US Stock Market – Internal Weakness Persists

Submitted by Pater Tenebrarum  –  The Acting Man Blog

An Impressive Rebound, but Hollow Inside

In his recent weekly market update, John Hussman once again discusses his main bearish argument, namely the combination of market overvaluation and deteriorating internals. He rightly (in our opinion) regards the latter as a signal indicating a shift in risk appetites. Here are two quotes from the article summarizing the essential points:

“Valuations are the primary driver of long-term returns, and the risk-preferences of investors — as conveyed by the uniformity or divergence of market action across a broad range of individual stocks, industries, sectors and security types (including credit) — drive returns over shorter portions of the market cycle.”

[…]

“The combination of extreme valuations on historically reliable measures, the deterioration of market internals following an extended period of overvalued, overbought, overbullish conditions, and the weakening of leading economic measures, particularly on measures of new orders and order backlogs, has clear precedents historically, and those precedents are uniformly bad.”

leakImage via aufinia.com

We would add to this that while it is true that the precedents with similar combinations of factors are uniformly bad, there are always different lead times involved before cap-weighted indexes actually peak. These moves toward the eventual top can have blow-off-like characteristics, such as in 1929 (when stocks like RCA and other “story stocks” of the time rose to a frantic peak while the larger list of stocks was already weakening), 1973 (the “nifty fifty” era) or more recently, the year 2000 blow-off in technology stocks. The latter event was highly unusual in terms of size and speed, but it shows what can happen.

However, even if we assume that in today’s case the lead time will be larger than usual (and a blow-off will happen and thus be of a size that will be greater than average), it would only tell us – again based on historical precedent – that the subsequent losses will be all the more devastating (e.g., what happened subsequently to the year 2000 blow-off was a more than 80% decline in the Nasdaq; the 1929 blow-off in the DJIA was followed by a 90% wipe-out). Unless that is, if central banks decide to go “Zimbabwe” on us (we don’t assume that they will, but if they did, one could probably sell a big position in, say, NFLX for $10,000/share one day, and to paraphrase Kyle Bass “buy three eggs with the proceeds”). Continue reading

Wall Street Financial Engineering At Work – How Valeant Got Vaporized

If you need evidence that Wall Street is a financial time bomb waiting for ignition look no further than the recent meltdown of Valeant Pharmaceuticals (VRX). In round terms, its market cap of $90 billion on August 5th has suddenly become the embodiment of that proverbial sucking sound to the south, having plunged by nearly two-thirds to only $34 billion by Friday’s close.
VRX ChartNo, Valeant was not caught selling poison or torturing cats during the last 90 days. What is was doing for the past six years is aggressively pursuing every one of the financial engineering strategies that are worshipped and rewarded in the Wall Street casino.

Indeed, Valeant’s evolution during that period arose straight out of financial engineering central. That is, it was a creature of Goldman Sachs and the various dealers, underwriters, hedge funds and consulting firms which ply the Bubble Finance trade.

At the end of the day, the latter have turned the C-suites of corporate America into gambling dens by attracting, selecting and rewarding company wrecking speculators and debt-crazed buccaneers to the top corporate jobs.

In this case, the principal agent of destruction was a former M&A focussed McKinsey & Co consultant, Michael Pearson, who became CEO in 2008.

Pearson had apparently spent a career in the Dennis Kozlowski/Tyco school of corporate strategy. That is, advising clients to buy, not build; to slash staff and R&D spending, not invest; to set ridiculously ambitious “bigness” goals such as taking this tiny Canadian pharma specialist from its $800 million of sales to a goal of $20 billion practically overnight; to finance this 25X expansion with proceeds from Wall Street underwriters, not internally generated cash. He even replicated the Tyco strategy of moving the corporate HQ to Bermuda to slash its tax rate.

Pearson’s confederate in this scorched earth corporate “roll-up” enterprise was Howard Schiller, a 24-year veteran of Goldman Sachs, who became CFO in 2011, and soon completed the conversion of Valeant into a financial engineering machine.

During their tenure, Pearson and Schiller spent about $40 billion on some 150 acquisitions. And exactly what common expertise and value added leverage did these far flung acquisitions in contact lenses, ophthalmological therapies, dermatology, cosmeceuticals, anti-aging creams, Botox equivalents, acne fighters and much more bring to the table? Continue reading

Good Little Maoists

Submitted by James Howard Kunstler  –  www.kunstler.com

Sometimes societies just go batshit crazy. For ten years, 1966 to 1976, China slid into the chaotic maw of Mao Zedong’s “cultural revolution.” A youth army called the Red Guard was given license to terrorize authorities all over the nation — teachers, scientists, government officials, really just about anyone in charge of anything. They destroyed lives and families and killed quite a few of their victims. They paralyzed the country with their persecutions against “bourgeois elements” and “capitalist roaders,” reaching as deep into the top leadership as Deng Xiaoping, who was paraded in public wearing a dunce-cap, but eventually was able to put an end to all the insanity after Mao’s death.

America’s own cultural revolution has worked differently. It was mostly limited to the hermetically-sealed hot-house world of the universities, where new species of hierophants and mystagogues were busy constructing a crypto-political dogma aimed at redefining status arrangements among the various diverse ethnic and sexual “multi-cultures” of the land.

There is no American Mao, but there are millions of good little Maoists all over America bent on persecuting anyone who departs from a party line that now dominates the bubble of campus life. It’s a weird home-grown mixture of Puritan witch-hunting, racial paranoia, and sexual hysteria, and it comes loaded with a lexicon of jargon — “micro-aggression,” “trigger warnings,” “speech codes,” etc — designed to enforce uniformity in thinking, and to punish departures from it.

At a moment in history when the US is beset by epochal problems of economy, energy, ecology, and foreign relations, campus life is preoccupied with handwringing over the hurt feelings of every imaginable ethnic and sexual group and just as earnestly with the suppression of ideological trespassers who don’t go along with the program of exorcisms. A comprehensive history of this unfortunate campaign has yet to be written, but by the time it is, higher education may lie in ruins. It is already burdened and beset by the unintended consequences of the financial racketeering so pervasive across American life these days. But in promoting the official suppression of ideas, it is really committing intellectual suicide, disgracing its mission to civilized life.

I had my own brush with this evil empire last week when I gave a talk at Boston College, a general briefing on the progress of long emergency. The audience was sparse. It was pouring rain. The World Series was on TV. People are not so interested in these issues since the Federal Reserve saved the world with free money, and what I had to say did not include anything on race, gender, and white privilege.

However, after the talk, I went out for dinner with four faculty members and one friend-of-faculty. Three of them were English profs. One was an urban planner and one was an ecology prof. All of the English profs were specialists in race, gender, and privilege. Imagine that. You’d think that the college was a little overloaded there, but it speaks for the current academic obsessive-compulsive neurosis with these matters. Anyway, on the way to restaurant I was chatting in the car with one of the English profs about a particular angle on race, since this was his focus and he tended to view things through that lens. The discussion continued at the dinner table and this is what ensued on the Internet (an email to me the next morning):

On Oct 29, 2015, at 4:37 PM, Rhonda Frederick <rhonda.frederick@bc.edu> wrote:

This is what I posted on my social medias, am sharing with you and your agent.

Yesterday, novelist/journalist James Howard Kunstler was invited to give a talk at BC (see his bio at http://www.bc.edu/offices/lowellhs/calendar.html#1028).

At the post-talk dinner, he said “the great problem facing African Americans is that they aren’t taught proper English, and that … academics are too preoccupied with privilege and political correctness to admit this obvious fact.” No black people (I presume he used “African American” when he meant “black”) were present at the dinner. I was not at the dinner, but two of my friends/colleagues were; I trust their recollections implicitly. Whether Kunstler was using stereotypes about black people to be provocative, or whether he believed the ignorance he spouted, my response is the same: I cannot allow this kind of ignorance into my space and I am not the one to cast what he said as a “teachable moment.” I do think there should be a BC response to this, as the university paid his honorarium and for his meal. Here’s some contact information for anyone interested in sharing your thoughts on how BC should spend its money:

Lowell Humanities Series at Boston College (http://www.bc.edu/offices/lowellhs/about.html)

+++++++++++++++++

Rhonda—

That is not quite what I said.

I said that teaching black Americans how to speak English correctly ought to be the most important mission of primary and secondary education for blacks in order for them to function successfully in our economy. Moreover, I said that anyone mounting an argument against this was hurting the very people they pretend to help.

I stand by those statements.

Your attempt at Stalinist thought policing is emblematic of something terribly wrong in higher education, especially since you were not present.

Jim
James Howard Kunstler
“It’s All Good”

So I was subjected to attempted character assassination via social media by this Rhonda Frederick person — faculty or student, she did not say — who admits to not having been present at the incident in question. This is the new fashion in academia: slander by Twitter and Facebook. It is fully supported by the faculty and administration. While they have been super-busy constructing speech codes and sex protocols, it seems they haven’t had any time for establishing ethical norms in the use of the Internet. As it happened, I offered to come back and publically debate my statements about the benefits of teaching spoken English to black primary and secondary students — they’d have to pay me, of course — but received no reply on that from Rhonda Frederick. I also received no reply from James Smith (smithbt@bc.edu), director of the Lowell Lecture Series, when I emailed my objection to being vilified on the Web by his colleague.

Now, as to the substance of what I said to this table of college professors. I’ve written before in books and blogs about the issue of spoken English and the black underclass, but for the record I will try to summarize some of my thoughts about it (trigger warning).

True, there are various dialects of English among us, but it must be obvious that they have different merits and disadvantages. There is such a thing as standard grammatical English. It evolves over generations, for sure, but it shows a certain conservative stability, like the rule of law. It tends to be spoken by educated people and by people in authority. This implies people in power, of course, people who run things, but also people at large in the professions (medicine, engineering, etc.) and the arenas of business and government. Standard grammatical English tends to be higher status because competence in it tends to confer the benefits of higher living standards.

It also must be self-evident that there is such a thing as a black English dialect in America. With perhaps a few lingering regional differences, it is remarkably uniform from Miami, Florida, to Rochester, New York, to Fresno, California. It prevails among the so-called black underclass, the cohort that continues to struggle economically. Despite its verve and inventiveness, this black dialect tends to confer low status and lower standards of living on those who speak it. In popular mythology and culture, it is associated with violent criminality and other anti-social behaviors. If you don’t believe this, turn on HBO sometime.

I argue that black people who seek to succeed socially and economically would benefit from learning to speak standard grammatical English, not solely because it is associated with higher status and living standards, but because proficiency with grammar, tenses, and a rich vocabulary helps people think better. After all, if you employ only the present tense in all your doings and dealings, how would you truly understand the difference between now, tomorrow, and yesterday? I submit that it becomes problematical. You may not be able to show up on time, among other things.

Some of my auditors have argued that “code switching” allows black Americans to easily turn back and forth for convenience between two modes of speech, black and “white” (i.e standard grammatical English). I’d argue that this is not as common as it is made out to be. Not everybody has the skill of entertainer Dave Chapelle, a master amateur linguist (whose parents were both college professors).

It’s my opinion that American primary and secondary education does not put enough emphasis on teaching standard spoken English to those deficient in it. The pedagogues have been hectored and browbeaten by the hierophants in higher ed not to press the matter. It is not regarded as important (probably because the task seems too painful and embarrassing and may hurt some feelings). The results are plain to see: academic failure among black Americans. (Not total but broad.) Instead, we concoct endless excuses to explain this failure and the related economic failures, the favorite by far being “structural racism” (despite having elected a black president who speaks standard grammatical English).

Now to the touchier question as to why this is. After all, other ethnic groups in America are eager to fully participate in the national life. For example, I gave a talk to a large honors freshman class at Rutgers University a year ago. Due to the current demographics of New Jersey, the class was overwhelming composed of Indian (Asian, that is) youngsters, many of them as dark-skinned as Americans of African ancestry. They had uniformly opted to speak standard grammatical English. They were all succeeding academically (it was an honors class, after all). They were on a trajectory to succeed in adult life. What does this suggest? To me it says that maybe some behavioral choices are better than others and the color of your skin is not the primary determinant in the matter.

Here’s what I think has happened to get us where we are today (second trigger warning). I think the civil rights victories of the mid 1960s generated enormous anxiety among black Americans, who were thereby invited to participate more fully in the national life after many generations of hardship and abuse. (If you argue that this was not the sum, substance, and intention of the Voting Rights Act and Public Accommodations Act of 1964-65, then you are being disingenuous.) However, they were not comfortable with the prospect of assimilating into the mainstream culture of the day. They either didn’t believe in it, or feared it, or despised it, or worried about being able to perform in it.

Many would attribute this anxiety to the legacy of slavery. Can a people get over a particular historical injury? American blacks are not the only group traumatized by circumstance. When do you decide to move forward? Or do you nurse a grievance forever? Anyway, it was not a coincidence that in the mid 1960s a new wave of black separatist avatars arose around the time of the civil rights legislative victories. Malcolm X, Stokely Charmichael, the Black Panthers, to name a few. That was the moment when much of the black population slid into what has become essentially an oppositional culture, determined to remain separate. Language is part of that picture.

The diversity cult of the day is a smokescreen to disguise this fundamental fact of American life: much of black America has simply opted out. They don’t want to assimilate into a common culture — so common culture has been deemed dispensable by the confounded keepers of the common culture’s flame, the university faculty. Much of black America doesn’t want to play along with the speech, manners, rules, or laws of whatever remains of that common culture after its systematic disassembly by the professors, the deans, and their handmaidens in progressive politics — heedless of the damage to the basic social contract. We remain very much a house divided, as Lincoln put it, and he could see clearly what the consequences would be.

Is it racist to try to air these abiding quandaries in the public arena? Apparently so. And why is that? Because of the awful embarrassment of political progressives over the disappointing outcome of the civil rights project. Black news pundits such as Charles Blow of The New York Timesconstantly call for “an honest conversation about race,” but they don’t mean it. Any public intellectual who ventures to start that conversation is automatically branded a racist. Hey, I couldn’t even have a conversation at a private dinner on the merits of speaking standard English with three college professors whose life-work centers on race. They had a melt-down and used a proxy (who wasn’t even there) to slander me on the Internet.

They are cowards and I am their enemy.

Continue reading

Haruhiko Kuroda – The Pressure to “Do More” Rises

Submitted by Pater Tenebrarum  –  The Acting Man Blog

BoJ Leaves Policy Unchanged, but What Comes Next?

The Bank of Japan has employed QE programs since March of 2001 (in February of 2001, it still claimed that “QE will be ineffective” – it was right then, for the last time). These have had no effect apart from making a Keynesian government spending orgy possible that is unique in terms of its size in the post WW2 developed world. It is also unique insofar as it hasn’t yet blown up.

QE was briefly interrupted in 2006, when the BoJ reduced the monetary base by 25% within a few weeks (this barely affected the money supply, although we have to add the caveat that Japanese money supply data are not directly comparable to Western ones).

2 percent kurodaKuroda demonstrating the loony-tunes 2% fetish of modern central bankers to journalists

Photo credit: Haruyoshi Yamaguchi / Bloomberg

After the GFC, governor Masaaki Shirakawa (白川 方明) reluctantly restarted QE; he was essentially convinced that monetary policy flim-flam of this sort would be useless, but a lot of pressure was exerted and he ultimately gave in. Following Shinzo Abe’s election, it was clear that a more pliant BoJ leadership would be appointed, and not surprisingly, under governor Haruhiko Kuroda (黒田 東彦), the BoJ has essentially decided to “go all in”. Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

Industrial-Scale Misery As Soaked Refugees Pour Onto Greece’s Lesbos (CBC)
Record 218,000 Migrants Crossed Mediterranean In October, Says UN (AFP)
Total Of 19 Dead Recovered From Aegean Sea On Sunday (AP)
Plastic Boat Sinks Off Greece, Killing 11 Refugees (NY Times)
Refugee Crisis Was Not Unexpected, Top UN Official Says (Kath.)
Merkel’s Refugee Troubles Mount as Allies Clash on Border Plans (Bloomberg)
Bonds Send Same Ominous Signs No Matter Where in the World (Bloomberg)
Apocalypse Now: Has The Next Giant Financial Crash Already Begun? (Paul Mason)
Down $4 Trillion, China Faithful Buy Stocks That Hurt Them Most (Bloomberg)
Enlargement And The Euro Are Two Big Mistakes That Ruined Europe (Münchau)
Eurozone Banks Still Swamped With Bad Loans (Telegraph)
Europe Prolongs Its Diesel Problem (Bloomberg Ed.)
Puerto Rico Doesn’t Need Bankruptcy (WSJ)
Brexit Is A Life Or Death Matter For Britain’s Farmers (AEP)
Greece Sets Terms for Aiding $15.9 Billion Bank Recapitalization (Bloomberg)
IMF Pushes Europe For Formal Restructuring Accord On Greek Debt (Bloomberg)
Things Can Get Even Worse For Renewable Energy Companies (Dizard)