Archive - Jan 8, 2015 - Story

"Your money is no longer yours. Big Brother and his entire Family is now here to stay... They are destroying everything that has been built in a fraction of the time it took to create it. Government also acts only in its self-interest and therein lies the problem. They are incapable of even contemplating that what they are doing is killing the world economy."

The WSJ is shocked to learn that among the costs companies "exclude" from non-GAAP earnings include such items as regulatory fines, “rebranding” expenses, pension expenses, fines, costs for establishing new manufacturing sources, fees paid to the board of directors, severance costs, executive bonuses and management-recruitment costs, and much, much more.

"Shutting down sledding hills is inspired by the same sort of simpering caution that keeps Americans shoeless in airport security lines and, closer to home, keeps parents from letting their kids walk a few blocks to school alone, despite the fact that America today is as safe as the longed-for “Leave It to Beaver” golden age."

Once upon a time the health of the US consumer was gauged by one simple thing: how much credit card debt did US households take on in any given month. Which makes sense: American consumers would not go out and spend on credit unless they felt strongly about their future job, income and overall wealth prospects. In simple terms, rising credit card debt was synonymous with confidence and prosperity. In recent years, however, this metric has quietly fallen out of favor with the punditry, for one simple reason: that reason is shown on the chart below, which very likely also shows where the S&P would trade if it weren't for $11 trillion in central bank liquidity injections.

It is important to remember that the supportive underpinnings are deteriorating. Valuations are elevated, bullishness and complacency are high, and deviations are at extremes. The combination of these ingredients has never led to a profitable conclusion and expecting a different outcome this time will likely lead to excessive disappointment.

The circle of life in today's new normal...

“You never know where the skeletons in the closet are or what company will be next," warns one Chinese credit analyst and as the CNY30 billion indebted Chinese developer Kaisa Group (that we initially discussed here) admits it can’t say if it plans to meet a bond deadline today as a local news website said lenders took steps to preserve assets. The builder of residential communities and shopping centers must pay about $26 million in interest on its 10.25 percent 2020 debentures today (which appears unlikely) and its bonds have crashed to below 30c. The big question, as Bloomberg notes, is who's next?

1. The number of households in Japan on welfare hit a record high in October, renewing the record for a 6th straight month.

2  51.1% of Japanese households said they’re worse off compared with year earlier, the most since December 2011, according to Bank of Japan quarterly survey released today in Tokyo.

3. Corporate bankruptcies linked to weak yen rose to a record 345 in 2014 from 130 a year earlier.

Will we never learn? "Helping more folks in Phoenix realize the American Dream and own their own home."

Welcome to the new old normal 'Murica... buy those homes... lever up... spend the HELOC... die a debt serf...

Uber - the $40 billion valued cab-app company (or massively disruptive awesome transportation optimzation company) - has a problem. As Bloomberg reports,

*CHINA BANS PRIVATE CARS FROM OFFERING CAB SERVICES VIA APPS

The crackdown appears to have been set in motion following lobbying efforts by Beijing’s established licensed taxi companies, which operate cabs whose prices are capped at below-market rates by the state; adding to Uber's banned countries list...

And these are the 'smartest people in the room that the world is entrusting to save the status quo. In one brief interview, ECB's Coeure explained how lower oil prices are great for the EU economy (but that low oil prices hurt deflation and thus QE should be used to stoke inflation - and thus higher oil prices?) and then said discussions of a Greek exit from the euro are "meaningless," that "no one is preparing for the exit," and that "restructuring ECB Greek bond holdings is illegal." One wonders what he will do when Greece just decides to stop paying...

All is clearly not well below the surface. Europe's largest bank (by market value) has admitted in a regulatory filing that it needs to raise capital. As WSJ reports, Banco Santander SA said it would raise up to €7.5 billion ($8.88 billion) in a capital hike, a bid to address long-running concerns among investors and analysts that its financial cushion was weaker than peers. European banking stocks are up over 2% today as Italian banks surge limit up (BMPS +13%) on speculation that they will be purchased by Santander (who 'pumpers' believe are raising this capital to go on a spending spree) and 'old' Draghi headlines.

Stocks are up nearly 2% today alone, with the S&P back to green for 2015. Among the reasons for today's rally: lower overhead courtesy of KO and CAT, which announced that between the two of them, they would fire some 2,000 workers, which is great news for stocks if not for actual employees as there will be even more dry powder for another record quarter of stock buybacks.