October 19: Daily Contrarian Reads

$1 Trillion In Liquidity Is Leaving: “This Will Be The Market’s First Crash-Test In 10 Years”

In his latest presentation, Francesco Filia of Fasanara Capital discusses how years of monumental liquidity injections by major Central Banks ($15 trillion since 2009) successfully avoided a circuit break after the Global Financial Crisis, but failed to deliver on the core promise of economic growth through the ‘wealth effect’, which instead became an ‘inequality effect’, exacerbating populism and representing a constant threat to the status quo.

WMD Redux—-Trump’s Case Against Iran Sounds Like 2003 All Over Again

Listening to President Donald Trump’s Iran speech on Friday—in which he announced his refusal to certify the nuclear deal to Congress—I am sure I was not alone in having flashbacks to 2002. Then, as now, we watched as a U.S. president set the United States on a course for war in the Middle East by politicizing intelligence, making false claims about weapons of mass destruction, overselling the benefits of confrontation and pulling members of Congress—afraid of looking soft on terrorism and WMD—along in his wake. The result then was the 2003 invasion of Iraq, which ended up costing the United States thousands of lives and billions of dollars, destabilizing the Middle East, and vastly enhancing Iranian control over Iraq.

The S&P 500 Is Now Overvalued On 18 Of 20 Metrics

With the market now stuck in the “Icarus Rally” melt-up predicted earlier in the year by BofA Michael Hartnett, in which EFTs, algos and desperate carbon-based hedge fund managers are all chasing performance, i.e. beta, in the last weeks of the year, at least until the inevitable “Humpty Dumpty great fall“, some have been naive enough to ask just how overvalued are stocks as of this moment. Yesterday we showed one answer, when according to Goldman Sachs, the average stock is in the 88th percentile of all historical valuations and 98% from if one uses median stocks to eliminate huge outliers such as Apple;  the number would be even higher if one excluded cash flow-based valuation metrics, which are artificially boosted due to the collapse in capex and investment spending.

Flyover America—-The Facts On Who Has Been Left Behind

Here are some depressing findings from the EIG report, which finds that more than 52 million Americans are living in distressed ZIP codes: Job growth in distressed ZIP codes was negative on average from 2011 to 2015, trailing the average prosperous ZIP code by more than 30 percentage points.  Distressed ZIP codes were the only group in which the number of both jobs and business establishments declined during the national recovery.

Who Sold The ECB $2 Trillion Of Bonds And Where Did The Money Go?

Since the ECB launched its sovereign debt QE, initially known as PSPP, in March 2015 and later expanded to include corporate debt, or CSPP, in June 2016, the world’s biggest hedge fund central bank has created enough money out of thin air to purchase bonds with no consideration for price to grow its balance sheet, i.e. investment portfolio, by €1.89 trillion.

How The Gig Economy Chews Up and Spits Out Millennials

When it comes to working in the gig economy, Huws is clear: young people aren’t usually in it by choice. While one in 40 say the gig economy provides the majority of their income, for most it is part of a piecemeal existence; they cannot find other work or they are subsidising other low-paid jobs. There’s a high drop-out rate.

McDonald’s——A Bear in a Bull Costume

Having gained over 65% in the last two years, the stock of McDonald’s Corporation (MCD) recently caught our attention. Given the sharp price increase for what is thought of as a low growth company, we assumed their new line of healthier menu items, mobile app ordering, and restaurant modernization must be having a positive effect on sales. Upon a deeper analysis of MCD’s financial data, we were quite stunned to learn that has not been the case. Utility-like in its economic growth, MCD is relying on stock buybacks and the popularity of passive investment styles to provide temporary costume as a high-flying growth company.

What To Do With Mad Dog Mattis—–Put Him In A Kennel

What country is a genuine threat to the United States? You say China. You mean our largest trading partner? How exactly is China a threat to the United States? The dispute between China and other countries over islands in the South China Sea is no concern of ours. The security of Taiwan should be no concern of ours either. You say Russia. You mean the country with a shortage of warm-water ports? How is Russia a threat? Because of U.S. imposed sanctions? Because it is surrounded by U.S. military bases? You say North Korea. You mean the country with a GDP that is 35 times lower than that of South Korea? But North Korea has nuclear weapons. You would too if the United States had thousands of troops on your border and once bombed you back to the stone age. But what about terrorists? Since 9/11, more Americans have been unjustly killed by cops than by terrorists.

The Consequence of Trump’s Iranian Wrecking Ball—-The Donald Is The Big Loser

As President Trump withdraws certification of the nuclear agreement with Iran, commentators across the world struggled for words to adequately convey their outrage and contempt. A favourite term to describe Trump is as “a wrecking ball”, but the phrase suggests a sense of direction and capacity to strike a target which Trump does not possess.

Mnuchin Deploys Stock Market Bubble as Political Weapon

Mnuchin told Politico that the surge in stock prices since the election is largely based on hopes that Congress would pass the tax-cut bill, and if it doesn’t, part of the recently obtained paper wealth could just evaporate. Not only would the folks in Congress see part of their wealth disappear, they’d also have to answer to their constituents who’d be in the same debacle.