Saturday, August 29, 2015

Today's Links

Today's quote:  "
If you roll a wheelbarrow of dynamite into a crowd of fire jugglers, there’s not much chance things will end well. The cause of the inevitable wreckage is not the dynamite, but the trigger is the guy who drops his torch.


Likewise, once extreme valuations are established as a result of yield-seeking speculation that is enabled (1997-2000), encouraged (2004-2007), or actively promoted (2010-2014) by the Federal Reserve, an eventual collapse is inevitable.
By starving investors of safe return, activist Fed policy has promoted repeated valuation bubbles, and inevitable collapses, in risky assets.


On the basis of valuation measures having the strongest correlation with actual subsequent market returns, we fully expect the S&P 500 to decline by 40% to 55% over the completion of the current market cycle. The only uncertainty has been the triggers." John Hussman, Hussman Funds


Obama praises savage capitalist opportunists for looting New Orleans

“After the storm, this city became a laboratory for urban innovation,” Obama said, citing “cutting red tape” to ensure that “New Orleans is as entrepreneurial as any place in the country.”
New Orleans did indeed become a “laboratory,” but one in which the working people of New Orleans were the targets of free-market experiments of unprecedented savagery.


All 7,500 public school teachers, most of them city residents and victims of Katrina, were fired from their jobs as the public school system was dismantled and replaced entirely by charter schools. The residents of public housing were displaced, first by the hurricane, then by bulldozing most of the structures that remained. The city’s main health care facility for the poor, Charity Hospital, was shut down....


3---If the U.S. is to achieve growth that distributes income equitably and provides stable employment, government and business leaders must take steps to bring both stock buybacks and executive pay under control. The nation’s economic health depends on it." William Lazonick, Profits without Prosperity




1--Europe in Free Fall, saker


....the various states of the EU neither have the means to lock their borders, deport most refugees, nor control them. Sure, there will always be politicians who will make promises about how they are going to send all these refugees back home, but that is a crude and blatant lie. The vast majority of these refugees are fleeing war, famine and abject poverty and there is no way anybody is going to send them back home....


The level of aggravation suffered by many, if not most, Europeans directly resulting from this crisis in immigration is hard to describe to somebody who has not seen it. ...


The EU is ruled by a class of people who have completely sold themselves to the United States. The best examples of this sorry state of affairs is the Libyan debacle which saw the US and France completely destroy the most developed country in Africa only to now have hundreds of thousands of refugees cross the Mediterranean and seek refuge from war in the EU. This outcome could have been very easy to predict, and yet the European countries did nothing to prevent it. In fact, all these Obama Wars (Libya, Syria, Afghanistan, Iraq, Yemen, Somalia, Pakistan) have resulted in huge movements of refugees. Add to this the chaos in Egypt, Mali and the poverty all over Africa and you have a mass-exodus which no amount of wall-building, ditch-digging or refugee tear gassing will stop. .....


The sad reality is simple: the EU is a US colony, run by US puppets who are simply unable to stand up for basic and obvious European interests.....


Politics has turned into a make believe show where various actors pretend to deal with real issues when in reality all they talk about are invented, artificially created “problems” which they then “solve” (homosexual “marriage” being the perfect example). The only form of meaningful politics left in the EU is separatism (Scottish, Basque, Catalan, etc.) but so far, it has failed to produce any alternative.


2---Pentagon’s New “Law of War” Manual “Reduces Us to the Level of Nazis


3--Stock Buybacks Are Tied To Growing Income Inequality And Low Rates Of Innovation


Raising stock prices by reducing the number of shares outstanding also helps companies fend off hedge fund managers who threaten takeovers and the subsequent and highly profitable but destructive divestiture of a company's assets. "Without having contributed anything to a company's development or success, hedge funds seek to extract money from companies that other people have generated," writes Lazonick, the American economist who has done extensive analysis of stock buybacks. "In effect, tens of millions of Americans go to work every day to create value in the companies that employ them, only to have this value extracted by stock-market speculators and manipulators who have typically played little if any role in the value creation process." In 2014, the top 25 hedge fund managers "personally reaped a combined $11.2 billion, or an average of almost $450 million each, which was down almost 50 percent from $21.5 billion, or $860 million each in 2013," Lazonick notes.


By siphoning off so much net income into buybacks, companies have little left to invest in new technology, production improvements and their workers. Among the S&P 500 companies, buybacks exceeded the amount paid out in dividends starting in 1997. For 458 companies on the list, 52.5 percent of net income -- $3.7 trillion -- was expended on stock buybacks from 2005 to 2014, with another 35.7 percent of net income distributed as dividends.
...
From 2004 through 2015, the 458 of the 500 S&P companies' "total net equity issues -- their new share issues less shares taken off the market through buybacks and merger-and-acquisition deals -- averaged minus $399 billion per year," writes Lazonick in an August 6, 2015, paper titled "Buybacks: From Basics to Politics," published by the Academic-Industry Research Network. ...


It would not be hard to ban the practice. The Security and Exchange Commission can repeal the rule (10b-18) put in place in 1982 that allows them. Institutional investors would also benefit by a ban, since companies would use their income to reinvest in their companies, introduce new products and improve prospects for growth. Hiring employees rather than putting more money in the pockets of a few wealthy individuals could help spur an economic revival, boosting corporate growth.  "Any institutional investor that is looking to generate income over the long term should be dead set against buybacks because you want a reasonable level of dividends and you want reinvestment so if and when you sell those shares, the stock price will be higher not because it has been manipulated but because the company has competitive products," says Lazonick. "The buyback binge over the past three decades reflects a failure of corporate executives to develop strategies for the long-run competitiveness of the firms that they manage...


It would not be hard to ban the practice. The Security and Exchange Commission can repeal the rule (10b-18) put in place in 1982 that allows them. Institutional investors would also benefit by a ban, since companies would use their income to reinvest in their companies, introduce new products and improve prospects for growth. Hiring employees rather than putting more money in the pockets of a few wealthy individuals could help spur an economic revival, boosting corporate growth.  "Any institutional investor that is looking to generate income over the long term should be dead set against buybacks because you want a reasonable level of dividends and you want reinvestment so if and when you sell those shares, the stock price will be higher not because it has been manipulated but because the company has competitive products," says Lazonick. "The buyback binge over the past three decades reflects a failure of corporate executives to develop strategies for the long-run competitiveness of the firms that they manage


4--Pushback on Buybacks
A closer look at the numbers indicates buybacks aren’t as good for the companies, the market, or investors as previously thought.


Now everyone’s doing it.”
They probably shouldn’t be. Nicholas Colas, chief market strategist at brokerage-firm Convergex, notes that the S&P 500 trades at 26 times its 10-year, cyclically adjusted earnings, a level that all but guarantees lower-than-average stock returns. That means companies won’t be getting the bang for the buck they’re expecting when they buy back their shares. It also means that the hurdles from capital projects probably aren’t as high as they think. The decision to spend on buybacks will look particularly bad if stocks return next to nothing over the next 10 years, Colas says. Buying back stock when share prices don’t rise “is essentially wasting capital that could be spent on growth initiatives,” he explains.....


What do I mean? Two weeks ago, the Standard & Poor’s 500 began to sell off as concerns about China, commodities, and emerging markets made headlines. But just as the popular benchmark looked like it was entering free fall, it suddenly reversed. Who was the mysterious savior rescuing the markets? Articles published soon after the remarkable rebound were quick to point out that trading desks at Goldman Sachs and Morgan Stanley had seen the most corporate buying on record, suggesting it was share buybacks that kept the market afloat.-...


Clinton has so far recommended only more disclosure, but there are others out there who would like to see buybacks gone for good.


5---Fischer Speaks At Jackson Hole: "Fed Should Not Wait Until 2% Inflation To Begin Tightening


New York Fed chief William Dudley said the argument for a rate increase in September was “less compelling.”"


6--Casualties of “Fortress Europe”: Refugees dead on land and sea
7--The refugee crisis and the inhuman face of European capitalism


8--Obama cynically mocks suffering claiming "entrepreneurial" New orleans


“After the storm, this city became a laboratory for urban innovation,” Obama said, citing “cutting red tape” to ensure that “New Orleans is as entrepreneurial as any place in the country.”
New Orleans did indeed become a “laboratory,” but one in which the working people of New Orleans were the targets of free-market experiments of unprecedented savagery.


All 7,500 public school teachers, most of them city residents and victims of Katrina, were fired from their jobs as the public school system was dismantled and replaced entirely by charter schools. The residents of public housing were displaced, first by the hurricane, then by bulldozing most of the structures that remained. The city’s main health care facility for the poor, Charity Hospital, was shut down....


  • In the Lower Ninth Ward, where he gave his speech, only 36 percent of the pre-Katrina population has returned.
  • An estimated 100,000 of the city’s poorest African-American working class residents have not returned, unable to find jobs or replacement housing.
  • Half of all working-age black men in New Orleans are unemployed, and a quarter of all working-age white men.
  • Half of all black children in New Orleans live in poverty.
  • Rents in New Orleans have doubled from an average of $488 a month before Katrina to $926 today, making the city increasingly unaffordable for working class families of all races.
  • 9---When elites get serious about economy, they always recommend fiscal stimulus: China drags world closer to recession


    “They will respond too late to avoid a recession, which is likely to drag the global economy with it down to a global growth rate below 2pc, which is in my definition a global recession,” he said.
    “The only thing likely to stop it going into recession is a large consumption-oriented fiscal stimulus funded through the central government, preferably monetized by the People’s Bank of China. Despite the economy crying out for it, the Chinese leadership is not ready for this,” he said.
    ..
    China’s chief lever at this point is fiscal policy. Interest rate cuts and monetary stimulus risk setting off further capital flight, tightening liquidity.

    Interactive: Ambrose2



    The 50 basis point cut in the reserve requirement ratio for banks this week added no net stimulus. It merely offset the damage already caused over the past two months by estimated outflows of $200bn, which reduces the multiplier effect of base money in China


    10--Investors Yank Cash From Almost Everything Just Like 2008


    Mom and pop are running for the hills.
    Since July, American households -- which account for almost all mutual fund investors -- have pulled money both from mutual funds that invest in stocks and those that invest in bonds. It’s the first time since 2008 that both asset classes have recorded back-to-back monthly withdrawals, according to a report by Credit Suisse.
    Credit Suisse estimates $6.5 billion left equity funds in July as $8.4 billion was pulled from bond funds, citing weekly data from the Investment Company Institute as of Aug. 19. Those outflows were followed up in the first three weeks of August, when investors withdrew $1.6 billion from stocks and $8.1 billion from bonds, said economist Dana Saporta.


    “Anytime you see something that hasn’t happened since the last quarter of 2008, it’s worth noting,” Saporta said in a phone interview. “It may be that this is an interesting oddity but if we continue to see this it could reflect a more broad-based nervousness on the part of household investors.”
    Withdrawals from equity funds are usually accompanied by an influx of money to bonds, and an exit from both at the same time suggests investors aren’t willing to take on risk in any form. While retail investor sentiment isn’t the best predictor of market moves, their reluctance could have significance, Saporta said.


    “It might suggest households are getting nervous about holding investments, and that could lead to some real economic implications including cutting back on spending,” she said. “Should the market turn lower again, it will be interesting to see if we have the traditional move back into bonds or if households move to cash.”
    After an 11 percent plunge in the Standard & Poor’s 500 in the past week, investors are searching for signs of strength in the U.S. economy in the face of slowing growth abroad. The S&P 500 gained 2.4 percent Thursday as data showed gross domestic product rose at a 3.7 percent annualized rate, exceeding all estimates of economists surveyed by Bloomberg.


    11--Profits without prosperity   Put an end to open-market buybacks.


    ... the amount of stock taken out of the market has exceeded the amount issued in almost every year; from 2004 through 2013 this net withdrawal averaged $316 billion a year. ...damage that open-market repurchases have done to capital formation


    Five years after the official end of the Great Recession, corporate profits are high, and the stock market is booming. Yet most Americans are not sharing in the recovery. While the top 0.1% of income recipients—which include most of the highest-ranking corporate executives—reap almost all the income gains, good jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid. Corporate profitability is not translating into widespread economic prosperity.


    The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees...


    Why are such massive resources being devoted to stock repurchases? Corporate executives give several reasons, which I will discuss later. But none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices. In 2012 the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each; 42% of their compensation came from stock options and 41% from stock awards. By increasing the demand for a company’s shares, open-market buybacks automatically lift its stock price, even if only temporarily, and can enable the company to hit quarterly earnings per share (EPS) targets...


    If the U.S. is to achieve growth that distributes income equitably and provides stable employment, government and business leaders must take steps to bring both stock buybacks and executive pay under control. The nation’s economic health depends on it....


    Given incentives to maximize shareholder value and meet Wall Street’s expectations for ever higher quarterly EPS, top executives turned to massive stock repurchases, which helped them “manage” stock prices. The result: Trillions of dollars that could have been spent on innovation and job creation in the U.S. economy over the past three decades have instead been used to buy back shares for what is effectively stock-price manipulation....


    Companies have been allowed to repurchase their shares on the open market with virtually no regulatory limits since 1982, when the SEC instituted Rule 10b-18 of the Securities Exchange Act. Under the rule, a corporation’s board of directors can authorize senior executives to repurchase up to a certain dollar amount of stock over a specified or open-ended period of time, and the company must publicly announce the buyback program. After that, management can buy a large number of the company’s shares on any given business day without fear that the SEC will charge it with stock-price manipulation—provided, among other things, that the amount does not exceed a “safe harbor” of 25% of the previous four weeks’ average daily trading volume...


    Executives Are Serving Their Own Interests

    As I noted earlier, there is a simple, much more plausible explanation for the increase in open-market repurchases: the rise of stock-based pay. Combined with pressure from Wall Street, stock-based incentives make senior executives extremely motivated to do buybacks on a colossal and systemic scale.
    Consider the 10 largest repurchasers, which spent a combined $859 billion on buybacks, an amount equal to 68% of their combined net income, from 2003 through 2012. (See the exhibit “The Top 10 Stock Repurchasers.”) During the same decade, their CEOs received, on average, a total of $168 million each in compensation. On average, 34% of their compensation was in the form of stock options and 24% in stock awards. At these companies the next four highest-paid senior executives each received, on average, $77 million in compensation during the 10 years—27% of it in stock options and 29% in stock awards. Yet since 2003 only three of the 10 largest repurchasers—Exxon Mobil, IBM, and Procter & Gamble—have outperformed the S&P 500 Index.
    ......


    12--Turkey on the brink of something very ugly indeed
    13--Iran in ‘serious’ gas talks with Arab states
    The last section of a pipeline to carry Iran’s gas to Iraq is being tested for the start of exports, officials have said. The pipeline will carry the gas to power plants in Najaf as well as Sadr City in Baghdad and al-Mansuriya south of the Iraqi capital.
    A separate pipeline is being laid for sending Iran’s gas to Basra in southern Iraq to a combined cycle power plant which the Islamic Republic is building at a cost of $2.5 billion


    Kameli said Iran’s neighbors are the top priority for gas exports. Sitting on 34 trillion cubic meters of natural gas reserves, or around 18% of the world's total, Iran is on course to become one of the world's top gas producers.


    14--Dollar slammed on global slowdown fears


    Speculators pared back bullish bets on
    the U.S. dollar in the latest week to their smallest in more
    than two months, according to Reuters calculations and data from
    the Commodity Futures Trading Commission released on Friday.
        The value of the dollar's net long position fell to $23.99
    billion in the week ended Aug. 25, from $32.26 billion the
    previous week. This was the first time in four weeks that net
    dollar longs came in below $30 billion.
        To be long a currency is to make a bet it will rise, while
    being short is a bet its value will decline.
        Concerns about global equity weakness and China's deepening
    slowdown convinced speculators that the Federal Reserve would
    delay raising interest rates. That prompted a sell-off in the
    dollar the last two weeks.


    15--US dollar up as Fed hints rate rise alive Fisher jawbones dollar higher


    16--It was a difficult week for traders as the initial US Dollar breakdown left many (including us) looking for further losses. The Euro/US Dollar first saw its largest three-day advance in six years, but instead of continuing higher it subsequently posted its largest three-day decline since 2011. Such choppy price action made it near impossible to keep any real conviction in market direction or a lasting trading bias. A big week of economic event risk and the new month may nonetheless add clarity for the US Dollar and broader financial markets

    1 comment:

    1. eToro is the ultimate forex broker for rookie and pro traders.

      ReplyDelete