October 16: Daily Contrarian Reads

Black Monday 2: The Next Machine-Driven Meltdown

Black Monday. Although the event to which those two words refer occurred 30 years ago, they still carry the weight of that day—Oct. 19, 1987—when the Dow Jones Industrial Average shed nearly a quarter of its value in wave after wave of selling. No one in living memory had seen anything like it, at least not in the U.S., and in the postmortems conducted to understand just how the Dow managed to drop 508 points in one day, experts found a culprit: so-called portfolio insurance, a quantitative tool designed to use futures contracts to protect against market losses. Instead, it created a poisonous feedback loop, as automated selling begat more of the same.

Contrarian Indicator Soaring—-Americans Have Never, Ever Been So Bullish On Stock Market

But we think it’s clear what is driving the optimism… total delusion! Americans have never been more confident that that stock market will rally further in the next 12 months…

Pay-TV Companies Are in Crisis Mode

Investors in traditional TV providers are reeling as companies from AT&T Inc. to Viacom Inc. fail to stop the desertion of customers lured away by cheaper entertainment options such as Netflix and Snapchat……AT&T, whose ownership of the DirecTV satellite service makes it the biggest U.S. pay-television provider, said late Wednesday it will report a third-quarter loss of 390,000 satellite and cable customers, echoing a similar warning weeks earlier from Comcast Corp. The same night, Viacom cautioned that its distribution deal with Charter Communications Inc., the second-biggest cable U.S. company, may lead to a blackout, potentially testing whether millions of viewers are willing to go without MTV and Nickelodeon.

Investors Are Ignoring The Evidence At Their Peril

As stocks rang new highs last week, there were several disparate stories that caught my attention. Individually, each story is nothing to be overly concerned about, and are regularly dismissed by investors. However, when you begin linking these stories, a picture is beginning to emerge that suggests investors may be ignoring the evidence at their own peril.

Trump’s Iranian Folly—On The Road To War

President Donald Trump has put the United States on the course for war with Iran.  That was clearly his objective last Friday when he refused to certify the international nuclear accord with Iran and proclaimed heavy sanctions against Tehran’s powerful paramilitary Revolutionary Guards Corps.

September Retail Sales—–Another BLS Illusion

This 4.1% is decent growth, but it’s “nominal” growth – meaning that price changes are not figured into this. Consumer prices, as measured by the Consumer Price Index released today, have surged 2.2% year-over-year in September. So on an inflation-adjusted bases, “real” retail sales – I’m just ball-parking here because CPI is based on total consumer spending, including things like rent that are not part of retail sales  – would be up about 1.9% from a year ago. So there’s not much to gush about in the headlines. It fits right in with the same languid growth rate the economy has seen since the Financial Crisis of around 2%, plus or minus a little, in real terms.

China’s 19th Party Congress—-What It Means

Nearly two years after the historic, and still mysterious “Shanghai Accord” which in early 2016 halted what at the time appeared to a global collapse in capital markets courtesy of what appears to have been unprecedented political, fiscal and monetary coordination between the developed world and China, on October 18 the world turns its attention to what is arguably the most important political event of the year, and the logical conclusion to the stabilization process which started with the Accord, when the Chinese Communist Party kicks off its 19th Party Congress, the political event that will determine the country’s leadership lineup and policy priorities for the next five years.

Canary On The Dealer Lots—-Wells Fargo Car Loan Originations Crash to All-Time Low

However, while the bank’s ongoing mortgage pains – traditionally the bread and butter for the largest US mortgage lender – was disappointing, if not exactly surprising for a bank that has seen scandal after scandal in recent months, there was a flashing red light elsewhere: following the sharp plunge last quarter, Wells reported that the decline in auto loan originations continued, tumbling 47% Y/Y to only $4.3 billion, the lowest print since the bank started disclosing this item back in 2013.

Obama’s Auto Mileage Fatwa——A Ticking Time Bomb

In just seven years’ time – unless Trump does something before his four years are up – the average fuel efficiency of the average car will have to almost double. From 35.5 MPG (now) to 54.5 MPG by 2025. So reads the fuel economy fatwa issued by Trump’s predecessor. No matter how much it costs, no matter what it takes. To put this in perspective, as of 2018, there is only one car available that is capable of meeting the 2025 “goal” – as these forced-on-us things are styled: It is the Toyota Prius Prime plug-in hybrid. Nothing else comes close…….Well, except electric cars.

China’s Mortgage Bubble Raises Spectre of 2007 US Crisis

Young Chinese like Eli Mai, a sales manager in Guangzhou, and Wendy Wang, an executive in Shenzhen, are borrowing as much money as possible to buy boomtown flats even though they cannot afford the repayments…….City residents in their 20s and 30s view property as a one-way bet because they’ve never known prices to drop. At the same time, property inflation has seen the real purchasing power of their money rapidly diminish.