US Economy: Dow closes down 450 points as Trump's ire rocks Amazon

Stocks fell sharply on the first trading day of the month and the quarter as a decline in Amazon shares put pressure on the broader tech sector Monday.

The Dow ended nearly 458 points lower after sinking more than 700 points, with Intel as the worst-performing stock in the index. The S&P 500 pulled back 2.2 percent and entered correction territory, with tech falling more than 3 percent. The index also dropped below its 200-day moving average, a key technical level. The Nasdaq dropped 2.7 percent, also entering a correction, as Amazon declined 5.2 percent.

"The market leaders are under pressure," said Marc Chaikin, the CEO of Chaikin Analytics. "It's a situation where the proven winners for the past few years are faltering." When that happens, "there is a negative psychological sense in the market."

Read more: Dow closes down 450 points as Trump's ire rocks Amazon

Global Economy: Is it time to ‘just say no’ to the US stock market, the most overvalued in the world?- by Proinsias O'Mahony

A record number of fund managers believe global equities to be overvalued, with an overwhelming majority seeing the US market as the most overvalued in the world. Is it time to “just say no” to the S&P 500?

The “just say no” message refers to the title of a new white paper co-authored by high-profile GMO strategist James Montier. GMO, headed by iconic investor Jeremy Grantham, has $77 billion in assets under management and is famous for having predicted past market crises, such as the Japanese bubble that burst in 1989 as well as the 2000-02 dotcom implosion and the 2008 global financial crisis. 

The title of Montier’s latest paper sounds like an anti-drugs warning, and the content of the paper is similarly stark.

Those US gains have been largely driven by an expansion in profit margins and valuation multiples to historically lofty levels. Future gains, says Montier, require either that dividends and earnings start growing at a much faster pace – unlikely, as both are “remarkably stable” over time – or that valuation multiples and margins continue to expand. 

“The historical record for this assumption is quite thin, to put it kindly,” says Montier. Margins and multiples tend to revert to the mean over time, so buying US stocks “now requires a belief that ‘it’s different this time’ with respect to the valuations that people will put on stocks, and the margins that companies can command”. 

The S&P 500, Montier notes, has “trounced the competition” over the last seven years. It has risen 173 per cent, compared to just 71 per cent (in dollar terms) for the MSCI EAFE, the most widely-followed index tracking non-US developed markets. Emerging markets lag even further behind, rising just 30 per cent over the same period.

Still, while Montier’s bearish message may be an especially blunt one, he is far from being a lone voice on the subject of US valuations. Out of 20 valuation metrics tracked by Ned Davis Research, 16 suggest US stocks are extremely overvalued. As noted earlier, Merrill Lynch’s latest fund manager survey shows a record number see global equities as overvalued, with concerns largely centred on the US investment universe. 

The last time fund managers were nearly as concerned was back in the late 1990s. Goldman Sachs recently cautioned that 10-year returns have been negative or below historical norms 99 per cent of the time when valuations were as high as they are today. Vanguard founder John Bogle, who has spent his life preaching the buy-and-hold message, estimates the US market will be hard-pressed to deliver annualised returns of more than 2 per cent over the next decade. 

While there is broad agreement that US stocks are overvalued relative to history and that low future returns are likely, most observers agree valuation cannot be used as a timing tool. An expensive market is not necessarily ripe for a fall; it simply means future long-term returns are likely to be disappointing. Rather than selling, concerned commentators like Robert Shiller suggest investors rotate into non-US markets or underweight the US in their portfolio.

Read more: Is it time to ‘just say no’ to the US stock market?

US Stock Market: Wall Street’s Earnings Hopium - by David Stockman

This time IS different. Normally they don’t ring a bell at the top, but right now the bell couldn’t be any louder. Or clearer.

Indeed, anyone left in the casino needs a powerful hearing aid.

The record stock market made a record run during the Donald’s first 100 Days — a period in which the vaunted Trump Stimulus on which it is all depended has sunk into the Imperial City’s swamp…

Trump’s tax proposal amounted to a $7.5 trillion add-on to the nation’s crushing public debt over the coming decade. That means there is no possible GOP majority to pass it. It also included $6.5 trillion of tax relief to business and the top 5%. That means that Dems won’t touch it with a ten-foot pole, either.

The very idea that there is going to be smooth hand-off of the “stimulus” baton to a giant Trump tax cut is by now just ludicrous. Its persistence is evidence we’ve reached the stage in the bubble cycle where Wall Street stock pushers have already gone full George Orwell.

They are now claiming a deflating economy is bounding back and that soft earnings are blowing the lights out. That is to say, when the bubble reaches its manic peak, the lies and hopium become outright comical.

That was evident in the alleged “blow-out” earnings of bellwether stocks like Amazon last week, which were nothing of the kind. Actually, they stunk.

Likewise, I heard some knucklehead from Morgan Stanley on Bloomberg yesterday morning urging not to be troubled at all by the tiny 0.7% annualized first quarter GDP gain because it was all temporary and the economy would come bounding back at 3% + in the next quarter.

My goodness, Wall Street economists have been saying that for six years now. But the ballyhooed arrival of “escape velocity” has never happened — notwithstanding that we are supposedly recovering from the worst recession of the post-war period. The rebound should have been greater on a purely statistical basis alone.

In fact, real GDP for the last quarter was up 1.9% year-over-year (Y/Y). And that compared to a 1.6% Y/Y gain in Q1 2016… a 3.3% Y/Y for Q1 2015… and 1.6% for Q1 2014.

This hardly looks like a sustained breakout after each periodic lull.

So the latest Y/Y growth blip was actually a tad weaker than the average Y/Y rate during the previous six years (2011 thru 2016). That has averaged 2.1% — despite repeated assurances by the Morgan Stanleys that every bout of sluggish growth during that period was just “temporary.”

So what we got again in Q1 was more of the same low growth rut. There’s no evidence for an energetic, sustainable recovery that could possibly justify a 24X valuation multiple on the S&P 500 at month 95 of a weak recovery.

But no matter. The Wall Street earnings narrative has become so corrupted that there really isn’t any need at all for actual economic growth. It has literally become the case that “down” is the new “up.”

For instance, Amazon’s operating earnings actually fell during Q1. It reported an operating margin of 3.7% for Q1 2016. That figure was down to 2.8% during the quarter just completed.

Nevertheless, the Wall Street propaganda machine, which is pleased to call itself the financial press, gushed all the same:

While retailers continue to struggle and dead malls pile up in characterless suburbs across America, Amazon just keeps cashing in, as the e-commerce and media behemoth delivered first-quarter earnings that blew past expectations, sending its stock up 4% in after-hours trading.

It’s certainly true that retailers are struggling and dead malls pile up in characterless suburbs across America. (I covered the topic extensively in yesterday’s Daily Reckoning.)

And it’s true that Amazon is bringing down the entire house of retail cards.

What remains of the the brick-and-mortar industry is resorting to ever more desperate competitive responses.

But as the rally in Amazon stock certainly demonstrates, “down” is indeed the new “up.”

My point is not merely to expose the absurdity of Amazon’s valuation.

The point is that the casino is now so unhinged that the robo-machines added $12 billion to Amazon’s market cap in the face of stunning evidence that its earnings have vaporized entirely.

Amazon has become a profitless engine of retail mass destruction. Because the wild west casino enabled by the Fed has abolished honest price discovery and radically suppressed the cost of risk to the gamblers and structured finance speculators who operate there, Amazon has become egregiously overvalued.

So Amazon’s extreme valuation is just plain irrational exuberance having one more fling. Spasms like this $12 billion gain are absolutely reminiscent of final days before the tech collapse of April-May 2000.

In case I haven’t made myself clear: Amazon is not a profit-making enterprise in any meaningful sense of the word and its stock price measures nothing more than the raging speculative juices in the casino.

In an honest free market, real investors would never give a near one-half trillion dollar valuation to a business that refuses to make a profit, never pays a dividend and is a piker in the free cash flow department — that is, in the very thing that capitalist enterprises are born to produce.

But there is more. The Amazon rampage through the brick and mortar world of retail is not remotely a case of “creative destruction” where new technologies, innovative entrepreneurs and better mousetraps demolish the old and usher in the new to the benefit of rising output and higher standards of  living for all.
 
Au contraire. Amazon is not only hideously over-valued on the stock market. It is also an economic mutant that is destroying wealth and capitalist prosperity because of the perverted incentives for cancerous “growth” at any price that have been fostered by the Fed’s destructive regime of Bubble Finance.

 Read more: Wall Street’s Earnings Hopium - The Daily Reckoning

US Market Place:Dow finally reacting to Trump disorganized confused administration and sinks more than 200 points

Stocks posted their worst day of the year Tuesday as banks faced pressure from falling yields and traders turned their eyes to a key House vote.

The Dow fell 237 points, with Goldman Sachs contributing the lion's share of the losses. The S&P 500 dropped 1.24 percent, with financials falling more than 2.5 percent to lead decliners. The indexes were also posted their first decline of at least 1 percent since October.

"We're settling back into the middle of the range in the 10-year yield. That certainly has taken the air out of financials lately," said Art Hogan, chief market strategist at Wunderlich Securities.

U.S. Treasury yields traded mixed, with the benchmark 10-year note yield holding around 2.42 percent and the short-term two-year note yield trading around 1.26 percent. Weaker yields lead to lower interest rates on loans, which hurt financial stocks, particularly banks.

Read more: Dow sinks more than 200 points as stocks post worst day of the year

The head of the No. 1 investment bank in the world explains why Brexit, Trump, and everything else have been great for trading - by Matt Turner

A bunch of events in 2016 had the potential to send the market into a tailspin.

From the Brexit decision in June to the election of Donald Trump in November and the Italian vote against constitutional changes in December, there have been unexpected election results and breaks with the status quo.

And while these events spurred trading activity, they did not roil the market in the way that many had predicted. In recent weeks, the US stock market has regularly topped record highs, for example.

According to Daniel Pinto, the CEO of JPMorgan's giant investment bank, the events all triggered what has been called "good volatility." That is to say that trading has been continuous, trading volumes have been healthy, and markets have been liquid.

That kind of trading is "our business" and a "positive thing," Pinto said. Here's the relevant passage from the interview, which you can read in full here:

Turner: Brexit, the election of Trump, the Italian referendum maybe, they all seem to be breaks from the status quo. Everything is new. There's a new party in government in the US. The UK is leaving the EU. Who knows what is going to happen in Italy. The market suddenly has to make sense of a lot more new information. Does that create more volume going forward?

Pinto: Probably. The important thing is that the market functions rather than the events or nonevents. The important thing is that at the time an event happens, the market should continue providing liquidity. When asset managers or clients need to reposition their books, in whatever direction, the market liquidity is there at a certain price. Higher volumes and more volatility in a continuous market, where it doesn't gap, is a good thing. That's our business. That is a positive thing. The last two or three events were positive events because there was volatility in a market that was functioning.

Read more: The head of the No. 1 investment bank in the world explains why Brexit, Trump, and everything else have been great for trading

Six Years After Lehman’s Bankruptcy, Wall Street Is as Reckless as Ever - by David Dayen

In his primetime address on Wednesday, President Obama bookended the two mid-September anniversaries that define this era — 13 years since 9/11 and 6 years since the fall of Lehman Brothers, signifying the financial crisis. The debate over how to best fight terrorism and how to best prevent future Wall Street collapses share a common thread, at least according to critics: Policymakers have mostly tried to look busy for the purposes of public image, rather than addressing the root causes of the events.

I’ll leave the foreign policy debate to those better equipped to discuss it, but let’s take financial reform. Though Congress passed Dodd-Frank in 2010, and regulators have written rules ever since (only completing about 55 percent of them more than four years later), the massively complex law has failed to fully contain Wall Street’s predilection for threatening the economy.

The biggest banks remain too big to competently manage their affairs and too interconnected to be safely dissolved in the event of collapse, as the recent rejection of their “living wills” showed. Wall Street continues to amass outsized risk. Sales of securitized loans based on corporate debt are at a post-crisis high, and protections for investors for these loans have completely broken down.  A recent academic study of the Volcker rule, the signature Dodd-Frank provision to eliminate proprietary trading at deposit-taking banks, found that affected banks have taken on more risk and carried less liquid assets than before the rule’s enactment.

Financial Times columnist Martin Wolf lays the problem at the feet of Dodd-Frank itself, a sprawling document that employs 30,000 pages of rules to merely preserve the existing system. “If we want everything to stay the same, everything must change,” Wolf writes, quoting a character from the Italian epic The Leopard.

If you focus only on one area where regulators have taken significant steps of late, you could actually manage a cheer. Bolstered by a rough consensus that transcends party ideology, and a persistent intellectual force from outside the Beltway, regulators have appeared to agree that if they cannot eliminate financial risk they can at least make it more likely that banks, not taxpayers, will pay to clean up the aftermath. I

n his primetime address recently, President Obama bookended the two mid-September anniversaries that define this era — 13 years since 9/11 and 6 years since the fall of Lehman Brothers, signifying the financial crisis.

The debate over how to best fight terrorism and how to best prevent future Wall Street collapses share a common thread, at least according to critics: Policymakers have mostly tried to look busy for the purposes of public image, rather than addressing the root causes of the events. I’ll leave the foreign policy debate to those better equipped to discuss it, but let’s take financial reform. Though Congress passed Dodd-Frank in 2010, and regulators have written rules ever since (only completing of them more than four years later), the massively complex law has failed to fully contain Wall Street’s predilection for threatening the economy.

/Six-Years-After-Lehman-s-Bankruptcy-Wall-Street-Reckless-Anniversarys that define this era — 13 years since 9/11 and 6 years since the fall of Lehman Brothers, signifying the financial crisis.

The debate over how to best fight terrorism and how to best prevent future Wall Street collapses share a common thread, at least according to critics: Policymakers have mostly tried to look busy for the purposes of public image, rather than addressing the root causes of the events.

I’ll leave the foreign policy debate to those better equipped to discuss it, but let’s take financial reform.

Though Congress passed Dodd-Frank in 2010, and regulators have written rules ever since (only completing about 55 percent of them more than four years later), the massively complex law has failed to fully contain Wall Street’s predilection for threatening the economy.

The biggest banks remain too big to competently manage their affairs and too interconnected to be safely dissolved in the event of collapse, as the recent rejection of their “living wills” showed. Wall Street continues to amass outsized risk. Sales of securitized loans based on corporate debt are at a post-crisis high, and protections for investors for these loans have completely broken down.  A recent academic study of the Volcker rule, the signature Dodd-Frank provision to eliminate proprietary trading at deposit-taking banks, found that affected banks have taken on more risk and carried less liquid assets than before the rule’s enactment.

Financial Times columnist Martin Wolf lays the problem at the feet of Dodd-Frank itself, a sprawling document that employs 30,000 pages of rules to merely preserve the existing system. “If we want everything to stay the same, everything must change,” Wolf writes, quoting a character from the Italian epic The Leopard.

If you focus only on one area where regulators have taken significant steps of late, you could actually manage a cheer. Bolstered by a rough consensus that transcends party ideology, and a persistent intellectual force from outside the Beltway, regulators have appeared to agree that if they cannot eliminate financial risk they can at least make it more likely that banks, not taxpayers, will pay to clean up the aftermath.

Read more: Six Years After Lehman’s Bankruptcy, Wall Street Is as Reckless as Ever | The Fiscal Times

US Stock Market: Tom DeMark Says U.S. Stocks at Risk of 11% Decline - by Joseph Ciolli

U.S. stocks will fall 11 percent starting as soon as next week should some price patterns come true, according to Tom DeMark, the creator of indicators to show turning points in securities.

Read more:  om DeMark Says U.S. Stocks at Risk of 11% Decline - Bloomberg

US economy could be stuck in slow lane for long run

In the 4½ years since the Great Recession ended, millions of Americans who have gone without jobs or raises have found themselves wondering something about the economic recovery:
Is this as good as it gets?
It increasingly looks that way.
Two straight weak job reports have raised doubts about economists' predictions of breakout growth in 2014. The global economy is showing signs of slowing - again. Manufacturing has slumped. Fewer people are signing contracts to buy homes. Global stock markets have sunk as anxiety has gripped developing nations.

Some long-term trends are equally dispiriting.
The Congressional Budget Office foresees growth picking up through 2016, only to weaken starting in 2017. By the CBO's reckoning, the economy will soon slam into a demographic wall: The vast baby boom generation will retire. Their exodus will shrink the share of Americans who are working, which will hamper the economy's ability to accelerate.
At the same time, the government may have to borrow more, raise taxes or cut spending to support Social Security and Medicare for those retirees.
Only a few weeks ago, at least the short-term view looked brighter. Entering 2014, many economists predicted growth would top 3 percent for the first time since 2005. That pace would bring the U.S. economy near its average post-World War II annual growth rate. Some of the expected improvement would come from the government exerting less drag on the economy this year after having slashed spending and raised taxes in 2013.

Read more at http://www.philly.com/philly/business/20140209_ap_12b488278cf5476e807643c763302f12.html#obFThztZzcdGu1zK.99

In the 4½ years since the Great Recession ended, millions of Americans who have gone without jobs or raises have found themselves wondering something about the economic recovery:
Is this as good as it gets?
It increasingly looks that way.
Two straight weak job reports have raised doubts about economists' predictions of breakout growth in 2014. The global economy is showing signs of slowing - again. Manufacturing has slumped. Fewer people are signing contracts to buy homes. Global stock markets have sunk as anxiety has gripped developing nations.

Some long-term trends are equally dispiriting.
The Congressional Budget Office foresees growth picking up through 2016, only to weaken starting in 2017. By the CBO's reckoning, the economy will soon slam into a demographic wall: The vast baby boom generation will retire. Their exodus will shrink the share of Americans who are working, which will hamper the economy's ability to accelerate.
At the same time, the government may have to borrow more, raise taxes or cut spending to support Social Security and Medicare for those retirees.
Only a few weeks ago, at least the short-term view looked brighter. Entering 2014, many economists predicted growth would top 3 percent for the first time since 2005. That pace would bring the U.S. economy near its average post-World War II annual growth rate. Some of the expected improvement would come from the government exerting less drag on the economy this year after having slashed spending and raised taxes in 2013.

Read more at http://www.philly.com/philly/business/20140209_ap_12b488278cf5476e807643c763302f12.html#obFThztZzcdGu1zK.99

In the 4½ years since the Great Recession ended, millions of Americans who have gone without jobs or raises have found themselves wondering something about the economic recovery:
Is this as good as it gets?
It increasingly looks that way.
Two straight weak job reports have raised doubts about economists' predictions of breakout growth in 2014. The global economy is showing signs of slowing - again. Manufacturing has slumped. Fewer people are signing contracts to buy homes. Global stock markets have sunk as anxiety has gripped developing nations.

Some long-term trends are equally dispiriting.
The Congressional Budget Office foresees growth picking up through 2016, only to weaken starting in 2017. By the CBO's reckoning, the economy will soon slam into a demographic wall: The vast baby boom generation will retire. Their exodus will shrink the share of Americans who are working, which will hamper the economy's ability to accelerate.
At the same time, the government may have to borrow more, raise taxes or cut spending to support Social Security and Medicare for those retirees.
Only a few weeks ago, at least the short-term view looked brighter. Entering 2014, many economists predicted growth would top 3 percent for the first time since 2005. That pace would bring the U.S. economy near its average post-World War II annual growth rate. Some of the expected improvement would come from the government exerting less drag on the economy this year after having slashed spending and raised taxes in 2013.

Read more at http://www.philly.com/philly/business/20140209_ap_12b488278cf5476e807643c763302f12.html#obFThztZzcdGu1zK.99

Striking McDonald workers

In the 4½ years since the Great Recession ended, millions of Americans who have gone without jobs or raises have found themselves wondering something about the economic recovery:

Is this as good as it gets?  It increasingly looks that way.

Two straight weak job reports have raised doubts about economists' predictions of breakout growth in 2014. The global economy is showing signs of slowing - again. Manufacturing has slumped. Fewer people are signing contracts to buy homes. Global stock markets have sunk as anxiety has gripped developing nations.

Some long-term trends are equally dispiriting.

The Congressional Budget Office foresees growth picking up through 2016, only to weaken starting in 2017. By the CBO's reckoning, the economy will soon slam into a demographic wall: The vast baby boom generation will retire. Their exodus will shrink the share of Americans who are working, which will hamper the economy's ability to accelerate.

At the same time, the government may have to borrow more, raise taxes or cut spending to support Social Security and Medicare for those retirees.

Only a few weeks ago, at least the short-term view looked brighter. Entering 2014, many economists predicted growth would top 3 percent for the first time since 2005. That pace would bring the U.S. economy near its average post-World War II annual growth rate. Some of the expected improvement would come from the government exerting less drag on the economy this year after having slashed spending and raised taxes in 2013.

Read more: US economy may be stuck in slow lane for long run