Category Archives: Other Views

Macy’s Massacre – 3 Years Of Wasted Buybacks Ends Financial Engineering Dreams, by Tyler Durden

Maybe all those buybacks weren’t such a good idea after all. On a long enough time line, shareholder friendly can be very shareholder unfriendly, when cash is returned to shareholders and not reinvested in the business. From Tyler Durden at zerohedge.com:

Macy’s is down over 13% today, pushing towards a sub-$40 handle – the lowest since February 2013 – after lowering guidance and disappointing a market full of hope (and hype) that retail is back (remember, all the retail hiring last Friday). However, that is not the most prescient issue as 3 years of buying back billions of dollars of Macy’s stocks – to financially-engineer earnings to ensure executive compensation is satisfactory – have been completely wasted. And worst still, the additional debt added to fund the total failure in timing of buybacks has now sent Macy’s credit spiking to multi-year highs (as the stock tumbles).

“No Brainer” – Macy’s actually increased their buyback pace last quarter alone – spending $900 million on stock at an average price of $53.89, a loss of $230 million of that “investment”

And the flipside of shareholder-friendly releveraging… spiking default risk…

Now what? This is the clear message that executives in every credit cycle – there is a limit to the largesse with which you can abuse bondholders in the name of levitating share prices amid a dismal reality.

To continue reading: Macy’s Massacre

See also: Macy’s Blames “Tepid Spending” On Revenue Miss: Same Store Sales Tumble; Slashes Guidance, by Tyler Durden, SLL, 11/11/15

Social Security: The Long Slow Default, by Kirby R. Cundiff

From Kirby R. Cundiff at mises.org:

When an investor buys an annuity or another retirement product from an insurance or mutual fund company, the contract is constant and enforceable through the United States court system. When a United States taxpayer is forced to pay for a government backed retirement system such as the Old-Age, Survivors, and Disability Insurance program (OASDI) — also known as Social Security — the “contract” can be, and is, changed on a regular basis by the United States government, and those changes are generally not to the benefit of the taxpayer.

Participation in the Social Security system became compulsory in 1935 and the first monthly retirement checks were issued in 1940. The first monthly check was issued to Ida May Fuller of Ludlow, Vermont. She had paid approximately $25 into the Social Security system and received over $22,000 in benefits from the system due to living to 100 years of age. The other early retirees of the Social Security system on average also did very well. Retirees in 1977 are estimated to have received seven times what they paid into the Social Security system. Retirees entering the program as recipients today will probably receive a negative return on their “investment.”

To continue reading: Social Security: The Long Slow Default

Is the Troika About to Lose Control of South-Western Europe? by Don Quijones

From Don Quijones at wolfstreet.com:

The Price of  “Austerity”

Passos Coelho, who was until Tuesday Prime Minister of Portugal, knew “what to do.” After signing along the dotted line for a €78 billion bailout he embraced the Troika’s austerity agenda with abandon. Public spending was slashed, taxes were hiked, wages were cut, and a whole gamut of public assets and services were privatized.

As they say in Brussels these days, no pain, no gain. After four years of excruciating belt-tightening, Portugal was apparently back on the mend, despite its public debt almost doubling since 2008. Its economy had been through the grinder but it had come out the other end in much leaner shape. The public deficit had shrunk from 11% in 2011 to 3% today.

Unemployment had also fallen, and kept falling month after month, to the point where it was getting monotonous. Until two months ago, that is, when it shot back up over 14%. Then came the bomb shell: the country’s Ministry of Statistics announced in a rare moment of candor that unemployment, in an “extended sense,” was actually around 22%. As Deutsche Welle reports, the Portuguese government had been doctoring the figures to keep the European institutions (i.e. the Troika) happy:

European politicians prefer lower unemployment figures rather than higher ones, and as a consequence, there are now unemployment figures in “narrower” and “extended” senses. Mostly, the headline figures reported are the lower, “narrower” ones.

Flimsy Façade

In other words, in the real world Portugal has almost identical depression-era levels of unemployment as Spain. Its government is just more skilled at masking the grimness of its economic reality.

However, hiding a decidedly grim reality with a flimsy façade of doctored numbers may work on international investors and rating agencies – at least for a while – but it doesn’t work on those who have to live in that grim reality. And at election time that can be a serious setback.

When Coelho’s governing coalition received only 38% of the vote in last month’s elections, the game was as good as up, especially when it became clear that three parties on the left — the so-called “triple left” — had won an absolute majority and seemed willing to form a coalition.

Even when the Portuguese President Cavaco Silva, a former member of Coehlo’s pro-Euro party, reappointed Coehlo as prime-minister in a desperate bid to prevent “anti-European,” “anti-Nato” forces from winning the keys to government, he merely forestalled the inevitable. Today the inevitable happened: the “triple left” roundly rejected Coelho’s policy proposals, forcing Portugal’s Troika-friendly government to resign.

To continue reading: Is the Troika About to Lose Control of South-Western Europe?

“The Populist Upsurge is Real” – A Liberal College Professor Finds Common Ground with the Tea Party, by Michael Krieger

From Michael Krieger at libertyblitzkrieg.com:

People are going to be pissed off no matter who wins this election and that is a very important social dynamic I believe is vastly under appreciated by the majority of mainstream pundits and analysts out there. This is also very distinct from the environment that prevailed in 2008. Four years ago, the financial markets were crashing and the economic future of America was circling the toilet bowl, yet a majority of Americans embraced the potential of a young, inexperienced biracial politician from Illinois who was saying all of the right things. Despite the gigantic disappointment he has proven to be as President, there is no denying that he had all of the Democrats and most Independents under his spell on this day four years ago.

Fast forward to 2012 and the county isn’t “divided” as mainstream media talking heads like to say. The country is pissed off. Genuine and legitimate frustration permeates the land from sea to shining sea and rightly so.

– From my 2012 pre-election article: The Seventy Percent

Robert Reich is Professor of Public Policy at the University of California at Berkeley. I know of the man mainly from his frequent appearances on CNBC when I used to watch the channel (I’m proud to say I haven’t tuned in, even for five minutes, for several years now). He was always held up as the token “liberal,” who was more than eager to spar with CNBC’s endless parade of crony capitalist heroes and “socialism for the rich” supporting statists. During my post Wall Street years, I have from time to time come across his musings, but none have struck me like the insightful post he published three days ago.

The post is titled, What I Learned on My Red State Book Tour, and it’s an extremely important that all Americans read it. Here are a few excepts:

I’ve just returned from three weeks in “red” America.

It was ostensibly a book tour but I wanted to talk with conservative Republicans and Tea Partiers.

I intended to put into practice what I tell my students – that the best way to learn is to talk with people who disagree you. I wanted to learn from red America, and hoped they’d also learn a bit from me (and perhaps also buy my book).

But something odd happened. It turned out that many of the conservative Republicans and Tea Partiers I met agreed with much of what I had to say, and I agreed with them.

***

To continue reading: “The Populist Upsurge is Real”

Macy’s Blames “Tepid Spending” On Revenue Miss: Same Store Sales Tumble; Slashes Guidance, by Tyler Durden

Macy’s is generally considered one of the better retailers, and until July of this year its stock had had a fabulous run. However, its earning announcement today casts doubt on the health of the consumer sector, and it has been consumers, ever-willing to take on more debt, that has been supporting the economy. SLL predictions have been unhedged: we’re heading into a depression. From Tyler Durden at zerohedge.com:

The “unexpected” weakness among US consumption, that segment accountable for 70% of US GDP, continues this morning when moments ago Macy’s reported a trifecta of weak data, reporting a miss on Q3 sales which came at $5.87 billion below the $6.1 billion expected, and down from the $6.2 billion a year ago, but also a plunge in comparable store sales which tumbled by 3.9%, far worse than the expected drop of -0.4%, and nearly three times as bad as the 1.4% drop a year ago.

Cash flow plunged: cash provided by operating activities was $278 million in the first three quarters of 2015, compared with $841 million in the first three quarters of 2014.

Finally, M also slashed its full year same store guidance down from flat to -1.8% to -2.2% with sales projected to drop -2.7% to -3.1%, compared to a previous guidance of -1%, as contrary to the propaganda, the discretionary spending of the US consumer is bad and getting worse by the day.

Here is the company’s explanation for this debacle:

“We are disappointed that the pace of sales did not improve in the third quarter, as we had expected. Spending by domestic customers remained tepid, especially in key apparel and accessory categories. Simultaneously, the slowdown in buying by international visitors continued to significantly impact Macy’s and Bloomingdale’s stores in tourist centers, which are some of our company’s largest-volume and most profitable locations,” said Terry J. Lundgren, chairman and chief executive officer of Macy’s, Inc.

“Moving forward, we are accelerating steps needed to adapt in response to changing customer shopping preferences so we can restore our annual comparable sales growth on an owned plus licensed basis in the years ahead to the level of 2 percent to 3 percent while re-attaining an EBITDA rate as percent of sales of 14 percent. This includes building on our strength as a leading omnichannel innovator with consistent growth in online sales,” Lundgren said. “No other retailer has our track record of mastering change and creating shareholder value with a model of customer centricity. We have a deep and resourceful management team that is skilled in creating and executing successful strategies. Since the beginning of fiscal 2009, we have returned nearly $9 billion to shareholders. Our Total Shareholder Return has been 540 percent during that period, compared with a 121 percent increase in the Dow Jones Industrial Average.”

Any time a company starts touting its historical share return to justify a terrible quarter, run.

The Legendary U.S. Consumer Is Out Of Cash In These Cities, by Tyler Durden

From Tyler Durden at zerohedge.com:

Today Macy’s dropped a bomb with results that were nothing short of abysmal, and which confirmed that not only the “legendary” U.S. spender, the driving force behind 70% of US GDP, but also foreign shoppers have hunkered down to a greater extent than at any other time during the so-called recovery.

Quickly the apologists said that this is not an indicator of overall consumer weakness as much as it is lack of retail strength: the argument being that more spending goes to online markets.

There is just one problem: if that were the case, one would see a pronounced deterioration in spending uniformly across US cities. However, not only is that not the case, but there is a very clear distinction in which cities US consumers are doing well, versus cities in which they have been tapped out.

We know this courtesy of Bank of America’s latest credit and debit card usage data which showed a dramatic divergence among the top 10 US metro areas.

As the chart below shows, there is a very distinct slow down in spending in various cities such as Atlanta and Washington DC, both of which saw a sudden and unexpected plunge in retail sales in October compared to their prior 6 month average; sales in Houston on the other hand continue to weaken – the region has experienced essentially no growth in nominal sales over the prior six months. On the upside, the US financial centers, Boston and New York, were the strongest as one would expect.

So for those wondering where the US consumer is all spent out, look no further than the cities at the bottom of this chart.

To continue reading: The Legendary U.S. Consumer Is Out Of Cash In These Cities

“Super-Welfare” Guaranteed Income For All Isn’t a Solution–It’s Just the New Serfdom, by Charles Hugh Smith

From Charles Hugh Smith at oftwominds.com:

To the degree that serfdom is political powerlessness and near-zero access to the processes of accumulating productive capital, super-welfare guaranteed income for all is simply serfdom institutionalized into a Hell devoid of purpose, pride, meaning, community and positive social roles.

Jean-Paul Sartre famously wrote that Hell is other people. While this is undoubtedly true in cocktail party and workplace settings, in socioeconomic terms,Hell is a scarcity of positive social roles–the sources of positive identity, pride, purpose, community and meaning.

Since meaningful work is the source of positive social roles, Hell is a lack of meaningful work.

Unfortunately for us, the Keynesian Cargo Cult economists that dominate our world have zero grasp of humanity’s need for positive social roles and meaningful work. In the myopic view of the Keynesians, humans are nothing but consumer-bots, heartless beings who chew through the Earth’s resources in their limitless quest for more of everything–what the Keynesian Cargo Cult worships as “demand.”

Tragically, this blindness to humanity’s need for meaning and the elevation of spiritually empty consumerism to a Secular Religion leaves the Keynesians incapable of understanding this timeless truth: the only possible result of robbing people of their livelihood is despair.

Chief Keynesian Cargo Cultist Paul Krugman seems sincerely mystified that more state welfare isn’t eliminating this despair, when lack of positive social roles and dependence on the state is the source of this despair.

Why Middle-Aged White Americans Are Dying of Despair is obvious: their opportunities to secure positive social roles are diminishing.

Once meaningful work vanishes, so do positive social roles.

This is why “super welfare” guaranteed work for all is just a new version of Socioeconomic Hell. Being paid to do nothing does not provide meaningful work or positive social roles, which are the sources of positive identity, pride, purpose, community and meaning.

To continue reading: The New Serfdom

The Enemy Within, by Justin Raimondo

From Justin Raimondo at antiwar.com:

What is the biggest threat to the national security of the United States?

There are several nominees for the position. In the post-9/11 world, it used to be incontestable that the prize goes to al-Qaeda. No more. That the former head of the CIA, David Petraeus, could openly call for an alliance with the heirs of Osama bin Laden is proof positive, in my view, that the baton has been passed to other entrants.

Okay, then, what about ISIS, a.k.a. the “Islamic State”? Surely these head-choppers, whose brutal crimes make al-Qaeda look “moderate,” qualify for the prize? Well, not exactly, at least in the estimation of our wise rulers, since a) US-supported Syrian rebels of an Islamist bent have regularly defected to the Islamic State’s ranks, demonstrating that the line between friend and foe is blurry at best, and b) Russia’s entry into the fight against the self-proclaimed “Caliphate,” far from being welcomed by Washington, has elicited denunciations from US government officials and politicians of all stripes, on the grounds that they’re poaching on our territory, as well as making no distinction between alleged“moderates” and the Islamic State.

If ISIS were indeed the main danger to US national security, then wouldn’t we welcome the Russian initiative?

Which leads us to our third candidate, which is Russia itself, and specifically Vladimir Putin’s Russia – because prior to the Russian leader’s rise to power, the former Soviet Union was considered a spent force. However, under Putin – who is routinely demonized as the second coming of Stalin – a vastly shrunken Russia is now characterized as a “revisionist” power which seeks to reclaim its lost empire by any means necessary. A nation with a rapidly falling birth rate, an economy that is on the skids, and a level of public health that is far below what it was during the Soviet era, is now being held up as the main obstacle to American military and ideological primacy across the globe.

How credible is that?

Another nominee for Biggest Threat is China, in spite of the fact that the Chinese military budget is a small fraction of our own, and in direct contradiction to China’s actual record, which clearly shows that its territorial ambitions don’t extend much beyond the South China Sea. Yet our alarmists contend that, due merely to its population and its rising economic power, China represents a dire threat to the US.

The reality is far different, however: the Chinese are supremely uninterested in projecting power beyond their borders, choosing to concentrate instead on the goal of raising their standard of living. “To get rich is glorious,” said Deng Xiaoping, the late Chinese leader who supplanted Mao as the chief ideologist and “Great Helmsman” of the post-Mao era, and certainly the Chinese have taken him up on his challenge: the nation’s industry and technological development has undergone unparalleled growth. The Chinese are too preoccupied with their own internal affairs – including, I might add, the fragility of the Communist Party’s hold on power – to bother with empire-building. They have enough on their plate.

None of these alleged threats to the United States measure up to their billing: the terrorist threat was always inflated, and has since abated with the shrinkage of al-Qaeda. The Russians are a ramshackle remnant of their former glory, and the Chinese are wisely more concerned with economic than military matters.

We should emulate the Chinese in their fiscal focus, since the real threat to our national security is economic rather than any external military peril. Admiral Michael Mullen, former head of the joint chiefs of staff, was on target when he identified the soaring national debt – now standing at $20 trillion – as the biggest threat we must confront before it’s too late.

To continue reading: The Enemy Within? 

US Banks Are Not “Sound”, Fed Report Finds, by Simon Black

From Simon Black at sovereignman.com:

Late last week, a consortium of financial regulators in the United States, including the Federal Reserve and the FDIC, issued an astonishing condemnation of the US banking system.

Most notably, they highlighted “continuing gaps between industry practices and the expectations for safe and sound banking.”

This is part of an annual report they publish called the Shared National Credit (SNC) Review. And in this year’s report, they identified a huge jump in risky loans due to overexposure to weakening oil and gas industries.

Make no mistake; this is not chump change.

The total exceeds $3.9 trillion worth of risky loans that US banks made with your money. Given that even the Fed is concerned about this, alarm bells should be ringing.

Bear in mind that, in banking, there are three primary types of risk, at least from the consumer’s perspective.

The first is fraud risk.

This ultimately comes down to whether you can trust your bank. Are they stealing from you?

MF Global was once among the largest brokers in the United States. But in 2011 it was found that the firm had stolen funds from customer accounts to cover its own trading losses, before ultimately declaring bankruptcy.

It’s unfortunate to even have to point this out, but risk of fraud in the Western banking system is clearly not zero.

The second key risk is solvency.

In other words, does your bank have a positive net worth?

Like any business or individual, banks have assets and liabilities.

For banks, their liabilities are customers’ deposits, which the bank is required to repay to customers.

Meanwhile, a bank’s assets are the investments they make with our savings. If these investments go bad, it reduces or even eliminates the bank’s ability to pay us back.

This is precisely what happened in 2008; hundreds of banks became insolvent in the financial crisis as a result of the idiotic bets they’d made with our money.

The third major risk is liquidity risk.

In other words, does your bank have sufficient funds on hand when you want to make a withdrawal or transfer?

Most banks only hold a very small portion of their portfolios in cash or cash equivalents.

I’m not just talking about physical cash, I’m talking about high-quality liquid assets and securities that banks can sell in a heartbeat in order to raise cash and meet their customer needs to transfer and withdraw funds.

For most banks in the West, their amount of cash equivalents as a percentage of customer deposits is extremely low, often in the neighborhood of 1-3%.

This means that if even a small number of customers suddenly wanted their money back, and especially if they wanted physical cash, banks would completely seize up.

Each of these three risks exists in the banking system today and they are in no way trivial.

To continue reading: US Banks Are Not “Sound”, Fed Report Finds

The Deep State: The Unelected Shadow Government Is Here to Stay, by John Whitehead

This disturbing, in parts terrifying, article is well worth the read. From John Whitehead, on a guest post at theburningplatform.com:

“Behind the ostensible government sits enthroned an invisible government, owing no allegiance and acknowledging no responsibility to the people.” ― Theodore Roosevelt

America’s next president will inherit more than a bitterly divided nation teetering on the brink of financial catastrophe when he or she assumes office. He will also inherit a shadow government, one that is fully operational and staffed by unelected officials who are, in essence, running the country.

To be precise, however, the future president will actually inherit not one but two shadow governments.

The first shadow government, referred to as COG or continuity of government, is made up of unelected individuals who have been appointed to run the government in the event of a “catastrophe.”

The second shadow government, referred to as the Deep State, is comprised of unelected government bureaucrats, corporations, contractors, paper-pushers, and button-pushers who are actually calling the shots behind the scenes right now.

The first shadow government, COG, is a phantom menace waiting for the right circumstances—a terrorist attack, a natural disaster, an economic meltdown—to bring it out of the shadows, where it operates even now. When and if COG takes over, the police state will transition to martial law.

Yet as I point out in my book Battlefield America: The War on the American People, it is the second shadow government, the Deep State, which poses the greater threat to our freedoms. This permanent, corporatized, militarized, entrenched bureaucracy is unaffected by elections, unaltered by populist movements, and beyond the reach of the law.

This is the hidden face of the police state.

These two shadow governments, which make a mockery of representative government and the “reassurance ritual” of voting, have been a long time in the making. Yet they have been so shrouded in secrecy, well hidden from the eyes and ears of the American people, that they exist and function in contravention to the principles of democratic government.

As the following makes clear, these shadow governments, which operate beyond the reach of the Constitution and with no real accountability to the citizenry, are the reason why “we the people” have no control over our government.

The COG shadow government plan was devised during the Cold War as a means of ensuring that a nuclear strike didn’t paralyze the federal government.

COG initially called for three teams consisting of a cabinet member, an executive chief of staff and military and intelligence officials to practice evacuating and directing a counter nuclear strike against the Soviet Union from a variety of high-tech, mobile command vehicles. If the president and vice president were both killed, one of these teams would take control, with the ranking cabinet official serving as president.

This all changed after the attacks of September 11, 2001, when it became clear that there would be no warning against a terrorist attack. Instead of waiting until an attack occurred to mobilize part-time bureaucrats and activate evacuation schemes, George W. Bush opted to change COG and establish a full-time, permanent shadow government, stationed outside the capital, run by permanently appointed (not elected) executive officials.

COG has since taken on a power—and a budget—of its own.

Incredibly, under the Obama administration, the plans for the shadow government have expanded and grown far more elaborate and costly than many realize. It is what investigative journalist William M. Arkin refers to as “the latest manifestation of an obsession with government survival.”

To continue reading: The Deep State: The Unelected Shadow Government Is Here to Stay