Saturday, May 2, 2015

Today's links

Today's quote:  According to the report: “Because the American effort to ‘integrate’ China into the liberal international order has now generated new threats to US primacy in Asia—and could eventually result in a consequential challenge to American power globally—Washington needs a grand strategy toward China that centres on balancing the rise of Chinese power rather than continuing to assist its ascendancy.”, WSWS

1--Trim tabs on buybacks, video , cnbc
2--The US Equity Bubble Depends On Corporate Buybacks; Here's The Proof, zero hedge

Here’s Goldman:
Of the 362 companies that have now reported 1Q results, 45% of companies have beaten earnings estimates (below the historical average of 46%) and 11% have missed estimates (vs. average of 15%). Next week, these companies, which represent more than 80% of the S&P 500 market cap, will have exited their repurchase blackout period and may resume buybacks, which should provide renewed support for the market. 
For those who require still more proof that the rally in US equities has become inextricably linked with corporations leveraging their balance sheets to repurchase their own shares, JPM is out with an in-depth look at buyback trends which strongly suggests — unsurprisingly —that buyback activity has indeed been very supportive of US shares over the last several years.
Via JPM:
Apple announced an expansion of its dividend and buyback scheme to return $200bn to shareholders by the end of March 2017, up from $130bn previously. This adds to the flurry of share buyback announcements this year bringing the YTD total of $315bn which in annualized terms ($945bn) is more than double last year’s $450bn (Figure 1). The doubling in announced share buybacks globally appears to be driven by US companies which are tracking a YTD pace that is 2.2 times last year’s pace. Non-US share are 1.4 times last year’s pace…

Net equity issuance is the most negative (i.e. aggressive equity withdrawals) it’s been since early 2008, and it’s been trending steadily lower for the better part of six years, which of course coincides perfectly with the inexorable rally in US stocks.  

3--Freddie Gray ‘conflicts of interest’: Baltimore police union calls for prosecutor to step aside, RT

4--The impending reset
Sound familiar??  It sure as hell does!  This is exactly what we are being told now.  Inventories are up, business spending has slowed, Capex is down but despite all of this recent economic weakness the Fed (and all mainstream economists) expect moderate growth this year.  Additionally that the economy will be supported by high profitability, strong corporate balance sheets and low interest rates.  Absolutely mind blowing how similar the storyline was back in March 2007 to today’s storyline.

5--The reason you can't afford to buy a home? The Fed

In the first quarter, the proportion of owner-occupant buyers fell to 63.2% of all residential sales, down from 65.8% in the fourth quarter last year, and down from 68.6% a year ago, RealtyTrac reported today. It was the lowest quarterly level in the data series going back to 2011.
Who were the other buyers? Investors. The report defined them as buyers who purchased a property but then had their property tax bill mailed to a different address. And these investors accounted for a record of 36.8% of all home sales...

But “institutional investors,” entities that buy 10 or more units a year, accounted for only 3.4% of total sales in Q1, the lowest level in the data series, down from 6.2% in Q1 2014, and from 8.7% during the heyday in Q1 2013. These big investors, including large PE firms – the “smart money” – have been losing interest for two years. But in the last quarter, they just about pulled up their stakes:...

Of all investors, 44.7% were all-cash buyers, down from 61% a year ago. Cheap debt is just too tempting. A large variety of easy-money financing options have become available for small investors as “a new crop of nationwide companies has emerged offering financing specifically for investment properties,” Blomquist said. I can attest to that because I get their spam in my inbox.
So small investors are piling into the market in record numbers, even as institutional investors are backing out, to where overall investor purchases hit a new record. And what happens? Prices soar. According to the report, the median price in March jumped 8% from a year ago

6--Timeline: What We Know About The Freddie Gray Arrest
7---Full video Gray arrest
8--Legal experts divided on Gray charges

9--Parasitism, plutocracy and economic depression

The IMF noted that business investment is at historic lows, significantly below the level experienced in the aftermath of any recovery since World War II. This assessment was borne out in the Commerce Department’s report on US economic growth, which showed that business fixed investment plunged by 3.4 percent over the previous quarter.
The slump in productive investment takes place even as corporations are sitting atop the largest cash hoard in history: US corporations alone have $1.4 trillion on their balance sheets.

Instead of using this money to invest, hire workers or raise wages, major US corporations are using it to buy back shares, increase dividends and engage in an orgy of mergers and acquisitions.
General Motors, which slashed pay of new-hires by fifty percent during the 2009 auto restructuring and is looking to cut labor costs even further in the upcoming contract, has announced a $5 billion share buy-back scheme, using its massive cash hoard to further enrich its wealthy shareholders.

Meanwhile energy giant Shell, which early this year waged a bitter struggle against oil refinery workers striking to demand higher pay and safety improvements, announced that it would make $70 billion available to buy up British oil producer BG group.
This year is shaping up to be one of the biggest for mergers and acquisitions in history, with a record $4.3 trillion available for merger activity, according to Credit Suisse....

Bernanke Payout..

The American state functions not to ameliorate this soaring inequality, but rather to facilitate the continuous enrichment of the corporate and financial aristocrats.
The institutions supposedly responsible for “regulating” the financial system do little more than cover up for and facilitate its crimes. This basic reality was expressed in the latest settlement between the United States and Deutsche Bank, in which the German bank last month received a wrist-slap fine for flagrantly helping to rig LIBOR, the key global interest rate, for its own enrichment.
Wall Street pays handsomely for the support and protection it receives from so-called financial regulators. A case in point is Ben Bernanke, the man who, as chairman of the Federal Reserve, oversaw the bank bailout and “quantitative easing” measures that transferred trillions of dollars onto the balance sheets of Wall Street.
Now, Bernanke is getting his payday: he has been hired by not one, but two leading financial institutions: the hedge fund Citadel and Pimco, one of the largest bond traders in the world, each of whom will pay him handsomely in exchange for services rendered.

10--US “Grand Strategy” for war against China laid out, wsws

“Revising US Grand Strategy Toward China...
The report’s central theme is that US global dominance is threatened by the rise of China and this process must be reversed by economic, diplomatic and military means....

Significantly, at the beginning of the report, its authors cite the Pentagon’s Defence Planning Guidance document of 1992, produced in the wake of the collapse of the Soviet Union, which insisted that US strategy had to “refocus on precluding the emergence of any potential future global competitor.”...

According to the report: “Because the American effort to ‘integrate’ China into the liberal international order has now generated new threats to US primacy in Asia—and could eventually result in a consequential challenge to American power globally—Washington needs a grand strategy toward China that centres on balancing the rise of Chinese power rather than continuing to assist its ascendancy.”

In the report’s words: “US support for China’s entry into the global trading system has thus created the awkward situation in which Washington has contributed towards hastening Beijing’s economic growth and, by extension, accelerated its rise as a geopolitical rival.”

Accordingly, in advancing the core elements of an American “grand strategy,” the authors place considerable importance on economic issues. As part of a plan to “vitalize” the economy, the US should “construct a new set of trading relationships in Asia that exclude China, fashion effective tools to deal with China’s pervasive use of geo-economic tools in Asia and beyond, and, in partnership with US allies and like-minded partners, create a new technology-control mechanism vis-a-vis China.”
The Trans Pacific Partnership (TPP), which currently excludes China and for which Obama is now seeking fast-track authority from the US Congress to negotiate, is regarded as essential. Failure to deliver it would “seriously weaken” the US grand strategy.

the report itself specifically rules out any accommodation with China. In their conclusion, the authors state: “[T]here is no real prospect of building fundamental trust, ‘peaceful coexistence,’ ‘mutual understanding,’ a strategic partnership, or a ‘new type of major country relations’ between the United States and China.”

11--Revising U.S. Grand Strategy Toward China , CFR

12--Japan is a bug looking for a windshield...Japan is bust

Ultimately the pressure point remains the yen and in a currency war race to the bottom I have little doubt that Japan will be the unintentional winner. Our bold end March forecast of Y145/$ may have been missed (I was advised at the time never to give a point forecast with a date attached), but once we break the key Y122/$ multi-decade support level I think we will get to Y145 in a flash.

Regular readers will know that I am pretty horrified by the global Quantitative floodgates that have been opened since the 2008 Great Recession. Once an emergency measure of dubious effect, it is now a never ending stream of confetti money being thrown around the world to inflate asset prices. QE has now become the policy variable of first resort.

13--US jobs relapse raises fresh doubts on Fed tightening, AEP
Long-feared turning point in the global monetary cycle may be delayed yet again, offering another reprieve for dollar debtors across the world.

The closely-watched index of the Institute for Supply Management (ISM) remained anaemic in April, confirming fears that the strong US dollar and energy crash in the once-booming shale states are taking a serious toll.
The employment component dropped sharply to 48.3, below the “boom-bust line” of 50 and the lowest in almost six years. The relapse is likely to set off alarm bells at the Fed, where chairman Janet Yellen pays very close attention to the labour market.
Overall manufacturing output failed to pick up as expected, remaining at a two-year low of 51.5, and looks too weak to power a full recovery in the second quarter.
There is now a clear risk that the US economy may slow to “stall speed” under the Fed’s model, defined as a “slow-growth phase at the end of expansions before falling into a recession”.

A separate report by Markit found that US manufacturing output in April fell to its lowest level this year, depressed by declining exports. ...

Huge numbers of people dropped out of the workforce after the financial crisis and have yet to be drawn back into the system.
The labour participation rate is still at a 37-year low of 62.7pc. The rate for males has dropped from 73.8pc to 69.3pc since 2007, a drastic fall that cannot be fully explained by changing technology or “structural” problems.
A new paper by Danny Blanchflower and Andrew Levin for the National Bureau of Economic Research argues that there are still large numbers of people with part-time jobs who want to work full-time. Once all forms of “hidden unemployment” are included, the shortfall reaches 3.3m jobs. The real unemployment rate is around 7.5pc.

14--Bernanke sellout
15--May 1 - A Terrific Day For U.S. Target Intelligence In Syria And Yemen, MoA
16--US Prisons House More Inmates Than Stalin's Gulags, RI

17--Why NATO Is Terrified of Russia, pepe escobar

In Ukraine, the Kremlin has been more than explicit there are two definitive red lines. Ukraine won’t join NATO. And Moscow won’t allow the popular republics of Donetsk and Lugansk to be crushed.
We are coming closer to a potentially explosive deadline – when EU sanctions expire in July. An EU in turmoil but still enslaved to NATO – see the pathetic “Dragoon Ride” convoy from the Baltics to Poland or the “Atlantic Resolve” NATO show-off exercise - may decide to expand them, and even try to exclude Russia from SWIFT.

Washington’s master plan remains deceptively simple; to “neutralize” China by Japan, and Russia by Germany, with the US backing its two anchors, Germany and Japan. Russia is the de facto only BRICS nation blocking the master plan.
This was the case until Beijing launched the New Silk Road(s), which essentially mean the linking of all Eurasia into a “win-win” trade/commerce bonanza on high-speed rail, and in the process diverting freight tonnage overland and away from the seas.

18--Man who filmed Freddie Gray arrested 'at gunpoint'

The man who filmed the brutal arrest of African-American Freddie Gray by Baltimore police was arrested “at gunpoint” after he left a protest over police brutality.
Kevin Moore, 30, was arrested early on Friday in what he described as a clear case of “witness intimidation.”

19--UN warns of Yemen infrastructure collapse due to fuel shortage

They had assault weapons, rifles, they had everything — their tank, two choppers," he recalled. "They took me to the Western District [police station], never gave me charging papers or anything."
The majority black city of Baltimore has been the site of daily demonstrations since Gray's death on April 19, as tensions simmer over police brutality and discrimination against African Americans.

20--Exclusive - Britain told U.N. monitors of active Iran nuclear procurement: panel
21--Car sales down
Big letdown here. More Q2 downgrades on the way.
Still waiting for the burst of consumer spending from the drop in oil prices…

22--Oil prices could destabilize the financial system

23--ISM Mfg Index
There’s a new unwanted wrinkle in the ISM report and that’s weakness in employment, holding down the headline index to 51.5 in April, unchanged from March. Employment has been holding strong in other reports — but not in the ISM report where the index is down nearly 2 points to a sub-50 level of 48.3 to indicate month-to-month contraction. This is the first time this reading is in contraction since May 2013 and it’s the lowest reading since all the way back in September 2009....

24--U.S. manufacturing growth holds at low level in April, employment shrinks: ISM

The pace of U.S. manufacturing growth held at its slowest in almost two years in April, as a rebound in new orders was offset by employment shrinking to its lowest level in more than five years, according to an industry report released on Friday.
The Institute for Supply Management (ISM) said its index of national factory activity was 51.5 in April, matching the March reading, which had been the lowest since May 2013. The reading fell shy of expectations of 52.0, according to a Reuters poll of economists.

A reading above 50 indicates expansion in the manufacturing sector. This was the 29th-consecutive headline reading at or above 50.
The employment index fell into contractionary territory for the first time since May 2013, dropping to 48.3, the lowest reading since September 2009. In March, the employment sub-index came in at 50.0.



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