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Submitted by David Stockman via Contra Corner blog,

If any evidence was needed that the market is dying at the zero bound, it came in this week’s violent 15-minute rip when the algos read the Fed’s release to mean there will be no rate hike in June. It put you in mind of monetary rigor mortis - the last spasm of something that’s already dead but doesn’t know it.

Certainly the sell-side talking heads are clueless in their utterly mendacious patter that there is no bubble in stocks. Why, valuations are are in-line with historic multiples, we are told, and, besides, the Fed will keep interest rates low for long.

That kind of assurance is at once fatuous and reckless. With the earliest possible “lift-off” date now moved to September, money market interest rates will have been pinned to the zero bound for 81 months running. Do these lemmings actually think this can go on much longer—-to say 90 or 100 months—- without signaling a complete capitulation of the Fed to the robo-traders?

Likewise, have they failed to note that the casino is saturated with trillions of carry-trades which will begin to unwind once interest rate normalization commences?

When have speculators ever retreated in an orderly manner, and, most especially, why is the current even greater financial bubble going to deflate any less violently than did the dotcom in 2000 and the housing/Wall Street bubble in 2008?

That is, after years of buying with borrowed money, repo or options, Wall Street gamblers will soon be forced to sell in order to liquidate positions that will become increasingly unprofitable as interest rates rise. Indeed, negative carry as far as the eye can see is now a virtual certainty.

Besides that, why would any rational investor roll the dice until the very last minute when valuations are already sky high, and therefore extremely vulnerable to a drastic downward re-rating? According to the Wall Street Journal’s latest calculations, the LTM reported earnings of the S&P 500 companies were $99/share.

That’s notable because: 1) its down 6% from the LTM peak of $106 reported in the September 2014 quarter; 2) unlike the “ex-items” hokum peddled by the street, it’s an honest measure of earnings because the GAAP accounting is certified to the SEC by corporate executives on penalty of jail; and 3) its means that the PE multiple on today closing price is about  21.5X, thereby occupying the nosebleed section of recorded history.

And that’s not the half of it. Just as you can drown in a river with an average depth of two feet, average PE multiples can also obscure the deep eddy currents hidden in the popular stock indices.

That’s why the chart below is dispositive. Unlike the usual sell-side fare, it examines the median PE multiple, not the weighted average, for the thousands of stocks listed on the NYSE. In a word, the valuation level has never been higher since 1950; and the 21X shown in the chart is actually nearly 23X based on 10% market gain since June 2014.

And this gets to the crux of the matter. Even if the argument that PE multiples are in line with history were true, which it most definitely is not, the point is still bogus. That’s because capitalization rates on corporate earnings should be going down, not up, in a world in which sustainable trend-line growth has virtually disappeared; where profit margins are at off-the charts historic highs and heading for a reversion to the mean; and where interest rates can only trend upward on a secular basis after an unprecedented, nay historically freakish, 35 years of deflation.

And notwithstanding all of the recent arm-waving about the need for double-pumping the seasonal adjustments of the punk GDP results for Q1, the trend performance of the macro fundamentals is just plain terrible. For instance, the growth rate of real final sales during the seven years since the pre-crisis peak has been an anemic 1.1%. That compares to 2.5% during the post-2000 seven-year cycle, and 3.5% during the half century after 1950.

Sooner or later you can’t squeeze more profits from a stone cold economy. So why should earnings be valued at an all time high when the US economy is now growing at just one-third of its historic rate?

Likewise, on the eve of the crisis in December 2007, the BLS reported 138.4 million payroll jobs. Last month the number was just 141.4 million, meaning that only 3 million net jobs have been created over the last 88 months. Again, that compares to 6 million new jobs in the comparable period after the 2000 peak and 13 million in the seven years after 1990.

Moreover, not only is the job growth rate deflating faster than Tom Brady’s football—–that is to 34,000 per month in the current so-called recovery cycle compared to 70,000 and 155,000 per month in the previous two cycles, respectively—-but the compositional quality has been heading south even faster.

To wit, the US economy has actually shed 2 million full-time, higher paying “breadwinner” since December 2007—-down from 72 million to just 70 million in the April report. Accordingly, the net 3 million gain in the total payroll count is entirely attributable to a 2 million pickup in the part time economy—restaurant’s, bars, retail and  personal services—-and a 3 million gain in the fiscally dependent HES Complex (health, education and social services).

Breadwinner Economy Jobs - Click to enlarge

Breadwinner Economy Jobs – Click to enlarge

Nor are nosebleed PE multiples compatible with the feeble trend of investment in real plant and equipment. The gross rate of investment since the pre-crisis peak is less than 1% per annum; and the net rate, after depreciation, is still 20% below its 1999 level!

So there is one thing alone which is keeping the market levitated at today’s egregiously inflated levels. Namely, the Fed induced spasms of the few remaining robo-machines in the casino that have not yet been unplugged. At the moment, they continue to chop away on life support each time the Fed cops out for still one more meeting.

At length, however, even the monetary politburo will run out of excuses and deceptions. When the juice stops and the last machines go quiet, of course, there will be pandemonium in the casino, and here’s why.

The Great Financial Bubble dying at the zero bound has been inflating with just three interruptions——1987, 2000 and 2008-09—for the last 33 years. As a result, the market value of stocks, bonds and other debts have simply become decoupled from national income.

Corporate Equities and GDP - Click to enlarge

Corporate Equities and GDP – Click to enlarge

 

Total Marketable Securities and GDP - Click to enlarge

Total Marketable Securities and GDP – Click to enlarge

At 2X GDP in 1981, the financial market was valued at its multi-decade trend level. Since then, the market value of corporate equities has risen 17X and debt outstanding is up by 20X.

Accordingly, financial markets today are capitalized at 5X national income. That’s an elephantine bubble by any other name. And that’s why market spasms like yesterday’s 15-minute rip do indeed signify that monetary rigor mortis is rapidly setting in.








Earlier this month we reported that Patriot Coal, the second-largest coal miner east of the Mississippi, had filed for bankruptcy (again) due to “challenging market conditions.” 

Summarizing, a global supply glut (which, as we’ve shown is by no means confined to coal), cheap natural gas, and efforts to curb pollution have conspired to drive prices ever lower, creating an epic downturn in the coal market, exerting enormous pressure on producers. 

The latest casualty: nearly 2,000 workers at Murray Energy (where the mascot is a bald eagle).

Murray, the third-largest producer in the US, will layoff 21% of its employees with the majority of the cuts coming in West Virginia, which is staring down a $195 million budget gap thanks to the slide in coal prices.

Interestingly, CEO and founder Robert Murray is adding businesses just as fast as he’s subtracting employees in an effort to stay afloat by driving down the cost of production.

Of course, the acquisition spree is being funded by all manner of debt including three quarters of a billion in second-lien notes. Here’s WSJ:

Murray two months ago paid $1.4 billion for a controlling stake in Illinois basin miner Foresight Energy LP. The new company controls over nine billion tons of coal reserves, and can generate nearly 90 million tons of coal production annually—enough to supply 4% of the U.S.’s yearly electricity needs.

 

Murray, which already has roughly $1.9 billion in debt, said it would finance the purchase with new debt, including a new $1.6 billion term loan facility and approximately $860 million in second-lien senior secured notes. In late 2013, Mr. Murray paid $3.25 billion to buy five mines from Pittsburgh-based Consol Energy Inc.

How is all of this likely to turn out? Poorly and with thousands more lost jobs and thus thousands more Americans set to be "Liesman'd" out from the BLS's official numbers so the US can perpetuate the "recovery" narrative. 

Don't believe us? Just ask Robert Murray himself:

“We have the absolute destruction of the coal industry. If you think it’s coming back, you don’t understand the business — or you’re smoking O.P. — because it’s not going to come back.”

 









Emerging Money Daily Audio Call May 22 - On the call today we address a hot CPI print in the US which is adding to the bid in the USD thus the weight in the EM currency complex.

Phone AudioHow much is left in this move for the USD and the Euro and what are other ways to play a stronger USD? What does Yellen mean today for global markets?

EM trading in a range that says we are beholden to trading the range. What EM ETFs are we selling or cautious on the near term price direction? 

China: SO many people saying so many conflicting things. What do we believe?  

Have a happy and safe Memorial Day Weekend!

Log into your account and select menu item “Emerging Money Call” for today’s audio call and a full list of archives

To Subscribe, to the full Emerging Daily Audio Call Click Here

 

 

Submitted by Martin Tillier via OilPrice.com,

A lot of people have got very excited as the price of WTI has bounced back from the lows reached a few months ago. If oil fails to break and hold above $62 this time around, however, their enthusiasm could well be misplaced, as the fundamental factors that caused the price decline in the first instance are still in place.

That, combined with the technical importance of this challenge of the resistance, makes a drop back below $50 look more likely than a continued rally. When short-term technical indicators and long-term fundamentals both suggest a move in the same direction, as is the case here, investors are well advised to pay attention.

In the short term, as the above 3 month chart clearly shows, the $62 resistance level that we are approaching again has enormous significance. Most traders will tell you that the third attempt at a support or resistance level is the most important, and the reason for that is also clear on the chart.

The first time WTI tested $62 it dropped back to around $60 when momentum reversed. Then, a few weeks later, failure to break through led to a more pronounced retreat, back down to around $58. Each failure to break above a resistance point usually results in a bigger correction back the other way, so failure on the third try would likely be followed by a drop to $55-56, making another attempt far less manageable. From there the combative nature of traders would make a re-test of the January lows more likely.

The real problem, of course, is the same one that is always faced by technical analysis…price doesn’t exist in a vacuum. There are real world fundamental factors that are far more influential. With oil, those fundamentals also suggest another drop is coming.

Part of the reason for the rally was just that the initial move was so fast and furious that a correction was inevitable. That came in large part at the beginning of the year, when the dollar stopped its seemingly inexorable rise and began to retreat.

Oil is priced in dollars, so, all else being equal, if the dollar is worth less then, on a relative basis, oil is worth more and the price goes up. Just as with the commodity, however, the reversal in the currency markets looks more like a temporary correction than a true change of direction when the fundamental factors that caused the initial move are considered.

Two of the U.S.’s major trading partners, the Euro zone and Japan are still pursuing QE of sorts, long after the Fed has wound down the policy here. Whatever you call this type of policy, it is basically liquidity creation also known as printing money. Anybody who has taken economics 101 can tell you that increasing the supply of something will decrease its value relative to other things. Relative dollar strength, therefore is a result of the most basic of fundamentals, supply and demand.

Oil has its own supply and demand issues too. The increased domestic supply of oil as fracking wells really came online, along with fears of slowing global growth and falling demand for fossil fuels, were major factors in oil’s collapse. Nothing much has changed there either. On the demand side there has been no global meltdown but China is still weaker than expected and recent U.S. GDP numbers have been disappointing. The developed world continues to become more energy efficient.

Even the good news on the supply side looks a little suspect. The recent move up was sparked by lower U.S. oil production numbers, but analysis suggests that it was a temporary slowdown in Alaska, not a reduction in fracking production, that caused the rise. Inventories still remain elevated and Saudi exports were the highest since 2005.

In short then, it looks like the things that caused the dramatic fall in WTI, oversupply, a risk of falling demand and a strong dollar are still with us. This test of $62 looks doomed to failure and a return to below $50 seems almost inevitable








By Bloomberg China’s Ordos city, where towers that sprang from Inner Mongolian farmland now sit empty, is showing the hangover has just begun from a decade-long building boom. Ordos City Huayan Investment Group Co., a developer whose chairman headed a group of livestock researchers, is at high risk of defaulting on 1.2 billion yuan ($194…
By LOUISE RADNOFSKY at The Wall Street Journal Major insurers in some states are proposing hefty rate boosts for plans sold under the federal health law, setting the stage for an intense debate this summer over the law’s impact. In New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6%…
By TAKASHI NAKAMICHI And TATSUO ITO at The Wall Street Journal TOKYO—Bank of Japan Gov. Haruhiko Kuroda gave the green light for stocks to keep climbing Friday, saying the upward momentum is fueled by record-breaking profits, after the market value of Tokyo shares topped its 1980s bubble-era peak. “At this moment, we don’t see any indication that…

For the past three years, the biggest argument supporters of Obamacare would trot out every single time when faced with opposition to the mandatory tax, would be that despite widespread predictions of soaring prices, US medical care service costs had remained low and even, on occasion, declined (we leave aside the lack of discussion about soaring deductibles which are recurring "one-time" charges incurred whenever anyone does need medical care, and whose weighted impact on overall medical outlays is dramatic).

A big reason for this delayed increase in prices is that many insurers were unable to gauge the full base-effect impact of Obamacare on their P&L: after all, effective implementation of Obamacare had been materially delayed thus preventing an apples to apples comparison of incurred fees versus revenues.

All that changed moments ago when core US inflation finally spiked the most since 2013 driven by a 0.7% monthly surge in medical care service costs: the highest since 2007!

 

What's far worse for the troubled US consumer, this is just the beginning. Because after finally digesting the true cost of Obamacare, any recent insurance prime hikes will seem like a walk in the park compared to what is coming.

According to the WSJ, key insurers in some states are proposing hefty rate boosts for plans sold under the federal health law.

Case in point: 

  • In New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6% in premiums for 2016.
  • In Tennessee, the biggest insurer BlueCross BlueShield of Tennessee, has requested an average 36.3% increase.
  •  In Maryland, market leader CareFirst BlueCross BlueShield wants to raise rates 30.4% across its products.
  • In Oregon, the largest insurer Moda Health seeks an average boost of around 25%.

All of them cite high medical costs incurred by people newly enrolled under the Affordable Care Act.

The irony is that while the Obama administration "can ask insurers seeking increases of 10% or more to explain themselves, but cannot force them to cut rates. Rates will become final by the fall."

Why the explosion in costs? Simple: take on look at the IBB or any other biotech index, all of which have exploded in recent years as a result of one key thing: pushing prices of medicines ever higher. Now, finally, these soaring prices which have likewise resulted in soaring stock prices, are about to be funded by everyone else.

Insurers say their proposed rates reflect the revenue they need to pay claims, now that they have had time to analyze their experience with the law’s requirement that they offer the same rates to everyone—regardless of medical history.

 

Health-cost growth has slowed to historic lows in recent years, a fact consumer groups are expected to bring up during rate-review debates. Insurers say they face significant pent-up demand for health care from the newly enrolled, including for expensive drugs.

 

“This year, health plans have a full year of claims data to understand the health needs of the [health insurance] exchange population, and these enrollees are generally older and often managing multiple chronic conditions,” said Clare Krusing, a spokeswoman for America’s Health Insurance Plans, an industry group. “Premiums reflect the rising cost of providing care to individuals and families, and the explosion in prescription and specialty drug prices is a significant factor.”

 

David Axene, a fellow at the Society of Actuaries, said some insurers were trying to catch up with the impact of drugs such as Sovaldi, a pricey pill that is first in a new generation of hepatitis C therapies.

Now Sovaldi has been great news for one group of consumers: those who were long the stock of drug maker Gilead. Alas, now the time has come to pay the piper. And while Sovaldi's cost at $1,000 per pill and $84,000 for a typical 12-week course of treatment, has been a goldmine for GILD, the piper's invoice will be massive.

Who pays it? Why everyone dear America. That's the magic of socialized medicine the Obamcare tax, which means everyone has to chip in for the healthcare of the few. Meanwhile, GILD shareholders are laughing all the way to the bank.

As a result, expect Obamacare premiums, which are about to spike across the board virtually everywhere, to become a key talking point:

Insurance premiums have become a top issue for consumers and politicians as they evaluate how well the law is working. Obama administration officials weathered a storm as some younger, healthier consumers saw their premiums jump when the law rolled out, but were also able to point to modest premiums overall as insurers focused on other ways to keep costs down, such as narrow provider networks.

 

For 2015 insurance plans, when insurers had only a little information about the health of their new customers, big insurers tended to make increases of less than 10%, while smaller insurers tried offering lower rates to build market share.

Since the insurers have now had a chance to evaluate the impact of Obama's landmark tax on the top- and bottom-line, they have decided that they will need to charge the mandatorily insured Americans more. Much more. After all, it's not like Americans have much of a choice to say no to a "mandatory" tax.

BlueCross BlueShield of Tennessee, CareFirst in Maryland and Moda in Oregon all said high medical claims from plans they sold over insurance exchanges spurred their rate-increase requests.

 

The Tennessee insurer said it lost $141 million from exchange-sold plans, stemming largely from a small number of sick enrollees. “Our filing is planned to allow us to operate on at least a break-even basis for these plans, meaning that the rate would cover only medical services and expenses—with no profit margin for 2016,” said spokeswoman Mary Danielson. The plan’s lowest monthly premium for a midrange, or “silver,” plan for a 40-year-old nonsmoker in Nashville would rise to $287 in 2016 from $220.

 

* * *

 

Moda Health said that with more than 100,000 individual members, it had the best data “on the care actually being received by these Oregonians. Our proposed rates reflect that.”

 

Under Moda’s proposal, a 40-year-old nonsmoker in Salem would pay $296 a month in 2016 for a silver plan, up from $245 a month this year. “It is a balance,” said Oregon Insurance Commissioner Laura Cali of her rate-review process.

But wasn't the Affordable Care Act supposed to make healthcare prices more, well, a?. Well no, as we have explained time and again, most recently last summer.

But the biggest irony: just as Obamacare was the primary reason for the US Q3 GDP surge to 5%, as we explained last December, fooling many pundits into believing the US economy was finally in a self-sustaining liftoff mode...

 

... so this year it will be up to Obamacare to single-handedly pump up core CPI inflation - that biggest missing link from the Fed's "successful monetary policy" checklist.

As for US consumers? Why, they are about to get the short end of the stick again, as any and all "gas savings" now and in the future, will be once again spent on, you guessed it, health insurance.

The problem with that being that unless oil crashes again, there are no gas-savings to be had. Which means one thing: the only thing crushed yet again will be the US consumer, that 70% component of US GDP.

But don't worry: when the US economy slows down to a crawl once more, and posts a negative GDP print this time during the summer, there will be a double seasonal adjustment for that.








Today’s AM LBMA Gold Price was USD 1,211.00, EUR 1,083.45 and GBP 772.96 per ounce.
Yesterday’s AM LBMA Gold Price was USD 1,209.60, EUR 1,084.36 and GBP 772.60 per ounce.

Gold fell $3.78 to close at $1,205.82 an ounce on yesterday, and silver remained unchanged at $17.12 an ounce.

Gold in U.S. Dollars - 1 Week
Gold in U.S. Dollars - 1 Week

Overnight, gold in Singapore inched up 0.2 percent to $1,208.19 an ounce near the end of day trading. Gold is on track to trade down 1.4 percent it largest weekly drop in a month.

Gold prices have rebounded today after ending yesterday down 0.3%, but appear to have run into some resistance at their 200-day moving average (1215). On the week, gold is down 0.7% and silver is marginally lower in dollars for the week but has eked out gains in euro terms. The biggest fall of the week was palladium, down just over 2%.

On a daily basis, palladium's the only precious metal lower today, down just over half a percent, while platinum's up 0.3% and silver's 0.5% higher.

Gold in Euros - 1 Week
Gold in Euros - 1 Week

Gold was weak in dollar terms but strong in euro terms this week. The U.S. dollar gained nearly 2 percent this week as the euro weakened again.

‘Grexit’ remains a real risk. German chancellor Angela Merkel, Greek Prime Minister Alexis Tsipras and French president Francois Hollande are negotiating a cash-for reforms deal that would allow Greece to meet its debt repayments next month and join the ECB’s quantitative easing programme.

“We can't just throw Greece of the euro” - Juncker has threatened ahead of the crunch summit. Greece says a reform deal can come in 10 days, but Merkel is cautious -  she warned that there is a 'whole lot left' to do on Greece bailout talks.

Jitters remains about the next repayment which is due on June 5th. ‘Extend and pretend’ seems likely again but obviously this can only go on for so long before we get a very serious crisis and potentially contagion.

Thomson Reuters' Lipper service data showed yesterday that investors in U.S.-based funds removed $597 million out of commodities and precious metals funds in the week ended May 20, the biggest outflow since December 2013, showing negative sentiment towards the sector.

Gold in British Pounds - 1 Week
Gold in British Pounds - 1 Week

However, the smart money continues to maintain allocations or accumulate positions. U.S. mining financier Oskar Lewnowski is preparing to launch a base and precious metals fund, sources have told Reuters. This is his latest step in recreating Red Kite - the famed trading and investment enterprise he co-founded a decade ago.

Two years after going out on his own and creating a private equity investment firm Orion Resource Partners, the 50 year old New Yorker has already invested almost $1 billion in equity, loans and royalty streams into at least 17 junior mining firms, and hired a physical metals trader to handle supply.

Russian gold reserves increased by another sizeable 300,000 troy ounces in April to bring total, declared Russian gold reserves over the 40 million mark - to 40.1 million troy ounces. There is of course the possibility that Russia is not declaring all of their gold bullion purchases and reserves, in the manner of the People’s Bank of China.

In late morning European trading gold is up 0.56 percent at $1,212.67 an ounce. Silver is up 0.68 percent at $17.28 an ounce and platinum is up 0.27 percent at $1,157.00 an ounce.

Breaking News and Research Here








Yesterday the average SHAK restaurant was worth $48 million. Today it is $53 million and rising, following the overnight 6% surge in the company's market cap. Because why not.

 

A gentle reminder...








Submitted by Pater Tenebrarum via Acting-Man.com,

A Big Dow Theory Divergence

We briefly want to show a few charts that have caught our eye recently. This is by no means a comprehensive market update (we plan to provide one soon). Here is something though one doesn’t see all too often: the Dow Industrials and Transportation averages have diverged from each other for about six months running. To be sure, no valid Dow theory sell signal has been given yet. For that to happen both averages need to break their previous reaction lows in concert. However, divergences at peaks are a “heads up” signal. Charles Dow would probably at least raise one eyebrow and frown a little.

 

IA_0314_ETFAdvisor_MI600

 

 

 

1-Industrials and transports-ann

Transportation stocks have turned from leaders into laggards, in the process diverging ever more from the Industrials average – click to enlarge.

 

The NYA, Then and Now

The next two charts were sent to us by a friend who manages a fund and often passes on his technical observations to us. The first chart shows the broad-based NYSE Stock Exchange Index (NYA) as it looked in the final years of the tech mania that fizzled out in the spring of 2000. The second chart shows the NYA as it looks today.

 

2-NYA at the peak of the tech bubble

The NYA from 1996 to 2000 – click to enlarge.

 

3-NYA today

The NYA today – click to enlarge.

 

The similarity between these two charts is quite baffling. However, we hasten to add that we have seen many such pattern comparisons over the past few decades, and they often turn out to be meaningless. Incidentally though, Paul Tudor Jones’ career really took off when he traded the 1980s market based on the pattern of the 1920s market, and the pattern actually did repeat, including the infamous crash (the action obviously began to diverge after the crash, but the patterns eerily shadowed one another for a number of years). So at times, a pattern comparison can actually turn out to be helpful.

The wedge-like formation at the end of the respective moves in the NYA highlighted above with blue trend lines does look like it could be a so-called “ending diagonal” pattern. It certainly was one in 2000, whether the recent wedge will also turn out to be one remains to be seen of course. However, with sentiment and positioning data as well as valuations extremely stretched and US money supply growth rates slowing down, a similar outcome certainly shouldn’t be ruled out a priori.

 

Conclusion

The divergence between industrial and transportation stocks is probably the more meaningful of these charts, as there is a logical explanation as to why its occurrence is worrisome. Specifically, Dow argued that when business was good for industrial companies, it had to be good for transportation companies as well, and vice versa. Any divergences in the assessment of these businesses by stock market participants should therefore be seen as a warning sign.








On a turbo-charged illiquid day ahead of the Memorial Day weekend, stocks, bonds, USD, and commodities are turmoiling after this morning's hotter-than-expected CPI print. Stocks and Bonds were instantly sold (hawkish-er signal), the USD soared (hawkish-er signal) and crude, copper, and precious metals tumbled. Fundamentally speaking of course the US Open is soon and so the algos will, we are sure, rescue one of these (or will they)... and then there's Yellen at 1ET.

 

 

Charts: Bloomberg








David Stockman and FBN’s Neil Cavuto on the factors leading to the widening wealth gap.View here if video not visible.

The market appears to have chosen the hotter-than-expected Core CPI print (as opposed to weakest headline CPI YoY print since Oct 2009 of -0.2%) as key. Core CPI rose 0.3% MoM in April - the most since March 2006; and 1.8% YoY - the most since Jan 2013. The biggest driver of the surge in consumer prices is medical care costs - which rose 0.7% - the biggest increase since January 2007 (thanks Obamacare).

 

Overall CPI is the lowest since Oct 2009...

 

But Core CPI is surging...

 

The Core CPI breakdown...

The index for all items less food and energy increased 0.3 percent in April, its largest increase since January 2013. The shelter index increased 0.3 percent, the same increase as in March. The indexes for rent, owners' equivalent rent, and lodging away from home all rose 0.3 percent. The medical care index rose 0.7 percent, its largest increase since January 2007. The index for medical care services rose 0.9 percent with the hospital services index rising 1.9 percent. The index for household furnishings and operations rose 0.5 percent, its largest increase since September 2008. The index for used cars and trucks increased 0.6 percent, and the new vehicles index rose 0.1 percent. The indexes for alcoholic beverages and for tobacco were both unchanged in April. The apparel index declined for the first time since December, falling 0.3 percent. The index for airline fares continued to decline, falling 1.3 percent after a 1.7-percent decline in March.

The index for all items less food and energy has risen 1.8 percent over the past 12 months, the same increase as for the 12 months ending March. This is slightly below its 1.9-percent annualized increase over the past 10 years. The shelter index has risen 3.0 percent over the last year, and the medical care index has advanced 2.9 percent. The index for airline fares fell 7.5 percent over the last year, and the indexes for apparel and for used cars and trucks have also declined.

As Medical Care Costs soared... 0.005% shy of the biggest MoM increase in healthcare costs in 21 years!

Thanks Obamacare

 

Charts: Bloomberg








Aeropostale Inc (NYSE: ARO) ...

Full story available on Benzinga.com

  … Troubles Our Sleep … It is the vision of what the United States will be like when the authorities have obliterated almost three millennia of monetary progress and have their boots on our necks. Here’s Peter Bofinger, a leading German Keynesian economist, in Der Spiegel magazine:   “With today’s technical possibilities, coins and notes […]

eLong, Inc. (ADR) (NASDAQ: LONG) shares climbed 36.80 ...

Full story available on Benzinga.com

In many ways, four months of negotiations between Greece and its creditors can be summed up with the following two headlines from this morning:

  • GREECE VERY CLOSE TO SEALING DEAL WITH CREDITORS: SPOKESMAN
  • GREECE WON'T COMPROMISE ON LABOR REFORMS, PENSIONS: SPOKESMAN

Those came back-to-back believe it or not, which underscores the whole problem: the Greek government wants money but doesn’t want the conditions which come with the money because those conditions entail the wholesale abandonment of the mandate that got them elected in January. 

Despite it all, PM Alexis Tsipras still thought he could effectively secure a deal in Latvia this week by whispering to Angela Merkel on the sidelines of a Eurogroup meeting, a tactic he’s tried before to no avail. Unsurprisingly, these “sideline” talks produced exactly nothing after Tsipras kept Merkel and French President Francois Hollande up until 1 in the morning in Riga, proving that, to quote Jean-Claude Juncker, “Riga just isn’t the place” for eleventh hour bailout negotiations. Here’s more from Bloomberg:

With time running out for a deal to free up the remaining 7.2 billion-euro ($8 billion) tranche of aid, Merkel’s discussions in Latvia with Tsipras and French President Francois Hollande broke up in the early hours of Friday with an agreement only to keep talking. Tsipras talked of a resolution “soon,” whereas Merkel said there’s “a whole lot to do.”

 

“It was a very friendly, constructive discussion,” the chancellor told reporters on Friday as she arrived for the second day of a two-day European Union summit in the Latvian capital, Riga. “But it was very clear that further work has to be done with the three institutions.”

 

The meeting marked another rejection by Merkel of the latest Tsipras attempt to bypass finance ministers and strike a political deal at the level of government leaders, highlighting German insistence that Greece’s budget numbers must add up before aid can be released.

 

A short statement released separately by the French and German governments after more than two hours of talks with Tsipras was devoid of earlier optimism expressed by Hollande at paving the way for an accord as soon as the end of the month. In its place, the governments of the two biggest euro-area economies talked of agreement “to stay in close contact.”

 

A government official, in a debriefing after the talks broke up about 1 a.m., signaled Greek frustration by saying that a main obstacle is that the International Monetary Fund needs to be on board. The IMF is one of Greece’s creditors along with the European Central Bank and euro-area governments. “Open issues” remain with creditors, including pensions, sales-tax rates and targets for a primary budget surplus, the official told reporters.

 

The French and German statements lacked Hollande’s upbeat tone as he arrived in Riga, when he had opened the prospect of striking a political deal that could help lead to an accord by finance ministers at the end of May or early June. Without an agreement, Greece risks a default that would put in question its future in the 19-nation euro region.

 

Absent too from the final statements was any reference to an extraordinary finance ministers’ meeting on Greece. Hollande had said that the discussion with Tsipras would “help prepare for the expected deadline, especially the eurogroup” meeting of euro-area finance ministers “at the end of May or in early June.” That suggested a special meeting since the next regular gathering isn’t due until June 18.

 

France and Germany offered to provide assistance to Greece and Tsipras whenever questions come up, Merkel said. “But the accord must be reached with the three institutions and very, very intensive work has to be done.”

As for Germany — where Christian Democratic lawmakers have for weeks been pressuring Merkel to call it quits on Greece — the Finance Ministry and the central bank are out questioning the utility of continuing to negotiate with Syriza.

First there’s Bundesbank chief Jens Weidmann...

“The prospect of a sustainable stabilization of Greece is decisive, that requires an improvement in competitiveness, solid state finances and better administrative structures. The IMF has also rightly advised this. Hence, the ball is clearly in the court of the Greek government.”

...and then the German finance ministry...

“International Monetary Fund participation in negotiations on Greece’s aid program is mandatory

requirement.”

...and finally, the Schaeuble was unleashed…

German Finance Minister Wolfgang Schaeuble conceded the possibility that Greece may need a parallel currency alongside the euro if the country’s talks with creditors fail, people familiar with his views said.

Yes, “conceded the possibility,” and while those who actually witnessed the German FinMin’s comments claim he “didn’t endorse the idea”, we imagine his feelings wouldn’t be hurt if it came to pass because as we’ve seen, Schaeuble is no fan of radical socialist shenanigans. 

Meanwhile, Commerzbank says the country’s economy (which, as a reminder, is losing €22.3 million a day) not to mention its citizens, simply can’t take the pain any longer and when comparing Greece to other historical instances of EM “turmoil”, the country doesn’t come out so well.

Via Bloomberg:

As another round of aid talks between the Mediterranean nation and its creditors ends without a deal, its economy is faring even worse than a string of developing countries which suffered traumas in the last two decades. That leaves Commerzbank AG declaring the country is in little position to pare its debt and that default or a restructuring may loom.

 

“Just as with emerging markets in the past there is a point in time where you need to move on to the next stage rather than being paralyzed,” Simon Quijano-Evans, head of emerging market research at Commerzbank in London, said in a telephone interview. “In Greece, we need to think of next steps and be innovative.”

 

To illustrate Greece’s pain, he published a report this month comparing how the economic fallout from its five-year-old crisis compared with the bouts of turmoil suffered in the last two decades by Turkey, Argentina, Latvia and Thailand. The result illustrates why Commerzbank sees a 50 percent chance of Greece ultimately leaving the euro area.

 

“Comparing Greece’s experience so far with that of EM crisis countries shows very simply that the country’s already stressed economy and electorate are unable to cope with more pain,” said the Commerzbank economist.

 

While Athens has imposed the tightest fiscal squeeze of the five and pushed its budget balance excluding interest payments into surplus from a deficit of about 10 percent of gross domestic product in 2009, Turkey and Argentina were doing better at the same stage.

Yeah… about that budget balance…

  • GREEK MARCH CURRENT ACCOUNT DEFICIT WIDENS TO EU404M

*  *  *

We’ll close with the following comments from Jacob Funk Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington who spoke to Bloomberg today by phone:

“[Germany is ready] to take this brinkmanship very far [with Schaeuble as] attack dog. We’re in this game of chicken. The problem is that Alexis Tsipras is riding a scooter and Wolfgang Schaeuble is driving an armored BMW.”

*  *  *

Summing up all of the above in two pictures...








Pre-open movers

US stock futures traded slightly higher in early pre-market trade. The Consumer Price Index for April will ...

Full story available on Benzinga.com

Yesterday, in the aftermath of the latest settlement by the world's biggest banks, who finally admitted they have criminally rigged virtually all markets since the Great Financial Crisis (and prior) despite promising repeatedly they would not do that after having been caught time and again and punished with ever "harsher" wristslaps, we wrote that the "Public Is Confused Why World's Biggest Banks Admitting Criminal Fraud, Leads To Public Yawns."

It appears the public is not the only one who is confused, or yawning, that yet again banks get away with just another penalty (to be paid by their shareholders) and zero jail time for the perpetrators despite what is supposedly "criminal" rigging: none other than a SEC regulator working for the same enforcer who "punished" the Too Big To Prosecute banks only to immediately grant them waivers to continue business as usual, is just as confused.

Here, two weeks after SEC commissioner Cara Stein raged that the SEC would turn a blind eye to Germany's Deutsche Bank for a "Decade Of Lying, Cheating, And Stealing", is her dissenting opinion with the SEC settlement, this time broadening her anger to include all the banks, not just the German one.

* * *

Dissenting Statement Regarding Certain Waivers Granted by the Commission for Certain Entities Pleading Guilty to Criminal Charges Involving Manipulation of Foreign Exchange Rates

Commissioner Kara M. Stein

May 21, 2015

I dissent from the Commission’s Orders, issued on May 20, 2015, that granted the following waivers from an array of disqualifications required by federal securities regulations:

  1. UBS AG, Barclays Plc, Citigroup Inc., JPMorgan Chase & Co. (“JPMC”), and the Royal Bank of Scotland Group Plc (“RBSG”), waivers from the provisions under Commission rules that automatically make them ineligible for well-known seasoned issuer (“WKSI”) status;
  2. UBS AG, Barclays, and JPMC waivers from automatic disqualification provisions related to the safe harbor for forward-looking statements under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934; and
  3. UBS AG and three Barclays entities waivers from the automatic Bad Actor disqualification provided under Rule 506.

The disqualifications were triggered for generally the same behavior: a criminal conspiracy to manipulate exchange rates in the foreign currency exchange spot market (“FX Spot Market”), a global market for buying and selling currencies.  Traders at these firms “entered into and engaged in a combination and conspiracy to fix, stabilize, maintain, increase or decrease the price of, and rig bids and offers for,” the euro-dollar foreign currency exchange (“FX”).  To carry out their scheme, the conspirators communicated and coordinated trading almost daily in an exclusive online chat room that the traders referred to as “The Cartel” or “The Mafia.” Additionally, salespeople and traders lied to customers in order to collect undisclosed markups in certain transactions.  This criminal behavior went on for years, unchecked and undeterred.

There are compelling reasons to reject these requests to waive the automatic disqualifications required by statute or rule.  Chief among them, however, is the recidivism of these institutions.   For example, in the face of the FX criminal action, a majority of the Commission has determined to grant Citigroup yet another WKSI waiver, its fourth since 2006.  It is worth noting that Citigroup was automatically disqualified from WKSI status between 2010 and 2013 for unrelated misconduct, meaning that it has effectively now triggered WKSI disqualifications five times in roughly nine years.  Further, through this latest round of Orders, the Commission has granted:

  • Barclays its third WKSI waiver since 2007;
  • UBS its seventh WKSI waiver since 2008;
  • JPMC its sixth WKSI waiver since 2008; and
  • RBSG its third WKSI waiver since 2013.
  • The Commission has thus granted at least 23 WKSI waivers to these five institutions in the past nine years. The number climbs higher if you include Bad Actor and other waivers.

This latest round of criminal charges also comes on the heels of the Department of Justice’s actions against UBS, Barclays, and RBSG for their collusive manipulation of the London Interbank Offered Rate (“LIBOR”), a benchmark used in financial products and transactions around the world.  The manipulation of LIBOR was flagrant and “impact[ed] financial products the world over, and erode[d] the integrity of the financial markets.” As part of the settlements in the LIBOR matters, UBS, Barclays, and RBSG each entered into agreements with the Department of Justice in which they undertook not to commit additional crimes during the term of the agreements.

Allowing these institutions to continue business as usual, after multiple and serious regulatory and criminal violations, poses risks to investors and the American public that are being ignored.  It is not sufficient to look at each waiver request in a vacuum.

And today the Commission heads further down this path.  After the LIBOR guilty pleas, UBS was granted a WKSI waiver that was explicitly conditioned on compliance with the judgment in the LIBOR-related matter.  That explicit condition has now been violated.  Yet, the Commission has just issued UBS a new WKSI waiver.  

It is troubling enough to consistently grant waivers for criminal misconduct.  It is an order of magnitude more troubling to refuse to enforce our own explicit requirements for such waivers.   This type of recidivism and repeated criminal misconduct should lead to revocations of prior waivers, not the granting of a whole new set of waivers.  We have the tools, and with the tools the responsibility, to empower those at the top of these institutions to create meaningful cultural shifts, yet we refuse to use them.

In conclusion, I am troubled by repeated instances of noncompliance at these global financial institutions, which may be indicative of a continuing culture that does not adequately support legal and ethical behavior.  Further, I am concerned that the latest series of actions has effectively rendered criminal convictions of financial institutions largely symbolic.  Firms and institutions increasingly rely on the Commission’s repeated issuance of waivers to remove the consequences of a criminal conviction, consequences that may actually positively contribute to a firm’s compliance and conduct going forward. 

* * *

Or to summarize, running a criminal cartel is expensive...

... but at least keep everyone out of prison. For, you know, crimes.

Great chart tracking the people sent to jail over the myriad banking scandals, market-rigging and frauds: pic.twitter.com/hofqPmc2EV

— Jamie McGeever (@ReutersJamie) May 22, 2015








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