Shock Doctrine End Game: Thanks for Playing

It was radical (Canadian) left-winger Naomi Klein who wrote "The Shock Doctrine", a book that described how (inter)national disasters have been used opportunistically in past decades to impose extreme capitalism.  The phenomenon she described was to take advantage of the prevailing state of "shock" to privatize the economy and provide much greater access for multinationals.  At the time I remember finding her analysis to be interesting, if not somewhat paranoid.  Just today however, I came across this chart below which shows in the most graphic detail possible, exactly what she is talking about.  It's the shock doctrine taken to its logical extreme.  As we all know, following the events of 2008, large U.S. companies engaged in massive layoffs ostensibly in a bid to merely 'survive'.  Little did we know, that in the process they took the opportunity to redefine the term 'survive', and used the crisis as an excuse to liquidate the middle class.  All I can say is 'wow', relative profits are 5 times higher than in 1980 when Reagan took over from that "candy ass" Carter  - all due to America's 30 year "Going Out Of Business Sale", sponsored by massive outsourcing.  No country can achieve profit margins of that magnitude without selling itself off.  And note that even at their nadir in 2008, profits were still in the 7% range - double the 1980 level.  Shared sacrifice indeed.  And as I wrote at the time, it was highly apparent that companies were taking layoffs to ridiculous extremes.  When companies such as Microsoft which has the highest (monopolistic) profit margins in corporate history are taking advantage of the crisis to lay people off, then you know it's all just a burnt offering to Wall Street.

From The Economist (July 21st, 2012):

And as the Economist article states, companies are sitting on record levels of cash which they could be investing in the U.S.,  but choose not to.  These mega companies don't have any problem selling into the U.S. market, only investing in it.  Meanwhile the stooges in Washington at the behest of their Corporate masters have created the ideal incentives to ensure the arbitrage continues, until there is nothing left to sell.  As one would duly expect, the chart below shows middle class net worth has crashed over the same period and is now back at 1989 levels.

Source: BusinessWeek

So it seems that Ayn Rand and her loyal followers won the class war hands down.

In due time the masses will awaken from their QE-sponsored coma and raise a pitch fork in honour of her pyrrhic victory...

Inexorable Deflation: Mind the Output Gap

Treasury Yields Are Breaking Out (To the Downside)

Faceberg: The Idiocracy's Titanic

As I write this, Mark Zuckerberg is holding his first conference call for Facebook investors, as he reports quarterly results.  The stock is now down 18% on the day at its current After Hours price of $24.  It's also down 36% from the IPO price and -46% from the first day high i.e. Wall Street's biggest IPO fiasco ever, by far.  From high to low the stock has lost $45 billion in market cap in just two months - an amount that exceeds the GDP of 130 countries.

BTFD - It's Walmart's World, We Just Live In It

It's extremely a propos, and eerie that the top performing stock making its all time high right now is Walmart.  No company has benefited more from the outsourcing of the U.S. middle class than Walmart.  When was the last time Walmart made a multi-year high ?  The week Lehman collapsed - September 20th, 2008...

Market View:

Extend and Pretend - An Economist's Only Friend

"Stock prices have reached what looks like a permanently high plateau" - Irving Fisher, 1929

"The Economist" had a pair of articles out this past week that continued their implicit/explicit endorsement of Extend and Pretend.  

Death is Certain. Life is Not.

Obama's comment this week that much of business success is due to luck, has set the internet en fuego, especially among the Libertarian set.  It's a comment that could have derived straight out of Taleb's 'Fooled by Randomness', and a view I don't subscribe to.  Of course there is luck in business. There is luck in being born too.  And while there may be a low probability of success in business, the probability of success goes to exactly zero for those sitting on the fucking couch all day.  And the PhD statisticians all say at once, "but how does he know that?"

Time to Fry

And now for everyone's least favourite subject:  How we fucked up the planet while driving our kids five states away to soccer games and otherwise commuting 400 miles in each direction.  Or maybe I should believe that through our inaction and egregious consumption we actually improved the planet, by spewing 80 million barrels of carbon into the air every day for decades.  ExxonMobil was right after all.  Yeah, that's the ticket - beach front property for everyone (Except those who already have it, of course).

NOAA: Warmest 12 Months on Record:

Too Bigger To Fail

Straight from the Horse's Orifice:

"Did you know that Wells Fargo now has more than 30% of this nation's mortgage market?  That's unheard of in a country where the limit of one bank's tentacles in housing used to be no more than 9.9%.  They wouldn't let that happen.  They would never let any bank get this powerful for fear that it would become a monopolist.  But the exigencies of the financial crisis allowed us to look the other way, and Wells to take such huge share, that the regulators had no other choice but to agree to the consolidation."

Well, there you have it.  In the Idiocracy there are no conspiracies - greed and gluttony are now openly accepted, it's business as usual.

WTFU - The Temple of Greed is Oozing Slime (Yes, again)

Stepping back and considering the 2010 Flash Crash caused by HFT bots, the MF Global malfeasance, the JP Morgan fiasco, the failed Facebook IPO, this week's PFG Best crime, or the still-breaking Libor scandal (possibly the largest in history), the greed and malfeasance scandals are once again breaking hard and heavy on Wall Street.  Nothing has changed since 2008, and why would it, given that no major prosecutions arose from the near collapse of the global financial system.  In fact, Wall Street made money off of the entire fiasco, thanks to the free taxpayer funded bailout.  The failure of Washington to reform the financial system after the events of 2008 reveals the enduring silent pact between Washington and Wall Street; and in retrospect this inaction will likely be viewed as the most devastating corruption of political influence in U.S. history.  Both Parties are getting paid to look the other way.  Even more disturbing (albeit not surprising), is the overwhelming complacency of the general public to all of these scandals breaking one after another.  This is exactly how the problems started in 2007 - first one shoe dropped then another...Sure, last year we had the Occupy Wall Street movements, yet the attitude of the public was apathy at best, mocking and derision at worst.  As long as the stock market continues its Central Bank sponsored levitation act, the sheeple at large can't be bothered with Wall Street's uninterrupted sleazefest.  However, wait until we get to the other side of this latent fiasco and 401k accounts are obliterated; all of a sudden the public will awaken from their semi-lucid coma to stage Occupy v2.0 which will be a tad more intense than last year's version.  Yet, as always, it will be too little too late, and by then people will be wishing they had directed more of their support to OWS and a lot less to the latest American Idol...

Insider Dilution - The Biggest ("legal") Stock Market Swindle
The question on the table is why if S&P operating earnings are substantially higher today than they were back in 1999, is the S&P 500 at the same level as it was back then, and why is the dividend payout rate, so low by historical standards?  The answer is because companies don't want to use earnings to pay out as dividends to the benefit of ALL shareholders.  Instead, they use earnings to buy back stock to conceal the fact that they are busy diluting the hell out of their float by issuing stock grants and stock options (priced well below the market) to their top employees.  In the past 13 years, small investors have poured hundreds of billions if not trillions into stocks directly and via mutual funds, a net inflow flow that only reversed very recently.  And as the link above shows, operating earnings have been expanding consistently.  So where the hell does all of the money go?   It goes straight from the small investors' pockets to the bank accounts of  wealthy insiders who are selling their (newly issued) stock to the Middle Class bagholders.  During the past 13 years, even as the market went nowhere, insiders have taken hundreds of billions of dollars out of stocks.  So the stock market is not a wealth creation machine as advertised, it's merely a casino-style wealth transfer machine, where the casino can issue new chips at whim, lowering the value of all chips outstanding.  Thanks for playing...

So, Why Would Anyone Still Invest in Stocks?

Good question.  The largest (and wealthiest) cohort amongst us is of course the Baby Boomers and they have been told by their financial advisors (yes, the same ones who never saw 2008 coming), that if they don't invest in stocks, they will NEVER retire.  So now the Boomers are caught in a Faustian Bargain - they know damn well that the market is a casino with odds against them.  However, if they withdraw their money there is a 100% chance they will retire poor.  On the other hand if they keep their money in the market there is a "x%" chance they will retire not just poor but eating dog food - hmmm, decisions, decisions...  Meanwhile, that 'x%' is seemingly a subjective variable that is constantly manipulated and obfuscated by the financial press and financial industry.  As you can tell, I put the "x%" at 100%, meaning for those who remain in stocks, there is a 100% likelihood that they will be eating dog food.

No Safe Havens
Sadly, but truthfully, another reason people keep plowing money into stocks is because there are no 100% safe investments anymore.  There is an entire industry now dedicated to pushing gold and silver, but as we saw in 2008, precious metals were no safe haven (declining 30%).  I am still of the belief that short-term Treasuries are the best option (owned via ETF or Mutual Fund), because they gained in value in 2008, but they won't be safe in the long-term when the U.S. is no longer deemed a safe haven.  Arguably, high grade corporate bonds are the least leveraged financial instrument, however, they too are highly correlated to the economy.  That said, as we have learned, stocks are one of the most volatile financial instruments - far more so than any bond product, so stocks are the worst place to hide in a really bad economy.

So when you put it all together, just about everyone who is associated with the market at this juncture - both the wolves on Wall Street and the sheep on Main Street has a vested interest in maintaining the illusion of sustainability.  Conversely, the vast majority of people under the age of 30 (the few with jobs) are shunning the stock market like the plague.  They recognize it for what it is - a speculative casino that keeps their parents awake at night, while making a tiny fraction of the population obscenely wealthy as they trade pieces of paper back and forth in a zero sum game, while the real economy gets worse by the minute...

The Market Only Gives So Many Chances
One thing we have learned the hard way is that the market only gives so many chances to get out.  We have revisited these same levels multiple times now, each instance on an attenuating time scale.  The market has a way of setting its hook by making investors believe that they are about to regain all of their previous losses and break to new highs i.e. fear morphs directly to hope, skipping sober reality.

When the Temple of Greed collapses this time, those caught inside will not be getting out.  The mob at hand will not abide any more bailouts for the ultra-wealthy.  Investors and Wall Street have come to believe that the Fed is invincible and therefore they are  backstopped by the Bernanke "put" (option).  This is the last delusion that needed to be fully accepted, to cement their fate...

CNBC v.s. Krugman - Dumb and Dumber

You get to pick which is which...

 

From Here to Oblivion

BTFD - Chart Attack

[Updated July 6th, 2012]

Above is a chart of the Russell 2000 small cap index which was the leading index during the 2003-2007 rally.  Subsequently, including the top in 2007, there have been 4 peaks each separated by 5 waves down and 3 waves up i.e. a nested fractal at multiple degrees of trend.  Five years to nowhere, despite $3 trillion+ in global monetary stimulus.  The time duration between peaks is compressing by a 4:1 multiple each time.  Now once again, the market is back at five year resistance after only a few weeks off the lower trend line.

The market is at its most overbought level in 3 years, according to the McClellan Oscillator (black line above).

Spanish 10 year bond yields back at the same level as they were immediately prior to last week's  grand (save the) Euro Summit  This monthly chart doesn't show the latest uptick, but you can see by the print at the top it closed at 6.95%:

Polled sentiment...complacent:

Last, but not least - No other company has benefited more from the Globalized Ponzi Scheme than WalMart.  Therefore, it is extremely fitting that following a multi-year sideways consolidation, the stock is now going parabolic - presumably in tribute to the Grand Ponzi...

Then There Was One

Following the latest Euro Summit it's abundantly clear that the onus is purely on Germany to (decide whether or not to) keep the Euro zone together.  Hollande threw his lot in with the 'other side'.