en Japan Approaches Limit To Bond Buying Former BOJ Official Okina Warns <p>A day after we highlighted <a href="">the veritable collapse</a> in U.S. shadow banking liquidity (down by nearly half since 2008) occasioned by a potent one-two punch from Fed bond purchases and regulatory measures designed to stem prop trading (but which have apparently impaired market making), we get rumblings out of Japan that the BOJ might have hit the limit on how many JGBs it can purchase without breaking the market. Specifically, Yuri Okina, vice chairman at Japan Research Institute, is concerned about the exact same issue raised by the Center for Financial Stability in their report on the “steep slide” in market finance: namely, that the absence of liquidity created by QE will create distortions and volatility.&nbsp;</p> <p>From Bloomberg:&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>“If additional easing is done using government bonds, it may have the considerable side-effect of impairing the functioning of the market,” Okina, an economist and a former BOJ official, said on Feb. 26 in an interview in Tokyo.&nbsp;</em></p> <p><em><br /></em></p> <p><em><strong>The BOJ’s purchases have had a “huge” impact on the market’s liquidity</strong>, Okina said. Buying bonds at a faster pace would make it more difficult for the BOJ to exit from its easing policy when the time comes to reduce stimulus, she said.</em></p> <p><em><br /></em></p> </blockquote> <p>Clearly there’s something self-evident (even tautological) about this discussion. That is, the BOJ is <a href="">set to monetize</a> all JGB gross issuance in 2015 (and may own 50% of the entire market within three short years), so yes, there are likely to be rather serious issues with market liquidity going forward.&nbsp;</p> <p><em><a href=""><img src="" width="600" height="459" /></a></em></p> <p>What’s especially perturbing about this scenario, is that sapping liquidity from the market has the potential to create enormous volatility (as we saw on October 15 of last year when Treasurys staged a six standard deviation move in the space of a few hours), something the pot committed BOJ simply cannot afford lest the house of cards should come cascading down. <strong>In other words, if yields on JGBs become increasingly unwieldy because either traders lose confidence in the central bank’s ability to manage the ponzi or a lack of liquidity triggers excessive volatility (or both), it’s game over</strong> or, as BlackRock put it: “...the nightmare scenario would be a spike in JGB rates leading to a fiscal crisis.”</p> <p>Given this, it doesn’t inspire much confidence that the BOJ’s actions are curtailing price discovery. Here’s Bloomberg again:&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Primary dealers responsible for distributing JGBs to investors told the government in November it was getting harder to determine prices because net supply was low.</em></p> </blockquote> <p>...and with no price discovery comes volatility:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em style="font-size: 1em; line-height: 1.3em;">Yields on benchmark 10-year Japanese government bonds fell to a record low of 0.195 percent on Jan. 20 before swinging to a two-month high of 0.45 percent on Feb. 17. Historical volatility for the past 30 days touched a 21-month high of 4.56 percent on Feb. 25.</em></p> </blockquote> <p><strong>Just as the SNB finally buckled in January, and just as the ECB faces the prospect of failing to deliver on its trillion euro Q€ promise, the BOJ could be nearing the dreaded inflection point where the market realizes once and for all that the emperor truly has no clothes. </strong>A few more auctions like last month’s 10- and <a href="">5-year</a> sales could well accelerate the process -- this month's 10-year auction is tomorrow.</p> <p><em>* &nbsp; * &nbsp; *</em></p> <p>In related news, the SEC's Daniel Gallagher said today that regulators aren't doing enough to mitigate the risks posed by an increasingly illiquid corporate bond market. As we noted yesterday, the unwillingness of primary dealers to hold inventories has, to use the CFS's terminology, created a situation where "an accident" is likely.&nbsp;</p> <p>More from Bloomberg:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Lack of liquidity in corporate bond market is “systemic risk” not addressed by regulators, SEC Commissioner Daniel Gallagher says in public remarks.</em></p> <p><em><br /></em></p> <p><em>Gallagher cites 80% decline in corporate bond inventories among dealers and impact of higher interest rates on future trading needs; “that has accompanied a record level of issuance year after year since 2008 of $1 trillion-plus of corporate debt”</em></p> <p>&nbsp;</p> <p><em>“I would submit to you that the lack of liquidity in our securities markets is a systemic risk,” he says at conference sponsored by Institute of International Finance.</em></p> <p>&nbsp;</p> </blockquote> <p>...and a bit more from BofAML for good measure:&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Historically, dealers provided liquidity by buying bonds when investors wanted to sell, selling bonds when investors wanted to buy and by holding sufficient inventory level.</em></p> <p><em><br /></em></p> <p><em>Onerous capital charges imposed on many securitized products has resulted in shrinking dealer balance sheets, less competitive bids for bonds unless buyer is already lined up.</em></p> <p><em><br /></em></p> <p><em><span style="font-size: 1em; line-height: 1.3em;">“While this has reduced trading flows and muted spread volatility over the last year or so, it potentially sets the stage for a significant volatility spike if an event, such&nbsp;</span><span style="font-size: 1em; line-height: 1.3em;">as the downgrade of the U.S. long term debt in 2011, was to&nbsp;</span><span style="font-size: 1em; line-height: 1.3em;">occur and the markets broadly entered risk-off mode.”</span></em></p> <p><em><span style="font-size: 1em; line-height: 1.3em;"><br /></span></em></p> <p><em><span style="font-size: 1em; line-height: 1.3em;">To extent dealers unwilling/unable to step in and provide liquidity, spreads will need to widen until they hit clearing levels attractive enough for other investors to step in.</span></em></p> </blockquote> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="854" height="653" alt="" src="" /> </div> </div> </div> Blackrock Bond Japan Prop Trading Shadow Banking Volatility Tue, 03 Mar 2015 00:00:00 +0000 Tyler Durden 502716 at On This Day 15 Years Ago... <p>Exactly 15 years ago today, who said it?</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em>&quot;<strong>You want winners?</strong> [This] is what my fund is buying today to try to make money tomorrow and the next day and the next? <strong>You want my top 10 stocks for who is going to make it in the New World? You know what? I am going to give them to you.</strong> Right here. Right now. OK. Here goes. Write them down...&quot;</em></p> </blockquote> <p>Fifteen months later, Money magazine reported that [his] list had cratered 82%... <strong>Accountability ruins the game</strong>.</p> <p>*&nbsp; *&nbsp; *</p> <p>Presented with little additional comment, except to note, it is never different this time...</p> <p><a href=""><em>James J. Cramer is the keynote speaker at the 6th Annual Internet and Electronic Commerce Conference and Exposition, held at the Jacob Javits Center in New York City. From TheSt</em></a><a href=""><em></em></a></p> <p><u>February 29, 2000</u></p> <p><u><strong>The Winners of the New World</strong></u></p> <p><em><img height="191" src="" style="float: left; margin-right: 10px;" width="205" /></em><strong>You want winners?</strong> You want me to put my Cramer Berkowitz hedge fund hat on and just discuss what my fund is buying today to try to make money tomorrow and the next day and the next? You want my top 10 stocks for who is going to make it in the New World? You know what? I am going to give them to you. Right here. Right now.</p> <p><strong>OK. Here goes. Write them down</strong> -- no handouts here!: 724 Solutions, Ariba, Digital Island, Exodus,, Inktomi, Mercury Interactive, Sonera, VeriSign and Veritas Software.</p> <p>&nbsp;<strong>We are buying some of every one of these this morning as I give this speech. We buy them every day, particularly if they are down, which, no surprise given what they do, is very rare.</strong> And we will keep doing so until this period is over -- and it is very far from ending. Heck, people are just learning these stories on Wall Street, and the more they come to learn, the more they love and own! Most of these companies don&#39;t even have earnings per share, so we won&#39;t have to be constrained by that methodology for quarters to come.</p> <p>There, now that that&#39;s done with, can we talk about the methodology that produced those top 10 so that you can understand how, in a universe of a gazillion stocks, we arrived at those, so you too can figure it out? I hope we can because I have another 10 and still another 10 and another. They all do the same thing: They make the Web faster, cheaper, better and easier to access anywhere, anytime. They allow you to get on the Web securely anywhere in the world. They make the Web economy the only economy that matters. That&#39;s all they do.</p> <p>We try to own every one of them. Every single one. And if I had my druthers, I wouldn&#39;t own any other stocks in the year 2000. Because these are the only ones worth owning right now in this extremely difficult, extremely narrow stock market. They are the only ones that are going higher consistently in good days and bad. I love every one of them, just as I loathe the rest of the stock universe.</p> <p>How did this stock market get like this, to where the only people who can make a dime in it are the people who are interested in the most arcane subject, the moving of data from one space to another, via strange new machines and software? How did it get to the point where nothing else matters, most particularly the 90% of the stock market I have studied for the last 20 years? How did all of that knowledge become totally irrelevant and the only stocks that work are the stocks of companies that didn&#39;t exist five years ago and came public in the last two or three years?</p> <p>Let&#39;s start with the world in the early 21st century, a world where capital is abundant for a chosen few and nonexistent for just about everybody else. It is a world where the whole of Wall Street and Silicon Valley is at your fingertips if you are creating the infrastructure for the New Economy, and a world where neither Wall Street nor Silicon Valley could give a darn about you if you are using that infrastructure.</p> <p>Or in other words, we don&#39;t care if General Motors (GM_) and Ford (F_) are going with Oracle (ORCL_) or with i2 (ITWO_) for their new parts procurement process. We don&#39;t want to own GM or Ford on any occasion. In fact, we would rather own the loser in that tech bake-off than the winner in nontech, because in this new world, there is so much business to be done for the i2s and the Oracles that the capital will remain plentiful for them, win or lose a particular piece of business.</p> <p>Just yesterday I found myself wishing I had bought i2 when it lost out to Oracle for the giant business-to-business contract for the Big Three automakers. Others had the same idea because i2, the loser Friday, was up much more Monday than GM and Ford could be this year. i2 can own the world because the company with the access to cheap capital always wins. And the companies with no access have to lose.</p> <p>Or, closer to home. <strong>We in the stock market don&#39;t care that The Inc., a company I helped create, has built a compelling new brand, has more than 100,000 paid subscribers and has $100 million in the bank. </strong>We just want to know which companies employs to publish each day. We want to know who the host is, which publishing tool works best, which wireless strategy is adopting and how does it automate its email? (By the way, the answers are Exodus, Vignette, Motorola and Kana&nbsp; -- all at or near their 52-week highs as languishes at its 52-week low, a triumph of the arms merchants over the combatants if there ever were one.)</p> <p>How did this bizarro world where nine-tenths of the companies I have followed as a stock picker for the last 20 years are losers and one-tenth are winners? To answer that question, you have to throw out all of the matrices and formulas and texts that existed before the Web. You have to throw them away because they can&#39;t make money for you anymore, and that is all that matters. We don&#39;t use price-to-earnings multiples anymore at Cramer Berkowitz. If we talk about price-to-book, we have already gone astray. If we use any of what Graham and Dodd teach us, we wouldn&#39;t have a dime under management.</p> <p>So how do we sort through which stocks get bought and which stocks get assigned to the waste bin?</p> <p>We have a phrase on Wall Street. It&#39;s called raising the bar. If you can raise the bar, or brighten the outlook for your company, if you can see your growth accelerating, your stock will go higher and you will be given the currency to expand, acquire and do whatever you want. That&#39;s the secret of the quintessential New Economy stock: Cisco (CSCO_). This giant networker has the ability to control its own destiny. It can, as my colleague Adam Lashinsky says at TSC, buy any company it wants to. It can pay any price. Because it has a currency that it better than U.S. dollars: It has Cisco stock. It can do that because it raises the bar every quarter!</p> <p><strong>But what about the Old Economy stocks? </strong>Can Merck raise the bar? Can Pfizer? Can U.S. Steel? Or Phelps Dodge? Union Pacific? No, no, no, no, no and no. So what happens to them? Despite the billions in buybacks and the plethora of strong buys that the Street has put out about these companies, their stocks have no traction. They just stumble along, rising and falling haphazardly with every whim and quizzical speech of the Federal Reserve chairman that still controls their destiny. If Greenspan indicates that there is more tightening ahead, these traditional companies, the ones that you measure with traditional matrices, get pole-axed as we worry about where the capital will ultimately come from if credit gets choked off, while the arms merchants in the Web war, with capital to burn, just go higher.</p> <p>It is no secret that the Dow, made up principally of companies that can&#39;t raise the bar, is down 12% while the Nasdaq, which is made up of companies that can raise the bar, is up 12%. <strong>And in the self-fulfilling jungle that is Wall Street, only growth can maintain growth!</strong></p> <p>So how do we find what are the great growth companies, knowing that growth and not cheapness of stock to company is what matters? We have to look for the fastest-growing industries and then select the companies that can make the infrastructure happen the fastest and the cheapest in those industries. The growth must be positively organic, if not viral. There must be heavy technological barriers to entry. And there must be an ability to scale without any thought to human cost. These companies must be able to dominate their businesses or be willing to become part of a larger institution that dominates.</p> <p><u><strong>So, whom does that eliminate? </strong></u>First, <strong>any company that is a commodity producer simply can&#39;t be owned, no matter what. </strong>The New Economy makes those be simply a function of low-cost producer with no ability ever to raise price. This, of course, is the crying shame of the way the Fed is trying to break the economy because the only place that could stand for a little inflation is in the deflationary commodity industries. But their inflation revolves around the ability to build inventory to anticipate future price hikes and the Fed is taking short rates to a height that makes it uneconomic to stockpile.</p> <p><strong>Second, it eliminates any bricks-and-mortar company that doesn&#39;t embrace the Net.</strong> To not embrace the Net is to give a cost edge to a competitor who does. It does so because the Net removes the middleman that was a product of the regional economy. There is $4 trillion worth of wholesaling that gets instantly eliminated by the Net. Before only the largest orders could be processed by the biggest companies because it was too expensive otherwise. Now all orders can be processed by the biggest companies through the Web. There is no need for the jobber or the wholesaler. Obviously, if you are still using that old distribution network, you can&#39;t compete against those who do.</p> <p><strong>Third, it eliminates any industry that does not have a proprietary brand. </strong>This is one of those weird features of the Web that people haven&#39;t woken up to yet, but it will seem obvious a few months from now. In the New World&#39;s economy, the desire to &quot;name your own price&quot; is too great to squelch. An outfit like priceline will change the very nature of brands in this country. It won&#39;t destroy the premium brand, but it will force everyone else out of the market. Why? Because the way priceline works is that we are trying to buy the premium brand for the price of the off-price brand. That means the off-price brands, whether they be Colgate or Dial or Hunt&#39;s or Ralston, are simply doomed by the Web. Why would you ever buy the second- or third-best when you can get the best via priceline for the same price as the lower tier? Ahh, that&#39;s a real killer. It leaves only the top brands to vie for supermarket space. The others won&#39;t be worth carrying. They won&#39;t move! Oh yeah, same goes for the airlines and the hotels and just about everybody else.</p> <p><strong>Fourth, it just destroys retail as we know it. </strong>Why? Because the companies that embrace the Web more vigorously will eventually be pitted against other companies that embrace the Web more vigorously, creating a virtual constant price war, the kind of war that Marx, of all, actually predicted would happen to capitalism. It will happen to retail once everyone realizes that Amazon recreated Wal-Mart online because it will forever have access to cheap capital. Why do I say forever? Because at a certain point, it will be done with its buildout and will effectively be able to cherry-pick whomever it wants to destroy while having it be subsidized by other areas. It will be Home Depot vs. Wal-Mart vs. Amazon in the end. Nobody else. And that&#39;s only if Home Depot figures out it better get on the Web and fast.</p> <p><strong>Fifth, it wipes out everybody who straddles the Old and New Worlds.</strong> Let&#39;s take the brokerage industry. If you are trying to preserve a price point, because you need those margins, you can&#39;t and you become roadkill. Same with journalism. If you are free online and cost offline, you will eventually not be able to charge offline. Why not? Because the Hewlett-Packards and Intels and Ciscos are bent on making the online version far superior to the offline version. And they will do it. They, too, have the access to capital to make it happen.</p> <p>I can tell you from that we have substantial cost advantages over our printed cousins. We can come out around the clock. We don&#39;t require paper, ink, delivery people or trucks. In that sense, we are much more like television, personal television, which is why we were wrong initially to think we could charge for basic news, and right to think we can charge a huge amount for proprietary analysis that can make you money.</p> <p>The struggle between the offliners and the onliners in banking will also pan out just like these other industries, with huge wins for those with a fresh online culture and hideous losses for those who don&#39;t see it coming or are slow to adjust. If you have to preserve your giant branch network and the costs that come with it while someone else perfects secure wireless Internet transactions, you can forget about it. You can&#39;t afford to compete. How can Bank of America compete with Nokia as a way to bank? How can Goldman Sachs compete with Yahoo! as a way to invest? Isn&#39;t Nokia, with its wireless machine that goes everywhere a better bank than one that needs branches? <strong>Isn&#39;t Yahoo!, with its access to all of the information and quotes in the financial world a better place to buy stocks than Goldman?</strong></p> <p><strong>Of course they are.</strong></p> <p><u><strong>So, if you can&#39;t own the retailers, and you can&#39;t own transports, and you can&#39;t own banks and brokers and financials and you can&#39;t own commodity makers and you can&#39;t own the newspapers, and you can&#39;t own the machinery stocks, what can you own?</strong></u></p> <p><u><strong>A-ha, that just leaves us with tech. That&#39;s why we keep coming back to it. That&#39;s why, despite the 80% increase in the Nasdaq last year, we are looking at another record year now. It is by that process of elimination that I have picked my top 10. And my next 10 and my next 10 after. Only those companies are worth owning. The rest?</strong></u></p> <p><u><strong>You can have them.</strong></u></p> <p>Thank you.</p> <p>*&nbsp; *&nbsp; *</p> <p>And then this...</p> <p><a href=""><img height="149" src="" width="632" /></a></p> <p>&nbsp;</p> <p>*&nbsp; *&nbsp; *</p> <p>As we have previously opined, sometimes - it would appear - <strong>0% is better than -82%</strong>...</p> <p>*&nbsp; *&nbsp; *</p> <p><em>h/t @RudyHavenstein</em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="197" height="186" alt="" src="" /> </div> </div> </div> Bank of America Bank of America CSCO Federal Reserve Ford General Motors Goldman Sachs goldman sachs Motorola NASDAQ new economy New York City Mon, 02 Mar 2015 23:52:19 +0000 Tyler Durden 502733 at The Internet Of Things: A Dystopian Nightmare Where Everyone And Everything Will Is Monitored <p><a href=""><em>Submitted by Michael Snyder via The Economic Collapse blog</em></a>,</p> <p><strong>Can you imagine a world where your home, your vehicles, your appliances and every single electronic device that you own is constantly connected to the Internet?&nbsp; </strong>This is not some grand vision that is being planned for some day in the future.&nbsp; This is something that is being systematically implemented right now.&nbsp; In 2015, we already have &ldquo;smart homes&rdquo;, vehicles <a href="" target="_blank" title="that talk to one another">that talk to one another</a>, refrigerators <a href="" target="_blank" title="that are connected to the Internet">that are connected to the Internet</a>, and televisions <a href="" target="_blank" title="that spy on us">that spy on us</a>.</p> <p><strong>Our world is becoming increasingly interconnected, and that opens up some wonderful possibilities.&nbsp; But there is also a downside.&nbsp;</strong> What if we rapidly reach a point where one <strong>must</strong> be connected to the Internet in order to function in society?&nbsp; Will there come a day when we can&rsquo;t even do basic things such as buy, sell, get a job or open a bank account without it?&nbsp; And what about the potential for government abuse?&nbsp;<strong> Could an &ldquo;Internet of Things&rdquo; create a dystopian nightmare where everyone and everything will be constantly monitored and tracked by the government?</strong>&nbsp; That is something to think about.</p> <p>Today, the Internet has become such an integral part of our lives that it is hard to remember how we ever survived without it.&nbsp; And with each passing year, the number of devices connected to the Internet continues to grow at an exponential rate.&nbsp; If you have never heard of the &ldquo;Internet of Things&rdquo; before, here is a little bit about it from&nbsp;<a href="" target="_blank" title="Wikipedia">Wikipedia</a>&hellip;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Things, in the IoT, can refer to a wide variety of devices such as heart monitoring implants, biochip transponders on farm animals, electric clams in coastal waters, automobiles with built-in sensors, or field operation devices that assist fire-fighters in search and rescue. These devices collect useful data with the help of various existing technologies and then autonomously flow the data between other devices. Current market examples include smart thermostat systems and washer/dryers that utilize wifi for remote monitoring.</p> </blockquote> <p>But there is also a dark side to the Internet of Things.&nbsp; Security is a huge issue, and when that security is compromised the consequences can be absolutely horrifying.&nbsp; Just consider&nbsp;<a href="" target="_blank" title="the following example">the following example</a>&hellip;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>It is a strange series of events that link two Armenian software engineers; a Shenzen, China-based webcam company; two sets of new parents in the U.S.; and an unknown creep who likes to hack baby monitors to yell obscenities at children. &ldquo;Wake up, you little ****,&rdquo; the hacker screamed at the top of his digital lungs last summer when a two-year-old in Houston wouldn&rsquo;t stir; she happened to be deaf. A year later, a baby monitor hacker struck again yelling obscenities at a 10-month-old in Ohio.</p> <p>&nbsp;</p> <p>Both families were using an Internet-connected baby monitor made by China-based Foscam. The hacker took advantage of a weakness in the camera&rsquo;s software design that U.S.-based Armenian computer engineers revealed at a security conference in Amsterdam last April.</p> </blockquote> <p>The Internet allows us to reach into the outside world from inside our homes, but it also allows the reverse to take place as well.</p> <p>Do we really want to make ourselves that vulnerable?</p> <p>Sadly, we live at a time when people don&rsquo;t really stop to consider the downside to our exploding technological capabilities.</p> <p>In fact, there are many people that are extremely eager to <strong>connect themselves</strong> to the Internet of Things.</p> <p>In Sweden, there are <a href="" target="_blank" title="dozens of people">dozens of people</a> that have willingly had microchips implanted under the skin.&nbsp; They call themselves &ldquo;bio-hackers&rdquo;, and they embrace what they see as the coming merger between humanity and technology.&nbsp; The following is what one of the founders of a <span class="xn-location">Sweden</span> based bio-hacking community had to say&nbsp;<a href="" target="_blank" title="during one recent interview">during one recent interview</a>&hellip;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;The technology is already happening,&rdquo; says <span class="xn-person">Hannes Sjoblad</span>, one of the founders of BioNyfiken. &ldquo;We are seeing a fast-growing community of people <strong>experimenting with chip implants</strong>, which allow users to quickly and easily perform a variety of everyday tasks, such as allowing access to buildings, unlocking personal devices without PIN codes and enabling read access to various types of stored data.</p> <p>&nbsp;</p> <p>&ldquo;I consider the take-off of this technology as another important interface-moment in the history of human-computer interaction, similar to the launches of the first windows desktop or the first touch screen. Identification by touch is innate for humans. PIN codes and passwords are not natural. And every additional device that we have to carry around to identify ourselves, be it a key fob or a swipe card, is just another item that clutters our lives.&rdquo;</p> </blockquote> <p>And of course this is happening in the United States&nbsp;<a href="" target="_blank" title="as well">as well</a>&hellip;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>In America, a dedicated amateur community &mdash; the &ldquo;biohackers&rdquo; or &ldquo;grinders&rdquo; &mdash; has been experimenting with implantable technology for several years. Amal Graafstra, a 38-year-old programmer and self-styled &ldquo;adventure technologist&rdquo;, has been inserting various types of radio-frequency identification (RFID) chips into the soft flesh between his thumbs and index fingers since 2005. The chips can be read by scanners that Graafstra has installed on the doors of his house, and also on his laptop, which gives him access with a swipe of his hand without the need for keys or passwords.</p> </blockquote> <p>But you don&rsquo;t have to have a microchip implant in order to be a part of the Internet of Things.</p> <p>In fact, there are a whole host of &ldquo;wearable technologies&rdquo; that are currently being developed for our society.</p> <p>For instance, have you heard about &ldquo;<a href="" target="_blank" title="OnStar for the Body">OnStar for the Body</a>&rdquo; yet?&nbsp; It will enable medical personnel to constantly monitor your health wherever you are&hellip;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Smart, cheaper and point-of-care sensors, such as those being developed for the <a href="" target="_blank" title="Nokia Sensing XCHALLENGE">Nokia Sensing XCHALLENGE</a>, will further enable the &lsquo;Digital Checkup&rsquo; from anywhere. The world of &lsquo;Quantified Self&rsquo; and &lsquo;Quantified Health&rsquo; will lead to a new generation of wearable technologies partnered with <a href="" target="_blank" title="Artificial Intelligence">Artificial Intelligence</a> that will help decipher and make this information actionable.</p> <p>&nbsp;</p> <p>And this &lsquo;actionability&rsquo; is key. We hear the term Big Data used in various contexts; when applied to health information it will likely be the smart integration of massive data sets from the &lsquo;Internet of things&rsquo; with the small data about your activity, mood, and other information. When properly filtered, this data set can give insights on a macro level &ndash; population health &ndash; and micro &ndash; &lsquo;<a href="" target="_blank" title="OnStar for the Body">OnStar for the Body</a>&lsquo; with a personalized &lsquo;check engine light&rsquo; to help identify individual problems before they further develop into expensive, difficult-to-treat or fatal conditions.</p> </blockquote> <p>If that sounded creepy to you, this next item will probably blow you away.</p> <p>According to <a href="" target="_blank" title="one survey">one survey</a>, approximately one-fourth of all professionals in the 18 to 50-year-old age bracket would like to directly connect their brains to the Internet&hellip;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>According to a survey by tech giant Cisco Systems, about a fourth of professionals ages 18 to 50 would leap at the chance to get a surgical brain implant that allowed them to instantly link their thoughts to the Internet.</p> <p>&nbsp;</p> <p>The study was conducted on 3,700 adults working in white-collar jobs in 15 countries.</p> <p>&nbsp;</p> <p>&ldquo;Assuming a company invented a brain implant that made the World Wide Web instantly accessible to their thoughts, roughly one-quarter would move forward with the operation,&rdquo; the study found.</p> </blockquote> <p>In the end, they are not going to have to force most of us to get connected to the Internet of Things.</p> <p>Most of us will do it eagerly.</p> <p>But most people will never even stop to consider the potential for abuse.</p> <p>An Internet of Things could potentially give governments all over the world the ability to continually monitor and track the activities of everyone under their power all of the time.</p> <p>If you do not think that this could ever happen, perhaps you should consider the words <a href="" target="_blank" title="of former CIA director David Petraeus">of former CIA director David Petraeus</a>&hellip;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>&ldquo;Items of interest will be located, identified, monitored, and remotely controlled through technologies such as radio-frequency identification, sensor networks, tiny embedded servers, and energy harvesters &mdash; <strong>all connected to the next-generation Internet</strong> using abundant, low-cost, and high-power computing&rdquo;</p> </blockquote> <p>Are you starting to get the picture?</p> <p>They plan to use the Internet of Things to spy on all of us.</p> <p>But we just can&rsquo;t help ourselves.&nbsp; Our society has a love affair with new technology.&nbsp; And some of the things that are being developed right now are beyond what most of us ever dreamed was possible.</p> <p>For example, Microsoft has&nbsp;<a href="" target="_blank" title="just released">just released</a> a new promotional video featuring 3D holograms, smart surfaces, next-generation wearable technologies, and &ldquo;fluid mobility&rdquo;&hellip;</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>The elaborate, highly produced video shows jaw-dropping technologies like a SCUBA mask that annotates the sea with 3D holograms, a multipart bracelet that joins together to become a communications device, and interactive, flexible displays that automatically &ldquo;rehydrate&rdquo; with information specific to the people using them.</p> </blockquote> <p>This video from Microsoft was posted <a href="" target="_blank" title="on YouTube">on YouTube</a>, and I have shared it below&hellip;</p> <p><iframe allowfullscreen="" frameborder="0" height="315" src="" width="560"></iframe></p> <p>So what do you think about all of this?</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="292" height="291" alt="" src="" /> </div> </div> </div> Ohio SPY Mon, 02 Mar 2015 23:35:02 +0000 Tyler Durden 502730 at "The Repressed" Guide To Homeland Security's Threat Index <p>Remember, no matter how severe the repression... it's for your own good!</p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="905" /></a></p> <p>&nbsp;</p> <p>&nbsp;</p> <p><a href=""><em>Source: The Burning Platform</em></a></p> Mon, 02 Mar 2015 23:10:34 +0000 Tyler Durden 502729 at The Problem With The Forward EPS Hockeystick: Millions Of Americans Are About To Lose Their Jobs <p>Back on September 30, Q1 2015 earnings were expected to grow by <strong>10% </strong>from a year earlier<strong>. </strong>A few short months later, Q1 EPS (<em>non-GAAP </em>of course) growth was revised to <strong>4%. </strong>It currently stands at <strong>-2.8%, </strong>a number which as we reported a month ago, is the <a href="">biggest annual drop since 2012</a>. What is the reason for this collapse in EPS? </p> <p>There are two. </p> <p>First, plunging crude prices, which after rebounding from the low $40s, have since posted a modest dead cat bounce to the upper-$40s, but are nowhere near enough to allow quarterly EPS growth to resume its historic pattern of growing in the high single, low double digits. The devastation that has resulted in the Capex of the shale sector including the already <a href="">ramping up layoffs of energy workers</a>, extensively documented here, needs no further commentary.</p> <p>Second, the surging dollar has led to a drubbing for corporate profitability, and one needs merely to glance at some of the earnings call transcripts of the multinationals to realize just how much of an impact the strong USD has become.&nbsp;</p> <ul> <li>“Finally, we do see currency as a continued headwind. We factored into our guidance the headwind of approximately $0.15 to $0.20, which was roughly the same rate of devaluation we experienced in FY 2014.” –Monsanto (Jan. 7)</li> <li>“Before I share with you some of the highlights from the quarter, let me provide some background on the impact to our business from the volatile foreign exchange rates. Nearly every currency we do business in weakened against the U.S. dollar when compared against Q3 last year, last quarter or against guidance…These rate changes negatively impacted both the income statement, where we use an average rate for the quarter and the balance sheet, which is translated using spot rates at the end of the quarter. For instance, total revenue would have been $13 million higher using Q3 rates from last year, a $11 million higher using rates from last quarter, and $3 million higher using the rates given in September for guidance.” –Red Hat (Dec. 18)</li> <li>“Turning now to revenues, net revenues for the quarter were $7.9 billion, an increase of 7% in U.S. dollars and 10% in local currency, reflecting a negative 3% FX impact compared to the negative 2% impact provided in our business outlook last quarter.” –Accenture (Dec. 18)</li> <li>“Our Consumer Foods segment operating profit, adjusted for items impacting comparability, was $310 million or up about 7% from the year-ago period…Foreign exchange had a negative impact of $8 million on net sales and about $6 million on operating profit for this segment this fiscal quarter.” –ConAgra Foods (Dec. 18)</li> <li>“And as I mentioned, foreign exchange lowered reported sales by 2 percentage points.” –General Mills (Dec. 17)</li> <li>“The as reported numbers were heavily impacted by the strengthening of the U.S. dollar in comparison to other currencies. Total revenue saw a 4% currency headwind which would double what it was at the time of my guidance.” –Oracle (Dec. 17) </li> </ul> <p>The problem is that, as noted above, the bounce in WTI has since peaked and after hitting the low $50s, is once again on the way down, suggesting even more pain for the energy complex. Furthermore, with the Fed widely expected to hike in the summer even as 20 central banks around the globe have eased in just the past two months, the dollar is hardly expected to weaken materially at least until the Fed reverses course on its tightening intentions, which may take a significant period of time.</p> <p>So what does all that mean for EPS, forward multiples and the market? In one word: <strong>hockeystick. </strong>In two words: epic hockeystick. </p> <p>The chart below is from the latest factset earnings insight, and it shows that after sliding 2.8% in Q1, earnings are expected to soar dramatically, posting unprecented Q/Q growth, and return to growing at 7% clip in the fourth quarter. </p> <p><a href=""><img src="" width="600" height="439" /></a></p> <p>There are three problems with the above chart. </p> <ul> <li>First: as mentioned earlier, it assumes that both crude oil prices, and the USD return to a trendline normal level. For now, neither of these appears to be even remotely feasible.</li> <li>Second, the assumes a return to trendline growth even as sales growth for all of 2015, a topic we discussed previously, is now set to post its <a href="">first annual decline </a>since Lehman.</li> <li>Third, the only way declining sales can be transormed into EPS growth is through a new round of profit margin growth. There is one problem with that. This:</li> </ul> <p><img src="" width="600" height="394" /></p> <p><strong>Net S&amp;P500 Margins, as tracked by Factset, just posted their biggest decline since... Lehman. </strong></p> <p>So what happens if one adjusts the Wall Street consensus forecast, something which will happen anyway sooner or later once the "priced to perfection" forecast fails to materialize? We have shown one model forecasting what happens to Y/Y EPS growth if one assumes the same annual decline for the rest of 2015 as took place in Q1. </p> <p>This is the visual result:</p> <p><a href=""><img src="" width="600" height="387" /></a></p> <p>&nbsp;</p> <p>Adding up the forecast quarter, means that non-GAAP EPS in 2015 will be 115 instead of 120, suggesting the forward P/E multiple is not 17.6x where it ended at close of trading today, but 18.4x, by far the highest since Lehman, and also it would imply a GAAP EPS of 20.2x: in other words, the market is, using real earnings, <strong>already trading above the magical "David Tepper" bogey of 20x</strong>! </p> <p>But let's assume the Wall Street consensus is right, and instead of dropping by nearly 3% every quarter, earnings regain their stride even as sales decline for the full year - something which even Wall Street now admits will happen.</p> <p>What needs to happen? Well, net margins have to go from merely ridiculous levels, hugging the 10% number - something they have never managed to achieved in the past - and rise to an absolutely mindblowing 11% by the end of the year. </p> <p>Visually, this would look as follows:</p> <p><a href=""><img src="" width="600" height="394" /></a></p> <p>And with all variable costs already trimmed out of existence in the past 5 years, this can mean only one thing - <strong>millions more in layoffs, </strong>especially if the companies that comprise the above sample are also eager to maintain their record pace of corporate buybacks: something they would be unable to do with the residual cashflow that lower sales generate. </p> <p>In other words, yes: the S&amp;P may well be "fairly priced" here, if one assumes an 18x (rounded up) forward P/E multiple to be fair - a number which is above the prior 5-year average forward 12-month P/E ratio of 13.6, and above the prior 10-year average forward 12-month P/E ratio of 14.1. It is also above the forward 12-month P/E ratio of 16.2 recorded at the start of the first quarter (December 31).</p> <p>And in order to achieve that, not much has to happen: instead of hiring millions, <strong>America's corporations just need to fire about 2-3 million people in order to extract the kinds of net margin efficiencies that are already priced in! </strong></p> <p>Which can only mean one thing: the BLS is going to be very, very busy coming up with seasonal adjustments, scapegoats, and pro forma justifications over the next 9 months to mask the fact that as the S&amp;P continues to rise to record levels, and as the underlying corporations fire in droves, and present a picture of a stable and growing US economy, one which is, at least in <em>C:\BLS\models\labor\payrolls\goalseek.xls </em>adding some 230,000 seasonally-adjusted "workers" every month.</p> <p><em>Source: <a href="">Factset</a></em><a href=""></a></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="794" height="521" alt="" src="" /> </div> </div> </div> BLS Central Banks Crude Crude Oil GAAP Lehman Mon, 02 Mar 2015 22:54:32 +0000 Tyler Durden 502731 at Janet Yellen Is A Coward <p><a href=""><em>Submitted by Dominique Dassault via</em></a>,</p> <p><span style="text-decoration: underline;"><strong>Yellen Is Loathe To Change Easy Money Policy</strong></span></p> <p>With her diminutive stature, dutch-boy haircut and puffy facial features Janet Yellen certainly does not look like a leader&hellip;more like a Brooklyn grandmother eager to tell you her special recipe for chocolate chip cookies. In this case, unfortunately, her appearance does not deceive.</p> <p>You might ask What Are The Traits of a Leader? Naturally, there are many but one trait, I can assure you, that does not define a leader = <strong>COWARDICE&hellip;and that dubious characteristic seems to describe Yellen&rsquo;s recent tenure at The Federal Reserve.</strong></p> <p><strong>It is a strong statement. I am aware. But, sadly, it is an assertion that is not too difficult to support.</strong></p> <p>Definition of Coward:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>a person who lacks courage in facing danger, difficulty, opposition, pain, etc.</p> </blockquote> <p>****************************************************************</p> <p><strong>First of all, Yellen has demonstrated no thought leadership at The Fed. </strong>She is simply &ldquo;preaching the same gospel&rdquo; as her nerdy predecessor Ben Bernanke. I suppose that since her &ldquo;hero&rdquo; [her words] decided that debt monetization and interest rate suppression were a sound strategy for the economy then she might as well continue with the same approach&hellip;despite its limitations. This copycat approach seems to suit her well and, of course, that is unfortunate. <strong>Her lack of rational action, with respect to interest rate policy, reminds me of those that just do not have the courage to think for themselves&hellip;always wanting to piggyback on other people&rsquo;s ideas rather than to devise thoughts of their own</strong>. Anyway it seems change is not in Yellen&rsquo;s DNA [as it would require original thought] while she is forcefully fighting a logical change of course on interest rate policy. Maybe because any type of change is painful [see definition of coward above] even if the change itself is relatively minor [as in a 25-75 basis point increase in interest rates]?</p> <p><strong>Second of all, the cautious nature of Yellen [to not even legitimately contemplate a rate hike] is stunning.</strong> Sure, she talks a &ldquo;good game&rdquo; with respect to adjusting existing policy but is always deferring to the future and outlining a long list of conditions/caveats. Her internal monologue may go something like this&hellip;&ldquo;perhaps we&rsquo;ll make an adjustment to The Fed&rsquo;s interest rate policy&hellip;perhaps not. I just need to think about it a little more. I am not sure.&rdquo; And her procrastinating nature simply perpetuates into a frozen state of mind. As if a 25-75 basis point ramp in the fed funds rate will derail this moderate recovery. <strong>If anything, her timid approach speaks to the fragility of the economic recovery&hellip;an implied indictment of her Fed&rsquo;s strategy. </strong>If, by chance, Yellen did raise rates she would surely face some opposition [see definition of coward above] likely from within her own &ldquo;stacked&rdquo; Fed&hellip;and therefore, to avoid being opposed, is delaying the inevitable for as long as she can&hellip;which brings up another intriguing point to ponder.</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>****************************************************************</p> <p>&nbsp;</p> <p><strong>If The Fed&rsquo;s strategy to stimulate the economy is so effective [by her account] then why has the economy not reached &ldquo;escape velocity&rdquo; after six years of turbo charged stimulation? And then, why does the current interest rate environment not reflect that improvement?</strong> It is important to note that interest rates have not been pushed up for more than a decade.</p> <p>&nbsp;</p> <p>Where the economy moves from here is a true unknown but that could be said at any point in time as economic forecasting is an art&hellip;not a science. <strong>However Yellen frequently cites continued uncertainty as a rationalization of current policy&hellip;but that is a lazy minded thought especially for a supposed expert in macro-economics and does not address the massive improvement in the U.S. economy since the lows of 2009.</strong></p> <p>&nbsp;</p> <p>How massive? The economic improvements in the United States are overwhelming and have been articulated, ad nauseam, by many i.e. jobless claims, unemployment rate, new car sales, home prices, etc. Some indicators have even exceeded the levels of the pre-2000 technology bubble i.e. jobless claims. And despite all the &ldquo;gloom and doom&rdquo; [i.e. comparisons to the Great Depression of the 1930&rsquo;s] espoused by Yellen and her colleagues it is important to note that Real GDP is almost 10% HIGHER than the pre-recession peak of 2008. <strong>The economy is definitely not great but it really is not that dire either. Certainly nowhere remotely close to the economic nadir in 2009.</strong></p> <p>&nbsp;</p> <p><strong>How bizarre and inexplicable is it then that U.S. interest rate policy is still exactly the same as it was when initiated by Bernanke in 2008/9? The incongruity, vis-a-vis U.S. economic performance, is so lopsided it is almost comical.</strong> According to Bernanke interest rate suppression and debt monetization were necessary because the economy had been delivered a &ldquo;knee-buckling&rdquo; blow from the real estate crash [of which, ironically, both Bernanke and Yellen presided over as senior level employees at The Fed] and these non-conventional measures, it was argued, were the shock therapy the economy needed to get &ldquo;back on track&rdquo;. <strong>The economic data at that time, was bleak&hellip;and getting bleaker. So, the shock therapy was applied without much push back. Fast forward six years and the economy is well beyond its once debilitating shock and is generally &ldquo;back on track&rdquo;&hellip;yet the policies of shock therapy are still being applied.</strong> There really is no legitimate economic reason to explain it. There must be other motivations.</p> <p>&nbsp;</p> <p>****************************************************************</p> </blockquote> <p><strong>Thirdly, the primary motivation for Yellen&rsquo;s inaction on rate policy appears to be that a reversal of The Fed&rsquo;s strategy will be too painful [see definition of coward above] for the economy, and more importantly to Yellen, financial markets to endure [which also strongly argues against the strategy of easy money if you cannot normalize the policy without a significant shock to the economy/financial markets]. </strong>The rapid 13 month plunge in the federal funds rate [effectively ending at zero in December 2008] from 4.66% in October 2007 and continued for another 6 1/2 years is just too great a conundrum for The Fed to reverse without seriously disrupting the market&rsquo;s dependency on this low interest rate drug. How ridiculous is that? A steep 13 month decline in the federal funds rate of 466 basis points ending at zero&hellip;and then 6+ years residing at zero&hellip;and Yellen is vacillating over a puny increase of just 25 basis points. This ought not to be as difficult [see definition of coward above] as she is portraying it to be.</p> <p><strong>So really&hellip;there is no exit strategy&hellip;there is only a continuation strategy&hellip;and The Fed&rsquo;s cronies have always known this. </strong>Yellen can argue that The Fed is no longer adding to its $4.5T balance sheet but still&hellip;the balance sheet currently resides at a historically massive level&hellip;hardly a relaxation of stimulative policy. She is simply paralyzed with fear that the markets will violently react to a tightening of policy. An unsuccessful attempt to slowly &ldquo;forward guide&rdquo; the financial markets out of an unforgiving policy reversal would surely &ldquo;tar and feather&rdquo; her legacy&hellip;to her, it seems, a too dangerous [see definition of coward above] risk.</p> <p>Said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities&hellip;&ldquo;They&rsquo;re a real bunch of scaredy cats. You can&rsquo;t be totally hostage to markets.&rdquo; LaVorgna is correct.<strong><u> The Fed is being held hostage to the financial markets but, ironically, is in no mood to escape its captors despite so many clear opportunities. The lack of action, by Yellen, can only be described as cowardly.</u></strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="588" height="445" alt="" src="" /> </div> </div> </div> Ben Bernanke Ben Bernanke Deutsche Bank ETC Federal Reserve Great Depression Janet Yellen Monetization Real estate recovery Unemployment Mon, 02 Mar 2015 22:30:36 +0000 Tyler Durden 502728 at "They're Back" - We Have Learned Nothing In 10 Years!! <p><span style="text-decoration: underline;"><em><strong>They're back!! </strong></em></span></p> <p><a href=""><strong>BBVA Compass helping low- and moderate-income borrowers overcome barriers to homeownership</strong></a><br />- New HOME program helps qualifying borrowers meet down payment, closing costs<br />- It's part of bank's effort to support low- and moderate-income individuals, neighborhoods</p> <p>February 26, 2015</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>BBVA Compass announced today the launch of its Home Ownership Made Easier, or HOME, program</strong>, which helps low- and moderate-income borrowers overcome one of the most significant barriers to homeownership — saving enough cash to cover down payment and closing costs.<span style="text-decoration: underline;"><strong>&nbsp;</strong></span></p> <p>&nbsp;</p> <p><span style="text-decoration: underline;"><strong>HOME allows qualifying borrowers to finance up to 100 percent of a home's value, with the bank contributing up to $4,500 toward certain closing costs. </strong></span>The program is part of BBVA Compass' recent pledge to put $11 billion in lending, investments and services toward supporting low- and moderate-income individuals and neighborhoods, and will also include a free online homebuyer education course to help prepare borrowers for the responsibility of managing a home loan.</p> <p>&nbsp;</p> <p><strong>"We've built a comprehensive program that will help many people across our footprint realize the dream of homeownership — something that may have seemed unattainable to them in the past,"</strong> said Eduardo Castaneda, executive director of real estate lending for BBVA Compass. <strong>"The financing and closing cost assistance, and the essential homebuyer education, will help ensure they enjoy the benefits of their new home for years to come."</strong></p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p>Other benefits of the bank's HOME program:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Borrowers can move into a new residence with as little as $500 of their own funds. </strong></p> <p>&nbsp;</p> <p>The <strong>HOME mortgage is also available to borrowers with higher incomes if they're financing properties in low- or moderate-income census tracts.</strong></p> </blockquote> <p>WTF! - $500 buys you a house (on massive leverage) AND rich people can fund 100% if the houses they are <span style="text-decoration: line-through;">slumlording</span> buying are in relatively poor areas.</p> <p>*&nbsp; *&nbsp; *</p> <p><span style="text-decoration: underline;"><strong>How do you qualify for a 100% LTV mortgage...</strong></span></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>To qualify for the HOME Program, certain eligibility requirements must be met.&nbsp; Those eligibility requirements include, but are not limited to</p> <p>&nbsp;</p> <p>1) the <strong>property must either be located in a low-to-moderate income census tract</strong> (<a href="" title=""></a>), or</p> <p>&nbsp;</p> <p>(2) the applicants on the loan<strong> cannot have an income greater than 80% of the HUD median income for the area</strong>.</p> </blockquote> <p>So to be clear... <strong>BBVA will lend you 100% of the valkue of your home (and pay you $4500) if you are relatively poor and live in a relatively poor area...</strong></p> <p><em><span style="text-decoration: underline;"><strong>Brilliant!!</strong></span></em></p> <p><em>h/t @RudyHavenstein<strong>&nbsp;</strong><span style="text-decoration: underline;"><strong><br /></strong></span></em></p> Real estate Mon, 02 Mar 2015 22:00:31 +0000 Tyler Durden 502727 at A Who's Who Of Awful Times To Invest <p><a href=""><em>Excerpted from John Hussman&#39;s Weekly Market Comment:</em></a></p> <p>Unless we observe a rather swift improvement in market internals and a further, material easing in credit spreads &ndash; neither which would relieve the present overvaluation of the market, but both which would defer our immediate concerns about downside risk &ndash; <strong>the present moment likely represents the best opportunity to reduce exposure to stock market risk that investors are likely to encounter in the coming 8 years.</strong></p> <p><strong>Last week, the cyclically-adjusted P/E of the S&amp;P 500 Index surpassed 27, versus a historical norm of just 15 prior to the late-1990&rsquo;s market bubble. </strong>The S&amp;P 500 price/revenue ratio surpassed 1.8, versus a pre-bubble norm of just 0.8. On a wide range of historically reliable measures (having a nearly 90% correlation with actual subsequent S&amp;P 500 total returns), we estimate current valuations to be fully 118% above levels associated with historically normal subsequent returns in stocks. <strong>Advisory bullishness (Investors Intelligence) shot to 59.5%, compared with only 14.1% bears &ndash; one of the most lopsided sentiment extremes on record.</strong> The S&amp;P 500 registered a record high after an advancing half-cycle since 2009 that is historically long-in-the-tooth and already exceeds the valuation peaks set at every cyclical extreme in history but 2000 on the S&amp;P 500 (across all stocks, current median price/earnings, price/revenue and enterprise value/EBITDA multiples already exceed the 2000 extreme).<strong> Equally important, our measures of market internals and credit spreads, despite moderate improvement in recent weeks, continue to suggest a shift toward risk-aversion among investors.</strong> An environment of compressed risk premiums coupled with increasing risk-aversion is without question the most hostile set of features one can identify in the historical record.</p> <p>...</p> <p><strong>Recent weeks mark the first time in history that our estimates of prospective 10-year returns on all conventional asset classes have simultaneously declined below 2% annually. </strong>We don&rsquo;t expect a portfolio mix of stocks, bonds and cash to achieve any meaningful return over the coming 8-year period. The fact that the financial markets feel wonderful right now is precisely because<strong> yield-seeking speculation and monetary distortions have raised security prices today to levels where they are likely to stand years from today &ndash; with steep roller-coaster rides in the interim.</strong></p> <p>...</p> <p><strong>The chart below shows historical instances where overvalued, overbought, overbullish conditions matched current extremes, and where bubble-tolerant overlays (based on measures of market internals and credit spreads) were also unfavorable, and where the S&amp;P 500 had established an all-time high. </strong>On less stringent criteria, there would also be additional instances shown in 2010 and 2011.</p> <p>As I&rsquo;ve noted before,<strong> if one thing was truly different about the yield-seeking speculation induced by QE in the recent half cycle, it is that QE reduced the overlap between overvalued, overbought, overbullish conditions and periods of deteriorating market internals.</strong> The current set of overextended conditions is the most severe variant that we define, and unlike several instances in the half-cycle since 2009, we do not have indications from market action and credit spreads that these extremes are likely to be tolerated for long.</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 450px;" /></a></p> <p><strong>Extremes in observable conditions that we associate with some of the worst moments in history to invest include:</strong></p> <ul> <li>Aug 1929 (with the October crash within 10 weeks of that instance),</li> <li>Aug-Oct 1972 (with an immediate retreat of less than 4%, followed a few months later by the start of a 50% bear market collapse),</li> <li>Aug 1987 (with the October crash within 10 weeks),</li> <li>July 1999 (associated with a quick 10% market plunge within 10 weeks),</li> <li>another signal in March 2000 (with a 10% loss within 10 weeks, a recovery into September of that year, and then a 50% market collapse),</li> <li>July-Oct 2007 (followed by an immediate plunge of about 10% in July, a recovery into October, and another signal that marked the market peak and the beginning of a 55% market loss),</li> <li>two earlier signals in the recent half-cycle, one in July-early Oct of 2013 and another in Nov 2013-Mar 2014, both associated with sideways market consolidations, and the present extreme.</li> </ul> <p><strong>It&rsquo;s notable that while these extremes sometimes occurred at the exact market high, other instances were only proximal to those highs, resulting in brief retreats and a final push higher.</strong> We don&rsquo;t know whether the current instance will have consequences similar to the 1929, 1972, 1987, 2000 and 2007 ones, but suffice it to say that these conditions were more notable for their outcomes over the completion of the full market cycle than they were for their immediate outcomes.</p> <p>*&nbsp; *&nbsp; *</p> <p><strong>We&rsquo;re quite aware, and slightly entertained, by critics who offer me as a poster-child against evidence-based market analysis or markedly unconventional views &ndash; half-way into a market cycle, with prices at record highs, and with reliable valuation measures at obscene levels. </strong>These will be great fun to save for later, as they were in 2000 and 2007.&nbsp; It should be obvious that our challenges in this half-cycle began with my 2009 decision to stress-test our methods against Depression-era data, having correctly anticipated the tech crash, the financial crisis, both of the associated recessions, having moved to a constructive outlook early in the intervening bull market, and when the long-term benefits our discipline were rather indisputable.<strong> Given an incomplete half-cycle at speculative extremes, my sense is that assessments of our discipline will change considerably by the completion of this cycle.</strong></p> <p>*&nbsp; *&nbsp; *</p> <p>When investor preferences are risk-seeking, overly loose monetary policy can have a disastrous effect by promoting reckless speculation and enhancing the ability of low-quality borrowers to issue debt to yield-starved investors. This encourages malinvestment and financial distortions that then collapse, as we saw following the tech and housing bubbles. <strong>Those seeds have now been sown for the third time in 15 years. All of this has been in pursuit of what is in fact a nearly nonexistent cause-effect relationship between monetary policy and economic activity.</strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="694" height="520" alt="" src="" /> </div> </div> </div> Bear Market John Hussman Market Internals Monetary Policy recovery SWIFT Mon, 02 Mar 2015 21:30:42 +0000 Tyler Durden 502726 at Lehman-Like Spending Collapse Sparks Panic-Buying - Nasdaq 5,000; S&P, Dow Records <p>An unofficial count of the number of utterances of the word &quot;different&quot; on CNBC following NASDAQ hitting 5000 stands at 47 as of the close... There&#39;s only one thing for it...</p> <p><iframe allowfullscreen="" frameborder="0" height="360" src="" width="480"></iframe></p> <p>&nbsp;</p> <p><u><strong>For the first time since Q1 2009 (i.e. post Lehman), we have just had back to back drops in consumer spending...</strong></u></p> <p><a href=""><img alt="" src="" style="width: 600px; height: 302px;" /></a></p> <p>&nbsp;</p> <p>and all but 1 data item missed today extending the string of shitty data and further inspiring stocks to record highs...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 316px;" /></a></p> <p>&nbsp;</p> <p>But all that mattered was that Nasdaq 5000 was achieved amid the broken market and then retested...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 441px;" /></a></p> <p>&nbsp;</p> <p>Perhaps this sums up that best...</p> <blockquote class="twitter-tweet" data-partner="tweetdeck"><p>What&#39;s not different this time: it&#39;s unanimous that it&#39;s different this time.</p> <p>&mdash; Not Jim Cramer (@Not_Jim_Cramer) <a href="">March 2, 2015</a></p></blockquote> <script async src="//" charset="utf-8"></script><p>&nbsp;</p> <p>All equity markets rose today magically levitated during that broken market period amid terrible data... then melted up in the last hour</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 523px;" /></a></p> <p>&nbsp;</p> <p>Notably, US futures got an initial bump from China PMI then pumped up at the European open (before dumping the S&amp;P to unch... and then it took off)... a small dip as Europe closed was quickly turned around and then a panic-buying melt-up ensued into the close...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 365px;" /></a></p> <p>&nbsp;</p> <p>VIX was punched back under 13.. lowest close since Dec 5th...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 591px;" /></a></p> <p>&nbsp;</p> <p>Treasury yields sold off from the US equity open but we suspect <strong>given the massive upsizing in the Actavis bond issue that this was notable rate locks being on amid a low liquidity market...</strong> (i.e. this is not sustainable)</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 313px;" /></a></p> <p>&nbsp;</p> <p>The US Dollar traded weak in the European session but started to rally back into positive territory as US markets opened, ending up 0.15% or so on the day...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 315px;" /></a></p> <p>&nbsp;</p> <p><strong>Silver, gold, and copper were all sold non-stop from Europe&#39;s open.</strong> Crude was very weak but rallied spike-like in its entirely algo-ized manner into the European close... only top dump it all back to unch by the NYMEX close...</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 314px;" /></a></p> <p>&nbsp;</p> <p>Seriously!! So next another leg down on into tomorrow&#39;s API data...?</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 484px;" /></a></p> <p>&nbsp;</p> <p><em>Charts: Bloomberg</em></p> Bond China Copper Crude Equity Markets Jim Cramer Lehman NASDAQ NYMEX Mon, 02 Mar 2015 21:06:47 +0000 Tyler Durden 502725 at $4 Million In Gold Bars Stolen In 11th Largest Heist In History <p>Long-time Zero Hedge readers may remember the rather surreal moment towards the beginning of the long-running German tungsten/gold repatriation saga, when Bundesbank Executive Board member Andreas Dombret <a href="">assured the NY Fed</a> that Germany wasn’t afraid of Simon Gruber (or Goldfinger for that matter) “masterminding gold heists in U.S. vaults.”&nbsp;</p> <p>Well, since it now appears Germany is all set to ramp up its repatriation efforts (see the NY Fed’s November <a href="">monthly outflow</a> numbers), Buba may want to reconsider its stance on the threat posed by ambitious bandits, <strong>as less than 24 hours ago, an estimated 4 million in gold bars were commandeered (on the side of I-95 no less), by gun wielding desperados.</strong></p> <p>From CBS:&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>North Carolina authorities and the FBI are investigating the theft of an estimated $4 million worth of gold allegedly stolen during an armed robbery along Interstate 95 on Sunday evening, CBS affiliate WRAL reports.</em></p> <p><em><br /></em></p> <p><em>After mechanical problems with their truck, two armed guards who were traveling from Miami to Massachusetts with a shipment of silver and gold pulled over at mile marker 114 on the Interstate.</em></p> <p><em><br /></em></p> <p><em>According to the station, the sheriff's office says the guards reported that three armed men in a white van approached them, ordered them to the ground, tied their hands behind their backs and forced them to walk into some nearby woods. Investigators, who responded to the scene shortly before 7 p.m., said the men then reportedly took several barrels of gold and left while the guards were in the woods.</em></p> </blockquote> <p>While it’s not clear if the perpetrators here were in fact relatives of anyone killed by John McLane, what we do know is that this was no small feat. Here’s local affiliate WNCN:&nbsp;<em><span style="font-size: 1em; line-height: 1.3em;">“ robberies of this magnitude are rare. The largest gold robbery in Florida, for example, was the $2.8 million stolen in 2012.”&nbsp;</span></em></p> <p><span style="font-size: 1em; line-height: 1.3em;"><strong>A quick look back at last year’s <a href="">ZH post chronicling</a> the 15 greatest gold heists of all-time reveals that yesterday’s 6:50 p.m. robbery was in fact the 11th biggest gold bullion heist of ever!</strong> Below, find the original infographic.&nbsp;</span></p> <p>&nbsp;</p> <p>&nbsp;</p> <div style="clear: both;"><a href=""><img src="" border="0" /></a></div> <div>Courtesy of: <a href="">Visual Capitalist</a></div> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="304" height="300" alt="" src="" /> </div> </div> </div> FBI Florida Germany Mon, 02 Mar 2015 20:54:35 +0000 Tyler Durden 502724 at