How the Bankers are Snookering Wall St.

With a weak opening ahead (-50 Dow futures) there is actually very little in the way of economic news other than a rally attempt in Japan failed overnight and German markets are closed today for Easter Monday…so discount the numbers out of Europe today.

The rest of the week looks blasé as well:  We look forward to the remarks of regional Fed Neel Kashkari tomorrow, of course.  He’s done a yeoman‘s job with this “Fixing Too Big to Fail.”  But he may have missed the systemic “efficiencies” that are doing a lot of the Fed’s job for it.  Let me explain…

(Continues below)

 

You need to first understand that it’s the role of the Fed board to intervene if it looks like the markets are going to pot.  Which they are.  So much so, that in my work on the Peoplenomics side, we’ve penciled this in as a Bear Market.

But, it’s a slippery Bear, to be sure…and this is where we get into snookering.

Under more normal circumstances, we would have expected the market to be failing at a rate approximating 1929’s rate of decline.  But, it hasn’t happened.

Being on the short side of things, where I’ve always made more money because moves better fit my attention-deficit thinking style, this is a bad thing.  Personally, I figured we oughta just jump to the “end of the book” – crash this puppy – and get on with it.

The Fed, not being able to “arb” rates up quickly, may not yet be in a position where they could bail out the markets without sending interest rates negative.  And that, most acknowledge, would wreck everything anyway.

Why hasn’t it happened?

The answer is simple:  Stock buy-backs.

Tons of them…oodles and oodles.

They are attractive right now for some very simple reasons:

  • CEO’s tend to have their comp packages tied to stock price performance.  Stock buy-backs jack that up.
  • With fewer shares floating about, the price of the stocks remaining, all things equal (*caeteris paribus) will be driven upward.  Scarcity drives price.  See your Lexus, Lamborghini, or Porsche dealer for details.
  • Two recent events have encouraged the hell out of stock buy-backs.  One being the recently enacted corporate tax reform.  Money’s coming home.
  • The other is that domestic companies were already facing the problem of “What’s left that’s worth buying?” problem.   I mean, besides their own stock shares.

Interesting THEORY Ure, but how big a deal are buy-backs?

Fine question!

A few weeks back, Kiplinger’s did a write-up on 10 companies that are planning massive stock buy-backs this year.  Along the way, they noted the astounding size of the pot was $173-billion for January and February alone.

When the current decline come to an end, we could very well zoom far into new record territory.  That would happen if (or when) some of these companies starting peeling off the “long green” and buying shares.

The corporate stock players represent an interesting dynamic this spring for a couple of reasons:

First, if they are already buying back stock, they may be too early.  Hence, they may have been snookered by the Bankers into holding up a market that really has another several percentage points down  to a range that in our work runs from around 2,390 on the S&P down to around 2,270.

Secondly, if they are not yet buying their own stock back, when will they?  Timing, as you know, is everything.

Flies, Ointments

Overall, it still looks like one more run up is in the cards, but timing of the turn will be difficult.  Though I have to say the trend channels on the Peoplenomics site MAY be useful.

Down for another month, maybe 45 days, then a grand rally that could equal the old highs.  Maybe even new ones.

But the flies are everywhere and it only takes one fly to ruin the ointment.

Last week, I thought I caught sight of a fly, too.  Look at 12:59 PM on the Wednesday S&P chart.  Is that volume spike “normal end of quarter portfolio rebalancing” or was someone in trouble?

We don’t know – it’s one of those impossible questions – but that’s the risk.  So we look at as many stories as possible that could give us hints as to the financial worthiness of major, TBTF (*too bit to fail) companies like, oh, this one.

The roll-out of the Second Depression will be different that the first one, mainly because there are so many more levers to pull.  Like the president’s Work Group on Financial Markets – also known as the Plunge Protection Team.

But more levers might not make the “financial airplane” any safer to fly.  The Plunge Protection Team may be a fair analog to aircraft speed brakes, but if you’re too low, FIKT (*flight into known terrain) is possible.

Especially if the new generation of “financial pilots” has never flown such a complex aircraft before.  Having no sense of how all the “new controls interact” a crash remains possible.

For now, the banks have snookered Wall Street.  The Corporate Tax Reform sounds like a huge payday in the financially ignorant press.  But it could work out that repatriated money may be about to save the American stock markets.

All Hype, All the Time

Monday’s Collection of None-Events:

Chinese space station.  Proved only that “What goes up, comes down.”  Didn’t prove hype can keep winning in ratings.

Ditto the liberal non-stop predictions of the eminent end of Trump.  A typical example is the NY Post running front page this morning how a “GOP Strategist to Trump”  A ‘storm is coming’ in the Russia Investigation.”  Like the Chinese space station, this one has almost run out of the hype-o-sphere.

It’s in the same category as the “GOP lawmaker who says republicans need to be ready for a possible democrat wave” in the mid-term congressional elections this fall.

Again, like the space station, a little early to be making those calls.

In the meantime, though, look for “anti fake news” legislation talk to pick up.  Not because of lying social media, so much as keeping up with these folks: Malaysia approves anti-fake news bill ahead of elections.  Coming here, too?

How to Conquer China

Simple: Walmart opens first high-tech small-sized supermarket in China.

But not without risk as “China imposing new tariffs on U.S. products in retaliation of Trump tariffs.

Also track Trump, (and Japan’s) Abe to discuss trade after U.S. aluminum, steel tariffs-White House.

“Gee, Wally”

(If you’re a child, that was one of the tag lines from the old Leave it to Beaver black and white TV show…A show from the Old America.)

No day is complete without someone slamming Trump’s attempt to get a wall built.  What’s in play today?

Trump links US border wall to NAFTA renegotiation, warns Mexico ‘must stop drug, people flows.‘”

Global Whatting?

Sunday morning early, on the ham radio – still banging out Morse code because a) it’s fun and b) it’s personal digital coms – talked to a fellow in upper Michigan.

It was snowing, he told me.

Sure enough,  And it’s moving  east.  Snow is expected Monday morning in Boston area.  and  New York Today: April Snow Showers.

No, not climate change.  Weather.

If you really want something to worry about, look at the latest National Drought Monitor readings and about how the USA may have to import grain this year because farmers are planning to plant less grain.

Then there’s the Sun’s descent into what starts to look like a Maunder Minimum or something like it.  But stick around – we’ll get to the update on that front when it comes out late this week or early next.

What will the desperados of capitalism monetize next when the effort at monetizing weather implodes?

TUD  (Our Totally Useless Department)

Taylor Swift makes surprise appearance at Tennessee café.

Student Protesters Take Over Howard University Administration Building.  Looks to us like the new left is the old left...


Futures were down 140 when I looked  (Nice!  I’m short). Job numbers will dominate the end of week data – that and trade worries…

Off to outline a new book, so “moron the ‘morrow.”

Comments

How the Bankers are Snookering Wall St. — 25 Comments

  1. If the banks and credit unions are selling their loans in anticipation of a recession in 2019, why would companies do stock buybacks now if much lower share prices are just a matter of time? I mean what happens when the stock buyback phenomenon ends?

    • If you are a bottom feeder and you want to look better than the others.. pat yourself on the back.to make yourself look more appealing than anyone else.
      that is exactly what they are doing in the market place to keep their stock prices up.
      For others that are in a dead in position and don’t have the luck of having opportunities come at them they add little certificates of achievement to their resume to make themselves look more appealing. college graduates they have a piece of paper that is listed and will at times add little certs to make themselves look more appealing to gain a chance at a higher income.
      the old saying of.. it isn’t what you know but who you know that is so true. the same thing with a company.. stock drops like a rock they will dump their life savings in to make it look more appealing

      • or you could call it the silent scream for help..
        I have a brother in-law whose car broke down he walked 45 miles to see his father at our home.. he didn’t actually come out and ask for anything much more of just explaining whats been going on with him.. his company downsized he was one of the many let go.. his fathers action was he took him home.. a couple of months later he rode to our house from where he was staying 37 miles.. on a bicycle.. this time I took him home.. I then said.. dad you do realized hes silently screaming for help and you are the only one he knows with the resources to actually help him.. they then drove into town but didn’t really do anything to help him.. luckily he found a friend that would be there for him and he is surviving. the companies that see themselves as failing are silently screaming the upper management doesn’t want to see everything they have lost because the company is failing or could fail.. by manipulating the stock market to make themselves look better is just like my brother in-law a silent scream for help.. pump it up so I can dump it..

      • he is also at that age where he is not viewed as a good candidate for employment.. at job service they tell us if you are between the age of fifty to sixty five your chances are very very good that you will never be offered a job. the reasons are simple you have obligations, your work pay history is much more refined and they think you will want more wages than they are willing to pay. and you need the benefit packages that they don’t necessarily have to offer the younger kids.

      • Im in that age group you noted…if I really neededna job, I’d go to a temp service. There’s so many unfilled low paying jobs available. May not be perfect but its better than the streets …and if youre a good worker they can do temp to perm. Its worth a chance.

  2. Did Apple quietly buy Motorola’s or MIPS’ old fab, or slip through the deal for Imagination Tech?

    I’m not an Apple fan; I am a performance fan. IMO Apple made tons of money the last few years, running WinTel boxes, and without Intel’s and Microsoft’s help, would’ve gone bankrupt, but I’ve always favored RISC to CISC because of the elegance and scalability of the architecture. OS-x is essentially a Microsoft-written x86 *NIX kludge. I see no reason why Apple’s kiddies can’t port a 64/128 bit *NIX into a proper version of AppleOS, and run it on a nextgen MIPS CPU or four…

  3. There probably WILL be a “Democrat wave,” since there is ALWAYS a significant gain by the Party that’s not in the White House, in midterm elections. Of much more interest to me is the size of the Democrat gains, the hay made of same by the MSM, and whether said media chews or spits their cud…

  4. “Global Whatting?”

    We really won’t know until there are more powerful storms, more earthquakes, more violent tornado’s, More severe droughts, and more snow.. the last ice age was caused by a global temperature gain of two degree’s.. the change that brought down the Egyptian dynasty was a drought.. http://www.dailymail.co.uk/sciencetech/article-2189802/Egyptian-kingdom-died-4-200-years-ago-following-mega-drought-caused-climate-change.html
    depending on what the drought conditions are will depend on how much the farmers are willing to plant.. then look for the sell off of livestock..
    https://www.smithsonianmag.com/science-nature/what-really-turned-sahara-desert-green-oasis-wasteland-180962668/
    The debate isn’t whether climate change is real or not.. that is a given.. but whether or not mankind has any influence to speed up the process.
    which I think yes.. 7 billion plus little furnaces is a big deal.. it might not seem like it but it is.. where will the next fertile farm land be.. who knows.. we are building at such a rapid rate that we are basically destroying our own path to survival.
    https://www.nytimes.com/2002/10/04/us/2-farm-acres-lost-per-minute-study-says.html
    https://www.freep.com/story/news/local/2015/04/19/michigan-great-lakes-water/25965121/
    now consider this..
    http://america.aljazeera.com/watch/shows/america-tonight/articles/2014/8/4/new-york-water-supply.html
    the water lines supporting New York city are crumbling..
    our whole infrastructure is crumbling.. our politicians spending trillions to make a dozen people wealthier than they already are.. twelve years ago the price was a few trillion dollars..
    https://www.pbs.org/newshour/economy/making-sense/what-would-it-take-to-fix-americas-crumbling-infrastructure
    yet our congress seems to only have one thing on their mind..
    the real problem will begin when the next depression hits.. historically people flee to the cities not from them.. that was so they could find jobs.. the big thing is we don’t have industry now.. so that will definitely make it more interesting to say the least.

    • We have a congress that is so bent on doing the puppet masters wishes that they once again haven’t done anything at all they don’t even pretend to be doing anything any more it all seems right up in your face I won’t do anything anymore now give me another raise.. they should be ashamed of themselves..I sometimes wonder how any of them can look in the mirror and not feel any remorse over what they are doing. I am pretty sure our ancestors are doing somersaults in their graves with tears in their eyes if they had any knowledge of the way our politicians are handling their jobs.

      • The only things they are doing is forcing the citizen taxpayers to fund the UN mandated population replacement program while demonizing and genociding the white race. They and their family members have received millions in bribes for this mighty multi cultural experiment task. It is like, damn the torpedoes full steam ahead. Straight to running up the nation’s debt and overseeing the fleecing. All hands in the pot, the poor be damned..ER, I mean the middle class.

  5. I would be delighted to see DOW 18,000-20,000 by end of this month. It would be a real, solid needed correction and my desired entry point to hopefully get in low and see nice profits till years end , based on tax cuts , new jobs and possible deal with North Korea . I doubt that the fed raising interest rates 1 or 2 more times, will hault the next major bull run, AFTER we get this much needed correction before summer comes.

  6. KASHKARI – worked for Goldman Sachs and Hank Paulson at Treasury – he implemented too gig too fail – now he is opposed? lol – he isn’t to be trusted period. He is nothing more than what I would call controlled opposition at the Fed….

    • Yep, he is a picked person rising in the ranks white washing the dirty work in preparation for filthy work.

  7. Im sitting on the sidelines with my 401k funds earning a measly 1% interest in a fixed safe money market . I am waiting for a big correction to take place within the next 6 weeks { hopefully the month of April} . These
    ” flash” corrections of around 4% have not been big enough or lasting enough to persuade me to get back into stocks with my 401k money. Its not good enough to see stocks down 500 points 1 day, then come back quickly from that drop the same week.

    Im hoping we see a solid 10-30% correction this month which will be my trigger to get off the sidelines with 401k funds and jump in the market to try and earn a 10-25% increase on my retirement money by years end , at which point I will get back out of the market and go into the safe money market sidelines since im anticipating 2019 to be very unpredictable and dangerous with the markets. This is the plan anyways, which often do not work as planned :}

    • It’s a bitch that we effectively are forced into gambling while GM and the banks got that bailout. Steel got tariffs to prop their bottom line.

      CalPERS will get a bailout too later on down the line.

      And here we are.

  8. Dear Mr. Ure,

    Thank you for pointing out Mr. Kashkari to us who does seem well-schooled and poised to rise above the potted plants. Mr. K’s sojourn with the Cali homeless, in advance of the 2014 governor’s race won by an ageing-out throwback to Dr. Leary hipness, perhaps bodes for a strong ground game of someone with designs for the East.

    The second nuptials warranted magazine coverage. Who knows, ten years from now an Indo-Sino-Filipino union could be awfully useful on the world stage: a “Mr. Ghandi” with sharp elbows?

    https://www.brides.com/story/outdoor-lake-tahoe-california-wedding-ideas-melina-wallisch-phoygeography

  9. George, been reading you over ten years for your economic insights. Today was pretty good too — critiquing Too Big to Fail, the tax cuts (previously, and implicitly here again) and stock buybacks. Best, Mike.

  10. “The USA may have to import grain.” Please think about that sentence for one minute. The implications are staggering.

    I can think of no time since the founding of the original colonies that the USA had to import food. The USA has exported food.

    One of the weaknesses of the Roman Empire was the need to import grain to the city of Rome. Much of the grain that fed the city came in the form of a tax in paid in grain mostly by Egypt to the city of Rome.

    As the city’s population grew the taxes increased. One of the things Romans blamed for the decline of Rome was the ever increasing taxation.

    This grain kept the “bread and circuses” going and the city fed. Even after the various upheavals Rome, the city, was able to recover because the grain kept coming. When the grain stopped, the city and the Empire collapsed.

    Does any of this sound familiar?

    • “I can think of no time since the founding of the original colonies that the USA had to import food. The USA has exported food.”

      Unfortunately.. ever can of vegitables i have on the shelf say a product of.. the same thing with fruit.. very little is produced in the USA. we produce a lot of grain.. lots of grain.. if you buy canned meat.. a grocer once told me that only 37% of the products on his shelves was usa produced.
      One company that produces a great deal of products is owned and operated by China and most of the grain export centers or elevators are owned by sources outside the USA.. a friend of mine said his company was in jeapardy because these companies ship everything home where he use to handle it. the vast majority of our medications are produced outside our shores as well they just make most of their profits off of the sales in the USA all because we don’t have a limit on what their profit margin is. the FDA says this..

      FDA’s new import tool kit will have a huge impact on food safety given that an estimated 15 percent of the U.S. food supply is imported, including 50 percent of fresh fruits, 20 percent of fresh vegetables and 80 percent of seafood.

      • All done on purpose, every single bit of it. This is another part of destabilizing America and setting it up for a down fall. That’s why going back to our own farming, small gardens, local, etc., is key. When one looks around, AS has been documented on this website AND comment section for years, America is like a shell company, gutted out from the inside out, America in name only. Can’t you see the winds of famine? Look up what happened to Ireland; you will see similarities in the trading platform. You will notice our suppliers will continue to sell us out/import us out.

  11. Your column confused me ;-( until the end this “Futures were down 140 when I looked (Nice! I’m short).” Thank you!

    P.S. You’re the smartest person that I read.

  12. Feel like I am really missing out on the drops today, so far down 2-3%. Personally in cash mostly, and never did get a comfort for going short, as I don’t track so much day to day. But right on the money the past couple of months George. https://finance.yahoo.com/