August 25: Daily Contrarian Reads

The Mini-Skirt Deception: How McMaster Got His Afghan ‘Surge’

According to reports, Gen. H. R. McMaster convinced President Trump to give up his longstanding opposition to the Afghan war by showing him this photograph, below, of Afghan women in what the media are describing as “miniskirts.”……Has such a confession of betrayal ever been uttered by a public figure? For years he told us Afghanistan was a waste of lives and treasure, and that we had to get out. And now he’s flip-flopped because McMaster showed him a photo of Afghan women in mini-skirts! Oh, how easy it was – too easy!

No Worries At Uber—–Losing Billions But Going Strong

So Uber still lost a running ton of money, but less than in each of the past four quarters. Maybe cost cutting and its exit from China have something to do with it. This chart shows the “adjusted” losses before interest, tax, employee stock compensation expenses, and other items, in millions.

New Homes Sales Falter—-To Levels First Hit In 1963!

On a historic basis and especially on a population-adjusted basis, new home sales are pathetic. They would have been pathetic even if the Econoday consensus estimate was reached……

Washington’s Global Policeman Conceit

In Washington right now, neoconservatives and liberal interventionists (export democracy, by gunpoint if necessary) lead the charge against what they see as U.S. abandonment of its moral duty, leaving the world in the lurch. Their list of American failed duties is long: if only we had moved earlier to remove the Kim dynasty in North Korea, or Assad in Syria, or blocked the referendum that reincorporated Crimea into Russia, or brought about regime change in Iran, or backed Saudi Arabia against Qatar to keep the Gulf from splitting, or employed sufficient force to put an end to civil conflict in Afghanistan, or backed Ukraine to the hilt against Russia, pressed more vigorously in Venezuela, established firmer lines in the China Sea, warned Philippine leader Dutarte off from his murderous anti-drug policies, and intervened to prevent looming Ethiopian-Somali-Eritrean war in the strategic Horn of Africa, etc. The list of U.S. duties, neglected in the eyes of this school of “benign” intervention, is endless.

Has The Fed Completely Lost Control?

An interesting thing happened on the way to World Domination, uhh, I mean “Stability” – the data quit cooperating with the Federal Reserve’s carefully devised plan…….Just recently the Federal Reserve quit updating their carefully constructed “Labor Market Conditions Index” which failed to support their ongoing claims of improving employment conditions. The chart below is the last iteration before it was discontinued which showed a clear deterioration in underlying strength.

Thanks Fed! Banks Earn Record Profits in Q2, Savers Sacrificed 

Savers have been shanghaied into doing an enormous job, in small increments, day after day, for nine years: Recapitalizing the collapsed US banking system and making it immensely profitable again, leading to high core-capital ratios, record bonuses, big-fat dividends, and massive share-buybacks. And the FDIC, in its Quarterly Banking Profile released today, shows how.

The Silent Crisis Of US Housing Finance

Two key indicators that especially worry us in the world of credit is the falling cost of defaults and the widening gap between asset pricing and cash flow……..During our conversations over the past several weeks, we confirmed that the whole residential housing finance industry is suffering through some of the worst economic performance since the peak levels of 2012. The silent crisis in non-bank finance we described last year continues and, indeed, has intensified as origination margins have been squeezed by the market’s post-election gyrations.

Central Bankers Have Got It All Backwards

Confirming that they inhabit the same planet but live in a very different world, Mario Draghi, the head of the European Central Bank, who is front and center for global monetary politics this week spoke in Germany ahead of his Jackson Hole main event. What he said was astounding in the same sort of way a drunken man spouts nonsense his stupor has him believing is genius.  If ten years ago you were told that the major central banks around the world were going to “print” tens of trillions in “money” and that the result of all that was ten years later their research emphasis trying with the thinnest evidence to show that they were not, in fact, powerless, you would have thought the very idea pure insanity.  But here we are.  And in trying to explain how we could have come to such a reductive state, Mario Draghi actually said that the ECB or any central bank must be, …unencumbered by the defense of previously held paradigms that have lost any explanatory power.

A Peak Above All Others

Earnings over the last ten years have grown significantly slower than during the prior episodes. Despite the weak trend in earnings per share (EPS) and economic growth (GDP), the market is implying earnings will grow at a much faster rate in the future. In fact, the table highlights that EPS must grow almost 4x faster in future quarters than it has over the last ten years if CAPE is to normalize without price losses. That rate is more than double what investors required in 1999.

Test Scores Don’t Lie: Charter Schools Are Transformative

The results of the 2017 New York state tests were released Tuesday, and my staff has been busy crunching the numbers. They demonstrate how transformative this development has been for Harlem residents. In Central Harlem, for example, the number of students meeting rigorous, Common Core math standards has more than doubled since 2013—from 1,690 to 3,703. Students attending charter schools account for 96% of that growth. Results for English language arts are similarly inspiring.