The sad truth in the USA, as we explained in great detail here, incentives to 'work' are increasingly non-existent. Thanks to a never-ending stream of benefits from the great and powerful Oz, as CNBC's Rick Santelli notes, Disability payments (of which there are 14 million people covered in the US - none of which count towards the unemployment rate) pay around $13,000 per year (versus $15,000 for minimum wage work). However, Santelli exclaims, the people on disability get healthcare; and this program costs the US $300 billion per year. Is it any wonder that only 1% of those who were on disability in Q1 2011 have left? Santelli comments, "I'm not saying there aren't people that are on disability that shouldn't be, but much of it is illnesses like back pain... it's a judgment call," adding that, "without incentives, large issues go ...totally unfixed."
The relativity relationship that Grant Williams discusses in his latest 'Things That Make You Go Hmmm' newsletter is far simpler to understand than that proposed by Einstein (and far, far less likely to win him any prizes of a scientific nature, but we can live with that). Ladies and gentlemen, we are proud to unveil to you, for the first time: 'Williams's Theory of Disconnectivity' After long and painstaking research, I have distilled my theory down to the following equation: OS+ps2?R (where OS is 'official statistics', ps2 is 'political spin' (squared) and R is 'reality'. We must be missing something because, try as we might, we are having a hard time understanding the bull case right now. It seems to be predicated largely on the thesis that we should buy things 'because they are going up'. (Japan is the poster child for this curious strategy, as those terrible results from Sony demonstrated a few weeks ago. Despite them, Sony stock is back to where it was before the company laid out, in no uncertain terms, just how poorly it was doing. In every single division.) Yes, we understand that, in nominal terms, money printing is good for stocks 'just because'; but sooner or later, reality is going to reassert itself (painfully, we might add).
Our last discussion of the miracle of earnings expectations focused on the bottom-up hockey-stick that it seems the consensus believes is ahead (always out there in the future). Today's 'factual' and 'empirical' whiteboard lecture on the 'miracle' comes courtesy of CNBC's Rick Santelli, who appears as frustrated at his co-correspondents permabullishness (see Liesman's flip-flopping views on retail sales today) as the implicit disconnect between the market and fundamentals. To wit, the fact that expectations for GDP growth and earnings are so divergent. With earnings growth expected to be +14.7% this year and nominal GDP around +3-4%, Santelli asks his guest where nominal GDP 'normally' is for such strong earnings expectations - the answer 7.6% nominal GDP growth... reality discussion ensues...
Having started trading gold futures over 30 years ago, CNBC's Rick Santelli has seen a few changes over the years. From its true high in Feb 1980 at around $2300 (inflation-adjusted), the biggest shift he and his guest have seen is the evolution of ETFs and the implicit securitization of gold. This took the 'complication' out of trading gold and enabled those who did not wish to hold physical to participate. But Santelli asks the critical question, "didn't it take the whole point away [of investing in gold]?" From the 'old days' when gold and silver were physically held and passed down and considered wealth to the current incorrect belief system of paper gold, the myth-shattering-Chicagoan exclaims to the precious metal ETF holders, "for the Ayn Rand'ers, if the financial world comes to an end, you're not going to have the gold, you're going to have a piece of paper."
The prevalence of counter-factuals or 'coulda-shoulda-woulda's in mainstream economics is stunningly biased to explaining "why we're still in the doldrums outside of course of the stock market." As CNBC's Rick Santelli exclaims, we are told at every turn that if we just do more - more stimulus, more monetization, more bailouts - then the recovery would have been better by now and will be in the future. In his typically calm and stoic fashion, the igneous Illinoisan asks, rhetorically, "What if the Fed had done less?" His answer - rather obviously - is that everything would have been different (but not necessarily worse). In a little under 3 minutes, Rick explains why "the Federal Reserve has done nothing but keep politicians from having to do anything."
The rise in energy prices; the surge in food prices; and the march higher in nominal stock market indices - all symptoms of one thing - central bank (or government) policy; and CNBC's Rick Santelli is calling them to task for their two-faced ignorance. "What is the difference between outright currency manipulation versus the collateral damage to one's currency based on central bank programs?" he rhetorically asks, "in my mind, very little, but obviously, in the minds of many leaders of G-7 developed economies, there's a huge distinction." And therein lies the rub. As Japan follows Bernanke's decade-old plan to reflate by literally printing money into existence - just as every other developed fiat currency nation - their argument is that they are fighting deflation - or stimulating growth - when, in fact "The distinction between collateral damage and outright manipulation is absolute malarkey." Now that the currency wars have gone global - no matter what well-placed op-eds will try to convince otherwise - Santelli sums it all up perfectly, "in the end when you don't have a standard and you have printing and fiat currency, what level of value is real?" We remind those bullish Japanese stocks that the 11% rise in the NKY since the holidays has created 0% wealth for a USD investor thanks to the JPY destruction - ask the Zimbabweans how wealthy they felt.
The overwhelming herding of AAPL's analysts highlighted by James Stewart in today's NY Times sets CNBC's Rick Santelli on a path of truthiness not often seen on business media. Citing the findings, most specifically, "analysts are, in the end, salesmen," Santelli notes that the average investor (listeners and viewers of financial media) have limited time and thus are forced to rely on this herd-like behavior. The audience, of course, hears what it wants to hear as confirmation or 'myside' bias' dominates each and every word uttered. But it's not just the financial analysts, its the political pundits who continue to abjectly ignore an exploding deficit in order to support the 'brand' of independence their media provides. The 'safety in numbers' argument holds up as the analysts group together - all knowing the reality ahead, but terrified to break ranks and admit the emperor is indeed naked.
The infamous Bob Rubin appeared on CNBC this morning - extolling the "nobody could have seen this crisis coming" meme - and Rick Santelli went after the hypocrisy of these so-called elites and what they did and didn't know. The glaring hypocrisy of claiming that S&P knew that everything they rated was a P.O.S. and yet no-one else could have seen the crisis coming. The crony capitalism of Geithner's proximity to Rubin's Citi during the dark days - especially considering the increasing evidence in book after book - prompts Santelli to suggest we "draw our own conclusions." From saving the GSEs to Maxine Waters ignorance and Barney Frank's slamming of any pessimists, Santelli covers a lot of ground fast but notes, with venom, that none of these 'elites' ever want to be the naysayer (due to the implications) and they will never "take away the punchbowl," and while he proclaims that if S&P goes down then everyone should suffer clawbacks, he reminds us all, "you can't fight City Hall."
With Dow at 14,000 and rates rising, those that need to take commissions and get their ratings up are seeing the 'conventional wisdom' seemingly proved right. However, Rick Santelli does not see it quite as clearly. Bianco Research's James Bianco joins Santelli for what they call 'mythbusting' as the two skeptics rightfully expose the unreality of the 'fiscal cliff' fears, the untruth that is the 'Great Rotation' due to tax concerns ahead of the fiscal cliff, and dismal performance of the Fed's failed forecast ranges. As extreme monetary policy continues (crisis-mode) - seemingly in absolute opposition to what the talking heads will say about jobs and the economy - Santelli and Bianco conclude that "right now the market is not bothered by [the Fed setting rates], but at some point it might be, Trust Capitalism" as they reiterate the need for Market Forces to be allowed to act. 3 minutes well spent.
While cogitating on yesterday's weak GDP print, CNBC's Rick Santelli confirmed his view that forecasting is complex (at best) and impossible (most likely). The 2010 view of the Fed was that 2012 growth would be 3.5-4% - quite a destructive miss as it turned out; and while Santelli is not attacking the Fed for its ridiculously bad forecasts, he makes a critical point. Forecasting such a massively complex and dynamic system as the global economy is foolhardy but attempting to control a few of the pieces (and not all of the pieces - which is akin to herding cats) is insane. His suggestion, "maybe [the Fed] should look at what has worked in the past; that is market forces." Indeed, two minutes of sanity...
As I noted in an article published Thursday morning, the government bought three quarters of a percentage point worth of growth in the third quarter leading several hapless commentators to opine on national television that the U.S. economy was not only on solid footing but was in fact experiencing "above trend" growth. Of course if you're the mainstream financial media what is good for the Q3 goose is not necessarily good for the Q4 gander and so when fourth quarter GDP printed in contraction territory Wednesday, viewers were encouraged (much to the chagrin of a predictably irate Rick Santelli) to discount "volatile" government consumption expenditures and focus only on the components that made a positive contribution.
While some would look at the surge in government spending in Q3 last year (ahead of the election) and subsequent plunge in Q4 as conspiratorial, CNBC's Rick Santelli takes a step slightly further back as he draws the analogy between the mystical monetary experimentation of Ben Bernanke and his horde of central bank cronies and the "bloodletting of leeching" of medieval medicine providers. The point being that if you were sick in the middle ages, leeches were applied; and if you returned weeks later (still sick), more leeches and blood-letting took place - with no lesson learned. The fact that we borrowed $300bn in Q4 and managed a dismally dire drop in GDP growth offers little hope as the world glares agog at the Dow Jones Industrial Average index while Bernanke, six years on from the start of the recession continues to apply the same medicine that has done nothing to resurrect our economy. In Rick's words, "Whatever you're doing; It isn't working!" and in fact the monetary support could potentially hurt the economy in the medium-term as debt piles up exponentially. An epic rant...
We are in our sixth year since the US officially went into recession and yet, as CNBC's Rick Santelli notes, we are still in crisis management mode. Some argue that any day now, the Fed will begin to remove its mega liquidity pipe from the market but Rick exclaims in this wonderfully succinct clip that: "there is no expiration date on faulty illogical ideas," as he expects any Fed exit to be "very, very messy." Rick's dilemma is the seemingly paradoxical need for yet moar and bigger monetary policy crisis management by Ben Bernanke when day-after-day we are told by the very guests on his network that "stocks look great." At the end of the day, when the Fed decides to exit, they will not be able to put the liquidity 'toothpaste' back in the tube.
There are numerous myths flying around the screens we all remain glued to - from inflows suddenly becoming correlated with equity market performance to a 'real recovery' in housing. TrimTabs CEO Charles Biderman paid a brief but fact-full visit to CNBC's Rick Santelli and the two somewhat skeptical gentlemen expounded on four of the critical fallacies supporting hope in our markets currently. First, the last time inflows were this big we saw dramatic reversals in stocks; and coincidentally, secondly, we also saw companies buying back less stock (in fact we saw float rising at those periods) and sure enough that is what Biderman notes is happening in January too. Third, current 'economic' euphoria appears due to the drag forward of incomes into Q4 2012 due to tax concerns (which is being spent/saved now) - however that means Q1 2013 and on will be negatively impacted (even if we see a decent print in Q4 GDP) as that pull-forward reverts; and finally, fourth, interest rates are rising and simultaneously refinances have plunged - hurting the 'housing recovery' meme which has been the driver of a lot of euphoria (be careful what you wish for). It appears facts, once again, get in the way of a good story.
Correlation, causation; cause-and-effect; Birinyi's Ruler; and Bernanke's Hammer. CNBC's Rick Santelli attempts to open some minds to the "nefarious" levels to which banks and politicians will go to infer from data and bolster our crowd-sourced confirmation biases. Santelli dismisses the meme that government dysfunction is the cause of our problems - instead stating that it is the effect. The main cause of this dysfunction is that we have problems we need to solve, politicians who know how to solve them, but that solving them is not only going to be painful for everyone - but most importantly for their respective bases - and therefore dysfunction ensues. From ratings downgrades not being caused by dysfunction (rather by an inability to deal with entitlements spending and debt) to the Federal Reserve losing the nation's trust acting not for liquidity needs but for insolvency; Santelli aims his magic marker finally at the Keynesians, for whom cause-and-effect is all, adding that their answer to everything is "always more money" to paper over short-term pain, as he rhetorically asks "in ten years when we look back, is the weight of all this debt going to take care of all of these impulsive upticks?" Must watch...