by ilene - October 5th, 2015 11:08 am
Courtesy of Pam Martens.
Last week we wrote about the invisible hand’s removal of a negative paragraph on the financial industry from the Pope’s speech before a joint session of Congress and some bizarre shenanigans with Fed Chair Janet Yellen’s highly anticipated speech in Amherst, Massachusetts. This past Saturday, Adam Posen, the President of a powerful think tank, the Peterson Institute for International Economics, delivered a speech at a conference sponsored by the Federal Reserve Bank of Boston, calling the U.S. Financial Stability Oversight Council (FSOC) “a mess.” That speech has gone missing from online access.
FSOC is the body created under the Dodd-Frank financial reform legislation of 2010 to reassure the American people that Wall Street would never again be able to take the U.S. economy, the financial system, and the housing market to the cleaners and then get a multi-trillion dollar bailout. FSOC is chaired by the U.S. Treasury Secretary, Jack Lew (an alumnus of the biggest bailout recipient, Citigroup), along with the heads of every other major U.S. financial regulator.
According to Bloomberg Business, in his conference remarks on Saturday, Posen also said that what individual financial institutions are able to do with discretion from regulators was “huge.” (That two of the mega banks in the U.S., JPMorgan Chase and Citigroup, admitted to criminal felony counts in May for rigging foreign currency markets along with other banks and that serial findings of collusion among the mega banks in multiple markets has now achieved epic dimensions, Posen’s comments would hardly seem an overstatement.)
The New York Times added more gravity to Posen’s remarks with this quote from him at the Saturday conference: “The current U.S. institutional setup is likely to fail in a crisis and will do less to prevent a crisis than it should, and we are likely to suffer from this.”
There are two places one would expect to find such a remarkably candid speech. At the official conference site where other speeches are posted or at Dr. Posen’s official page of speeches and publications at the Peterson Institute. We could not find the speech at either site, nor could we find it elsewhere on the Internet.
by ilene - October 5th, 2015 2:58 am
Courtesy of Mish.
Here's my theoretical question for the day: Why are mules stubborn, and why can't blind jackasses see?
I ask that question in regards to a few recent news articles. One is on Japan, one the US, and one on emerging markets with various overlaps in between.
Let's start with Japan.
Brink of "Technical" Recession
The Financial Times reports Japan on Brink of Technical Recession.
Japan is on the verge of a technical recession after data on industrial production raised the prospect of a second consecutive quarter of negative growth. Industrial production for August — a crucial input into gross domestic product — unexpectedly fell by 0.5 per cent on the previous month after a 0.6 per cent fall in July.
“It’s likely we’re already in technical recession,” said Masamichi Adachi, senior economist at JPMorgan in Tokyo, who forecast an annualised contraction of 1 per cent in the third quarter after 1.2 per cent in the second.
In an interview with the Financial Times this week, Mr Abe’s economic adviser, Etsuro Honda, said additional fiscal stimulus was an “urgent task”, while an increasing number of analysts expect the Bank of Japan to expand its monetary stimulus at the end of October.
Last week Janet Yellen, US Federal Reserve chair, implicitly criticised the BoJ’s policy, noting in a speech: “I am somewhat sceptical about the actual effectiveness of any monetary policy that relies primarily on the central bank’s theoretical ability to influence the public’s inflation expectations.”
The BoJ has a wide range of policy options for further easing. It could increase the rate of asset purchases from the current Y80tn ($670bn) a year; expand the range of assets it buys; or use communication tools to signal how long it will keep monetary policy loose.
IMF Warns of New Financial Crisis
The Guardian reports IMF Warns of New Financial Crisis if Interest Rates Rise.
The debts of non-financial firms in emerging market economies quadrupled, from $4tn (£2.6tn) in 2004 to well over $18tn in 2014, according to the IMF’s twice-yearly Global Financial Stability Report.
by ilene - October 4th, 2015 10:43 pm
Courtesy of Mish.
Carly Fiorina's No-Fly Zone Proposal Dead?
(Previous article by Mish questioning "our" no-fly zone here.)
The Financial Times reports Moscow Scuppers US Coalition Plans for No-Fly Zone in Syria
Russia’s bombing of anti-regime rebels in Syria has been described as a disaster for the US-led coalition’s efforts to destroy Isis, the Islamist militant group, but the Kremlin’s real challenge to Washington is in the skies above the war-torn country.
Alongside a modest Latakia-based contingent of two dozen Su-24 Fencer and Su-25 Frogfoot jets — planes designed to strike land targets — Moscow has deployed assets which render the prospect of no-fly zones enforced by the US or its allies over Syria impossible to enact.
“The ultimate reason all this is happening is because of the renewed focus on Syria and the need for some sort of political solution there — something which we thought we could achieve by enforcing no-fly zones, safe zones,” said one senior European diplomat.
But any hopes of military co-ordination with Russia to achieve this, even in the wake of its disruptive deployment, are swiftly being dashed.
Deployment of S-300s — or other similarly sophisticated systems, also known as triple-digit Sams — has long been one of the Pentagon’s biggest fears in the Middle East. The S-300 system, which has an operating range of 150km, is capable of striking down all but the most sophisticated stealth aircraft. It means most missions flown by Washington’s coalition allies — Jordan, for example, uses F-16 jets — are now highly vulnerable. Even the UK’s deployment of Tornados and Typhoons at the Royal Air Force’s base at Akrotiri, Cyprus, is threatened by the missiles.
“The Russian forces now in place make it very, very obvious that any kind of no-fly zone on the Libyan model imposed by the US and allies is now impossible, unless the coalition is actually willing to shoot down Russian aircraft,” says Justin Bronk, research analyst at the Royal United Services Institute.
“The Russians are not playing ball at deconfliction — they are just saying, ‘keep out of our way’. The coalition’s operations in Syria will be vastly more complex from a risk assessment point of view and from a mission-planning point of view.”
by ilene - October 4th, 2015 10:42 pm
Courtesy of Joshua M Brown
There was a lot of excitement about the market’s dramatic reversal to the upside on Friday. What began as a down 250-open for the Dow Jones Industrial Average ended with an up-200 close. It is understandable to see investors cheering this type of action – it’s quite a relief to see early morning losses turn to gains so quickly and forcefully.
Unfortunately, it would be ahistorical to think that this is somehow indicative of the resumption of the bull market. The reality is that the biggest intraday point swings in history have all taken place in the context of downtrends and bear markets.
The below table goes back to 1987 and obviously points are not the same as percentages, but I think you’ll get the idea:
15 of these 20 large intraday point swings for the Dow occurred on days during which the Dow ended with a loss, 5 of 20 were on up-days. Every single of one of these large swings took place during a market crash (we can debate the 2010 “Flash Crash” on the merits of time frame) save for the latest entrant, August 24th of this year. 9 of the top 10 intraday point swings took place during the infamous 4th quarter of 2008.
The point is that massive intraday point swings, regardless of direction, are not synonymous with “healthy” action, they are indicative of deep confusion and fear within the various layers of the investor class firmament. Friday’s action could be the beginning of a classic October “Bear-killer” rally, but it is way to soon to be drawing that conclusion.
Why? Because there’s still a lot of work to do within the stock market, not just on price itself.
The next chart I created is meant to show that the episode we’re contending with now has been long in the making. Anyone searching for day to day “reasons” as to why the market makes a volatile move would do well to understand that the internals had been portending the correction for a long time now; the sins beneath the surface had been piling up, despite the seemingly benign lack…
by ilene - October 4th, 2015 3:49 pm
Courtesy of Mish.
A huge chunk of your tax dollars every year goes straight into the pockets of crooks. Nearly one in three earned income credits (EIC) is fraudulent. And the numbers keep getting bigger every year according to the Government Accountability Office.
Please consider GAO: Feds Made Nearly $1 Trillion in Overpayments Since Fiscal 2003.
Government waste took a significant turn for the worse in fiscal 2014, rising dramatically to $124.7 billion from $105.8 billion in fiscal 2013.
Since fiscal 2003, “cumulative improper payment estimates have totaled almost $1 trillion,” the Government Accountability Office (GAO) said in a new report.
U.S. Comptroller General Gene Dodaro testified Thursday on the GAO’s new findings (http://www.gao.gov/products/GAO-16-92T) before the Senate Finance Committee.
The GAO said three programs were most at fault: Medicare, Medicaid and the Earned Income Tax Credit (EITC).
The Earned Income Tax Credit program was the worst offender.
The Internal Revenue Service estimated that the program erroneously handed out $17.7 billion worth of “improper” payments. That amounts to a whopping 27.2 percent of the total $65.2 billion in EITC refund checks that the IRS sent out in fiscal 2014.
Medicare was nearly as bad. The program, which covers about 54 million elderly and disabled beneficiaries, incorrectly doled out $59.9 billion in fiscal 2014, which is about a tenth of its $603 billion budget.
So, one out of every $10 that Medicare spent last year was erroneous, the GAO found. Medicaid made $17.5 billion in mistaken payments out of its $304 billion budget, for a nearly 6 percent error rate.
Besides the EITC program, the federal programs with the highest reported error rates for fiscal 2014 included the School Breakfast program (25.6 percent) and the Farm Security and Rural Investment Act Programs (23.1 percent).
The GAO Report is called Addressing Improper Payments and the Tax Gap Would Improve the Government’s Fiscal Position…
More Pain For Biotechs Ahead: Valeant’s “Astronomical” Price Increases Take Center Stage; Pfizer Gets Dragged In
by ilene - October 4th, 2015 12:44 pm
Two weeks ago, the biotech sector imploded after a piece by the NYT'a Andrew Pollack drew attention to the 5000% increase in the price of a toxoplasmosis drug by specialty biotech firm Turing Pharma, whose CEO Martin Shkreli promptly became the poster child for greedy biotech executives who seek to profit on the back of people's misery by gouging the price of life-extending/saving drugs.
However, as we subsequently pointed out, what Shkreli did was merely an extension of the far more gradual if far more aggressive hiking in drug prices by every other company in the sector. Indeed, according to a Citron report in which the bearishly-focused research boutique "in the Twitter-storm furor over Turing’s recent one-drug price gouge attempt, the media has overlooked the reality that Martin Shkreli was created by the system. Shkreli is merely a rogue trying to play the gambit that Valeant has perfected."
[Read these two Citron reports, if you haven't already: Citron Research Exposes the Information that Congress Will Find if it Subpoenas Valeant and Why a Congressional Subpoena to Valeant About Price Gouging on Drugs Should be Granted. ~ Ilene]
Conveniently, Deustche Bank laid out just what the average wholesale acquisition cost increases by Valeant for its universe of drugs in the past 3 years.
We compiled the data to show that even as the US is supposedly drowning in deflation, Valeant had not gotten the memo, and its average annual drug price increase had risen from 21% in 2012 to a whopping 66% YTD.
In fact, as shown in the table below, Valeant had clearly put all its biotech peers to shame when it comes to enforced price increases.
Then late last week, after looking at Valeant's soaring default risk as measured by the price of its blowing out CDS, soaring to over 30% even as its stock prices was surging, we wondered – does someone know something?
It appears someone may have known that this weekend, the same Andrew Pollack whose NYT article exposing Turing's 5000% price increase resulted in Hillary…
by ilene - October 4th, 2015 10:30 am
Courtesy of Bill Bonner at Acting-Man
$10 Trillion Goes to Money Heaven
What was the best place for your money so far in 2015? Cash! Compared to cash, almost everything is down. We are headed for the worst quarter for stocks since 2011, says the lead story in today’s Financial Times.
Global stock markets have lost $10 trillion of their value over the last three months. What? Where did all that paper wealth go? The old-timers say it went to “money heaven.”
One fine morning in money heaven….will it ever rain down again? Of course, no money has actually disappeared. Only make-believe values have.
Image credit: Salvatore Vuono
We’re not so sure. But we stop. We stare. We look at it as we would at a corpse. What happened to its life force? Where did it go? Why is it no longer there? We have no answer. But looking at a stock market sell-off is like standing over an open coffin: We are in awe at the power of the gods to take as well as to give.
They ask no one’s permission. They follow their own playbook (which they never reveal to mortals). And they are as much a law unto themselves as the NSA. But what’s $10 trillion that never actually existed anyway? Easy come, easy go, right?
Well… yes… and no. It’s usually a pleasure to welcome a baby, but a funeral can be painful. And every one of those dollars – now headed for heaven or hell – will be missed by someone.
On Wednesday, the Dow rose 154 points to 16,049. That left the stock market overvalued by about 8,000 points. At least, that is the assessment of billionaire investor and Wall Street legend Carl Icahn. The current price-earnings ratio for the Dow is 15, he says, and “half of
by Market Shadows - October 4th, 2015 1:02 am
Financial Markets and Economy
You have to risk money to make money. You have to make sure you don't risk so much money that you can lose your stake and go out of business as a trader. Bet too little and you never make a good return on your capital. Bet too much and you court career risks. So much of trading success boils down to taking intelligent risks.
Here is a useful calculation tool that can tell you the probability of hitting a drawdown threshold.
Forbes' Richest Americans list showcases dozens of private equity execs who have made billions doing leveraged buyouts.
But six men from two private equity firms share one common distinction.
Those shockwaves have wiped out 6% of the value from the S&P 500 so far this year.
Glencore had a crazy week — here's what analysts made of it (Business Insider)
Commodities trading and mining business Glencore has seen its share price destroyed over the last week, falling 29% on Monday alone.
Investors are worrying how the company will deal with its huge net debt pile, worth $30 billion (£20 million), as copper prices fall. Glencore is not especially profitable.
by ilene - October 3rd, 2015 11:13 pm
Courtesy of Citron Reports (originally posted Oct. 2, 2015)
Valeant's Business Model is Broken:
Stock is Too Dangerous to Own: Short Term Price Target – $125
Over the past two weeks, shares of Valeant (NYSE:VRX) took a steep decline over concerns of price gouging that was recently expressed by Presidential hopeful Senator Bernie Sanders. In his plea for a subpoena of Valeant Sen. Sanders would like to see all communication regarding the price hikes and the reasons behind them.
Look no further Senator — Citron has done the work.
Over the past two weeks, shares of Valeant took a steep decline over concerns of price gouging that was recently expressed by Presidential hopeful Senator Bernie Sanders. In his plea for a subpoena of Valeant Sen. Sanders would like to see all communication regarding the price hikes and the reasons behind them. Look no further Senator — Citron has done the work.
Investors, Politicians, and Concerned Citizens must note that Valeant raised the prices on the two key heart drugs in question the very next day after they acquired them … just to cover up for a bad quarter.
Here's the proof — all done without wasting taxpayer money on a hearing.
by ilene - October 3rd, 2015 9:23 pm
Finally, one of the top republican candidates said something intelligent about Syria while the dreadful Fiorina explained how we need to defend our,…yes, OUR territory in the middle east by engaging Russia in a war. Yeah, something like that.
Courtesy of Mish.
Carly Fiorina Seeks No-Fly Zone
In the Fox interview show below, Republican presidential candidate Carly Fiorina says the US should enforce a no-fly zone in Syria, even if it means shooting down Russian aircraft.
Quote of the day: "Russian jets have been basically conducting dangerous and unpredictable maneuvers around our waters and our borders and our territory".
Can I have a definition of "our" territory please?
The closest I can find is U.S. to file complaint over 'unsafe' intercept by Russian fighter jet. That was an incident over the Baltic Sea, near Poland.
The other side of the story is Invading the Black Sea: Washington's belligerent military maneuvers in traditional Russian territory.
And what about NATO Conducts Military Maneuvers 300 Yards From Russia's Border?
So who's provoking whom?
But let's return to the main story. What right does the US have to enforce a no-fly zone over Syria?
Quite frankly this woman is a dangerous war-monger, at best. She is totally unfit to be president.
Obama Goes After Putin
The Financial Times reports Obama Attacks Putin Over Syrian Air Strikes.
Russia is being pulled into a “quagmire” in Syria and its military intervention is likely to boost the Islamist militants of Isis, a defiant President Barack Obama said on Friday after a week when his own approach to the Syrian conflict has faced intense scrutiny.
“An attempt by Russia and Iran to prop up Assad and try to pacify the population is just going to get them stuck in a quagmire, and it won’t work,” he said. “They will be there for a while if they don’t take a different course.”
The irony of Obama's statement should stand out like a mile. The US is in a Mideast quagmire of its own making starting with Bush and continued by Obama.