Yesterday, we reported about private equity's laments that even with ZIRP there are no longer any bargains available in the US (which is why, naturally, the PE industry is now actively selling) with EV/EBITDA multiples north of the traditional 8x borderline benchmark level. Sure enough, as can be seen below, this is indeed the case as the US is now overpriced even for those who have direct access to the Fed's near zero-cost debt funding. So where are PE firms looking next (if anywhere, assuming they aren't spending their time selling "anything that isn't nailed down" which as we know from Leon Black's presentation from April is precisely what they are doing)? The following heatmap of global aggregate Enterprise Value/EBITDA will hopefully put things in their proper, highly overvalued, perspective.
Confused by all the trial balloons, meandering daily Op-Eds (most of which written by novice journalists with even more bizarre agendas), and "paddy power" market updates? Then here is Scotiabank's Guy Hasselman with his latest rundown on just where we stand in the race for the next Fed chairman.
That S&P500 revenues are contracting for the second quarter in a row (i.e. a revenue recession) is by now well-known even to CNBC. This is just as we predicted in June of last year, because in a world devoid of growth capital expenditures (and judging by the amount of train, plane and other crashes lately, maintenance capex as well), there can be no organic growth.What, however, may come as a surprise to the market cheerleaders (who unknowingly, or knowingly, are merely cheering Ben Bernanke's magic bubble blowing machine, see final chart) is that that other key component of bottom line improvement, profit margins, are not only not at record highs contrary to what conventional wisdom may incorrectly believe, but have been consistently sliding for three years now, and while earnings margins are 'only' back to June 2011 levels at 8.7%, it is the far more critical Operating Margin which has tumbled in the past two years after peaking in Q3 2011 and is now back down to 8.4%, a level not seen since mid-2010.
On August 6th, the small town of Deer Trail, Colorado is set to vote on an ordinance that will permit the hunting of unmanned surveillance drones. The author of the ordinance, Phillip Steel, claims the gesture is “symbolic.” A handful of other American states are pursuing measures to limit the spying operations of Uncle Sam’s unmanned aerial vehicles. One has to be either lying or painfully ignorant to believe government will not abuse surveillance drones. State officials have rarely failed to use their capacity to terrify the populace. The prospect of around-the-clock surveillance is a chilling thought and one that should not be taken lightly. Unfortunately the only means to achieve some semblance of privacy requires a luddite approach to technology and a hermit’s approach to community. Otherwise, you avail yourself to the terror of visibility in what should otherwise be, in Thomas Paine’s words, the blessing of society.
It started moments after the release of the Federal Reserve’s latest decision on interest rates. Even though officially they announced maintaining the same policies of low rates and Quantitative Easing, it was a single word change in the official text of their press release from the prior month that sent shockwaves around the world and changed everything forever...
In an important diversion from a pure markets focus, Marc Faber outlines his concerns and hopes for the "economic battle between the US and China," noting that as the gap between the Western world and the US narrows so "through trading links, [China] has more and more influence," especially (he adds) in Africa. His biggest fear, and one stoked every day, is that if the Chinese economy slows down meaningfully, they will depreciate their currency, leaving the world's largest economies "in a mode of protectionism - not just through import quotas - but through currency manipulation." And for now Russia is happy just tp upset the US via diplomatic means, but, Faber warns, should we see commodity prices slide further, low growth in Russia may prompt further actions - especially given US interference in markets and politics.
The problem is clear; every level of government has promised too much and is now faced with the politically unappealing prospect of either drastically increasing taxes for the working age population or significantly reducing benefits for the retired (or future retired). As evidenced by the Detroit bankruptcy, the longer we wait, the worse it will get. The greater the delay, the more pain and suffering citizens will face when the benefits and safety nets they have come to expect from the government suddenly disappear. Over time, politicians from all stripes have proven adept at cognitive dissonance, but these increases in taxes and cuts to benefits will have to happen, one way or another; it is just a matter of time.
Just about a year ago we questioned the "demographic demand" thesis for why the US housing 'recovery' would become self-sustaining and lead to yet another fiscal and monetary 'nirvana'. However, while the 'household formation' meme remains front-and-center among bloviating Fed apologists; the sad facts are that not only is household formation actually still falling but, as a recent Pew Research study finds, a record 21 million young adults are now living at home with their parents.
Greed; corporate arrogance; lobbying influence; excessive leverage; accounting tricks to hide debt; lack of transparency; off balance sheet obligations; mark to market accounting; short-term focus on profit to drive compensation; failure of corporate governance; as well as auditors, analysts, rating agencies and regulators who were either lax, ignorant or complicit. This laundry list of causes has often been used to describe what went wrong in the credit crunch crisis of 2008-2010. Actually these terms were equally used to describe what went wrong with Enron more than twenty years ago. Both crises resulted in what at the time was the biggest bankruptcy in U.S. history — Enron in December 2001 and Lehman Brothers in September 2008. Naturally, this leads to the question that despite all the righteous indignation in the wake of Enron's failure did we really learn or change anything?
Despite rising gas prices, rising mortgage rates, slowing income growth and the rise of 'low-quality' part-time jobs, 'con'sumer 'con'fidence 'con'tinues to rise to post-recession highs. However, as Citi's FX Technicals group notes, for the 3rd time in the last 17 year period we may be looking at a 4-year-4-month rise in consumer confidence before a turn lower again; and in spite of the Fed's rosy forecasts (and the market's expectations), we should be careful being too quick to believe that the sluggish economic dynamic that has 'dogged us' for the last 6 years is yet fully behind us.
There are very few segments of the U.S. economy that are more heavily affected by interest rates than the real estate market is. When mortgage rates reached all-time low levels late last year, it fueled a little "mini-bubble" in housing which was greatly celebrated by the mainstream media. Unfortunately, the tide is now turning.
Friday Humor: US Citizens 'Just' Want To Be Safe, Happy, Rich, Comfortable, & Entertained At All TimesSubmitted by Tyler Durden on 08/02/2013 - 16:42
Fact or Fiction: In a new report released Wednesday, Americans indicated that when it comes to what they expect from their country, all they really want is to be safe, happy, rich, comfortable, and entertained at absolutely all times.
Well that's that - Bad is definitely good. While an initial dip was seen in US equities (as the rest of the asset-classes shifted in Taper-off mode after the dismal jobs/factory orders data), it didn't take long (and took no volume) to wriggle us back up to green and a new all-time high for stocks. But while stocks ended unch for all intent and purpose, the moves were violent elsewhere. 10Y yields collapsed the most in over 5 months today (continuing its ECG-like performance recently); the USD dropped over 0.5% on the day; and while gold ended the day unch, silver (and gold) gapped higher on the NFP release (ending the week lower though). High-yield credit markets are not amused - following long-dated bonds' 7bps yield increase on the week (confirming unwind fears as opposed to growth-driven hopes). Homebuilders gained over 4% on the week (just because). On the week, 'most-shorted' stocks tripled the market's performance. VIX closed at 12.00% - lowest in almost 4 months. BTFATH