JAPAN - Foreigners Buying, Japanese Selling

The Soaraway Nikkei and the Yen 05-21-13 FTAlphaville

• Nikkei Up 45% since start of the year.
• Foreign Investors have bought Y8.6T since October

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Foreigners Are Piling Into Japanese Stocks In A Way They Haven't Done In Years 05-23-13 BI

JAPAN - The Y110 Stop. Breaks Applied at Y100

Gary Dorsch recently spelled out the problem quite clearly:

How long can Tokyo's financial warlords continue brainwash the Japanese public into believing that the bogeyman of deflation is still haunting its economy? No doubt, MoF apparatchiks will continue to fudge the official inflation numbers. However, the truth is, - the Continuous Commodity Index, measuring the cost of a basket of 17-equally weighted commodities, is now trading +26% higher than a year ago, when priced in yen. A further weakening of the yen would only increase the cost of imported goods for Japanese consumers. Already, the cost for imported fossil fuels jumped +10% last year to ¥24-trillion, even before the US$ crossed ¥90 . Be careful of what you wish for, since a higher cost of living can sap the disposable income of your citizens, and lift JGB yields, which in turn, can also cause an economic recession.

How high can US$ fly, versus Yen? If the yen begins to plummet into a free-fall, Japan's competitors in China, Germany, Korea and the US might cry foul and demand that Tokyo either scale back its Big-bang QE operations or stop them completely. Otherwise, other central banks might push back against Tokyo in a full scale currency war, the likes of which, the world has never seen before. However, Tokyo is confident it can prevent a free-fall of the yen, and that it can carefully orchestrate a gradual devaluation, with verbal Jawboning exercises and utilizing its enormous war chest of foreign currency reserves, now totaling $1.26-trillion, and mostly consisting of US-dollars.

Although Japan is supposed to refrain from using its FX reserves for purposes of direct intervention in the currency markets, according to the Feb 12th G-20 communiqué, the renegade BoJ is expected to begin clandestine sales of US-dollars at higher levels, in order to keep a two-way market intact, and prevent a currency free-fall. Where would Tokyo try to cap the US-dollar's advance? On January 18th, Koichi Hamada, the chief architect of "Abenomics," gave a subtle hint to reporters at the Foreign Correspondents' Club of Japan in Tokyo , saying the US-dollar can rise to ¥ 110 before excessive inflation risks kick in. "If the US-dollar goes above ¥110, there may be reason for worry," he said, signaling that Tokyo would try to engineer a rally for the US-dollar in staggered step patterns, - gaining about ¥3 and pulling back ¥1, until it reaches ¥110.

Did Corporate Buybacks Just Jump The Shark? 05-23-13 Zero Hedge

While it should be no surprise to anyone that buybacks have been a major support of the market for the last few years (as we explicitly showed here and here in terms of earnings manipulation and here in terms of ill-timing), the following chart may give some pause for thought as to whether that is now a good thing or not. Not only is the credit market 'atlas' starting to shrug at its own 'frothiness', as it is used-and-abused by every poor-performing company to borrow-and-lever give-backs to shareholders, but the amount of 'outperformance' of the Buyback 'achievers' index (A gauge of companies that repurchased at least 5% of their shares in the previous 12 months) over the market is eerily similar now to the size of the outperformance at the top in 2007...

Charts: Bloomberg

GLOBAL SENTIMENT - Complacent

Global Risk Appetite At 2006 Levels - Nears 'Euphoria' 05-22-13 Zero Hedge

Global risk appetite surged to 4.53 (5 being 'euphoria'), its highest level since the euphoria event of 2006, and up from 1.76 one month ago according to Credit Suisse. Other risk appetite indices, as well as market anecdotes, confirm the “almost euphoric” environment. US credit risk appetite has charged higher and is now at 3.22. Furthermore, as they note, the current risk rally has several unusual features. First, it clearly lacks the usual support of strong global growth momentum. Global IP momentum (as we noted here) is almost always above its long-term average when risk appetite hits euphoria, but currently is below 5%, which is somewhat sluggish. Second, the current near-euphoria is strongly driven by one asset class: Japanese equities. The bottom-line, they conclude, is that the current risk-loving environment is related much more to recent policy innovations than growth data. And confirming this 'euphoria' Investors Intelligence notes that newsletter writers classified as bulls rose to 55.2% from 54.2% with readings of ~55% "suggestive of a trading top," last seen in Oct. 2007. No surprise there but with markets statistically 'euphoric' caution seems warranted at least...

Chart: Credit Suisse

EU - Too many banks, Too much debt and Too little growth

Spot The Odd Continent Out: Total Bank Assets As % Of GDP 05-18-13 Zero Hedge

There is a reason why in Europe, no matter how much some want to deny it, the Cyprus deposit confiscation "resolution" has become the norm. Quite simply, as BofA summarizes, "Europe's economy struggles with too many banks, too much debt and too little growth. A long history of empire, trade, war and commerce means a long history of banking. The world’s first state-guaranteed bank was the Bank of Venice, founded in 1157, and the world’s oldest bank today is also Italian, Monte Paschi di Siena (founded 1472). In many European countries, bank assets dwarf the size of the local economy and are far in excess of other regions in the world. This is similarly reflected in the local stock exchanges: even now financials account for 42% of the Spanish stock market and 31% of the Italian stock market versus  ust 16% in the US."

Visually, this translates as the following dramatic chart, which shows why Europe no longer has a choice in kicking the can, and what we have said from the very beginning, a Mellonesque asset liquidation of bad "assets" is the only option:

It is in Europe that the biggest debt burden lies, and it is Europe that is desperate for the biggest inflation impulse to purge away the debt in the absence of liquidation, or a spike in asset quality. However, as we showed yesterday with Europe's €500 billion NPL timebomb, the asset quality of Europe's banking sector is imploding at an unprecedented pace, and is correlated most tightly to the surging unemployment in the periphery, which intuitively makes much sense: without jobs, consumers can't pay off their debt.

NPLs:

... compared to unemployment:

This means that the only resolution to a massively overlevered banking sector, where inflation just refuses to arrive and assist in the bad-asset "cleansing", is the start of liability impairment, which will allow the long overdue process of balance sheet restructuring, instead of merely can kicking, to commence. Whether this implies deposit confiscation, well that matters in which country one is, and how many NPLs have been accumulated.

And another problem: the reason why core inflation is gone from Europe is that not only is the hot central bank money not targeting European assets (except for new Japanese Yen chasing after peripheral bonds for as long as there is a carry trade arb, which at this rate won't last long), but because credit creation in the private sector is dead: as the chart below shows, even credit growth in Germany is now negative:

So what is the only option for a continent in which there are simply too many encumbered assets (recall that unlike the US the bulk of credit in Europe is secured - perhaps the starkest difference between the two credit systems) and in which the private sector credit creation pipeline is clogged: simple - the ECB has to join the Fed and the BOJ in monetizing assets, and creating "credit growth" de novo. Alas, as the past three years have shown, when it comes to outright monetization in Europe, not only does it have to be sterilized to appease the (correctly) inflation-weary Germans (i.e., the SMP; the terms of its replacement, the OMT, still technically don't exist), but most likely has to come in the form of a structured debt vehicle or an extended loan, like the ESM or the LTRO.

In fact, none other than former ECB member Lorenzo Bini Smaghi told Goldman's Allison Nathan in a recent interview that QE by the ECB - an outcome most expect once the impact of BOJ QE fizzles - is unlikely. The reason why:

Lorenzo Bini Smaghi: QE in Europe would likely entail the ECB purchasing a representative basket of Euro area government bonds. And so they would probably have to buy large quantities of German and French bonds, rather than the bonds of countries that could use more support; the impact on spreads would not necessarily be in the right direction. So from a technical point of view, the case for QE in Europe is less clear cut.

Needless to say, his outlook on Europe is less than optimistic:

Lorenzo Bini Smaghi: In 15 years I'm a bit more confident because I think the adjustments will have been made. Europe will become more competitive and stronger. So I am a long-term optimist. But I am also a short-term pessimist; the near-term adjustment is maybe a bit too tough and too front-loaded so the next five years are going to be very difficult.

And to think all of this could have been avoided if the Mellon advice of liquidating bad assets, which have accumulated in massive proportions in Europe (and in the shadow banking system in the US, but that is the topic of a different post), had been heeded, as we suggested, from the very beginning. To quote Andrew Mellon:

The government must keep its hands off and let the slump liquidate itself. Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. When the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. A panic is not altogether a bad thing. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.

Of course, the time for liquidation will come sooner or later, only this time the pain and suffering that will accompany it will be order of magnitude greater than had the system been purged in the dark days following the Lehman collapse.

GLOBAL GROWTH - Falling Off Fast

Goldman Confirms 'Recovery' Hopes Have Gone As 'Slowdown' Deepens 05-21-13 Goldman via ZH

With US Macro no longer the clean dirty shirt, the 'hope' of a recovery from the Spring swoon has faded rather quickly according to Goldman's latest Global Leading Indicator (though obviously not David Kostin). The modest April pick up - driven mainly by sentiment indicators as opposed to hard data - has faded as the reality of economic deterioration was more pronounced as both the Philadelphia Fed headline and the New Orders less Inventories components (the advanced proxies for Goldman's Global PMI aggregate) fell to the lowest level in more than six months. The S&P GSCI Industrial Metals Index also made new lows and fell for the third month in a row. The CAD and AUD TWI Aggregates weakened, driven primarily by a weaker AUD, and US Initial Claims also worsened from last month. But apart from that... as Goldman notes, the decline in momentum was a bit more substantial in May than many had expected.

Goldman's Leading Indicator momentum (blue) suggests global industrial production's short-term pick up will fade rapidly...

as the Swirlogram indicates a deepening slowdown...

Of course, none of this matters, as the bank's 1750 PT for year-end S&P 500 seems to believe that H2 will be all good...

Charts: Goldman Sachs

• Global economy lacking demand growth
• Maersk warns on slowing global trade
• Europe lagging in three-speed world
• Emerging Markets and US

Global economy lacking demand growth 05-17-13 FT

"It is a Global Economy that lacks a strong source of Demand Growth"

US - A Shrinking Rate of Budget Deficit

EUROZONE - Longest Recession Since the Birth of the Single Currency

CHINA - New Credit Now Down to a 4X Multiplier on Slowing Investment

JAPAN - Jury Still Out on Abe-Nomics Spurring Business Investment

MEXICO - One of Latin America's Brightest Hopes Hardly Encouraging

Maersk warns on slowing global trade 05-17-13 FT

World's largest container shipping company (bellwether for world trade) said:

"It expected global seaborne container demand to grow 2-4% in 2013, down from a forecast of 4-5% in February"

Pre-emptive idling of 28 vessels had helped profit margins.

DREWRY'S CONTAINER FREIGHT RATE INSIGHT:

Rates have slipped to 15 month low.. many shipping companies have recorded losses amid a further dip in Asian-Europena trade"

Over half of the 600 trade routes covered by Drewry’s Container Freight Rate Insight recorded falling rates in April. And pricing is now below last year’s levels on over one third of trade routes.

Pricing has fallen steadily on the Asia-Europe trade since the GRI of mid-March. This week the World Container Index benchmark from Shanghai to Rotterdam fell below $1,400 per 40ft for the first time since February 2012, shedding as much as 13% to $1,335 per 40ft.

Meanwhile, eastbound transpacific pricing has retreated since the April 1 GRI, with Drewry’s benchmark rate between Hong Kong and Los Angeles falling below $2,000 per 40ft for the first time since March 2012 to $1,884 per 40ft.

PETRODOLLAR -Collapsing Foundation

The Coming Collapse Of The Petrodollar System 05-20-13 Authored by Andrew McKillop via ZH

PETRODOLLAR WAR

The theory of Petrodollar Warfare can be attributed to US analyst and author William R Clarke, and his 2005 book of that title which interpreted the US-UK decision to invade Iraq in 2003. He called this an "oil currency war", but the concept of the petrodollar system and petrodollar recyling dates back to the eve of the first Oil Shock in 1973-1974. The role of the petrodollar system as a driving force of US foreign policy is explained by analysts and historians as basic to maintaining the dollar's status as the world's dominant reserve currency - and the currency in which oil is priced.

The term "petrodollar warfare" as used by William R. Clark says that major international war, legal or not, was seen as justified to protect the petrodollar system. Over and above the loss of human life, the combined costs of the Afghan and Iraq wars for the US are controversial like the interpretation of these wars as "oil wars", but analysts like Joseph Stiglitz and Linda Bilmes put the total combined war cost at above $4 trillion. This can be compared with - and totally dwarfs - the annual cost of US oil imports, which are now sharply declining on a year-in year-out basis as domestic shale oil output ramps up, and US oil demand stagnates.

Clarke's theory, like the explanation of the role and power of the "petrodollar system" depends on two basic drivers. Most major developed countries rely on oil imports, which are purchased using dollars, so they are forced to hold large stockpiles of dollars in order to continue importing oil. In turn this also creates consistent demand for dollars, and prevents the dollar from losing its relative international monetary value, regardless of what happens to the US economy.

Variants of the Petrodollar War concept include the role of oil currency conflicts and rivalry, notably concerning US relations with Iran, Venezuela and Russia, and possibly with Europe concerning the gradual replacement of US dollars

with the euro, for oil transactions. More important, the entire petromoney system and the potential for Petrodollar War hinges on global oil import demand and the oil price. Both of these have to hold up. When or if they do not, foreign oil importer nations who formerly found it beneficial to hold dollars to pay for oil, would have to find some other (unexplained) reason for huge holdings of dollars, when their oil imports decline and-or oil prices also decline.

The "currency war" variant of the petrodollar system theory, holding that a shift to notably euros or gold for oil payments would undermine the system, is unrealistic when given any serious analysis, because all world moneys are interchangeable or convertible, and gold is priced in US dollars.

THE THREE PHASES OF THE SYSTEM

These are easy to define.

1974-1986 The first phase. The 1972 start of "petrodollar recycling" initiated by Nixon and Kissinger  just before the fivefold rise in oil prices of 1973-74, set the process of US-Saudi Arabian cooperation for the near-exclusive benefit of these two players. The US dollar was "backstopped" by the transfer of Saudi liquidities to the US Federal Reserve system banks, especially the Federal Reserve Bank of New York.  A small number of other chosen central banks, especially the Bank of England, and the central banks of Germany, France, Italy and Japan also benefitted.

1986-1999 The second phase. This also featured US and Saudi control, but under Clinton's two mandates the focus radically changed to the controlled deflation or reduction of both oil prices and the world value of the US dollar. While the US continued to benefit from "petrodollar recycling", Saudi Arabia was the major loser, undoubtedly changing its perceptions of the system's utility to KSA.

2000-2013 The third and last phase. This period featured a major longterm rise in oil prices and the entry not in force, but progressively of the euro currency into the now enlarged "petromoney recycling" process. Euros now cover about 25% of global oil transactions, for an annual value of around €700 billion, with about the same amount of back-to-back additional lquidities. The massive growth of QE and central bank "easing", from 2008, has heavily reduced the role of "petromoney recycling".

Among the major changes of the petromoney system during these 3 phases, the first phase set the basic political concept among US deciders that "petrodollar recycling" could at one and the same time enable the US to run huge trade and budget deficits, low or very low interest rates, and prevent the collapse of the dollar's value due to the forced need of all world buyers of oil to hold US dollars to make purchases of oil. By the second phase, this underlying concept shaded to including non-oil assets as the focus of value manipulation, controlled inflation and controlled deflation of value. In the third phase, massive increases of the oil price to 2008 played a major role in enabling the continued depreciation of the dollar's world value as US sovereign debt also massively increased, but since 2008 and the start of central bank QE the need for, and role of the petrodollar system have heavily contracted.

THE SYSTEM IS NOW MENACED

Estimates of the exact size and role of petrodollars and petroeuros in the international money system, finance system, and economic system are varied. Many analysts however say the minimum role of the petrodollar system is to create, back-to-back, liquidities at least equivalent to the transaction value of the world oil trade, which for crude and products is about $3.4 trillion-a-year. Combined, the approximate minimum total $6.8 trillion annual value of oil trade plus the petromoney system is about 10% of world annual GNP, equivalent to about 45% of US annual GDP. This may appear as still large and important but has to be compared with, for example, the exposure of national private banks only in Europe in relation to national GDPs, which is often 300% - 400%.

Only QE can "plaster over" these liabilities.

Petromoney recycling is still treated by "the elites" as a critical prop to monetary system integrity, and explains why the USA is far from the only country depending on the system holding up. All oil producers, even smaller-sized, are beneficiaries the same way as all major developed nations' central banks, but the US is still the prime beneficiary. However, the basic supports for the system's operation - continuing high oil demand, high oil prices, and oil priced in dollars -  have all weakened or are threatened, today. In particular when global oil demand declines or stagnates, and when oil prices decline, the dollars that will no longer be needed for global purchases of oil will return in massive amounts back to their country of origin, the USA. The consequences can only be dramatic, and threaten the start of a process completely unlike the Clinton-era controlled devaluation of the dollar's value along with the decline of oil prices consented by Saudi Arabia.

The now-menaced "petrodollar system" is also weakened because of worldwide change in the perception of oil and oil energy. From the dawn of the petroleum age to its accelerating twilight, today, geopolitical strategies concocted by developed nations featured the maintenance of secured access to world oil supplies. This was believed to be a win-win strategy for developed nation policy makers, and especially for US policy makers. From the 1970s and the first Oil Shock of 1973-1974, the only "morph' in this policy and strategy was to substitute expensive oil, for cheap oil.

For the USA's ability to run deficits and the petrodollar system, much higher oil prices were a major gain, not a loss, and this is almost surely still the perception of the Obama administration today.

In its first phase and last phase, the economic and political incentives for ensuring national access to oil supplies, and the existence of the petrodollar system as a monetary and finance tool - unrelated to the economy - worked better with higher oil prices. Today however, with the major and massive changes of oil resource availability revealed by the shale energy revolution, rising global oil production capabilities, stagnating oil demand, and rising renewable energy supplies in all major developed countries, and the constantly declining role of oil in the economy, the Petrodollar System's days are surely numbered, like the notion that $100-oil prices are "normal".

The impact of this will be massive.

EU RECESSION - Output has contracted for six consecutive quarters

The Euro-Zone Recession 05-18-13 The Economist

Shrinking output may prompt the European Central Bank to ease further

Euro-area output shrank in the first three months of this year by 0.2% compared with its level in the final quarter of 2012 (see chart). That decline, which was a bit worse than expected, left GDP 1% lower than a year ago. Output has now contracted for six consecutive quarters in a recession stretching back to late 2011.

The downturn is still steepest in southern Europe. Output fell by 0.5% in both Italy and Spain, the third- and fourth-biggest economies in the euro zone. But GDP is now declining in most euro-zone countries, including France, the area’s second-largest economy, which is back in recession following a second quarter of declining output, of 0.2%. The main exception remains Germany, the biggest economy, though it barely grew in the first three months of this year. Output was up by a lower-than-expected 0.1% (following a 0.7% fall in late 2012).

The recession could well drag on for yet another quarter. Based on a recent survey of purchasing managers, output in services and manufacturing continued to shrink last month. Even if a recovery does get under way later this year, it will probably be a feeble affair. Earlier this month the European Commission forecast that annual GDP would fall by 0.4% this year and that it would grow by only 1.2% in 2014.

The danger is that even if growth does reappear it will be detectable only in decimal-point statistics and not in people’s lives. The biggest risk stems from unemployment, which now stands at 12.1% in the euro area, the highest on records going back to 1995. That overall rate masks a sharp contrast between Germany, where it is just 5.4%, and Spain and Greece, where it has reached 27%. The disparity is still greater for youth unemployment, which ranges from 7.6% in Germany to 56% in Spain and 64% in Greece.

Earlier this month the European Central Bank (ECB) brought down its main policy rate, from 0.75% to 0.5%. This week’s poor GDP figures will increase pressure on the ECB to take further action to foster a recovery when its governing council meets in early June.

EARNINGS - Goldman Goes Uberhyper-Bullish

Goldman Goes Uberhyper-Bullish, Hikes S&P500 Target To 1750 By Year End, Sees 2100 By 2015 05-21-13 Zero Hedge

"Our positive 2013 outlook for S&P 500 has played out much faster than we expected." That is how the latest equity update from Goldman Sachs, which until today had an S&P target of 1625 for the year end S&P, begins. And, logically, the only option for Goldman is to hike its outlook even more, because not even the Squid apparently could anticipate how quickly the policy it forced down the throats of central banks around the world, levitated markets to surpass its old price targets. The result is David Kostin (who until December had foreseen 1250 on the S&P for the end of 2012) and company were forced to goalseek even higher targets based on tried and true excel model fudging exercises, and such "value" creation as multiple expansion and dividend payments.

To wit: "Our earnings estimates remain unchanged but we raise our dividend estimates and index return forecasts for 2013 through 2015. We expect S&P 500 will rise by 5% to 1750 by year-end 2013, advance by 9% to 1900 in 2014, and climb by 10% to 2100 in 2015. Our 2013 return implies a year-end P/E of 15.0x, a one multiple point premium to our fair-value estimate. We forecast dividends will rise by 30% during next two years. Dividend yield is likely to stay around 2%, in line with the 20-year average." For the record, Goldman had previously seen 1,900 in 2015. And now it sees another 200 points of value due to the magic of multiple expansion. That anyone can even pretend to forecast what happens three years into the future at a time when the central banks are injecting $160 billion (and soon $200 billion), and most likely will have to slowdown and halt such liquidity injection resulting in untold stock market carnage, is so beyond commentary we will leave it hanging for the ridiculous statement it is.

As for 2013, at least Goldman leave out any mention of 2013 consensys earnings... for good reason:

So in lieu of early Tuesday humor, here is how Goldman achieves its "target forecasts." All we can conclude from this is that neither Tepper nor Goldman are anywhere near done selling to muppets.

But don't for a second think any of this is earnings driven. As we showed last night, it isn't. It is all based on prayer that Bernanke and his central planning magicians can keep on expanding the increasingly meaningless PE multiple, which incidentally would collapse if and when rate were to go back to historical levels now that corporate debt is at unseen before levels.

We would spend a few more second reading this drivel, but we have better things to do. Anyone fascinated by wasting time with paperweight is urged to do so on their own.

Goldman 1750 PT Increase

EBITDA - Removing the Manipulation to See Real Enterprise Value Metrics

S&P 500 vs EBITDA 05-21-13 Zero Hedge

When it comes to the corporate bottom line, there is a reason why the smart money has long since given up on  Net Income, Earnings Per Share or any other such equity-specific variant: it is the one metric traditionally gamed by management teams who know that legacy investors and algos look solely at EPS (whether it has beat or missed expectations) in making kneejerk reactions whether to buy or sell stock upon an earnings release, thus setting the momentum tone for the next quarter. Instead, what fixed income investors, the buyside in general, and what little is left of "sophisticated" traders have historically focused on is EBITDA, and in some special cases, such as the New Normal, when the bulk of corporate cash goes to fund buybacks, EBITDA per share (to normalize for TEV changes over time). The reason is that EBITDA ignores such balance sheet components as net interest (a key reason why companies are reporting better than expected EPS in a collapsing interest rate environment), as well as the corporate tax rate. In short: EBITDA is the closest non-GAAP indicator to actual cash flow and/or bottom line profit as one can get.

Which is why we thought most readers would be rather surprised to learn what the result of a simple Bloomberg query comparing S&P500 EBITDA per share (BBG mnemonic TRAIL_12M_EBITDA_PER_SHARE) to the S&P looks like.

For one: not only is corporate LTM EBITDA per share not at all time highs (it is well off the record levels seen in 2008), but it is at levels last seen in January 2007.

But perhaps most surprising is what happens when on juxtaposes the S&P500's EBITDA level relative to the actual S&P. The stunning result is charted below:

If there is any good news in the chart above it is that EBITDA growth is still positive... Just barely. A chart showing the Year over Year change in LTM EBITDA shows the true story of the "recovery" - EBITDA per share growth, or true corporate bottom line growth, peaked in 2011, and has been declining ever since even as the actual number of shares has been collapsing due to the furious stock buyback activity everyone is well aware of.

At this rate we expect annual corporate cash flow growth to hit zero and turn negative in a few short months. We can't wait to see how this particular collapse in corporate fundamentals is spun roughly at the time the S&P is expected to hit 1750.

EARNINGS - Going Nowhere if it Wasn't For BUYBACKS from Cheap Debt

WTF Chart Of The Day: "It's All About The Earnings" 05-20-13 Zero Hedge

"Earnings are the mother's milk of the stock market," is the oft-repeated anthem of a million marching lemmings; parroting the same phrase come hell or high-water in the dismal hope that they can gather moar assets-under-management, garner moar fees, and make moar TV appearances. However, as the chart below shows, we suspect perhaps given the reality of earnings expectations that the new normal mantra for stocks-for-the-long-term should be - "Central Bank liquidity is the PCP of the stock market."

it would appear the 'mother's milk' is souring...

(h/t @Not_Jim_Cramer)

and furthermore, since September 2011 earnings have been stagnant - when a multitude of indicators (macro and market) began to decouple from stocks,

- driven almost 100% by buybacks...

(h/t @RonnieSpence)

PRECIOUS METALS - Gold/Silver Ratio

The Gold/Silver Canary In The Coalmine 05-21-13 Zero Hedge

In general when equity prices are rising and credit spreads are tightening, the ratio of gold-to-silver prices falls as 'fear' ebbs away and confidence in a real economy returns as exemplified by the rise of risk assets. Twice before we have seen the anti-correlation of stocks and gold/silver flip to a highly correlated regime, and as Bloomberg's Chart of the Day notes, each time it suggested "stocks were due to snap". It seems a concerted push above and a 50x ratio (for gold-to-silver) tends to exhibit notably risk-off behavior. Currently, the S&P 500 and Gold-to-Silver ratio have been highly correlated since this last rally began in stocks and as HSBC's Charles Morris notes, this suggests a 'snap' in risk assets within six months.

Charts: Bloomberg

ROSENBERG: The Gold-Silver Ratio Has Me Nervous About What's Next For Stocks 05-21-13 BI

"The gold-silver ratio has risen to its highest point in three years (August 2010) and in the past this served as a flash-point for a renewed risk-off trade. See the chart below and the divergence (S&P 500 surging and the gold-silver ratio sliding — historically this has a 71% correlation, likely because silver has far more industrial applications and as such this ratio is viewed as somewhat of a global economic barometer.) I have to say that when I read the front page of the USA Today business section and see this lead title: With Stocks This Hot, Why Worry?, with famed strategist Ed Yardeni declaring this to be the "mother of all melt-ups," I do begin to worry. The bull market may well be in complacency."

CORRUPTION - A Growing Epidemic of Sociopaths / Psychopaths

A law professor and attorney has written a new book about what it's like to be a diagnosed sociopath who's never killed anybody and excels at her job.

"Confessions of A Sociopath" by M.E. Thomas, a pseudonym, reveals its author is a Mormon Sunday school teacher who's well liked by her law school students. She also has a cold stare and fantasizes about killing people.

Sociopaths, otherwise known as psychopaths, generally lack empathy and have a lot of charm.

Thomas's book includes the diagnosis that confirmed her suspicions that she falls into this category. We've excerpted that section with permission from its publisher, Crown:

Psychological Evaluation Excerpt

Ms. Thomas is a 30-year-old Caucasian female seeking an assessment of her personality, particularly in regards to the presence or absence of psychopathic traits. Across multiple self-report inventories tapping both normal-range and pathological personality characteristics, Ms. Thomas scored beyond the 99th percentile of the community normative data. Her presentation in many regards could be considered that of a prototypical psychopathic personality. Additionally, the results of the PCL:SV assessment largely converge with this description, particularly in regards to the affective and interpersonal features displayed by Ms. Thomas, such as

• a pronounced lack of empathy,
• a ruthless and calculating attitude towards social and interpersonal relationships,
• a relative immunity to experiencing negative emotions.

Most notable in Ms. Thomas’s clinical presentation … were pronounced elevations on scales tapping

• antisocial and psychopathic traits (particularly egocentricism and sensation-seeking characteristics),
• interpersonal dominance,
• verbal aggression, and
• excessive self-esteem,
• as well as very low scores on measures tapping negative affective experiences (e.g., phobias, traumatic stressors, depressive symptoms),
• interpersonal nurturance and
• stressful life events.

Here again, her overall profile reflected a constellation of personality characteristics and interpersonal style highly consistent with current conceptualizations of psychopathy. Although cognizant that she is “different” from most people she knows in terms of her personality structure, Ms. Thomas does not view herself as “disordered” in the sense of suffering from a form of mental illness per se. Quite the contrary, she seems content with her lifestyle and its current trajectory and rather blasé about many issues and concerns that might cause others some degree of uncertainty or distress. Of course, such attitudes are emblematic of individuals who are highly psychopathic. By all accounts Ms. Thomas has thus far experienced relatively few objective (or subjective) negative consequences associated with being highly psychopathic— and in many regards appears to have excelled across various life domains (e.g., academic, occupational). This suggests that one might describe her as a “socialized” or “successful” psychopath, or at least a relatively non-maladaptive variant of this personality pattern.

—JOHN F. EDENS, PhD, Professor, Department of Psychology, Texas A& M University