by ilene - October 20th, 2014 11:11 pm
Courtesy of Lee Adler of the Wall Street Examiner
The cycle screening data update will be posted Tuesday morning. I have just finished producing today’s new Radio Free Wall Street program. It will be available shortly. Thanks for your patience!
by ilene - October 20th, 2014 10:19 pm
Courtesy of John Rubino.
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 trouble following. As you’d expect from someone who uses words to amuse as well as educate, Frisby’s prose is informal and fluid and occasionally very funny, with lots of first-person anecdotes.
The message, however, is fairly serious: Bitcon is, just maybe, a new and better form of money, an emerging homo sapiens to the dollar’s Neanderthal. As such it’s potentially transformational.
So let’s start with a little background: Bitcoins are created (or mined) when computers solve certain kinds of mathematical puzzles. The number of bitcoins outstanding is designed to grow at a predetermined rate for a predetermined period, making its supply both limited and predictable (in contrast to fiat currencies that multiply at the whim of central bankers and politicians). And the currency can be transferred online quickly and cheaply, bypassing the traditional banking/credit card nexus.
Frisby spends the first half of his book telling the story of how bitcoin came to be, featuring the author’s attempts to track down the currency’s enigmatic creator, Satoshi Nakamoto (generally believed to be either an individual super-genius polymath or some sort of libertarian programmer collective). Frisby concludes that it’s the former and claims to have found him. You’ll have to read the book for that revelation.
He also profiles some of the early players in the bitcoin ecosystem. Silk Road, for instance, was briefly the Amazon.com of online drug sales until it was shut down by the authorities — and then subsequently reemerged in various forms around the world. Meanwhile, a lot of early adopters made and lost some serious money during bitcoin’s initial price spike:
One student from Norway bought $27 worth in 2010 while studying for his degree. He forgot about them, and then remembered them three years later. That $27 had turned into $670,000.
by ilene - October 20th, 2014 5:23 pm
Courtesy of Mish.
In yet another potential market topping sign, M&A Deals Fail At Highest Rate Since 2008
The value of deals that fail to complete has reached its highest level since 2008, in the latest sign that the best year for mergers and acquisitions since the financial crisis will also feature a number of high-profile failures.
Three large deals collapsed last week, adding to the list of wrecked deals and coinciding with a sharp jump in equity market volatility that sapped confidence in stocks and put a chill on the market for initial public offerings.
The biggest blow to dealmaking prospects came as US pharmaceutical group AbbVie unexpectedly dropped its support for a $55bn takeover of UK rival Shire. The sudden U-turn has undermined the prevailing belief among bankers that a US Treasury crackdown on deals that allow US companies to lower their tax obligations by moving abroad would have little impact.
So-called tax inversions have featured prominently in this year’s resurgent M&A market accounting for at least a dozen deals. But the chances of Pfizer, the US pharma company, reviving its $120bn pursuit of the UK’s AstraZeneca have been greatly diminished as a result of AbbVie’s decision, several people close to the situation recently told the Financial Times, casting doubt on the year’s biggest withdrawn deal returning.
A total of $573bn worth of deals have been withdrawn, setting this year up to surpass the $640bn in deals that went uncompleted in 2008, according to Dealogic.
Bruce Embley, partner at Freshfields, said: “It’s slightly unusual to have an M&A cliff coming without also seeing an adverse impact on equity capital markets. So I wonder if we look back on this moment as an anomaly or whether it is the start of something more volatile.”
Deals Withdrawn or Doubtful
Mike “Mish” Shedlock
by ilene - October 20th, 2014 4:46 pm
Courtesy of SAM RO, at Business Insider
Ever since the financial crisis, S&P 500 companies have spent about $2 trillion buying back shares of their own stock.
Some market experts have warned that a pullback in buybacks would cause stock prices to fall.
Goldman Sachs' David Kostin believes a temporary pullback may explain why the S&P 500 has tumbled from its all-time high of 2,019 on Sept. 19.
"Most companies are precluded from engaging in open-market stock repurchases during the five weeks before releasing earnings," Kostin notes. "For many firms, the beginning of the blackout period coincided with the S&P 500 peak on September 18. So the sell-off occurred during a time when the single largest source of equity demand was absent. Buybacks dip during earnings reporting months, which have seen 1.2 points higher realized volatility than in other months during the past 25 years."
The bulk of Q3 earnings announcements will be out by the end of October, at which point Kostin believes buying will pick up again.
"We expect companies will actively repurchase shares in November and December," he writes. "Since 2007, an average of 25% of annual buybacks has occurred during the last two months of the year."
Kostin believes the comeback in buybacks will drive the S&P to 2,050 by year-end.
by ilene - October 20th, 2014 3:20 pm
Courtesy of Lance Roberts of STA Wealth Management
Last week, I touched on the issue of oil prices and demand stating:
"First, the development of the “shale oil” production over the last five years has caused oil inventories to surge at a time when demand for petroleum products is on the decline as shown below."
"The obvious ramification of this is a “supply glut” which leads to a collapse in oil prices. The collapse in prices leads to production “shut ins,” loss of revenue, employee reductions, and many other negative economic consequences for a city dependent on the production of oil.
Secondly, I have also discussed that the “fracking miracle” may not be all that it is believed to be due to fast production decline rates and massive amounts of leverage. Just recently Yves Smith posted an article discussing this very issue stating:"
“The oil and gas sector is capital intensive. Drillers have borrowed phenomenal amounts of money, which was nearly free and grew on trees, to acquire leases and drill wells and install processing equipment and infrastructure. Even as debt was piling up, the terrific decline rates of fracked wells forced drillers to drill new wells just keep up with dropping production from old wells, and drill even more wells to show some kind of growth. One heck of a treadmill. Funded in part by junk debt.
Junk bond issuance has been soaring as the Fed repressed interest rates and caused yield-hungry investors to close their eyes and take on risks, any risks, just to get a teeny-weeny bit of extra yield. Demand for junk debt soared and pushed down yields further. And even within this rip-roaring market for junk bonds, according to Bloomberg, the proportion issued by oil and gas companies jumped from 9.7% at the end of 2007 to 15% now, an all-time record.”
I received many emails on those comments that deserved a response and/or further clarification.
As with all things, the question of oil prices is nothing more than a supply/demand issue. As shown above, the sharp increase in production brought on by "fracking" has certainly been quite remarkable. However, this
by ilene - October 20th, 2014 2:26 pm
Courtesy of Mish.
On October 6, I noted German Factory Orders Slump 5.7%, Most Since January 2009.
The previous month was up 4.9%, so I averaged the two months noting “The average result is a decline of 0.4% per month, for the last two months. That process also means four consecutive months of decline.“
German numbers were particularly volatile allegedly due to timing of school holidays, but there is no way to smooth out four consecutive months of decline as anything other than overall weakness.
Germany Slashes Forecasts
On October 14, and as expected in this corner, Germany Slashes its Economic Forecasts.
In stark contrast with the rosy forecasts made just six months ago of 1.8 per cent growth this year and 2 per cent in 2015, the government forecasts gross domestic product to expand 1.2 per cent in 2014 and 1.3 per cent next year.
The data follows last week’s release of dire German factory figures, which stoked fears among top financial officials gathered in Washington for the International Monetary Fund’s annual meeting that economic weaknesses at the heart of the eurozone could undermine the global recovery.
In spite of the growing pessimism, however, Berlin still expects Germany to avoid a recession, defined as two successive quarters of contraction. After a 0.2 per cent decline in the three months to June, Berlin forecasts some growth in the third quarter, contrary to the forecasts made by some bank economists.
German Manufacturers Cut Jobs
A recession in Germany is a given, but when? Its export model has held up better than I expected given a clear slowdown in the global economy.
Today, we have another sign a German recession will come sooner rather than later: German Companies Tread Unfamiliar Territory with Job Cuts.
When the flow of containers began to slow at the docks in Duisburg a few months ago, workers at the world’s largest inland port got an early indication that Germany’s export machine had begun to falter.
Container volume at Duisburg, which sits at the confluence of the Rhine and Ruhr rivers, is still expected to grow strongly this year. But the outlook for the docks – as with the rest of German business – is suddenly looking less certain.
by ilene - October 20th, 2014 12:11 pm
Courtesy of ZeroHedge
Up until a few years ago, conventional wisdom was that China would grow at nearly double digits as long as the eye could see. Then, however, something happened, and China's 9% growth became 8%, then 7% and even lower, as suddenly the Politburo made it quite clear China would not chase growth at any cost, especially when the cost is trillions in bad debt and other NPLs, as we have explained time and again. The collapse in Chinese growth expectations is shown best on the following formerly hockeysticking chart of IMF's revised Chinese growth projections which has completely collapsed in the past few years.
However, now that "7% is the new 9%" the world may have to brace for another major repricing of Chinese growth, one which would put it just above where the consensus, as wrong as it is as usual, sees US growth in the near future: a miserable 3.9% long-term growth rate!
According to the WSJ, citing a report by the business-research group the Conference Board, China's growth will slow sharply during the coming decade to 3.9% as its productivity nose dives and the country’s leaders fail to push through tough measures to remake the economy, according to a report expected to come out Monday.
The Conference Board forecasts that China’s annual growth will slow to an average of 5.5% between 2015 and 2019, compared with last year’s 7.7%. It will downshift further to an average of 3.9% between 2020 and 2025, according to the report.
The New York-based Conference Board argues that productivity in China is declining, in part because investments in infrastructure and real estate don’t have the payoff they once did. Meanwhile, government and Communist Party officials who don’t give market forces a large-enough role are stifling innovation.
“The state is too present in the market,” said David Hoffman, managing director of the Conference Board’s China center.
Such an outcome could batter an already fragile global recovery. But the report by the business-research group the
by ilene - October 20th, 2014 12:00 pm
Consumer-safety regulators are now conducting over 200 investigations into alleged hygiene and financial violations at McDonald's restaurants in Russia. Currently McDonald's has around 450 restaurants in the country.
Kathrin Hille at the Financial Times writes,
Russia has broadened its crackdown on McDonald’s to more than 200 separate investigations, in a campaign that makes the US fast food group one of the biggest casualties of Moscow’s festering stand-off with the west over Ukraine. The latest salvo subjects almost half of McDonald’s outlets in Russia to probes over hygiene or finance. (Russia bites back with widening crackdown on McDonald’s – FT.com)
Bloomberg reports that the original McDonald's restaurant in Moscow’s Pushkin square is currently shut down under court order. Eight other restaurants are also temporarily closed.
McDonald's disagrees with the decisions to shut down stores and plans to appeal.
While probes into financial matters and hygenic matters are not unusual, this number is extreme. “It is the typical approach you see when [countries] are determined to bring a business to its knees,” according to food industry executive in Russia.
This witch-hunt started when the U.S. and European Union imposed sanctions against Russian companies and Russian officials following Putin's annexation of Crimea. In response to these sanctions, Putin banned $9.5 billion in food imports from Western countries. Unfortunately for McDonald's, it's right in the middle of this tit-for-tat exchange of hostilities.
McDonald’s Says Russia Inspecting More Than 200 Outlets (Bloomberg)
Russia bites back with widening crackdown on McDonald’s (FT.com)
Picture by girlwparasol at Flickr.
by ilene - October 20th, 2014 11:40 am
Submitted by Tyler Durden.
Excerpted from John Hussman's Weekly Market Comment
Abrupt market losses typically reflect compressed risk premiums that are then joined by a shift toward increased risk aversion by investors. In market cycles across history, we find that the distinction between an overvalued market that continues to become more overvalued, and an overvalued market is vulnerable to a crash, often comes down to a subtle but measurable shift in the preference or aversion of investors toward risk – a shift that we infer from the quality of market action across a wide range of internals.
Valuations give us information about the expected long-term compensation that investors can expect in return for accepting market risk. But what creates an immediate danger of air-pockets, free-falls and crashes is a shift toward risk aversion in an environment where risk premiums are inadequate. One of the best measures of investor risk preferences, in our view, is the uniformity or dispersion of market action across a wide variety of stocks, industries, and security types.
Once market internals begin breaking down in the face of prior overvalued, overbought, overbullish conditions, abrupt and severe market losses have often followed in short order. That’s the narrative of the overvalued 1929, 1973, and 1987 market peaks and the plunges that followed; it’s a dynamic that we warned about in real-time in 2000 and 2007; and it’s one that has emerged in recent weeks (see Ingredients of A Market Crash). Until we observe an improvement in market internals, I suspect that the present instance may be resolved in a similar way. As I’ve frequently noted, the worst market return/risk profiles we identify are associated with an early deterioration in market internals following severely overvalued, overbought, overbullish conditions.
With respect to Federal Reserve policy, keep in mind the central distinction between 2000-2002 and 2007-2009 (when the stock market lost half of its value despite persistent and aggressive Federal Reserve easing), and the half-cycle since 2009 (when Fed easing relentlessly pushed overvalued, overbought, overbullish conditions to increasingly severe and uncorrected extremes): creating a mountain of low- or zero-interest rate base money is supportive of risky assets primarily when low- or zero-interest rate risk-free money is…
by ilene - October 20th, 2014 11:37 am
Courtesy of Michael Pento at Pento Portfolio Strategies
It wasn’t too long ago that the stock market was busy celebrating a “great” September jobs report. There were 248,000 net new jobs created and the unemployment rate dropped to 5.9 percent. Janet Yellen, Ben Bernanke and the rest of Washington D.C.’s central planners deemed it a great time to take a Keynesian victory lap, basking in the delusion that they now have proved you actually can print and borrow your way to prosperity.
And, because of their success, the Fed would be able to raise interest rates without any damage to the economy.
But while crossing the finish line they discovered they were on the wrong track. U.S. stocks have dropped for the third consecutive week and have erased all the gains for the year. The market’s anxiety stems from the global economic slowdown (that includes the United States). Industrial commodity prices, most notably oil, are tumbling and sovereign debt yields are plunging—asset prices around the world have begun to collapse.
Ever since the late 1980’s, the Fed has viewed itself as the savior for the stock market; this is affectionately referred to on Wall Street as the Fed put. Like a fireman standing ready to put out a major fire brewing in the economy’s kitchen, the central bank has stood ready to bail out any of the markets bad behaviors—most of which were first derived from the Fed’s provision of artificially-low interest rates to begin with.
But, today’s Fed isn’t merely waiting for a fire to start, it is using a flame thrower to light the stove. It has stopped relying strictly on overnight repos to manage short-term rates and providing liquidity on the margin; but instead has now put the responsibility of the worldwide economy squarely on its shoulders.
This is why former Fed Governor Laurence Meyer recently complained that too-low inflation, “is getting to be a real issue again.” With inflation at 1.5 percent according to the Fed’s preferred index, Meyer believes FOMC policy makers aren’t likely to raise interest rates, even if the economy approaches full employment—what Keynesians believe causes inflation.