Archives for May 2013

Amount of Dollar GDP Added For Each Additional Dollar of US Federal Debt

Amount of Dollar GDP Added For Each Additional Dollar of US Federal Debt

Courtesy of Jesse's Cafe Americain

The line represents each dollar of GDP added for each incremental dollar of Federal Debt.

I would suggest that someone look into why the velocity of debt is now running into the law of diminishing returns.  The big slide started with Reagonomics and the 'supply side' theory based on the second chart.

It might have something to do with a corrupt financial system, the myth of efficient markets and globalization,  tax cuts for the wealthy and unfunded wars, and the largely stagnating median wage.

However one wishes to slice it, it might be difficult to make up in volume what is taken away by a crippled financial system that keeps sweeping the productivity gains and national wealth up to the one percent where it is used for largely non-productive monopolization of resources, political corruption, unfunded endless wars, and fraud.

 

11 Reasons Why Soda Is Terrible For You

It's not just a terrible diet soda-triggered headache you could get.

11 Reasons Why Soda Is Terrible For You

Soda

Justin Sullivan/Getty Images

A recent study showed how drinking too much diet soda for a long period of time can end up hurting your teeth as much as chronic abuse of methamphetamines or crack cocaine.

The acids in each substance eat away at tooth enamel, the hard outer surface of the tooth that protects your pearly whites from cavities, cracks, and discoloration.

Soda doesn't just rot your teeth. Either sugar-free or sweetened soft drinks have at one point been linked to obesitydepression, and diabetes

We've gathered the scariest findings from recent soda studies:

  • Soda increases your risk of heart attack. Researchers from the Harvard School of Public Health, published March 2012 in the journal Circulation, found that drinking just one sugary beverage a day was associated with a 20 percent increase in a man's risk of having a heart attack over a 22-year period.
  • Lots of sugar drinks change your metabolism. A researcher at Bangor University in England kept track of 11 healthy men and women as they drank a Super Gulp's worth of sugary drink (about 140 grams of sugar) every day for four weeks. In the study, published in the European Journal of Nutrition in June of 2012, researchers found that their metabolism changed after the four weeks, making it more difficult for them to burn fat and lose weight.
  • Soda has possible carcinogens. An independent study commissioned by the Center for Science in the Public Interest in 2012 uncovered 4-methylimidazole, or 4-MI, in Coke, Diet Coke, Pepsi and Diet Pepsi. The compound is used in the brown coloring in these sodas, and has been shown to sicken animals. The study found levels of this compound were higher than the maximum limit allowed (without a warning label) in food in California.
  • Even diet soda can be bad. Researchers at the University of Miami Miller School of Medicine found a link between older adults who drank diet soda daily and a 44 percent higher chance of heart attack and stroke.
  • Soda could make you lose your mind. Scientists discovered BVO, a preservative and flame-retardant for plastic, in citrus sodas like Mountain Dew. The substance can cause nerve disorders and memory loss. A case report from 1997 explained a case of poisoning, possibly from drinking 2 to 4 liters of cola containing BVO a day.
  • Soda is linked to asthma. In a study published in Respirology in January 2012, researchers in Australia studied 16,907 people aged 16 and over in South Australia for two years. They found an association between a heightened risk for asthma and other breathing conditions and drinking more than half a liter soda every day.
  • Soda builds fat deposits all over your body. A Danish study published in the American Journal of Clinical Nutrition in February of 2012 followed a group of obese and overweight people for six months, as they either drank a liter per day of soda, or instead drank milk containing the same amount of calories, water or diet cola. They found that the group consuming sugary drinks ended up with a higher amount of fat in the liver and muscles than other groups. This kind of fat is bad because it can lead to heart disease later.
  • Soda consumption is associated with teen violence. In a 2011 study of Boston high school kids, published in the journal Injury Prevention, researchers saw that the more soft drinks teens drank, the more likely they were to be involved in violent acts, like pushing, shoving and getting into fights, according to a Harvard study, even when other factors like home and family life were removed.
  • Soda makes you gain a ton of weight. In 2011, researchers at the University of Texas Health Science Center announced results at the American Diabetes Association meeting, from a study of older adults across 10 years. They saw that any diet soda intake (compared to those with no diet soda intake) was linked to a 70 percent waistline increase over a decade; those who drank two diet sodas a day were linked to even larger weight gain — a 500 percent waist expansion.
  • Soda could shorten your lifespan. The high levels of phosphorus in dark cola have some researchers concerned it could shorten lifespan. In one study, published in the FASEB Journal in 2010, the mice with high phosphorus levels in their blood had shortened lifespans by an about a quarter.
  • Most soda cans contain BPA. The epoxy resin called BPA used to keep the acids in soda from reacting with the metal in cans. The substance is found in tons of plastic and metal containers and researchers are worried that it can interfere with human hormones. In studies, it has been linked to infertility, obesity and some cancers.

Flipping Homes Back To 2005 Levels

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

A month ago when we presented RealtyTrac's analysis of 25 markets where flipping homes is most profitable (yes, they really did that) some thought we were joking: after all can people really be that stupid and forget the crushing aftermath of a housing bubble that popped just seven short years ago driven by the very same underlying factors as the second housing bubble we are experiencing right now. Apparently when the entire economy is flooded in cheap Bernanke (and Kuroda) bux, not only they can, but they will and damn fast too. As for the consequences: this time will surely be different. Either way, we were not joking and as the WSJ followed up on just this topic earlier today, it turns out that house flipping is now back to levels last seen in 2005.

The WSJ reports:

In California, the number of homes sold in recent months that had been flipped—or bought and resold within six months—has reached the highest levels since late 2005, according to PropertyRadar, a real-estate data firm. About 6,000 homes have been flipped in the state this year through April, or more than 5% of all homes sold statewide.

While flipping is re-emerging nationwide, brokers say it is happening most in California, where home prices have risen sharply over the past year. Six of the 10 largest price gains in major U.S. cities over the past year have been in California, according to Zillow. In April, home values rose by 25% from a year earlier in San Jose, San Francisco and Sacramento, and by 18% in Los Angeles.

Is there any magic behind the process of buying in order to sell? Nope:

"When prices rise, this trade works. It's not anything more sophisticated than that," said Christopher Thornberg, an economist with Beacon Economics in Los Angeles.

Just in case there were doubt as to how profound human stupidity can be, some are actually debating whether the current flip that house mania is good or bad.

The industry is split over whether the current flipping activity could lead to potential problems. Jed Kolko, chief economist and a vice president at Trulia Inc., an online real-estate site, says the current activity isn't indicative of a bubble. "A bubble is when prices are rising fast from high levels," he said. "We're not there now."

As explained earlier, those doing the flipping are mostly the same asset managers who have access to unlimited funding.

Today's flippers are stronger financially. Flipping homes requires lots of cash because banks aren't making loans to investors who don't have large down payments. While some investors have bought many homes that can be rented out, it usually isn't feasible financially to rent out more expensive properties.

No, they are not stronger: they just happen to be large financial institutions who buy and sell from each other in lieu of a greater fool appearing. Very much just like the S&P. Problem is the same institutions are now starting to quietly get out of the market, seeing how it ends. Everyone else: best of luck.

It gets worse:

Competition for homes "is reaching bubble proportions, and I'm very wary of it," said Rich Worcester, a real-estate agent in San Diego who flipped about 25 homes last year for himself and clients. Mr. Worcester is representing a colleague who paid $675,000 last month for a foreclosed three-bedroom home in San Gabriel, a Los Angeles suburb. After installing new appliances, relandscaping and staging the empty house with furnishings, it hit the market for $867,000 earlier this month. Mr. Worcester said it hasn't yet received any offers, and he conceded he may cut the price.

Investors generally make all-cash payments, which gives them an extra advantage over buyers who must complete a lengthy mortgage-approval and home-appraisal process.

Robert Ganem beat out four other offers this year when he paid $600,000 for a short sale—in which a home is sold for less than the amount owed on its mortgage—in Ladera Ranch, in southern Orange County. He made cosmetic renovations—fresh paint, new hardwood floors and kitchen tiles—before selling it a few weeks later for $755,000.

Greed may be good, but it is not for those who just want to buy a house for a much more trivial task: to have a place to live.

Meanwhile, the growing competition from investors is unwelcome news for ordinary buyers. After waiting years for prices to hit bottom, "buyers are jumping in before prices bounce so high they can't afford it," said Christine Donovan, a real-estate agent in Costa Mesa, Calif.

Parviz Goshtasby, who moved to Southern California three years ago, is finding few homes available to entry-level buyers in Newport Beach, where starter homes can begin at $800,000. "I slowly realized that I can't compete with these investors," said Dr. Goshtasby, a plastic surgeon.

After three unsuccessful offers, he agreed to pay $1.6 million for a home in January after the seller agreed to finance a 10% second-lien mortgage, but the deal fell through when the seller later got cold feet. Two weeks ago, he offered to pay the $1.2 million asking price on another home that ended up selling to a cash buyer.

In short: deja vu, all over again. And just like last time, this too will end in tears. Only this time there will be no Fed to bail out the financial system. After all the same financial system only exists now because not only the Fed, but every single central bank have gone all in on doing just what the above described: reflating one final bubble.

We would urge everyone to just stay away from this idiocy, same as the centrally-planned, manipulated, broken stock market. However, for those habitual gamblers who just can't here is the handy guide we presented a month ago – where the profitability of flipping houses is highest in the US.

How the Rich Got Richer, Global Comparisons Edition

How the Rich Got Richer, Global Comparisons Edition

By Kevin Drum of Mother Jones

Dylan Matthews highlights a fascinating little chart today. Roughly speaking, it plots two things for 18 different countries: (a) how much the rich have gotten richer over the past 50 years, and (b) how much tax rates on the rich have gone down during the same period. Guess what? It turns out that in countries where the rich got the richest, they also enjoyed the biggest tax cuts:

How to interpret this is a difficult question to answer…. Lawrence Lindsey and Martin Feldstein have argued that cuts in rates led to increased economic activity among top earners, leading to more growth and income. That's the conventional supply-side story. But you could also tell a story where lower tax rates increased the after-tax income of the rich, and that in turn increased their political power, which produced still lower rates.

Keep reading:

How the Rich Got Richer, Global Comparisons Edition | Mother Jones.

Added to Deere

Added to Deere

DE tractor

By Paul Price

I followed my own advice today.

This morning I sold two Deere (DE) Jan. 2014 $90 puts for $8.65 per share in my real-life portfolio.

I'll be happy to either simply keep the money for the puts or to buy 200 additional DE shares for net $81.35 each. (I collected $8.65 per share already and would buy 200 more shares for $90 if they're put to me in Jan. 2014.) 

Deere is a component of our model portfolios. See the Virtual Value Portfolio and Virtual Put Selling Portfolio details here.

Disclaimer: Long DE; short DE puts. 

S&P Dividend Yield Below 10-Yr Treasury Yield (1.93% vs. 2.19%); Looking for Value?

Courtesy of Mish.

In an email note today economist Steen Jakobsen notes the “S&P Dividend Yield is Below the 10-Yr Treasury Yield (1.93% vs. 2.19%)”

S&P Dividend Yield

click on chart for sharper image

Steen asks “Why own stocks at lofty PE of 18 when you can get better yield and a free put option via fixed income’?

Curve Watchers Anonymous notes this chart of US treasury yields.

US Treasury Yields Over Time

click on chart for sharper image

$TYX – 30 Year Rate
$TNX – 10 Year Rate
$FVX – 05 Year Rate
$IRX – 03 Month Rate…

Continue Here

Housing Bubble II: Euphoria And Other Shenanigans

US Housing Bubble II: Euphoria And Other Shenanigans

Courtesy of Wolf Richter, www.testosteronepit.comwww.amazon.com/author/wolfrichter

The good old days are back. Those days during the last housing bubble when money grew on trees: home prices jumped 10.9% year over year, according to the S&P Case-Shiller 20-city Home Price Index, based on data through March 2013. On a monthly basis, the index rose 1.2%. Prices are now back to 2003 levels. The usual suspects: Phoenix soared 22.5% year over year, San Francisco 22.2%, Las Vegas 20.6%. You can’t lose money in real estate. I’m already hearing it again.

Flipping houses is back in vogue. People are jabbering about it on their cellphones while crossing streets without looking. Entire articles have been written about it, backed with reasonable-looking numbers, such as RealtyTrac’s25 Markets Where Flipping Homes is Most Profitable.” The top three? Orlando, Las Vegas, and Phoenix. Visions of 2005!

The smart money is once again running national radio ads on how-to-flip-houses shenanigans. Pull out your credit card, call that 800-number, and get rich quick. On NPR, an “economist” said this morning that the housing market was “on fire.” That’s the sort of hard “data” that puts real gloss on NPR’s perspicacious coverage of the US economy. And everybody fingers the “tight” inventory – as hundreds of thousands of vacant and for-sale homes have evaporated, and as bidding wars are breaking out over what’s left. Or so it seems.

But vacant homes don’t evaporate. Private-equity funds have poured tens of billions into gobbling up vacant single-family homes in specific markets. And now some of them are planning IPOs as a way of dumping this stuff into funds that unsuspecting worker bees hold in their 401(k)s. It’s called an exit, and they have to do it before it blows up in their faces. Meanwhile, they’re hoping to rent out at least some of these vacant homes on their books, but vacancy rates of single-family homes are sky-high in these markets, with the stock of vacant homes having simply been moved from the for-sale list to the for-rent list where it languishes unnoticed by the gurus. That’s what free and unlimited money will do. I’ve hammered on this theme before…. Housing Bubble II: But This Time It’s Different.

Euphoria even shows up in the numbers. The Conference Board Consumer Confidence Index rose in May to 76.2 up from 69.0 in April, the highest level since February 2008. Not everyone was euphoric. Which was why the index hasn’t hit the stratosphere yet. But those among the respondents who benefitted from the Fed’s money-printing binge and the bubbles it engendered in corporate bonds, farmland, housing, the stock markets, even junk bonds… they felt flush; and just like in 2006 or 2007, when “Merger Monday” had become a day of the week, they felt wise for having made smart decisions. Forgotten were the fiscal cliff – whatever that had been – the payroll-tax hike, and the sequester. For the lucky ones, these inconveniences were drowned out by euphoria.

The Walmart crowd wasn’t so lucky, however, and if it hadn’t been for their presence, the index would have been soaring. So there were some hiccups: only 10.8% of the respondents thought that jobs were “plentiful”; while dismal, and a reminder of reality, it was up from an even more dismal 9.7% in April.

Everybody loves bubbles. People either don’t remember the wealth destruction and wealth transfers that took place when the last bubble blew up, or they think they, but not others, can get out in time, whether it’s through an IPO, a quick stock sale, or a real estate transaction. Governments love bubbles because they generate a flood of tax revenues – and even California is having illusions of a surplus. Central banks, and specifically the Fed, create bubbles and then deny their existence until afterwards when they bail out their cronies that hadn’t been able to get out in time – while others are left holding the bag. It’s an amazing show, with fireworks, suspense, dramatic plot twists, and a rousing score. And we get to watch it over and over again.

Since I write so much about financial fiascos, debacles, and nightmares, I’ve been asked about ways to protect assets in this environment. Thankfully, I don’t give financial advice. Even if I did, I wouldn’t have all the answers. But I just finished reading an excellent book on precisely that topic, so I decided to review it. Read….  Diplomatic Immunity For Your Assets In Interesting Times!

Picture source. 

Meet The Casino With A $1.6 Million Minimum Bet

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

While China's economy is sputtering and its stock market is lagging the exuberance of the rest of the world's largest centrally-planned economies, it seems life is good for the richest of the rich. In Macau, "the VIP market is gaining momentum," with the industry’s April revenue the second-highest in history. About two-thirds of Macau’s casino revenue comes from high rollers who gamble on credit due to restrictions on taking cash out of China but as Bloomberg reports, last year, the big bettors pulled back across the industry amid speculation that China’s new government might restrict junkets and curb cash flowing from the mainland into Macau.

With the political transition completed, the VIP business is back to normalcy – as evidenced by Sky 32, an elite oasis of luxury on the 32nd floor of the Galaxy Macau casino, offers commanding views, a waterfall, a bar with vintage single malt whiskeys – and six sumptuous rooms where players must commit to betting at least 10 million yuan ($1.6 million).

 

 

 

Via Bloomberg,

Just a few months ago, even over-the-top pampering like that available in Sky 32 wasn’t enough to attract big bettors from China, as many steered clear of Macau, the world’s top-grossing gambling hub.

Now, the high-rollers are coming back to Macau, which raked in $38 billion in revenue last year, more than six times that of the Las Vegas strip.

“The VIP market is gaining momentum,” said Robert Drake, chief financial officer of Galaxy Entertainment Group Ltd, which owns Galaxy Macau. The industry’s April revenue “was second-highest in history. We are off to a great start for the year.”

About two-thirds of Macau’s casino revenue comes from high rollers who gamble on credit due to restrictions on taking cash out of China. These people are often brought in by junket operators…

Last year, the big bettors pulled back across the industry amid speculation that China’s new government might restrict junkets and curb cash flowing from the mainland into Macau.

“We have not seen any evidence of a crackdown, it’s purely noise,” said Union Gaming Group analyst Grant Govertsen. “VIP business is picking up nicely.”

VIP revenue in Macau tends to closely track sales of luxury goods, which slowed in the second half of last year, probably related to the government transition

“Now the transition is completed, VIP business has come back to normalcy.”

“VIP business will continue to be solid, although it may not be growing as fast as the mass market,” said MGM China CEO Bowie. “In absolute terms, the VIP business is huge.”

This Is What Real Bubbles Look Like

Courtesy of Chuck Carnevale.

With the stock market currently doing so well, numerous articles are popping up playing the bubble card.  Personally, I don’t believe we are anywhere near bubble levels for equities, at least in the general sense.  I do think there are certain stocks that are currently overvalued, but very few that I would describe as dangerously so.  To me, the true definition of a bubble is when prices have become so ludicrously high, that the dangers of a catastrophic loss large enough to be considered almost permanent become imminent or at least quite obvious.

Starting in calendar year 1999 and then peaking in calendar year 2000, we saw a true bubble emerge and inevitably burst in technology stocks.  The following F.A.S.T. Graphs™ on three prominent technology stalwarts, Oracle Corp (ORCL), Cisco Systems Inc (CSCO) and finally EMC Corp (EMC) provide quintessential examples of a true bubble.  To clarify what they are depicting, we see the stock price closely correlate and track earnings both before and after the bubbles.  However, during the bubble periods we see clear and undeniable insane valuation that fundamentals do not justify.

But perhaps most importantly, we see what happens when the bubble inevitably bursts.  Even after all these years have passed, none of these companies have seen their stock prices return to their bubble highs.  This is the great danger of a true bubble, devastating losses that never recover.  At least they never recover in a timeframe that would be considered even close to acceptable.  Only true bubbles create this type of devastating loss.

Oracle Corp

Cisco Systems Inc

EMC Corp

10 Stocks Approaching Bubble Territory

As I previously stated, even though we've had a decent run in the market, I don’t believe we are anywhere near close to bubble territory on most equities. I recently published an article, found here, illustrating that even after achieving all-time highs, there were very few stocks in the Dow Jones that were overvalued.  On the other hand, as I screen the major stock universes such as the S&P 500, the S&P 400, the S&P 100 the NASDAQ 100, and the Fortune 500, I was hard-pressed to find 10 companies that I felt were anything close to bubble territory.  The following portfolio review of 10 stocks approaching bubble territory compares their current P/E ratios to their estimated earnings per share growth, and their historical earnings per share growth.  Based on these metrics, all 10 of these companies appear to be overvalued, and some even dangerously so.  Later, when I examine each of these 10 companies individually, I will let you, the reader, decide whether or not any of them are in truth trading at bubble territory levels.

Cerner Corp

Cerner Corp (CERN) is a healthcare technology company with a legacy of trading above earnings justified values.  However, we also see that each time the stock has risen above earnings justified levels in the past, that it inevitably returns to its earnings justified valuation (the orange line).  On the other hand, because this company has such a consistent history of earnings growth above 20%, the power of compounding allows the company stock to achieve new highs within reasonable periods of time once each of its little mini bubbles burst.  Perhaps this will once again prove true from today’s levels.

Church & Dwight Inc

Church & Dwight (CHD) is another example of a company with a strong and consistent record of above-average earnings growth.  Historically, stock price has closely tracked this superior operating record.  However, at current levels Church & Dwight’s stock price is clearly trading at unprecedented valuations.  The question is, is it at bubble levels yet?  The answer would be determined by how long it would take stock price to recover if this mini bubble burst.

Costco Wholesale Corp

Costco Wholesale Corp (COST) is yet another example of a company with a legacy of its stock price trading at nosebleed valuations.  Earnings growth has not been spectacular, in truth significantly weaker than our previous two examples.  The company has been paying a dividend since 2004, but only offers an average yield.  Nevertheless, the market has typically seen fit to price the stock at significantly above-average valuations.  However, today’s overvaluation is even higher than normal.  But can we call this a bubble?

Salesforce.com Inc

Salesforce.com Inc (CRM) appears to be the first example of what I would truly classify as a stock in true bubble valuation territory.  The company does generate substantial cash flows, but its inability to bring those cash flows to the bottom line should be a cause of concern, at least in my opinion.  If the stock were to trade at earnings justified levels, its share price could fall to between $10-$12 per share.  I would classify that as a bubble.

3-D systems Corp

3-D systems Corp (DDD) is another example of a stock that I believe is in bubble territory.  Although the company has had very strong earnings growth post-great recession, I find it hard to believe that a 50% plus earnings growth rate is sustainable long-term.

On the other hand, when you evaluate the company’s earnings and price correlated graph since calendar year 2011, you do discover some justification for the current lofty valuation.  But once again, I believe this growth rate is temporary, and therefore, unsustainable long-term.  With that said, the consensus of nine analysts reporting to Standard & Poor’s Capital IQ, are expecting a five-year earnings growth rate of 26%.  However, even that strong level of growth would not justify a current P/E ratio of approximately 60.

 

Fastenal Co

Fastenal Co (FAST) is another example of a company that the market has routinely applied a premium valuation to.  Consequently, based on historical norms, it could be argued that the stock is not terribly overvalued.  On the other hand, based on earnings justified levels, the current P/E ratio of approximately 35 would not seem justifiable.  There are plenty of companies with earnings growth rates as high and as consistent as Fastenal that can be purchased at much more reasonable multiples of earnings.

Rackspace Hosting Inc

Rackspace Hosting Inc (RAX) might be the one true example of a stock trading in bubble territory that I have uncovered in today’s market.  Although the market has historically priced the stock and a premium, a recent drop in earnings per share has already caused the stock price to be virtually cut in half as it has fallen from a high of $74.78 to under $40 per share.  Nevertheless, I believe there is the potential for the stock to drop by even as much as another 50% if it were to move in alignment with its earnings power.

Starbucks Corp

Just prior to the great recession of 2008, Starbucks Corp (SBUX) was a company with a legacy of the market placing a premium valuation on their stock.  One thing that should be clear from examining these earnings and price correlated graphs is the undeniable reality that when stocks are priced to perfection with lofty PE multiples, they are very vulnerable if anything at all goes wrong.  In the case of Starbucks, we saw the price fall from an all-time high of $40.01 a share in 2006 to a low of $7.06 in the throes of the great recession.

However, due to the power of compounding, the continued advance of above-average growing earnings enable Starbucks’ share price to reach its current all-time highs.  Consequently, I might call Starbucks’ valuation in 2006 and 2007 as in mini-bubble territory.  My reasoning for saying this is because valuation was not so high that Starbucks was not unable to recover within a few short years.

Stericycle Inc

Stericycle Inc (SRCL) represents yet one more example of the power of strong and consistent earnings growth.  You could say that this company has experienced several mini-bubbles, similar to what Starbucks went through.  However, due to the company’s exceptional record of earnings growth, even if investors purchased Stericycle at the heights of its overvaluations, they would have still earned attractive long-term returns.  Perhaps the hidden message here is that the greater danger is all this talk about bubbles, rather than the reality of what bubbles might actually represent.

Under Armour Inc.

My final example looks at Under Armour Inc (UA), a very popular maker of luxury apparel.  Although this company has consistently put up good numbers, you can see the vulnerability of high valuation that occurred with Under Armour shares as we entered the great recession.  However, once again we see an example of how strong earnings growth, coupled with positive investor sentiment, has allowed the shares to continue reaching all-time highs.  But my question is; does it make sense to trust that the market will continue to apply these premium valuations ad nauseam?

 

Conclusion

My purpose for writing this article was to illustrate how silly that I believe all this talk of bubbles really is.  Frankly, I had to work very hard just to find to a few examples of stocks that I considered truly dangerously overvalued.  True, the market has been strong of late, but I’ve yet to see anything even remotely looking like a bubble forming in equities.  There are some companies that I would consider fully valued or perhaps moderately overvalued.  But there still remain many companies that are reasonably priced. 

The reason for this is because earnings and dividends have continued to advance along with the stock prices of most of the very best-of-breed companies.  Therefore, valuations have remained in alignment with their earnings justified levels.  The message here is that investors need to be careful to consider all factors before making long-term decisions about investing.  I’m afraid that many investors have begun to fear the stock market just because it’s been good of late.  I don’t believe those fears are justified.

Disclosure:  Long ORCL and CSCO at the time of writing.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

Please click here to read more articles at FastGraphs.com.

Cyprus Bank Deposits Plunge By Most Ever During Capital Controls Month

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Following the improvised and very confused bail-in of the Cypriot banking system in mid/late March, one of the key requirements was to contain the liquidity within territorial Cyprus, and prevent the outflows of critical bank funding liabilities – i.e., deposits – abroad thus causing a waterfall cascade of ever increasing capital needs and bigger and better bailouts. Thus capital controls, which two months after the bailout, are still in place. Judging by just released Cyprus Central Bank data they failed. Because even though the deposit outflow in March, when the fiasco happened, was a moderate €3.8 billion, which the European politicians promptly pointed to as confirmation of a job well done, it was the April outflow that was the jawdropping number.

In a month in which deposit flight should have been largely contained, Cyprus banks saw a record outflow of 6.4 billion, or 10% of its entire deposit base, in one month!

But the sad punchline is that while deposit flight by domestic residents was an unfortunate if explainable €3 billion, it was the €3.1 billion in deposit reduction by "Non-Euro Residents" – read Russians, who circumvented capital controls, and pulled a whopping 16% of their entire deposits held in the tiny and now completely insolvent island nation.

Total Cyprus bank deposits: no need to show the arrow at the right side.

And the monthly change broken down by sector:

Unless Cyprus implements some controls that truly work, at this pace its entire banking system will be completely deposit-free in under one year. And it will need to sell much more than all its gold to continue keeping the Troika happy and in compliance with all the future (because there will be many more) bailouts.

Source: Central Broke of Cyprus

When the IRS Is Finished With the Tea Party, It Needs Some Answers from Jay Sekulow, John Ashcroft, and Pat Robertson

Courtesy of Pam Martens.

As we reported yesterday, Jay Sekulow has spent the last two weeks burning shoe leather racing from one network studio to the next to pump up an IRS “scandal.” Now Sekulow has a lot of explaining to do as to why rampant conflicts of interests in his dizzying web of nonprofit groups were never reined in – even after being exposed in 2011 in the pages of USA Today. 

New documents have surfaced in Sekulow’s operations, raising questions about his business dealings with former U.S. Attorney General John Ashcroft and television evangelist Pat Robertson. 

One month after stepping down as U.S. Attorney General in 2005, John Ashcroft accepted a part-time teaching position at Regent University, a Christian institution founded by Robertson, who is currently Chancellor and Executive Chairman at the University. Ashcroft has remained at Regent University, currently serving as Distinguished Professor of Law and Government. Sekulow is on the Board of Regent as well as a member of the Regent Law faculty. 

In 2005, the same year that Ashcroft stepped down from the Department of Justice and accepted a faculty position at Regent, a nonprofit was formed by Sekulow called the Law and Justice Institute. Under its program description the following year, it stated: “Contract to provide the services of distinguished individuals to participate in educational activities related to the organizations exempt purposes: Regent University School of Law – Distinguished Professor of Law and Government.” That title is the one carried by John Ashcroft. 

From 2006 through the most recently available tax return for 2011, the Law and Justice Institute has paid a total of $2,381,667 to a business called Educational Resources Associates, LLC listed at a residential address in Washington, D.C. Public records show the property was formerly owned by a John and Janet Ashcroft, the name of the former U.S. Attorney General and his wife. Despite the Ashcrofts selling the home in 2005, the tax returns for the Law and Justice Institute through 2011 still carry the same address for Educational Resources Associates, LLC. 

I called the current owner of the residence and was assured that no business is being run out of that address. So why aren’t the checks being returned by the post office? Are they being hand delivered to the principal owner of Educational Resources Associates, LLC?

Continue Here

Uncle Sam’s Rent-Seeking Economy circa 2013

Courtesy of Larry Doyle.

Are we in the midst of the greatest transfer of wealth in modern times?

I will allow others to debate the merits of that question, but I propose it in order to address what I see increasingly as the “new normal” reality of our current economic condition here in the United States. What lies at the core of this new normal dynamic? A rent-seeking economy, defined as:

When a company, organization or individual uses their resources to obtain an economic gain from others without reciprocating any benefits back to society through wealth creation.

An example of rent-seeking is when a company lobbies the government for loan subsidies, grants or tariff protection. These activities don’t create any benefit for society, they just redistribute resources from the taxpayers to the special-interest group.

Sounds like an all encompassing description of our current Federal Reserve policy of zero interest rates, the Obama administration’s policies and programs to redistribute wealth via an assortment of increased taxes and other giveaways, and Washington’s gifts to Wall Street and other industries as payoffs for exorbitant campaign and lobbying contributions.

I don’t think we have hit the jackpot here. Let’s navigate.

In an attempt to simplify this topic, let’s review an incredibly insightful commentary, Rent-Seeking and Regulatory Capture, written by Barry Posner, Consultant, Department of Meteorology, College of Earth and Mineral Sciences, The Pennsylvania State University:

To a layperson, rent is a term that describes payment made in exchange for temporary use of something, such as an apartment, a store, a car, or a DVD (think Netflix). However, to an economist, rent has a different meaning. An economic rent is defined as a return to a factor that is greater than the return required to incentivize the use of that factor.

Another way to think of rent, in a somewhat pejorative sense, is to think of “unearned” profits.

Sound like the subsidy provided to the large Wall Street banks able to borrow money at 0% from your grandmother and other savers? But of course.

Sound like the subsidy provided to other “friends with benefits” that ply those in Washington more than willing to sell the public out for their own personal benefit? But of course. Let’s keep navigating.

How does a rent-seeking economy develop?

. . . in a theoretically free market, as soon as economic profits appear, competition follows and the profits eventually vanish. This is not a market failure, merely the nature of competition. It is only a failure if the person (entities) earning the rents is able to stop the forces of competition from driving the rents down to zero.

Posner highlights that a primary factor in stifling true free market capitalism and thus promoting the “rent-seeking” new normal reality just so happens to be:

Government protection from competitive forces: This is another source of government failure, once again referring to government failure as actions by government meant to address market failures, but which generally end up leaving worse outcomes than before the intervention. That is, government trying to fix a problem, but only making things worse.

How often have we witnessed this occur? Housing. Education. Now healthcare.

Let us start to look at forms of rent-seeking that arise out of the seeking of favors from government. OK, so now we are talking about government power. Government has the power to pass laws, to write regulations, to collect taxes and to enforce the laws, regulations and taxes. Because members of government have lots of power, they have lots of favors to dole out, and it is the competition for these favors that forms the basis of rent-seeking.

Firms are competing with each other, but instead of competing for customers by offering better products or better service at lower prices, they are competing for government favors. Instead of employing salesmen or engineers or factory workers, they are employing lawyers and lobbyists.

We witnessed a glaring example of this just the other day:

In a sign of Wall Street’s resurgent influence in Washington, Citigroup’s recommendations were reflected in more than 70 lines of the House committee’s 85-line bill. Two crucial paragraphs, prepared by Citigroup in conjunction with other Wall Street banks, were copied nearly word for word.

This specific situation with Citigroup writing a draft for implementation of an aspect of the Dodd-Frank Financial Reform legislation is a clear cut example of the Wall Street -Washington incest. Posner concurs:

One of the most common ways of using government to eliminate competition is what is referred to as “regulatory capture”. This is the case where regulators end up acting in ways that benefit the industries that they regulate.

Why does rent-seeking persist? Concentrated benefits combined with distributed costs.

But who really suffers the most? From my standpoint, this new normal rent-seeking reality is having the greatest negative impact on America’s middle class.

With rent-seeking redistribution programs benefiting those occupying both the upper most and lowest rungs of our economic ladder, America’s great middle class is receding further and further into the rear view mirror. The middle class does not have the huge money nor the group influence to pay off our pols but they do have the income that can and is being increasingly expropriated and redistributed.

I will allow others to weigh in on what the decline of America’s middle class means for the long term health and well being of our nation.

Comments, feedback, constructive criticisms encouraged and appreciated.

Navigate accordingly.

Larry Doyle

Isn’t  it time or overtime to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

Spain Records Largest First Quarter Deficit in History

Spain Records Largest First Quarter Deficit in History; Tax Revenues Plunge 6.7% Year-Over-Year; Surprising Comments from German Finance Minister Wolfgang Shäuble 

Courtesy of Mish.

Spain keeps digging a bigger and bigger hole as the latest economic reports show.

  • In spite of massive tax hikes, overall revenue is down 5.3% YoY
  • Tax collections are down 6.7% YoY
  • VAT collection is down 9.9% in spite of a September increase in the VAT rate
  • Non-interest expenses are up 1.1% from a year ago
  • As compared to the first quarter of 2011, tax revenues have plunged by 58%
  • As compared to first quarter of 2011, personal income tax and other direct taxes have fallen almost 35%.

Those numbers are courtesy of Libre Mercado which reports Spanish Government has Largest January to April Deficit in History.

Surprising Comments from German Finance Minister Wolfgang Shäuble

So what does Shäuble have to say about this?

Please consider these Google-translated snips from the Libre Mercado report Wolfgang Schäuble supports Rajoy's policies and Cites "impressive" Results of the Spanish reforms.

Schäuble is convinced that "Spain has made ??enormous progress in recent years under the Government of Mariano Rajoy". So much so that now Spain "has a strong economy, reduced labor costs, has significantly increased its exports and has done a good job in restructuring its banking sector, also after the trial of the Troika".

Spain, on the right track

In this sense, on financial reform, says that "all international agencies agree that Spain is on the right path" also "regarding to the recapitalization of the banks." Asked if it is all done in the Spanish financial system reform, Schäuble gave their trust to the minister of economy and competitiveness Spanish: "It is my duty to give advice to my colleague and friend Luis de Guindos , he knows better than me what has to do ".

Over four-page interview in the Journal of Vocento, Schäuble never tires of positive messages about the Spanish economy. Not only speaks of "tremendous advances" for Spain Rajoy has achieved, but doubts that at one point made investors wary of the Spanish economy "no longer exists", not least because "Spain reject outright the possibility of not repay the loans made." "The state capital need could not be funded under acceptable conditions. This is the only reason that Spain has had to seek help from the European Stability Mechanism to recapitalize their banks," he added before insisting that "the figures and results "of Spain and its reforms" are impressive. "

What is Shäuble smoking?

Most likely Shäuble's comments are some sort of election ploy for chancellor Angela Merkel. If that's not it, he has lost his mind.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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The Financial Takeover Of “Our” Newspapers

The Financial Takeover Of “Our” Newspapers

Courtesy of Testosterone Pit

Contributed by Don Quijones, a freelance writer and translator based in Barcelona, Spain. His blog, Raging Bull-Shit, is a modest attempt to challenge some of the wishful thinking and scrub away the lathers of soft soap peddled by our political and business leaders and their loyal mainstream media.

“In a newspaper like El País it is no longer possible to criticize the main Spanish banks. And you have to be very careful when talking about the Government, in case it gets angry: its benevolence is needed in order to avoid bankruptcy.”

The above words are from Enríc González, one of Spain’s most respected journalists. For well over two decades Gonzaléz worked for Spain’s biggest selling daily El País, during which time he served in numerous capacities, including as its London, Paris, Washington, New York and Rome correspondent.

But a few months ago his tenure at the paper came to a rather sour, abrupt end when he publicly renounced his position. In a blistering resignation letter in JotDown, an exclusively reader-funded magazine, he accused El Pais’s director, Juan Luís Cebrían, of suffering from an incurable addiction to gambling on the stock exchange and denounced the decadence and betrayal of the country’s press.

The reason for his resignation was clear: El País had just laid off dozens of its journalists while continuing, as González put it, “to bathe its senior executives in gold.” The newspaper claimed it could not afford to keep on such a large pool of journalists due to the huge debt that its parent company PRISA had accumulated during the heady days of Spain’s real estate boom. It was, Pere Rusiñol wrote in El Diario, “a text-book example of how bad management can bring down even the most solid journalistic institution Spain has ever had.”

By the time the bubble finally burst, in 2008, PRISA had somehow managed to rack up a debt of almost 5 billion euros (to put that number in perspective, it dwarfs the total combined debt of Spain’s top-division football teams). With the company’s assets plunging in value, the markets closed their door on the publishing group, leaving its senior management desperately scrambling to find new money to stave off bankruptcy. At the eleventh minute of the eleventh hour, their prayers were answered: a New York-based hedge fund manager called Nicholas Berggruen offered to pump 650 million euros into the ailing company.

It was a deal that benefited all the parties involved — except, of course, El País, which all of a sudden found itself in hock to one of Wall Street’s richest and most powerful financiers. And as so often happens when large sums of money begin pouring through C-suite executive booths, everybody wet their beaks — and no one more so than El Pais‘s director Cebrián who, in 2011, collected roughly 14 million euros in salaries and commissions – not bad for three years work, especially considering that during the same period El País had lost close to 450 million euros!

For Berggruen’s part, he received a succulent 7 percent annual return on his shares in the group, despite the fact that years had passed since the group’s long-standing shareholders had received a dividend on their shares — shares which are now worth 2 percent of their original value when PRISA went public!

The Financial Takeover of the Press

Five years after the crisis, the majority of PRISA’s shares no longer belong to the founding Polanco family, but instead to banking institutions such as Santander, Caixabank and HSBC, not to mention the Spanish telecommunications behemoth Telefoníca and Wall Street hedge funds.

Having sold out to the financial sector, one can’t help but wonder how El País will be able to discharge its reporting duties now that it is owned virtually lock, stock and barrel by the same banks and financiers on which it is supposed to report.

Naturally the new owners will want to have some kind of say on how the business is run. Indeed, they have already appointed “one of their own” to the position of PRISA’s chief executive officer – a man called Fernando Abril-Martorell, whose previous experience includes directorships with Swiss bank Credit Suisse and Telefoníca (hardly relevant experience, you’d think, for running a media company).

How much of an influence the banks and corporations will have over El Pais’s editorial decisions is impossible to tell, but suffice to say that the newspaper is unlikely to be biting the multiple hands that now feed it. None of which would be a problem, of course, if the interests of its new major shareholders were more or less aligned with those of El Pais’s readers or the wider public interest the paper is meant to serve.

However, as the last five years have shown, on most matters of import the financial sector’s interests could not possibly diverge further from the general public’s. Put simply, whenever the banks win, the rest of us tend to lose. For instance, when a government decides to award a huge taxpayer-funded bailout to a floundering institution, as Spain did with Bankia, that money must be taken from elsewhere – and it’s invariably from essential public services such as education or health.

Also, as Spain’s preferentes scam or the robosigning scandal in the U.S. have amply demonstrated, when the big banks hit choppy waters, they are more than happy to throw their customers out of the boat so as to ensure their own survival.

Just the Beginning?

With more and more media groups struggling to make ends meet in this new age of Internet journalism and plummeting advertising revenues, one can’t help but wonder just how many other newspapers will soon fall into the clutches of the big banks and corporations. After all, at the rate things are going, the TBTF banks will be the only ones left with enough resources to pay the exorbitant upkeep costs of a fully-staffed newspaper. But at what price?

According to a recent independent report commissioned by the European Commission, the dangers are all too clear: excessive influence of corporate owners or advertising clients inevitably leads to the covert manipulation of political decisions in favour of hidden economic interests. What’s more, in many European countries it is not possible for the public to find out who the actual owners of the media are, as a study co-authored by Access Info Europe and the Open Society Media Programme has found.

As Enric González recently wrote in an article for the purely readership-funded, advertising-free magazine Orsai (a full translation of which we hope to feature on this site in the near future), “Journalism survives and will always survive. The craft will not disappear. The problem is that journalism as a craft no longer serves the public.”

The challenge going forward both for the public and for the journalistic profession will be finding an ownership model that enables financially uncompromised newspapers and broadcasters to flourish, so that a diverse and independent media can once again serve as a protection against the entrenched interests of big business, finance and government.

And if one thing’s for sure, it’s that the free market logic and ongoing consolidation of the sector in ever fewer and fatter hands is not, and never has been, the answer. As David Simon, the creator of the award-winning TV series The Wire and a former beat reporter with the Baltimore Sun, said in recent testimony before a US Senate hearing, “High-end journalism can and should bite any hand that tries to feed it.”

Let’s hope that El País learns that lesson sooner rather than later. Contributed by Don Quijones

As bank lending has dried up, Spain's government has apparently made it its mission to make the working lives of self-employed workers and small enterprises as difficult as possible by ramping up their tax burden to historic highs. Read…. Black Market or Bust: The Stark Choice Facing Many of Spain’s Self-Employed

 

The Absolutely Insane Explosion Of Tesla’s Stock

CHART OF THE DAY: The Absolutely Insane Explosion Of Tesla's Stock

Courtesy of Jay Yarow, Business Insider

Here's Tesla's stock chart for the last year. It's a pretty mind-blowing jump in price. We're not exactly sure what's driving this pop, but it's had some pretty good news lately, which we've added to the chart.

 

Chart of the day shows tesla stock performance sinec 2012, may 2013

Yahoo Finance / Business Insider

TSLAMay 28 05:00PM
110.65
Change

+13.57

% Change

+13.98%


“Awash In Self-Delusional Cornucopianism”

Courtesy of James H. Kunstler via Peak Prosperity

For most people, the collapse of civilizations is a subject much more appetizingly viewed in the rear-view mirror than straight ahead down whatever path or roadway we are on.

Jared Diamond wrote about the collapse of earlier civilizations to great acclaim and brisk sales, in a nimbus of unimpeachable respectability. The stories he told about bygone cultures gone to seed were, above all, dramatic. No reviewers or other intellectual auditors dissed him for suggesting that empires inevitably run aground on the shoals of resource depletion, population overshoot, changes in the weather, and the diminishing returns of complexity.

Yet these are exactly the same problems that industrial-technocratic societies face today, and those of us who venture to discuss them are consigned to a tin-foil-hat brigade, along with the UFO abductees and Bigfoot trackers. This is unfortunate but completely predictable, since the sunk costs in all the stuff of daily life (freeways, malls, tract houses) are so grotesquely huge that letting go of them is strictly unthinkable. We’re stuck with a very elaborate setup that has no future; but we refuse to consider the consequences. So messengers are generally unwelcome.

Awash in Self-Delusional Cornucopianism

Will the cost or availability of oil threaten America’s Happy Motoring utopia? There should be no question. But rather than prepare for a change in our daily doings, such as rebuilding the railroad system or promoting walkable neighborhoods over suburban sprawl, we tell ourselves fairy tales about how the Bakken shale oil play will make America “energy independent” to provide the illusion that we can keep driving to WalMart forever.

This is an especially delusional season in the USA, with salvos of disinformation being fired every day by happy-talkers seeking to reassure a nervous public that everything is okay. Just in the past few weeks we’ve seen an Atlantic Magazine cover story titled “We Will Never Run Out of Oil” followed by a report from the International Energy Agency stating that the USA would become the world’s number one oil producer by the year 2020, and many other bulletins of comforting optimism from The New York Times, NPR, and Forbes. The Atlantic Magazine used to be a credible organ of the American thinking classes, and the Paris-based IEA is vested with authority, though its political agenda (to prop up the status quo) is hidden. In any case, these are the interlocutors of reality for the public (and its leaders) and the memes they sow travel far, wide, and deep, whether they are truthful or not. The infectious cornucopianism they gleefully retail has goosed the stock markets and made it even more difficult to put out the contrary view that we are in deep trouble, perhaps even on the verge of an epochal disruption.

The Warnings of History

Dmitry Orlov published a fascinating book on this subject in 2008 titled Reinventing Collapse: The Soviet Experience and American Prospects. Orlov, born in Leningrad (now St. Petersburg) in 1962, had the unusual experience of emigrating to the US as a twelve-year-old in the mid 1970s, and then returning periodically to what is now called Russia before, during, and after the collapse of its soviet system. He had a front-row seat for the spectacle and an avid intelligence rigorously trained in the hard sciences to evaluate what he saw. He also possessed a mordant, prankish sense of comedy that endowed his gloomy subject with a lot charm, so that reading him was the rare pleasure of encountering true prose artistry on a par with his countryman and fellow émigré, the late Vladimir Nabokov. Nabokov was a scientist, too, by the way, working for years as a professor of entomology (insects, with a specialty in butterflies) to pay the light bill.

Recall the smug triumphalism in America that greeted the shockingly sudden collapse of the sclerotic USSR in 1991 (no bang and little whimpering). Serious historians were so intoxicated that one of them declared it to be “The End of History,” meaning that there would be no more geopolitical struggles henceforth, a preposterous idea that became instant dogma from Harvard to the US State Department. To our pols and their wonks it proved the manifest superiority of neoliberal corporate capitalism. Case closed. Now the USA could go forth unopposed and turn the Black Sea into a lagoon of pure Coca Cola, bringing liberty, democracy, Chicken McNuggets, and Michael Jackson videos to the disadvantaged citizens of long-benighted lands yearning to “consume” freely.

From his special perch between the two nations, Orlov saw the whole show differently: as a warning that the USA would probably meet a similar fate, but that the outcome for us would probably be much worse due to our massive stranded assets (the whole kit of suburban sprawl), our degraded sense of public goods, our lost traditional craft skills, and our pathetic lack of mental fortitude. The arguments he presented were clear, sensible, and absent in virtually every other venue where people discussed the repercussions of the Soviet collapse. To me, Orlov’s points were startling in the slap-your-forehead sense of “…but of course! Why didn’t I think of that?”

History to Repeat Itself "Over Here"?

Food

For instance, he pointed out that the food production system in the Soviet Union had been so direly mismanaged for so long — most of the 20th century — that a whole counter system of work-arounds had been established in the form of nearly universal household gardening. Even families who lived in the ghastly Modernist apartment slabs of Moscow had access to garden plots in the vast un-suburbanized Russian countryside, and they could get there on public trains and buses. The more privileged had dachas ranging from humble shacks to fancy villas, each with its garden. The Russian people were used to the necessity of growing their own food and had the skills for preserving it to offset the idiocy of the official distribution system in which citizens wasted whole days waiting on line for a cabbage ­— only to be told they had run out. When the soviet system collapsed, the effect on society was far less than catastrophic, perhaps even salutary, because a large cohort of people with an interest in growing food, who formerly only pretended to work in dismal bureaucratic jobs, were now available to reoccupy and reactivate the de-collectivized farming sector that had been a drag on the Russian economy for generations.  After a period of adjustment, one thing was self-evident: no more lines at the Russian grocery stores.

Summer retreats provide not only solace but lots of produce – and even more of it now, amid economic hard times.

Home grown: Lydia Kolbetskaya stands in her greenhouse in this summer-cottage village 100 miles east of Moscow. She grows strawberries, tomatoes, and more – enough for the retiree to feed herself and help her daughter’s family.

By contrast, in the USA, even farmers don’t have kitchen gardens. This is not a myth. I live in an agricultural backwater of upstate New York where dairy farming modeled on industrial agri-biz reigned for decades (it’s in steep decline now) and as a rule the farmers do not grow gardens. They buy balloon bread, Velveeta, and Little Debbie Snack Cakes at the supermarket, just like the insurance adjusters and other office drones, and whatever leftover part of their farm is not planted in corn is occupied by an above-ground pool, or the carcasses of retired all-terrain vehicles, or the miscellaneous plastic crap associated with raising children in a “consumer” culture. When even  farmers don’t grow any of their own food, you can bet that a lot of knowledge has already been lost. American supermarkets operate on a three-day resupply cycle. The system is much more fragile than most Americans probably suppose. My guess is that few even think about it. The resupply system has never failed, except briefly, in localities hit by natural disasters.  However, a financial crisis could cripple the food distribution system of the entire nation. Truckers who don’t get paid won’t deliver. Trouble in the Middle East oil nations could provoke an oil crisis — something we haven’t experienced since the 1970s.  There are many ways for this complex system to fail — the point being that when it does, there will be no backup as was the case in the former Soviet Union. So one might conclude from reading Orlov that our prospects for being able to feed ourselves are a lot worse.

Housing

Housing: a similar story. There was no private real estate in the old USSR. People just occupied apartments and homes that belonged to the state and were assigned largely on the basis of privilege and connections to the people in power. When the political system collapsed, nobody got kicked out of their dwelling place. No foreclosures occurred. Over time, the situation took care of itself emergently, shall we say. Private ownership resumed after a 75-year hiatus. Laws regulating it were put in place. Many Russians ended up in possession of apartments and houses they had occupied for decades and a real estate market emerged from that (with some strong-arming from the potent Russian mafia).

Contrast that outcome with America’s experience beginning in 2007 with the imploding housing bubble: an extravaganza of foreclosure and even homelessness. And that episode must be considered a preview of coming attractions because the USA has not entered the robust phase of collapse yet. When that happens, you can expect the tribulations of property loss to be epic. It could throw our system of property law into chaos for a generation or more as the volume of foreclosures would become virtually unmanageable. Property law is at the core of our political system, which would then follow directly into an unmanageable condition. Orlov’s point, I think, is that a political collapse in the US would leave many more people discommoded than was the case in old soviet Russia.

Transportation

Similarly, too, transportation. The Russians never adopted a culture of car dependency. A small minority of connected people had cars that they ostensibly “owned,” but the vast majority of the population depended on an elaborate public network of subways, trams, buses, and railroad trains. As a result they never constructed an alternative universe of suburban sprawl. When the soviet system imploded, the trains and buses, etc., kept on running. Russians could still get where they had to go to do what they had to do (rebuild their lives). We in America have poured our accumulated national wealth into a drive-in utopia that has no future in the remaining years of non-cheap oil. Any kind of an oil problem, whether it is a sharp geo-political event or just the slow crushing grind of high gasoline prices, will leave American stranded.

Conclusion (to Part I)

The arc of history is clear on what can (and usually does) happen when societies exceed their ability to support themselves sustainably. The swift vaporization of the USSR is our most recent example; one that should be especially concerning to Americans as the US (for reasons cited) is less prepared to absorb the shocks of a similar systemic failure.

In Part II: A Clear Picture of What to Expect, we examine Orlov's most recent work, which shows how sovereign collapse progresses along a well-understood trajectory: Financial > Commercial > Political > Social > Cultural.

The US looks certain to follow this progression — at least partway — in our lifetimes, likely sooner than later.

Hugh Hendry Latest Investments And Outlook

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

From Hugh Hendry, CIO of The Eclectica Fund.

The Fund was down 18 bps in April. The main positive contributors were tobacco and Japanese equities and short-end interest rate receivers. These gains were more than offset however by the pullback in the US dollar.

We continue to maintain a long equity risk exposure through companies least exposed to the business cycle, whilst favouring receiving rates in developed countries most prone to a loss of economic momentum as other countries, notably Japan, weaken their currencies through the pursuit of QE. We also retain a structural long position in the US dollar and remain long yen assets [currency hedged] via the Japanese stock market.

Despite the near universal willingness on the part of other investors to look wistfully towards the promised resurgence in US economic growth towards the end of this year, the present reality is that the global economy has been deteriorating over the past few months, as highlighted by weaker trade activity and lower PMIs.

With a destocking cycle gaining momentum, and a revival in Japanese exports making life tougher for their overseas competition, European and emerging market economies have demonstrated evidence of further deterioration and unsurprisingly local stock markets have under-performed US indices.

Furthermore, there is growing strain developing in those commodity exporting nations that rely heavily on sales to China, Australia for one suffering from lower Chinese growth.

As China attempts its audacious switch to consumption-led growth, by allowing its currency to appreciate and so boost the purchasing power of its consumers (oblivious, it seems, to the dangers of becoming less competitive in weak export markets), the country's willingness to import boundless quantities of industrial commodities has been curtailed. As a consequence, the Australian export PMI in April contracted for the seventh consecutive month, reaching the lowest recorded level of modern times. And confronted by weaker manufacturing activity and a rising unemployment rate, the Reserve Bank of Australia cut rates to an all-time low of 2.75% last month. The Fund made 30 bps from receiving rates in Australia and we continue to expect more cuts.

As uncertainties in the global economy have increased, we have witnessed a continuation of the US economy's relative durability to the rest of the world. Stronger real GDP growth in the first quarter and positive investor perception of a re-alignment in labour, land and energy costs have combined to make US dollar assets appear more attractive than their international peers. However, our long USD position suffered a short term reversal and cost the Fund 43 bps.

Mindful of the on-going slow down in global growth we have continued to express equity risk by being long low variance equities. This strategy continues to play out positively with such stocks out-performing for the fourth month in a row. The S&P consumer staples index for instance gained 2.9% in April compared to 1.8% for the S&P500, which brings total gains since January to 17% compared with 12% for the S&P500. The Fund recorded a gain of 55 bps from tobacco stocks.

One of our core investment themes remains the fight against deflation launched by Japanese authorities through QE of historic proportions. We believe that such radical QE creates the perfect recipe for a weaker yen and booming Japanese equities. The Nikkei rallied by 11.8% in yen terms in April 2013, the best monthly return since December 2009, and has now gained 61% from the November 2012 low. Against this background, the Fund recorded a gain of 30 bps from Japanese equities.

A weak yen continues to weigh negatively however on neighbouring economies, especially Korea and Taiwan. Since its November low, the won has jumped 22% against the yen and the Taiwan dollar has appreciated by 26% over the same period, reducing the competitiveness of Korean and Taiwanese exports. Faced with a pronounced slowdown in domestic economic activity, the Korean authorities cut interest rates to 2.5% from 2.75%. The battle is now on between other Asian central banks and the BoJ! The Fund made 6 bps from the Korean rate decision and 5 bps from Korean cyclical equity shorts.

Hugh Hendry, CIO

Coming Collateral Crisis: Re-Hypothecation To the Point of Exhaustion or Destruction

Coming Collateral Crisis: Re-Hypothecation To the Point of Exhaustion or Destruction

Courtesy of Jesse's Cafe Americain

If you think that the global banking system has somehow been 'cleaned up' and made more stable since the financial collapse precipitated by the mispricing of Collateralized Debt Obligations and the fraud of the housing bubble you may be mistaken.

The next financial crisis will most likely expose an even greater Ponzi scheme of leveraged ownership of mispriced collateral in general, that as been 'rehypothecated' many times over to the point of worthlessness.

Miles Franklin
If I May…
By Bill Holter
May 28, 2013

"I’d like to connect a few dots for you. We had a couple of pieces of news come out on Friday that were strange. One piece did not even seem credible because of size and the other one seemed odd because of the lack of size. Here is what we learned and if this is true THE biggest financial news of the 21st century. Europe announced that they may crack down on the Shadow Banking System. Basically, assets of all sorts that are “deposited” within the system are routinely “re” lent out by the custodian. This “re lending” of assets is called rehypothecation. The scheme has gone on for years and has been abused to the tune of the same asset being lent out 10 times, 50 times or even 100 times over. Legal? Well no, but everyone does it and “it’s the way business gets done all the time”…plus the regulators turn a blind eye to …party on dudes!

Before I talk about the ramifications of the above, another, seemingly unimportant/unconnected piece of news hit the tape. 3 men were arrested in Hong Kong and in their possession were $500 million worth of “fraudulent” letters of credit, letters of guarantee and proof of funds; these were supposedly issued by HSBC and Standard Charter. A 4th man arrested was not named, only that he is 55 years old. Which coincidentally is the same age as Barry Cheung who sits (sat until his resignations this past week) on the boards of several government agencies, he was chairman of HKMEX and has very close ties to the CEO of Hong Kong, Mr. CY Leung. The investigation and arrests are tied to the HKMEX (metals exchange) that closed a week ago Friday and claimed that all open contracts would be settled in cash…not metal.

OK, so these guys got arrested and had in their possession $500 million fraudulent “collateral.” Is this ALL of the fraudulent collateral? Did they have more Do others possess or have pledged fraudulent collateral? How much? Where and to whom has it been pledged? How many times over has it been pledged? …And then out of nowhere, Europe decides to rein in the Shadow Banking System that is purported to be $80 TRILLION (with a capital “T”)! Do you see any connection here? I’ll make it easy for you, “collateral” is the common denominator.

I also want to mention that “collateral” is what makes the financial world turn. Everything runs on “credit,” if you have “collateral” then you can obtain credit. The problem now, that is being exposed, is that no one knows anymore if collateral is real or even “who’s” collateral it is anymore since it has been lent out so many times. Now, to add even more fuel to the fire, it turns out that some of the so called “collateral” is not and was not even real to begin with! Funds in the trillions of dollars have been lent and now it seems as if the collateral backing many loans may not be real. …And Europe is now considering pulling the plug on shadow banking? How many “assets” will banks and brokers have to sell to keep their capital ratios adequate? Do they even have enough real assets to sell to cover the collateral that turns out to be fake or has been lent out 10 times over (not to mention 100 times over). I might also ask the question, “What happens to the markets?” What will happen to the stock markets, bond markets, and real estate markets, ALL MARKETS if banks are forced into liquidation to cover for fraudulent or many times pledged collateral…

My point is this, the tide is going out and it looks like EVERYONE is naked and no one has drawers on. Margin debt for stocks are at an all-time high, shorts by hedge funds in gold are at an all-time high, printing by central banks are at an all-time high, yields on sovereign bonds (even the deadbeats like Spain and Italy) were recently compressed to all-time lows and are now rising…and the real economies across the globe are beginning to contract again. The “inflection point” has apparently arrived and fraud everywhere you look is being uncovered. In a system that runs on debt, “collateral” is the foundation. What are the ramifications when “collateral” is questioned and turns out to be nothing more than a piece of paper with no value whatsoever? Everything that has derived value from this initial capital …is worth nothing…

Read the entire article here.

Creeping Fascism, Part 3: They Really Are Watching You

Courtesy of John Rubino.

It’s becoming easier every day to accept the miraculous as normal: GPS systems that somehow know exactly where you are and give you precise directions in the language of your choice (mine does this in a classy female British accent, though my kids once almost killed us by switching it to Chinese in an unfamiliar city); 4-ounce smart phones that function as full-featured, voice controlled PCs and high-res cameras; game consoles that translate your movements into golf swings or gun shots, and so on.

A couple of decades ago (a couple of years ago in some cases) this was the stuff of science fiction. Now it’s your 10-year-old’s Christmas list. We really are accelerating towards some sort of singularity.

But like all forms of power, the above has its dark side. By illuminating the world for us, it also illuminates us for Big Brother. Consider this from Cracked.com:

The 5 Creepiest Ways Major Companies Are Watching You

The key to selling a product is knowing your customer. Traditionally this has been a hit-and-miss game for advertisers, who are faced with the near-impossible task of convincing people to buy something they didn’t even know existed 10 minutes prior.

However, the information age has been steadily providing technology that is allowing corporations to get to know their customers better than their own families. How creepy you find this tends to depend on how old you are, and in fact we’re betting that the next generation won’t find anything weird about …

TVs That Feed You Ads Based on What You’re Doing on the Sofa

Remember when you could watch your TV without feeling like it was staring right back at you like one of those haunted house paintings with the eyes cut out? Well, it looks like those days are numbered, because a handful of companies are introducing new products that monitor you while you watch — and we don’t mean “monitor” as in “keeping track of what you’ve been watching” — that would hardly be new. We mean these devices literally watch you while you are watching television.

Soon everything in your apartment will be disappointed by you.

Verizon has submitted a patent for a new cable box that uses infrared cameras and microphones to keep track of what you’re doing while sitting through syndicated blocks of The Big Bang Theory. According to the patent, the box is programmed to watch for specific activities, such as talking, laughing, singing, and playing an instrument, because it was apparently designed to be placed inside Billy Joel’s house. It will then show you commercials based on whatever it is you happen to be doing. For example, if you’re cuddling up next to your significant other on the couch, Verizon’s cable box will take notice and play some commercials for flowers, romantic getaways, Righteous Brothers CDs, and condoms.

We are in no way making this up. The TV is now your wingman.

This isn’t even a new idea — Microsoft filed a patent back in 2010 for a proprietary technology that will scan your emails, text messages, and browsing history, while monitoring your facial expressions and speech via webcam or Kinect (if you have an Xbox) to try and determine your emotional state, delivering ads that they think will appeal to your current mood. For some bizarre reason, the patent specifically outlines a course of advertising suggestions in case the viewer is screaming, which seems to indicate either that Microsoft is trying to tap into the always elusive “murder victim” demographic or that they’re anticipating running ads during the Big Bang Theory block we mentioned earlier.

Just in case you felt like your TV wasn’t being invasive enough, Intel is producing a similar device that will provide both targeted advertisements and programming based on the information it collects via cameras that are pointed directly at your Hulu-viewing face. That’s right — the Intel box isn’t just going to decide what commercials you’re going to watch, but also what shows you’re going to see, all based on whatever stupid bullshit you happen to be engaged in within its field of vision. “We’ve noticed you started masturbating to this lesbian scene in Black Swan! Would you like us to loop that scene, or continue on with the plot?”

Mannequins That Watch You While You Shop

Yes, you can take comfort in the knowledge that our children will not have to grow up in this primitive era where mannequins are simply inanimate clothing models and not undercover surveillance androids. Already some stores have begun using the EyeSee Mannequin, a person-shaped plastic clothes hanger outfitted with cameras, microphones, and state-of-the-art facial recognition software meant to record and quantify shopper behavior in an effort to improve sales. It’s like getting stalked by one of the replicants from Blade Runner while it completes a questionnaire about the faces you are making in the chambray department.

The mannequins use facial recognition software that can instantly identify a person’s age, gender, and race, as well as record how long people spend browsing specific products and even what language they’re speaking, so the store knows what types of employees to hire. This software is similar to programs used by law enforcement agencies, particularly in the way that it is unabashedly used to collect racial statistics.

Multiple EyeSee mannequins can be networked together to trace a person’s movements throughout a store, literally “following” you around like an aggressive hive-mind furniture salesman, until you feel sufficiently haunted and decide to leave. The information the mannequins record (what items you looked at, what you bought, what you look like, and what you said) is then stored and uploaded to a database, where it will be analyzed to determine the effectiveness of the store’s current layout and selection, and then presumably sold to other companies in exchange for a blood oath of fealty to the assistant shift manager. The mannequins are also used to track and apprehend shoplifters, presumably by deploying finger lasers and/or shoulder cannons like traditional humanoid sentry robots.

“If it steals, I can kill it.”

Each spy doll costs about $5,000, so it’s unlikely that you’re going to start seeing them in a Peebles anytime soon. However, facial recognition technology is already being implemented in chain stores like Whole Foods, so it might not be long before you’re greeted by some version of the EyeSee synthetic vigilance statues in virtually every place you shop.

Products That Relay Your Location to Advertisers

Nestle’s “We Will Find You” campaign was every bit as ominous as the name implies. Step one was to put GPS tracking devices into random candy wrappers. Then, once the device was found and activated, a team of A-Team chocolate bar ninjas would track down the signal in a helicopter to assault the person who’d discovered it with a briefcase full of 10,000 pounds, sort of like if Willy Wonka had sent a Russian kidnapping squad to ambush every child who found a golden ticket.

In an effort to seem like they might have had some notion of what a terrible idea this was, Nestle asked customers to refrain from activating the GPS device if they anticipated being unavailable to be attacked by an airborne terror squad and/or routinely carried a fillet knife they would be likely to reach for in the event of a surprise.

This isn’t wholly unexplored territory — Apple all but forces you into unifying all of your personal information under a single username and password and allowing your various iNonsense to continuously update their servers with your location, but that’s Apple, and their products are expensive, high-end gear. Candy bars cost a goddamn dollar. “We Will Find You” was just a one-off promotional campaign, but it really does show you the future: GPS technology is now so cheap to produce that a company like Nestle can stick a tracking chip into a freaking candy wrapper whenever it gets a wild hair up its ass to do so.

So we may be looking at a time when anything and everything you buy is tracked, from a bottle of Vita Coco Water to a pair of jeans and a comic book — remember, where you were when you purchased a product and where you went with it afterward is extremely valuable information. Companies could use it to determine where to put up posters and billboards, and tracked items could be synched to trigger specific advertisements in nearby televisions and electronic displays to sell you items related to what you have in your pockets. Though we imagine this might negatively impact the sales of both condoms and personal lubricant in equal measure.

The article lists two other privacy invasions: “Marketing Firms That Track Your Health Problems” and “Websites That Deliver Ads Depending on How Expensive Your Computer Is”. And no doubt these just scratch the surface, since everything we do creates valuable data for one marketer or another, while surveillance tech keeps getting cheaper.

Obviously this is creepy, but it will become more than creepy when these disparate databases are tied together and mined by Homeland Security. Then Big Brother will literally know where we are and what we’re doing 24/7.

Is there a solution that preserves both convenience and privacy in a world of intelligent devices? Future articles in this series will consider some.

Visit John's Dollar Collapse blog here >

Book Supporting Euro Exit Becomes Instant Bestseller in Portugal; AfD Update

Courtesy of Mish.

In an interesting development in the battle to see which country is bright enough to exit the euro first, a book urging a return to the Escudo (the prior Portuguese currency) became an instant a bestseller in Portugal.

The Wall Street Journal reports Idea of Euro Exit Finds Currency in Portugal.

A book by a Portuguese economist achieved a small feat on its release last month: It instantly topped Portugal’s bestseller list, overtaking several diet books and even the popular erotic novel “Fifty Shades of Grey.”

The book, “Why We Should Leave the Euro” by João Ferreira do Amaral, has helped ignite a public debate in Portugal about the real cause of the country’s economic pain: Is it only the hated austerity needed to secure European bailout loans, or is the euro?

Public lectures, TV debates, newspaper columns and some politicians are starting to explore a question that until recently was confined to university seminars: whether the country has a realistic path to recovery inside the euro.

Portugal “has no chance of growing fast within a monetary union with a currency this strong,” Mr. Ferreira do Amaral said in a recent interview. “Thankfully, this issue has stopped being taboo, and there is now a lot of discussion here and abroad.” The book is in its fourth edition, selling more than 7,000 copies so far—a lot for an economics tract in the small Portuguese market.

Mr. Ferreira do Amaral is getting some high-profile backers. This month, Supreme Court of Justice President Luís António Noronha Nascimento called for Portugal and other Southern European countries to quit the euro, warning the gap between Europe’s richer and poorer states will keep widening otherwise.

Whether the debate gains traction depends on the economy, analysts say. Portugal’s government insists the long-awaited recovery will arrive in 2014, but many economists doubt that. If the recession continues, politicians will need to enact even more budget cuts to meet EU deficit targets. “It may become too hard for politicians to sell austerity measure after austerity measure,” says Antonio Costa Pinto, political scientist at the University of Lisbon. “This could create the perfect environment for a shift of ideas.”

A year ago, only 20% of Portuguese wanted to leave the euro. It would be interesting to see a similar poll in a few weeks after debate over the book escalates.

Exit Discussion in Multiple Countries

AfD Update

On April 23 I wrote Political Prediction: Merkel Loses Chancellorship in September as Support for AfD Soars. At that time, I noted “I have been watching the iPhone app Wahl-O-Meter and AfD has risen from 5% of the vote to 6.6% now.”

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Ball Corp: Fundamental Stock Research Analysis

Courtesy of www.fastgraphs.com.

Before analyzing a company for investment, it’s important to have a perspective on how well the business has performed.  Because at the end of the day, if you are an investor, you are buying the business.  The FAST Graphs™ presented with this article will focus first on the business behind the stock.  The orange line on the graph plots earnings per share since 1999.  A quick glance vividly reveals the historical operating record of the company.

Ball Corp (BLL) is a supplier of high quality packaging for beverage, food and household products customers, and of aerospace and other technologies and services, primarily for the U.S. government.

This article will reveal the business prospects of Ball Corp through the lens of FAST Graphs – fundamentals analyzer software tool.   Therefore, it is offered as the first step before a more comprehensive research effort.  Our objective is to provide companies that have excellent historical records and appear reasonably priced based on past, present and future data and expectations.

 A quick glance at the graph itself and the orange earnings justified valuation line will tell the readers volumes about how well the company has historically been managed and performed as an operating business.  Simply put, the reader should ask whether this example is worthy of a greater investment of their time and effort based on the data as presented and organized.  The FAST Graphs’ unique advantage is the graphical articulation of the price value proposition. 

Earnings Determine Market Price:  The following earnings and price correlated F.A.S.T. Graphs™ clearly illustrates the importance of earnings.  The Earnings Growth Rate Line or True Worth™ Line (orange line with white triangles) is correlated with the historical stock price line.  On graph after graph the lines will move in tandem.  If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.  

Earnings & Price Correlated Fundamentals-at-a-Glance

A quick glance at the historical earnings and price correlated FAST Graphs™ on Ball Corp shows a picture of undervaluation based upon the historical earnings growth rate of 17.3% and a current P/E of 14.1.  Analysts are forecasting the earnings growth to continue at about 10%, and when you look at the forecasting graph below, the stock appears  undervalued (it’s inside of the value corridor of the five orange lines – based on future growth).

Ball Corp:  Historical Earnings, Price, Dividends and Normal P/E Since 1999

Performance Table Ball Corp

The associated performance results with the earnings and price correlated graph, validates the principles regarding the two components of total return:  capital appreciation and dividend income.  Dividends are included in the total return calculation and are assumed paid, but not reinvested. 

When presented separately like this, the additional rate of return a dividend paying stock produces for shareholders becomes undeniably evident.  In addition to the 15.3% Annualized ROR (w/o Div) (green circle), long-term shareholders of Ball Corp, assuming an initial investment of $10,000, would have received an additional $4,581.34 in total dividends paid (blue highlighting) that increased their Annualized ROR (w/o Div) from 15.3% to a Total Annualized ROR plus Dividends Paid of 15.7% versus 3.2% in the S&P 500.

 

The following graph plots the historical P/E ratio (the dark blue line) in conjunction with 10-year Treasury note interest.  Notice that the current price earnings ratio on this quality company is as normal as it has been since 1999.

A further indication of valuation can be seen by examining a company’s current P/S ratio relative to its historical P/S ratio.  The current P/S ratio for Ball Corp is .76 which is historically normal.

Looking to the Future

Extensive research has provided a preponderance of conclusive evidence that future long-term returns are a function of two critical determinants:

1.            The rate of change (growth rate) of the company’s earnings

2.            The price or valuation you pay to buy those earnings

Forecasting future earnings growth, bought at sound valuations, is the key to safe, sound and profitable performance.

The Estimated Earnings and Return Calculator Tool is a simple yet powerful resource that empowers the user to calculate and run various investing scenarios that generate precise rate of return potentialities. Thinking the investment through to its logical conclusion is an important component towards making sound and prudent commonsense investing decisions.

The consensus of 14 leading analysts reporting to Capital IQ forecast Ball Corp’s long-term earnings growth at 10%.  Ball Corp has high long-term debt at 73% of capital.  Ball Corp is currently trading at a P/E of 14.4, which is inside the value corridor (defined by the five orange lines) of a maximum P/E of 18.  If the earnings materialize as forecast, based upon forecasted earnings growth of 10%, Ball Corp’s share price would $79.01 at the end of 2018 (brown circle on EYE Chart), which would represent a 11.8% annual rate of total return which includes dividends paid (yellow highlighting).

Earnings Yield Estimates

Discounted Future Cash Flows:  All companies derive their value from the future cash flows (earnings) they are capable of generating for their stakeholders over time. Therefore, because Earnings Determine Market Price in the long run, we expect the future earnings of a company to justify the price we pay.

Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk Treasury bonds. Comparing an investment in Ball Corp to an equal investment in 10-year Treasury bonds illustrates that Ball Corp’s expected earnings would be 5.6 (purple circle) times that of the 10-year T-bond interest (see EYE chart below). This is the essence of the importance of proper valuation as a critical investing component.

Summary & Conclusions

This report presented essential “fundamentals at a glance” illustrating the past and present valuation based on earnings achievements as reported.  Future forecasts for earnings growth are based on the consensus of leading analysts.  Although with just a quick glance you can know a lot about the company, it’s imperative that the reader conducts their own due diligence in order to validate whether the consensus estimates seem reasonable or not.

Disclosure:  No position at the time of writing.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation. A comprehensive due diligence effort is recommended.

Please click here to read more articles at FastGraphs.com.

Schaeuble Warns Of “Revolution” If Welfare Model Threatened

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Over the weekend, when discussing the latest casualty of Bernanke's disastrous monetary policy, the US corporate pension plan, we touched on a topic that has been a recurring theme on these pages: "the start of the unwind of the welfare myth, if only in the private sector for now, made worse by Ben Bernanke's endless tinkering in what was formerly a free market, should be making the guardians of the status quo very, very nervous… and certainly has the disciples of the Bismarckian welfare state delusion on their toes, because they can see very well what is coming down the road."

Moments ago none other than Germany's finance minister, Schrodinger Schaeuble, explained just why this observation is at the core of all modern problem, going so far as using the R-word in the context of Europe (first, and then everywhere else).

From Reuters:

German Finance Minister Wolfgang Schaeuble warned on Tuesday that failure to win the battle against youth unemployment could tear Europe apart, while abandoning the continent's welfare model in favour of tougher U.S. standards would cause "revolution".

Germany, along with France and Italy, backed urgent action to rescue a generation of young Europeans who fear they will not find jobs, with youth unemployment in the EU standing at nearly one in four, more than twice the adult rate.

"We need to be more successful in our fight against youth unemployment, otherwise we will lose the battle for Europe's unity," Schaeuble said.

While Germany insists on the importance of budget consolidation, Schaeuble spoke of the need to preserve Europe's welfare model.

If U.S. welfare standards were introduced in Europe, "we would have revolution, not tomorrow, but on the very same day," Schaeuble told a conference in Paris.

"We have to rescue an entire generation of young people who are scared. We have the best-educated generation and we are putting them on hold. This is not acceptable," Italian Labour minister Enrico Giovannini said.

….

"Let's be honest, there is no quick fix, there is no grand plan," said Werner Hoyer, head the European Investment Bank.

This explains why our long-running series of charts of youth unemployment has been labeled "Europe's scariest chart."

What is amusing, however, is that for Schauble it is not just abandoning the welfare state model that would promptly incite glimpses of the new coming of the French revolution: all that is needed is the adoption of "tougher US standards." Tougher?

Then perhaps a better question is how US society has been so remarkably reslient in the fact of a "recovery" that has led to job gains exclusively for the older set, those 55 and older, while the number of young workers (54 and under) employed is still down some 3 million since the arrival of Obama?

Jobs: young vs old:

And more granular, broken down by age group.

 

Oh well, just add more QE (because 4 years of the same one and only remaining flawed prescription to a gangrenous underlying problem are obviously not enough) and let it simmer. Eventually, it will be different.

Jay Sekulow: The Man Pumping the IRS Scandal on Network TV Sits At the Center of a Web of Nonprofits That Have Paid Him, His Family and Related Businesses $40 Million Since 1998

Courtesy of Pam Martens.

Judy Woodruff, Anchor on PBS NewsHour, Lets Jay Sekulow Explain the IRS Scandal

Jay Sekulow will never be accused of a lack of audacity. The man who has orchestrated and pumped the “scandal” that the IRS was unfairly targeting nonprofits tied to the Tea Party, is the same man who filed 27 applications with the IRS in recent years seeking tax-exempt status for Tea Party and related groups. He’s also the man who together with family and business interests have reaped at least $40 million since 1998 from a tangled web of IRS approved nonprofits with eye-popping conflicts of interest.

In the early days of the IRS controversy, Jay Sekulow was a major source of information for network news. On May 13, he framed the controversy for CBS News and the PBS Newshour. Two days later he appeared on GBTV with Glenn Beck, framing the current IRS matter as “worse” than in the days of Nixon. He also appeared on the Larry Kudlow show on CNBC, which ran a headline across the screen “Time for Independent Counsel.”

From May 14 onward, he has been interviewed repeatedly by Fox News’ commentators presenting his side of the “scandal”: interviewers included Megyn Kelly, Sean Hannity, Eric Bolling, and Jeanine Pirro. His son, Jordon Sekulow, who is part of his nonprofit empire, appeared on Geraldo Rivera’s Fox News show to pump the story.

Megyn Kelly on Fox News Demanding To Know "Whether Somebody Should Be Behind Bars For This Behavior"

In Sekulow’s interview with Megyn Kelly on Fox News, Kelly concedes just who it is that has been pushing this story, saying: “I tip my hat to you Jay because you and Mark Levin have really been the motivating forces behind this whole thing…” Later, Kelly ferociously points her finger at viewers and demands to know “whether somebody should be behind bars for this behavior.” Indeed.

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IRS’ Doug Shulman: We No Longer Chase Bad Guys

Courtesy of Larry Doyle.

Have you ever read a passage or a line from a speech and thought, “He didn’t actually say that, did he?”

I had just that experience this morning in reading a delivery made by Douglas Shulman. Who is Mr. Shulman? The former commissioner of the Internal Revenue Service during the time when the targeting of selected conservative groups was launched. For those who care about truth, transparency, and integrity I can only hope that we learn all the details of that activity.

What about Shulman himself, though, and his past? Where did he work prior to joining the IRS?

Under the heading of “you just can’t make this stuff up,” Shulman was vice-chairman of Wall Street’s favorite self-regulatory organization FINRA prior to being appointed chairman of the IRS by President Bush in early 2008. Oh boy!!  

As many employees and managers of small broker-dealers have informed me over the last few years, those running FINRA have been notoriously well known for targeting small broker-dealers while letting the big fish swim free.

As if that were not enough, Shulman himself then puts a twist on Shakespeare’s line from The Tempest, “What’s past is prologue,” in a delivery in late 2007 while still at FINRA:

We like to say that in the area of markets, we no longer chase bad guys . . .

I just spilled my coffee. How might any regulator ever issue a statement such as that? Stupid is as stupid does.

Shulman is actually referencing the fact that so much of the markets have become technically orchestrated by computers that regulators need to be more focused on these aspects than the individuals per se. He then goes on:

While of course this is an exaggeration, the key for market participants is to put into place the proper controls to ensure that their computer systems are compliant with rules and regulations and are operating as intended. This will only become more important over time, as the world becomes more and more automated.

Let’s stop here for a second. Certainly, the world has become more automated. Regulators have been way behind the curve in keeping pace with the technology utilized by Wall Street banks. But rather than delving into that, is Shulman’s statement about “no longer chasing bad guys” really an exaggeration?

Shall we ask those investors victimized by Bernie Madoff, Allen Stanford, the flash crash, the bad apples who stuffed ARS into client portfolios, those manipulating Libor, naked short selling, robo-signing, and predatory lending? What about the small broker-dealers themselves who were “picked off” to the tune of anywhere from $180-370 million by FINRA’s own execs and the large broker-dealers in the merger of the NASD and NYSE Regulation to form FINRA?

Were all of these massive financial transgressions orchestrated by computers or were they overseen and executed by individuals, that is “bad guys“?

Perhaps, just perhaps, some member of Congress may want to inquire of Mr. Shulman what he might share on these fronts and connect the dots and target the truth that has taken such a beating from the Wall Street-Washington incest.

And that is no exaggeration.

Navigate accordingly.

Thoughts, comments, and constructive criticisms encouraged and appreciated. If you think this story is worth sharing, please do so as transparency remains the great disinfectant.

Larry Doyle

Isn’t  it time or overtime to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.