April 25: Daily Contrarian Reads

The Trump Stimulus And The Brick Wall Dead Ahead

The reason that healthcare reform is so critical to Trump’s agenda is that the savings obtained from repealing the Affordable Care Act are required to fund the tax cuts. This is the only way to appease the deficit hawks in the Republican Party. Yet voting to repeal the law would clearly be political suicide for many incumbent Republicans facing mid-term elections. Therefore, I don’t think the law will be repealed. There is a brick wall in front of the Trump agenda, and I see no way that it can be surmounted. It comes in the form of what are now rising budget deficits that are the result of both increases in spending and declining tax revenue.

Retail’s LBO Wave Finally Hitting The Wall

There’s another ailment to consider: Some retailers survived the Great Recession only because investors were throwing easy money at them, perhaps unwisely. These retailers incurred sharply higher debt in the years after the financial crisis, a type of financial life support now expediting their demise. Data show private equity firms targeted certain retailers with low debt loads and then had those companies borrow billions of dollars they now can’t repay. Some of that money went to pay dividends to private equity investors……. These retailers and their private equity sponsors took advantage of record-low borrowing costs after the 2008 financial crisis, which spurred central bankers to lower benchmark rates to zero and buy billions of dollars of government bonds. Such cheap money served as a “dinner bell” for sponsors to feast on target companies, leaving some retailers in a bad spot, according to a Moody’s Investors Service report earlier this year.

Liquidity Supernova and the Big Ugly Flaw

The $1 trillion of financial assets that central banks in Europe and Japan have bought so far this year is the best explanation for the gains seen in global stocks and bonds despite lingering political risks, Bank of America Merrill Lynch said on Friday. If the current pace of central bank buying, dubbed the ‘liquidity supernova’ by BAML, continues through the year, 2017 would record their largest financial asset purchases in a decade…” strong case can be made that Q1 2017 experienced the most egregious monetary stimulus yet. No financial or economic crisis – and none for years now. Consumer inflation trends have turned upward on a global basis. Stock prices worldwide have surged higher, with U.S. and other indices running to record highs. At the same time, global bond yields remained just off historic lows. Home prices in many key global markets have spiked upward. Meanwhile, central bank balance sheets expanded at a $3.6 TN annualized pace (from BofA) over the past four months.

The Spy State Unleashed

None of the official reports issued by our intelligence agencies and made public contains a lick of real evidence that the Kremlin guided and encouraged Trump’s rise to power: they consist of simple assertions, and exclamations of “high confidence,” without giving anyone a reason to feel the least amount of confidence in their conclusions. They hide behind the old “sources and methods” excuse in their failure to provide what could even loosely be defined as proof of their allegations. Yet some of these “sources and methods” have come to light anyway, as the leakers desperately try to salvage their failing narrative.

Schwab Says Most Accounts Opened in Q1 2017 Since……Q1 2000!

A few days ago Charles Schwab, the investment brokerage firm, announced that the number of new brokerage accounts soared 44% during the first quarter of 2017. More specifically, Schwab stated that individual investors are opening up stock trading accounts at the fastest pace the company has seen in 17 years………Anyone remember what happened 17 years ago?Oh right. The Dot-com bubble burst…….At 26.44, the S&P 500’s Price/Earnings ratio is the highest EVER, except for two occasions: the 2008 crash, and the 2000 crash.

Brick-and-Mortar Stores Are Shuttering at a Record Pace

American retailers are closing stores at a record pace this year as they feel the fallout from decades of overbuilding and the rise of online shopping.Just this past week, women’s apparel chain Bebe Stores Inc. said it would close its remaining 170 shops and sell only online, while teen retailer Rue21 Inc. announced plans to close about 400 of its 1,100 locations. “There is no reason to believe that this will abate at any point in the foreseeable future,” said Mark Cohen, the director of retail studies for Columbia Business School and a former executive at Sears Canada Inc. and other department stores.

The Sell Out of A Lifetime—-Alan Greenspan, The Man Who Knew

Once close to the levers of power, matters were different. He wished to become Paul Volcker’s successor as Fed chairman, and he knew that firm opposition to Fed policy would hurt his chances for the job. Going against his earlier analysis, he supported the “largest bank bailout in U.S. history,” the rescue in 1984 of the Continental Illinois National Bank. He admitted the dangers of the bailout, but it was, as Mallaby summarizes his position, “necessary and appalling.” Appalling, one suspects, because of its effects on the free market; but necessary to advance Greenspan’s career. By the time he became Fed Chairman, the transformation was complete. By 1989, his “libertarian rejection of bailouts was long gone; what he wanted above all was the space to fight inflation.” Greenspan wanted to fight inflation; but the best way to do it was no longer acceptable. A gold standard, he had long ago recognized, would bring with it monetary stability; but to replace the Fed with a commodity standard not subject to control by the government would erode his power. Accordingly the gold standard had to go.

The Debunking Of The Russian Hacking Myth—–Chapter And Verse

…….But none of this behavior by the DNC, Crowdstrike, or James Comey fit the media’s narrative that somehow Donald Trump was connected to the Russians who had helped to throw him the election because… something. For the establishment, the technical details didn’t matter, Crowdstrike’s connection to the Democrats didn’t matter, their gross errors and misstatements didn’t matter, none of it mattered. The media pile-on of Donald Trump would continue after his inauguration and right through to this day.

Cracks in Ponzi-Finance Land

The retail sector has replaced the oil sector in a sense, and not in a good way. It is the sector that is most likely to see a large surge in bankruptcies this year. Junk bonds issued by retailers are performing dismally, and within the group the bonds of companies that were subject to leveraged buyouts by private equity firms seem to be doing the worst (a function of their outsized debt loads). Here is a chart showing the y-t-d performance of a number of these bonds as of the end of March…

The Donald Is Making It Worse—-Imperial Washington Becoming Even More Desperate, Dangerous And Insecure

My current working hypothesis is that the U.S. is a late-stage empire about to enter a more serious and dangerous period of collapse…….Trump won on an “America first” platform that promised to emphasize the well-being of American citizens over geopolitical adventurism. We now know for certain he’s been manipulated into the imperial mindset, and his recklessness will merely accelerate U.S. decline on the world stage, and in turn, back home.