hand, try to achieve their Black Friday sales targets, this battle continues till the end of the day to mark the winners and losers of this battle.
The Changing Battlefield
Black Friday sales reached record levels in the last year, but if you are wondering why you did not see those long lines and scenes of shoppers fighting for the best bargains, it is because most of the Black Friday shopping last year was done online. Sales data from last year reveals that 51% Black Friday shoppers used their smartphones to shop online and only 49% headed to the shopping malls and big retail stores. Shoppers have all the good reasons to justify their choice of using their mobile phones and desktops to do their Black Friday shopping online.
A Look At Some Of The Winners
The online shopping landscape has dramatically changed the shopping behavior of Black Friday shoppers, as a result, many big retail giants with profound online presence and popularity are enjoying good sales and profits. Let us have a look at some of the major retailers who were able to make it to the victory stands last year.
Amazon came first with a big chunk of the online sales (35%) in the last Black Friday season. Apple with its popular iPad and iPod brands also enjoyed a good Black Friday season last year. Similarly, REI despite its early announcement to remain closed on the big day recorded 26% increase in the online traffic.
Every year Black Friday creates demand for
by ilene - November 25th, 2016 7:48 pm
Courtesy of George Monbiot
The combination of automation, complexity and climate change is dangerous in ways we haven’t even begun to grasp.
Wave the magic wand and the problem goes away. Those pesky pollution laws, carbon caps and clean power plans: swish them away and the golden age of blue-collar employment will return. This is Donald Trump’s promise, in his video message on Monday, in which he claimed that unleashing coal and fracking will create “many millions of high-paid jobs”. He will tear down everything to make it come true.
But it won’t come true. Even if we ripped the world to pieces in the search for full employment, leaving no mountain unturned, we would not find it. Instead, we would merely jeopardise the prosperity – and the lives – of people everywhere. However slavishly governments grovel to corporate Luddism, they will not bring the smog economy back.
No one can deny the problem Trump claims to be addressing. The old mining and industrial areas are in crisis throughout the rich world. And we have seen nothing yet.
I have just re-read the study published by the Oxford Martin School in 2013 on the impacts of computerisation. What jumps out today, to put it crudely, is that jobs in the rustbelts and rural towns that voted for Trump are at high risk of automation; while the professions of many Clinton supporters are at low risk.
The jobs most likely to be destroyed are in mining, raw materials, manufacturing, transport and logistics, cargo handling, warehousing and retailing, construction (pre-fabricated buildings will be assembled by robots in factories), office support, administration and telemarketing. So what, in the counties that voted for Trump, will be left?
Farm jobs have mostly gone already. Service and care work, where hope for some appeared to lie, will be threatened by a further wave of automation, as service robots – commercial and domestic – take over. Yes, there will be jobs in the green economy, more and better than any that could be revived in the fossil economy. But they won’t be…
by ilene - November 24th, 2016 2:10 am
And So it Begins: Normalizing the Election
It didn’t take a clairvoyant to predict that President-elect Donald Trump would be almost instantly normalized by the press since he had already been normalized by them when he was a candidate. After a "60 Minutes" interview, Lesley Stahl declared him “more subdued and serious.” NBC’s Andrea Mitchell reported approvingly upon the transition as if proposed White House counselor Steve Bannon and proposed attorney general Jeff Sessions, two men with racism in their pasts, were ordinary appointments. Mitchell’s colleague at NBC, Chuck Todd, chastised Senator Harry Reid, after his eloquent and impassioned attack on Trump, for being “too harsh.” And so the media fell into line. To which we can only invoke John Oliver’s emphatic post-election pronouncement: “THIS IS NOT NORMAL.”
That, however, is only one of the media’s derelictions. Far more serious is their normalization not of Trump but of his voters. The former is typical cowardice under threat of reactionary populism. The latter is an endorsement of reactionary populism that may have far-reaching consequences for whether the country can ever be reunited after having been torn asunder.
First Trump. The media impulse to render Trump ordinary, and their sudden disinclination to criticize him is natural reflex. The press needs him as it needs all presidents because the press need access. Trump was fairly brilliant in branding the mainstream media as his opponents and, worse, a group of snotty elitists who disdained not only him but also his supporters. The general public doesn’t much like the press to begin with and Trump ramped up the hatred, so that, according to some reports, a cluster of his supporters began using the term “luginpresse,” or “lying press,” which is how the Nazis characterized those organs that opposed Hitler. More, they began to intimidate the press, verbally and even physically.
Under normal circumstances a candidate who incited his supporters to attack the press might raise First Amendment issues. But these are not normal circumstances, so Trump can target the press with impunity. Their only recourse is to make peace, which is what they seemed to be doing when they met with Trump this weekend, and peace means less rigorous coverage. The…
by ilene - November 22nd, 2016 8:57 pm
Courtesy of Michael Batnick
The S&P 500 just made an all-time high for the 11th time this year, and the 1134th time since 1928. Today, the Dow Jones Industrial Average crossed 19,000 for the first time ever. The natural inclination is that now might not be the best time to put new money to work. The data doesn’t support this, at least not in the short term.
The table below shows that average returns six months and one year following an all-time high has been stronger compared with all other days.
Taking a longer-term view, 18% of all months have closed at a new all-time high. You can see them represented below by the green dots. New highs are nothing to fear, in fact they are the cornerstone of every great bull market.
The people that use all-time highs to scare you are the same people who told you that the 27% selloff in the Russell 2000 earlier this year was the canary in the coalmine. Small-cap stocks are now at all-time highs and 40% off their February lows. The main takeaway is this; it’s true that every nasty bear market we’ve ever had followed an all-time high, but all time highs on their own is not a harbinger of bad things to come.
by ilene - November 21st, 2016 7:45 pm
Courtesy of Lance Roberts at RealInvestmentAdvice.com
Let’s start with where we left off last week for some context.
“The post ‘Trexit’ rally that started on Wednesday took out the first two levels of resistance with some ease. However, the “sell signal” remains intact with the market now back to extreme overbought levels as shown by the red circles at the top of the chart.
The good news is the market is holding above the downtrend resistance line currently which puts all-time highs as the next logical point of attack if this bull market is to continue.
However, is we step back to a longer-term (weekly) picture we get a little clear picture about the overall directional trend of the market.”
The good news, as shown in the next chart, is the market was able to clear that downtrend resistance this week and turn the previous “sell signal” back up. It is not surprising the markets are pushing all-time highs as we saw on Friday.
But what about after that? As I noted on Friday:
“Importantly, with next week being a light trading week, it would not be surprising to see markets drift higher. However, expect a decline during the first couple of weeks of December as mutual funds and hedge funds deal with distributions and redemptions. That draw down, as seen in early last December, ran right into the Fed rate hike that set up the sharp January decline.”
As I have noted above, there are a lot of similarities in market action between the “post-Trexit” bounce, “Brexit” and last December’s Fed rate hike. I have highlighted there specific areas of note in the chart above.
As with “Brexit” this past June, the markets sold off heading into the vote assuming a vote to leave the Eurozone would be a catastrophe. However, as the vote became clear that Britain was voting to leave, global Central Banks leaped into action to push liquidity into the markets to remove the risk of a market meltdown. The same setup was seen as markets plunged on election night and once again liquidity was pushed into the markets to support asset prices forcing a
by ilene - November 21st, 2016 6:15 pm
Courtesy of Wade of Investing Caffeine
It has been a busy year between work, play, family, and of course the recent elections. My work responsibilities contain a wide-ranging number of facets, but in addition to research, client meetings, conference calls, conferences, trading, and other activities, I also attempt to squeeze in some leisure reading as well. While it’s sad but true that I find pleasure in reading SEC documents (10Ks and 10Qs), press releases, transcripts, corporate presentations, financial periodicals, and blogs, I finally did manage to also scratch When Genius Failed by Roger Lowenstein from my financial reading bucket list.
When Genius Failed chronicles the rise and fall of what was considered the best and largest global hedge fund, Long Term Capital Management (LTCM). The irony behind the collapse makes the story especially intriguing. Despite melding the brightest minds in finance, including two Nobel Prize winners, Robert Merton and Myron Scholes, the Greenwich, Connecticut hedge fund that started with $1.3 billion in early 1994 managed to peak at around $140 billion before eventually crumbling to ruin.
With the help of confidential internal memos, interviews with former partners and employees of LTCM, discussions with the Federal Reserve, and consultations with the six major banks involved in the rescue, Lowenstein provides the reader with a unique fly-on-the-wall perspective to this grand financial crisis.
There have certainly been plenty of well-written books recounting the 2008-2009 financial crisis (see my review on Too Big to Fail), but the sheer volume has burnt me out on the subject. With that in mind, I decided to go back in time to the period of 1993 – 1998, a point at the beginning of my professional career. Until LTCM’s walls began figuratively caving in and global markets declined by more than $1 trillion in value, LTCM was successful at maintaining a relatively low profile. The vast majority of Americans (99%) had never heard of the small group of bright individuals who started LTCM, until the fund’s ultimate collapse blanketed every newspaper headline and media outlet.