Gold Mid-Tiers’ Q1’20 Fundamentals

By Adam Hamilton – Re-Blogged From Gold Eagle

The mid-tier gold miners in the sweet spot for stock-price upside potential have enjoyed a massive run since mid-March’s stock-panic lows.  They’ve already more than doubled in the couple months since!  Their just-released Q1’20 operational and financial results reveal whether these huge gains are righteous fundamentally, whether this uptrend is likely to persist, and how COVID-19 shutdowns are affecting gold miners.

Interestingly the leading mid-tier gold-stock ETF is the famous GDXJ VanEck Vectors Junior Gold Miners ETF.  Despite its misleading name, GDXJ is overwhelmingly dominated by mid-tier gold miners.  They produce 300k to 1m ounces of gold annually, between the smaller juniors and larger majors.  The mid-tiers offer an excellent mix of sizable diversified production, output-growth potential, and smaller market caps.

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Money Printing Is The New Mother’s Milk Of Stocks

By Michael Pento – Re-Blogged From Silver Phoenix

My friend Larry Kudlow always says that Profits are the mother’s milk of stocks. That used to be true when we had a real economy. But sadly, that is no longer factual because we now have a global equity market that is totally controlled by central banks. To prove this point, let’s look at the last few years of earnings. During the year 2018, the EPS growth for the S&P 500 was 20%; yet the S&P 500 Index was down 7% over that same time-frame.

Conversely, during 2019, the S&P 500 EPS growth was a dismal 1%; yet the Index surged by nearly 30%. What could possibly account for such a huge divergence between EPS growth and market performance? We need only to view Fed actions for the simple answer: it was the degree to which our central bank was willing to falsify asset prices.

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Glub Of Recession Circling The Drain

By David Haggith – Re-Blogged From Silver Phoenix

Who says there is no recession anywhere in sight? It depends on where you are looking. In short, manufacturing remains in recession; corporate profits remain in recession; freight remains deep in recession; Carmageddon remains in recession; and the Retail Apocalypse remains a recession for brick-and-mortar stores, while employment — the last holdout — is now also turning downward.

The manufacturing recession that everyone acknowledges as having begun last summer continues:

COVID-19 (Coronavirus) Economic Impact Sweeps Down on Global Economy Like a Fat Black Swan

It is the senseless things of this world that sometimes knock sense into the high and mighty whose hubris causes them to believe they cannot fall. In this case, the tiny COVID-19 virus (coronavirus) is bringing down a global house of cards long perched to fall — locks, stocks, and barrels of oil.

Stock investors thought the over-Fed market’s bull run would prove immortal, but all the overripe market needed was for a fat, black swan to drop down on the market’s head and knock some sense into it. Economic damage worldwide, however, is far from limited to stocks. Some of it seems almost silly or bizarre, but such is the case when the entire global economy is already in ill health, having survived on Fedmed for a decade.

Macy’s to Close 125 Stores as It Seeks to Reinvent Itself

By Associated Press – Re-Blogged From Headline Wealth

Macy’s said Tuesday it is closing 125 of its least productive stores and cutting 2,000 corporate jobs as the struggling department store tries to reinvent itself in the age of online shopping.

The store closures represent about one fifth of Macy’s current total. They include about 30 that are in the process of closing and account for $1.4 billion in annual sales.

Macy’s didn’t specify how many jobs would be lost at the shuttered stores.

The corporate jobs will be shed as Macy’s closes its offices in Cincinnati and San Francisco, leaving New York as its sole corporate headquarters. Macy’s said that the 2,000 jobs to be lost account for about 9% of its corporate workforce.

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Stocks Rise As Zombie Companies Proliferate

By Michael Pento – Re-Blogged From Silver Phoenix

Share prices on the major US exchanges are hitting all-time highs at the same time that both the number and percentage of companies that do not make any money at all are rising.

According to the Wall Street Journal, the percentage of publicly-traded companies in the U.S. that have lost money over the past 12 months has jumped close to 40% of all listed corporations–its highest level since the NASDAQ bubble and outside of post-recession periods.

In fact, 74% of Initial Public Offerings in 2019 didn’t make any money as opposed to just 25% in 1990—matching the total of money-losing ventures that IPOED at the height of the 2000 Dotcom mania. The percentage of all listed companies that have lost money for the past three years in a row has surged close to 30%; this compares with just over 10% for the trailing three years in the late 1990s.

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The Relentless Road to Recession

By David Haggith – Re-Blogged From The Great Recession Blog 

“Show me the data,” demand those who cannot see a recession forming all around them and who keep parroting what they are told about the economy being strong because it is what they want to believe; yet, the data look like an endless march through a long summer down the road to recession.

And that is what you are going to get in this article, a seemingly endless parade of data along the recessionary road. This is for the data hounds.

As we end the summer of our discontent when few would deny that most economic talk turned toward recession and, as we begin the time when I said the stock market appears it may fulfill my prognostication of another October surprise, it’s time to lay out — again — the latest data that support my summer recession prediction. We’ll have to wait until next year for the government to officially declare a recession if one did start in September. (Yes, September is a summer month.) In the meantime, the data stream is a long line of confirmation.

The Stock Bull is Dying

By David Haggith – Re-Blogged From Silver Phoenix

Oh my gosh, what a load of BULL I keep reading among the gurus who whine about negative headlines and complain that this unmerited negativity is the only thing that is killing the bull market. Bull.

The bellowing bulls cry every time someone runs a negative headline, “Stop, you’re breaking our bull market with your negativity. That is the only reason it is going down.” The real truth is that headlines have been enormously biased toward a BULLish narrative for the better part of a decade, and bearish headlines are only just beginning to seep in. But that is too much for the bulls: “All this negativity is killing us.”

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Real(ish)Things That Don’t Matter, Part Trois

By David Middleton – Re-Blogged From WUWT

In Part One of this series, we looked at Peak Oil and its irrelevance to energy production and also discussed the relevance of Seinfeld. In Part Deux, we looked at “abiotic oil,” a real(ish) thing that really doesn’t matter outside of academic discussions and SyFy blogs.

Part Trois will explore perhaps the most meaningless notion to ever come out of academia: Energy Returned On Energy Invested (EROEI or EROI depending on spelling skill). EROEI is like what Seinfeld would have been if it was written by Douglas Adams.

EROEI

EROEI is the preferred energy metric for Malthusians, environmental activists, Warmunists and proponents of uneconomic energy sources. Invention of this concept is generally credited to an ecology professor…

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Gold Miners’ Q3’18 Fundamentals

By Adam Hamilton – Re-Blogged From Gold Eagle

The major gold miners’ stocks remain mired in universal bearishness, largely left for dead.  They are just wrapping up their third-quarter earnings season, which proved challenging.  Lower gold prices cut deeply into cash flows and profits, and production-growth struggles persisted.  But these elite companies did hold the line on costs, portending soaring earnings as gold recovers.  Their absurdly-cheap stock prices aren’t justified.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports.  Companies trading in the States are required to file 10-Qs with the US Securities and Exchange Commission by 40 calendar days after quarter-ends.  Canadian companies have similar requirements at 45 days.  In other countries with half-year reporting, many companies still partially report quarterly.

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Buffett Spends $928 Million to Buy His Own Shares Back

[This may be one of the very few stock buybacks to make sense for stockholders – because company profits are growing quickly and other opportunities are hard to find. -Bob]

By Associated Press – Re-Blogged From Newsmax

Warren Buffett’s company more than quadrupled its third-quarter profits because of a huge paper gain in the value of its investments, although its insurance and railroad businesses also improved.

Notably, Buffett’s company bought back nearly $1 billion in stock during the quarter — the first time that’s happened in years — a possible sign that the world’s most famous investor has been unable to find attractive investments to purchase.

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GE Slashes Dividend to 1 Penny, Reveals Deeper SEC Probe

By Thomson Reuters – Re-Blogged From Newsmax

General Electric Co. slashed its quarterly dividend to a penny a share, promised to restructure its power unit and said it faced a deeper accounting probe as new Chief Executive Larry Culp took his first steps to revive the struggling conglomerate.

GE said the U.S. Securities and Exchange Commission and Department of Justice had expanded ongoing investigations to include a $22-billion writedown of goodwill from GE’s power division, which GE reported on Tuesday.

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Drowning in Cash, Big Oil’s Biggest Challenge Is How to Spend It

By Bloomberg – Re-Blogged From Newsmax

Big Oil’s big payday has finally arrived. The question now is how to spend the extra cash.

Investors will be reading the third-quarter tea leaves to discern whether executives plan to boost dividends and buybacks, hike spending on shiny new mega projects, or perhaps even do both.

What they do know is that fresh sources of oil and gas are needed over coming decades to meet the world’s insatiable demand for energy. Spending too much would defy the new-found commitment to financial discipline, while spending too little could choke new supplies and raise crude prices. Higher prices, in turn, may brighten the appeal of green technologies that would hasten the industry’s demise.

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Moody’s Mulls GE Downgrade

By Bloomberg – Re-Blogged From Newsmax

General Electric Co.’s credit rating is at risk of a significant downgrade as the beleaguered manufacturer grapples with a deepening slump in its power-equipment business.

Moody’s Investors Service placed GE and its finance arm on review for downgrades that “may not be limited to one notch,” according to a statement Tuesday by the ratings company. Fitch on Monday put GE, which still has a significant financial business including a major aircraft lessor, on watch negative.

What Impact Are The Federal Reserve’s Actions Having On Peripheral Markets?

By Trey Reik – Re-Blogged From Gold Eagle

Maurice Jackson: Welcome to Proven and Probable. I’m your host Maurice Jackson. Joining us for a conversation is Trey Reik, senior portfolio manager with Sprott USA.

We’re delighted to have you here today to discuss the Federal Reserve’s impact on peripheral markets. Mr. Reik, the Fed is in the process of implementing a dual policy of rate hikes and balance sheet reduction, which appear to have a duplicitous effect on peripheral markets. What are your thoughts on this dual policy and what can we expect from Chairman Jerome Powell during his tenure?

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Rising Wages = Shrinking Corporate Profit Margins … And Falling Stock Prices?

By John Rubino – Re-Blogged From Dollar Collapse

Today’s Wall Street Journal contains a couple of charts that illustrate a relationship that’s not getting much media attention these days: The fact that tightening labor markets are forcing companies to raise wages, in the process squeezing their own profit margins.

Historically this margin compression has been either a cause of or contributor to cyclical turning points — in other words it coincides with recessions and equity bear markets.

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Big US Stocks’ Q1’18 Fundamentals

By Adam Hamilton – Re-Blogged From http://www.Gold-Eagle.com

The mega-cap stocks that dominate the US markets are just wrapping up a truly-extraordinary earnings season. Naturally this first quarter under Republicans’ new corporate tax cuts fueled surging profits. But sales were up big too, which is no mean feat for massive companies. With sustained growth at this torrid pace impossible, peak-earnings fears are mounting. And valuations stayed extremely expensive exiting Q1.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Required by the US Securities and Exchange Commission, these 10-Qs contain the best fundamental data available to investors and speculators. They dispel all the sentimental distortions inevitably surrounding prevailing stock-price levels, revealing the underlying hard fundamental realities.

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Top 8 Reasons to Find the Emergency Exit Before this Fall

By Michael Pento – Re-Blogged From PentoPort

The stock market was trading at an all-time high valuation of 150% of GDP this January. That was indeed the bell rung at the very top. Stocks have since started to roll over, but valuations are still at 140% of the underlying economy. And that is, historically speaking, way off the chart. The average of this metric was around 45% throughout the decades of the 70’s thru the mid-1990’s. Therefore, the market is screaming for investors to hit the sell button now while there are still ample bids left. But, if your complacency and procrastination prevent you from realizing the truly dangerous bubble in equities right now, here are eight of the most salient reasons why you’ll definitely need to find the nearest emergency exit before this fall.

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As Trump Weighs Tariff, US Steelmakers Enjoy Rising Profits

Re-Blogged From Newsmax

The Trump administration has chosen an odd time to offer special protection to the U.S. steel industry.

As President Donald Trump prepares to impose a 25 percent tax on imported steel, America’s steelmakers are actually faring pretty well: The U.S. steel industry last year earned more than $2.8 billion, up from $714 million in 2016 and a loss in 2015, according to the Commerce Department. And the industry added more than 8,000 jobs between January 2017 and January 2018.

Even before Trump mentioned the tariff last Thursday, the price of the benchmark U.S.-made hot-rolled steel had reached the highest level since May 2011, according to S&P Global Platts. The price surged even higher on the tariff news.

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Mexico’s Oil Industry Continues To Disintegrate: PEMEX Suffers $18 Billion Loss

By SRSrocco – Re-Blogged From http://www.Silver-Phoenix500.com

The situation in Mexico’s oil industry continues to rapidly disintegrate as falling oil production and rising costs resulted in an $18 billion fourth-quarter loss for the state-run oil company, PEMEX.  Part of the reason for the huge financial loss at PEMEX was the fall in the value of the Mexican Peso.  While PEMEX’s costs are in Pesos, it sells crude oil and purchases petroleum products in Dollars.  Because the Mexican Peso declined 8% versus the Dollar, it put a huge strain on the company’s year-end financials.

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GE Has a Fossil Fuels Problem

By Matt Egan – Re-Blogged From CNNMoney

General Electric has a long history of disrupting the industrial landscape through breakthrough technologies like the jet engine and the light bulb. Today, GE is the one being disrupted.

The iconic company has been badly caught off guard by the dramatic rise of renewable energy at the expense of fossil fuels. Rapid adoption of solar and wind has created chaos in GE’s power division, which makes giant turbines and generators used by coal and natural gas power plants.

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What A Pre-Crash Market Looks Like

By Michael T Snyder – Re-Blogged From http://www.Silver-Phoenix500.com

The only other times in our history when stock prices have been this high relative to earnings, a horrifying stock market crash has always followed.  Will things be different for us this time?  We shall see, but without a doubt this is what a pre-crash market looks like.  This current bubble has been based on irrational euphoria that has been fueled by relentless central bank intervention/a>, but now global central banks are removing the artificial life support in unison.  Meanwhile, the real economy continues to stumble along very unevenly.  This is the longest that the U.S. has ever gone without a year in which the economy grew by at least 3 percent, and many believe that the next recession is very close.  Stock prices cannot stay completely disconnected from economic reality forever, and once the bubble bursts the pain is going to be unlike anything that we have ever seen before.

If you think that these ridiculously absurd stock prices are sustainable, there is something that I would like for you to consider.  The only times in our history when the cyclically-adjusted return on stocks has been lower, a nightmarish stock market crash happened soon thereafter

The Nobel-Laureate, Robert Shiller, developed the cyclically-adjusted price/earnings ratio, the so-called CAPE, to assess whether stocks are likely to be over- or under-valued. It is possible to invert this measure to obtain a cyclically-adjusted earnings yield which allows one to measure prospective real returns. If one does this, the answer for the US is that the cyclically-adjusted return is now down to 3.4 percent. The only times it has been still lower were in 1929 and between 1997 and 2001, the two biggest stock market bubbles since 1880. We know now what happened then. Is it going to be different this time?

Since the market bottomed out in early 2009, the S&P 500 has been on a historic run.  If this rally had been based on a booming economy that would be one thing, but the truth is that the U.S. economy has not seen 3 percent yearly growth since the middle of the Bush administration.  Instead, this insane bubble has been almost entirely fueled by central bank manipulation, and now that manipulation is being dramatically scaled back..

And the guys on Wall Street know what is coming.  For example, Joe Zidle says that this bull market is now in “the ninth inning”

Joe Zidle, of Richard Bernstein Advisors, is arguing that the bull market has entered the bottom of the ninth inning.

“This is a late-cycle environment,” Zidle said on CNBC’s “Futures Now” recently.

“In innings terms, they’re not time dependent. An inning could be shorter or they could be longer. It just really depends,” the strategist said.

This bubble has lasted for much longer than it ever should have, and everyone understands that a day of reckoning is coming.

In fact, earlier today I came across an article on Zero Hedge that contained an absolutely remarkable quote from Eric Peters…

We are investing as if 1987 will happen tomorrow, because it will,” said the CIO. “But we need to be long, or we’ll be out of business,” he explained, under pressure to perform. “So we construct option trades that are binary bets.” Which pay X profit if stocks rally, and cost Y if markets fall. No more and no less.

What you do not want is a portfolio whose losses multiply depending on the severity of a decline.” That’s what most people have today. “At the last stage of the cycle, you want lots of binary bets. Many small wins. Before the big loss.”

Are we at the start or the end of the ‘Don’t know what I’m buying’ cycle?” asked the same CIO. “No one knows.” But we’re definitely within it.

When their complex swaps drop 40%, and prime brokers demand more margin, investors will cry ‘It’s not possible!’ But anything is possible.” The prime brokers will hang up and stop them out.

In case you don’t remember, in 1987 we witnessed the largest one day percentage decline in U.S. stock market history.

When it finally happens, millions upon millions of ordinary Americans will be completely shocked, but most insiders know that the other shoe is going to drop at some point.

In particular, watch financial stock prices very closely.  Last month, Richard Bove issued a chilling warning about bank stocks…

One of Wall Street’s most vocal bank analysts is troubled by the rally in financials.

The Vertical Group’s Richard Bove warns that the overall market is just as dangerous as the late 1990s, and he cites momentum — not fundamentals — as what’s driving bank stocks to all-time highs.

If we don’t get some event in the economy or in politics or in somewhere that is going to create more loan volume and better margins for the banks, then yes, they would come crashing down,” Bove said Monday on CNBC’s “Trading Nation.” “I think that the risk in these stocks is very high at the present time.”

It isn’t going to take much to set off an unstoppable chain of events.  Our financial markets are even more vulnerable than they were in 2008, and the right trigger could unleash a crisis unlike anything we have ever seen in modern American history.

Unfortunately, most Americans keep getting fooled by the artificial boom and bust cycles that the central banks create.  Right now most people seem to have been lulled into a false sense of security, and they truly believe that everything is going to be okay.

But every time before when the market has looked like this a crash has always followed, and this time will be no exception.

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Lemmings in Full Gallup Towards Cliff

By Michael Pento – Re-Blogged From http://www.pentoport.com

Its official…the stock market has broken above 23,000, and its valuations should now scare even the most mind-numbed carnival barker on Wall Street. The forward 12-month PE ratio is 18, compared to the 10-year average of just 14. The 12-month trailing PE for Pro-forma earnings, which takes into account non-recurring items that seem to recur ever quarter, is trading at 20 times earnings. But on a reported earnings basis—the number you report to the SEC under penalty of the law and according to GAAP standards–the 12-month trailing PE is 25.5 times earnings.

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US Economy Keeps Moving Into Summer Storm

By David Haggith – Re-Blogged From http://www.Silver-Phoenix500.com

One of the kookiest moments last month came when Fed Chairwoman Yellen spoke about seeing no financial collapse in sight during our lifetimes

“Would I say there will never ever be another financial crisis? No. Probably that would be going a little too far, but I do think that we’re much safer, and I hope that it will not be in our lifetimes, and I don’t believe it will be.”  (CNBC Play video for quote on next crisis.)

That certainly calls to mind the times when Chairman Ben Break-the-banky pontificated about there being no housing bubble and no recession in sight:

Yellen’s predecessor, Ben Bernanke, once famously called problems in the subprime mortgage market “contained,” a statement that would be proven wrong when the collapse of illiquid mortgage-backed securities cascaded through Wall Street and contributed to the worst economic downturn since the Great Depression.

Asked at a recent FOMC meeting about any possible problem with banks still being too big to fail, Yellen only said, “I’m not aware of anything concrete to react to.”

Nice to know she’s sound asleep while sugar plums dance in her head, bringing forth prophecies of good times for the rest of everyone’s foreseeable life … or, at least, the rest of hers.

When a Fed chair says something as audacious as there is no chance of another financial crisis in our lifetimes and when she sees no concrete situations of banks being too big to fail, even when the ones that were too big to fail last time are now twice as big, I think Titanic disaster. I think of all those nuclear experts who said, when three Fukushima reactors were blowing up and melting down, that they saw no chance of meltdown anywhere because these reactors were built too tough to melt down. As they spoke, you could hear the reactors exploding and see tops blowing off the buildings on videos playing behind them and watch people running around in protective suits, which made for quite a spectacular orchestration of expert feel-safe baloney.

“Nothing to see here, folks. Just minor gas venting, typical of reactors in a non-meltdown stage of something. Move along.”

I think minor gas venting is what we are hearing out of Yellen.

The inability of central bankers to see anything coming, even as it is bearing down on top of them, is classic. If recessions were trains, Yellen would be tied to the tracks right now, sipping tea. Her saucer would be rattling on the rails, but you wouldn’t be able to hear the rattle because of the rumbling of a locomotive in the background. Yellen would look up from her tea cup and smile at you like the nice grandmother that she is as the train runs over her.

You can also comfort yourself with this bit of superior Fed protection: All of Yellen’s major underling banks just passed the Fed’s most stringent stress test of their reserves. Because they passed gloriously, Yellen & Co told them they can now reduce their reserves, just as she is talking about strapping the economy with quantitative tightening. This move is for the important reason of freeing up something like $100 billion so they can pay themselves fat bonuses and share the wealth with their stockholders.

Whew! Glad the risk of being too big to fail is over. Maybe she meant she has just removed the risk for banksters and major share holders because they all get their bonuses now before the banking collapse.

If you wonder how blind Grandma Yellen is, look at her following statement, which offers a penetrating glance into the obvious:

Valuation pressures across a range of assets and several indicators of investor risk appetite have increased further since mid-February… (Zero Hedge)

Really? Just since mid-February? That was the first time you noticed that maybe, just maybe, the stock and bond markets were starting to look a little bubbly? These high valuations are just now pressuring the Fed to back off on stimulus because the market started to look a tad inflated in February?

She made this statement in order to justify her other statement ab out the Fed’s following choice to reduce stimulus even though it’s inflation target has not yet been met:

The Committee currently expects to begin implementing the balance sheet normalization program this year provided that the economy evolves broadly as anticipated…

So, the Fed has changed its metric from its mandate of manipulating inflation to setting policy based on curbing overly exuberant market valuations. Once again, we see evidence that the Fed is manipulating markets and setting a course correction on stimulus because of markets.

In other words, the Fed wants you to believe the bubblicious pricing of stocks was not something they rigged by “trying to create a wealth effect” in “front-running the stock market” as former Fed governor Richard Fisher said of the actions he was involved in, but that it is just a side-effect of their stimulus that now pressures them to back down. No, it was dangerous manipulation that is now pressuring the Fed to pursue a course of unwinding stimulus.

The Great Unwind Is About To Begin

The unwinding of the Federal Reserve’s balance sheet has been saved to the end because it is more problematic than either the end of quantitative wheezing or the end of low-interest policy, and it is being carried out be people who have never seen a recession coming in the past and who see no reason to believe we will ever again in our lifetimes see a financial crisis like the last one.

By “the Great Unwind,” I mean the reversal of QE (quantitative tightening). While investors are buoyed a little by Yellen’s dovish indication this week that the Fed will only raise interest one more time, the reversal of QE over time will be by far the Fed’s most difficult change toward normalization to navigate.

JPMorgan Chase & Co. Chairman Jamie Dimon said the unwinding of central bank bond-buying programs is an unprecedented challenge that may be more disruptive than people think.

“We’ve never have had QE like this before, we’ve never had unwinding like this before,” Dimon said at a conference in Paris Tuesday. “Obviously that should say something to you about the risk that might mean, because we’ve never lived with it before…. We act like we know exactly how it’s going to happen and we don’t.”

All the main buyers of sovereign debt over the last 10 years — financial institutions, central banks, foreign exchange managers — will become net sellers now, he said. (Newsmax)

A risk never experienced in the history of the world. Never is a long time. That risk, anticipated to begin at the end of summer, is far greater than the mere termination of QE that already took place or than the incremental rise in interest rates. This change actually sucks liquidity out of the market, versus slowing the expansion of liquidity.

Considering the Fed has pumped $4.5 trillion of liquidity into the economy to help “recover” from the Great Recession, there is potentially a lot of unwinding to now begin, and it starts in an economy that is limping along the ground, not in the kind of recovery the Fed anticipated rewinding from. Between the European Central Bank, the Bank of the Japan and the Fed, there is $14 trillion to unwind … or, at least, some large portion of that.

The Great Unwind happens in a period where global debt has reached $217 trillion, which presents a major problem for the Fed in selling off so many bonds. They will almost certainly have to offer them at better yields more interest in order to attract buyers. That sifts throughout debt markets to raise the interest on carrying or refinancing all of this debt. Nations will have to compete with central bank yields in order to issue new debt or refi old. The European Central Bank and Bank of Japan are also looking like they may start unwinding soon, so compound all of that in your mind.

“As I believe the main factor in driving market multiples to historically high levels was QE, ZIRP and NIRP, then yes, the reversal will have major implications for markets and volatility.” Peter Boockvar, chief market analyst at The Lindsey Group, told MarketWatch.

The Fed’s Great Unwind is scheduled to start (if the Fed’s hints bear out) during the stock market’s unwind from Trumphoria, too, and during the retail apocalypse and auto market crash:

Crispin Odey, who made money for a second straight month by sticking to bearish equity bets, said the chance of a market crash is rising as growth slows and the Federal Reserve normalizes interest rates.

The credit cycle boosted by loose monetary policy has peaked and there’s a widespread slowdown in the auto, commodity, industrial and retail sectors, Odey wrote in a letter to investors. Unlike previous dips since the financial crisis, central banks aren’t responding by printing more money.

“This time they are doing the reverse,” which is likely to exacerbate the negative trend, the London-based hedge fund manager wrote. “All this sits very uncomfortably with the fun being felt in the stock markets. When I look at the move up since Trump’s election as president, I detect the walk of a drunken man.”

“The chances of car crashes everywhere are rising,” according to Odey. “Enjoy the hot summer,” (Newsmax)

The timing for the Fed’s Great Unwind does not look fortuitous. Key to understanding why the Federal Reserve always has such bad timing so that it routinely crashes its own recoveries can be found in recognizing that the Fed’s dual mandate — setting monetary guidance based on maximizing jobs and maintaining inflation at a set level — means the Fed is always aiming to create goals that may take a year to develop from the time they make any change.

Inflation is largely dependent on the wage/labor market, and a change in hiring decisions is dependent first on a change in economic conditions; so the movement of these lagging indicators that the Fed monitors the most can easily be a year or more away. Thus, the Fed will continue to move every quarter more and more toward their new bias of stimulus reduction until they see the results in their job and inflation metrics. But they are doing that when the economy is already receding. By the time they see the results in their two sacred metrics, they’ve moved further than they need to and downhill momentum has already built up.

So, they will do it again.

The Death Of Trumphoria

The irrational exuberance that superheated the stock market after Trump’s election is dead right where I said months ago it died. A quick look at any chart of its biometrics proves that:

The patient has been pretty-well flatlining for half a year with a couple of attempted jolts with the paddles that yielded no lasting results. The market has scratched its way sideways in daily tremors up and down ever since, but has gone almost nowhere for more than four months.

While the NASDAQ just looks like a heart attack:

Chris Whalen, a long-time bank analyst, expects [bank] earnings to come in soft enough that the stocks will trade off. “There’s no real growth on the top line,” he told MarketWatch. After several lean years, banks have run out of expenses to cut to boost the bottom line.

And most investors are finally starting to acknowledge that the hoped-for “reflation trade” isn’t coming, Whalen said. “The Trump Bump is dead.”

Hopes that the economy would be boosted by structural reforms, including tax reform, have faded as the administration of President Donald Trump has made little leeway on its plans. (Marketwatch)

The stock market gained a little more headroom in the first half of last month, but has, again, petered out. The market is in its summer doldrums — that hot, sultry period of dead winds before the summer storms — where any gains look like a mirage, typically passing away as soon as they are reached. Relentless stories about Trump’s supposed Russian electioneering collaboration — whether true or fake — also have diminished investor hopes that a fiscal stimulus plan will come about this year, an outcome I’ve suggested is likely all year.

And FAANG stocks — those high-tech draft horses of the stock market — are now weighing down on the market with dead weight, rather than dragging it up. This is a major reversal of the pattern that has supported the market for years when many stocks were in a bear market, but the FAANG’s relentlessly pulled the averages ever skyward.

Bank of America’s chief strategist Michael Harnett sees the top forming in the market and predicts the stock market will crash this fall:

We don’t think this is “big top” in stocks;  greed harder to kill than fear; don’t think this “big top” in stocks…. summer 2017 = significant inflection point in central bank liquidity trade…will likely lead to “Humpty-Dumpty” big fall in market in autumn, in our view. But Big Top likely occurs when Peak Liquidity meets Peak Profits. We think that’s an autumn not summer story. (Zero Hedge)

In BofA’s view, the stagnant humidity we feel in the market now — the doldrums after Trumphoria  — is building toward an autumn storm more likely than a summer storm because it will required the Fed’s move into the Great Unwind to really kick things off. I’ve said summer because I’d rather err’ on the side of safety, miss a part of the ride and be out ahead of the stampede. (And I’m not a trader, just someone who has moved his retirement funds out of stocks. I do not even try to give trading advice. My interest on this blog is macro-economics — where the economy is headed — and the stock markets of this world are only a part of that (a part we now know is rigged by central banks’ direct stock purchases).

Carmageddon 0n Cruise Control

“There’s been a consistent reduction in plant output in the last six months, and what is ahead in the next six months could be pretty startling,” said Ron Harbour, a noted manufacturing analyst….

“The industry has dramatically expanded employment in the United States in the last several years, but the growth is just not there anymore,” said Harley Shaiken, a labor professor at the University of California, Berkeley.

And companies are increasingly looking to build their less profitable car models outside the United States. Ford Motor, for example, said in June that it would move production of its Focus sedan to China from Michigan….

Scaling back jobs in car plants is part of a newfound discipline among automakers to avoid bloated payrolls and inventories when sales start slipping….

Moreover, the Detroit companies have also hired large numbers of lower-wage, entry-level employees with less costly unemployment benefits….

G.M., for example, has reduced the number of shifts at several of its domestic plants….

“We are beginning to enter a period we call the post-peak,” said Jonathan Smoke, chief economist for Cox Automotive, which operates the auto-research sites Kelley Blue Book and Autotrader. (New York Times)

And auto parts are not doing any better than autos. O’Reilly Automotive Inc.’s disappointing sales slammed a sector already seen as Amazon’s next source of fodder, taking a record plunge as it missed its second-quarter projections. Advanced Auto Parts and AutoZone are also continued declining. O’Reilly shares plunged as much as 21%. It is another area where demand is shifting away from brick-and-mortar stores and toward online purchases. Some say that auto manufacturers, seeing that customers are hanging on to their old cars longer, are stiffening up competition from OEM parts, too.

Attempts To Ward Off The “Retail Apocalypse”

Mitigating forces are at work, trying to turn the massive number of closures of mall anchor stores and smaller stores into opportunity for new life, but no one knows yet if these extravagant and creative efforts will work.

Costs are escalating as mall owners’ work to keep their real estate up to date and fill the void left by failing stores. The companies are turning to everything from restaurants and bars to mini-golf courses and rock-climbing gyms to draw in customers who appear more interested in being entertained during a trip to the mall than they are in buying clothes and electronics. The new tenants will pay higher rents than struggling chains such as Macy’s and Sears, and hopefully attract more traffic for retailers at the property, according to Haendel St. Juste, an analyst at Mizuho Securities USA LLC.

“The math is pretty obvious, pretty compelling, but there are risks,” St. Juste said in an interview. “This hasn’t been done before on a broad scale.”

…So far, jettisoning and replacing undesirable tenants has been a successful formula for many landlords, but there is still a lot of work to be done, according to Jeffrey Langbaum, an analyst with Bloomberg Intelligence. Some companies won’t have the cash to keep up amid the relentless pace of store closures, he said.

“For the most part, these companies have been able to redevelop and backfill space,” Langbaum said. “That’s great, but the big wave is still coming.”

…For Ziff of Time Equities, which buys outdated malls and renovates them, it doesn’t matter how you categorize the expenses of making over a center for the modern era, or if there is a linear path to a return on a particular project. Whether it’s installing a fireplace in a new food hall, or buying artwork for the common area, the aim is to drive higher traffic and tenant sales, he said. Ultimately, it’s all cash going out the door. (Newsmax)

The response teams to the retail crisis are already at work on makeovers, but the costs are high, and no one knows yet if it will work beyond a few well-positioned success stories. The fact that they are taking such major risks shows how significance this retail paradigm shift is.

Government Bankruptcies Continue To Grow

I recently reported on the near-default situation of several states, showing how deeply to the core of the state the residual problems of the financial crisis cuts. You can add to that list of serious funding problems, the capital city of Connecticut:

Like many other local governments across the country, Hartford — city of Mark Twain and the young John Pierpont Morgan — has been grappling with budget problems for years. On the same day that Illinois lawmakers finally scrapped together a long-overdue budget, Hartford hired the law firm Greenberg Traurig LLP to evaluate its options, which include bankruptcy. It would be the first prominent U.S. municipality to seek protection from its creditors since Detroit did so in 2013. (Newsmax)

The rise in both corporate and national defaults right now is showing up in other areas of the world, too:

Sovereign government and corporate defaults in both developed and developing economies are beginning to emerge. For example, China has registered in 2017 its highest level of corporate defaults in the first quarter of a calendar year on record. Delinquencies and charge-offs in the United States soared to $US1.4 billion in the first quarter of 2017, the highest recorded level since the first quarter of 2011….

In May 2017, six major Canadian banks were downgraded by Moody’s Investor Service (Moody’s) as concerns rise over soaring Canadian household debt and house prices leave lenders more vulnerable to losses. Moody’s also downgraded China’s sovereign debt in May 2017 for the first time since 1989 and has warned of further downgrades if further reforms are not enacted….

In May 2017, S&P has downgraded 23 small-to-medium Australian financial institutions as the risk of falling property prices increases and potential financial losses start to increase. In June 2017, Moody’s downgraded 12 Australian banks, including Australia’s four major banks.

Standard and Poor’s and Moody’s downgraded bonds for the US State of Illinois down to one notch above junk bond status as the state has over $US 14.5b in unpaid bills. (Zero Hedge)

These pressures are spreading at a rate that could be considered endemic around the world by next year.

More Storm Clouds Keep Gathering

Credit demand for both credit cards and auto loans has gone deeply negative for the first time in years. Credit cards briefly touched into the negative in 2012 with a 4% decline; but this year’s decline of 11% far exceeds that. Auto loans haven’t gone negative since 2011, but are now seeing a 14% decline.

US tax receipts have matched this negative move, also down about 14% this year with an uptick last month. They haven’t gone negative since the Great Recession, other than a brief downtick of about -4% in 2011. Other than that brief downtick, a negative turn of this indicator has exactly matched with every recession in the post WWII era.

Factory orders took their second monthly drop and fell by more than economists expected. Durable goods orders declined in April and May, following a year of steady albeit slight growth.

Even the formerly blind Fed Chair Alan Greenspan sees that we are now entering what he says will be a long, “very tough” period of stagflation. He anticipates GDP will bump up to growth of 3% for the second quarter, but says that is misleading number, “a false dawn,” that is merely born of problematic adjustments happening this quarter. “The presumption that we’re going to come bouncing back is utterly unrealistic.” (Newsmax) That’s quite a change for Greenspan who, like most central-bank chiefs, never saw trouble coming in the past.

Bank of America Merrill Lynch’s “Sellside Indicator” hit its highest level since the official end of the Great Recession in June 2011.  The indicator measures how bullish strategists are on US equities, now showing a strong move toward the “jump out and sell” side.

The Chicago Fed National Economic Activity Index took its biggest drop since August, 2016.

US mortgage applications and home purchases have seen steep declines recently. The week ending the month of June, usually a hot time for buying, dropped week-on-week by the most in half a year, even as interest rates had returned to nearly their lowest levels. Correspondingly, pending home sales fell each month from March through May. A majority of economists polled by Reuters, naturally, forecasted that May sales would increase. Here’s dirt in your eye, Economists.

In summary, nothing happening this summer threatens my forecast from the beginning of the year, which said that a major economic breakdown would become evident by summer and that the stock market would crash sometime between early summer and the start of 2018, with it likely to be earlier than later. I’ve bet my blog on it, and I’ll comfortably stay with that bet. I don’t think the above confluence of forces proves that bet right, by any means; but clearly forces are continuing to build strongly in that direction. There is, in fact, almost nothing on our horizon in the US that looks like a playful summer on the beach. (I hope YOU have such a summer, but I am speaking in terms of the economy.)

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This Stock Market is Priced to Sell

By Vitaliy Katsenelson – Re-Blogged From IMA

If you feel that you have to own stocks no matter the cost; if you tell yourself, “Stocks are expensive, but I am a long-term investor,” — there’s help for you yet.

First, let’s scan the global economic landscape. The health of the European Union has not improved, and Brexit only increased the possibility of other nation’s “exits” as the structural issues that render this union dysfunctional go unfixed.

Meanwhile, Japan’s population isn’t getting any younger — in fact, it’s the oldest in the world. Japan is also the world’s most-indebted developed nation (though, in all fairness, other countries are desperately trying to take that title away from it). Despite the growing debt, Japanese five-year government bonds are “paying” an interest rate of negative 0.10%. Imagine what will happen to the government’s budget when Japan has to start actually paying to borrow money commensurate with its debtor profile.

Regarding China, the bulk of Chinese growth is coming from debt, which in fact is growing at a much faster pace than the economy. This camel has consumed a tremendous quantity of steroids over the years that have weakened its back — we just don’t know yet which straw will break it.

n the U.S., meanwhile, S&P 500 SPX, -0.12% earnings have stagnated since 2013, but this has not stopped analysts from launching into a new year with forecasts of 10%-20% earnings growth — only to gradually take expectations down to near-zero as the year progresses. The explanation for the stagnation is surprisingly simple: Corporate profitability overall has been stretched to an extreme and is unlikely to improve much, as profit margins are close to all-time highs (corporations have squeezed about as much juice out of their operations as they can). And interest rates are still low, while corporate and government indebtedness is very high — a recipe for higher interest rates and significant inflation down the road, which will pressure corporate margins even further.

I am acutely aware that all of the above sounds like a broken record. It absolutely does, but that doesn’t make it any less true. We are in the final innings of this eight-year-old bull market, which in the past few years has been fueled not by great fundamentals but by a lack of good investment alternatives.

Starved for yield, investors are forced to pick investments by matching current yields with income needs, while ignoring riskiness and overvaluation. Why wouldn’t they? After all, over the past eight years we have observed only steady if unimpressive returns and very little realized risk. However, just as in dating, decisions that are made due to a “lack of alternatives” are rarely good decisions, as new alternatives will eventually emerge — it’s just a matter of time.

The average stock (that is, the market) is extremely expensive. At this point it almost doesn’t matter which valuation metric you use: price to 10-year trailing earnings; stock market capitalization (market value of all stocks) as a percentage of GDP (sales of the whole economy); enterprise value (market value of stocks less cash plus debt) to EBITDA (earnings before interest, taxes, depreciation, and amortization) — they all point to this: stocks were more expensive than they are today only once in the past century — during the late 1990s dot-com bubble.

Investors who are stampeding into expensive stocks through passive index funds are buying what has worked — and will likely stop working. Mutual funds are not much better. When I meet new clients, I get to look at their mutual-fund holdings. Even value-oriented funds, which in theory are supposed to be scraping equities from the bottom of the stock-market barrel, are full of pricey companies. Cash (which is another way of saying, “I’m not buying overvalued stocks”) is not a viable option for most equity-fund managers.

Thus this market has turned professional investors into buyers not of what they like but of what they hate the least. In 2016 less than 10% of actively managed funds outperformed their benchmarks (their respective index funds) on a five-year trailing basis. Unfortunately, the last time this happened was in 1999, during the dot-com bubble, and we know how that story ended.

To summarize the requirements for investing in an environment where decisions are made not based on fundamentals but due to a lack of alternatives, look to Mark Twain: “All you need in this life [read: lack-of-alternatives stock market] is ignorance and confidence, and then success is sure.”

To succeed in the market that lies ahead of us, one will need to have a lot of confidence in his ignorance and exercise caution and prudence, which will often mean taking the much less-traveled path.

So, how does one invest in this overvalued market? Our strategy is spelled out in this fairly lengthy article.

CONTINUE READING –>

Silver Miners’ Q4’16 Fundamentals

By Adam Hamilton – Re-Blogged From http://www.Silver-Phoenix500.com

The silver miners’ stocks have had a roller-coaster ride of a year so far.  They surged, plunged, and then started surging again last week on a less-hawkish-than-expected Fed.  Such big volatility has spawned similar outsized swings in sentiment, distorting investors’ perceptions of major silver miners.  But their recently-reported fourth-quarter operating and financial results reveal the true underlying fundamental realities.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports.  Required by securities regulators, these quarterly results are exceedingly important for investors and speculators.  They offer a clear snapshot of what’s really going on fundamentally, in individual silver miners and this small sector as a whole.  There’s no silver-stock data I look forward to more.

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What Creates and Sustains Jobs?

By Dale Netherton – Re-Blogged From iPatriot

The politicians mutter the word “jobs” as if they understood where jobs come from and what conditions are necessary to sustain jobs.

First, without revenue to pay wages no job can exist or if created continue to exist.  The question then becomes, where will the revenue come from?  There are two sources of revenue for jobs.  One is the direct granting of revenue by the government which funds government jobs.  If there is funding available the job can continue until the funding disappears.  The other source of revenue is profit.  If a job is created to supply a good or service and it is sustained by paying for itself, this job is sustainable as long as it is competitive.  This is the only job that can exist that doesn’t rely on confiscation and redistribution.  Jobs that rely on “government funding” are not self sustaining since they must have confiscation and redistribution.  Government cannot create wealth, it has nothing it doesn’t confiscate or borrow.

All government created jobs are necessarily temporary.  Debt and eventual inflation destroys the foundation for government funding of jobs as the private sector that supports sustainable jobs shrinks under the regulation and taxes that eventually destroys the profit motive and therefore the only source of self sustaining jobs.  The CCC camps could not have been retained as permanent jobs.  The demise of the Post Office and Amtrak are examples of where government “jobs” must eventually falter.  The source of these two government jobs comes from the government subsidies.  Neither is self sustaining based on the income they generate.  This means a private sector is being taxed and the confiscation of their earnings is being channeled to the subsidy the government is supplying.

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Silver Stocks’ New Upleg

By Adam Hamilton – Re-Blogged From http://www.Silver-Phoenix500.com

The silver miners’ stocks have surged higher in this young new year, putting the Trumphoria general-stock rally to shame.  Following its fourth-quarter drubbing, this tiny contrarian sector is embarking on a major new upleg as traders return.  Silver-stock uplegs tend to grow to massive proportions, and silver-mining fundamentals remain strong today.  So odds are the silver stocks are going to power far higher in 2017.

Because silver stocks aren’t widely followed, most investors and speculators are unaware of this sector’s stellar upside potential.  Silver mining is a challenging business both geologically and economically, so there aren’t many primary silver miners out there.  And their stocks’ collective market capitalization is small, a rounding error compared to the broader stock markets.  That doesn’t leave much room for funds to buy.

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Dollar Euphoria, Stocks, And Gold

By Adam Hamilton – Re-Blogged From http://www.zealllc.com

The US dollar has rocketed higher since early November’s US presidential election, rivaling the massive gains seen in the stock markets.  With the world’s reserve currency catapulted to extreme secular highs, dollar euphoria has naturally exploded.  Traders are overwhelmingly betting the dollar’s strong upside will continue.  But this greed-drenched currency looks very toppy and ready to fall, which is very bullish for gold.

The US dollar’s recent stampede higher has been amazing, as evidenced by the venerable US Dollar Index.  Launched way back in 1973, the USDX is the dominant and most-popular market gauge of how the US dollar is faring.  Since Election Day 2016 alone, the USDX has soared 5.1% higher in merely six weeks!  That isn’t much behind the flagship S&P 500 broad-market stock index’s 5.9% post-election rally.

But the post-election USDX surge is still far more extreme.  The world’s handful of reserve currencies are decisively commanded by the US dollar.  Because of the vast amounts of dollars flooding the globe, it has great inertia.  Thus like an oil supertanker, the dollar’s moves tend to be gradual and unfold over a long time.  The USDX usually moves with all the sound and fury of a tortoise, leisurely meandering around.

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Gold Miners’ Q2’16 Fundamentals

By Adam Hamilton – Re-Blogged From http://www.Gold-Eagle.com

The gold miners’ stocks have skyrocketed this year as investors started returning to this long-abandoned sector. Many have tripled, quadrupled, or even quintupled since mid-January alone! But are such epic gains fundamentally justified? Much insight into this crucial question for investors can be gleaned from the gold miners’ latest quarterly financial and operational results. Their Q2 reports just finished coming in.

Companies trading on the US stock markets are required by the Securities and Exchange Commission to file quarterly earnings reports four times a year. For normal quarters that don’t end fiscal years, these 10-Q reports are due 45 calendar days after quarter-ends. They are a great boon to financial-market transparency and investors seeking to understand companies, yielding a treasure trove of information.

The gold miners are no exception, so about 6 weeks after quarter-ends I eagerly look forward to digging into their latest quarterly reports to see how they’re faring. And the just-reported second quarter of 2016 proved an exceedingly-strong one for gold stocks. Their benchmark HUI NYSE Arca Gold BUGS Index soared 38.4% higher in Q2 on a mere 7.4% gold rally! Gold stocks’ 5.2x upside leverage to gold was extreme.

The gold stocks began 2016 at fundamentally-absurd price levels relative to gold, the overwhelmingly-dominant driver of their profits and hence ultimately stock prices. Coming out of mid-January’s crazy 13.5-year secular low, the gold stocks were certainly overdue to soar in a massive mean-reversion rally. But with the HUI skyrocketing 182.2% at best in just 6.5 months by early August, the gains have been huge!

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Macy’s Crushed By Amazon

By John Rubino – Re-Blogged From http://www.Silver-Phoenix500.com

This is a tale of changing environments and the organisms that are, as a result, dying off.

First, consider the bricks and mortar retailers. Amazon, the dominant online seller of virtually everything, reports a spectacular quarter with soaring sales and (fairly new for them) strong profits. But in a world of flat consumer spending, where families have already used up their savings, their kids’ college funds and the loose change in their sofas to make ends meet, one store’s feast is necessarily another’s famine. And the physical retailers — which require you to actually go to them in order to buy their stuff — now find the water hole dry and the trees barren of leaves. Here’s what Macy’s reported this morning:

Macy’s results reminiscent of financial crisis

(CNBC) – Macy’s dismal first-quarter results are bringing back unwelcome memories of the financial crisis, as the retailer on Wednesday reported two metrics that harken back to that period of economic malaise.

During the first quarter, the department store chain said its comparable sales fell 5.6 percent. That marks a deceleration from its fourth-quarter same-store sales decline of 4.3 percent, and represents its most severe decrease in this metric since second quarter 2009. During that quarter, Macy’s comparable sales slid 9.5 percent.

Meanwhile, the retailer reported a 36 percent year-over-year drop in operating income. That not only marks its seventh straight quarter of year-over-year declines for this metric, but it is far steeper than any quarter during the Great Recession, said Ken Perkins, president of Retail Metrics. In second quarter 2009, by comparison, the retailer’s operating income fell closer to 10 percent.

It’s hard to see how Macy’s survives in its current form. But it might hang on longer than Italy’s major banks, which are saddled with a profligate and therefore ungovernable home country locked within a currency union managed by Germany for Germany. The result is catastrophic:

Tumbling Banco Popolare leads Italian bank shares lower

(Reuters) – Shares in Banco Popolare plunged 14 percent on Wednesday after a surprise first-quarter loss driven by loan writedowns — the main focus of investor concerns over Italian banks.

Banco Popolare booked loan writedowns requested by the European Central Bank as a condition for approving a planned merger with Banca Popolare di Milano that will create Italy’s third-biggest banking group.

To improve its loan loss provisions Banco Popolare must raise 1 billion euros in a share issue slated for early June.

Italian banks have lost nearly 40 percent of their market value so far this year, weighed down by concerns they could need additional capital to shoulder losses from sales of bad loans that rose to 360 billion euros ($410 billion) during a long recession.

A share rebound triggered by the hasty creation last month of the fund intended to inject capital into weaker lenders and buy their bad loans proved short-lived.

Banco Popolare said late on Tuesday that it had written down loans for 684 million euros in the first quarter, nearly four times more than in the same period of 2015, posting a net loss of 314 million euros for the first three months.

CEO Pierfrancesco Saviotti told an analyst call that the loan writedowns were the first step towards selling chunks of bad loans and that it would book further provisions this year.

He said the ECB wanted provisions to cover 62 percent of the most troubled loans up from a 60 percent coverage ratio the bank reached in the first quarter.

Bankers say other Italian banks are likely to follow in the steps of Banco Popolare and raise cash to make up for loan losses.

Loans to insolvent borrowers are valued on average at around 40 percent of their nominal value on Italian banks’ balance sheets but market prices for these assets reach at most 30-35 cents on the dollar when the loan is backed by a good-quality property.

The problem for both physical retailers and Italian banks is that the world continues to change in unfavorable ways. E-commerce keeps getting easier and more fun, and malls as a result keep getting emptier, with no end in sight. (Actually there is an end in sight, which is when most malls are cleared of bankrupt retailers and converted to refugee housing.)

As for Italian banks, the euro is up lately, which makes Italy that much less competitive on global markets and Italian borrowers that much less likely to cover their payments. And with interest rates trending ever-more-negative, there’s not much for even a well-run bank to do with excess capital these days.

Which leads inescapably to the conclusion that while Macy’s and the Italian banks are the weakest and therefore most vulnerable organisms in this ecosystem, they’re just the first to go. Other US retailers will report a string of bad numbers in the coming month and other banks around the world will follow the Italians’ lead. Here’s a Zero Hedge chart comparing the stock price of Germany’s iconic Deutsche Bank to (iconic in a different way) Lehman Brothers pre-Great Recession:

As a result, in the coming year the dominant question will morph from “what to buy?” to “what crashes next?”

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Profit Margin Perceptions

By Mark J Perry – Re-Blogged From American Enterprise Institute

The public thinks the average company makes a 36% profit margin, which is about 5X too high.

I find this totally fascinating, though not completely unexpected. When a random sample of American adults were asked the question “Just a rough guess, what percent profit on each dollar of sales do you think the average company makes after taxes?” for the Reason-Rupe poll in May 2013, the average response was 36%! That response was very close to historical results from the polling organization ORC’s polls for a slightly different, but related question: What percent profit on each dollar of sales do you think the average manufacturer makes after taxes? Responses to that question in 9 different polls between 1971 and 1987 ranged from 28% to 37% and averaged 31.6%.

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The End Is Near (Part 8): Apple’s Revenue ‘Falls Off A Cliff’

By John Rubino – Re-Blogged From http://www.Silver-Phoenix500.com

One by one the pillars of the recovery are toppling. Last year the Chinese infrastructure party ended and the shale oil boom went bust. More recently the FANG stocks went from pulling the market up to pushing it down. And today Apple — whose sales would always go up because everyone on Earth wants an iPhone and there were still some people in Africa and the Amazon Basin who don’t yet have one — reported that not only is its revenue no longer growing, but it might shrink in the year ahead.

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Welcome To The Currency War, Part 20: Corporate Profits Head South, Stock Prices To Follow?

By John Rubino – Re-Blogged From Dollar Collapse

A too-strong currency is, in theory, supposed to make it harder to sell things to cheap-currency countries, thus crimping corporate profits and by implication pretty much everything else.

The US dollar has been rising against the rest of the world for over a year, so let’s see how we’re doing. From today’s Wall Street Journal:

Falling Corporate Profits Blur U.S. Growth Outlook

Profits at U.S. companies during the third quarter posted their largest annual decline since the recession, underscoring the competitive pressure from a strong dollar and weak global demand that could limit businesses’ ability to support stronger economic growth in the coming months.A comprehensive measure of companies’ profits across the U.S.—earnings adjusted for inventory and depreciation—dropped to $2.1 trillion in the third quarter, down

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Gold Miners’ Strong Q3 Results

By Adam Hamilton – Re-Blogged From http://www.Gold-Eagle.com

The beleaguered gold-mining sector continues to be plagued by monumental universal bearishness.  Nearly everyone assumes the gold miners are doomed, that they can’t survive for long in a sub-$1200-gold environment.  But this belief is totally wrong, a consequence of extreme fear’s fog of war.  The gold miners’ underlying earnings fundamentals remain very strong, as evidenced by their recent Q3 results.

In all the stock markets, corporate profits ultimately drive stock prices.  Because a stock simply represents a fractional stake in its underlying company’s future earnings stream, all stock prices eventually revert to some reasonable multiple of those profits.  These earnings are truly the only fundamental driver of stock prices.  All deviations from righteous valuations based on profits are just the temporary products of herd sentiment.

The gold stocks are suffering such an extreme psychological anomaly today, drowning in mind-boggling depths of popular fear and despair.  The leading HUI gold-stock index just slumped to a brutal new 13.3-year secular low this week!  The apathy and hate for this sector is nothing short of astounding.  Anyone masochistic enough to make a bullish contrarian case on gold stocks will be peppered with scathing ridicule.

But in the midst of any universal sentiment extreme, prudent investors and speculators must disconnect from the herd emotions to take a rational look at the underlying profits fundamentals.  And there is zero doubt today that prevailing gold-stock prices are truly fundamentally absurd.  The last time gold stocks were priced at these levels per the HUI ages ago in July 2002, the gold price was merely trading around $305.

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