Thursday, March 26, 2015

Is correction over?

If the Bulls can get over today's high at 17,759 then the correction is going higher.  Next FIB level is 17,802.  My sense is this is over, but the Bulls might have more to say.  We are oversold etc.  If you're a Bull, this would be a logical place to place a bet.  Only problem is markets are not logical--they are emotional.  Anything could happen tomorrow.  I'm staying short on the notion that we may have just finished a small wave 4.  GL

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Nothing Changes

Warning: Wall Street will keep repeating the same hype, piling it on thicker, deeper, until they finally trigger another meltdown, another crash like 2000, 2008, 1929. Stop listening to Wall Street.

Submitted by IWB, on March 26th, 2015

by James Quinn

The stock market topped out in January 2000 and proceeded to fall 40% over the next 32 months. Here is what the “experts” had to say at the time. You could fast forward to 2007 and the same idiots were saying the same things, before the market proceeded to drop 50%. Turn on CNBC today and many of these same shills are mouthing the same gibberish. At least they are consistent assholes.

March 1999: Harry S. Dent, author of “The Roaring 2000s.” “There has been a paradigm shift.” Poor Harry, the New Economy arrived, so did a long recession.

August 1999: Charles Kadlec, author, “Dow 100,000.” “The DJIA will reach 100,000 in 2020 after “two decades of above-average economic growth


with price stability.”

October 1999: James Glassman, author, “Dow 36,000.” “What is dangerous is for Americans not to be in the market. We’re going to reach a point where stocks are correctly priced … it’s not a bubble … The stock market


is undervalued.”

December 1999: Joseph Battipaglia, market analyst. “Some fear a burst Internet bubble, but our analysis shows that Internet companies


… carry expected long-term growth rates twice other rapidly growing segments within tech.”

December 1999: Larry Wachtel, Prudential. “Most of these stocks are reasonably priced. There’s no reason for them to correct violently in the year 2000.” Nasdaq lost over 50%.

December 1999: Ralph Acampora, Prudential Securities. “I’m not saying this is a straight line up. … I’m saying any kind of declines, buy them!”

February 2000: Larry Kudlow, CNBC host. “This correction will run its course until the middle of the year. Then things will pick up again, because not even Greenspan can stop the Internet



April 2000: Myron Kandel, CNN. “The bottom line is in, before the end of the year, the Nasdaq and Dow will be at new record highs.”

September 2000: Jim Cramer, host of “Mad Money” on CNBC. Sun Microsystems


“has the best near-term outlook of any company I know.” It dropped from $60 to below $3 in two years.

November 2000: Louis Rukeyser on CNN. “Over the next year or two the market will be higher, and I know over the next five to ten years it will be higher.” Markets kept losing for a few yearsl

December 2000: Jeffrey Applegate, Lehman strategist. “The bulk of the correction is behind us, so now is the time to be offensive, not defensive.” Another sucker’s rally.

December 2000: Alan Greenspan


. “The three- to five-year earnings projections of more than a thousand analysts … have generally held firm. Such expectations, should they persist, bode well for continued capital deepening and sustained growth.”

January 2001: Suze Orman, financial guru. “The QQQ, they’re a buy. They may go down, but if you dollar-cost average, where you put money every single month into them, I think, in the long run, it’s the way to play the Nasdaq.” The QQQ fell 60% further.

March 2001: Maria Bartiromo, CNBC anchor. “The individual out there is actually not throwing money at things that they do not understand, and is actually using the news and using the information out there to make smart decisions.”

April 2001: Abby Joseph Cohen, Goldman Sachs


. “The time to be nervous was a year ago. The S&P was overvalued, it’s now undervalued.” Markets crashed for 18 more months.

August 2001: Lou Dobbs, CNN anchor. “Let me make it very clear. I’m a bull, on the market, on the economy. And let me repeat, I am a bull.” And down it went.

June 2002: Larry Kudlow, CNBC host. “The shock therapy of a decisive war will elevate the stock market


by a couple thousand points.” He also predicted the Dow would hit 35,000 by 2010.


Europe: Next Investment Mecca


Submitted by IWB, on March 26th, 2015



walliamsgagptWalliams in hot water following latest Little Britain stunt

Good morning, Happy Thursday…leap from the bed bright-eyed and bushy-tailed for more updates on how the squeaky-clean Union of control freakery functions.

Yesterday was Independence day in Greece, and so the ECB chose to celebrate it by shortening the lead on banks there: they’ll now no longer be able to increase their holdings of Greek sovereign debt


, and so the latest sums suggest Greece will have no money at all by April 20th.

Less time, and yet more lists to come up with – this time by next Monday: run about, work-work, take planes


, busy-busy and…DONG! Oh dear, Mr Tsipras, I’m afraid you’ve run out of time.

Reuters was once more pumping up the drama by telling its grecophobic audience that the ECB’s exposure to Greek debt is €150bn and oh my, how shameless those greasy little idlers are in bankrupting the central bank


with their spendthrift, tax-evading ways.

But as Reuters and every other finance site on the planet knows full well, you can’t bankrupt a central bank. The exposure could be €150 trillion, and it would simply go down as another asset ready to be called in at some future date, future nuclear conflicts notwithstanding. And let’s face it, after an atomic war, not many are left standing.

At last, Bloomberg sticks a toe out of the closet and fesses up to the myth of Grexit. However, desperate not to disappoint the bloodsuckers, Big B goes through a number of scenarios suggesting that yes, despite there being no way legally for it to happen, ways could be found to ensure Athens winds up in the closet: the water closet that is…on its way down to the sewers where, in Greece, not even lavatory paper dare venture, let alone the euro.

But the various Bloomberg potential outcomes contain small inaccuracies like ‘Bad blood leads to Greece’s departure from the European Union’. Well, yes…but that would take two years minimum without a treaty change. And ‘Greece separates from the euro area in a messy default’ which (as the authors already established) isn’t possible.

There are days when I wonder what Bloomberg’s hiring policy is, but rarely wonder about Spiegel: I know it is the world’s first robot-written magazine. Following on from yesterday’s Slogpost about white elephants in the Spanish hacienda, this latest effort from the two-way mirror is a classic:


spiegelspain2Yes, multiple fraudster and ClubMed front-stabber Mariano Comfort&Joy has pulled Spain back from the brink of something or other. This leaves him with only the rise of Podemos, Spain’s worthless property mountain and 239 empty banks


to think about….along with just the three separatist movements within his borders.

Listen – that Rajoy Goy – now there vos a painter….one country, 239 banks and 87 airports, all in red – three years. Oiveh!


Wednesday, March 25, 2015

More to go?

Probably a little more to go--say 100 to 200 points--before Bulls can mount a significant rally.  The bigger question is Will it go back to new highs?  Until we get under 17,042 DJI, I can't say with certainty that new highs are out of the question.  Taking it day by day.  Today was strong.  We'll see how pattern develops tomorrow.  GL

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2 Signs of the Times from Seeking Alpha

Australia is "well and truly" disposed to become a member of the China-led Asian Infrastructure Investment Bank, Prime Minister Tony Abbott said today, although he wants to know how much power Beijing would hold in the institution before making a formal decision. Australia, South Korea and Japan are the notable regional absentees from the bank, while U.S. allies Britain, France, Germany and Italy announced earlier this month that they would join the AIIB, despite Washington's misgivings.

In the five years after the financial crisis, CEOs at large U.S. companies collectively realized at least $6B more in compensation than initially estimated in annual disclosures, a Reuters analysis shows. The reason for the windfall: the soaring value of their stock awards. The S&P 500's total return (including dividends) of 166% - from the end of 2008 through Monday - has some investors re-evaluating how they judge compensation plans. In some cases, they say CEOs may be benefiting from the bull market even when their performance might be weak.

More on Greece form Seeking Alpha

Unless it secures fresh aid, Greece risks running out of cash by April 20, a source told Reuters, leaving it little time to work out a deal with its EU creditors. Earlier this week, Greek PM Alexis Tsipras discussed reforms with Germany's Angela Merkel and promised to present a detailed list of proposed overhauls by Monday, but new pressures are popping up. Yesterday, the ECB instructed Greece's largest banks to refrain from increasing their exposure to Greek government debt, posing a severe challenge to the nation’s government.

Will Greece Play the China Card?

Greek Delegation to Visit China, Boost Exports

Port of Piraeus

By MarEx 2015-03-24 13:14:29

Senior Greek ministers will start a four-day visit to China on Wednesday to try to boost bilateral investments and export trade, the government in Athens said on Tuesday.

The March 25 to 28 visit by Deputy Prime Minister Yannis Dragasakis and Foreign Minister Nikos Kotzias will be the first to China by the left-wing government since its election in January. Chinese Premier Li Keqiang and Greek Prime Minister Alexis Tsipras talked on the phone last month and discussed sending a delegation to China to prepare for a visit by Tsipras.

Li had said Greek-Chinese relations had "enormous prospects," urging Tsipras to back a port project.

China's Cosco manages two of the cargo piers at Piraeus port, which serves Athens. Under a privatization scheme last year, it was shortlisted, along with four other suitors, as a potential buyer of 67 percent in the port, Greece's busiest. Greece's government, elected on pledges to stop privatizations and roll back austerity, has halted the sale of the port.

Kotzias is scheduled to meet his Chinese counterpart Wang Yi on Wednesday. Dragasakis will meet one of China's vice premiers - Ma Kai - on Friday.

Greece will run out of money by April 20 unless it receives fresh aid from creditors, a source familiar with the matter told Reuters on Tuesday.

Tuesday, March 24, 2015

Hussman: The FED and the Economy

John Hussman: Monetary Policy And The Economy: The Case For Rules Vs. Discretion

Mar. 23, 2015 12:57 PM ET 

Excerpt from the Hussman Funds' Weekly Market Comment (3/23/15):

Last week, the Federal Reserve Open Market Committee (FOMC) began its statement on monetary policy indicating that recent data “suggests that economic growth has moderated somewhat.” While the Fed removed the phrase that “it can be patient in beginning to normalize the stance of monetary policy”, the Fed’s weaker view of the economy prompted an immediate retreat in Treasury yields, an abrupt drop in the foreign exchange value of the U.S. dollar, a surge in stock prices, and an upward spike in the dollar price of gold and oil. The basic thesis of all of these moves is that the Fed may wait longer before increasing the rate of interest that it pays to banks on idle cash reserves (viz., “raising interest rates”).

We agree – partly. As I noted a week ago, “From my perspective, it remains unclear whether the Fed will resist the temptation to defer hiking interest rates, given what we observe as a deteriorating economic landscape.” The problem for investors is that along with the initial moves in Treasury yields, the dollar, stocks, gold, and oil that followed the FOMC statement, we also saw credit spreads widen rather than narrow last week, while our measures of market internals continue to show divergences that indicate a shift investor preferences toward increasing risk aversion.

Since mid-2014, when we completed the awkward transition that followed my 2009 insistence on stress-testing our methods against Depression-era data (see A Better Lesson than “This Time is Different”,Setting the Record Straight and Hard Won Lessons and The Bird in the Hand for a full review), I’ve emphasized that the response of the financial markets to overvalued conditions, and to Fed policy, is conditional on whether investor preferences are risk-averse or risk-seeking. While we do expect that the FOMC will be much slower to raise rates than some members would prefer, we strongly believe that the singular focus on interest rates is misguided in the first place. The following comments from early February (see Expect a Decade of 1.7% Portfolio Returns from a Conventional Asset Mix) draw the crucial distinction, and capture the central lesson that should be drawn from our own experience.


My impression is that while recent slowing is likely to deter the Fed from raising the interest rate on reserves, the enthusiasm of investors about this possibility is misplaced. In a context of widening credit spreads, extreme equity overvaluation, and divergent market internals, weaker economic evidence adds to downside concerns far more than the prospect of a continued zero interest rate compensates. The chart below shows the cumulative total return of the S&P 500 restricted to the same market return/risk classification that we identify at present. The small pullout shows recent quarters, with a sequence of quick but modest losses, a larger loss last October, and more recent churning action. While we’ve observed a recovery from the October low, such short-term behavior is not particularly uncommon, and similar churning has been indicative of top formation in previous instances (e.g. 1957, 1972, 1999-2000, and 2007). These choppy periods have generally been overwhelmed by the steep average market losses associated with these conditions.

(click to enlarge)

Informed discipline

I’ll emphasize as usual that our focus is decidedly on the complete market cycle, and we have no intention to dissuade investors from other personally suitable, well-understood and historically-informed disciplines. Our main advice for passive investors is to maintain your discipline, but also – please – make sure that your portfolio allocation is well-aligned with your investment horizon, that you recognize in advance and fully anticipate the likelihood of a few market losses during the coming decade in the 30-50% range (as Jack Bogle also encourages), and that you recognize that rich valuations after extended advances and record highs imply much more conservative assumptions about future returns than depressed valuations do. Investors that only become “enlightened” to espouse a buy-and-hold strategy after long market advances, who anticipate strong long-term gains from elevated valuations, and who limit their concept of “loss” to a shallow 20% decline, are often the same investors that abandon that strategy by the end of the cycle.

It's useful to remember that passive investment strategies can seem nearly infallible after a multi-year advance half-way through a market cycle, and extreme valuations can seem irrelevant precisely because they have become extreme without consequence (recall 2000, 2007 and a litany of other cyclical peaks). Still, the completion the market cycle often results in a dramatic turn of the tables in the standing of buy-and-hold approaches relative to risk-managed alternatives.

Meanwhile, understand that the transition from our pre-2009 methods to our present methods created a muddy connection between two spans of data: 1) The span until early 2009, when I doubt there was any question about the effectiveness of our discipline and; 2) the period since mid-2014, when we’ve been defensive for reasons much the same as we were prior to the 2000-2002 and 2007-2009 collapses. The muddy part is the intervening transition from our pre-2009 methods to our present methods of classifying market return/risk profiles (again, see A Better Lesson than “This Time is Different”). The fact is that both our pre-2009 methods and our present methods of classifying market return/risk profiles would have encouraged a constructive and often aggressive outlook during much of that transition period.


Monetary policy and the economy – the case for rules versus discretion

The real-time estimate of first quarter real GDP growth published by the Atlanta Fed dropped again last week to just 0.3%. Broader measures are consistent with this deterioration, retreating considerably and in a familiar sequence that typically begins with market internals, credit spreads and industrial commodities; followed by the new orders and production components of regional purchasing managers indices and Fed surveys; followed by real sales; followed by real production; followed by real income; followed by new claims for unemployment; and confirmed much later by payroll employment (See Market Action Suggests an Abrupt Slowing in Global Economic Activity).

It’s still not obvious that the recent economic deterioration will continue, but a further retreat in the purchasing manager’s index below 50 and a drop in the S&P 500 below its level of 6 months ago (about the 2000 level), coupled with already widening credit spreads and the absence of a steep yield curve, would complete a recession warning composite with much stronger implications. Though we warned of the 2000-2001 and2007-2009 recessions as they began in real-time, and quarters before they were broadly recognized, we also had persistent economic concerns between 2010 and 2012 that were at least deferred by monetary bazookas aimed at bringing future consumption forward as much as possible. We were in good company with Lakshman Achuthan at ECRI(the only other organization we know to correctly give early warning in both of those prior recessions). Neither I nor Lakshman (to my knowledge) see enough evidence to warn of a recession at present. My sense is that should we both warn of a recession in the future, dismissing those concerns as “crying wolf” will probably result in being eaten first. For now, suffice it to say that the economic data is going the wrong way, and the sequence of deterioration is familiar.

Will a continuation of zero interest rates encourage a stronger economy? We can’t deny that grand announcements of projectile money issuance have, in recent years, been able to bring forward enough demand to spur a quarter or two of stronger economic growth. Yet even those episodes have been short lived. It’s often argued that “we can’t know what the economy would have done without extraordinary monetary policy,” but that’s not really true. One must remember that much of the economic recovery that occurs after a recession is ordinary mean reversion, and we can get quite a good sense of the baseline “counterfactual” using statistical tools such as vector autoregression. These allow us to estimate the economic activity that would have been expected solely on the basis of non-monetary variables. As we showed last week (see Extremes in Every Pendulum), economic growth in recent years has actually beenslower than one would have predicted based on lagged values of non-monetary variables such as GDP growth and employment. We don’t dispute that the Fed had an essential role in providing liquidity to cash-strapped banks during the crisis, but the change in accounting rules by the FASB in March 2009 (abandoning the need for banks to mark their assets to market value) is what ended the crisis, not extraordinary monetary policy.

Death Trap


Why Yellen & The Feds Are Bubble Blind——They Apparently Believe Wall Street’s EPS Scam

by David Stockman • March 23, 2015

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Surveying the Fed’s handiwork during last week’s press conference,  Janet Yellen noted that all was awesome except that stocks were now slightly “on the high side” of their historical range. You can say that again!

In fact, you can say that any one capable of uttering such tommyrot has been totally bamboozled by Wall Street’s sell-side con artists. Yes, the latter surely need to be monitored by the Feds.  But that would be the kind of “Feds” who operate Uncle Sam’s non-elective hospitality facilities.

Take the Russell 2000 stock index. That’s smack dab in the Fed’s wheelhouse because upwards of 90% of the sales and earnings of the Russell 2000 are from domestic sources. So among the various market indicators, the small and mid-cap stocks which comprise the index should best capitalize the good works emanating from the Eccles Building. After all, the  masters of the world’s reserve currency domiciled there profess no interest in the dollar’s exchange rate and aver that they can micro-manage the US economy because it is a closed bathtub not impacted by wages, prices and capital flows from abroad.

Well, the Russell 2000 closed at a new all-time high on Friday. At its index value of 1266 it is now up 260% from is post-crisis low. Undoubtedly, the nation’s labor-economist-in-chief believes that’s all to the good. But then surely no one told her it represents a valuation multiple of just about 90X LTM (latest 12 months) earnings reported by the 2000 companies which comprise the index, and which were certified as accurate by 4,000 CEOs and CFOs on penalty of jail time.

The mystery of how the Fed remains so stubbornly bubble blind—-just like it did during the dotcom and housing bubbles—is thus revealed. The self-evident reason is that the purported geniuses who comprise our monetary politburo drink the Wall Street Cool-Aid about forward ex-items EPS.

In the case of the Russell 2000, this Wall Street confected version of the EPS multiple as of last Friday was 19.9X—–or just like the lady said, a tad on the high side but nothing to sweat about. Why not keep the pedal-to-the-metal awhile longer?

But here’s the thing. We have a yawning gap here. After sell-side analysts got done tracing their all-seasons hockey sticks several quarters into the future and finished deleting any expected charges to earnings that might plausibly be dismissed as “non-recurring”, the implied forward ex-items EPS for the Russell 2000 disseminated by Wall Street was exactly $63.87 per share.

By contrast, the actual 4-quarter GAAP result through December 2014 reported to the SEC was $14.18 per share. Needless to say, to blithely ignore this blinding difference—as surely Yellen did—-is an egregious dereliction of duty.

And the reason is this: The Fed has caused two thundering stock market bubbles and crashes already this century—–which resulted in $8 trillion and $10 trillion of devastating losses, respectively. Moreover, these cliff-diving crashes happened suddenly and were consummated within a matter of months, meaning that the Wall Street insiders and fast money traders got out and then returned to scavenge the bottom, while the main street homegamers took it in the chin twice.

So you would think that people who believes a few places to the right of the decimal point on the CPI make a big difference might wonder about $14 per share versus $64; and, most certainly, investigate whether this yawning GAAP is some type of temporary aberration or simply par for the course in the casino.

Indeed, they most surely should wonder about the following: One year ago, the LTM GAAP earnings for the Russell 2000 was exactly $14.10 per share for CY 2013. So the $14.18 per share reported for 2014—– on GAAP earnings numbers that you won’t go to jail for—-means thatthe Russell 2000 has gained the munificent sum of eight pennies or 0.6% during the past year.

That’s right. America’s hometown stock index is trading at 90X based on an earnings growth rate of less than 1%. A tad “on the high side” indeed.

Moreover, none of the Wall Street defenses for using the forward ex-items profit figures can withstand serious scrutiny. The casino has become so corrupted and bubbled up that the numbers are not worth the paper they are printed on.

Consider a brief history of Wall Street’s ex-items projection for S&P 500 earnings for CY2014. Exactly two years ago, that figure was about $125 per share. At the time, it was just another case of look ma, everything’s normal.

The S&P was then trading at 1560—–so the implied two-year forward multiple was 12.5X. By one year-ago, the Wall Street hockey stick had shrunk to $120 per share—–which then represented just 15.5X the nine-month forward earnings figure for 2014 based on an index price of 1870.

Needless to say, any CNBC talking head would have told you that these multiples were completely normal and that stocks still had “room to run”.  And that part would have been true. Last Friday the S&P 500 closed at 2108 or up by 35% from two years-ago and 13% from March 2014.

Alas, the ex-items earnings figure for 2014 is now actually recorded, and its the part which isn’t up.  All those bottoms-up hockey sticks turned out to be a tad optimistic because the number actually came in at $113 per share or 10% lower than its two-year ago outlook.  And as to the GAAP stay-out-of-jail version of profits, the number for 2014 came in at $102 per share.

So it turns out the S&P 500 is being capitalized at 20.6X actual GAAP EPS. Other than during recession quarters, the only time the S&P multiple was recently even close to that was in Q3 2007, when the LTM multiple was 19.4X.  Even the Fed heads recall what happened next.

And, no, the difference between honest GAAP earnings and Wall Street’s ex-items version is not a matter of subjective preference. Non-recurring charges for asset write-offs, goodwill reductions, employee severance and other so-called restructuring costs are real expenses that consume cash and/or destroy corporate capital. For any given company honest GAAP earnings can be “lumpy” from period to period, but that can be solved by amortizing, not eliminating, these charges.

And as to the S&P 500 basket as a whole, even the “lumpy” canard is not really an issues because for many years now the difference between GAAP earnings and ex-items profits has ranged consistently between 8-15%. The lumps wash out when it comes to the entire index.

Over any reasonable period of time, however, this 8-15% gap adds up to some real money. During the eight years encompassing 2007 through 2014, in fact, GAAP earnings reported to the SEC by the S&P 500 companies have cumulated to about $5 trillion—–while ex-items earnings ballyhooed by Wall Street have totaled around $6 trillion. There is a distinct possibility that this $1 trillion difference is not just a rounding error when it comes to valuation!

More importantly, as the Fed’s bubble cycles get long-in-the-tooth, the forward ex-items hockey sticks tend to get steeper; and over the decades, the creativity of the sell-side in deleting “non-recurring” charges has gotten considerably more acute. Accordingly, comparisons of today’s ex-items multiples with purported long-term average multiples is a proverbial case of apples and oranges.

Some sense of that is evident in the graph below, which is based on trailing earnings on a GAAP basis. It shows that as of June 2014, the median PE multiple for all NYSE stocks with positive earnings was at an all-time high——even exceeding the lofty heights of the dotcom bubble years.

And that’s not the half of it. In today’s Fed sponsored casino there are far more companies with negative earnings and large capitalizations than in those benighted times decades ago when “price discovery” still existed. So that brings us to the stupendous biotech bubble that even Yellen claims to have recognized back in June of 2014.

Since then the NASDAQ biotech index is up another 50%—–bringing the index to 6X its March 2009 bottom. But even then the real valuation absurdity is not fully apparent on the surface. As Zero Hedge documented the other day, the 150 companies in the index have a collective market cap of $1.06 trillion, but only $21 billion of LTM earnings, implying a PE multiple of 50X.

But rollover Russell 2000—–you haven’t seen nothing yet. The 5 big cap biotechs in the index—-Gilead, Amgen, Shire, Biogen and Celgene—had net income of $25.5 billion during the most recent LTM period—-or well more than the index total. If you add in the next 20 positive earners, you get to $30.5 billion of net income or 145% of the $21 billion reported by the entire basket of 150 companies.
IBB Chart

IBB data by YCharts

So the internals shape up this way. The Big 5 had a market cap of nearly $550 billion or did last Friday before today’s Gilead stumble which took the index down by about $20 billion. And the next 20 traded at a collective value of $230 billion, meaning that the market cap of the top 25 companies in the index (which accounted for 145% of total earnings) was about $780 billion.

Needless to say, the math here implies something rather astounding.Namely, that there are 125 companies in the NASDAQ biotech index which are valued at $280 billion, but posted aggregate losses of nearly $10 billion in the most recent LTM reporting period.

So yes, Janet, there is a bubble in biotech and its a doozy. It amounts to well more than one-quarter trillion dollars of bottled air. Its a direct result of six years of free ZIRP money to the carry trade gamblers and Wall Street’s self-evident confidence that the Fed is petrified of a hissy fit and will not hesitate to keep the juice flowing indefinitely—– even if it’s called a 25 bps increase in the money market rate, eventually.

The stupendous extent of the biotech bubble—and its merely representative—–can be seen in the free market contrafactual. That is to say, what would these 125 negative earners in the biotech index have to generate when they grow-up in order to earn-out there current $280 billion market cap?

Well, the Big 5 trade at 21X earnings and with $68 billion of combined revenues they reported a five-year sales growth rate of 16.5% per annum. So when you get to quasi-stable maturity even in the Fed’s casino it takes one small sized mountain of sales to earn even a middling sized multiple. But whoops——half of the big 5 LTM profits were accounted for by Gilead, which had an LTM net profit rate of 49% on $25 billion of sales. By contrast, the more typical net income margins of Biogen and Amgen were 30% and 25%,respectively.

Even more to the point, the net income margin of the next 20 companies—–represented by names like Mylan, Alexion, Biotechnic and Luminex was 17.5%, while the PE multiple of these earlier stage companies was a frisky 47X. And frisky is indeed the correct term because their 5-year revenue growth rate was only slightly higher than the Big 5 at 21%.

In short, give these 125 cash burning negative earners and virtually salesless biotechs a grown-up PE multiple of 20X and a net income margin of 20%. That means they would need to generate $70 billion of sales from today’s cold start.  Good luck with that, and with the near ZIRP discount rate that is implied by the amount of time that would be required to get from here to there.

Indeed, speaking of the amount of time required to get from zero to 60 mph, Elon Musk has finally explained why Tesla is worth $35 billion. That is, despite the fact that it has never generated a dimes of net income; has in fact posted net losses of $1.4 billion since Goldman started flogging it in 2007; and can’t possibly compete with the likes of Toyota and BMW in scaling up to the mass market volume that is implied in its current infinite multiple.

It turns out that Musk believes Tesla is actually peddling a death trap, and foresees a world in which the testosterone-riven rich men who buy his vehicles today will be prohibited from even driving their own cars. Stated differently, he is now admitting that the market is capitalizing his driverless car vision——-to go along with his Mars Shuttle and warp speed trains:

So what happens when we get there (to driverless cars)? Musk said that the obvious move is to outlaw driving cars. “It’s too dangerous,” Musk said. “You can’t have a person driving a two-ton death machine”.

No less than investment guru Jim Cramer now gets the joke. Back in early February, Cramer issued his own broadside:

“Clean up your act, Musk—Tesla’s a total disaster!…….. No way the balance sheet can support the investment needed……. Musk confirmed that it will be spending staggering amounts of money on capital expenditures….. Where the heck is this money going to come from?”

That about sums up the “high side”. The Fed is driving a two-ton bubble machine, but has no clue that it has become a financial death trap.

Wave 2 still alive

Though we are not out of the woods--the market could still make new highs--today moved us a little closer to a validated wave count.  Getting under 17,983 (38% retrace) will be more validation.  Getting under 17,773 (75% retrace) will more or less cinch it.  Getting under 17,200 will confirm Bear Market.  So there's more work to do and more anxiety to come.  But for the moment, things are going our way.  GL

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Monday, March 23, 2015

Bears keep wave 2 option alive

Don't know why, but Bears managed to keep wave 2 two alive.  The cavalry did arrive last minute, but they did chase the Bulls off--for how long is the question?  Maybe tomorrow the MOB will make up its mind.  Be careful, Bears, there could be a surprise in here--like Germany making some concession to Greece--who knows?  This is an ending pattern--either now or 200 or so points higher.  GL

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Friday, March 20, 2015

Can this market crack?

I've been working on the assumption that we were ending a wave 2.  Though that's still possible, today's strength has cast some doubt upon that.  If the market doesn't drop on Monday, wave 2 is out of the picture, and the DJI could do another 200 or 300 points up.  I got an email today: "The bulls are unstoppable."  EUPHORIA is thick, and the mood has taken control of the pilot--that's how these things end.  Oh, this is an ending pattern.  It's only a matter of time--when.  GL

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Global Earnings Plunge

The Latest Flashing Red Light: Global Earnings Plunge Most Since Lehman

Tyler Durden's picture

Submitted by Tyler Durden on 03/20/2015 10:51 -0400

We will leave it to the chartists to provide an appropriate name for the formation shown below (mutation unchallenged head and shoulders?) but one that is obvious is that global stocks as measured by the MSCI world index have never been higher, and the global central bank bubbe has now easily surpassed both the dot com bubble and the first housing/credit bubble.

But why the surge? We will leave that one to the economists, but we will observe that as BofA comments, "global equity 12-month forward EPS has turned negative on a YoY basis (-6.7%)."

In fact, as the chart below shows, global forward EPS is now plunging at the fastest rate since Lehman, and is down to levels last seen in 2011.

Incidentally, this shoudl not come as a surprise to those who recall our
article that in the most recent period, the "Global Dollar Economy
Suffers Biggest Plunge Since Lehman, Down $4 Trillion
." It only makes sense that as global GDP denominated in the reserve currency tumbles, it will drag global Earnings with it as well.

BofA also says what everyone knows, that "investor submission to central bank policies of financial repression is visible" but warns that "equity gains will likely be restrained unless EPS accelerates."

It goes without saying, that EPS is not accelerating, and yet today global equities are soaring to fresh all time highs. All we can add here is "Good luck global central banks" as you try to figure out a way to unwind the biggest asset bubble in history without crushing everyone and everything in process.

Greek Default 82%

Greece to draft reform plan within days. Mkts not convinced, default risk default risk has jumped >82% . In Greece bailout talks, it’s 18 versus one.

Submitted by IWB, on March 20th, 2015

EU leaders say Greece has agreed to come up with a new reform plan within days to secure


the additional bailout funds required to prevent bankruptcy.


The development


came after marathon talks between Greek PM Alexis Tsipras, German Chancellor Angela Merkel and other European leaders in Brussels.

Mr Tsipras said he was now “more optimistic” after the meeting.

Separately, the EU leaders agreed to keep sanctions on Russia in place until the end of this year at the earliest.

The sanctions, imposed because of Russia’s alleged military


intervention in Ukraine, are now linked to “complete implementation” of a ceasefire deal.

The middle-of-the-night talks between Mr Tsipras, Ms Merkel, French President Francois Hollande and leaders of the EU institutions lasted for more than three hours. They were organised on the sidelines of an EU summit in the Belgian capital.

As talks over Greece’s bailout move closer to the brink, the 19 countries of the eurozone have split into two distinct camps: Greece and the other 18.

It didn’t start off quite like this. The new government of Alexis Tsipras was greeted warily by many when it took office


in January, given the left-wing leader’s bold campaign promises of writing off the country’s debt. But there were some sympathizers on the left among the leaders of France and Italy, and many expected Mr. Tsipras would change tack once he took office.


Thursday, March 19, 2015

How bad is it?

10 Charts Which Show We Are Much Worse Off Than Just Before The Last Economic Crisis

Submitted by IWB, on March 18th, 2015

By Michael Snyder


10 Charts Economic Crisis

If you believe that ignorance is bliss, you might not want to read this article.  I am going to dispel the notion that there has been any sort of “economic recovery


”, and I am going to show that we are much worse off than we were just prior to the last economic crisis.  If you go back to 2007, people were feeling really good about things.  Houses were being flipped like crazy, the stock market was booming and unemployment was relatively low.  But then the financial crisis of 2008 struck, and for a while it felt like the world was coming to an end.  Of course it didn’t come to an end – it was just the first wave of our problems.  The waves that come next are going to be the ones that really wipe us out.  Unfortunately, because we have experienced a few years of relative stability, many Americans have become convinced that Barack Obama, Janet Yellen and the rest of the folks in Washington D.C. have fixed whatever problems caused the last crisis.  Even though all of the numbers are screaming otherwise, there are millions upon millions of people out there that truly believe that everything is going to be okay somehow.  We never seem to learn from the past, and when this next economic downturn strikes it is going to do an astonishing amount of damage because we are already in a significantly weakened state from the last one.

For each of the charts that I am about to share


with you, I want you to focus on the last shaded gray bar on each chart which represents the last recession.  As you will see, our economic problems are significantly worse than they were just before the financial crisis of 2008.  That means that we are far less equipped to handle a major economic crisis than we were the last time.

#1 The National Debt

Just prior to the last recession, the U.S. national debt was a bit above 9 trillion dollars.  Since that time, it has nearly doubled.  So does that make us better off or worse off?  The answer, of course


, is obvious.  And even though Barack Obama promises that “deficits are under control”, more than a trillion dollars was added to the national debt in fiscal year 2014.  What we are doing to future generations by burdening them with so much debt is beyond criminal.  And so what does Barack Obama want to do now?  He wants to ramp up government spending and increase the debt even faster.  This is something that I covered in my previous article entitled “Barack Obama Says That What America Really Needs Is Lots More Debt“.


Presentation National Debt

#2 Total Debt

Over the past 40 years, the total amount of debt in the United States has skyrocketed to astronomical heights.  We have become a “buy now, pay later” society with devastating consequences.  Back in 1975, our total debt level was sitting at about 2.5 trillion dollars.  Just prior to the last recession, it was sitting at about 50 trillion dollars, and today we are rapidly closing in on 60 trillion dollars.


Presentation Credit Market Instruments

#3 The Velocity Of Money

When an economy is healthy, money tends to change hands and circulate through the system


quite rapidly.  So it makes sense that the velocity of money fell dramatically during the last recession.  But why has it kept going down since then?


Presentation Velocity Of M2

#4 The Homeownership Rate

Were you aware that the rate of homeownership in the United States has fallen to a 20 year low?  Traditionally, owning a home


has been a sign that you belong to the middle class.  And the last recession was really rough on the middle class, so it makes sense that the rate of homeownership declined during that time frame.  But why has it continued to steadily decline ever since?


Presentation Homeownership Rate

#5 The Employment Rate

Barack Obama loves to tell us how the unemployment rate is “going down”.  But as I will explain later in this article, this decline is primarily based on accounting tricks.  Posted below is a chart of the civilian employment-population ratio.  Just prior to the last recession, approximately 63 percent of the working age population of the United States was employed.  During the recession, this ratio fell to below 59 percent and it stayed there for several years.  Just recently it has peeked back above 59 percent, but we are still very, very far from where we used to be, and now the next economic downturn is rapidly approaching.


Presentation Employment Population Ratio

#6 The Labor Force Participation Rate

So how can Obama get away with saying that the unemployment rate has gone down dramatically?  Well, each month the government


takes thousands upon thousands of long-term unemployed workers and decides that they have been unemployed for so long that they no longer qualify as “part of the labor force”.  As a result, the “labor force participation rate” has fallen substantially since the end of the last recession…


Presentation Labor Force Participation Rate

#7 The Inactivity Rate For Men In Their Prime Working Years

If things are “getting better


”, then why are so many men in their prime working years doing nothing at all?  Just prior to the last recession, the inactivity rate for men in their prime working years was about 9 percent.  Today it is just about 12 percent.


Presentation Inactivity Rate

#8 Real Median Household Income

Not only is a smaller percentage of Americans employed today than compared to just prior to the last recession, the quality


of our jobs has gone down as well.  This is one of the factors which has resulted in a stunning decline of real median household income.


Presentation Real Median Household Income

I have shared these next numbers before, but they bear repeating.  In America today, most Americans do not make enough to support a middle class


lifestyle on a single salary.  The following figures come directly from the Social Security Administration

-39 percent of American workers make less than $20,000 a year.

-52 percent of American workers make less than $30,000 a year.

-63 percent of American workers make less than $40,000 a year.

-72 percent of American workers make less than $50,000 a year.

We all know people that are working part-time jobs because that is all that they can find in this economy.  As the quality of our jobs continues to deteriorate, the numbers above are going to become even more dismal.

#9 Inflation

Even as our incomes have stagnated, the cost of living just continues to rise steadily.  For example, the cost of food and beverages has gone up nearly 50 percent just since the year 2000.


Presentation Food Inflation

#10 Government Dependence

As the middle class shrinks and the number of Americans that cannot independently take care of themselves soars, dependence on the government is reaching unprecedented heights.  For instance, the federal government is now spending about twice as much on food stamps as it was just prior to the last recession.  How in the world can anyone dare to call this an “economic recovery”?


Presentation Government Spending On Food Stamps

So you tell me – are things “getting better” or are they getting worse?

To me, it is crystal clear that we are in much worse condition than we were just prior to the last economic crisis.

And now things are setting up in textbook fashion for the next great economic crisis.  Unfortunately, most Americans are totally clueless about what is going on and the vast majority are completely and totally unprepared for what is coming.