by ilene - October 23rd, 2014 6:43 pm
By John Mauldin
I featured the thinking of Dr. Lacy Hunt on the velocity of money and its relationship to developed-world overindebtedness and the potential for deflation in this week’s Thoughts from the Frontline, and I thought you’d like to peruse Lacy’s entire recent piece on the subject.
Lacy takes the US, Europe, and Japan one by one, examining the velocity of money (V) in each economy and bolstering the principle, first proposed by Irving Fisher in 1933, that V is critically influenced by the productivity of debt. Then, turning to the equation of exchange (M*V=Nominal GDP, where M is money supply), he demonstrates that we shouldn’t be the least bit surprised by sluggish global growth and had better be on the lookout for global deflation.
Hoisington Investment Management Company (www.Hoisingtonmgt.com) is a registered investment advisor specializing in fixed-income portfolios for large institutional clients. Located in Austin, Texas, the firm has over $5 billion under management and is the sub-adviser of the Wasatch-Hoisington US Treasury Fund (WHOSX).
I am writing this note in a car going to Athens, Texas, where I’ll join Kyle Bass and friends at his Barefoot Ranch for a huge macro fest. October is one of my favorite times of the year to be in Texas, and the ranch is a beautiful venue. I am sure I will have some challenging conversations.
Last night in Chicago I was picked up by Austyn Crites, who drove me downtown in rush-hour traffic, which gave us a lot of time to talk about his current passion, high balloons. I have been fascinated with them for some time, but there hasn’t been a lot of reliable information.
Basically, Google and Facebook are both planning to launch very large helium balloons full of radios and cameras and float them up to 60,000+ feet. The concept is working in several remote locations now. It’s a way to get full wireless internet coverage. With about 40,000 balloons you can blanket the earth. Literally. Full connectivity. Everywhere. Austyn wants to design a new type of balloon and be the manufacturer. It’s tricky as you need a VERY thin balloon envelope (that does not leak)…
by ilene - October 23rd, 2014 3:17 pm
Courtesy of Mish.
Looking for growth in Europe? You won’t find it in France, but for now you can still find it in Germany (for now).
The Markit Flash France PMI shows French private sector output falls at sharpest rate in eight months.
- Flash France Composite Output Index falls to 48.0 (48.4 in September), 8-month low
- Flash France Services Activity Index falls to 48.1 (48.4 in September ), 8-month low
- Flash France Manufacturing Output Index falls to 47.6 (48.4 in September ), 2-month low
- Flash France Manufacturing PMI falls to 47.3 (48.8 in September), 2-month low
The latest flash PMI data signalled a deepening downturn in France’s private sector economy during October. The seasonally adjust ed Markit Flash France Composite Output Index , based on around 85% of normal monthly survey replies, slipped to 48.0, from 48.4 in September. That was its lowest reading since February, albeit indicative of a moderate rate of contraction overall. Faster declines in output were recorded in both the services and manufacturing sectors during October.
Employment in the French private sector fell further in October, extending the current period of contraction to one year. Furthermore, the rate of decline quickened to the sharpest since April 2013. Similarly solid rates of job shedding were registered across the services and manufacturing sectors. Staffing levels were cut in line with reduced workloads.
Outstanding business at French private sector firms fell for the sixth month running, and at the fastest pace since May 2013. Lower backlogs were signalled by service providers and manufacturers alike.
Divergent trends continued to be observed for input and output prices during the latest survey period. Input costs rose for a seventeenth consecutive month, albeit at a moderate pace. Increases were signalled in both the services and manufacturing sectors. Conversely, output prices decreased further in October. The rate of decline in charges was considerable, having accelerated to the sharpest in five years. Firms in both sectors cut their selling prices, citing intense competitive pressures and tough negotiations with clients.
Jack Kennedy , Senior Economist at Markit, which compiles the Flash France PMI ® survey, said: “The French economy remained stuck in reverse gear in October , as crumbling demand dragged activity
by Market Shadows - October 23rd, 2014 2:21 pm
Intro by Ilene
If you're following Valeant's proposed takeover (or merger) of Allergan and the lawsuit by Allergan against Valeant and notorious hedge fund manager William Ackman, for insider trading this is a must-read article.
Linette Lopez describes the roles played by key Wall Street hedge fund owners--Jim Chanos, John Paulson, and Mason Morfit, a major shareholder in Valeant. Linette goes through the conflicts, positions of the hedge fund managers, and legal issues.
Are Ackman and Valeant guilty of insider trading prior to Valeant's attempted takeover of Allergan? It may come down to semantics. However, in substance, Ackman's actions clearly amount to insider trading. By the letter of the law, we may have to wait and see.
(Should the decision depend on the letter of law vs. its substance? I don't think so. This is a case where I'd apply the "duck" test: Does it walk like a duck? Quack like a duck? Look like a duck? If the answers to those questions is yes…. it's a duck.)
The battles, for millions of dollars and control over a company, are becoming personal. During an interview with Jim Grant, editor and founder of Grant's Interest Rate Observer, Ackman goes after Grant's daughter's employment with Chanos, which should have nothing to do with Grant's questions about Valeant. These are not new questions: "Does the company actually make money?" "Does Valeant overpay for its acquisitions?" "Doesn't it need to spend money on R&D?"
So let's get to the article,…
Things are getting awkward on Wall Street, and Bill Ackman is at the center of it.
Perhaps it was only a matter of time.
The unpleasantness concerns the dogged attempts the activist investor and the pharmaceutical company Valeant have made to purchase the Botox maker Allergan.
From the beginning, the situation has been fraught with the kind of moments that make one bristle, like the time DealBook's Andrew Ross Sorkin said the controversial pile-on was "too clever by half" — due to
by ilene - October 23rd, 2014 12:45 pm
Courtesy of Mish.
Lack of significant improvement in payments by IBEX companies to suppliers is yet another another sign there isn’t much of a recovery in Spain.
La Vanguardia reports Late Payments by Ibex Companies Hits €47 Billion, 169 days (nearly 3 times the legal time limit). Ibex is the name of the Spanish stock market exchange.
Via translation from La Vanguardia. <
Delinquency of the Ibex 35 exceeds 47 billion euros and the average payment is 169 days late, almost three times the limits set by law, according to the latest report of the Platform Multisectoral against delinquency (PMcM), made from the data published by the National Securities Market Commission (CNMV).
In 2012, the average payment of listed non-financial corporations was 191 days, while in 2013 totaled 184, down 4%.
Construction and real estate had a 10% improvement. Trade and services improved 4%. Despite this improvement, the data shows that the construction sector and real estate remains the one with the greatest delay in settlement of bills. Their average payment reached the 288 days in 2013, while in 2012 exceeded 300.
Behind them are trade and services, with 253 days, nine fewer than in 2012.
PMcM president, Antoni Cañete said that “these data show that some of these big companies are financed at the expense of their own providers, mostly SMEs and freelancers”. “This situation, is produced by the dominant position of Ibex companies, shows abuse and violation of the law, “added Cañete.
IBEX vs. DOW
La Vanguardia notes that in the DOW, the average collection period of industrial companies is 105 days, followed by service and trade at 70 days and energy at 60 days.
Mike “Mish” Shedlock
by ilene - October 23rd, 2014 11:27 am
Courtesy of Lee Adler of the Wall Street Examiner
The headline, fictional, seasonally adjusted number for initial unemployment claims came in at 283,000, very close to the Wall Street conomist crowd consensus guess of 285,000. That was a non event.
The actual, not seasonally finagled numbers, which the Wall Street captured media ignores, shows claims continuing at all time record levels on the basis of claims per million workers. The condition has now persisted for 13 months. I have warned for months that this implied that the central bank financial engineering/credit bubble has been at a dangerous juncture. The media echo chamber continues to present record lows as positive, stubbornly ignoring the historical fact that extremes like this have always led to severe market and economic contractions.
According to the Department of Labor the actual, unmanipulated numbers were as follows. “The advance number of actual initial claims under state programs, unadjusted, totaled 255,483 in the week ending October 18, a decrease of 18,260 (or -6.7 percent) from the previous week. The seasonal factors had expected a decrease of 33,552 (or -12.3 percent) from the previous week. There were 312,037 initial claims in the comparable week in 2013.”
The actual week to week change last week was a decrease of around 18,000 which is a less than normal decline for the third week of October. The average of the prior 10 years for that week was a drop of approximately 38,500. It’s too soon to say this represents a change of trend. The previous several weeks had a much stronger than average performance. This week looks like giveback.
Actual first time claims were 18.1% lower than the same week a year ago. The normal range of the annual rate of change the past 3.5 years has mostly fluctuated between approximately -5% and -15%. Over the past 3 weeks the numbers have been at an extreme seen only a handful of times since the bungee rebound of 2010. There are no signs of weakening yet.
New claims were 1,828 per million workers counted in September nonfarm payrolls. This number is far lower than the ratio in the comparable October week at the top of both the housing bubble in 2006 and the internet bubble in 1999.
by ilene - October 23rd, 2014 10:15 am
Courtesy of Pam Martens.
What the New York Fed attempted to pull off this past Monday with its full-day conference for the execs of wayward Wall Street banks was a public relations stunt to switch the national debate from its culture to Wall Street’s culture. Styled as a “Workshop on Reforming Culture and Behavior in the Financial Services Industry,” the event came less than a month after ProPublica and public radio’s “This American Life” released internal tape recordings made by a former New York Fed bank examiner, Carmen Segarra, revealing a regulator with no bark or bite.
ProPublica’s Jake Bernstein wrote that the tapes and a confidential report by an outside consultant demonstrated the New York Fed’s “history of deference to banks.”
But there is far more to this story. Wall Street banking executives, who elect two-thirds of the Board of Directors of the New York Fed and have frequently served on its Board, have structured the institution to be its sycophant. Consider the fact that Jamie Dimon, CEO of JPMorgan Chase, sat on the Board of the New York Fed from 2007 through 2012 as the regulator failed to follow through on three separate staff recommendations that JPMorgan’s Chief Investment Office undergo a thorough investigation, as reported this week by the Federal Reserve System’s Inspector General.
JPMorgan’s Chief Investment Office in 2012 finally owned up to losing $6.2 billion of bank depositors’ money in wild bets on exotic derivatives in London.
A Wall Street regulator, like the New York Fed, which has staff positions called “relationship managers” that are considered senior to, and can bully and intimidate, their bank examiner colleagues, is in no position to be lecturing Wall Street on its culture. Indeed, the culture on Wall Street of “it’s legal if you can get away with it,” grew out of its cozy, crony relationships with its regulators like the New York Fed, an enshrined revolving door at the SEC, self-regulatory bodies delivering hand slaps and its own private justice system to keep its secrets shielded from the public’s view.
by ilene - October 23rd, 2014 7:58 am
Earnings Per Share. EPS. If you can't get E up, then get S down…
Submitted by Tyler Durden.
Those who have been following Caterpillar actual top-line performance know that things for the industrial bellwether have been going from bad to worse, with not only retail sales declining across the globe, as documented here previously, but with the current stretch of declining global retail sales now longer than during what was seen during the Great Recession.
And yet, moments ago, CAT, which is a major DJIA component, just reported blowaway EPS of $1.72, far above the $1.35 expected. How did it achieve this stunning number which has pushed DJIA futures higher by almost half a percent?
Simple: first there was the usual exclusions, with "restructuring costs" adding back some $0.09 to the bottom line number.
But the punchline was this: "In addition to the profit improvement, we have a strong balance sheet and through the first nine months of the year, we've had good cash flow. So far this year, we've returned value to our stockholders by repurchasing $4.2 billion of Caterpillar stock and raising our quarterly dividend by 17 percent," Oberhelman said."
And here is just how the surge in buyback activity looked in comparison to Q3 2013…
… and since the start of 2013:
One can only assume the collapse in CapEx spending is because the company is so enthused about its global growth prospects.
But wait, there's more, because another reason why the stock is soaring is because CAT actually boosted EPS guidance despite the ongoing retail sales collapse. To be sure, CAT did not boost revenue guidance, and "The company now expects 2014 sales and revenues to be about $55 billion, the middle of the previous outlook range of $54 to $56 billion."
What it did do was say that "with 2014 sales and revenues of about $55 billion, the revised profit outlook is $6.00 per share, or $6.50 per share excluding $450 million of restructuring costs. That is an improvement from the previous profit outlook of $5.75 per share, or $6.20 per…
by ilene - October 23rd, 2014 4:23 am
Courtesy of Charles Hugh-Smith of Of Two Minds
What qualifies as true avant-garde? Degrowth qualifies--and very little else.
In the 20th century, avant-garde was a term primarily reserved for the arts: fine arts, music, performance and literature. Avant garde--literally fore-guard or vanguard-- challenges the conventions of Status Quo measures of beauty and departs from traditional forms and conceptions of value.
In many cases, the departure is designed to shock traditionalists by flaunting accepted norms; by traditional standards, avant-garde art is ugly or disturbing, avant-garde music is atonal and unmelodic, avant-garde theatre flouts conventional narrative structure and avant-garde social movements upend traditional morals and values.
Virtually all design and art fields have been continually disrupted by avant-garde movements, to the point that the conventional consumerist economy now depends on avant-garde (or perhaps quasi-avant-garde) to create "the new" that can be sold at a profit to differentiate the in-crowd from those (sigh--how sad) left behind.
Many forms of avant-garde disrupt "high-brow" conventions of art, music, fashion, interior design, etc. by infusing the medium with low-brow influences. Roy Lichtenstein's appropriation of comic-book art is one example. In effect, "low-brow" becomes hip until it is adopted by the mainstream, at which point high-brow is re-introduced to offer a consumerist means to separate wealthy sophisticates from the lumpen-proletariat and petite-bourgeois masses.
I suspect that this century-long cycle of outraging the conventional has reached marginal returns, and this spells the end of avant-garde in the 20th century modernist sense. Now that every convention has been flouted, there is nothing left to disrupt or shock; "the new" is now simply re-hashed "old."
Since consumerism is based on the insecurity of bourgeois aspirations (i.e. the desire to be identified as belonging to the in-crowd), there must always be something "new" to separate elites from aspirants and aspirants from the masses.
This role is filled by simulacra of avant-garde (i.e. presenting the appearance of "the new" to sell more goods). Fake avant-garde is the ultimate co-option of true innovation, as this quasi-avant-garde serves an entirely conventional purpose: reaping profits from selling consumerist sizzle.
by ilene - October 22nd, 2014 5:36 pm
Courtesy of Joshua M Brown
When forecasting investment returns, many individuals make the mistake of simply extrapolating recent returns into the future. Bull markets lead investors to expect higher future returns, and bear markets lead them to expected lower future returns. But the price you pay for an asset also has a great impact on future returns. Consider the following evidence:
The average historical P/E ratio for the market has been around 15. A study covering the period from 1926 through the second quarter of 1999 found that an investor buying stocks when the market traded at P/E ratios of between 14 and 16 earned a median return of 11.8 percent over the next 10 years. This was remarkably close to the long-term return of the market. The S&P 500 returned 11.0 percent per year for the 74-year period 1926-2000.
On the other hand, investors purchasing stocks when the market traded at P/E ratios of greater than 22 earned a median return of just 5 percent per year over the next 10 years. And investors who purchased stocks when the market traded at P/E ratios below 10 earned a median return of 16.9 percent per year over the next 10 years.
Yesterday I linked to Larry Swedroe’s excellent piece on asset allocations and valuation at ETF.com. I wanted to pull out the most salient point here because I think it’s so crucial for investors to understand. The debates about CAPE and valuation that rage constantly in the media usually center around a “should you buy or sell” question. In truth, there is no buy signal from PE ratios, but there is a very real possibility of higher or lower long-term returns depending on when the bulk of your money is invested in stocks.
Fortunately, we don’t currently sell at an extreme PE multiple in US stocks, although it is elevated. Meanwhile, many foreign stock markets are becoming scary-cheap.
Picture by Geralt at Pixabay.
by ilene - October 22nd, 2014 4:02 pm
By Elliott Wave International
Editor's note: With permission, the following article was adapted from the October 2014 issue of The Elliott Wave Financial Forecast, a publication of Elliott Wave International. Rview an extended version of the article for free here.
In February, The Elliott Wave Financial Forecast discussed the great boom in New York City's residential real estate and its keen resemblance to what happened in 1929, when the demand for luxury housing also spiked to previously unseen heights. At 133 East 80th Street, we found this plaque commemorating the earlier era's brick-and-mortar monuments to a Supercycle degree peak in social mood.
The plaque went up in 2010, demonstrating the strength of the bullish echo from the end of Supercycle wave (III) to the final after-effects of Supercycle wave (V). Another link to the prior manic era is that many of Rosario Candela-designed apartment towers from the 1920s have become "some of New York's most coveted addresses." As architectural historian Christopher Gray puts it, Candela is now Manhattan real estate brokers' "name-drop of choice. Nowadays, to own a 10-to 20-room apartment in a Candela-designed building is to accede to architectural as well as social cynosure."
Of course, the most brilliant stars in the New York skyline are those that sell for the highest prices, and that honor belongs to the brand new penthouses that the Financial Forecast talked about in February. Most are popping up along the rim of Central Park, forming a ring of cloud-topping towers that will be so pronounced it is already called Billionaires' Row.
Here is a short video that shows two of them as they were topped off in February.
The video helps illustrate our point from February: "As in the 1880s, the views and proximity to Central Park drive development, but the new buildings rise so high that the park's presence fades away."
As the Dow rallied to its September high, prices for space in these buildings also entered the stratosphere. According to Forbes, a penthouse apartment on the 89th and 90th stories of One57 (building at the end of the clip) sold for $90 to $100 million,…