The dance of the zombies goes on... During the 10 years between 2005 and 2014, these four retailers spent $34 billion on stock buybacks and dividends. But, alas, their cumulative net income during the period was only $13 billion. So they pumped 2.6X more into the casino than they earned! Last week’s tepid retail reports were not only a reminder that QE and ZIRP have by-passed main street entirely. The faltering department store sector is also a reminder that the monumental amount of Fed confected cash pooling-up in the canyons of Wall Street is breeding debt-laden zombies throughout the length and breadth of the land.
Both the October and December gold contracts are backwardated, and Feb '16 contract is not far. The gold market is tight. Why?
What happens when we roll back into the next official recession, unemployment soars, and consumers really stop spending? What is revealed when you look under the hood of this economic recovery is that it is a complete and utter fraud. The recovery is nothing but smoke and mirrors, buoyed by subprime auto debt, really subprime student loan debt, corporate stock buybacks, and Fed financed bubbles in stocks, real estate, and bonds. The four retailers listed below are nothing but zombies, kept alive by the Fed’s ZIRP and QE, as they stumble towards their ultimate deaths. The coming recession will be the knife through their skulls, putting them out of their misery.
One of the most disturbing and recurring themes highlighted on this site over the past year has been the ever greater disconnect between the worlds of equity and fixed income, whether in terms of implied volatility, or actual underlying risk. It turns out there is be an even more acute, and far more concering divergence, which was conveniently pointed out overnight by Bank of America and which suggests that a Bear Stearns type event may be just a few days ahead.
While making its devaluation announcement, Beijing said that it wanted its currency "to reflect fundamentals" and to no longer simply mirror the movement of the dollar. It acknowledged the fact that its peg to the dollar was problematic and that it wanted a better, more natural mechanism. This is the key to understanding the announcement: The Chinese are preparing for a time in which the financial world does not spin in orbit around the dollar. Such a reality must make us think about the future.
There is an economic and financial trainwreck rumbling through the world economy. Namely, the Great China Ponzi. In all of economic history there has never been anything like it. It is only a matter of time before it ends in a spectacular collapse, leaving the global financial bubble of the last two decades in shambles. The resulting deflationary spiral will suck the global economy into its vortex. And Wall Street will go down for the count because this time the Fed will be utterly powerless to reverse the tide.
After a week of relentless FX volatility, spilling over out of China and into all other countries, and asset products, it was as if the market decided to take a time-out overnight, assisted by the PBOC which after three days of record devaluations finally revalued the Yuan stronger fractionally by 0.05% to 6.3975. And then, as a parting gift perhaps, just as the market was about to close again, the Chinese central bank intervened sending the Onshore Yuan, spiking to a level of 6.3912 as of this writing, notably stronger than the official fixing for the second day in a row. In fact the biggest news out of China overnight is that contrary to expectations, the PBOC once again "added" to its gold holdings, boosting its official gold by 610,000 ounces, or 19 tons, to 1,677 tones.
"It’s not how I want my epitaph to read, but it’s not a shameful thing helping people finance themselves. It’s not a bad thing."
Goldman Is Officially A Bank: Bailed Out Hedge Fund Will Allow Muppets To Give Their Savings To Lloyd BlankfeinSubmitted by Tyler Durden on 08/13/2015 16:34 -0400
The last time former Goldman employee and then Treasury Secretary Hank Paulson bailed out the hedge fund known as Goldman Sachs, and its closest peers (but not its biggest fixed income competitor Lehman Brothers of course), even the traditionally confused American public pushed back on the structure of the bailout which converted the Goldman holding company into an FDIC-insured company, which led many to ask: just where are Goldman's deposits? The answer, of course, was nowhere, so perhaps in anticipation of the logical pushback against its second, upcoming bailout which would see the taxpayer-backed depositor insurance company once again provide trillions in cash to banks as well as the glorified hedge funds such as Goldman, the firm moments ago decided to do something it has never done before: become an actual bank with checking accounts and such.
It doesn't get more flagrant than this: the full HFT criminal monty exposed for all to see.
“Maybe this isn’t a great indication of the state of the economy.”
With everyone now focused on what China's daily Yuan fixing will be ever night, there was some confusion why last night the PBOC decided to devalue the CNY by another 1.1% to 6.4010, despite its promise that the devaluation would be a "one-off" event, taking the 3 day devaluation to just about 4.5%. However, subsequently in a press conference, central bank vice-governor Yi Gang said that the PBoC will continue to step in when the market is ‘distorted’, that there is no economic basis for the Yuan to fall continuously and that it will look to keep the exchange rate ‘basically stable’. The Vice-Governor also said that the PBoC will closely monitor cross-border capital flows and that reports suggesting the Central Banks wants to see the currency depreciate 10% are ‘groundless’. Which is ironic considering after just 3 days, the PBOC is already half the way there!
Retail money tends to chase returns, resulting in a "positive" rather than a "negative" feedback loop, where mean reversion simply falls by the wayside.
The bail out is a cynical ruse, not to benefit Greece as a whole, but to benefit the banks and other creditors (the ECB and the IMF) who should take their medicine and move on. The one thing keeping the whole blighted euro project in place is an arrogant denial of the facts. A loss of political face now is a small price to pay for a much better outcome that will disadvantage far fewer people than the disorganised chaos into which Euroland will descend if the current bunch of lunatics are not put back in the asylum. Is this a Europe we want to be part of?
The Fed has basically borrowed from the future to improve today. The intention of Fed policy over the past 30 years has been to self-correct business cycles into a ‘steadier state’ by easing interest rates into weakness and hiking them into strength. Unfortunately, there is political-asymmetry between easing and hiking which has resulted in the stair-stepping of official interest rates down to the zero lower bound. Monetary policy has reached the practical limits of what it can do. Thus, the multi-decade credit era is coming to an end... Bad companies should be allowed to fail. Creative destruction is beneficial in the long run.