Yahoo – -Poster Person For The Stock Buyback Mirage

It is one of the great investment conundrums of our time: Why do so many stockholders cheer when a company announces that it’s buying back shares? Stated simply, repurchase programs can be hazardous to a company’s long-term financial health and often signal a management that has run out of better ways to invest in the business.
And yet investors love them.
Not all stock repurchases are bad, of course. But given the enormous popularity of buybacks nowadays, those that are harmful probably outnumber the beneficial.
Those who run companies like buybacks because they make their earnings look better on a per-share basis. When fewer shares are outstanding, each one technically earns more.
But a company’s overall profit growth is unaffected by share buybacks. And comparing increases in earnings per share with real profit growth reveals the impact that buybacks have on that particular measure. Call it the buyback mirage.

This post was published at David Stockmans Contra Corner on March 31, 2016.

Yellen Plants A Sloppy Wet One On Wall Street HFTs

As I type this the ‘markets’ are once again sprinting higher to the highest levels of 2016. At the rate they are going it’s theoretically possible we could take out the all time high by lunch. After all – ‘it’s a great time to buy stawks,’ no?
Everyone seems to have been caught off guard by Janet Yellen’s speech at the Economic Club of New York. Why this is so alludes me. The reason? This is a gathering of ‘her’ people. i.e., Wall Street. Too think she would intone anything of a hawkish nature at this highly publicized event was ludicrous. Especially after her comments at the latest FOMC presser where she defensively professed prudence in choosing inaction – as action, once again.
However, there was one striking change in both tone and demeanor from that conference of only a few weeks ago to this one: The palpable ebullience displayed by all..
The difference was absolutely striking. Lots of grins and smiles everywhere which also included not only the Chair woman herself, but especially from her colleague N. Y. Fed. president William Dudley who introduced her. Again, don’t take my word. Find a rerun on-line in your search engine of choice and see for yourself. One thing is very, very, very, (did I say very?) apparent. There wasn’t a dry eye in the house. I’d wager tears of joy flowed like the cocktails: freely and frequent.

This post was published at David Stockmans Contra Corner by Mark St. Cyr ‘ March 31, 2016.

Can Anything Prevent Japan From Falling Into The Abyss?

Shunto’ season has failed to grip Japan.
The country’s annual Spring assault on wages seems to have passed with little more than a whimper this year despite being billed as one of the most anticipated economic events in Japan’s recent history.
Translating as ‘spring wage offensive’, Shunto marks the annual Japanese ritual of wage bargaining between business groups and labour unions.
This year’s negotiations have been preceded by months of feverish lobbying from prime minister Shinzo Abe who has urged the country’s business groups to raise wages and help smash Japan’s deflationary mindset once and for all.
The wages issue has become the latest lightning rod in the country’s two decade struggle to ensure long-term economic prosperity.
Japan still can’t generate inflation Higher salaries encourage consumption and are vital in raising inflation. This in turn would help erode some part of Japan’s record 250pc of GDP debt pile – the highest of any developed country in the world.

This post was published at David Stockmans Contra Corner on March 31, 2016.

Profit Margins Going Down For The Count

Over the past few years I’ve written a fair amount about the record-high levels of corporate profit margins. I’ve been focused on this topic because corporate earnings are one of the most popular ways to value equities thus the sustainability of record-high profit margins should be an issue of great concern to investors. If profit margins revert to historical averages, earnings-based valuation measures investors are using to justify investment in equities today could quickly go against them making stocks appear much more expensive than they do currently. And this process may now be underway.
To the point of mean reversion in profit margins, in the past I have referenced the words of a pair of investment legends. Jeremy Grantham has called profit margins, ‘the most mean-reverting series in finance.’ And back in 1999, Warren Buffett explained why:
In my opinion, you have to be wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%. One thing keeping the percentage down will be competition, which is alive and well. In addition, there’s a public-policy point: If corporate investors, in aggregate, are going to eat an ever-growing portion of the American economic pie, some other group will have to settle for a smaller portion. That would justifiably raise political problems – and in my view a major reslicing of the pie just isn’t going to happen.
Both of these two gentlemen clearly believe, and very strongly, that corporate profit margins have an equilibrium. They can rise above or fall below that equilibrium but the very nature of capitalism, along with its social contract, will force an inevitable reversion to the mean.

This post was published at David Stockmans Contra Corner on March 31, 2016.

1 out of 3 American households can no longer afford rent, food, and transportation. The biggest rise in expenditures comes from rising housing costs.

The driving force in this political movement is anger and many American families need only look at their bank statements to understand why. Since 2004 median income has fallen by 13% while expenditures have risen by 14% according to latest figures pulled by Pew Research. That strikes at the heart of why the middle class is now a minority. People are struggling to get by and while the Fed is obsessed with interest rates, most families are seeing the impact of crony capitalism devastating their wallets. One perfect example is the banking bailouts. The bailouts simply allowed the too big to fail banks to get even bigger and allowed large investors to purchase many homes as investments. This happened while regular families were struggling. The end result is higher housing costs but no real underlying gain in income. Since housing eats up the biggest part of your budget this has had a major impact. 1 out of 3 American can no longer afford rent, food, or transportation.
Incomes down and expenses up
Americans are struggling to get by. All you need to do is look at income versus expenses:
‘(ZH) According to Pew, households spent more in 2014 than they did in 1996, after adjusting for inflation; this holds whether the figures are based on averages (means) or medians. The typical household saw its expenditures grow by more than 25 percent, from $29,400 in 1996 to $36,800 in 2014. Mean expenditures grew 27 percent since 1996, rising from $43,200 to $54,800.’

This post was published at MyBudget360 on Mar 30 2016.

The Evidence Piles Up – – Japan’s Economy Keeps Shrinking, Abenomics An Abject Failure

Household spending in February 2016 in Japan rose year-over-year for the first time in six months. That was the sum total of any good economic news for the monetary-stricken economy, and it doesn’t really survive closer inspection. The rise in spending was due largely to ‘other’ activities you don’t associate with strong economic rebounds. The overall figure was just 1.6% in nominal terms and 1.2% in real terms, but that was due largely to a 6% jump in spending on food, 13.8% in spending on medical care, and 20% on education (all nominal changes).
Those gains were balanced by the usual digression in household circumstances, including a 10% drop in spending on fuel, light and water, -4.3% in furniture and utensils, and -4.0% on clothing and footwear. This breakdown across spending categories explains the big difference in the broader category of household spending against the more economically-sensitive retail sales estimates that fell 2.3% month-over-month (seasonally adjusted).

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ March 30, 2016.

It’s Not Just A Supply Glut – – US Oil Stocks Up 40% In Last 2 Years

With stocks up and treasuries down, there were a couple of interesting contrary trades today in my view. For one, oil prices at the front end of the futures curve did not participate and have been down since the last FOMC non-decision. That may suggest funding and financing, as the overall curve steepened slightly where the front month was flat to yesterday’s close but there was some buying in the maturities thereafter; the October 2016 contract, for instance, was up $0.46 today (as of this writing).
The fundamental imbalance in oil has only gotten worse despite the burst of enthusiasm since February 11. The US EIA’s latest weekly update shows yet another record in US crude inventories, with increases in twenty-three of the past twenty-seven weeks. The total stock of crude oil (not counting the SPR) is up 13.4% from the same week in 2015; which was already 24% more than the year before that. So over the past two years, crude inventory has surged by just more than 40%; and unthinkable quantity that cannot count as just a ‘supply glut’, especially as those two inventory surges quite nicely matchthe two massive oil crashes that preceded them.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ March 30, 2016.

ECB Pours More Gas On Bond Market Fire It Started

As European Central Bank Governor Mario Draghi prepares to increase and broaden his bond-buying program, the shrunken market might be in for a shock.
QUICKTAKEEurope’s QE Quandary
While policy makers will expand their asset-purchase plan by 20 billion euros ($22.7 billion) a month at the start of April, corporate debt won’t be included until later in the quarter. That’s leaving investors to face even higher demand for government bonds with supply unable to keep up and some of Europe’s biggest banks are predicting yields are headed for even more record lows.
‘All of that is going to be in covered bonds, in govvies, in agencies,’ Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale SA in London, said in an interview on Bloomberg Television’s ‘On The Move’ with Guy Johnson. ‘That’s going to create a shock on supply-demand in Europe.’ The prospect of increased largess from the ECB has pushed government bonds higher, with the yield on German 10-year bunds headed for their biggest quarterly slide in almost five years. They were at 0.14 percent as of 9:15 a.m. London time on Wednesday, half where they were after the ECB announced an increase to its quantitative-easing program on March 10.

This post was published at David Stockmans Contra Corner on March 30, 2016.

Phony Surge In Oil And Commodities Heading For Reversal – -25% Price Plunge

Analysts at Barclays have warned of a ‘rush for the exits’ as investors back away from commodities, resulting in price levels for oil and copper dropping as much as 25pc.
A note issued by the bank said that although investors have beenattracted to commodities as one of the best performing assets so far in 2016, returns are unlikely to be sustained in the second quarter of the year.
‘This could make commodities vulnerable to a wave of investor liquidation that we estimate could, in a worst case scenario, knock as much as 20-25% from current price levels,’ the note said.
This would take the price of oil back to the low $30s and copper to the low $4,000s, the analysts said.

This post was published at David Stockmans Contra Corner on March 30, 2016.

Buyback Surge Is Finally Losing Steam

Stock buybacks, which have helped power the 7-year-old bull market, are showing their first signs of retreat in at least three years.
Share repurchases decreased 3.4 percent in the fourth quarter from the previous three-month period and are tracking at a 21-month low in March, according to respective data from S&P Dow Jones Indices and TrimTabs.
If the trend continues, that would mark a major trend shift. Companies have been using reductions in share count as a way to boost earnings profiles, raise stock prices and reward corporate executives. The programs have been seen as a major driver of the market rally, though the extent of the effect has come under scrutiny in recent months.
The most recent trend shows that buybacks have dwindled to $23.5 billion in March, just a month after hitting a 10-month high of $94.6 billion in February, TrimTabs reported in its weekly market summary. S&P 500companies have committed more than $2.7 trillion to buybacks since the market bottomed back in March 2009.
For all of 2015, share repurchases totaled $572.2 billion, an increase of 3.4 percent from 2014.

This post was published at David Stockmans Contra Corner on March 30, 2016.

Obamacare May Force Employers To Pull Plug On Millions of Health Plans

March 30, 2016
In the latest report to undercut President Obama’s ‘If you like your health care plan, you can keep it’ promise, the Congressional Budget Office projects millions of workers will leave employer-sponsored health plans over the next decade because of ObamaCare.
Some will opt to go on Medicaid, but others will be kicked off their company plans by employers who decide not to offer coverage anymore, according to a new CBO report titled, ‘Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2016 to 2026.’
‘As a result of the ACA, between 4 million and 9 million fewer people are projected to have employment-based coverage each year from 2017 through 2026 than would have had such coverage if the ACA had never been enacted,’ the report, released Thursday, said.

This post was published at David Stockmans Contra Corner by Fox Business ‘.

Arizona Voter Fraud

The outraged voters in Arizona are just another example of the growing feelings of anger toward government. One citizen captured it best after yelling at the corrupt politicians who rigged the election to ensure Hillary would win. ‘The corruption has become so prevalent that you became comfortable, and you became so comfortable that you became lazy, and you became so lazy that you got caught. You (Purcell) are a snake in the grass and we see you!’

This post was published at Armstrong Economics on Mar 30, 2016.

Dystopian Fiction of Yesterday is the NWO of Tomorrow: ‘The Shift is Toward Totalitarianism’

Many of the things that are happening this very moment have direct parallels in literature of the past. Whether it is an account such as the ‘Gulag Archipelago’ by Solzhenitsyn or a work of ‘fiction’ such as ’1984′ by George Orwell is irrelevant. Elements of the history or the storyline (regarding the former and the latter works) are now becoming thoroughly inculcated into the fabric of modern reality.
All of the measures taken by the Soviet Union to crush and control its population are beginning to manifest themselves today in the United States. The courts are ‘stacked’ to reflect the decision of the regime and not to rule by law. The Military Industrial Complex contracts are still being shuffled, along with government policies that just happen to substantiate those business interests with kickbacks for all. Laws serve political and corporate interests, and the lawmakers themselves do not represent any of their constituents: they are self-serving thieves, selling out their country and its populace for money and power.
The police departments have (for all intents and purposes) been ‘federalized,’ with budgets and marching orders becoming increasingly dependent upon federal and not local or state policies. Sheriffs who follow their appointed roles as duly-elected law enforcement officials upholding Constitutional guidelines are being ‘phased out’ of existence. The changed demographics of ‘forced’ insertions of illegal aliens and ‘refugees’ into populations are rapidly negating the remainder of the two-party system to ensure that the Democratic party takes control ad infinitum.

This post was published at shtfplan on March 29th, 2016.

The Long Slump In Durables – – Why This Cycle Is Different

Orthodox economic theory assigns recession to some exogenous ‘shock.’ Without it, an economy is supposed to grow indefinitely along its trend or potential baseline so long as NAIRU (non-accelerating inflation rate of unemployment) is maintained. As you can imagine, economists and policymakers spend most of their time on that latter part which is one reason, though more so ideology, that they ignore the questionability of the former assumption. In very simple terms, any positive number and a great many still negative are taken as evidence of ‘growth’ precluding recession. Absent a ‘shock’, there are no other orthodox options.
Setting aside all objections to NAIRU, of which there are many starting with massive imprecision, there is some good logic to the textbook recession case. In very general terms, it suggests that recessions are just temporary deviations from the potential baseline brought about by whatever ‘shock.’ That means there should be symmetry and proportionality in the recovery for its preceding recession. The conspicuous absence of both in this ‘cycle’ already proposes something else perhaps beyond recession now into 2016.
The update for durable goods orders and shipments for February (released last week) showed the first monthly year-over-year gain in about a year. Both durable goods (ex transportation) and non-defense capital goods (ex aircraft) were slightly higher for the first time going back 12 and 13 months, respectively. Considering monthly variation or even the 29th day in February, the positive numbers may only suggest that the same trend is in place that struck in the latter half of 2014. In other words, because February 2015 was a contraction a small rise off that level in February 2016 does not immediately propose ‘it’s over.’ In fact, as you can see below, the latest update only continues what might be an even worse case than recession.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ March 28, 2016.

Investment Bank Bubble Spoils Collapse

The volatility that hit markets in the first part of the year has weighed heavily on investment banks, whose fees were down 36% in the first quarter from the same period a year earlier, WSJ’s MoneyBeat reports.
$12.8 billionInvestment-banking revenueSo far this year, the lowest quarterly total since the height of the financial crisis $2.3 billionFees from equity offeringsA drop of 55% from the same period last year

This post was published at David Stockmans Contra Corner on March 29, 2016.

Bribed To Prescribe- US Sues Novartis for 80,000 Cases of Bribing Doctors

The U. S. is asking Novartis AG to provide records of about 80,000 ‘sham’ events in which the government says doctors were wined and dined so they would prescribe the company’s cardiovascular drugs to their patients.
The Swiss drugmaker and the Manhattan U. S. Attorney are engaged in a whistle-blower lawsuit that alleges Novartis provided illegal kickbacks to health-care providers through bogus educational programs at high-end restaurants and sports bars where the drugs were barely discussed.
In a filing Friday, the U. S. said it needs Novartis to provide information to support its allegation that the company defrauded federal health-care programs of hundreds of millions of dollars over a decade by inducing doctors to prescribe its medications through sham speaker events.

This post was published at David Stockmans Contra Corner on March 28, 2016.

Hollande Chickens Out On Desperately Needed Labor Market Reforms

French President Francois Hollande recently came up with some good proposals for reforming the country’s notoriously rigid labor laws. Most of them never made it into the bill presented to his cabinet Thursday. It’s a lost opportunity his country will have cause to regret.
The original plan, strongly supported by Finance Minister Emmanuel Macron, wouldn’t have scrapped the totemic 35-hour workweek law entirely, but it would have made life much easier for France’s beleaguered employers – loosening the rules on working hours, restricting union powers and making it easier for firms to dismiss workers they don’t need. Lifting these burdens would have boosted employment and lifted the economy.

This post was published at David Stockmans Contra Corner on March 28, 2016.

Profits Recession Is Here – -Stock Market Rally Is Over

The S&P 500 may have surged 10 percent since its Feb. 11 low, but a Bank of America-Merrill Lynch strategist is warning the bounce is on very shaky ground.
Publicly traded companies have seen negative earnings growth two quarters in a row and there are no fundamental underpinnings for the rally, Savita Subramanian, BofAML’s head of U. S. equity and quantitative strategy, said on CNBC’s ‘Fast Money’ this week.
‘We are in a profits recession. There (are) no two ways around it,’ said Subramanian, whose S&P 500 price target of 2,000 is among the lowest on Wall Street. She is also concerned about how Federal Reserve monetary policy could affect stocks.
‘You have the Fed embarking on a long, slow tightening cycle. Tightening into a profits recession doesn’t sound like anything to throw a big party about,’ she said.
The result? Widening credit spreads and the capital markets basically shutting down, Subramanian said.

This post was published at David Stockmans Contra Corner on March 28, 2016.

Now Pops The Biggest Bubble Of All – -Belief In Central Bank Omnipotence

Since the initial turmoil began with the onset of what is now referred to as ‘The great financial crisis.’ One strategy has proven more profitable than any other. That strategy? BTFD (buy the f___n’ dip.)
Regardless of what proprietary advice (short of insider trading,) nothing, as well as, nobody has had a track record worthy of comparison. All one has needed to do is, whenever a selloff occurred (as rare as they had been,) when ‘the dip’ presented itself, the only thing to do was to ‘buy, buy, buy!’
Forget 2/20 management. Forget stock picking. Forget listening to experts, economists, fund managers, et al. You would beat them all over the last 6 years if you just BTFD, then bought some more. It had been that easy. However, if it was that easy – why didn’t everyone ‘just do it?’ Easy…
A great many (and I put myself squarely in this camp) still believed that the fundamental laws governing free markets and stocks were still at play. No one, and I do mean that as innobody with a modicum of business acumen thought, let alone believed the extent, as well as, the vast amounts of money printed ex nihilo by the Fed. would go on not only for as long, but also, in the amounts to which it has.

This post was published at David Stockmans Contra Corner by Mark St. Cyr ‘ March 28, 2016.

UBS Calls Top – -Profits Skidding, Stock Buybacks At Dangerous High

Big banks usually promise their clients all sorts of things and always continue to issue recommendations to continue to invest in stocks and bonds (obviously to rake in their fees), UBS chartists and technicians Muller and Riesner have now publicly stated we might have seen another top of the S&P 500 index.
And when Muller and Riesner speak up, the investment community listens, as these two technical analysts have correctly predicted the two previous corrections (and the recent increase in the gold price), so they do enjoy some respect in the market. They were already correct in seeing the S&P hitting their target at 2050 points earlier this week, but this target was reached much faster than originally anticipated, and we think it’s now fair to say we have seen two V-shaped corrections on the stock market and these corrections might have been wiped out too fast, too soon. Indeed, apparently to the UBS-analysts, the S&P index has now reached its most overbought situation since 2009, and that’s quite a statement to make!

This post was published at David Stockmans Contra Corner on March 28, 2016.