Why The Stock Buyback Spree Is Ending

“Sluggish activity will spur firms to repurchase shares in an effort to boost EPS growth”
– Goldman Sachs
Back in April 2012, we predicted that the Fed’s “visible hand hand is forcing corporate cash mismanagement”, stating explicitly that the Fed’s ZIRP and QE, “is now bleeding not only the middle class dry, but is forcing companies to reallocate cash in ways that benefit corporate shareholders at the present, at the expense of investing prudently for growth 2 or 3 years down the road.”
It is now three years later, and according to the latest Factset snapshot, revenue growth in Q3 is set to decline 3.7% from a year ago a quarter where corporate earnings are poised for their first recession since 2009. As we predicted, companies not only did not invest sufficiently in capex, R&D and other forms of organic, and thus revenue growth, but instead unleashed the biggest shareholder-friendly tsunami in history, with record buybacks, M&A, and dividends in the years following.
Sure enough, as can be seen in the chart below, after spending 55% of total cash proceeds on organic growth in 2009 (capex and R&D), since then shareholder-friendly strategies have taken over again, and Goldman now expects that organic growth will account for only 40% of total cash spend, with Buybacks, Dividends and Cash Acquisitions accounting for 60% of total use of cash proceeds.

This post was published at Zero Hedge on 11/07/2015.

Red Light Traffic Cameras & Money

The huge difference between the USA and Europe happens to center on the criminal trial of Sir Walter Raleigh. After the death of Queen Elizabeth March 23, 1603. Raleigh was arrested and imprisoned in the Tower of London within months on the 19th of July. Raleigh was tried in the Great Hall of Winchester Castle for treason, on November 17th, 1603 for his alleged involvement in the Main Plot against King James.
You were not entitled to a lawyer and you had to conduct your own defense. The evidence used against Raleigh was the signed and sworn confession of his friend Henry Brooke under threat of death by the King. Raleigh requested that Cobham should appear in court to allow Raleigh to confront his accuser;'[Let] my accuser come face to face, and be deposed. Were the case but for a small copyhold, you would have witnesses or good proof to lead the jury to a verdict; and I am here for my life!’

This post was published at Armstrong Economics on November 8, 2015.

A Descent Into The Tunnels Deep Under New York City

At first glance, what happens hundreds of feet below the streets of Manhattan has very little to do with finance, until one considers the depressed costs of housing along the warzone that has been the 2nd Avenue Subway line for the past five years, or the millions wasted each day due to traffic gridlock along construction zones, or the billions in overtime pay which unionized labor makes sure it gets paid by doing nothing most of the day and then working for a few hours at night.
The last is acutely relevant right now, because as we explained earlier, suddenly the fate of the December rate hike is in the hands of America’s 6.4 million construction workers, tens of thousands of whom dig the countless tunnels deep under Manhattan.
Courtesy of Reuters, here is a glimpse of what is taking place right now deep under New York, and a snapshot of the people whose paycheck will determine whether Janet Yellen hikes rates by 25 bps next month.
The following photos show so-called “sandhogs” working in various tunnels in the East Side Access project, more than 15 stories beneath Midtown Manhattan where workers are building a new terminal for the Long Island Railroad, the United States’ busiest commuter rail system, as seen during a media tour of the site in New York, November 4, 2015.

This post was published at Zero Hedge on 11/07/2015.

Here’s The Truth That You Need To Know That Wall Street Pundits Are Missing

The Treasury will be paying down another huge slug of Treasury bills next week to avoid going over the debt ceiling. In the process, it will continue to draw down the massive cash hoard it built up over the past year. At the same time the Fed will settle its MBS purchases as usual at mid month, with an expected $25 billion or so of purchase money deposited to dealer accounts October 14-21. That will add more fuel to the fire pushing stock prices higher.
At some point, when a debt ceiling deal is done, this will all get reversed. The Treasury may even be forced to do some extra borrowing to restore cash levels. The markets will start to sell off again, and the pundits will all be looking for excuses that they can use as the ‘reason’ the market is selling off. Just as they don’t understand why it’s rallying, they’ll get the ‘reason’ for the selloff wrong too.
It’s called Supply and Demand.
In this environment, the supply of securities is being radically reduced. At the same time the amount of cash, the fuel for effective demand, is being radically increased. So an imbalance of demand over supply has developed. That drives up the prices of the favored securities of the moment, which have been stocks. When the debt ceiling deal is done, the Treasury supply shortage will become a supply glut, and at the same time, a shortage of cash will develop. We do not need to be rocket scientists to know what will happen then. So the stock market rally comes as no surprise to us. The conditions for its appearance were well known in advance. They have played out as expected, and should continue to.

This post was published at Wall Street Examiner by Lee Adler ‘ November 6, 2015.

‘First They Came for the Pennies…’ in the War on Cash

But who is the governments’ strongest ally in their War on Cash? By Don Quijones, Spain & Mexico, editor at WOLF STREET. The War on Cash is advancing on all fronts. One region that has hogged the headlines with its war against physical currency is Scandinavia. Sweden became the first country to enlist its own citizens as largely willing guinea pigs in a dystopian economic experiment: negative interest rates in a cashless society. As Credit Suisse reports, no matter where you go or what you want to purchase, you will find a small ubiquitous sign saying ‘Vi hanterar ej kontanter’ (‘We don’t accept cash’):
Whether it’s for mulled wine at the Christmas market, a beer at the bar, even the smallest charge is settled digitally. Even the homeless vendors of the street newspapers Faktum and Situation Stockholm carry mobile card readers.
A similar situation is unfolding in Denmark, where nearly 40% of the paying demographic use MobilePay, a Danske Bank app that allows all payments to be completed via smartphone. With more and more retailers rejecting physical money, a cashless society is ‘no longer an illusion but a vision that can be fulfilled within a reasonable time frame,’ says Michael Busk-Jepsen, executive director of the Danish Bankers Association.

This post was published at Wolf Street by Don Quijones ‘ November 7, 2015.

The Fate Of The December Rate Hike Is In Their Hands

Following the “blockbuster” jobs report from Friday, bond yields soared across the curve as experts everywhere decided that this time it’s different, that this is it: with soaring October jobs, not to mention the biggest annual jump in wages, the Fed was out of excuses.
We would like to make three points.
First, the October jobs reports was good, certainly at the headline level, but there is one more payrolls release from the BLS before the December 16 FOMC decision; its impact will be far greater on the FOMC’s decision especially if it now shows a sharp decline in jobs (before Friday, five of the past six payrolls reports had missed expectations).
Second, as we showed yesterday, while the Establishment survey reported an unexpected jump in jobs in October jobs, which rose by 271K, far above the highest estimate even putting the very Fed to shame after St. Louis Fed’s Bullard explicitly talked down market expectations the night before while trying to convince the market that slowing jobs is not bad for the economy, a deeper look revealed that the Household survey suggested a far less optimistic picture, with 378,000 of the increase in employed falling in the 55 and over age group, while males 25-54 saw their jobs decline by 119,000.

This post was published at Zero Hedge on 11/07/2015 –.

The Politics of Dystopia Reduxby Tyler Durden on 11/07/2015 – 20:30

Submitted by Erico Matias Taveras via Sinclair & Co.,
Dystopia: a community or society that is undesirable or frightening.
Nouriel Roubini recently penned an article titled ‘Europe’s Politics of Dystopia’, citing the rise of nationalistic movements across Europe as a harbinger of terrible things to come. It seems that the renowned Dr. Doom – one of the few economists to have anticipated the 2008 financial crisis – is back in the limelight with some more dire warnings.
Ah, but this time he’s late. In case you have been hibernating, the European Union (EU) is already in a complete state of disarray. Everywhere you look – economy, politics, security, society, demographics – there are very serious problems with no credible solution in sight.
This does not bode well for the future of the EU, starting with those who will be living in it.
Out of the top-10 OECD countries with the highest youth unemployment rate, 8 are EU member states, each with high double digit figures. Politicians might still blame the Eurozone financial crisis for this dire situation, but this is nothing new: the economic growth rates of member states have been very poor for over a decade now. The fact is that the EU has consistently failed to promote policies that can provide decent employment opportunities to its youngest citizens.
That first step in the job ladder is hugely important for the future prospects of any generation. This one is particularly important since their contribution is badly needed to pay for their elders’ welfare, as well as all the fiscal largesse to ‘stimulate the economy’ facilitated by the ECB’s monetization of unprecedented levels of debt. Some of that stimulus found its way into the housing market. Good for the economy you say, but terrible if you need to find cheap housing to start a life.

This post was published at Zero Hedge on 11/07/2015 –.

‘Universal’ Failure: Public Health’s Answer to Prevention

What is herd immunity doing (or not doing) for you? What are Americans doing almost as much as paying taxes? Fever, aches, paralysis – Oh, my! Dear reader,
Picture it.
Every staff member in the emergency room is covered head to toe in masks, gowns and gloves.
Patients spread about the ER bays – the worst cases rushed to isolation rooms.
Families, particularly those with children, told to leave for their own protection.
Medications and vaccines stockpiled in nurses stations so quickly pharmacy can’t fill the orders.

This post was published at Laissez Faire on Nov 6, 2015.

Baltic Dry Shipping Index Continues To Decline (But US Wage Growth Jumps?)

This is a syndicated repost courtesy of Confounded Interest – Online Course Notes For Financial Markets. To view original, click here.
The Baltic Dry Shipping (Cost) index is a signal of global trade (or lack thereof). That is why I was a little surprised by today’s jobs report and YoY Average Hourly Wage growth increased to 2.5%.

This post was published at Wall Street Examiner by Anthony B. Sanders ‘ November 6, 2015.

The LBMA Conference And The ‘Confusion’ About Gold Round Tripping

Much to my surprise speakers at the LBMA conference in Vienna (held from 18 until 20 October 2015) have been discussing how gold round tripping and gold leasing in China inflates withdrawals from the vaults of the Shanghai Gold Exchange (SGE). These Chinese Commodity Financing Deals (CCFDs), which gold round tripping and gold leasing can be labeled as, were presented at the conference as the explanation for the huge difference between SGE withdrawals and Chinese consumer gold demand as disclosed by the World Gold Council (WGC).
By any measure the aggregated difference has transcended 2,500 tonnes of gold, which is more than the official gold reserves of Russia, India, Singapore, South Africa and Mexico combined. If CCFDs could inflate SGE withdrawals it would be a legitimate argument to lodge with, but gold round tripping cannot inflate SGE withdrawals and gold leasing can only inflate SGE withdrawals to a limited extent (not 2,500 tonnes).
Regular readers of this blog know I’ve written numerous articles about CCFDs and that I have clearly exposed round tripping and gold leasing cannot explain the difference the gold space is apparently still ignorant about. Once more we’ll thoroughly set out all the gossip that is making rounds about CCFDs and elucidate the true workings of the Chinese gold market. This post is focused on round tripping, or actually about the rules on the import and export of gold in and out of China, in a succeeding post we’ll extensively discuss gold leasing.

This post was published at Bullion Star on 7 Nov 2015.

The Butterfly Effect

Chaos Theory isn’t overly complicated, especially when properly explained. This email humor describing ‘the butterfly effect’ was too good to not pass on:
Proof of ‘The Butterfly Effect’ ‘In Chaos Theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a deterministic, nonlinear system can result in large differences in a larger state.’
In other words, a butterfly flapping its wings in Texas can later cause a typhoon in the Japanese Sea.
Think about it: In mid-20th Century America , an 18 year old hippie, freshman slut in a Honolulu college had sex with an older, alcoholic Kenyan politician on a student visa who had a wife and child back in Africa. And from this ‘roll in the hay’ comes the collapse and dissolution of the United States of America in the 21st Century.

This post was published at Economic Noise on November 6, 2015.

Silver Open Interest Still Treacherous

I must admit that my first reaction upon seeing this week’s number on the Commitments of Traders data was one of complete shock. The reason? That record hedge fund long position hardly budged! Then again, this data only covers through Tuesday and therefore missed the waterfall decline that has been taking place up until then but also continued Wednesday through today.
Let’s start first with the COT charts that I have been using for a while now so that you can see for yourself why my initial reaction was what it was.

This post was published at Trader Dan on November 6, 2015.

The End Of Rebalancing: Marginal Productivity Of Chinese Debt Goes From Bad To Much Worse

Submitted by Bryce Coward via Gavekal Capital blog,
Taking the Chinese GDP statistics at face value (an increasingly big assumption these days) we point out a rather ominous scenario which seems to be developing in the productivity dynamics of Chinese debt-financed growth.
Basically the amount of growth that each new unit of credit produces is plunging to levels not seen since 2009-2010 when the Chinese unleashed the largest GDP adjusted stimulus program in the world. As it stands now, each new unit of debt is buying less than .5 units of marginal growth, and that, again, is taking for granted the accuracy of the GDP stats (chart 1). In reality the ratio is probably much lower than the current reading of .47.

This post was published at Zero Hedge on 11/07/2015 –.

Another Phony Payroll Jobs Number – Paul Craig Roberts

The Bureau of Labor Statistics announced today that the US economy created 271,000 jobs in October, a number substantially in excess of the expected 175,000 to 190,000 jobs. The unexpected job gain has dropped the unemployment rate to 5 percent. These two numbers will be the focus of the financial media presstitutes.
What is wrong with these numbers? Just about everything. First of all, 145,000 of the jobs, or 54%, are jobs arbitrarily added to the number by the birth-death model. The birth-death model provides an estimate of the net amount of unreported jobs lost to business closings and the unreported jobs created by new business openings. The model is based on a normally functioning economy unlike the one of the past seven years and thus overestimates the number of jobs from new business and underestimates the losses from closures. If we eliminate the birth-death model’s contribution, new jobs were 126,000.
Next, consider who got the 271,000 reported jobs. According to the Bureau of Labor Statistics, all of the new jobs plus some – 378,000 – went to those 55 years of age and older. However, males in the prime working age, 25 to 54 years of age, lost 119,000 jobs. What seems to have happened is that full time jobs were replaced with part time jobs for retirees. Multiple job holders increased by 109,000 in October, an indication that people who lost full time jobs had to take two or more part time jobs in order to make ends meet.

This post was published at Paul Craig Roberts on November 6, 2015.

“The 2008 Crisis Didn’t Come From Nowhere,” Jim Grant Slams The Fed’s Utopian World Of “Economic Sleepwalking”

Central bank’s experimental policies are only hurting America instead of leading the nation into financial prosperity, exclaims James Grant, editor of Grant’s Interest Rate Observer. “The Fed is a relic of the age of command and control. The Fed is an anachronism,’ Grant tells Bloomberg TV in this excellent interview, “The Fed ought to get out of the business of masterminding ‘the American enterprise,’ what we call the U. S. economy.” Central bankers, Grant adds, by pressing rates to nothing, have given rise to this “very pleasant kind of inflation we call bull markets.” While bull markets are great insofar as they reflect what is actually going on, “they are very dangerous to the extent that they are the artificial creation of artificial interest rates.”
“We are in a regime of price administration. Price control is a policy that has failed for millenia. When prices are manipulated, manhandled, and otherwsise distorted, real decisions follow and the real decisions are distorted… there’s bricks, mortar, and human lives attached to these [interest rate decisions]… and that’s why they matter“
“How do they know the funds rate ought to be zero?” “The world’s central bankers went to the same schools, talk the same language, have the same world view.

This post was published at Zero Hedge on 11/07/2015 –.

Gold Daily and Silver Weekly Charts – Anti-Knowledge of the Elites – Credibility Trap

After dinner, Larry [Summers] leaned back in his chair and offered me some advice. I had a choice. I could be an insider or I could be an outsider. ‘Outsiders can say whatever they want. But people on the inside don’t listen to them.
Insiders, however, get lots of access and a chance to push their ideas. People – powerful people – listen to what they have to say.
But insiders also understand one unbreakable rule: They don’t criticize other insiders.’
I had been warned.
Elizabeth Warren, A Fighting Chance
And he said to me, he said, “Neil, you’re a smart guy. You’re a young guy. You’re a talented guy. You got your whole future in front of you. You’ve got a young family that’s starting out. But you’re doing yourself real harm.’ And the reason why you’re doing yourself real harm is the harsh tone that I had towards the government as well as to Wall Street, based on what I was seeing down in Washington. And he told me that if I wanted to get a job out on the Street afterwards, it was going to really be hard for me.

This post was published at Jesses Crossroads Cafe on 06 NOVEMBER 2015.

Rigged Jobs Report Triggers Extreme Backwardation In Gold

I really don’t like going too far ‘off the rails’ in looking for explanations to occurrences that are completely dislocated from reality. An example of an occurrence that is entirely disconnected from reality is the 300:1 paper gold to deliverable gold ratio on the Comex. The only explanation for that is that entities operating the Comex are implementing extreme measures to limit the upward movement of the price of gold. How can there be any other explanation when there is no other futures market in the history of the world in which the ratio of the paper futures contracts outstanding were 300x greater than the amount of the underlying physical commodity available for delivery into those markets.
Try this exercise: Imagine where the price of gold would be if gold futures trading were removed from the equation. Too be sure, it would reduce the number of hedge funds involved in trading the gold market via futures. But the market would be left to find a market clearing price based on the actual amount of physical gold available for delivery and the amount of gold being demanded by buyers for actual delivery.
Occasionally an event occurs in the gold market which points to the extreme degree of artificiality imposed on the market. It’s a variable that occurs outside of the control of the banks and Central Banks who are highly motivated to keep a lid on the price of gold.

This post was published at Investment Research Dynamics on November 6, 2015.

The Mangled End Of Markets: An Unambiguous Signal Of Malfunction If Not Distress

Submitted by Jeffrey Snider via Alhambra Investment Partners,
While the stock market had one of its best months in years, it was, like the jobs report, uncorroborated by almost everything else. The junk bond bubble, in particular, stands in sharp and stark refutation of whatever stocks might be incorporating, especially if that might be based upon assumptions of Yellen’s re-found backbone. Do or do not, corporate junk remains unimpressed and therefore depressed against the same background drowning as has been in place going back to June 2014.
At yesterday’s close, the S&P/LSTA Leveraged Loan 100 index had fallen back to only a few fractions above its early October multi-year lows. That price action was matched by other high yield, high risk bond views.

This post was published at Zero Hedge on 11/07/2015 –.