Corporate America

The hollowing out of corporate strengths to enable short-term profiteering by the handful at the top leads to systemic fragility. No shock is needed to bring down these fragile corporate structures: existing debt and the slightest tremor of global recession will be enough to topple the rickety facade.

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The zombification of corporate America is nowehere more evident than the yield-starved demand that has enabled companies with the lowest of the low credit ratings to raise debt capital and stay alive far beyond their 'natural' lifespan. As WSJ reports, investors are gobbling up some of the riskiest debt from junk-rated European companies at the fastest pace in years. The riskiest tranche of that debt - so-called second-lien, or junior, loans - amounts to $3.3 billion, almost double the amount raised at the same stage last year and the most over the same period since 2007. The reason is simple - Central Banks - "If you have more demand than supply then you end up with a loosening of terms and potentially more leverage and more aggressive structures." This is 'mal-investment' writ large, and at least as bad as during the 2007 bubble.

The algos and chart traders are making another run at 2000 on the S&P 500, attempting to convince the wary investor one more time that buying on the dips is a no brainer. And in that proposition they are, ironically, correct.  To buy this utterly manipulated market at these nosebleed valuation levels is about as brainless of an undertaking as is imaginable.

Now that everyone is finally focusing on the strategy of bloating any available company with massive leverage in order to use the proceeds to either buyback stock or engage in "synergy-creating" M&A (leading to countless pink slips), which is affectionately known as "activism", here is Bill Ackman's latest, Q2, letter with his take on this topic of how massive leverage which is great for shareholders now, but a disaster waiting to happen for employees and bondholders in the future as soon as rates rise, is the greatest thing since sliced bread.

The average jobseeker is hoping to nail down a corporate or government position, for the usual reasons: security, pay and benefits. But there aren't enough secure, high-paying corporate/government jobs for everyone who wants one. Low-wage serfdom is not the only alternative to a shiny Corporate America/government bureaucracy job. To understand the alternatives, we have to understand the economy we have, not the one we wish we had or the one we might have in the future.

While the epidemic of law enforcement theft is problematic throughout the country (see these egregious examples from Tennessee and Michigan), it appears Texas has a particularly keen love affair with the practice. Not only did last year’s story take place in Texas, today’s highlighted episode also takes place in the Lone Star State. This time in a town of 150 people called Estelline, which earns more than 89% of its gross revenues from traffic fines and forfeitures. In other words, from theft.

Despite exuberant Services and Manufacturing PMIs, Bloomberg's index of CEO sentiment remains stagnant near 2014 lows as April's hope for Q2 has faded into 'more of the same' by June. As Bloomberg's Rich Yamarone points out, in reality (in spite of all the hope), the second quarter is drawing to a close and it was a rough one for corporate America, with CEOs citing "slower growth in household income overall", "the recovery remains fragile, especially for customers on a budget", and perhaps most concerning, "whether or not this softness in store traffic is representative of a permanent sea change in customer behavior or a temporary phenomenon is hard to tell at this stage."

What happens when huge, reckless buyers with nearly endless resources cut back after a phenomenal binge? Well, we know what happened in 2008.

Those who have lost trust in Wall Street or actively hate it and everything it stands for (neofeudalism, unbridled greed, the corruption and collusion of the revolving door between the state and Wall Street, etc.) will never change their minds and hand their money to Wall Street to play with. If the primary assets held by Boomers (houses and stocks) both decline for these fundamental reasons, there may be relatively little wealth left to pass on to Gen-Y... if Gen-Y avoids bank debt/mortgages, buying conspicuous consumption luxury goods on credit and investing in Wall Street's scams and skims, this generational lack of demand for housing, stocks and luxury goods will effectively crash the sky-high valuations of these assets. These factors suggest a generational bet against banks, Wall Street, housing and luxury retail stocks.

What if all the low-hanging fruit of outsourcing jobs and financialization have already been plucked by Corporate America?

From Ancient Egypt to Modern America …

Orwell Much?

Despite all the doom and gloom in the market, we would have loved to have these employment numbers three years ago.