Thursday, March 31, 2016

Today's Links

"When money yields nothing, then it will return nothing. So, when bonds have a zero percent interest rate, or negative interest rate, then there's nothing to gain from owning them." Bill Gross

1--Look out below! The dollar is Trader

2--European Peripheral Corporate Bond Yields Tumble To Record Lows Ahead Of Draghi's Monetization

Once again, Draghi has worked his verbal magic unleashing a buying spree before the ECB has bought even one single bond, all because other buyers are now completely price indiscriminate and fully aware they have the ECB's backstop.

The WSJ's conclusion:

Since the ECB’s bond buying program is designed to spur lending by reducing the cost to corporations, record low yields are good news: for now, at least.

We disagree: what the chart above shows is yet another asset class that is now completely dislocated from its fundamentals, just like European sovereign bonds, which are trading not on their underlying merit but because the ECB has to buy them. The same is happening in the corporate financial space. And, once the corporate non-financial market ends up broken and there is no more supply, the ECB will be forced to expand its bond buying universe again, launching the monetization of junk bonds, convertibles and ultimately equities

3--Gig economy takeover: Nearly Entire Increase in Employment Since 2010 is in Gigs!

The Wall Street Journal uses the term “gig” meaning an “alternative work arrangement job”.....

The estimated increase in gig employment between 2010 and 2015 is 10,058,540....

The BLS shows employment rose 10,628,000 in the same period.

Thus, nearly the entire increase in employment (94.6%) since 2010 has been in the gig economy!

New research shows labor shift affects health care, education and other industries that have traditionally offered stable employment. However, the Wall Street Journal reports Contract Workforce Outpaces Growth in Silicon-Valley Style ‘Gig’ Jobs.

Uber drivers aren’t the only “gig” workers rattling the U.S. economy. Older workers, especially women, increasingly are filling in as contractors across a range of traditional industries, from highway inspectors to health aides.

As companies look to shed noncore tasks and government budgets come under strain, an expanding share of the workforce has come untethered from stable employment and its attendant benefits and job protections.

The explosive growth of Silicon Valley companies such as Uber Technologies Inc., where on-demand drivers summoned by an app set their own hours and are paid by the ride instead of an hourly wage, has shined a bright light on the so-called gig economy. But new research shows this shift away from steady employment has taken place largely in the shadows


The Labor Department breaks down the four main types of alternative work arrangements into independent contractors, on-call workers, temp workers and workers employed by contract firms, but it hasn’t updated its count of such workers since 2005...

Workers in these alternative arrangements often find themselves with erratic schedules, spotty earnings and few benefits such as health insurance, Social Security or a retirement plan....

From 1995 to 2005, the “gig” workforce grew from 9% of the jobs to 10% of the jobs. Since then, the “gig” workforce grew to 16% of all jobs.

Today, the survey estimates 17% of women and 15% of men hold “gig” jobs.

Permatemps and Giggers

Even though some giggers (can I say that?) work full time, the rising cost of benefits and salary differentials means there is little to no chance companies will hire them. The polite new term for this plight is “permatemp”....

We now have gigger, side-gigger, permatemp, Silicon-Valley style gigger, full-time gigger, on-demand gigger, and solopreneur in the language lexicon.

According to Entrepreneur, a “side-gigger” works less than 15 hours a week. If a full-time gigger works 35 hours a week, is a part-time gigger someone who works gigs between 15 and 35 hours a week?

Clearly we need new terms here....

is a “gig” an “on-demand job” as the Journal defined? Or is a “gig” an “alternative workforce arrangement job” as the Journal also defined the term?...

U6 is a measure of unemployment that includes those working part-time.  Those who work as little as one hour a week are counted as “employed”....

Gig Statistics

  1. Total employment in December 2010: 139,301,000

  2. Total employment December 2015: 149,929,000

  3. 2010 “gig” employment (10% of line 1): 13,930,100

  4. 2015 “gig” employment (16% of line 2): 23,988,640

The growth in “gig” employment since 2010 is approximately 10,058,540 using “Civilian Employment“, a household survey measure, in my calculations.

According to the BLS, the growth in employment from December 2010 to December 2015 was 10,628,000....

The study estimates 10% of employment in 2010 was 10% and was 16% of employment in 2015.

the increase in gig employment in the same period is 10,058,540 .

In essence, virtually the entire increase in employment since 2010 was in the “gig” economy! 

4--Larry Summers: Corporate profits are near record highs. Here’s why that’s a problem

In the past seven years, the stock market has risen to 250 percent of its spring 2009 levels...

the rate of profitability in the United States is at a near-record-high level, as is the share of corporate revenue going to capital. The stock market is valued very highly by historical standards, as measured by Tobin’s q ratio of the market value of the non-financial corporations to the value of their tangible capital. And the ratio of the market value of equities in the corporate sector to its GDP is also unusually high. ....

it could be that higher profits do not reflect increased productivity of capital but instead reflect an increase in monopoly power. If monopoly power increased, one would expect to see higher profits, lower investment as firms restricted output, and lower interest rates as the demand for capital was reduced. This is exactly what we have seen in recent years!

5--$ story (important)

Point is, technicals can carry markets counter to the fundamentals for long periods of time.

6--The political economy of endless austerity

the political economy of endless austerity is rooted in the very foundations of the capitalist economy itself.

The capitalist mode of production is not some “natural” economic order—mankind did not descend from the trees onto the plains of Africa and divide into wage workers, factory owners and bankers. It is a historically developed socioeconomic order based on the private ownership of the means of production and the drive for the accumulation of profit, the key measure of which is the rate of profit. That rate is determined by the relationship of the total mass of profits to the total capital outlaid to secure it....

If profit rates are trending down, then new investment will be cut back, and productivity—measured by the output per worker—will tend to decrease and the economy will stagnate or contract.

This has been the consistent trend in all the major economies since 2008, with the result that in Europe, for example, investment rates are as much as 25 percent below their pre-crisis trend. Consequently, productivity rates have been trending ever further downwards, with the result that investment is reduced still further. A vicious circle has set in. Lower profit rates lead to cuts in investment, lowering productivity increases and reducing the rate of profit still further.

As a result, corporations, instead of reinvesting the profits they accumulate, use their available cash for speculative activities in financial markets, drawing on the ultra-cheap money provided by central banks for mergers and acquisitions, share buybacks and investment in the property market. While such parasitism boosts the bottom line of the individual firm, it leads to further stagnation in the real economy as a whole.

Herein lies the reason for the relentless drive to austerity. Under conditions where the very operation of the profit system leads to cuts in investment, and the real economy stagnates or even contracts, capitalist governments insist that “there is no money” for social services. “The country must learn to live within its means” is their endless mantra....

The rate of profit, as we noted earlier, is determined by two factors: the increase in national income generated by investment and the division of that income between the owners of capital and the producers of that wealth, the working class.

Under conditions where investment is being slashed, and consequently the growth of productivity, and therefore national income, tends to decline, profit rates can be sustained and increased only by boosting the proportion of national income flowing to the corporations and finance houses—a result that is achieved through the imposition of ever-increasing impoverishment on the mass of the working population...

This endless austerity is not a “natural” development. It is the result of the relentless logic of the profit system that, by its very functioning, produces fabulous wealth at one pole and poverty and misery at the other.

7--The corporate profit bubble is about to burst

In the short-term, history suggests the current profits recession very likely will lead to an economic recession accompanied by a bear market. In fact, profit margin peaks regularly lead major stock market peaks and profit margins peaked this cycle about four years ago already. In addition, the recent fall in earnings and profit margins is already beginning to damage those earnings-based valuation measures. The S&P 500 now trades at its highest price-to-earnings ratio since the bull market began even as the index remains well off its recent price highs. And profit margins still could have a long way to fall before even reaching their average level since 1950.

Longer-term, if these new secular trends working against profit margins are to remain in place, earnings growth will be much harder to come by for corporate America than it has been over the past few decades. And there are plenty of signs it is already becoming very difficult for them. Corporate cash flow has essentially been flat for the past five years. At the same time, more and more companies recently have resorted to financial engineering via buybacks, non-GAAP reporting and even outright fraud. My guess is this is all in an attempt to make up for broadly slowing organic profit growth due the these secular tailwinds shifting to headwinds.

Should these shifts actually turn out to be longer-term secular trends, they pose a great risk to equities in both the short-term and the long-term. Falling profit margins and rising valuations (as earnings fall) make for a pretty bearish one-two punch for the stock market. I can’t imagine investors being very eager to pay higher valuations for companies growing more slowly. That equation usually works in reverse. And there’s no reason I can see to expect these challenges to corporate profit margins to let up any time soon.

8--Assad says Erdogan's army fighting in Syria


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