In 1968, Paul Ehrlich released his ground-breaking book The Population Bomb, which awoke the national consciousness to the collision-course world population growth is on with our planet's finite resources. His work was reinforced several years later by the Limits To Growth report issued by the Club of Rome.
Fast-forward almost 50 years later, and Ehrlich's book reads more like a 'how to' manual. Nearly all the predictions it made are coming to pass, if they haven't already. Ehrlich admits that things are even more dire than he originally forecasted; not just from the size of the predicament, but because of the lack of social willingness and political courage to address or even acknowledge the situation:
The situation is much more grim because, of course, when the population bomb was written, there were 3.5 billion people on the planet. Now there are 7.3 billion people on the planet. And we are projected to have something on the order of 9.6 billion people 35 years from now. That means that we are scheduled to add to the population many more people than were alive when I was born in 1932. When I was born there were 2 billion people. The idea that, in 35 years when we already have billions of people hungry or micronutrient-malnourished, we are somehow going to have to take care of 2.5 billion more people is a daunting idea.
I think it's going to get a lot worse for a lot more people. You've got to remember that each person we add disproportionately causes ecological damage. For example, human beings are smart. So human beings use the easiest to get to, the purest, the finest resources first.
When thousands of years ago we started to fool around with copper, copper was lying on the surface of the earth. Now we have at least one mine that goes down at least two miles and is mining copper that is about 0.3% ore. And yet we go that deep and we refine that much. Same thing the first commercial oil well in the United States. We went down 69.5 feet in 1859 to hit oil. The one off in the Gulf of Mexico started a mile under water and went down a couple of more
Beyond multiple expansions driven by liquidity, sales and earnings drive stocks.
Of the two, sales are most important for determining economic conditions. Earnings can be massaged any number of ways. However, sales cannot. Either the money came in the door or it did not.
Unfortunately for the bulls, sales are falling.
1Q15 sales came in 2.4% below 1Q14. And the trend has not improved since that time.
General Electric (GE), JP Morgan (JPM), Microsoft (MSFT), IBM (IBM), Citigroup (C), Johnson & Johnson (JNJ), Intel (INTC), Coke (KO), Oracle (ORCL), Honeywell (HON), Goldman Sachs (GS), and American Express (AXP) have all reported a decline in Year Over Year sales for the second quarter of 2015.
These companies are not unique. Across the board S&P 500 companies are posting a 4% drop in revenues.
Sales are not the only metric that is tanking.
Annual corporate earnings fell last year for the first time since we entered the so-called “recovery” in 2009. This is pretty incredible when you consider the sheer amount of buybacks and other accounting gimmicks used by corporations to boost their profits.
Indeed, a study performed by Duke University found that roughly 20% of publicly traded firms manipulate their earnings to make them appear better than they really are. The folks who were surveyed for this study about this practice were the actual CFOs at the firms themselves.
All of this gimmicky has resulted in corporate profits trading at an all time high relative to US GDP. Profits literally have nowhere to go but down as corporations have cut costs to the bone and juiced earnings through buybacks and leveraged buybacks (issuing debt to buy shares).
Put simply, both sales and earnings are rolling over… at a time when the S&P 500 is close to all-time highs. This is a recipe for a correction if not a crash.
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“The one thing I know for sure about China is, I will never know China. It’s too big, too old, too diverse, too deep. There’s simply not enough time.”
– Anthony Bourdain, Parts Unknown
Much of the world is focused on what is happening in Greece and Europe. A lot of people are paying attention to the Middle East and geopolitics. These are significant concerns, for sure; but what has been happening in China the past few months has more far-reaching global investment implications than Europe or the Middle East do. Most people are aware of the amazing run-up in the Shanghai stock index and the recent “crash.” The government intervened and for a time has halted the rapid drop in the markets.
There have been a number of concerns about what this means for the Chinese economy. Is China getting ready to implode? Certainly there are those who have been predicting that outcome for some time. In this week’s letter I am going to try to explain both what caused the Chinese stock market to rise so precipitously and then fall just as fast and why we have to view China’s stock market differently from its economy.
As I have been saying for several years, in order for the Chinese economy to continue to grow, the Chinese must shift their emphasis from industrial production and infrastructure investment to a services-oriented economy. That is indeed what they are trying to do, and we are beginning to see signs of the services sector taking on a role as important to the Chinese economy as services are to the US economy. They have a long way to go, but they have begun the trip.
A Transformation Like No Other
When the US stock market crashed in October 1987, commentators on that era’s primitive financial media (I recall seeing them on the large wooden box in my living room) rushed to distinguish between the country’s economy and its stock market.
The American economy, they said, is just fine. Life
Hillary Clinton gave a speech warning that the new “sharing economy” of businesses such as the ride-hailing company Uber is “raising hard questions about workplace protections.”
Democrats hate what labor unions hate, and a taxi drivers’ union hates Uber, too. Its NYC website proclaims, “Uber has the money. But we are the PEOPLE!”
The taxi cartels, which provide inferior service and are micromanaged by government, don’t like getting competition from efficient companies like Uber.
Clinton didn’t mention Uber by name, but we don’t have to wonder which company she meant.The New York Times reports that Clinton contacted Uber and told them her speech would threaten to “crack down” on companies that don’t treat independent contractors as full employees. Apparently, Democrats think something’s wrong if people are independent contractors.
But no driver is forced to work for Uber. People volunteer. They like the flexibility. They like getting more use out of their cars. It’s win-win-win. Drivers earn money, customers save money while gaining convenience, and Uber makes money. Why does Clinton insist on interfering with that?
Clinton’s “social democrat” pal, New York’s Mayor Bill de Blasio, wants to crack down on Uber by limiting how many drivers they may hire. Uber cleverly responded with an app—a “de Blasio option”—that shows people how much longer they’d have to wait if de Blasio gets his way.
Good for Uber for fighting back. I wish more companies did.
Federal Express didn’t.
FedEx Ground classified drivers as independent contractors. Again, drivers were willing to drive, FedEx Ground was willing to pay, and customers got packages faster and more reliably than they did from the U.S. Postal Service.
But lawyers built a class action suit on behalf of FedEx drivers, saying they should be treated as employees, paying payroll tax, getting workman’s compensation, receiving benefits. FedEx settled the case for $228 million and began abandoning its independent contractor system.
Uber’s use of independent drivers—who use their own cars—is now called analogous to FedEx’s use of delivery drivers.
That means Uber may soon have to treat its drivers as employees. Business analysts at ZenPayroll estimate that the changes will cost $209 million. We customers will pay for that, and we’ll have fewer ride-share choices, too.
Lawsuits and politicians’ attacks against one company have a chilling effect…
What we saw with the latest GDP reports is something truly remarkable. A market that was explicitly told the past 4 years of economic growth had been overstated simply shrugged off the news. That is, absolutely no price recalibration took place. This really evidences beyond any doubt that there is no relationship between the economy and the market. It further evidences the Fed’s increased proficiency in directly guiding the market.
Now I know this is not shocking to many of us. But to watch the market’s blatant irreverence toward a report that, with the flip of a switch, removed 12% of the presumed economic growth from the past 4 years did strike me as remarkable. It shows that the printing of economic indicators is nothing but theater. There is absolutely no rational market explanation that the market traded flat to up on the day when current GDP missed estimates and the past 4 years of growth was adjusted downward, all in the midst of one of the worst seasons for YoY deteriorating corporate revenues/earnings.
But more realistically what it suggests is the only player left in the market is the ‘buyer of last resort’, i.e. the Fed and its minion entities. Certainly nobody wants to aggressively short the market in the face of a clear long only strategy by the Fed, but just as certainly no major money managers are longing this market. Volume has simply dried up.
I’ve been writing for almost a year now about the economic cannibalism that has been feeding earnings growth. I have discussed this concept with a dire warning that feeding earnings expansion through operational contraction is a short lived meal. And well we are now seeing the indications that the growth through contraction has now hit its inevitable end. Have a look at the following chart which is really the only chart one needs to study at this point. The chart depicts S&P 500 adjusted earnings per share (blue line), S&P Price level (green line), S&P 500 Revs per share (red line) and US Productivity of Total Industry (olive line).
I have normalized the parametres back to the early 1990’s so that we can better understand the absurdity of what’s been taking place. Now there is a tremendous amount of information…
Because, being short volatility can be very profitable, according to Goldman. Year-to-date this short vol index is up 56%, and selling the front-month VIX has earned a massive 114 vol points…
The Short Story: Short VIX futures index +56% ytd; If the longs use VIX products as hedging instruments, then why would anyone take the other side? Because, being short volatility can be very profitable. The S&P 500 VIX Short-term Futures Daily Inverse Index (SPVXSPI) tracks the profitability of being short a constant maturity 1m VIX future and is the benchmark for ETPs such as the XIV and SVXY. Year-to-date this short vol index is up 56%.
In low vol environments VIX futures tend to trade above VIX spot and futures typically roll down the curve to settle at VIX spot.
Short VIX futures strategies profit from the contango in the VIX futures curve. The steeper the VIX term structure, the higher the (futures-spot VIX) basis, and short VIX strategies tend to be profitable as futures roll down the curve. There are many investors who try to profit from this well publicized phenomenon: sell a VIX future, capture roll down, do it again (wash, rinse, repeat).
Prior to VIX Weeklys if you wanted to capture the roll-down you might have sold the front-month contract and hoped for the best. Short vol investors know that putting all of your eggs in one basket can be a risky strategy.
VIX Weeklys may provide more flexibility with investors positioning for the roll-down a bit week each week by simply spreading out their monthly trades. Instead of selling $100 on the front month VIX future an investor might sell 1/4th of the notional per week which may help smooth the return profile. The VIX often mean reverts quickly so if one contract expires in the red, the other contracts may pick up the speedy mean reversion and end in the green.
On the tactical side, we could see more investors positioning for a swift decline in volatility post an event (FOMC for example).
One narrative we’ve been building on for quite some time is the idea that both stocks and bonds have been propped up by a perpetual bid from price insensitive buyers. Put simply, it really doesn’t matter how overvalued something is if your primary concern is something other than maximizing your return on investment.
Take corporate buybacks for instance. Both equity-linked compensation and the market’s tendency to focus on quarterly results at the expense of the bigger picture have compelled corporate management teams to develop a dangerously myopic strategy that revolves around tapping corporate credit markets for cheap cash and plowing the proceeds into EPS-inflating buybacks. Whether or not this is the best use of cash is certainly debatable but when the goal is to manage earnings and appease stockholders, that doesn’t matter, and indeed, companies have an abysmal record when it comes to buying back shares at levels that later prove to be quite expensive.
In America, the price insensitive corporate management bid simply replaced the monthly flow the market lost when the Fed – the most price insensitive of all buyers – began to taper its asset purchases. Of course QE in all its various iterations playing out across the globe, is price insensitive buying taken to its logical extreme. With the ECB’s PSPP for instance, limits on the percentage of an individual issue that NCBs are allowed to own apply to nominal amounts meaning that, to the extent NCBs can buy bonds at a premium to par, they can effectively buy fewer bonds than they otherwise would have and still hit their purchase targets. In other words, if you overpay, it’s easier to stay under the issue cap when supply is scarce in eligible paper. So in some respects, the more EMU central banks pay for the bonds they purchase, the better.
In Japan, the BoJ has amassed an elephantine balance sheet full of ETFs and because one cannot classify stocks as “held to maturity”, Haruhiko Kuroda’s equity plunge protection is effectively a self-feeding loop – that is, the more stocks the central bank owns, the more it must buy in order to protect its balance sheet from the damage it would suffer were equities to sell off.
And then there are banks, mutual funds, and pension plans which…
NEW YORK – The problems with China’s economic-growth pattern have become well known in recent years, with the Chinese stock-market’s recent free-fall bringing them into sharper focus. But discussions of the Chinese economy’s imbalances and vulnerabilities tend to neglect some of the more positive elements of its structural evolution, particularly the government’s track record of prompt corrective intervention, and the substantial state balance sheet that can be deployed, if necessary.
In this regard, however, the stock-market bubble that developed in the first half of the year should be viewed as an exception. Not only did Chinese regulators enable the bubble’s growth by allowing retail investors – many of them newcomers to the market – to engage in margin trading (using borrowed money); the policy response to the market correction that began in late June has also been highly problematic.
ATHENS – The point of restructuring debt is to reduce the volume of new loans needed to salvage an insolvent entity. Creditors offer debt relief to get more value back and to extend as little new finance to the insolvent entity as possible.
Remarkably, Greece’s creditors seem unable to appreciate this sound financial principle. Where Greek debt is concerned, a clear pattern has emerged over the past five years. It remains unbroken to this day.
In 2010, Europe and the International Monetary Fund extended loans to the insolvent Greek state equal to 44% of the country’s GDP. The very mention of debt restructuring was considered inadmissible and a cause for ridiculing those of us who dared suggest its inevitability.
California is launching a website that lets residents tattle on water wasters, from neighbors with leaky sprinklers to waiters who serve water without asking.
California has multiple restrictions on water use, including banning washing cars with hoses that don’t shut off and restricting lawn-watering within two days of rainfall. But enforcement varies widely across the parched state.
Residents can send details and photos of water waste at www.savewater.ca.gov. Complaints are then sent to local government agencies based on the address of the offense.
Tipsters wary of being outed as the neighborhood snitch can remain anonymous. The site went online Thursday as the latest conservation initiative.
A wildfire that has been raging in northern California since last Wednesday jumped 20,000 acres overnight, and has now charred 47,000 acres and is threatening 6,300 homes. Fire officials say the massive blaze, called the Rocky Fire, in the Lower Lake area north of San Francisco is only 5% contained. Already it has destroyed 24 homes and 26 outbuildings.
There has probably been no greater investing mantra placed upon an industry in recent memory than the now reflexive, as well as defensive response of “It’s different this time” when questioning anything Social. Trying to understand the business model along with its metrics, valuations and more is not only arduous, the response seems more akin to pulling teeth without anesthesia for those selling it, defending it, or both.
Those that have been with me for a while know I have little use for the whole “social media” thing. Although, while I don’t use any of it myself, that doesn’t mean I don’t see value and innovation in many of them. Again, I don’t use them, nor have accounts. However, I do have share buttons on my own site for those that do. So let me be clear:
It’s the valuations along with the metrics of their underlying business models and just how effective they are for those that are in business, along with the ROI for those businesses whether monetarily or in other ways for their time and money is what I take issue with. For as I’ve stated over and over again: “The only people making money in social media – are those selling you social media.”
When it comes to everything social, today, recent memory is about the last 5 to 6 years. Or: post financial crisis. Basically, everything you know, or think you know about valuations, their coming into IPO existence, as well the metrics they stood on (and still use) as to “prove” those valuations has all been within the most adulterated markets in history fueled by the advent of “free money” made possible by The Fed. via QE. This is a quantitative, as well as a qualitative fact. Period.
Never before has this (QE) been done in the history of the markets. So obscene has the valuation process become along with the metrics used to support it is why, “It’s different this time” was born. And precisely one might ask “why was that?” Well, just as a teenager who can no longer defend what they’re arguing and immediately cuts off further discussion with, “Because! Just because!” followed with “You just don’t get it!” When you’re wearing a $3K power-suit, “It’s different this time” sounds more grown…
In 1968, Paul Ehrlich released his ground-breaking book The Population Bomb, which awoke the national consciousness to the collision-course world population growth is on with our planet's finite resources. His work was reinforced several years later by the ...
NEW YORK – The problems with China’s economic-growth pattern have become well known in recent years, with the Chinese stock-market’s recent free-fall bringing them into sharper focus. But discussions of the Chinese economy’s imbalances and vulnerabilities tend to neglect some of the more positive elements of its structural evolution, particularly the government’s track record of prompt corrective intervention,...
readtheticker.com is primarily a Richard Wyckoff logic site, however through our research into Wyckoff logic the three indicators below make us very lazy in applying Richard Wyckoff logic.Why? Because if these indicators look handsome together then it most likely the Wyckoff logic is working very well.
These three indicators are NOT a trading system, but they do help with finding excellent well support accumulated stocks that show Mr Market is supporting them. Of course when indicators look ugly they will show stocks in a breakdown, thus less support by Mr Market.
If the large market plays are accumulating the stock then they will control the range of BID and ASK and not let th...
This chart looks at the Thompson/Reuters Commodity Index on a monthly basis for the past 50 years
The index took off in the early 1970’s and rallied over 200% in a little over a decade at (1). Then it created a potential double top. What followed at (2)? An unwinding of the rally that lasted nearly 20-years, taking it to the bottom of its rising channel.
In the early 2000’s, the index took off again, gaining over 250% in a decades time at (3) and the rallied looks to have ended in 2011, as it was hitting the top of this long-term rising channel.
Since hitting the top of the channel the index has been pretty soft,...
As oil prices tanked, hedge-fund managers and other large speculators increased bullish bets on Treasury securities to the most in two years, even as the Federal Reserve moves closer to raising interest rates.
MagneGas Corporation (NASDAQ: MNGA) this week completed metal cutting demonstrations with over 40 representatives from the Fossil Fuel division of a major northeast Utility. The Company believes the demonstrations were successful as they have received multiple requests for fuel as a result of those meetings.
The Utility is one of the ten largest in the United States with over $35 billion in assets and large volume use of acetylene. Multiple company officials and representatives from the Fossil Fuel Division of the Utility were in attendance. This particular division is the largest user of acetylene and propane at the Company. The test used MagneGas® to cut 2 inch steel plates and resulted in very little pre-heat time with clean cuts. Officials have indicated an int...
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.
Corporate earnings reports have been mixed at best, interspersed with the occasional spectacular report -- primarily from mega-caps like Google (GOOGL), Facebook (FB), or Amazon (AMZN). Some of the bul...
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Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
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 email@example.com 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.
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