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Wed. August 21st, 2013
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w/LANCE ROBERTS, Host of "StreetTalkLive" and CHARLES HUGH SMITH 43 Minutes with 53 Slides
What Are Tipping Poinits?
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Reading the right books? >> Click to Browse << We have analyzed & included Book Review- Five Thumbs Up
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"BEST OF THE WEEK " |
Posting Date |
Labels & Tags | TIPPING POINT or 2013 THESIS THEME |
HOTTEST TIPPING POINTS |
Theme Groupings |
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We post throughout the day as we do our Investment Research for: LONGWave - UnderTheLens - Macro Analytics |
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CORPORATIONS ARE SIMPLY NOT INVESTING SUFFICIENTLY IN R&D What do they know that the market has failed to Identify? |
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WHY A LOOMING US RECESSION MAY BE NEAR THE FED IS IN A BOX
THE REQUIRED 'COVER' OR NO CHOICE? The Fed may be forced to let the US enter a recession hoping it will give it the cover to insert massive more liquidity into the system which is needed as deleveraging from NPL continues unabated globally. ECONOMIC CYCLE CAPEX & INVESTMENT
JOBS - Part Time and Full Time Don't Supply a Working Wage
SENTIMENT - Real Disposable Income For the first time in 2013, UMich consumer confidence missed expectations dropping from a cyclical high 85.2 to a 'mere' 80.0. However, the miss from an expectation of 85.0 is the big news - this is the biggest miss since records began in 1999. The US Consumer (so in the news this week on the back of the retail earnings) appears have finally woken up to soaring mortgage rates, rising gas prices, and only part-time job growth. We warned this might happen - just as it has happened in the previous two cycles... Both the current and future conditions indices collapsed to their lowest in 4 months. The biggest miss on record and first miss in 2013... HOUSING FORMATIONS
SURPRISES AHEAD .... for more detail, watch:
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08-21-13 | US RECESSION | US ECONOMY |
US RECESSION - Minimally in the Back Stretch of the Recovery Cramer's Miss On The Corporate/Economic Relationship 08-19-13 Lance Roberts of Street Talk Live blog, via ZH As I sat down to do my regular tradition of reading and research I was hit by a CNBC article in which Jim Cramer was discussing his views on why a market reset was looming. He stated that:
He goes on to say:
Is Jim right?
The Great Disconnect I find the first statement by Jim the most interesting, and perplexing, with regards to the improving economy. While there has undoubtedly been some economic improvement from the recessionary lows; that current data suggests that the economy has likely peaked for this current expansionary cycle. The 4-panel chart below shows annual rate of change in incomes, employment, production and overall GDP. While quarterly data, when viewed solely from one quarter to the next, may show some improvement - these improvements have only been bounces within the context of a longer term down trend. When you look at the charts above it is quite evident that the expansion of the U.S. economy ended in 2011. Since then the rate of growth has been on the decline. However, I have to disagree with Jim's statement that the economy is not trickling down to companies' bottom lines. The chart below shows corporate profits as a percentage of GDP. With profits, as a percentage of GDP, near record levels it is hard to claim that corporations are not able to turn the "macro positive" into "micro gains." The reality is that they have done this exceptionally well. However, unfortunately, they have done this at the expense of the American worker. The chart below shows the ratio of corporate profits to employees. The use of technology, increases in productivity, running lean work forces and suppressing wages has led to a level of profits per employee that are historic levels. This drive to generate profitability by reductions of workforces and increases in productivity has also been a primary driver behind the "labor hoarding" effect which is why falling initial jobless claims is not translating into higher employment. In Jim's defense he is focusing his attention on the current trend of weakening profitability and weak forward guidance. However, this is a bit myopic given that the economy is already more than four years into the current expansion, economic growth is clearly showing signs of weakening and cost inputs have been increasing. Furthermore, as I addressed in the "4 Tools Of Corporate Profitability:"
In all likelihood what we are witnessing, and what Jim is missing, is that this is more than just a "soft patch" in the economy. It is highly likely, due to the weakening trends in the underlying data, that we are in a late stage economic cycle. My friend Cullen Roche recently commented on this issue stating:
Good Times Are Here Again? Jim went on to state that:
The guidance that corporations are providing is based on the income data, and demand, that they are dealing with. My recent NFIB survey analysis quoted Bill Dunkleberg, Chief Economist, clearly stating this issue:
For Jim, the disconnect between the fantasy of Wall Street, which has been artificially inflated through trillions of dollars of liquidity being pushed into the system, and the reality of underlying economic fundamentals remains a mystery. As Jim stated above, for him, the conundrum is why corporations are struggling when the rise in interest rates are signaling "happy days" are here. The problem is that when you have an economy that is growing at below 2% annually, real unemployment remains high and wage growth weak - rising interest rates, particularly when driven by artificial influences rather than increasing demand for credit, is historically an economic anathema. Furthermore, it is also important to keep the recent rate "spike" in perspective which has been nothing more than a bounce within a 30 year downtrend. The rise in interest rates negatively impacts corporate profitability, raises borrowing costs, reduces capital expenditures, slows housing and decreases consumption. With the economy and inflation already trending lower it is unlikely that the recent increase is rates will last for long. As shown above, historically, rates closely track the direction and trend of the overall economy and inflation. One of the main reasons that investors so often get caught up in major market meltdowns is due to the short-sighted, near term, focus of market analysts and economists. The data has to be analyzed with relation to the longer term trends and a clear understanding that all things, despite ongoing central bank interventions, do eventually end. The problem with the current environment is that the artificial inflations have detached the market from the underlying economic fundamentals which has historically led to larger than expected reversions and outright crashes. As an investment manager we remain currently invested in the markets because we must avoid suffering career risk. However, it would be naive to neglect the rising risks of the technical extensions, deviations from underlying fundamentals and weakening momentum that exists currently. Yet, despite all the evidence to the contrary, investors are piling into equities in the "hope" that the markets will continue to advance indefinitely. As Yogi Berra once stated:
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08-20-13 | US RECESSION | US ECONOMY |
MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - August 18th - August 24th |
RISK REVERSAL | 1 | ||
JAPAN - DEBT DEFLATION | 2 | ||
JAPAN - ABE-nomics About Lowering Real Interest Rates This Chart Debunks The Biggest Myth About Abenomics 08-19-13 BI A popular conception about Abenomics — Japan's new drive for economic recovery — is that it's all about weakening the yen and boosting exporters. But this really isn't the play at all. The real idea is to reduce real interest rates, so as to stimulate domestic demand, unlocking dormant investment and consumption spending. Remember, in deflation, it makes sense to horde cash, because prices will be lower tomorrow, potentially leading to a deflationary/recessionary spiral. Abenomics seeks to break this, stoking inflation, and creating an encouragement to spend and invest today. A quick look at the Japanese trade picture shows that improving the economy via exports is not the play. Japan's trade deficit just came in surprisingly high. From Nomura:
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08-20-13 | JAPAN | 2 - Japan Debt Deflation Spiral |
BOND BUBBLE | 3 | ||
BOND SCARE - The Bearish Bond Trend Has Resumed "The Bearish Bond Trend Has Resumed" 08-18-13 chief technical strategist MacNeill Curry, BoAML via ZH From BofA:
While the above is nothing more than a few squiggly lines and their extrapolations, in the New fundamental-less Normal self-fulfilling prophecies (i.e., technicals) have a way of, well, self-fulfilling. The only problem with a blow out in yields to north of 3% is that not only does it kill any mythical housing recovery, it outright obliterates any hopes of a continuing GDP tail wind from the housing market, even from investors, speculators and flippers. We are confident we are not the only ones to notice that the APR on the 30 Year Fixed FHA from Wells just soared to over 6% - a level that has no place in an economy that is "growing" at 1.5%. But before we lament the end of the great 30 Year bond market, we will simply recall that what is happening now is a carbon copy of what happened two years ago, when all it took for yields to plunge over 100 bps was a 20% drop in equities following the Great Debt Ceiling fight and the US downgrade. Because there is nothing easier for Bernanke to do (in 15 minutes or less) than to enact a wholesale scramble out of stocks and right back into bonds, when he needs it. Then only question is "when"? |
08-19-13 | MONETARY
MATA STUDY |
3- Bond Bubble |
BOND SCARE - Bonds (TLT) Break Important Support Bonds (TLT) Break Important Support 08-16-13 Carl Swenlin, Decision Point e use the 20+ Year T-Bonds ETF (TLT) as the surrogate for long bond timing. As of 5/20/2013 TLT is on a Trend Model NEUTRAL signal, which means that the model has been out of bonds but not short. The LT Trend Model, which informs our long-term outlook, is on a SELL signal as of 5/29/2013, so our long-term posture is bearish. The weekly chart shows a support zone between 105 and 106, and TLT has violated that zone in a move that is becoming decisive. Note also that the PMO (Price Momentum Oscillator), which is used to estimate when prices have become overbought or oversold, has dropped below the bottom of the five-year PMO range. That range was established during a long-term rising price trend, and it will become irrelevant as the long-term trend turns down. In fact, if a down trend persists, over the next five years or more, the PMO range will shift downward from +7 to -1 to something like +1 to -5. For the time being we are ignoring the possibility of a large head and shoulders pattern forming (the right shoulder being the only element remaining to complete the pattern); however, an extended bounce is not out of the question once the bears are fully committed. |
08-19-13 | MONETARY
MATA STUDY |
3- Bond Bubble |
EU BANKING CRISIS |
4 |
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SOVEREIGN DEBT CRISIS [Euope Crisis Tracker] | 5 | ||
CHINA BUBBLE | 6 | ||
CORPORATE SPENDING - Shrinking CAPEX, Expanding Buybacks and Dividends What Corporations Spend Their Cash On 08-17-13 Zero Hedge While bullish talking heads are quick to point out that corporate earnings have never been higher, they tend to get very quiet the second corporate cash flow generation is mentioned. The reason is simple: where non-GAAP earnings, much of which are vaporware such as exclusions and other adjustment involving addbacks for "non-recurring" events such as Cisco's now annual mass termination announcement are indeed at nosebleed levels, actual corporate cash generation is a shadow if its former self which peaked in 2007 and has never been retraced. We showed this a month ago. The problem is that since corporations generate less cash, they also spend less cash. As the following chart confirms, corporate capital use which peaked at a little over $1.8 trillion in 2007 has yet to be surpassed. But perhaps what is more interesting is what corporations spend their money on. As we have pointed out in the past (usually when lamenting the lack of CapEx spending), there are five things corporations spend money on: CapEx, R&D, Acquisitions, all of which fall into the "growth category", and Dividends and Buybacks, which are the opposite, and represent shareholder-friendly actions which take from a company's growth potential and distribute dividend, literally, here and now. Here is the same chart as above, shown on a percentage of total basis. There are two key observations here, both of which go the heart of what is ailing the US economy. First, just like in 2006 and 2007, when activist shareholders and overeager management teams were scrambling to engage in buybacks and artificially boost earnings per share, so now the last bastion of corporate "growth" is using cash, usually in conjunction with leverage, to buy back one's own stock. Naturally, as can be seen on the chart above, shortly after peaking at 34% of total in 2007, buyback activity crashed following the Lehman bankruptcy as cash hoarding became the norm. Is there a causal link between buybacks, and especially levered buybacks, and systemic instability? Unclear, however the more leverage companies utilize to pretend they are growing, and the more cash is used for shareholder friendly activities, the less real growh potential there is. Second, and a point we have belabored since early 2012: capex spending is plunging. According to Goldman estimates, in 2014, CapEx will only account for 33% of total cash use: the lowest proportion since Lehman, and represents an unmistakably declining trendline. Furthermore, declining CapEx spend tells us two things: corporations, who know their business better than most, are spending less on growing their business in an organic fashion because they realize there is simply not enough demand they need to satisfy. Which is why they prefer to spend corporate cash on M&A and other fast-IRR generating shareholder activities, such as buybacks and dividends. Putting all this together confirms that the bleak picture of a second consecutive quarter of declining revenues will continue. Without a boost in capital spending, there can be no organic growth for the S&P500 and instead any and all "growth" will come at the expense of balance sheet fudging, as had been the case for the past 5 years. However, now that interest rates are once again rising, corporations will be far less willing to spend cash on levered buybacks since the interest of such activities will soon be prohibitive if not already. Which ironically leaves CapEx investment as the best option for CFOs. However, absent true economic growth and a pick up in end demand for corporate products and services, this cash will not be spent and corporate contraction will continue. The biggest irony in all this, which goes without saying, is that all of this capital misallocation is the direct result of the Fed's actions: something we observed in April of last year, and which only now is starting to filter through the mainstream media. The paradox is that as long as the Fed is there, insuring there is no "capital market" risk, corporations will opt to grow on the back of the Fed's balance sheet instead of actually risking capital and venturing to grow organically. And with this behavior continuing for year after year, very soon the entire premise of top line and cash growth becomes meaningless. Which leads us to the point #1: if the Fed is truly looking for the culprit of why the economy is not growing, why the consumer's disposable income is at multi-year lowers, why corporations are stuck in space and corporate revenues are in a "recession", it should look in the mirror. Because the biggest culprit why the Fed's actions are having the opposite effect of that disclosed, at least for popular consumption is, well, the Fed. |
08-19-13 | US INDICATORS CYCLE GROWTH CAPEX
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11 - Shrinking Revenue Growth Rate |
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MACRO News Items of Importance - This Week | |||
GLOBAL MACRO REPORTS & ANALYSIS |
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US ECONOMIC REPORTS & ANALYSIS |
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CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES | |||
Market Analytics | |||
TECHNICALS & MARKET ANALYTICS |
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COMMODITY CORNER - HARD ASSETS | PORTFOLIO | ||
PRIVATE EQUITY - REAL ASSETS | PORTFOLIO | ||
AGRI-COMPLEX | PORTFOLIO | ||
SECURITY-SURVEILANCE COMPLEX | PORTFOLIO | ||
THESIS Themes | |||
2013 - STATISM |
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STATISM - Governments Continue to Increase Repression of Civil Liberties UK Government "Pulverizes" Guardian Hard Drives In Snowden Retaliation, Says "There's No Need To Write Any More" 08-20-13 Zero Hedge While the much publicized Sunday morning detention of Glenn Greenwald's partner David Miranda at Heathrow on his way back to Brazil, in a stunning move that as we subsequently learned had been telegraphed apriori to the US, could potentially be explained away as a desperate attempt at personal intimidation by a scared, and truly evil empire in its last death throes, it is what happened a month earlier at the basement of the Guardian newspaper that leaves one truly speechless at how far the "democratic" fascist regimes have fallen and fondly reminiscing of the times when dictatorial, tyrannical regimes did not pretend to be anything but. For the fully story, we go to Guardian editor Alan Rusbridger who, in a long editorial focusing on the tribulations of Greenwald, his partner, modern journalism and free speech and press in a time of near-ubiquitous tyranny when the status quo is questioned, happened to let his readers know that a month ago, after the newspaper had published several stories based on Snowden's material, a British official advised him: "You've had your fun. Now we want the stuff back." It gets better: after further talks with the British government, Rusbirdger says that two "security experts" from Government Communications Headquarters, the British NSA equivalent, visited the Guardian's London offices and in the building's basement, government officials watched as computers which contained material provided by Snowden were physically pulverized. One of the officials jokes: "We can call off the black helicopters." Reuters adds that according to a source familiar with the event said Guardian employees destroyed the computers as government security experts looked on. What is shocking is that as Rusbridger explained to the gentlemen from Whitehall, they had no jurisdiction over the forced destruction of Guardian property as it has offices in New York, that Greenwald himself was in Brazil, and that future reporting on the NSA did not even have to take place in London. That did not stop the UK government's punitive measures, and obviously neither did pleas, before the computers were destroyed, that the Guardian could not do its journalistic duty if it gave in to the government's requests. In response, he wrote, a government official told him that the newspaper had already achieved the aim of sparking a debate on government surveillance. "You've had your debate. There's no need to write any more," the unnamed official was quoted as saying. What is most shocking is that the UK government was apparently dumb enough to think that by forcing the Guardian to destroy its own hardware it would actually destroy some of the underlying data. It is this unprecedented idiocy that is most disturbing, because when interacting in a game theoretical fashion with an opponent one assumes rationality. In this case, what one got instead, was brute force and sheer, jawdropping stupidity. Yet that is precisely what happened, and is why the stakes have suddenly been drastically higher: because the opponent now suddenly finds himself hurt, bleeding, ready to lash out at anything and everything without regard for the retaliation, and just happens to be dumb as a bag of hammers. The full must read excerpt from Rusbridger:
Needless to say both Hitler and Stalin are spinning in their graves. Below is a photographer's rendering of what it would look like if the UK government were the Nazis and Macbook Pros were books.
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08-20-13 | THESIS | |
2012 - FINANCIAL REPRESSION |
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2011 - BEGGAR-THY-NEIGHBOR -- CURRENCY WARS |
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2010 - EXTEN D & PRETEND |
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THEMES | |||
CORPORATOCRACY - CRONY CAPITALSIM | |||
GLOBAL FINANCIAL IMBALANCE | |||
SOCIAL UNREST |
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CENTRAL PLANNING |
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STANDARD OF LIVING |
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STANDARD OF LIVING - The Destruction Of America's Middle Class The Destruction Of America's Middle Class (In Under Seven Minutes) via ZH While hardly news to frequent visitors, especially those who recall the following list, anyone who needs a 7 minute refresher into why the US middle class is on collision course with extinction is urged to watch the following brief video which highlights all the salient facts such as:
Why seven minutes? Because everyone knows that just like you can't get "six minute abs", so it is impossible to recap the doom of America's middle class in only six minutes (or, gasp, less).
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CORRUPTION & MALFEASANCE | |||
NATURE OF WORK | |||
CATALYSTS - FEAR & GREED | |||
GENERAL INTEREST |
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Tipping Points Life Cycle - Explained
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If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. DISCLOSURE Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments. COPYRIGHT © Copyright 2010-2011 Gordon T Long. The information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. Please note that Mr. Long may already have invested or may from time to time invest in securities that are recommended or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or recommendation you receive from him
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