The Financial Engineering Market

IBM went down hard on its quarterly earnings report this week. This made a splash in the news because, well, it’s IBM, and also Warren Buffett owns it, so it was a rare moment of human fallibility for him. But there is a lot more to the story than that. Very sophisticated people have been keeping an eye on IBM for some time.
In particular, Stanley Druckenmiller – former chairman and president of Duquesne Capital, former portfolio manager of Soros’s Quantum Fund, and, honestly, one of the greatest investors in modern times – went public about a year ago saying that IBM was his favorite short (which says a lot) and that it was the poster child for, well, the type of stock market we have nowadays.

This post was published at Mauldin Economics on OCTOBER 23, 2014.

Warren Buffett loses $2.5 billion in three days on Coca-Cola and IBM

It's not been a good week for billionaire investor Warren Buffett, as his bet on Coca-Cola and American tech giant IBM have cost him more than $2 billion in just three days.
On Monday, Buffett lost nearly $1 billion after shares in IBM plummeted to a three-year low after it badly missed third-quarter earnings estimates and announced it would pay $1.5 billion to ditch its loss-making chip division.  That’s bad news for Buffett considering his investment firm, Berkshire Hathaway, is the largest investor in IBM.
Yesterday, Buffett's week of hell continued after Coca-Cola shares plummeted six per cent in New York trading after it reported flat sales and lowered its guidance for the year.
The set of disappointing results from both companies come after Buffett admitted he made a "huge mistake" investing in Tesco, which has seen its share price more than halve in the past 12 months following a series of profit warnings.

This post was published at The Independent

More QE? These Charts Show the Pauperization of Workers in the UK and America since 2008

Designated losers of monetary policy Since the financial crisis, the government of the UK and the Bank of England have jumped through hoops and twirled around in extraordinary gyrations to bail out one of the largest financial centers in the world, the uniquely powerful and at once unaccountable speck of land, the City of London, an incorporated area within London known as the Square Mile; or rather bail out its financial institutions, its way of doing business, and its bonuses; and along the way, bail out banks further afield.
Done in the now classic way. Key ingredient: the Bank of England printed enormous amounts of money, repressed interest rates, and stirred up inflation, which hit 5% in 2011. But somebody had to pay for it: savers and workers. It demolished real wages and purchasing power of the people who make up the rest of the country.
This chart by FactSet shows how average hourly earnings growth (blue line, in percent, seasonally adjusted, year-over-year) has been relentlessly below CPI (yellow line, in percent, year-over-year). It’s the process of pauperization by inflation:

By comparison, here is how American workers fared after the Fed began to bail out the banks, insurance companies, and myriad corporate giants, including Warren Buffett’s financial empire, not only with temporary measures to keep them from toppling, but also with long-term – or perhaps infinite – ‘solutions,’ namely QE and ZIRP.

This post was published at Wolf Street by Wolf Richter ‘ October 18, 2014.


Lethal Taper: The Buffett Valuation Indicator Flashing Red (Are Stocks And Housing Too ‘Frothy’?)
Market Cap to GDP is a long-term valuation indicator that has become popular in recent years, thanks to Warren Buffett, the Oracle of Omaha. Here is a chart of the market cap to nominal GDP, aka the Buffett Valuation Indicator. Note that we are currently in the second highest spike since 1952.

Here is the Buffett Valuation Indicator since 2000 versus the Wilshire 5000 Total Market Full Cap Index. Note that they both peak in 2007, then decline.

This post was published at The Burning Platform on 13th October 2014.

$60 Million for a Blow-Up Dog?

$60 Million for a Blow-Up Dog?
Shatura Power Station. Russia has the largest peak power capacity in the world
(Photo via
Talk about ringing a bell!
This ring-a-ding-ding comes from the New York Observer:
‘Sales of contemporary art at public auctions surpassed $2 billion for the first time last year, the Paris-based arts-data organization Artprice said.
The report tallied auction sales between July 2013 and July 2014, and it found that contemporary art sales grew 40% from the previous year. The number of big-ticket items that sold for over 10 million euro ($12.8 million) more than doubled in the period.
Those who follow the art market will remember the record-breaking Christie’s auction in November that saw buyers walk away with the most expensive publicly auctioned piece of art ever, Francis Bacon’s $142.4 million Three Studies of Lucian Freud (1969). That auction also minted Jeff Koons’ $58.4 million Balloon Dog (Orange) (1994-2000) as the most expensive piece by a living artist ever sold at auction.’
That’s another bad thing about being rich – you have to live with this stuff. Even if you don’t own it, your new friends and neighbors will.
Unless you’re autistic – or a savant, like Warren Buffett – you’ll find it hard to avoid. Contemporary art and big, expensive houses are hugely popular among the wealthy elite. And most people are very susceptible to peer influence.
That is what creates investment opportunities, too. The lumpen investoriat – like the lumpen electorate – does not do much serious thinking. Instead, it reacts emotionally and primitively.
It takes up positions that are too expensive. And then, in a panic, it stampedes away from them… leaving them too cheap. That’s when the bells start ringing.

This post was published at Acting-Man on September 29, 2014.

Monetary Inflation And The Stock Market

Concerning bull markets; what is the prime mover driving share prices higher over the decades:
Economic Growth? Compelling Value? Rising Earning? Skilled Management? I wouldn’t dismiss the importance of any of these factors to investors when considering where to invest their money in the stock market. But the one factor that has impacted share prices more than any other is usually ignored: monetary inflation flowing from the Federal Reserve.
Below is a chart plotting US Currency in Circulation (CinC) since 1920. From 1920 to 1931, CinC never exceeded five billion dollars. Today, in any room where Warren Buffet and Bill Gates are sitting, five billion dollars is chump change as the Federal Reserve has expanded US CinC to an obscene 1.3 trillion dollars over the past nine decades.

This post was published at Gold-Eagle on September 21, 2014.


It’s no secret the rich are getting richer, and the poor poorer. Accounts of this worsening condition are stroon across mainstream media and alternative news sources alike, albeit with somewhat different storylines. Although increasingly recognizing the importance of this issue, mainstreamers, who both cater to and are controlled by the status quo, portray the condition as a result of race and education differences (which is true), and that these shortfalls should be addressed via public policy (which is not true). And by doing so, they avoid discussing the more profound problem, and the real culprits in this regard, for whom they (think they) are obliged for a living.
Here we are talking about the greedy bastards at the very top, like Warren Buffet and Bill Gates, who will do anything, including the hollowing out of the larger economy (think off-shoring, debt enslavement, destruction of the middleclass, etc.), to stay there. In the movieElysium, it was no secret that there was the very rich, and everybody else. However today, this growing reality still escapes most, not that it will matter soon. Because today’s modern empires are built on thrones of debt, meaning they are destined for the same destruction of the surfs in good time. Of course in the meantime they are going to get as much as they can, and if they have robots to control the populations at some point (through fear if not reality), there’s no telling how far the atrocities will extend. First they will use them on foreigners in the larger war machine as justification for their creation, then on us like all the other surplus hardware / ordinance being employed to control the public by increasinglymilitarized police departments across America.
Think it’s bad your liberties have been eroded? They are already killing anybody who steps out of line, with over 400 police shootings per year in the US now the norm apparently, where the robots could be used to do the things humans would object to. Obviously we are years away from this kind of thing, but if the technology were there, based on the way things are going, and in knowing whom we are dealing with, one would be foolish to discount such an outcome completely.

This post was published at GoldSeek on 15 September 2014.

The Most Equitable Measure Of Stock Market Valuation Is Market Cap/GDP

Today’s stock valuation is more grossly exaggerated and unrealistically inflated than in the 1920s. Historic testament suggests today’s pie-in-the-sky lofty stock prices are irrational and driven by the artificial force of the Fed’s QE…and fueled by illogical investor complacency.
The world’s richest man, multi-billionaire Warren Buffett, once observed that the best metric for determining the level of stock market’s valuation is the Market Cap/GDP ratio. And market sage Buffett ‘outta’ know as he made all his billions in the stock market.
The burning question today in the minds of institutional investors worldwide is:
‘What is the Market Cap/GDP ratio suggesting today’ as the Dow and S&P500 Indices are churning at all-time record highs?’
To objectively answer this provocative question, we need to analyze what stocks have done since early March 2009, when the US Fed initiated Quantitative Easing (QE) with a view to avert a stock market meltdown similar to the 1929 Stock Crash. The chart below shows the Performance (i.e. appreciation) of US major stock market indices (Dow, S&P500, NASDAQ, Russell 2000 & Wilshire 5000 Indices).

This post was published at Gold-Eagle on September 13, 2014.

Why a Market Correction Now Would be the Best Scenario

Current market projections are diverse.
Nobel Laureate in economics Jeremy Siegel says he is still not concerned with valuations and has upped his previous projection of 18,000 for the Dow by year-end to “possibly 19,000″.
However, Nobel Laureate in economics Robert Shiller is very worried, noting that the market is 65% overvalued based on the Shiller CAPE10 P/E ratio, the market’s main fuel now being ‘irrational exuberance’.
Newsletter writers and retail investors are very bullish, while corporate insiders and famous billionaire investors are increasingly pessimistic.
For instance, George Soros has significantly increased his positions in put option bets against the S&P 500, while Warren Buffett is holding a record amount of cash.
Billionaire investor Sam Zell says, ‘Something has to give here. The stock market is at an all-time high, and economic activity is not.’
Peter Schiff, economist and CEO of Euro Pacific Capital, says, ‘The 2008 market collapse was not the real crash. The real crash is coming.’
Jim Paulsen of Wells Capital Management, one of the biggest bulls during the last five years, is now telling clients to ‘shift out of U. S. stocks and into international markets.’
They are not only concerned about the high market valuation and age of the bull market. They speak of how the extremely aggressive actions of the Fed over the last five years resulted in only an anemic economic recovery. Yet the market, always looking ahead, will soon have to begin anticipating those actions being reversed; the unloading of the unprecedented $4 trillion in mortgage-back securities and U. S. Treasury bonds on the Fed’s balance sheet, raising the record low interest rates back to normal, and so on.

This post was published at FinancialSense on 09/05/2014.


It was announced last week that Burger King had bought a famous Canadian restaurant franchise known as Tim Horton’s to reduce the amount of taxes they “owe” to the US government. An upcry arose!
As usual the mainstream media and the people who watch it have the story totally wrong. Burger King is not giving US taxpayers a “raw deal” by looking to move abroad so as to save on profits which are not repatriated. Instead, the iconic fast food burger chain is doing the moral thing by moving its tax-base outside the war-mongering, highly socialist US federal government’s reach.
The mainstream media will never give you this side of the story. This obvious trend towards expatriation terrifies the talking heads. You have to come to alternative media sources like The Dollar Vigilante (TDV) Blog and others to get the truth. As Howard Kurtz writes at Fox News,
I feel confident in saying that most Americans are disgusted by the perfectly legal practice of US companies avoiding taxes by incorporating in another country.
If this is the case, it is because Americans love bombing other countries. They lust for blood. I can think of no other logical explanation Americans would want the machine in Washington to continue being fed. Burger King is not the first company to make the moral decision to leave the US tax farm. Many American companies are going abroad – as many as 70. These so-called “inversions”. Even the most American of investors stand behind the inversion. Iconic American billionaire, Warren Buffet, coughed up $3 billion so the hamburger chain could buy the Canadian donut outfit Tim Hortons. Buffett did this just one month after Obama denounced ‘inversion’ tactics as an ‘unpatriotic tax loophole’, ordering regulatory changes to undermine them.

This post was published at Dollar Vigilante on September 2, 2014.