April 12: Daily Contrarian Reads

When Bulls Collide

Here’s the problem. As I discussed recently, the predicted surge in earnings was based upon corporate tax reform which would boost bottom lines earnings per share.“The expectations of a $1.31 boost to earnings for each percentage point of reduction in tax rates is also a bit ‘squishy.’ The premise WAS based on the expected earnings in 2017 of $131.00 for the entirety of the S&P 500. The $1.31 increase is simply 1% of $131.00 in total operating earnings. Since actual earnings for 2016 was $94.54/share, this implies a $0.9454 increase per point, or an earnings boost of $18.91 at best which would bring total 2017 estimates to $113.45. This is $5.38 less than what is currently estimated for 2017 and brings into serious question of 2018 estimates of $130.03.  Based on this math, forward valuations (assuming prices don’t move from yesterday’s close) would be 20.63x.  This is far more expensive than the 17x earnings expected previously. But unfortunately, the news is already getting worse as estimates have continued to slide just in the last month.”

Wild Housing Speculation Drives The Entire Canadian Economy

Here’s another data point on the Canadian housing bubble, how immense it really is, and how utterly crucial wild housing speculation has become to the Canadian economy. Housing starts surged to 253,720 units in March seasonally adjusted, the highest since September 2007, according to Canada Mortgage & Housing Corp. Of them, 161,000 were multi-family starts of condos and rental units in urban areas. In Toronto, one of the hot beds of Canada’s house price bubble, housing starts jumped by 16,600 units, all of them condos and apartments, defying any expectation of a slowdown.

Did The War Party Enlist The Donald?

By firing off five dozen Tomahawk missiles at a military airfield, our “America First” president may have plunged us into another Middle East war that his countrymen do not want to fight…… Trump “will not stop here,” warned U.N. Ambassador Nikki Haley on Sunday. “If he needs to do more, he will.” If Trump fails to back up Haley’s threat, the hawks now cheering him on will begin deriding him as “Donald Obama.”…..But if he throbs to the war drums of John McCain, Lindsey Graham and Marco Rubio and orders Syria’s air force destroyed, we could be at war not only with ISIS and al-Qaida, but with Syria, Russia, Iran and Hezbollah. A Syrian war would consume Trump’s presidency.

The Real Middle Eastern Slaughter—-Saudi Arabia Is Starving The Yemenis

And that’s very unfortunate because maybe it’s true that it’s only been several thousand, or let’s say ten thousand plus people, who have been killed by the bombs, directly. But what’s really been happening for well over a year, I think it’s fair to say a year to a year and a half, is that more people are dying of starvation-related or malnutrition-related diseases and starvation, than from the bombs themselves. And this is a fact which I’m sorry to say simply has not gotten into the press coverage of the war, thus far.

If The Animal Spirits Have Been Revived—-Why Is Borrowing Hitting The Skids

One of the great mysteries and biggest concerns in the economy right now is the slowing growth in bank lending. Economists are searching for answers but none are entirely satisfying. Total loans and leases extended by commercial banks in the U.S. this year were up just 3.8% from a year earlier as of March 29, according to the latest Federal Reserve data. That compares with 6.4% growth in all of last year, and a 7.6% pace as of late October. The slowdown is more surprising given the rise in business and consumer confidence since the election. And it is worrisome because the lack of business investment is considered an important reason why economic growth has remained weak.

Mind The Junk Bond Pits—Negative Convexity Strikes For The First Time Ever, Selling Panic Ahead

The market for risky bonds sold by U.S. companies is showing a never-seen-before pattern, one sign of how expensive that corner of the market has become. BB-rated junk bonds are now characterized by so-called negative convexity, suggesting that junk bonds become more rate-sensitive as rates rise and less rate-sensitive as rates fall, according to Bank of America Merrill Lynch. That’s something that had never happened until last fall.

Mind The Money Markets—-The Fed Is Clueless About Its Impact

We are still today, nearly ten years later, confronted with many of the same problems. The “dollar” issue of August 2007, the real one, remains the only matter demanding consideration. As the events of the “rising dollar”, one such phase of that baseline monetary decay, conspired to bring about the final proof needed to finally kill the recovery narrative there are still those who refuse to consider anything but a benign explanation for all of it. Though money market reform was made a proposed rule all the way back in 2014, it wasn’t until 2016 that anyone bothered to mention 2a7.

Ivanka’s War—–Now That’s Completely Nuts!

Eric Trump has said he is “sure” his sister Ivanka used her influence over their father to encourage the US president to launch military action against Bashar al-Assad in Syria. Donald Trump ordered air strikes against a Syrian air base last Thursday night in response to a chemical weapons attack by the Assad regime on Tuesday that killed at least 87 people including more than 30 children. “Ivanka is a mother of three kids and she has influence. I’m sure she said: ‘Listen, this is horrible stuff,’” Eric Trump told the Telegraph.

The Retail Apocalypse is Having a Terrifying Impact on One Corner of Wall Street

Investors are betting against the CMBS like they did before the housing crisis, and shares of mall real-estate investment trusts are also falling fast. Losses on the loans are also causing a pullback in new lending, creating a downward spiral…….When a big store shuts down, it triggers a chain reaction that can end with the shopping mall being unable to collect enough rent to cover its debts, forcing it to default. By one measure, as many as a third of the malls in the US are at risk of facing this situation.

China Is Playing a $9 Trillion Game of Chicken With Savers

Like many individual investors in China, Yang Mo has no idea what’s in the wealth management products that make up a big chunk of her net worth. She says there’s really no point in finding out. Sure, WMPs invest in all kinds of risky assets, but the government would never let a big one fail, she says. “It’s not how the Chinese government does things, and it’s not even Chinese culture,” explains Yang, a 29-year-old public relations professional in Beijing. Hers is a common refrain in Asia’s largest economy, where savers have poured $9 trillion into WMPs and similar products on the assumption that they’ll get bailed out if the investments sour. Even after news in February that policy makers are drafting rules to make it clear that state guarantees don’t exist, Yang is undaunted. She says she’ll only withdraw money from WMPs in the unlikely event that they start to suffer losses. “Cracking down on implicit guarantees is just like curbing home prices,” she says. “It’s something that the government needs to say, but it’s not something they will eventually do.”