by ilene - April 23rd, 2014 12:59 am
Courtesy of Mish.
Chinese manufacturing remains in contraction for 2014. Output and new orders were down for the 4th consecutive month, but at a slightly reduced pace according to the HSBC Flash China Manufacturing PMI.
Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co – Head of Asian Economic Research at HSBC said:
“The HSBC Flash China Manufacturing PMI stabilised at 48.3 in April, up from 48.0 in March. Domestic demand showed mild improvement and deflationary pressures eased, but downside risks to growth are still evident as both new export orders and employment contracted. The State Council released new measures to support growth and employment after the release of Q1 GDP. Whilst initial impact will likely be limited, they signalled readiness to do more if necessary. We think more measures may be unveiled in the coming months and the PBoC will keep sufficient liquidity.”
There is a massive expectation that China will step on the gas at any time now to improve conditions. I rather doubt it, unless there is a far bigger, disorderly breakdown.
China needs to rebalance, and will. Slower and slower GDP growth will generally be the norm, most likely for years to come, perhaps interrupted by an occassional unsustainable spurt here or there.
Mike “Mish” Shedlock
by ilene - April 22nd, 2014 8:39 pm
Submitted by Tyler Durden.
Stephen Roach, former Chief Economist at Morgan Stanley, has never been shy to share his opinions about the world and having left the Wall Street firm is even freer to speak uncomfortable truthiness. This brief clip, as Sovereign Man's Simon Black notes, says it all so succinctly… "The market has been distorted by far bigger forces than flash trading. To me, the force that has rigged the market… is the Federal Reserve, not the flash traders."
We recommend skipping to 13:05 for about 30 seconds of brilliance if you’re pressed for time:
by ilene - April 22nd, 2014 8:35 pm
The financial forecasts around the end of 2013 brimmed with optimism. Here are just a few examples:
- Many scoff at notion stock bubble exists — Associated Press, Nov. 19, 2013
- Economy Entering New Year on a Roll — Bloomberg, Dec. 25, 2013
- 'We have entered a 15- to 20-year bull market' — CNBC, Dec. 30, 2013
- Economy poised for strong 2014 — Atlanta Journal-Constitution, Jan. 1, 2014
- Market Prediction: Bull will keep charging in 2014 — USA Today, Jan. 2, 2014
- Bull Market has Years Left Based on S&P 500 Valuations — Bloomberg, Jan. 6, 2014
- Economist tells Denver audience to be aggressive over next four years — Denver Post, Jan. 9, 2014
This super bullish outlook was also expressed just before the 2000 and 2007 market tops. Indeed, a chart from the April 2014 Elliott Wave Financial Forecast shows that investment pros are more bullish now than before the two prior major market peaks.
EWI's special report, The State of the U.S. Markets — 2014 Edition notes:
Investors are even more optimistic than economists. While the overall economy barely grinds ahead in first gear, indicators of Wall Street psychology stand at historic extremes of optimism. This optimism is the only thing holding up nominal stock prices.
Market history shows that extremes in psychology always reach a turning point. The Wave Principle can help you identify when the market's trend is about to change.
It is a thrilling experience to pinpoint a turn, and the Wave Principle is the only approach that can occasionally provide the opportunity to do so.
The ability to identify such junctures is remarkable enough, but the Wave Principle is the only method of analysis that also provides guidelines for forecasting…
It is our practice to try to determine in advance where the next move will likely take the market.
Elliott Wave Principle: Key to Market Behavior, tenth edition, p. 96
by ilene - April 22nd, 2014 6:49 pm
Courtesy of Mish.
Moving back home with parents is not just for millennials. A large number of those aged 50 to 64 are moving back home, for economic reasons, not for providing care to aged parents.
The LA Times reports Moving in with Parents Becomes More Common for the Middle-Aged
At a time when the still sluggish economy has sent a flood of jobless young adults back home, older people are quietly moving in with their parents at twice the rate of their younger counterparts.
For seven years through 2012, the number of Californians aged 50 to 64 who live in their parents’ homes swelled 67.6% to about 194,000, according to the UCLA Center for Health Policy Research and the Insight Center for Community Economic Development.
The jump is almost exclusively the result of financial hardship caused by the recession rather than for other reasons, such as the need to care for aging parents, said Steven P. Wallace, a UCLA professor of public health who crunched the data.
“The numbers are pretty amazing,” Wallace said. “It’s an age group that you normally think of as pretty financially stable. They’re mid-career. They may be thinking ahead toward retirement. They’ve got a nest egg going. And then all of a sudden you see this huge push back into their parents’ homes.”
Many more young adults live with their parents than those in their 50s and early 60s live with theirs. Among 18- to 29-year-olds, 1.6 million Californians have taken up residence in their childhood bedrooms, according to the data.
Though that’s a 33% jump from 2006, the pace is half that of the 50 to 64 age group.
The surge in middle-aged people moving in with parents reflects the grim economic reality that has taken hold in the aftermath of the Great Recession.
Long-term unemployment is especially acute for older people. The number of Americans 55 and older who have been out of work for a year or more was 617,000 at the end of December, a fivefold jump from the end of 2007 when the recession hit, according to the Bureau of Labor Statistics.
Those in their 50s move in only as a last resort. Many have exhausted savings. Some have jobs but can’t shoulder soaring rents in areas such as Los
by ilene - April 22nd, 2014 6:30 pm
In his year-long campaign against the embattled Herbalife company, Wall Street hedge fund manager Bill Ackman secretly promised a disgruntled former company executive as much as $3.6 million over 10 years if he lost his job after providing information to government investigators and the media.
Ackman’s firm so far has paid the whistleblower $80,000 under the arrangement, according to the former Herbalife executive’s lawyer.
“It was the right thing to do,” Ackman told ABC News.
The hedge fund run by the prominent Wall Street investor, known for his “short” positions, stands to make $1 billion if the price of Herbalife’s stock collapses as a result of his allegations the company is a fraud, a charge the company strongly denies.
The agreement between Ackman and the former executive, Giovanni Bohorquez, was signed in June 2013 but required both sides to keep it confidential.
Two months later, the New York Times published a critical article about an alleged problem in 2011 at an Herbalife manufacturing plant based on internal documents provided by a person described only as a “former employee, who was granted anonymity out of fear of retribution from the company.”
by ilene - April 22nd, 2014 5:19 pm
Courtesy of Charles Hugh-Smith of OfTwoMinds
Once vested interests take control, the only possible "solution" left is collapse.
I have long identified diminishing returns as a key dynamic in the current unraveling of the Status Quo. Why is this so? We can summarize diminishing returns as dumping more money, capital, energy and effort into a system just to keep the output from falling to zero.
But as the costs of keeping the system from imploding rise, they soon consume all the oxygen in the system, and the system implodes anyway.
The Fatal Disease of the Status Quo: Diminishing Returns (May 1, 2013)
Our Era’s Definitive Dynamic: Diminishing Returns (November 11, 2013)
Sickcare, higher education and insanely expensive weapons systems are all examples of this dynamic. The higher education cartel has raised gargantuan sums to fund its poor quality product by turning students into debt-serfs via student loans.
We must add a second definitive dynamic: protecting vested interests. There are many ways of describing powerful constituencies with an enormous stake in maintaining the Status Quo--vested or entrenched interests, for example--but the key characteristic is the enormous political pain that these groups can inflict on self-serving politicos.
Once confronted with an aroused vested interest--public union, cartel, corporatocracy, Power Elite, etc.--politicos cave in and do what is politically expedient: avoid any real reform and simply shovel more money into the gaping maw of diminishing returns.
A good example is soaring higher education costs and the decline of actual learning and the real-world value of a college diploma. The long-term study Academically Adrift: Limited Learning on College Campuses concluded that "American higher education is characterized by limited or no learning for a large proportion of students."
But rather than enable (or even insist) on real reforms that dramatically lowered costs and improved results, the political Status Quo responds to the higher education cartel's screams for more money by extending more student credit and taxpayer-paid aid to the cartel.
(I address all these issues in my book The Nearly Free University and The Emerging Economy: The Revolution in Higher Education.)
by Market Shadows - April 22nd, 2014 4:13 pm
Bunge Limited (BG) is the world’s largest processor of soybeans. It is also a major producer of vegetable oils, fertilizer, sugar and bioenergy.
When commodities got hot in 2007-08, Bunge’s EPS shot up and the stock followed, rising 185% in 19 months.
The Great Recession took its toll on operations, dropping EPS to a low of $2.22 in 2009. Since then profits have recovered. They ranged from $4.62 – $5.90 in the latest three years. 2014 appears poised for a large increase. Consensus views from multiple sources see BG earning $7.04 – $7.10 this year and then $7.83 – $7.94 in 2015.
The shares have been holding a trading range over the last 12-months as the ‘show me’ crowd wants another quarter or two of good comparisons to become believers again. I’m already convinced after seeing Q4 come in at $1.35 versus $0.57 year-over-year.
Market Shadows Virtual Put Writing Portfolio sold one contract each of the Jan. $80 strike put for 2015, and 2016 at $5.91 and $9.38 per share. The ‘if put’ prices look very attractive at $74.09 and $70.62 respectively.
Our maximum profit is 100% of the premium collected. That will occur if the puts end up expiring worthless because BG remains above $80 on the expiration dates. In a worst case scenario we’ll end up owning 100 or 200 shares of Bunge at a price well below today’s quote and for a moderate P/E.
You can now follow these trades on the open positions list in our Virtual Put Writing Portfolio which has been showing outstanding results since we started it up in January of 2013.
Check out all our closed-out and current option trades to judge for yourselves if option selling is something that would work for your own situation.
by ilene - April 22nd, 2014 4:02 pm
Submitted by Tyler Durden.
We have been saying for about 6 months that the second coming of the tech bubble is here. We are happy to learn that none other than hedge fund manager David Einhorn agrees. From his just released letter to clients:
We have repeatedly noted that it is dangerous to short stocks that have disconnected from traditional valuation methods. After all, twice a silly price is not twice as silly; it’s still just silly. This understanding limited our enthusiasm for shorting the handful of momentum stocks that dominated the headlines last year. Now there is a clear consensus that we are witnessing our second tech bubble in 15 years. What is uncertain is how much further the bubble can expand, and what might pop it.
In our view the current bubble is an echo of the previous tech bubble, but with fewer large capitalization stocks and much less public enthusiasm. Some indications that we are pretty far along include:
- The rejection of conventional valuation methods;
- Short-sellers forced to cover due to intolerable mark-to-market losses; and
- Huge first day IPO pops for companies that have done little more than use the right buzzwords and attract the right venture capital.
And once again, certain “cool kid” companies and the cheerleading analysts are pretending that compensation paid in equity isn’t an expense because it is “non-cash.” Would these companies be able to retain their highly talented workforces if they stopped doling out large amounts of equity? If you are trying to determine the creditworthiness of these ventures, it might make sense to back out non-cash expenses. But if you are an equity holder trying to value the businesses as a multiple of profits, how can you ignore the real cost of future dilution that comes from paying the employees in stock?
So what is Einhorn doing? Shorting a basket of momentum stocks of course (good luck) each of which he views as having 90% downside.
Given the enormous
by ilene - April 22nd, 2014 3:31 pm
Courtesy of Robert Reich
Until the 1980s, corporate CEOs were paid, on average, 30 times what their typical worker was paid. Since then, CEO pay has skyrocketed to 280 times the pay of a typical worker; in big companies, to 354 times.
Meanwhile, over the same thirty-year time span the median American worker has seen no pay increase at all, adjusted for inflation. Even though the pay of male workers continues to outpace that of females, the typical male worker between the ages of 25 and 44 peaked in 1973 and has been dropping ever since. Since 2000, wages of the median male worker across all age brackets has dropped 10 percent, after inflation.
This growing divergence between CEO pay and that of the typical American worker isn’t just wildly unfair. It’s also bad for the economy. It means most workers these days lack the purchasing power to buy what the economy is capable of producing — contributing to the slowest recovery on record. Meanwhile, CEOs and other top executives use their fortunes to fuel speculative booms followed by busts.
Anyone who believes CEOs deserve this astronomical pay hasn’t been paying attention. The entire stock market has risen to record highs. Most CEOs have done little more than ride the wave.
There’s no easy answer for reversing this trend, but this week I’ll be testifying in favor of a bill introduced in the California legislature that at least creates the right incentives. Other states would do well to take a close look.
The proposed legislation, SB 1372, sets corporate taxes according to the ratio of CEO pay to the pay of the company’s typical worker. Corporations with low pay ratios get a tax break.Those with high ratios get a tax increase.
For example, if the CEO makes 100 times the median worker in the company, the company’s tax rate drops from the current 8.8 percent down to 8 percent. If the CEO makes 25 times the pay of the typical worker, the tax rate goes down to 7 percent.
On the other hand, corporations with big disparities face higher taxes. If the CEO makes 200 times the typical employee,
by ilene - April 22nd, 2014 3:03 pm
Weeks before the harvest started last summer, Li Ping's rice paddies were hit by extreme weather. Temperatures of 95 degrees Fahrenheit baked Longtan village in north China for over a month, causing leaf yellowing and damaging grain production. As a result, Li's rice yields decreased by 20 percent compared with normal years.
But Li did not struggle to raise money for his next planting, which he did after previous crop failures. Instead, the 51-year-old farmer waited at home for the money to come.
"I have insured my rice production since 2009," Li said. "The compensation I got didn't recover the total losses, but it did remove part of my financial pressure."
Li is one of hundreds of millions of Chinese farmers who are now using insurance as a tool to hedge against the risks of climate change. China is the world's second-largest agricultural insurance market after the United States by premium income, and it is scrambling to spread the use of climate-related insurance into other sectors.