The Big Money economy is booming. According to a new Commerce Department report, third-quarter profits of American businesses rose at an annual record-breaking $1.659 trillion – besting even the boom year of 2006 (in nominal dollars). Profits have soared for seven consecutive quarters now, matching or beating their fastest pace in history.
Executive pay is linked to profits, so top pay is soaring as well.
Higher profits are also translating into the nice gains in the stock market, which is a boon to everyone with lots of financial assets.
And Wall Street is back. Bonuses on the Street are expected to rise about 5 percent this year, according to a survey by compensation consultants Johnson Associates Inc.
But nothing is trickling down to the Average Worker economy. Job growth is still anemic. At October’s rate of only 50,000 new private-sector jobs, unemployment won’t get down to pre-recession levels for twenty years. And almost half of October’s new jobs were in temporary help.
Meanwhile, the median wage is barely rising, adjusted for inflation. And the value of the major asset of most Americans – their homes – continues to drop.
Why are America’s two economies going in opposite directions? Two reasons.
First, big profits are coming from overseas sales of goods and services made abroad, not here. The world’s fastest-growing markets are China and India, whose inhabitants are eager to buy “American” products, and just as eager to work for the American companies that sell them. The U.S. market is barely moving.
Increasingly, American corporations are able to extract healthy gains from their global operations without adding much in the United States except executive talent.
Second, American businesses are boosting productivity by having U.S. employees do more work for less pay. According to the Bureau of Labor Statistics, between the third quarter of 2009 and the third quarter of 2010, productivity rose 2.5 percent, output increased 4.1 percent, the number of hours worked was up 1.6 percent, and unit labor costs dropped by 1.9 percent.
In other words, American workers are losing even more bargaining power as a sizeable chunk of corporate profit goes into software and digital equipment that can do what people used to do – but more cheaply.
So what is Washington doing about all this?
Making the tax code more progressive so more Americans reap…
I just read Michael Pollan’s book, In Defense of Food: An Eater’s Manifesto, and what struck me was the parallels between the evolution of food and the evolution of finance since the 1970s. This will only confirm my critics’ belief that I see the same thing everywhere, but bear with me for a minute.
Pollan’s account, grossly simplified, goes something like this. The dominant ideology of food in the United States is nutritionism: the idea that food should be thought of in terms of its component nutrients. Food science is devoted to identifying the nutrients in food that make us healthy or unhealthy, and encouraging us to consume more of the former and less of the latter. This is good for nutritional “science,” since you can write papers about omega-3 fatty acids, while it’s very hard to write papers about broccoli.
It’s especially good for the food industry, because nutritionism justifies even more intensive processing of food. Instead of making bread out of flour, yeast, water, and salt, Sara Lee makes “Soft & Smooth Whole Grain White Bread” out of “enriched bleached flour” (seven ingredients), water, “whole grains” (three ingredients), high fructose corn syrup, whey, wheat gluten, yeast, cellulose, honey, calcium sulfate, vegetable oil, salt, butter, dough conditioners (up to seven ingredients), guar gum, calcium propionate, distilled vinegar, yeast nutrients (three ingredients), corn starch, natural flavor [?], betacarotene, vitamin D3, soy lecithin, and soy flour (pp. 151-52). They add a modest amount of whole grains so they can call it “whole grain” bread, and then they add the sweeteners and the dough conditioners to make it taste more like Wonder Bread. Because processed foods sell at higher margins, we have an enormous food industry pushing highly processed food at us, very cheaply (because it’s mainly made out of highly-subsidized corn and soy), which despite its health claims (or perhaps because of them) is almost certainly bad for us, and bad for the environment as well. This has been abetted by the government, albeit perhaps reluctantly, which now allows labels like this on corn oil (pp. 155-56):
“Very limited and preliminary scientific evidence suggests that eating about one tablespoon (16
Most economists ignore the behavioral side of finance. They tend to stick to their models, equations and textbooks. This is, in large part, what makes economics such a frustrating endeavor for so many people. They tend to ignore the simple fact that there is an unquantifiable variable in the equation – human emotion. And no matter how much we evolve and advance technologically this variable will always be the most important piece of the puzzle.
Over the last few years I have argued that much of what the government planned to do would have destructive psychological ramifications. Unfortunately, this appears to have come true as no one truly trusts the stock market these days. Small business sentiment shows a total lack of faith in the government. Consumer confidence remains abysmal. This is all very disconcerting because a deflationary environment has a way of snowballing and becoming self destructive. It can eat at a society from within as they become discouraged. The following story nicely summarizes the damaging impact of deflation:
“Once upon a time it was announced that the devil was going out of business and would sell all his equipment to those who were willing to pay the price.
On the big day of the sale, all his tools were attractively displayed. There were Envy, Jealousy, Hatred, Malice, Deceit, Sensuality, Pride, Idolatry, and other implements of evil display. Each of the tools was marked with its own price tag.
Over in the corner by itself was a harmless looking, wedge-shaped tool very much worn, but still it bore a higher price than any of the others. Someone asked the devil what it was, and he answered, “That is Discouragement.” The next question came quickly, “And why is it priced so high even though it is plain to see that it is worn more than these others?”
Because replied the devil, “It is more useful to me than all these others. I can pry open and get into a man’s heart with that when I cannot get near him with any other tool. Once I get inside, I can use him in whatever way suits me best. It is worn well because I use
With the sound on, his words hung in the air with all the force of a fundraiser for your local public access TV station. Everything seemed to be in the passive tense. He had authorized deepwater drilling because he “was assured” it was safe. But who assured him? How does he feel about being so brazenly misled? He said he wanted to “understand” why that was mistaken. Understand? He’s the President of the United States and it was a major decision. Isn’t he determined to find out how his advisors could have been so terribly wrong?
Tomorrow he’s “informing” the president of BP of BP’s financial obligations. “Informing” is what you do when you phone the newspaper to tell them it wasn’t delivered today. Why not “directing” or “ordering?”
The President distinguished what has happened in the Gulf of Mexico from a tornado or hurricane because they are over quickly while the leak is an ongoing crisis, lasting many weeks and perhaps months more. He likened it to an “epidemic.” But the real difference has nothing to do with time. Tornadoes and hurricanes are natural disasters. Epidemics occur because germs mutate and spread. The spill occurred because of the recklessness and ruthlessness of a giant oil company in pursuit of profit.
And what has the nation learned from all this? The same lesson we’ve known for decades, according to the President. We must end our dependence on oil. But if we’ve known this for decades, why haven’t we done anything about it? The President endorsed the cap-and-trade bill that emerged from the House (without calling it cap-and-trade) but didn’t call for the only thing that may actually work: a tax on carbon.
I’m a fan of Barack Obama. I campaigned for him and I believe in him. I think he has a first-class temperament. I have been deeply moved and startled by his ability to speak about the nation’s most intractable problems. But he failed tonight to rise to the occasion. Is it because he’s not getting good advice, or because he’s psychologically incapable of expressing the moral outrage the nation feels?
Or is it something deeper?
Whether it’s Wall Street or health insurers or oil companies, we are approaching a turning point as a nation. The top executives…
October saw U.S. consumers’ outstanding credit balances fall by 3.25%, the ninth straight month in a row balances have fallen. It seems clear now that Americans have learned that "credit" is not synonymous with "free money."
Mark suggests that Japan’s poor demographics are the cause of its "death spiral," whereas Ambrose Evens-Pritchard argues that too much government spending resulting in too much debt is at the heart of the problem. Could it be combination rather than an either-or? – Ilene
While Evans-Pritchard is one of my favorite writers, at the end of the article he comes to the wrong conclusion about what the West should learn from Japan. Evans-Pritchard suggests that too much government spending resulting in too much debt is the root cause of Japan’s problems and that the West needs to take notice and get government spending under control. While Evans-Pritchard is correct that Japan’s debt habit is unsustainable, the country’s debt problems are the result of its population imploding and the fuse finally burning out on its demographic time bomb. The Land of the Rising Sun is in trouble because it suffers from an insular society that discourages immigration and implicitly encourages low birth rates. For the last 50 Japan has been slowly committing demographic seppuku and now the inevitable is taking place, i.e., Japan’s population is crossed the tipping point so that its work force is both relatively old and shrinking and as a nation Japan can’t sustain its standard of living.
It shouldn’t be a surprise to anyone that Japan is facing deflation, falling domestic demand, stagnant to shrinking GDP and, as of recently, a low national savings rate. They are all the result of Japan’s bad demographics.
Virtually all economics students learn that when the work force of a nation shrinks it is difficult if not impossible to sustain economic growth and a vibrant economy. Also, retirees tend to consume less than families that are raising children and as each generation ages towards retirement it tends to consume less and less causing domestic demand to shrink. Aging populations also have low savings rates because most retirees continue…
A successful career on Wall Street is as much about the failures as it is about the wins. Anyone who tells you differently is either hiding their past mistakes or is about to experience their own epic collapse, made even worse by the fact that it will be wholly unexpected to them.
This is good to remember the next time you hear any of the following terms assigned to a Wall Street professional…
Guru – As in “Options Guru” or “Trading Guru”. These days, robes and a beard are optional as investors are more than willing to lavish the appellation Guru on virtually anyone who can get themselves on television. This term typically precedes the name of someone who would like to sell you a set of instructional videos. example: Lenny Dykstra (TheStreet.com’s ex-options expert)
Rock Star – Anytime someone involved in finance is called a Rock Star, you can turn on the bull$#*t meter and pretty much just leave it running. “Rock Star” is what they called Erin Callan, Lehman’s CFO just before the end, whose main role at the company was the application of lipstick to herself when the cameras were rolling and to their pig of a balance sheet when the Korean sovereign wealth funds were in town. example: Erin Callan (former Chief Obfuscation Officer, Lehman Brothers)
Wiz – Similar to Guru, although with the added implication of supernatural talent or skills. Those on The Street who are referred to as “a Wiz” will likely end up in handcuffs before long. example: Bernie Madoff (the most consistent generator of returns in the history of investing…until someone needed money back)
Wunderkind – Typically reserved for someone who runs a hedge fund and puts up incredible numbers within the first year or two out of nowhere. Much like your average American Idol winner, the “Wunderkind” rides this initial wave of success until his many new investors find out how rarely any one strategy works consistently in back-to-back years. example: Thomas Hudson Jr. (Pirate Capital)
Prodigy – Similar to wunderkind, those in finance who are called “prodigy”…
John asks: "Why is the government trying to spread its public health message through children rather than parents?" Perhaps because a significant proportion of the nation’s parents distrust it and the pharmaceutical companies, so going straight to the kids may be a viable option. – Ilene
Remember when tobacco companies were accused of targeting children with advertisements and promotional items featuring cartoons?
Everyone thought it was terrible because children could be convinced smoking was cool by cartoons.
(Or something. This never made a whole lot of sense since we’ve never really had a child smoking problem in the United States. Sure sometimes kids will take a puff or two as an experiment but real smoking didn’t stop until much later and there was never any evidence that teenagers were convinced to start smoking because of cartoons.)
The thing that really creeped most people out was that the use of cartoons seemed aimed at undermining parental authority and influence, getting between kids and their mom and dad. Oh, and the fact that most people are convinced that smoking is deadly.
So what should we make of this advertisement promoting flu shots? Believe it or not, flu shots are pretty controversial. There are a lot of people who believe that serious health issues are associated with the shots, although the evidence for this seems scant. Many more people just don’t think the risk of childhood flu is really worth the quite common side effects, limited risks and cost of getting the shot.
And a few of us have figured out that you can pretty effectively be a free rider when it comes to vaccinations. When my brother enrolled his daughter in pre-school, he was told that chicken pox shots were mandatory. As a Roman Catholic, he objected to the vaccine on pro-life grounds (lung tissue from aborted fetuses are used to generate the vaccine) and pointed out that if everyone else at school was vaccinated, there’s no way his daughter would catch or spread the chicken pox. She was effectively but indirectly vaccinated.
In any case, the risks and benefits of getting a flu shot seem to be something that should be left up to parents rather than decided by bureaucrats. Certainly, the image of the
Last night PBS’s Frontline aired a new documentary called The Warning. If you missed it, you are in luck. We’ve got it right here.
Here’s how Frontline describes the documentary.
"We didn’t truly know the dangers of the market, because it was a dark market," says Brooksley Born, the head of an obscure federal regulatory agency — the Commodity Futures Trading Commission (CFTC) — who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country’s key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?"
In The Warning, airing Tuesday, Oct. 20, 2009, at 9 P.M. ET on PBS (check local listings), veteran FRONTLINE producer Michael Kirk (Inside the Meltdown, Breaking the Bank) unearths the hidden history of the nation’s worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.
"I didn’t know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton’s powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group — former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin — convinced him that Born’s attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."
Born’s battle behind closed doors was epic, Kirk finds. The members of the President’s Working Group vehemently opposed regulation — especially when proposed by a Washington outsider like Born.
"I walk into Brooksley’s office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She’s hanging up the…
On Monday the Wall Street Journal ran an article that described the end of the golden era for oil refiners. It is a great article that, unfortunately, was published many years too late to be considered news. Just as gravity is a force that brings all objects to earth, public policy that destroys the demand for gasoline will hurt the refinery business. Not surprisingly, President Obama’s public policy initiatives that increase car and truck fuel efficiency have the side effect of hurting oil refinery and distribution businesses.
Just to be clear, I am not against the Administration’s effort to increase fuel efficiency in the vehicle fleet. Quite the contrary, it is a matter of national and economic security that we burn less imported fuel. Increasing transportation fuel efficiency is a “must” for the United States. However, I don’t think that it is realistic to believe that the energy industry is act like an old trusted dog that knows when it it time to walk into the woods and die. And, it isn’t fair to the refinery and distribution businesses to ask them to effectively subsidize the rest of the economy’s shift to more fuel efficient vehicles and alternate energy without compensation.
The Wall Street Journal reported that over the next few years there is going to be global overcapacity among oil refiners. Not only is demand being reduced for refined products (particularly in the U.S.), but there is a lot of new and efficient capacity that is coming on line in Asia and the Middle East. That isn’t a prescription for a lot of new investment in refinery capacity or for good returns for existing refiners.
I have a couple of news flashes about the future of oil refinery and distribution that I am pretty sure are big news scoops (at least for most major media outlets).
As gasoline demand drops refineries won’t be the only businesses whose investments are underperforming. There is going to be a lot of excess distribution and retailing capacity. So far the Wall Street Journal has only reported on excess refinery capacity. Distribution and retailing are the next segments of the industry that will experience overcapacity and the end of its
It’s an unfortunate truth that, when people are worried about the future, they often put their faith in politicians to somehow make everything better.
Politicians, of course, are famous for promising panaceas for whatever is troubling voters, and they even invent new troubles to worry about, presenting themselves as the only ones who can solve these woes.
Not surprising then, that, over time, any nation may slowly deteriorate into a population of nebbishes who turn to their government to do their thinking for them and take responsibility for their futures.
In Part 1 of this article I discussed the catalyst spark which ignited this Fourth Turning and the seemingly delayed regeneracy. In Part 2 I pondered possible Grey Champion prophet generation leaders who could arise during the regeneracy. In Part 3 I focused on the economic channel of distres...
Today offered a heavier than expected volume day post-holiday. The majority of this action was to the downside, but the Semiconductor Index bucked the trend. The latter index was able to push above its 200-day MA as it posted a relative advantage against the Nasdaq 100. While the Nasdaq and Nasdaq 100 suffered losses today, both will be helped by strength in the Semiconductor Index. All technicals for the Semiconductor Index are in the green, with a return of the MACD to a 'buy' trigger (above the bullish zero line - a bullish development).
The Nasdaq suffered a minor loss. It wasn't able to challenge the recent high, but it's close enough ...
Crude Oil is quite simply the most important commodity on the planet. But volatility with Crude Oil prices emerges every time there is conflict in oil producing nations or an economic slowdown.
And this has led to some pretty big swings in Crude Oil prices over the past several years.
But the latest swing lower is nearing a moment of truth. In fact, this decline may be the most important swing lower of the 2000’s.
Why? Because oil prices are currently testing a key price support level comprised of the 2004 breakout level (above the 1990 highs) and the 2009 price lows – see red circles and line. In fact, this price support area also marks the 23.6 Fibonacci support level (from the 1999 lows to 2008 highs). AND crude oil is as oversold as it was back at the 1999 price lows!
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
As evidenced by the Greek, Chinese, and now Argentine 'jumps', the world remains increasingly aware of the inevitable worth of fiat currencies and fears the desperate acts of governments as the react to that reality (and is looking for alternatives).
This infographic explains the wide ranges of the Bitcoin universe, accompanied with quotes from some of its best-known business leaders.
Some weeks when I write this article there is little new to talk about from the prior week. It’s always the Fed, global QE, China growth, election chatter, oil prices, etc. And then there are times like this in which there is so much happening that I don’t know where to start. Of course, the biggest market-moving news came the weekend before last when Paris was put face-to-face with the depths of human depravity and savagery. And yet the stock market responded with its best week of the year. As a result, the key issues dominating the front page and election chatter have moved from the economy and jobs to national security and a real war (rather than police ...
1) The shares of one of my largest short positions (~3%), Exact Sciences, crashed by more than 46% yesterday. Below is the article I published this morning on SeekingAlpha, explaining why I think it’s still a great short and thus shorted more yesterday. Here’s a summary:
The U.S. Preventative Services Task Force’s Colorectal Cancer Screening Draft Recommendation issued yesterday is devastating for Exact Sciences’ only product, Cologuard.
I think this is the beginning of the end for the company.
My price target for the stock a year from now is $3, so I shorted more yes...
Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.
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.
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.
Note: The material presented in this commentary is provided for
informational purposes only and is based upon information that is
considered to be reliable. However, neither PSW Investments, LLC d/b/a PhilStockWorld (PSW)
nor its affiliates
warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither PSW nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance, including the tracking of virtual trades and portfolios for educational purposes, is not necessarily indicative of future results. Neither Phil, Optrader, or anyone related to PSW is a registered financial adviser and they may hold positions in the stocks mentioned, which may change at any time without notice. Do not buy or sell based on anything that is written here, the risk of loss in trading is great.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Site owned and operated by PSW Investments, LLC. Contact us at: 403 Central Avenue, Hawthorne, NJ 07506. Phone: (201) 743-8009. Email: firstname.lastname@example.org.