May 11: Daily Contrarian Reads

“The Great Narrowing” of the S&P 500

Over the past 10 weeks – so since March 1, 2017 – five stocks in the S&P 500 index have gained a total of $260 billion in market value, the infamous FAANG stocks: Facebook, Apple, Amazon, Netflix, and Google (now Alphabet). By any measure, $260 billion is a massive surge in valuation for just five stocks, or 1% of the S&P 500, in just 10 weeks. And the rest of the S&P 500? On March 1, the index closed at 2,394. Today it closed at 2,397. In those 10 weeks, it went absolutely nowhere. Which means this: the remaining 495 stocks in the index lost as much in total market capitalization as the FAANG stocks gained.

Lackluster Trade, China April Edition

China’s trade statistics for April 2017 uniformly disappointed. They only did so, however, because expectations are being calibrated as if the current economy is actually different. It is instead merely swinging between bouts of contraction and low-grade growth, but so low-grade it really doesn’t qualify as growth. Positive numbers do get the mind racing, but since the end of 2011 there is almost a speed limit on how fast the global economy can go on these relative upswings. To this point, Chinese exports have performed as if that was the case. Exports were expanded by 8% in April 2017, which sounds like an impressive feat though only given the circumstances of the past few years. In truth, the dollar amount of China’s outbound trade last month was 1% less than in April 2014, and still just slightly below the level of April 2013.

The Deck Is So Stacked! Putting Risk and Reward into Perspective

We are frequently told that valuation analysis is irrelevant because fundamentals do not signal turning points in markets. Scoffers of valuation analysis are correct, as there is no fundamental statistic or for that matter, technical or sentiment indicator that can provide certainty as to when a market trend will change direction…. At some point, current equity market valuations will succumb to financial gravity and the upward trend of the last eight years will reverse. When that day arrives, it will not be because a valuation ratio hit a certain level or because the market formed a well-known technical pattern. It will simply be the day that selling pressure overcomes demand. As Graham so eloquently stated, speculating and investing are two vastly different endeavors, and we prefer the practice of investing.

The 21st Century Has Been a Big, Fat Flop

From almost every angle you look at it, the 21st century – so far at least – has been one big, fat flop. Putting it in context, the century opened with high hopes. In technology… broadband internet, mobile networks, and “cloud” computing seemed to open vast possibilities…..But then something went wrong. Or many things went wrong. New technology reduced costs. But it didn’t seem to increase output. Shoppers can save money by buying from; but the company virtually makes no profit outside of its cloud computing unit (its operating margins on its core e-commerce business are negligible).But it doesn’t create the kind of economic output that provides good jobs and makes ordinary people (outside of Silicon Valley) better off. Just the opposite: More than anything else, the new technology may be a time waster. It is now estimated that America’s unemployed spend as much time on electronic pastimes as they would spend at full-time jobs, if they had them.

The Silent Slaughter of the US Air War—The Deadly Impact of 79,000 US Bombs And Missiles Since 2014

April 2017 was another month of mass slaughter and unimaginable terror for the people of Mosul in Iraq and the areas around Raqqa and Tabqa in Syria, as the heaviest, most sustained U.S.-led bombing campaign since the American War in Vietnam entered its 33rd month.has compiled reports of 1,280 to 1,744 civilians killed by at least 2,237 bombs and missiles that rained down from U.S. and allied warplanes in April (1,609 on Iraq and 628 on Syria). The heaviest casualties were in and around Old Mosul and West Mosul, where 784 to 1,074 civilians were reported killed, but the area around Tabqa in Syria also suffered heavy civilian casualties……The Pentagon recently revised its own facetious estimate of the number of civilians it has killed in Iraq and Syria since 2014 to 352. That is less than a quarter of the 1,446 victims whom Airwars has positively identified by name.

Canary On The Used Car Lots—-The Father Of Subprime Car Loans Is Cashing Out

Don Foss is walking away from his empire. You’ve probably never heard of Foss. But he’s likely the world’s richest used car salesman. He was also a pioneer of the subprime auto loan market. These are car loans made to people with bad credit. Today, the subprime auto loan market is worth more than $175 billion. But this market didn’t even exist in the 1960s…..Last year, Credit Acceptance did $872 million in sales…That’s 16% more than it did in 2015, and quadruple what it did a decade ago. And yet, Foss wants out. In January, he stepped down as chairman of Credit Acceptance. A month later, he sold $128 million worth of shares in the company……

Turning Gen. Flynn into Road Kill

Not to defend retired Lt. Gen. Michael Flynn for his suspect judgment, but it should be noted that his case represents a disturbing example of how electronic surveillance and politicized law enforcement can destroy an American citizen’s life in today’s New McCarthyism. The testimony on Monday by former acting Attorney General Sally Yates and former Director of National Intelligence James Clapper offered no evidence of Flynn’s wrongdoing – those facts were deemed “classified” – yet the pair thoroughly destroyed Flynn’s reputation, portraying him as both a liar and a potential traitor. That Senate Democrats, in particular, saw nothing troubling about this smearing of the former director of the Defense Intelligence Agency and, briefly, President Trump’s national security adviser was itself troubling.

Shale Drillers Are Outspending the World With $84 Billion Spree

S. shale explorers are boosting drilling budgets 10 times faster than the rest of the world to harvest fields that register fat profits even with the recent drop in oil prices. Flush with cash from a short-lived OPEC-led crude rally, North American drillers plan to lift their 2017 outlays by 32 percent to $84 billion, compared with just 3 percent for international projects, according to analysts at Barclays Plc. Much of the increase in spending is flowing into the Permian Basin, a sprawling, mile-thick accumulation of crude beneath Texas and New Mexico, where producers have been reaping double-digit returns even with oil commanding less than half what it did in 2014.

More And More An Inventory Story

It is one big reason why there is no economic momentum coming from the manufacturing sector when this is the area where it should be originating. Though these circumstances are unique, as had been the case since 2007, unlike in a business cycle everything is out of alignment acting in almost chaotic fashion. In a recession, or even a near-recession, as have occurred occasionally, economic correlations all move toward 1.0 as everything gets hit and then everything gets better. In the current case, which has been this way since the summer of 2011, sectors and industries are all disjointed in what almost amounts to noise; the net result of which is persistent weakness where even if there is improvement from one month or year to the next it is always curtailed by “headwinds.” Right now inventories and inventories of autos are the most pressing “headwind” on the manufacturing side.

How Higher Education Became an Obscenely Profitable Racket

Gordon Long has done some outstanding work clarifying the purposefully obscure swamp of obscene profits reaped from student debt-serfs. Gordon and I explain how the racket works in How College Has Become A Racket! The racket’s foul core is the cartel structure of higher education: if you want a college diploma, you must satisfy a cartel member–an accredited institution…..