Thursday, March 17, 2016

Today's Links

Today's quote:

"The low hanging fruit of open bigotry should not be the only galvanizing force for progressives. The whole political system must be protested. The people need to be up in arms over many issues and not just the ignorant ruminations of one boorish man rich enough to pay for his own campaign.

The left have no friends among the Democrats or Republicans. The quadrennial circus side show is a very dangerous distraction. Instead it should be a time to gain political insight and maturity. It is time to shut down Trump and Hillary too." Margaret Kimberely

1--WTF Chart Of The Day: Dow Soars To 2016 Highs As Earnings Crash To 11-Month Lows

2--Labor trouble dead ahead

one data series that certainly caught Yellen's attention was the number of January "hires", because as shown in the chart below, with a print of 5,029K in January, this was a whopping 372K drop from the December 5,401K, which also happens to be the biggest single monthly drop in new hiring since November 2008!

One look at the chart below and one can't help but wonder if the December spike was the labor market top and the rollover in hiring now confirms that the US labor market is set for a slow, or not so slow, contraction in the coming months.

3--Terrible oil news

BP Prudhoe Bay Royalty Trust (BPT) – operated by the Alaskan division of oil giant British Petroleum (BP) – sells oil from the Prudhoe Bay oilfield.

It just announced a 65% drop in its economic oil reserves....

Prudhoe Bay is a giant legacy field, with a vast network of pipes and wells already in place. So production costs are lower there than in most shale fields. So if Prudhoe Bay’s economic reserves fall 65%, the rest of the industry is in big trouble.

4--And this is When the Jobs “Recovery” Goes Kaboom

The chart shows how jobs and total business sales are normally on the same wave length. Which is logical. When sales curdle, businesses cut their payrolls. When sales pick up, they hire. But since July 2014, a peculiar trend has set in: employment (red line, right scale) rising and sales (black line, left scale) falling:


During the Great Recession, which officially started in December 2007, the peak in employment occurred in January 2008. Then employment began to drop. But total business sales continued to grow until July 2008, before falling off a cliff....

Then begins the heart-breaking work of laying people off. That’s how it worked at every major sales decline. Unless a miracle happens to demand and in the sales departments across the country, it’s what is bound to happen again.

The sales decline, and the corporate refusal to deal with it, has already inflated inventories to crisis levels, and with impeccable timing. Now there is no escape.

5---Dow turns positive for 2016, wiping out 2K-point drop from quarter's low

6--Chart Of The Day: The Perfect Correlation——Stock Buybacks And The S&P 500 Since 2010

Suddenly it all becomes clear

S&P 500 Buybacks Versus Stock Index


7---Stockman on the economy

CapEx orders are down by 7% from September 2014 levels and the inventory to sales ratio is at its highest level since April 2009....In the most recent months, the three bellwether economies of Asia reported plunging exports. Japan was down 13% from last year, South Korea was off by 20% and China’s exports tumbled by 25%.

Beyond that, there is a veritable CapEx depression underway throughout the global energy, mining, shipbuilding, steel, aluminum and most other heavy industrial sectors; China is drifting ever closer to a spectacular credit collapse and violent labor unrest; and its satellite economies like Brazil are rapidly becoming economic basket cases....

The only valid price of money is that set by the interaction of supply and demand in an honest free market. But that was quashed decades ago when Greenspan inaugurated the present regime of bubble finance.

What we have in this age of monetary central planning, instead, is pegged rates arising from abstract theory and the blundering pretensions of the bubble-blind apparatchiks ensconced on the FOMC.

8--Energy sector defaults could go like dominoes


12--Consumer Spending Weaker Than Previously Thought

Hidden behind upgraded economic growth in the fourth quarter was a slowdown in consumer spending. Personal-consumption expenditures advanced at a 2% pace in the fourth quarter. That’s a downward revision from the initial estimate of a 2.2% advance and a deceleration from the third quarter’s 3% annualized gain. Consumer spending on long-lasting goods such as cars, appliances and furniture was not as strong as previously thought in the final three months of 2015.

State and Local Governments Pull Back

Spending by state and local governments declined at a 1.4% annualized pace in the fourth quarter. That’s a deeper decline than the initially estimated 0.6% decrease. Meanwhile, growth in federal outlays was slightly less robust, but still clearly positive at a 2.2% growth rate. Overall government spending was essentially a neutral factor for GDP last quarter. The first output estimate showed the government to have added 0.12 percentage point to overall growth.

13--Atlanta Fed, back below 2%


14--Japanese Policy Failure Means Disaster For Us All

15--Insurance companies and pension funds cannot survive negative rates (video Santelli)

16--Whacked by declining sales and rising inventories,

the crucial Inventory-to-Sales Ratio, which is a measure of how overstocked businesses have become, has totally blown out. At 1.40 in January, it is much worse than the ratio of 1.32 in September 2008, the month when Lehman filed for bankruptcy:


With total business sales declining for a year-and-a-half, you’d think executives get the message and cut their orders to keep inventories from ballooning. But this just hasn’t happened. Optimism has reigned under the motto that next month will be better, that the Fed has our back, that radical monetary policies can somehow increase demand, rather than just inflate asset prices.

And so inventories kept ballooning – in January, by another 1.8% from a year ago to $1.812 trillion.

That’s up 18.5% from the peak of the prior inventory bubble in August 2008. But sales in January were up only 5.8% from their peak in 2008! And we know what happened to sales after that summer in 2008: they crashed as the Great Recession was chilling the US economy. See the cliff-dive in the above chart.

17--The Marketplace Economic Anxiety Index — a trackable number derived from some of the poll's questions — held steady at a score of 31 on a scale from zero to 100. The higher the number, the more stress someone is feeling.

Why didn't the number budge? Because Americans continue to feel anxious about their economic situation and feel worried about meeting monthly expenses

18--Here Comes The Big Flush—–Recession Pending, Fed ‘Put’ Ending

As of May 2008, the Great Recession was already six months old, but Wall Street was still unloading its inventory. And all the while, the same talking heads who have given the all-clear sign in the last 5 weeks were on bubblevision gumming about Goldilocks, no recession in sight and stability on the jobs front.

Here’s what happened next. Roughly 9 million jobs disappeared during the following 20 month. Yet it was only after the fact that the BLS job modelers caught up with the ongoing recessionary reality, and drastically adjusted downward their initial postings. That was long after declining trends in payroll tax remittances to the Uncle Sam signaled that recession had arrived....

upwards of $1.5 trillion of plant, equipment and other tangible assets are consumed each year in the process of production, meaning that until it is replaced out of gross CapEx the output capacity of the US economy is actually shrinking....

With virtually 100% of the S&P 500 companies now having reported Q4 results, there can be no doubt that profits are heading south with some considerable haste.

On a GAAP basis, 2015 full year profits came in at $86.44 per share. That reflected a 5% sequential decline from the LTM rate for Q3 2015, and an 18.5% decline from the cycle peak of $106 per share registered for the LTM period ended in September 2014.

So here is what we have. The casino closed today at 23.5X its actual current earnings, and those earnings are now going down for the count.

Moreover, that limpid profit level for the S&P 500 is enormously flattered by more than $2 trillion of stock buybacks since 2009, meaning that the share count has declined by upwards of 15%.  Still, profits for the LTM period just ended are up by only a hairline  since the prior peak in June 2007.

this time there will be no Fed rescue. When it becomes undeniable that the economy is in recession and that the Fed is utterly out of dry powder panic will envelope the casino.

And when it becomes further evident that no quick, artificial reflation of financial assets is in the cards like occurred after March 2009, the Big Flush will finally come.

19--What are the bulls smoking? Stockman

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