Better stock up on the Depends now.
Household net worth has recovered (nominally) around $8.0tn of the $16.4tn lost during the crisis but there has been a regime-shift in terms of the volatility of household net worth since the late 90s. As Credit Suisse notes, this hugely increased and skewed volatility has fueled heightened risk aversion among consumers and retail investors. Just as non-financial corporations are hoarding cash (on the back of their memories of the credit crisis contraction in the money markets), the lesson corporate America will not soon forget is just as resonant with Households as they value liquidity and cash (and safety) much more highly now than ever before.
No Record Profits For Old Assets: Jim Montier On Unsustainable Parabolic Margin Expansion For DummiesSubmitted by Tyler Durden on 03/20/2012 21:37 -0400
It is widely known that US corporate profits recently hit an all time high. What is less known is that in Q4, profit margins for the first time rolled over by 27 bps, and double that if one excludes Apple. What is very much irrelevant, is that to Wall Street none of this matters, and the consensus (of which GMO's Jim Montier says "the Wall Street consensus has a pretty good record of being completely and utterly wrong") believes that Q4 will be largely ignored, and margins will continue soaring ever higher. Well, the same Montier, has a thing or two to say about this consensus surge in profits ("it is almost unthinkable that it will remain at current levels over the course of the next few years"). More importantly he looks at the Kalecki profits equation, and finds something rather peculiar. Namely Japan. Because while taking the profits equation at its face value would surely explain the 10.2% in corporate profits, of which a whopping 75% is thanks to America's burgeoning deficit, it would imply that Japanese corporate profitability, where there has been not only a long-running current account surplus, but zero household savings, and massive fiscal deficits, should be off the charts. Instead it is collapsing. Why? Montier has some ideas which may force Wall Street to renounce its bullish views, although probably won't. However, the implications of his conclusion are far more substantial, and if appreciated by corporate America (whose aging asset base is the problem), may ultimately result in a revitalization of the corporate asset base, however not before the dividend chasing frenzy pops in the latest and greatest bubble collapse.
Americans have an illogical love affair with their vehicles. There are 209 million licensed drivers in the U.S. and 260 million vehicles. The U.S. has a higher number of motor vehicles per capita than every country in the world at 845 per 1,000 people. Germany has 540; Japan has 593; Britain has 525; and China has 37. The population of the United States has risen from 203 million in 1970 to 311 million today, an increase of 108 million in 42 years. Over this same time frame, the number of motor vehicles on our crumbling highways has grown by 150 million. This might explain why a country that has 4.5% of the world’s population consumes 22% of the world’s daily oil supply. This might also further explain the Iraq War, the Afghanistan occupation, the Libyan “intervention”, and the coming war with Iran. Automobiles have been a vital component in the financial Ponzi scheme that has passed for our economic system over the last thirty years. For most of the past thirty years annual vehicle sales have ranged between 15 million and 20 million, with only occasional drops below that level during recessions. They actually surged during the 2001-2002 recession as Americans dutifully obeyed their moron President and bought millions of monster SUVs, Hummers, and Silverado pickups with 0% financing from GM to defeat terrorism. Alan Greenspan provided the fuel, with ridiculously low interest rates. The Madison Avenue media maggots provided the transmission fluid by convincing millions of willfully ignorant Americans to buy or lease vehicles they couldn’t afford. And the financially clueless dupes pushed the pedal to the metal, until everyone went off the cliff in 2008.
It was literally a matter of hours following the release of the now historic Greg Smith "Muppets" Op-Ed, before the true criminals enabling the slow motion trainwreck of the Keynesian klepto-fascist experiment became heard. Sure enough, here is Elijah Cumming indicating he has the most to gain by scapegoating a firm that between Vampire Squids and Muppets is slowly being mocked into the same relevancy as an HR Giger petting zoo.
The most profitable business of the future will be producing Space Available and For Lease signs. Betting on the intelligence of the American consumer has been a losing bet for decades. They will continue to swipe that credit card at the local 7-11 to buy those Funions, jalapeno cheese stuffed pretzels with a side of cheese dipping sauce, cartons of smokes, and 32 ounce Big Gulps of Mountain Dew until the message on the credit card machine comes back DENIED. There will be crescendo of consequences as these stores are closed down. The rotting hulks of thousands of Sears and Kmarts will slowly decay; blighting the suburban landscape and beckoning criminals and the homeless. Retailers will be forced to lay-off hundreds of thousands of workers. Property taxes paid to local governments will dry up, resulting in worsening budget deficits. Sales taxes paid to state governments will plummet, forcing more government cutbacks and higher taxes. Mall owners and real estate developers will see their rental income dissipate. They will then proceed to default on their loans. Bankers will be stuck with billions in loan losses, at least until they are able to shift them to the American taxpayer – again.
Bill Gross' monthly letters are always a fresh source of jovial imagery, although the bond king may have outdone himself in his latest monthly letter which collapses the principles of investing onto the football field: "My point about pigskin offense and defense is the perfect metaphor for the world of investing as well. Offensively minded risk takers in the markets have historically been the ones who have dominated the headlines and won the hearts of that beautiful gal (or handsome guy).... Canton, however, has an approximately equal number of defensive in addition to offensively positioned inductees, so there must be a universally acknowledged role for both sides of the scrimmage line. What fan can forget Mean Joe Greene, Deion Sanders or Mike Ditka? The old, now politically incorrect showtune laments that “you gotta be a football hero, to fall in love with a beautiful girl,” but football and any of life’s heroes can play on either side of the line, it seems." And it only gets better. While at its heart Gross' latest is merely yet another lamentation against the confines of the financially suppressive regime that arises from ZIRP and ends with what many expect is a whimper (when in reality they all forget to factor in the facility of hitting the CTRL+P keys as many times as necessary), the flourish of abandon this time around is palpable. We would not be surprised to soon see Gross hang up his offensive (and defensive) jersey, and sit back and enjoy the coming lunacy from a distance (but hopefully not before he allocates just a little to the Ron Paul SuperPAC).
You hear a lot about Kafkaesque stifling bureaucracy in Greece and other struggling European nations, but America's Status Quo is trying its best to destroy small enterprise with taxes and crushing bureaucracy. I am self-employed, and have been for most of my life. When I did take a paid position, it was in other small enterprises or local non-profit organizations. I mention this because there is an unbridgeable divide in any discussion of small business between those who have no experience in entrepreneural enterprise (i.e. they've worked for the government, NGOs/non-profits or Corporate America their entire careers) and those who have. There are all sorts of similar chasms that cannot be crossed and which quickly reveal a surreal disconnect from actual lived reality: for example, the difference between actually playing football--yes, with pads, a muddy field and guys trying to slam you to the ground--and being an armchair quarterback who's never been hit even once, never caught a pass or ever struggled to bring down a faster, bigger player. (And yes, I did play football in high school as a poor dumb skinny kid who mostly warmed the bench for good reason, but I lettered.) At the extreme of this disconnect, we have armchair generals screaming for war who have no experience of combat or war as it is actually experienced. You get the point: it's very easy for well-paid pundits who have never started a single real enterprise or met a single payroll to pontificate about "opportunity" and small business as the engine of growth, blah blah blah. It's also easy for those with no actual experience to reach all sorts of absurd conclusions about how easy it is to turn a small business into great wealth. (No, Bain Capital or other Wall Street outposts of financialization are not "small business.")
Diamond Foods Fires CEO, CFO After Audit Committee Finds Books Have Been "Cooked" For The Past Two YearsSubmitted by Tyler Durden on 02/08/2012 17:24 -0400
First, small momo-favorite companies. Next: entire nations. Finally: the all-seeing, all-dancing central banks. Today, Diamond Foods just fired its CEO and CFO after the audit committee found its books have been cooked, only phrased more politically correct: "the Audit Committee has carefully reviewed the accounting treatment of certain payments to walnut growers. The Audit Committee has concluded that a "continuity" payment made to growers in August 2010 of approximately $20 million and a "momentum" payment made to growers in September 2011 of approximately $60 million were not accounted for in the correct periods, and the Audit Committee identified material weaknesses in the Company's internal control over financial reporting." Cue the class action lawsuits. When everything is said and done, the US investor will find that the Madoff M.O. of "doing business" has simply shifted to corporate America, where courtesy of non-GAAP BS one can report whatever the investing public wants to believe, until it all blows up. In other news, the now fired executives were stunned to discover they are not getting an extra bonus for cooking the books, last heard mumbling "double standard" under their breath. And if anyone wonders why despite the confirmed "bull market" in stocks (driven entirely by the nearly $1 trillion liquidity injection from the ECB in the past 6 months), investors just pulled $1.8 billion out of US mutual funds yet again, this is your answer.
While “Rates low thru ’14? was the gist of the headline – over 1/3 of the participants see ’15 and beyond as appropriate. The implications are severe from multiple fronts - a few to think about:
In this week's chartology from Goldman's David Kostin there is the usual plethora of useful data, but two slides deserve a very special mention because with 39% of the S&P already reporting Q4 data, the implication is quite dire. If Kostin is correct, then the corporate margin juggernaut, which recently hit an all time high in Q3 of 2011, and which has for all intents and purposes been the one offset to deteriorating economic conditions, recurring Fed stimuli to the economy aside, has officially peaked and is now rolling over. This has huge implications for virtually everything, as it means that after 3 years of layoffs, corporate America has finally cut through all the fat and is now officially chopping into muscle with every additional layoff. It also means that going forward no matter how many workers are laid off, the corporate margin rate wil not increase. Furthermore, if Bernanke or Draghi officially launch another inflationary easing episode which more than anything exports inflation to China, which in turn reexports it back to America in the form of rising COGS, margins will compress even more. In other words, the US economy, which sadly has been "defined" as the Russell 2000 and/or the DJIA, is tipping over. And with companies posting a near record low positive earnings surprise ratio, we are once again amazed how yet another Goldman team may have well called the absolute peak in the market with its long Russell call from two days ago.
Corporations are not people...
It’s the kind of fraud case that makes the taxpayer’s skin crawl. And it’s part of a vast scheme. But no insurance company would have fallen prey to it. Only Medicare....
We have now entered the fifth year of this Fourth Turning Crisis. George Washington and his troops were barely holding on at Valley Forge during the fifth year of the American Revolution Fourth Turning. By year five of the Civil War Fourth Turning 700,000 Americans were dead, the South left in ruins, a President assassinated and a military victory attained that felt like defeat. By the fifth year of the Great Depression/World War II Fourth Turning, FDR’s New Deal was in place and Adolf Hitler had been democratically elected and was formulating big plans for his Third Reich. The insight from prior Fourth Turnings that applies to 2012 is that things will not improve. They call it a Crisis because the risk of calamity is constant. There is zero percent chance that 2012 will result in a recovery and return to normalcy. Not one of the issues that caused our economic collapse has been solved. The “solutions” implemented since 2008 have exacerbated the problems of debt, civic decay and global disorder. The choices we make as a nation in 2012 will determine the future course of this Fourth Turning. If we fail in our duty, this Fourth Turning could go catastrophically wrong. I pray we choose wisely. Have a great 2012.