11 Charts Exposing The Madness Of The Stock Market Crowd

There’s more to stock market valuations than the current level of interest rates. In this article, 11 charts are presented which expose the extraordinary level to which stock prices have dislocated from a range of economic aggregates. The height of these charts should send shivers down the spine of anyone concerned with minimizing losses. One of the very few good reasons left to buy equities now is historic low interest rates. Broadly speaking, this is not a recent phenomena as it has been the case, from a valuation standpoint applying a more ‘normal’ level of interest rates, for at least the last three years. Many are not making decisions based on hopes and dreams are aware of this fact, but nonetheless maintain a relatively high allocation toward equities out of necessity.
The necessity of a decent return in this historic low interest rate environment has resulted in a desperate chase for yield, often motivated by the current spread between earnings and bond yields.

This post was published at Zero Hedge on Nov 22, 2017.

Puerto Rico Defaulted 8% Bond Slumps To $24, Yield Rises To 32.878% (Population and Home Prices Continue To Decline)

Puerto Rico has had its share of tragedies. First, they are fiscally incompetent (regularly spending more than they take in). Second, they were devastated by Hurricane Maria leaving much of the island in shambles.
Peurto Rico has defaulted on its 8% general obligation (GO) bond maturing in 2035.

This post was published at Wall Street Examiner by Anthony B Sanders ‘ November 22, 2017.

Positive Feedback Loops, Financial Instability, & The Blind Spot Of Policymakers

‘Learn how to see. Realize that everything connects to everything else.’ – Leonardo da Vinci
A Dangerous Market Structure is More Worrying than Expensive Asset Valuations and Record Debt Levels
Macro-prudential regulations follow financial crises, rarely do they precede one. Even when evidence is abundant of systemic risks building up, as is today, regulators and policymakers have a marked tendency to turn an institutional blind eye, hoping for imbalances to fizzle out on their own – at least beyond the duration of their mandates. It does not work differently in economics than it does for politics, where short-termism drives the agenda, oftentimes at the expenses of either the next government, the broader population or the next generation.
It does not work differently in the business world either, where corporate actions are selected based on the immediate gratification of shareholders, which means pleasing them at the next round of earnings, often at the expenses of long-term planning and at times exposing the company itself to disruption threats from up-and-comers.
Long-term vision does not pay; it barely shows up in the incentive schemes laid out for most professions. Economics is no exception. Orthodoxy and stillness preserve the status quo, and the advantages hard earned by the few who rose from the ranks of the establishment beforehand.
Yet, when it comes to Central Banking, and more in general policymaking, financial stability should top the priority list. It honorably shows up in the utility function, together with price stability and employment, but is not pursued nearly as actively as them. Central planning and interventionism is no anathema when it comes to target the decimals of unemployment or consumer prices, yet is residual when it comes to master systemic risks, relegated to the camp of ex-post macro-prudential regulation. This is all the more surprising as we know all too well how badly a deep unsettlement of financial markets can reverberate across the real economy, possibly leading into recessions, unemployment, un-anchoring of inflation expectations and durable disruption to consumer patterns. There is no shortage of reminders for that in the history books, looking at the fallout of dee dives in markets in 1929, 2000 and 2007, amongst others.

This post was published at Zero Hedge on Nov 22, 2017.

Bahamas Prime Minister Blames US Cable News For Collapse Of Journalism

Over the weekend, Bahamas Prime Minister Dr Hubert Minnis addressed the Third Annual Press Club Awards Banquet, where he blamed the collapse of journalism standards on 24-hour cable news shows in the United States. He said, the declining of standards ‘would not have been allowed in previous times’ and urged local journalist not to be ‘champions of any political party, business, group or interest in a country’.
While addressing the Third Annual Press Club Awards Banquet Munnis said,
This is not a practice that would be allowed by journalists in other countries. I am not speaking here of editorial writing. A journalist and a columnist are distinctly different roles.

This post was published at Zero Hedge on Nov 22, 2017.

Baby Boomers Will Suck Massive Amounts of Capital From the Market, Says Demographic Expert

Baby Boomers have been a huge tailwind for equities and bonds from the 1980s until today, but now as they exit the workforce and increasingly move into retirement, this monumental demographic shift will exert enormous pressure on interest rates, bond prices, and equity market valuations.
This is the thesis of Will Denyer at Gavekal Research who we spoke with on our FS Insider podcast last week (see Major Demographic Shift Underway Spells Trouble for Bond Market).
Here’s what he had to say…
WWII to Present
From 1946 to 1980, we saw a booming population that resulted in increased demand for houses, schools, cars, and a wide range of consumer goods and services, Denyer stated. This created a tendency for upward pressure in prices and interest rates.
‘Then everything reversed basically in the early 1980s,’ he said. Boomers entered the workforce en masse and, starting around 35 years of age, Boomers entered their peak earnings, peak production, and peak savings period, which lead to an abundance of capital and production, placing downward pressure on consumer prices and interest rates.
Savings not only bid up the price of bonds while driving down yields but also bid up the valuation of equities. What developed was a long-term bull market in bonds and equities.

This post was published at FinancialSense on 11/22/2017.

UMich Consumer Confidence Slides In November As Faith In Stocks Falters

Having hit the highest level since Jan 2004 in October, November’s final print shows the University of Michigan Consumer Sentiment index fell from 100.7 to 98.5, as both hope and current conditions slipped.
Expewctations for inflation dipped. Consumers saw inflation rate in the next year at 2.5 percent after 2.4 percent the prior month. Inflation rate over next five to 10 years seen at 2.4 percent, lowest since May, after 2.5 percent in October

This post was published at Zero Hedge on Nov 22, 2017.

WTI/RBOB Slide After Smaller Than Expected Crude Draw, New Record High Production

With WTI at its highest since July 2015, vol at 8mo lows, and the front-end flipped into backwardation for the first time since Nov 2014, it appears a lot of hope is priced into continued equlilibration (and OPEC). Last night’s API (crude draw) provided some more confirmation but this morning’s DOE data disappointed with a smaller than expected crude draw, and production rose once again to a new record high.
‘Domestic production is going to be the big nugget that everybody will be racing to see, in terms of whether those levels continue to rise or not,’ John Kilduff, a partner at Again Capital, says.
‘They likely will, so that can be a counter-balance to the drawdown’

This post was published at Zero Hedge on Nov 22, 2017.

“Very Close To Irrational Exuberance”: Asian Equities Break Above All-Time High As Hang Seng Clears 30,000

Following the new all-time high in US equities, the MSCI Asia Pacific Index broke through its November 2007 peak to make an all-time high in Wednesday’s trading session. This was something we noted could happen yesterday in ‘SocGen: Asian Equities Are So Awesome, A China Minsky Moment Is ‘Manageable’. The dollar weakened slightly after outgoing Fed Chairman, Janet Yellen, cautioned against interest rates rising too quickly in one of her last Q&As at NYU on Tuesday evening. The MSCI Emerging Market Index hit its highest level in six years and the Shanghai Composite rose 0.5% despite the lack of a net liquidity injection from the PBoC.
As Bloomberg notes, Asian stocks headed for a record close for the second time this month as the regional benchmark gauge surpassed its 2007 peak, led by energy and industrial stocks after U. S. equities continued their bounce from a two-week slide.
The MSCI Asia Pacific Index rose 0.7 percent to 172.70 as of 1:01 p.m. in Hong Kong. The gauge passed its 2007 closing high on an intraday basis on Nov. 9 but didn’t hold the level. Japan’s Topix index climbed for a second day Wednesday, rising 0.4 percent, after its worst week in seven months. Hong Kong’s benchmark Hang Seng Index breached the 30,000 level for the first time in a decade, boosted by China banks and energy stocks.
‘Anyone who missed the rally probably wonders if it is too late to join the party,’ Andrew Swan, head of Asian and global emerging markets equities at BlackRock Inc., said in a statement Wednesday. ‘We don’t believe it is.’

This post was published at Zero Hedge on Nov 22, 2017.

Trusting the Fed: Will the White Knight Save the Day?

As we reported last week, investors are in an era of ‘irrational exuberance.’
The US stock market is at all-time highs. Meanwhile, market volatility is at lows not seen since the 1990s. In an odd juxtaposition of seemingly contradictory points of view, investors realize the market is overvalued, but at the same time, they believe it will continue to go up. According to a Bank of Ameria survey, 56% of money managers project a ‘Goldilocks’ economic backdrop of steady expansion with tempered inflation.
In an article published at the Mises Wire, economist Thorsten Polleit adds some further analysis and asks a critical question.
Credit spreads have been shrinking, and prices for credit default swaps have fallen to pre-crisis levels. In fact, investors are no longer haunted by concerns about the stability of the financial system, potential credit defaults, and unfavorable surprises in the economy or financial assets markets.
‘How come?’
In simplest terms, most investors now believe the Federal Reserve will ride in like a white knight and save the day.
After all, the Fed saved the day before. Surely it will do it again. Peter Schiff put it this way during an interview on The Street.

This post was published at Schiffgold on NOVEMBER 22, 2017.

Pound Slides, Then Rebounds, After Hammond Reveals Sharp Cuts To UK GDP Forecast

Update: after the GBP initially dropped on the lower GDP forecasts, it has since rallied after Hammond finished speaking , in what Citi said was a “relief rally” as there were no “banana skins and government safe. Relief trade here.”
This was a risk event – while Budget Announcements are normally quite quiet affairs in FX, the government is so weak that this could have been a banana skin. Fortunately, that was a good budget in political terms, and exactly what May needed. Economically speaking, the downgrade in GDP forecasts will attract some attention, but they were broadly expected, and Hammond’s big spending on the national healthcare and on housing will probably grab the headlines tonight (the rabbit-out-of-the-hat moment was the abolition of stamp duty for first-time home buyers below GBP300k). There were also extra funds for Brexit preparations and a positive tone about the process. May’s government will be thankful, and Chancellor should be safe.
The pound dropped, sliding to session lows, after UK chancellor Philip Hammond revealed a sharp downgrade (more than expected) to Britain’s economic forecasts during the presentation of the UK Budget, underlining the government’s challenge in transforming its political prospects and boosting growth as the country prepares for Brexit.
U. K. FORECASTS 2017 GDP GROWTH 1.5% (VS 2% in March) U. K. FORECASTS 2018 GDP GROWTH 1.4% (VS 1.6% in March) U. K. FORECASTS 2019 GDP GROWTH 1.3% (VS 1.7% in March) U. K. FORECASTS 2020 GDP GROWTH 1.3% (VS 1.9% in March)

This post was published at Zero Hedge on Nov 22, 2017.

Bi-Weekly Economic Review: A Whirlwind of Data

The economic data of the last two weeks was generally better than expected, the Citigroup Economic Surprise index near the highs of the year. Still, as I’ve warned repeatedly over the last few years, better than expected should not be confused with good. We go through mini-cycles all the time, the economy ebbing and flowing through the course of a business cycle. This being a particularly long half cycle, it has had more than its fair share of ups and downs but these mini up and down cycles within the larger cycle are nothing unusual. We are now in an up cycle and the data reflects that. But context is everything and as I keep saying with every one of these reports, not much has changed.
This mini up cycle has been extended by the bounce back from the two hurricanes that hit earlier in the fall. How much of the recently better data is due to hurricane effects? I don’t know of any way to quantify it but when in doubt I always fall back on market based indicators. As I discussed in the update two weeks ago, the stock market is anticipating a future so bright we’ll have to all wear rose colored glasses so ignore that for a minute. All the other indicators we watch are not nearly as exuberant about the prospects for a sustained upturn in growth. The Fed may welcome the better data to justify their preferred course of action but evidence of a robust economy is hard to find outside the stock market.

This post was published at Wall Street Examiner on November 21, 2017.

Core Capital Goods Orders Plunge Most In 13 Months

After rebounding from its July jolt, Durable Goods New Orders dramaticaly missed expectations in October (dropping 1.2% vs expectations of a 0.3% rise). Perhaps even more concerning is the drop in Core Capital Goods Orders (-0.5% MoM vs expectations of a 0.5% rise) – the biggest drop in 13 months.
The June/July swing (Boeing orders) and storm bounce has gone and October’s preliminary print suggests a slowdown…

This post was published at Zero Hedge on Nov 22, 2017.

FOMC Signals Dovish Inflation Concerns, Warns “Sharp Reversal” In Markets Could Damage Economy

With a dumping dollar and collapsing yield curve since November’s FOMC, all eyes are on the Minutes for any signals of The Fed hawkishly ignoring inflation concerns but instead a few Fed officials opposed near-term hikes (on the basis of weak inflation). Furthermore, several Fed officials warned of the potential for bubbles, “in light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances.”
Bloomberg’s Brendan Murray highlights the key aspects of The Fed Minutes
Consistent with their expectation that a gradual removal of monetary policy accommodation would be appropriate, many participants thought that another increase in the target range for the federal funds rate was likely to be warranted in the near term if incoming information left the medium-term outlook broadly unchanged. Nearly all participants reaffirmed the view that a gradual approach to increasing the target range was likely to promote the Committee’s objectives of maximum employment and price stability.
A few other participants thought that additional policy firming should be deferred until incoming information confirmed that inflation was clearly on a path toward the Committee’s symmetric 2 percent objective.
Several participants indicated that their decision about whether to increase the target range in the near term would depend importantly on whether the upcoming economic data boosted their confidence that inflation was headed toward the Committee’s objective. A few participants cautioned that further increases in the target range for the federal funds rate while inflation remained persistently below 2 percent could unduly depress inflation expectations or lead the public to question the Committee’s commitment to its longer-run inflation objective.
In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances. They worried that a sharp reversal in asset prices could have damaging effects on the economy.

This post was published at Zero Hedge on Nov 22, 2017.

Budget Preview: Chancellor Philip Hammond’s Impossible Task To “Square The UK’s Circle”

At lunchtime today, Philip Hammond will give the weakened Conservative government’s first budget in the new parliament.
Against a likely backdrop of downgrades for the economy from the OBR, the Chancellor will be under immense pressure to provide a sound plan going forward on many issues. As Statista’s Martin Armstrong notes, the NHS has already had its call for an emergency boost of 4 billion rejected, but there will need to be at least some answers to the problems surrounding health and public services funding.
As a new survey by ComRes shows, this topic is one of particular importance to the public, with 67 percent saying that there should be more investment in these services, with a slight majority even saying they would personally be prepared to pay more taxes to enable it.
Clearly, this is a highly significant budget and we would be greatly surprised if it’s considered a success. As we noted yesterday, Reuters columnist and former European economics editor of The Economist, Paul Wallace, believes:
Few British budgets have mattered as much as the one that Philip Hammond will deliver to the House of Commons on Nov. 22. The chancellor of the exchequer must shore up Theresa May’s perilously shaky government ahead of a vital Brexit summit of European leaders in mid-December. At the same time Hammond has to keep a grip on the public finances.

This post was published at Zero Hedge on Nov 22, 2017.

Last Time Housing, This Time Bonds

Over the last couple of months, we’ve focused a lot of attention on the stock market bubble. But some analysts say we should be watching the bond market bubble. Last summer, former Fed chair Alan Greenspan issued an emphatic warning: Beware, the bond bubble is about to burst. And when it does, it will take stock prices down with it.
Last week, Mint Capital strategist Bill Blain issued a similar warning.
The truth is in bond markets. And that’s where I’m looking for the dam to break. The great crash of 2018 is going to start in the deeper, darker depths of the credit market.’
Blain noted that the People’s Bank of China recently dropped $47 billion into its financial system where bond yields have risen dramatically amid growing signs of wobble.
The game’s afoot once more. The result is global stocks bound upwards. Again. It suggests central banks have little to worry about in 2018 – if markets get fractious, just bung a load of money at them. Personally, I’m not convinced how the tau of monetary market distortion is a good thing. Markets have become like Pavlov’s dog: ring the easy money bell, and markets salivate to the upside.’

This post was published at Schiffgold on NOVEMBER 22, 2017.

The Global Domination of Big Tech

The big four – Apple, Amazon, Facebook, and Google – have literally changed the face of the world economy, and are collectively responsible for creating a combined market capitalization equivalent to the GDP of India with a population the size of the Lower East Side of Manhattan.
This, according to Scott Galloway, professor of marketing at NYU Stern, founder of L2 Inc. and author of The Four: The Hidden DNA of Apple, Amazon, Facebook, and Google, means we need to watch these four – and other potential disruptors – very closely, as they point the way toward understanding the economy as a whole and where innovation will lead us.
How Dominant Are They?
It’s easy to compare these companies to industrial powerhouses that existed at the turn of the Twentieth Century. But, if we look at them from the perspective of market share, the picture turns out a bit different.
Except for Google, which now controls 90 percent of the market for internet searches – now a larger market by dollar volume than the advertising market of any nation with the exception of the United States – Facebook, Amazon, and Apple don’t enjoy excessive market share, Galloway noted. Amazon, for example, captures around 4 percent of retail, and Apple only has 15 percent share of the phone market.

This post was published at FinancialSense on 11/21/2017.

Unsealed Fusion GPS Bank Records Reveal $523K Payment From Russian Money Launderer

Unsealed court documents reveal that the firm behind the salacious 34-page Trump-Russia Dossier, Fusion GPS, was paid $523,000 by a Russian businessman convicted of tax fraud and money laundering, whose lawyer, Natalia Veselnitskaya, was a key figure in the infamous June 2016 meeting at Trump Tower arranged by Fusion GPS associate Rob Goldstone.
In short, D. C. opposition research firm Fusion GPS is the common denominator linked to two schemes used to damage the Trump campaign.
Founded in 2011 by former Wall St. Journal journalist Glenn Simpson and two other WSJ alumni, Fusion was responsible for the Clinton/DNC – funded dossier (which two Kremlin officials participated in), and was also involved in the infamous Trump Tower meeting with the Russian attorney of another Fusion client – an encounter some suspect may have been used to obtain a FISA wiretapping warrant on the Trump campaign.
He [Simpson] worked closely with Natalia Veselnitskaya, the Russian lawyer who also showed up at the infamous Trump Tower meeting held on June 9, 2016.
Simpson’s research ended up in the Trump Tower meeting in the form of a four-page memo carried by Veselnitskaya. She also shared Simpson’s work with Yuri Chaika, the prosecutor general of Russia.
Simpson told the House Intelligence Committee earlier this week that he did not know that Veselnitskaya provided the Browder information to Chaika or to Donald Trump Jr., the Trump campaign’s point-man in the Trump Tower meeting. –Daily Caller

This post was published at Zero Hedge on Nov 22, 2017.

Could Italy’s Banking Crisis Drag Down Mario Draghi?

Just don’t mention ‘Antonveneta.’ By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. A blame game has begun in Italy that risks casting a bright light on the leadership of both the Bank of Italy and Italy’s financial markets regulator Consob. The controversial decision to award the central bank’s current Chairman Ignazio Visco a fresh six-year mandate despite presiding over one of the worst banking crises in living memory has ignited a tug-of-war between political parties and the president, who makes the ultimate decision on who to appoint as central bank chief.
The first to cast aspersions was Italy’s former premier Matteo Renzi, who, no doubt in an effort to distract from his own party’s part in the collapse of Monte dei Paschi di Siena (MPS), called into question the supervisory role of both the Bank of Italy and Consob during Italy’s banking crisis.
Silvio Berlusconi, a key player in the center-right coalition whose party came out on top in recent elections in Sicily, was next to join the fray. ‘The Bank of Italy did not exercise the control that was expected of it,’ he told reporters in Brussels in response to a pointed question about Visco.

This post was published at Wolf Street on Nov 22, 2017.

FCC / Net Neutrality – Go Read It Again

The screamfest has re-commenced.
I’d write a whole post on this, but I have already.
So here’s the piece I submitted to the FCC during the comment period back in 2014, which I have unlocked from its “expired” status.
Go read it.
People like Hastings and Bezos have extracted billions of dollars from consumers who do not want their services by getting the government to shove a gun up their noses, picking their pocket. While you may say “but I want and buy Netflix” the fact is that there are many such firms, there are and will be more every day, and the odds of you buying all of them are zero.

This post was published at Market-Ticker on 2017-11-22.