Here comes your biggest melt-up for stocks since 1998 – MarketWatch 10-30-15

Salient to Investors:

Nour Al-Hammoury at ADS Securities expects stocks to drop in November on the fears of a rate hike in December until the Fed changes its mind again.

Steve Sjuggerud at the Daily Wealth said stocks will soar over the next 18 months because we reached an extreme of fear in August: a la late 1998.

Bespoke Investment Group says the SPX is more than 2 standard deviations above its 50-day moving average, its most overbought level of 2015.

Read the full article at http://www.marketwatch.com/story/here-comes-your-biggest-melt-up-for-stocks-since-1998-2015-10-30-9103015?mod=MW_story_recommended_default&Link=obnetwork

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Powdering The GDP Pig – There Was No Escape Velocity Inside – David Stockman’s Contra Corner 10-30-15

Salient to Investors:

David Stockman writes:

The global economy is in deflation and the US economy is stalling and within months will be in recession and the market in panic. The Fed cannot prevent the US economy from sliding into the global slump. Since 2000, the Fed has twice before pushed on a string with the economy while inflating the Wall Street casino, with bad results.

The Commerce Department’s GDP deflator showing 0.9% inflation during the last 12 months understates true inflation.

Nominal GDP is the single most important macro variable in a debt-driven economy. Nominal GDP growth is down to 2.9% and headed towards zero – it has been decelerating since Q2 2012 – which last occurred in the 1930s.  During the 1990s recovery, nominal GDP grew at a 5.6% annual rate, during the Greenspan housing/credit boom after 2001 it grew at 5.3%, and since the pre-crisis peak it has gown at only 3.0%, even less since June 2009. Despite this, the Federal budget assumes 5.2% per year growth for the next 10 years.

If the GDP growth trend continues, federal tax collections will drop far below current projections and cause budget deficits and the national debt to soar.

Q3 2015 business plant and equipment spending rose just 0.6% from a year ago, while Q3 goods exports are down 7.8% from a year ago, due to the ending of China’s infrastructure building spree, and Q3 services exports have slowed to a 3.9% annual rate. Global deflation inherently means a strong dollar so service exports will start falling soon.

Nominal Federal consumption and investment spending is down to near Q2 2009 levels, removing another prop under the post recession recovery.

Business sales are rolling over, while the inventory correction has just started – the inventory to sales ratio is at October 2008 highs.  Auto sales have peaked due to the exhaustion of subprime customers.

Read the full article at http://davidstockmanscontracorner.com/powdering-the-gdp-pig-there-was-no-escape-velocity-inside/

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Retail investors are the most bullish, and least bearish, in 8 months – MarketWatch 10-29-15

Salient to Investors:

AAII report 40.4% of individual investors expect the stock market to rise over the next 6 months, versus 34.8% a week ago, and the highest since February. 20.6% were bearish, the lowest since February.

Retail investor sentiment is often cited as a contrarian indicator.

Read the full article at http://www.marketwatch.com/story/retail-investors-are-the-most-bullish-and-least-bearish-in-8-months-2015-10-29

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The charts that show Wall Street may have shifted its view on bad news – MarketWatch 10-29-15

Salient to Investors:

For the past year, stocks have risen on reports that indicate economic slowdown, and have fallen on positive economic data.  But Jani Ziedins at CrackedMarket says the market is slowly moving back to normalcy; when markets rise on good news and fall on bad news.

Jobless claims are at 1970s lows, indicating the jobs market is healthy.

Read the full article at http://www.marketwatch.com/story/the-charts-that-show-wall-street-may-have-shifted-its-view-on-bad-news-2015-10-29

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Fareed Zakaria GPS – CNN 10-25-15

Salient to Investors:

Fareed Zakaria said:

  • When politicians have been in power for a decade, voters usually want a change no matter how popular the leader is. The hallmark of populism is anger. Left-wing populism is mostly about economics. Right-wing populism is mostly about culture. Both hate the big city elites who they believe run the world.
  • Populism gets attention but rarely wins. The real democratic populists of the late 19th and early 20th century were agrarian reformists, anti-immigration activists, advocates of prohibition and ardent believers in the moral superiority of farms and small towns – but always lost the elections. The Democratic Party when it has been successful has never been about populism.
  • Ben Bernanke was the single individual responsible for preventing the financial crisis of 2008 from turning into something much worse.
  • Brazil is the biggest country in the entire Southern hemisphere, with the 6th largest population and 8th largest economy in the world, with a government with the lowest ever approval ratings according to Reuters.

Philip Tetlock at the University of Pennsylvania said:

  • The average expert in fields like politics is no better at making predictions than anyone making a random guess.
  • Many organizations, governments, and news media never truly evaluate the accuracy of their predictions.
  • Predicting is a skill that can be honed, and can be acquired with practice by anyone with a fair level of intelligence.
  • The best forecasters tend to be open-minded, consider information from many different sources, embrace nuance, qualifying their assertions carefully, and work well with those that disagree, without being disagreeable.

Ben Bernanke said:

  • You cannot have a collapse of the financial system and the rest of the economy emerges unscathed.
  • The US economy is recovering strongly, though not benefiting everybody. Globalization, huge technical and institutional changes have worked against the worker with the high school degree and little experience with technological change – a very long term problem that monetary policy can do little about.
  • Yellen has to decide if there is enough domestic momentum to keep us growing despite the drags from abroad.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1510/25/fzgps.01.html

Wall Street’s Latest Bounce – Ostrich Economics At Work – David Stockman’s Contra Corner 10-20-15

Salient to Investors:

David Stockman writes:

The price of financial assets is now artificial and wildly inaccurate. $300 trillion of global finance cannot remain stable much longer.

Bulls believe the Fed is on hold until at least next March, while Wall Street is projecting S&P 500 earnings of $130 per share on an ex-items basis for 2016, and which will never happen. The S&P is overpriced at 21 times earnings, and at 30 times trailing earnings or more when honest GAAP earnings for Q3, 2015 come in at $95 per share or less, versus the peak $106 per share in Q3 2014. More than $5 trillion of current cash flow and new debt is now allocated to corporate stock buybacks, M&A deals and LBOs.

Alan Blinder and Mark Zandi admit QE has possible negative side-effects, but say that for the most part they have yet to materialize. All the while the global economy heads into a deflationary conflagration.

This mother of all bond market bubbles will bring down the entire financial system when it inexorably bursts: central banks have vast powers, but they cannot repeal the law of supply and demand. $19 trillion of central bank bond-buying during the last two decades has dominated debt pricing on the margin for most of this century. Last week’s 60 basis points for 2-yr treasury notes or 210 basis points for 10-yr money do not reflect a surfeit of private savings or business and household hoarding of cash but a giant surplus of credit.

Real net business investment is still 17% below its 2000 level. Junk debt has risen from $1.3 trillion at the 2007 peak to more than $2.5 trillion today driven by yield-starved money managers and homegamers.

Debt-crippled, junk-rated Dell is buying EMC for $67 billion, or 17 times free cash flow for 1% annual growth, funded almost entirely with junk debt and tracking stock on EMC’s major asset, a public company that pays it no dividends or other regular cash returns. In a PC industry which is disappearing at a rapid rate.

China is headed for massive economic and financial conflagration, which will spillover into the rest of the world because the entire emerging market economy was built on China’s runaway economy and investment bubble. China’s insane accumulation of foreign exchange reserves over two decades of massive and blatant currency pegging could not continue indefinitely which is why it has seen $850 billion capital outflow of the last 4 or 5 quarters and a $500 billion drop in FX reserves since late 2014. There is no way to manage a $28 trillion house of debt cards, which grew by 56 times in less than two decades, to a soft landing.

The bubble is bursting in socialist Brazil, in Australian mining, in Canadian real estate, in the North Dakota Bakken, and in the German export machine, as China and its EM suppliers are being forced into liquidating dollar and euro credit, and stop buying luxury cars and engineering machinery on borrowed money.

Read the full article at http://davidstockmanscontracorner.com/wall-streets-latest-bounce-ostrich-economics-at-work/

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Fareed Zakaria GPS – CNN 10-18-15

Salient to Investors:

Fareed Zakaria said:

  • In the late 70s and 80s, Russia invaded Afghanistan and intervened elsewhere amid praise that it was winning the Cold War. Like then, it remains a mistake to believe that activity is achievement, that every crisis can be solved by a major power. If Russia and Iran win in Syria they will inherit a sinking hotspot led by a minority regime.
  • A peak of 170,000 US soldiers in Iraq and nearly $2 trillion produced a humanitarian catastrophe in Iraq: 4 four million displaced civilians and 150,000+ dead. Libya is called a ‘battled-worn wasteland’, and Yemen’s civil war is tearing it apart. Be glad that Obama has chosen Eisenhower’s path to global power and not Putin’s.
  • Opportunities are more available to women in America because of the idea that anyone can succeed here.
  • The IMF predicts a 246% debt to GDP ratio for Japan in 2015, versus 105% for the US.

Anne-Marie Slaughter at New America said:

  • With 60%+ of women working, the American workplace no longer makes room for care giving.
  • Since the 1990s, only 20% of women are in senior management because they get shut out when they have kids and are the lead parent. While women’s roles have changed radically since the 1950s, men’s have not.

Andy Moravcsik at Princeton said:

  • Sweden and Denmark are better at giving parental leave for care giving than the US.
  • Opportunities are more available to women in America because of the belief that anyone can succeed here.
  • Americans believe that a man who becomes the lead parent has the same legitimate standing in society that a woman does. Men are trapped in a role where they have to work and not also be caregivers.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1510/18/fzgps.01.html

Fareed Zakaria GPS – CNN 10-11-15

Salient to Investors:

Fareed Zakaria said:

  • We cannot solve Afghanistan without recognizing Pakistani army support for the Taliban. No counter-insurgency has ever succeeded where the rebels have a safe haven, so until this is dealt with, the Taliban will never be defeated. Pakistan pretends to help the US while supporting its most deadly foes.
  • Pakistan is a time bomb. It has one of the world’s largest armies, the fastest growing nuclear arsenal, and the most opaque. 5.5 million Pakistani children do not attend school. The US faces a strategic collapse as it withdraws forces from the region unless Pakistan’s military and its mindset are reformed.
  • Any US involvement in Syria has to be aimed at dislodging Assad from power, which would produce total chaos; viz. Iraq, Libya and Yemen.
  • Italy, France et al is the world’s greatest paradise: beautiful countries, amazingly rich, incredibly nice work rules, long vacations, ability to early retire. So why reform?
  • The Economist ranked the UK 1st out of 80 countries in the 2015 quality of death index, Taiwan 6th, the US 9th. Mongolia ranked 1st out of the low-income countries.
  • The US should abandon the outdated 9:00 to 5:00 work-week.
    • Henry Ford pioneered cutting back employees’ hours to make his workers happier and more productive.
    • One study found that people working 40 hours or less each week outperform on certain tasks those who work more than 55 hours per week.
    • A Stanford study found that the number of hours somebody works is not directly proportional to his output, while at 48 working hours, productivity falls.
    • Tony Schwartz says people work better in short bursts than long ones.
    • A 2014 Gallup survey found that American full-time workers averaged 47 hours per week, while almost 20% of Americans work 60 hours per week or more.
    • The OECD found that US workers worked more hours on average in 2014 than workers in many other countries, including the UK, Germany and Japan.
    • Alternet says white-collar knowledge workers have 6, not 8, hours of productive work in them each day.

Julia Ioffe at the Wall Street Journal said:

  • Putin is a tactician, not a strategist, but his economy is cratering and his military much weaker than the US military. Putin is moving into areas that the US has traditionally dominated; Iraq, Syria, Afghanistan.
  • Russian Muslims are all Sunni whereas Putin is aligning himself with an exclusively Shiite coalition and his Syrian move will inevitably blow up on him.
  • The US should take in many more refugees.

Bret Stephens at the Wall Street Journal said:

  • Putin is investing in Syria the way that Trump invests in real estate – with a very small investment for a potentially large payoff. His move into Syria helps distract the Russian people from its sinking economy.
  • Putin is a frog who jumps from lily pad to lily pad when he feels them sinking under his weight – from KGB agent to Leningrad technocrat to reformist president to patron of the Oligarchs.
  • Syria is a metastasizing cancer so the US has both a humanitarian and geopolitical interest. US no fly zones over northern Iraq in 1971 saved many Kurds and effectively helped create the Kurdish Autonomous Region – the single biggest American achievement in the Muslim world in the last 25 years.
  • Syria is many countries and just because we cannot solve it does not mean we cannot help its Kurdish areas become sustainable opposition.
  • The problem in Israel is the failure of leadership by Mahmoud Abbas, by Abu Mazen, in both tamping down and stoking violence.

Ian Bremmer at the Eurasia Group said:

  • Putin is in Syria to shore up Assad and not destroy ISIS. Taking casualties would be very unpopular in Russia.
  • Europe believes Syria is more important than Ukraine and that the only way to fix Syria is through Moscow, which could then ask Europe to back off sanctions. The cease-fire in Ukraine is working because Putin has got the paramilitaries there to back off their election. Europe and the US are moving farther apart every day.
  • Russia’s economy will contract by 4% to 4.5%, but its central bank has stabilized the rubble and during Putin’s tenure, per capita income has risen much.
  • 90% of Russians get their media primarily from state controlled TV with is pretty effective.
  • The problem with Syria is not Obama’s policy but that his rhetoric bears no reflection to his policy.
  • The Trans-Pacific pact is 40% of the world economy and a real pivot to Asia, the most important part of the world for the US – it is Obama’s most important successful foreign policy legacy. That TPP’s former architect Hillary Clinton is now opposed to it is astonishing.

Peter Beinart at the Atlantic said:

  • Putin’s move in Syria will increase terrorism against Russia by positioning it opposite the entire Sunni world and so cannot end well.
  • Obama is right not to get involved in Syria, and should not have done so in Yemen.
  • The rise in terrorism in Israel is a product of the fact that the two-state vision is weakening on both sides.

George Soros said the euro crisis has converted the EU from a voluntary association of free and legal nations, devoted to principles of democracy and human rights and willing to sacrifice some sovereignty for the common good, into an unequal relationship between creditors and debtors, who have difficulty meeting their obligations.

President Bill Clinton said:

  • The immigration/refugee problem in Europe can be turned into an opportunity: e.g. Syrians are overwhelmingly literate, productive, and historically secular, not super religious, and particularly not politically violent.
  • Ireland is the only European country that is younger than America and was growing like crazy, before its banking bubble, because it had many immigrants from Central and Eastern Europe, which made it even younger.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1510/11/fzgps.01.html

Brands that make consumers emotional outperform the S&P 500 over time – MarketWatch 10-07-15

Salient to Investors:

MBLM found that from 2005 to 2014,  companies with intimate brands averaged 5% more revenue growth and 11% more profit growth than the S&P 500 index. The top-performing industry in the US was the auto industry, suggesting scandals did not dent customer enthusiasm.

Mario Natarelli at MBLM said only a quarter of the 52,000 brands surveyed evoked intimacy with their customers.

The top ten were, in order: Apple, BMW, Toyota, Amazon, Harley-Davidson, Disney, Coca-Cola, Whole Foods, GMXC and Samsung.

Read the full article at http://www.marketwatch.com/story/brands-that-make-consumers-emotional-outperform-the-sp-500-over-time-2015-10-06

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Fareed Zakaria GPS – CNN 10-04-15

Salient to Investors:

Fareed Zakaria said:

  • Russia’s move in Syria is a desperate effort to shore up one of its only foreign allies and risks making it the great Satan with jihadists everywhere. However, Putin has at least a clearer strategy in Syria than Obama.
  • An US army of less than 30,000 men could easily defeat ISIS but then own problem territory in Syria.
  • Historically, the US when allied with a local force that was capable and viewed as legitimate has succeeded, but without such local allies, has not.
  • Syria will never be an intermingled country ever again whatever happens.
  • Code.org estimates that by 2020, there will be only 400,000 computer science students to fill the 1.4 million computing jobs in the US.
  • Liberal arts are important in teaching creativity, analytic thought and the joy of learning.

Jeff Colvin at Fortune said:

  • Studying humanities could become as valuable as a science degree because some jobs will always be done by “relationship workers”, the ones that emphasize social interaction – the need to interact with others is connected to our very survival, which is why we would prefer to see a real doctor or choose to work in teams.
  • From 2001 to 2009, the McKenzie Global Institute found that jobs involving human interaction, e.g. nurses and lawyers, increased by nearly 5 million in the US, while transaction and production jobs fell.
  • Science and technology disciplines are still crucial, but the humanities strengthen the deep human abilities critical for the success of most people far more than engineering or computer science.

George Soros said that Europe is in a state of disintegration, which started in 2008 and has become non-linear with problems with Greece, Ukraine, migration, and Putin’s Russia.

President Bill Clinton said:

  • Not very long ago, Europeans were killing each other in large numbers. The EU is a miracle, but in times of insecurity, fueled by both political problems and the absence of economic growth, negative identity politics tend to trump positive identity politics.
  • The issue of negative versus positive identity when you have slow growth is also true in America.

Watch the video at http://globalpublicsquare.blogs.cnn.com/category/gps-episodes/ or read the full transcript at http://transcripts.cnn.com/TRANSCRIPTS/1510/04/fzgps.01.html