November 30: Daily Contrarian Reads

Another “Blowout” Black Friday Weekend Which Wasn’t——Total Retail Sales/Person Down 24% From 2013

While you will hear any number of stories about the huge growth in online sales, the truth is a bit darker since consumers are taking their shopping virtual out of necessity…..According to the NRF and others, spending overall is suspect yet again for Black Friday weekend regardless of where the sale was made – at an actual cash register or an internet one. The Federation estimates that total net spending for the four days through yesterday $289.19 per person this year, down from $299.60 last year. In terms of total spending for the whole weekend, the NRF figures $310.86 per person in 2016 as compared to $319.64 in 2015, and $407.02 in 2013. Again, these totals include whatever was purchased wherever it was purchased.

How The “Trump Bump” Could Fall Flat—–It’s The Debt, Stupid!

…..investors giving into these temptations do so at the risk of being blindsided by the very force that, unrecognized by most economists, bears ultimate responsibility for the presidential election results. This force is the effect of a seemingly innocuous but earth-moving secular change: private sector balance sheets (both debt and the value of assets) becoming larger and larger in proportion to incomes and economic output…..Threats to financial stability abound, whether from a rise in interest rates, a reduction in the willingness of banks or global investors to lend, or disappointing returns on investment. Global financial turmoil could rattle markets before the projected Trump administration fiscal boost takes effect. These risks are seriously underestimated, if not overlooked entirely, because of widespread ignorance about the wider implications of both total private debt growing faster than total income and the total value of assets growing faster than total income. Consider these three facts of economic life:

Mind the Dollar Short—-Rising Dollar is Squeezing $10 Trillion of  Off-Shore Borrowings

The dollar has strengthened since Trump’s victory, and that could put global companies that borrowed in dollars in a difficult position. Not only is it harder to repay the debt, but it’s also harder to roll over loans when they come due. “As non-US borrowers struggle to roll a gigantic stock of USD-denominated debt, the cross-currency complex will be a channel of stress,” Societe Generale said in a 124-page opus on the outlook for the fixed income markets

The EU Is Not Fixed! Italian Bond Risk Spikes To 30-Month Highs As Referendum Fear Batters Banks

Italian lenders declined on rising concerns about risks to their financial stability from the upcoming referendum, bringing an end to a three-week rally in European shares….After the U.K.’s vote to leave the European Union and Donald Trump’s unexpected U.S. election win, investors are on edge about the prospects of political and economic instability should Prime Minister Matteo Renzi lose the Dec. 4 referendum on constitutional reform.

European Bond Market Heading For A Fall

Since Drahi’s infamous “whatever it takes” warning in the summer of 2012, European bond yields have been a one way street lower, and until the recent Trumpflation rally, had tumbled to all time lows, in many cases well below 0%.  There are two catalysts, however, that may be ending Europe’s QE-driven free ride, and according to a recent report by Barclays, their names are Donald Trump and Mario Draghi.

Black-Friday-Weekend Woes End “Trump Effect”

In other words, nearly half (48.3%) of the battle-hardened American consumers bought most or all their stuff only when it was on sale. A nightmare for retailers. Their heavily discounted and promoted door-buster loss-leaders are designed to bring consumers into the store, in the hope that once they’re in the store, they’ll actually buy something that the store doesn’t lose money on. But no…….The problem is: They no longer shop till they drop.

When It Comes To Fake News——Imperial Washington Is In A League Of Its Own

Then there’s the more devious kind of news stories circulated by one of the biggest propagators of fake news: the U.S. government. In the midst of the media’s sudden headline-blaring apoplexy over fake news, you won’t hear much about the government’s role in producing, planting and peddling propaganda-driven fake news – often with the help of the corporate news media – because that’s not how the game works….More than 400 American journalists … in the past twenty‑five years have secretly carried out assignments for the Central Intelligence Agency… There was cooperation, accommodation and overlap. Journalists provided a full range of clandestine services… Reporters shared their notebooks with the CIA

Trumpflation—-With or Without, The Bond Market Debacle Is Just Getting Started

This is a big deal not just for bonds but for asset classes of all kinds that have been priced in similar fashion over the better part of the last decade. Stocks now have more interest rate risk than they have had for many years, maybe ever. It might be wise to remember the 1994 bond market crash. Just like it has over the past few months, the long bond fell 15% back then before stocks took notice and fell a quick 10% of their own. Should bonds continue their current selloff, the parallels to 1987 might be more appropriate. The long bond fell 25% during that episode, the final phase of its decline coinciding with the stock market crash that fall.

The Turkeys Were Optimistic On Wednesday—– Unicorns May Have Less Than A Week

All the time prior the turkey believes life is grand and will continue forever, and the farmer has nothing but his best interest at heart, caring for him with plenty of food, water, and shelter. To convince him otherwise is a fools-errand. Then – Thursday happens. A similar event may also be on the horizon, but this time – it doesn’t involve turkeys. No, this time it involves a creature once considered so far above and beyond reproach, to even question its business model, metrics, or valuation was seen as blasphemy. Next week the E.U. is set to hear whether Uber will, or will not, be subject to the laws that govern other businesses when it comes to employees, and expenses. If Uber loses this battle, I believe, things don’t just change, rather, the meme “It’s different this time” may portend far more onerous revelations going forward. Here is where the entire “unicorn” meme, and stated metrics when comes to valuation, growth projections, and more may suddenly find much like many a turkey found its neck on Thursday morning. i.e., about to be cleaved. And, it’s hard to weigh which way this decision may go. Presidential pardons excluded.

When The Indian Government Took The Cash—–Economic Activity Got Clobbered And The Poor Got The Hindmost

Here we emphasize two features of Modi’s initiative that have been little noticed. First, the combination of demonetization followed by “remonetization” will transfer billions worth of US dollars from the Indian public to the Indian government. Second, the skewed pattern in which new notes will be injected will favor some sectors over others…..The terms of trade turn against the unbanked sector, and the relatively wealthy banked population receives a transfer from the relatively poor unbanked population. The skewing of relative prices and incomes will persist until the access to new currency notes flows throughout the economy.