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By Tyler Durden

Submitted by David Stockman via Contra Corner blog,

The boys and girls on Wall Street are now riding their bikes with no hands and eyes wide shut. That’s the only way to explain Friday’s lunatic buying spree in response to another jobs report that proves exactly nothing about an allegedly resurgent economy.

When the S&P 500 first hit 2130 back in May 2015, reported LTM earnings were $99.25 per share, and that was already down 6.4% from the cyclical high of $106 per share in September 2014. Thus, stocks were being valued at a nosebleed 21.5X in the face of falling earnings.

During the four quarters since then, reported LTM earnings have slumped by a further 12.3% to $87 per share. So that brings the “cap rate” to 24.5X earnings that have shrunk by 18% over the last six quarters. Wee!

You have to use the parenthetical because the casino is not capitalizing anything rational. It’s just drifting higher in daredevil fashion until something big and nasty stops it.

That something would be global deflation and US recession. Both are racing down the pike at accelerating speed.

Needless to say, when these lethal economic forces finally hit home, the puppy pile-up on Wall Street is going to be one bloody mess. But that’s the price you pay when you have destroyed honest price discovery entirely, and have transformed the money and capital markets into robo-machine driven venues of rank speculation.

Janet Yellen and the other 100 clowns who run the world’s central banks, of course, have no clue as to the financial doomsday machine they have enabled. Indeed, they apparently think efficient pricing and allocation of capital doesn’t matter.

After all, their entire modus operandi is to peg the price of money, bonds and the yield curve sharply below market-clearing levels—–so that households and business will borrow and spend more than otherwise.

Likewise, they aim to goose stock prices to ever higher levels. That’s so the top 10% and the top 1%, who own the preponderant share of equities, will feel the wealth(effects) and then spend-up and invest-up a storm.

But the economic gods created market-based price discovery for a reason. It was to insure that in the great arena of financial market supply and demand, the forces of fear and greed would contend on a level playing field. Short-sellers and contrarians heading south were to intercept the lemmings of greed heading north before they reached the edge of the cliff.

Now there is nothing but cliff. Central bankers have euthanized the short-sellers and empowered the lemmings of greed with free money to fund every manner of speculation while gifting them with cheap downside hedging insurance.

There is an awful price to be paid for one-way markets, however. The latter never correct; they crash.

And the suddenness, unexpectedness, and violence of these episodic crashes slam the main street economy with gale force. That confidence shock, in turn, cancels out the gains that the resilient forces of capitalism have eked out since the previous crash, thereby causing trend rates of gain in …read more

Source: Stockman Warns Of "Awful Price To Be Paid For One-Way Markets"

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By Tyler Durden

Authored by Bonner & Partners' Bill Bonner (annotated by Acting-Man's Pater Tenebrarum),

Faking It

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.

— Alan Greenspan, 1961

He was in it for the power and the glory… Alan Greenspan gets presidential bling affixed to his neck by GW Bush, the English language mangler

That old rascal! Before joining the feds, former Fed chief Alan “Bubbles” Greenspan was a strong proponent of gold and the gold standard. He wrote clearly and forcefully about how it was necessary to restrain the Deep State and protect individual freedom.

Then he went to Washington and faced a fork in the tongue. In one direction, lay honesty and integrity. In the other, lay power and glory.

Under the Bretton Woods monetary system, the U.S. promised foreign central banks that it would convert their dollars to gold at a fixed price of $35 an ounce. This constrained the amount of dollars the U.S. could print to the amount of gold it had in its reserves.

A smart man, Greenspan quickly realized he could not advocate for this old, tried-and-true gold standard and run the Deep State’s new credit money system. In 1987, he made his choice. He took over the top job at the Fed and faked it for the next 19 years.

Since 1978, we have had four different Fed chiefs. Some were smart. Some were honest. Only Paul Volcker was smart and honest. Bernanke was honest… we believe. As near as we can tell, so is Janet Yellen. Both may mean well, but both are careful not to think out of the Deep State box.

Alan Greenspan was smart. But he is a scalawag. He knew all along that the system was corrupt and self-serving. He had explained it in essays he’d written prior to joining the Fed.

The committee, that in hindsight, actually screwed the world (here’s a little hint for TIME, for next time: “committees” have never saved anything). A bunch of quintessential Deep State minions…

But he also knew he would never get his picture on the cover of TIME magazine if he told the truth. In 1999, Greenspan eventually got his mug on the cover. The magazine pictured him alongside then Treasury secretary Robert Rubin and his deputy, Larry Summers, under the headline “The Committee to Save the World” for their handling of the Asian financial crisis.

It was power Greenspan wanted; he knew he would have to play the Deep State’s game to get it.

Golden Period

Now, Mr. Greenspan is 90 years old. Either he feels the cold downdraft of the beckoning grave… or he is simply forgetting to mumble. In an interview in the wake of Britain’s …read more

Source: Alan "Bubbles" Greenspan Returns To Gold

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By Tyler Durden

When it rains it pours. Lately the US has been dealing with surging violence between state police forces and local residents. Along with the continuing threat of ISIS, the US now has Hamza Bin Laden, son of Osama Bin Laden, to focus on following reports of a new audio message in which he threatens the US among others.

The new threat comes just over two months after the five-year anniversary of Osama Bin Laden's death.

Hamza appears to desire a rekindling to the Bin Laden vs. US tensions following a recent surge in ISIS brand recognition. Hamza is a new face for al Qaeda and offers a millennial viewpoint for recruitment and brainwashing. As a mid-twenty-year-old Hamza is ripe to lead a new jihad given his claims that his revenge is less about his father and more about “those who defended Islam”. As Reuters reports:

Hamza bin Laden promised to continue the global militant group's fight against the United States and its allies in the 21-minute speech entitled “We Are All Osama,” according to the SITE Intelligence Group.

“We will continue striking you and targeting you in your country and abroad in response to your oppression of the people of Palestine, Afghanistan, Syria, Iraq, Yemen, Somalia and the rest of the Muslim lands that did not survive your oppression,”

Hamza said. “As for the revenge by the Islamic nation for Sheikh Osama, may Allah have mercy on him, it is not revenge for Osama the person but it is revenge for those who defended Islam.“

Hamza's role as a new al Qaeda face was solidified in 2015 when current leader Ayman al-Zawahiri introduced Hamza in a 2015 message. More from Reuters:

Introduced by the organization's new chief Ayman al-Zawahiri in an audio message last year, Hamza provides a younger voice for the group whose aging leaders have struggled to inspire militants around the world galvanized by Islamic State.

His name and genealogy add weight to al Qaeda's efforts against the US.

Bin Laden is now another name that will be used as a magnet to attract frustrated youths to fight against oppressors like that US and when mixed with the ISIS threat and the domestic chaos that builds each day inside US borders, a melting pot of emotion and uncertainty will surely birth more violence in the US and abroad.

As the US slides further into anarchy and chaos, what more could Hamza want to do to a nation that distrusts its government and is just now beginning a war with its own police forces?

…read more

Source: Osama Bin Laden’s Son Emerges, Threatens Revenge For Father’s Assassination

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By Tyler Durden

Morgan Stanley’s chief US equity strategist, Adam Parker, has not had a good year so far and as we reported last week has one big fear: being “the counter-indicating idiot.”

Today, we give Parker credit for tackling head on the very sensitive issue of persistent asset management underperformance, and unlike his hedge fund peers who ascribe just an 8% causality to “stock selection” as the driver behind poor returns (with more than a majority blaming their peers or “crowding”) Parker is at least honest: “the truth is that 100%, at some level, should have said “poor stock selection”, and what these data reveal is that 92% of respondents are blaming something other than their stock selection methodology for the current underperformance. Our portfolio has outperformed for five straight years, and is lagging this year. It is 100% stock selection.“

With that out of the way, Parker then proceeds to list the 10 specific excuses given by hedge funds to justify their poor performance for the 7th year in a row.

* * *

From Morgan Stanley’s Sunday Start, by Adam Parker:

The Ten Excuses for Bad Performance

At two recent Morgan Stanley investor conferences, the question of poor hedge fund performance surfaced repeatedly. We surveyed a group of long/short fundamental equity hedge fund managers at one of the conferences, asking them for the primary reason for poor performance of their industry.

The answers were: 54% said “crowding”, 23% said “factor exposures”, 8% blamed “macro headwinds” and 8% said “poor liquidity”. The remaining group (also 8%) said “poor stock selection”.

In other words, when performance is bad, it is beta, when performance is good, it is alpha. The truth is that 100%, at some level, should have said “poor stock selection”, and what these data reveal is that 92% of respondents are blaming something other than their stock selection methodology for the current underperformance. Our portfolio has outperformed for five straight years, and is lagging this year. It is 100% stock selection.

The alpha from the HFRI long-short index was close to 14% per annum in the early 1990s, and has been slightly below zero for the past few years.

Why is this? We don’t claim to have some systematic rank ordering of reasons for the decay in performance, but here are ten thoughts.

1. First, there has been massive growth in the total number of hedge funds, with HFR estimating that there are 3,400 equity-focused hedge funds today (about as many as stocks under global coverage by the Morgan Stanley research department).
2. Second, low interest rates have removed the rebate that hedge funds received, a non-trivial driver of historical returns when rates were materially higher.
3. Third, hedge fund CIOs are increasingly cautious. Since 2003, FAS123R has made it illegal for hedge funds (and everyone) to know anything material and non-public in the US, at least, and the high-profile and frequent investigations of hedge funds have curtailed information-seeking at some level.
4. Fourth, the more rapid availability of information has materially shortened the time arbitrage that existed …read more

   Source: Morgan Stanley Lists The Ten Excuses Hedge Funds Give For Bad Performance

       

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