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Read M.F., Read!

We will VMT your wallet

Video article 

“Market Cap to GDP is a long-term valuation indicator that has become popular in recent years, thanks to Warren Buffett. Back in 2001 he remarked in a Fortune Magazine interview that “it is probably the best single measure of where valuations stand at any given moment.”

My friend and guest contributor Chris Turner offered some analysis along those lines last year using the S&P 500 as the surrogate for the market (When Warren Buffett Talks … People Listen). For a broader measure of Market Cap, VectorGrader.com uses line 36 in the Federal Reserve’s B.102 balance sheet (Market Value of Equities Outstanding) as the numerator. Since both GDP and the Fed’s data are quarterly, the folks at VectorGrader.com do some interpolation and extrapolation to produce monthly estimates. Their latest chart is available to the general public here.

The four valuation indicators I track in my monthly valuation overview offer a long-term perspective of well over a century. The raw data for the “Buffett indicator” only goes back as far as the middle of the 20th century. Quarterly GDP dates from 1947, and the Fed’s B.102 Balance sheet has quarterly updates beginning in Q4 1951. With an acknowledgment of this abbreviated timeframe, let’s take a look at the plain vanilla quarterly ratio with no effort to interpolate monthly data or extrapolate since the end of the most recent quarterly numbers.

The strange numerator in the chart title, MVEONWMVBSNNCB, is the FRED designation for Line 36 in the B.102 balance sheet (Market Value of Equities Outstanding), available on the Federal Reserve website. Here is a link to a FRED version of the chart. Incidentally, the numerator is the same series used for a simple calculation of the Q Ratio valuation indicator.

Unfortunately, the “market cap” numerator is rather stale. The Fed won’t publish the Q1 data until the June 5th.

Click for a larger image

For version that’s current through Q1…..”

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“Jeremy Stein, in one of his last speeches as a Federal Reserve governor, said policy makers are set for a smooth end to their bond-buying program that won’t whipsaw investors with shifting interest-rate expectations.

Investors “almost uniformly expect” that the Federal Open Market Committee will continue tapering purchases in “further measured steps” through the rest of the year, Stein said Tuesday in remarks prepared for delivery in New York. The Fed has slowed buying in $10 billion increments over the past four meetings to $45 billion a month.

“We are currently in a very good position with respect to the market’s expectations for our asset purchases,” Stein said. “With these expectations in place, the execution of the taper itself becomes much easier, as we no longer have to worry about a step-down at each meeting sending a potentially misleading message about our intentions with respect to the future path of the federal funds rate.”

Fed Chair Janet Yellen and her colleagues are starting the process of dialing back the most aggressive policy actions in the central bank’s history, aiming to do so without destabilizing financial markets. They have kept the main rate near zero since December 2008 and more than quadrupled the balance sheet to almost $4.3 trillion.

Stein said he agrees with Yellen’s comment at her March press conference that the FOMC’s views on policy will evolve as the economy does, and that uncertainty shouldn’t be eliminated.

“As policy normalizes, forward guidance will be less commitment-like and, hence, a less precise guide to our future actions than it has been in the recent past,” Stein said…..”

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Tale 1)

Mob Rules

“(Reuters) – His mistake was to run from the advancing mob, and that was enough for the men and women carrying clubs, knives and swords through Donetsk’s Lenin district.

They set upon him. Beaten and bloodied, the unidentified man was saved, in a manner, by militiamen who dragged him through the crowd under metal shields, bundled him into the back of a car and drove him off at speed to an unknown fate.

No one could say what he’d done; he was a “provocateur”, a term used by both sides of Ukraine’s increasingly bitter divide to describe the other, but in the rebel-held east it means only one thing – a supporter of the “Fascist” government in Kiev.

It was a brutal picture of the mob-rule that has descended upon this city in eastern Ukraine, the biggest to fall to an armed uprising against a government in Kiev that wants to take the country west. Kiev blames Russia for fomenting the violence, a charged denied by Moscow.

Pro-Russian separatist leaders want a referendum on May 11 to declare Donetsk and the surrounding region an independent republic.

Whatever the outcome, it won’t be recognized by Kiev. The anger unleashed in the process will prove hard to rebottle, and points to a state descending into dangerous disorder, potentially civil war.

“We will not forgive Odessa!” the crowd chanted, a phrase that has quickly become the new rallying cry in towns across Ukraine’s industrial east.

The deaths of more than 40 pro-Russian activists in a burning building during clashes in the Black Sea port on Friday have injected new venom into the fight for Ukraine….”

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Tale Two)

“Washington Intends Russia’s Demise

Washington has no intention of allowing the crisis in Ukraine to be resolved. Having failed to seize the country and evict Russia from its Black Sea naval base, Washington sees new opportunities in the crisis.

Image: Ukraine Crisis (YouTube).

One is to restart the Cold War by forcing the Russian government to occupy the Russian-speaking areas of present day Ukraine where protesters are objecting to the stooge anti-Russian government installed in Kiev by the American coup. These areas of Ukraine are former constituent parts of Russia herself. They were attached to Ukraine by Soviet leaders in the 20th century when both Ukraine and Russia were part of the same country, the USSR.

Essentially, the protesters have established independent governments in the cities. The
police and military units sent to suppress the protesters, called “terrorists” in the American fashion, for the most part have until now defected to the protesters.

With Obama’s incompetent White House and State Department having botched Washington’s takeover of Ukraine, Washington has been at work shifting the blame to Russia. According to Washington and its presstitute media, the protests are orchestrated by the Russian government and have no sincere basis. If Russia sends in military units to protect the Russian citizens in the former Russian territories, the act will be used by Washington to confirm Washington’s propaganda of a Russian invasion (as in the case of Georgia), and Russia will be further demonized.

The Russian government is in a predicament. Moscow does not want financial responsibility for these territories but cannot stand aside and permit Russians to be put down by force. The Russian government has attempted to keep Ukraine intact, relying on the forthcoming elections in Ukraine to bring to office more realistic leaders than the stooges installed by Washington.

However, Washington does not want an election that might replace its stooges and return to cooperating with Russia to resolve the situation. There is a good chance that Washington will tell its stooges in Kiev to declare that the crisis brought to Ukraine by Russia prevents an election. Washington’s NATO puppet states would back up this claim.

It is almost certain that despite the Russian government’s hopes, the Russian government is faced with the continuation of both the crisis and the Washington puppet government in Ukraine.

On May 1 Washington’s former ambassador to Russia, now NATO’s “second-in-command” but the person who, being American, calls the shots, has declared Russia to no longer be a partner but an enemy. The American, Alexander Vershbow, told journalists that NATO has given up on “drawing Moscow closer” and soon will deploy a large number of combat forces in Eastern Europe. Vershbow called this aggressive policy deployment of “defensive assets to the region.”

In other words, here we have again the lie that the Russian government is going to forget all about its difficulties in Ukraine and launch attacks on Poland, the Baltic States, Romania., Moldova, and on the central Asian states of Georgia, Armenia, and Azerbaijan. The dissembler Vershbow wants to modernize the militaries of these American puppet states and “seize the opportunity to create the reality on the ground by accepting membership of aspirant countries into NATO.”

What Vershbow has told the Russian government is that you just keep on relying on Western good will and reasonableness while we set up sufficient military forces to prevent Russia from coming to the aid of its oppressed citizens in Ukraine. Our demonization of Russia is working. It has made you hesitant to act during the short period when you could preempt us and seize your former territories. By waiting you give us time to mass forces on your borders from the Baltic Sea to Central Asia. That will distract you and keep you from the Ukraine. The oppression we will inflict on your Russians in Ukraine will discredit you, and the NGOs we finance in the Russian Federation will appeal to nationalist sentiments and overthrow your government for failing to come to the aid of Russians and failing to protect Russia’s strategic interests.

Washington is licking its chops, seeing an opportunity to gain Russia as a puppet state…..”

“The Federal Reserve will likely bring its massive bond-buying program to an end in October, and only after that will it consider when to raise U.S. interest rates, a top Fed official said on Sunday.

“I personally expect us to end that program in October,” Dallas Federal Reserve Bank President Richard Fisher said in an interview on Fox News. “Then we have to see how the economy is doing, including these broader measures of unemployment and where we stand before we can talk about how we might move the short-term rate.”

U.S. unemployment registered 6.3 percent in April, a government report showed on Friday. But broader measures of the strength of the labor market, including the labor participation rate and hourly wages, indicated the jobs market is still far from strong…..”

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“For the 6th month in a row, China HSBC Manufacturing PMI missed expectations. With a 48.1 print for April (vs 48.3 flash) this is a very modest rise from March’s 48.0 but is the 4th month in a row of contraction for the broader-based HSBC-version of the PMI (as opposed to the official more-SOE-biased version which remains in modest expansion). This is the longest streak of contraction since Oct 2012 (and the 3rd consecutive month of new order contraction) as employment drops for the 6th month in a row. Most worrying new export orders dropped further showing no signs of a US-driven pick-up post-weather. As if that was not enough to upset the ‘recovery is around the corner’ crew, home sales in China in the most recent (most frenetic typically) period, collapsed 47% year-over-year (and a stunning 65% in tier-2 cities). But apart from that – everything’s great in the newly appointed largest economy on earth…

The gap between the official and HSBC/Markit PMI is at almost its widest in 2 years…”

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“There was a surprising amount of bubble talk at the Milken Institute’s Global Conference in Los Angeles last week.

Top investors and economists spoke publicly about their fear of inflated values for various securities and the broader economy—a decidedly less optimistic view compared to recent years at “Davos with palm trees.”

“I do see many signs of the bubble of the future—the default specter that you’re talking about. I agree that short term we’re not likely to see that, but all the danger signs are there of a future crisis,” Marc Rowan, co-founder of $161 billion private equity firm Apollo Global Management, said during a panel discussion.

“Covenants have been stripped away, cov-lite is the norm, senior debt levels are actually higher than they were in 2007, although total debt is not quite where it was,” Rowan added, noting looser lending terms given to borrowers.

“We’re back to doing exactly the same things that were done in the credit markets in the crisis.”

“It’s just indiscriminate buying. There are no covenants whatsoever. It’s covenant light and there’s just no creditor protections. PIK-toggle is back in a big way,” James Litinsky, founder of investment manager JHL Capital Group, said of leveraged loans and high yield bonds while speaking on a separate panel.

“PIK-toggle” refers to a “payment in kind” bond that allows the issuers to defer paying interest on the note for a higher rate later on, essentially trading a cash payment for a new bond.

“We’ve seen this movie before. We know how it ends,” Litinsky added. “We don’t know where we are—maybe there’s another year to go but as we know, when psychology changes, it changes fast.”

Justin Slatky, a senior portfolio manager at credit-focused investment firm Shenkman Capital Management, agreed while speaking on the same panel….”

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Cheers on your weekend!

“As the Benghazi scandal wears on with frustratingly little accountability at the executive level, there has been no shortage of speculation regarding the identity of key players behind the cover-up.

American Thinker’s Ed Lasky put forth a theory that Obama speechwriter Ben Rhodes was instrumental in crafting the deflecting narrative that a YouTube video, not an incompetent administration, was responsible for the outbreak of violence that left four Americans dead on Sept. 11, 2012. His suspicions, it seems, were founded.

A series of emails recently released through a Freedom of Information Act request by Judicial Watch show that Rhodes, who possesses no identifiable qualifications for shaping public opinion in matters of national security, conducted meetings with then U.N. Ambassador Susan Rice ahead of her Benghazi comments.

Less than two days before she made the rounds on various Sunday morning political news programs, Rhodes implored her to “underscore that these protests are rooted in [an] Internet video, and not a broader failure [of] policy.” …”

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Street Concensus courtesy of Zero Hedge

• UBS 180K
• HSBC 195K
• Bank of America 215K
• JP Morgan 220K
• Goldman Sachs 220K
• Citigroup 225K
• Deutsche Bank 240K
• Barclays 250K
• Full Report

“…………….In his latest quarterly letter, Jeremy Grantham, veteran fund manager at GMO, put out his “best guesses for the next two years.”

Grantham draws on John Hussman’s research that shows “an overpricing for the U.S. markets that ranges from 75% overpriced to 125% at the end of March.” Meanwhile Grantham writes that GMO “very much agrees with the spirit of this data, but our preferred measure for our 7-Year Forecast has the market slightly less overvalued at 65%.”

He also acknowledges that the bull market could already have come to an end even as he wrote his quarterly letter, but he believes “it probably (i.e., over 50%) will not end for at least a year or two and probably not before it reaches a level in excess of 2,250 on the S&P 500.”

Grantham believes the market bubble will burst around or after the 2016 presidential election….”

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“SLOVYANSK, Ukraine (AP) — Ukraine launched what appeared to be its first major assault against pro-Russian forces who have seized government buildings in the country’s east, with fighting breaking out in the early hours on Friday around a city that has become the focus of the insurgency. Three deaths were reported in early fighting.

Russian President Vladimir Putin’s spokesman said the offensive “effectively destroyed the last hope for the implementation of the Geneva agreements” which were intended to defuse the crisis.

Two Ukrainian helicopters were shot down and their pilots killed on Friday morning, both sides said. The Ukrainian Security Service said one of the helicopters was shot down with a surface-to-air missile, which it said undercut Russia’s claims that the city is under control of civilians who took up arms.

Stella Khorosheva, a spokeswoman for the pro-Russian militants, said one of their men was killed and another injured. She offered no further details.

The center of Slovyansk appeared quiet but empty and tense while fighting outside the city seemed to be over by Friday morning when an Associated Press crew got into town.

Putin’s spokesman, Dmitry Peskov, said the Kremlin had sent an envoy to Ukraine’s southeast to negotiate the release of foreign military observers who were captured by pro-Russian militia in Slovyansk.

In comments to Russian news agencies, Peskov said the Kremlin has not been able to get in touch with the envoy, Vladimir Lukin, since Ukraine launched the offensive. However, Russia’s Interfax and RIA Novosti quoted Lukin’s aides as saying he was in touch and safe.The action came a day after Putin said that Ukraine should withdraw its military from the eastern and southern regions of the country. Russia has massed tens of thousands of troops along the Ukrainian border as it warns Ukraine’s military not to move against the insurgents in the east.

The Ukrainian Security Service said its forces were fighting “highly skilled foreign military men” in Slovyansk….”

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“The US is on the brink of losing its status as the world’s largest economy, and is likely to slip behind China this year, sooner than widely anticipated, according to the world’s leading statistical agencies.

The US has been the global leader since overtaking the UK in 1872. Most economists previously thought China would pull ahead in 2019.

The figures, compiled by the International Comparison Program hosted by the World Bank, are the most authoritative estimates of what money can buy in different countries and are used by most public and private sector organisations, such as the International Monetary Fund. This is the first time they have been updated since 2005.

After extensive research on the prices of goods and services, the ICP concluded that money goes further in poorer countries than it previously thought, prompting it to increase the relative size of emerging market economies.

The estimates of the real cost of living, known as purchasing power parity or PPPs, are recognised as the best way to compare the size of economies rather than using volatile exchange rates, which rarely reflect the true cost of goods and services: on this measure the IMF put US GDP in 2012 at $16.2tn, and China’s at $8.2tn.

In 2005, the ICP thought China’s economy was less than half the size of the US, accounting for only 43 per cent of America’s total. Because of the new methodology – and the fact that China’s economy has grown much more quickly – the research placed China’s GDP at 87 per cent of the US in 2011.

For 2011, the report says: “The US remained the world’s largest economy, but it was closely followed by China when measured using PPPs.”

With the IMF expecting China’s economy to have grown 24 per cent between 2011 and 2014 while the US is expected to expand only 7.6 per cent, China is likely to overtake the US this year.

The figures revolutionise the picture of the world’s economic landscape, boosting the importance of large middle-income countries. India becomes the third-largest economy having previously been in tenth place. The size of its economy almost doubled from 19 per cent of the US in 2005 to 37 per cent in 2011.

Russia, Brazil, Indonesia and Mexico make the top 12 in the global table. In contrast, high costs and lower growth push the UK and Japan further behind the US than in the 2005 tables while Germany improved its relative position a little and Italy remained the same.

The findings will intensify arguments about control over global international organisations such as the World Bank and IMF….”

Full article

“No, the economy is most definitely not “recovering”.  Despite what you may hear from the politicians and from the mainstream media, the truth is that the U.S. economy is in far worse shape than it was prior to the last recession.

Image: U.S. Dollars (Wiki Commons).

In fact, weare still pretty much where we were at when the last recession finally ended.  When the financial crisis of 2008 struck, it took us down to a much lower level economically.  Thankfully, things have at least stabilized at this much lower level.  For example, the percentage of working age Americans that are employed has stayed remarkably flat for the past four years.  We should be grateful that things have not continued to get even worse.  It is almost as if someone has hit the “pause button” on the U.S. economy.  But things are definitely not getting better, and there are a whole host of signs that this bubble of false stability will soon come to an end and that our economic decline will accelerate once again.  The following are 17 facts to show to anyone that believes that the U.S. economy is just fine…

#1 The homeownership rate in the United States has dropped to the lowest level in 19 years.

#2 Consumer spending for durable goods has dropped by 3.23 percent since November.  This is a clear sign that an economic slowdown is ahead.

#3 Major retailers are closing stores at the fastest pace that we have seen since the collapse of Lehman Brothers.

#4 According to the Bureau of Labor Statistics, 20 percent of all families in the United States do not have a single member that is employed.  That means that one out of every five families in the entire country is completely unemployed.

#5 There are 1.3 million fewer jobs in the U.S. economy than when the last recession began in December 2007.  Meanwhile, our population has continued to grow steadily since that time.

#6 According to a new report from the National Employment Law Project, the quality of the jobs that have been “created” since the end of the last recession does not match the quality of the jobs lost during the last recession…

• Lower-wage industries constituted 22 percent of recession losses, but 44 percent of recovery growth.
• Mid-wage industries constituted 37 percent of recession losses, but only 26 percent of recovery growth.
• Higher-wage industries constituted 41 percent of recession losses, and 30 percent of recovery growth.

#7 After adjusting for inflation, men who work full-time in America todaymake less money than men who worked full-time in America 40 years ago…..”

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“Washington is pushing Venezuela towards a “civil war” because it wants access to the country’s rich oil reserves, Bolivian President Evo Morales has warned. The Venezuelan government has also accused the US of fomenting a coup d’état.

Addressing over 3,000 young people at a Latin American Youth Summit in the Bolivian city of Santa Cruz, Morales branded the US an “empire” with its eye on Venezuelan oil wealth. Morales said that Venezuelan President Nicolas Maduro was blameless in the recent wave of unrest in the country and accused Washington of orchestrating a civil war.

“I believe [the US] are trying to incite if not a coup d’état then a civil war from their empire,” Morales said.“They are always going to sponsor internal conflict so that they can interfere and invade us to take control of our oil reserves.”

An anti-government protester, wearing a Guy Fawkes mask, stands with a shield near flames from molotov cocktails thrown at a water cannon by anti-government protesters during riots in Caracas April 20, 2014 (Reuters / Jorge Silva)

The world needs an “anti-imperialist, anti-capitalist and anti-colonial youth,” said Morales, urging Latin Americans to stand together in solidarity with Venezuela. Morales said there was no danger of a coup d’état in Bolivia since the government had ejected US Ambassador Phillip Golberg in 2008 after he was accused of collaborating in a plot to overthrow the government.

Venezuela has been gripped by a wave of anti-government protests since February which has left at least 41 dead and over 600 injured. The Venezuelan government has recognized people’s right to demonstrate, but has accused foreign-backed, right-wing extremists of hijacking the protests in an attempt to oust Maduro.

At present, the Maduro government is in dialogue with some of the members of the opposition movement to try and find a peaceful solution to the conflict. The opponents of the government complain that Venezuela is experiencing massive inflation and shortages of basic food products, as well as frequent power cuts….”

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