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November 20: Daily Contrarian Reads

Summary:
Profits Alert---You Have Been Warned Investors aren’t paying attention. There is an important picture that is currently developing which, if it continues, will impact earnings and ultimately the stock market. Let’s take a look at some interesting economic numbers out this past week....When companies have higher input costs in their production they have two choices: 1) “pass along” those price increase to their customers; or 2) absorb those costs internally. If a company opts to “pass along” those costs then we should have seen CPI rise more strongly. Since that didn’t happen, it suggests companies are unable to “pass along” those costs which means a reduction in earnings. Senate Tax Bill Hides More

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Profits Alert---You Have Been Warned

Investors aren’t paying attention. There is an important picture that is currently developing which, if it continues, will impact earnings and ultimately the stock market. Let’s take a look at some interesting economic numbers out this past week....When companies have higher input costs in their production they have two choices: 1) “pass along” those price increase to their customers; or 2) absorb those costs internally. If a company opts to “pass along” those costs then we should have seen CPI rise more strongly. Since that didn’t happen, it suggests companies are unable to “pass along” those costs which means a reduction in earnings.

Senate Tax Bill Hides More Than $500 Billion In Budget Tricks

The new Senate Finance Chairman's mark of the Tax cuts and Jobs Act would cost $1.41 trillion and significantly worsen our already unsustainable budget outlook......even this cost masks $515 billion of gimmicks and doesn't include interest costs.

Not Much Evidence A Corporate Tax Cut Boosts Wages

Many proponents of the proposals make it seem that a corporate tax cut is a panacea for all that ails the US.  It will boost investment, which in turn will boost productivity.  It will boost wages, which in turn will boost aggregate demand and inflation. Why would anyone in their right mind object? The simple answer is history. In the recent history of tax changes, there is not much evidence that a corporate tax cut boosts investment or wages.  The "trickle down" economics, which the Chair of the National Economic Council, specifically called the current proposals, used to be an epithet.  It was a note of derision, and yet in a surreal and Orwellian way, it was used to defend justify it.

The Everlasting Error Of Keynesian Demand Management

The most fundamental is of approach. Classical economists agreed that demand is subordinate to supply. In other words, the time-line of goods and services acquired by the individual is that his demand for them must be successfully anticipated before being produced and supplied. The reasoning is unarguable. It therefore must follow that a recession cannot be the result of a lack of demand. It is the result of goods being produced in error, either unwanted or too expensive for the market, and that error not being corrected by the efficient reallocation of capital. This is just one of the important conclusions of what came to be called Say’s law, and it is not revealed by Keynes’s incorrect definition of it, that supply creates its own demand.

P2P Loans are “Predatory" And Have Delinquency Characteristics of Pre-2007 Subprime Mortgages

Peer-to-peer lending commenced in the US a decade ago when investors – now mostly hedge funds, banks, insurers, etc. – could lend directly to consumers via online platforms. LendingClub, the dominant player, went public in December 2014. Shares shot up to nearly $30 over the first few days, but are currently at $4.20, after a 23% plunge last Wednesday when it slashed guidance, and after a 2.4% dive this morning.

A Big Buyer Just Stopped Buying

So let’s think about what has happened. The GPIF has sold their JGB’s, at a rate that just happened to coincide with the BoJ’s increased QE program (¥34 trillion), and with that money, they have invested in domestic and foreign stocks. In essence, the BoJ engaged in a massive quantitative easing program where they printed bonds to buy stocks. Yeah, they are doing it through their public pension plan, but make no mistake - it was no coincidence that the amount of increased QE was the exact amount of bonds the GPIF needed to sell......According to the Nikkei Asian Review, the GPIF has now reached their 25% allocation to domestic stocks.

Another One Bites The Dust

Will he (Senator Al Franken) slink out of the senate in disgrace with (ahem) his tail between his legs? Or will he bunker in and wait until the mega-storm of sexual accusation roars on to strand some bigger, flashier fish on the shoals of ignominy? Perhaps we’ll soon learn that Warren Buffet repeatedly shagged his notoriously over-taxed secretary in the Berkshire Hathaway janitor’s closet. Or that Mike Pence once bought a diet Dr. Pepper for a woman who was not his wife!

There Is Nothing Patriotic or Conservative About Our Bloated Defense Budget

Several times over my 29 years in Congress I have wondered whether there are any fiscal conservatives at the Pentagon. It seems that the Defense Department is just like every other gigantic bureaucracy. When it comes to money, the refrain is always "more, more, more." On November 14, the House passed what one Capitol Hill paper described as a "$700 billion compromise defense bill." It was $80 billion over the budget caps and many billions more than even President Trump had requested.

The Donald's Saudi Scheme Unravels

Stage One simply sank into soap opera with the bizarre hijacking of Lebanese Prime Minister Saad Hariri by MbS, which served only to unite the Lebanese, rather than dividing them into warring factions, as was hoped. But the debacle in Lebanon carries a much greater import than just a mishandled soap opera. The really important fact uncovered by the recent MbS mishap is that not only did the “dog not bark in the night” – but that the Israelis have no intention “to bark” at all: which is to say, to take on the role (as veteran Israeli correspondent Ben Caspit put it), of being “the stick, with which Sunni leaders threaten their mortal enemies, the Shiites … right now, no one in Israel, least of all Prime Minister Benjamin Netanyahu, is in any hurry to ignite the northern front. Doing so, would mean getting sucked into the gates of hell” (emphasis added).

How Corporate Zombies Are Threatening The Eurozone Economy

The recovery in Eurozone growth has become part of the synchronised global growth narrative that most investors are relying on to deliver further gains in equities as we head into 2018. However, the “Zombification” of a chunk of the Eurozone’s corporate sector is not only a major unaddressed structural problem, but it’s getting worse, especially in…you guessed it…Italy and Spain. According to the WSJ.

David Stockman

David Alan Stockman (born November 10, 1946) is a former businessman and U.S. politician who served as a Republican U.S. Representative from the state of Michigan (1977–1981) and as the Director of the Office of Management and Budget (1981–1985) under President Ronald Reagan.

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