Category Archives: Stock Market

September YoY Home Sales Down 13.2%, Median Price Down 3.5%, S&P Down 6.5% From High

New Home Sales (SAAR) in September plunged to their lowest since Dec 2016, crashing 5.5% MoM (and revised dramatically lower in August)… Maybe Trump has a point on Fed rate hikes?

Remember this is the first month that takes the impact of the latest big spike in rates – not good!

This is a disastrous print:

August’s 629k SAAR was revised drastically lower to 585k and September printed 553k (SAAR) massively missing expectations of 625k (SAAR) – plunging to the weakest since Dec 2016…

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-24_7-02-08.jpg?itok=o2oEP3n7

That is a 13.2% collapse YoY – the biggest drop since May 2011

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-24.png?itok=mO5y0zJX

The median sales price decreased 3.5% YoY to $320,000…

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-24%20%281%29.png?itok=hgp-Zkpa

New homes sales were down across all regions … except the midwest.

https://confoundedinterestnet.files.wordpress.com/2018/10/nhstable.png?w=621&h=447Source: Confounded Interest

As the supply of homes at current sales rate rose to 7.1 months, the highest since March 2011, from 6.5 months.

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-24%20%282%29.png?itok=kft0a499

The decline in purchases was led by a 40.6 percent plunge in the Northeast to the lowest level since April 2015 and 12 percent drop in the West.

Source: ZeroHedge


70% Of S&P 500 Stocks Are Already In A Correction

Spooked by fears about peak profits, the slowing Chinese economy, Trump’s tariffs, ongoing political turmoil in the UK and Italy, and ongoing jitters among systematic, vol-targeting funds, on Tuesday the S&P tumbled as much as 2.34% in early trade – a drop which almost wiped out all gains for the year – before paring losses and closing only -0.55% lower. The drop pushed the S&P’s decline from its September highs to 6.5%, two-thirds on the way to a technical correction.

https://www.zerohedge.com/sites/default/files/inline-images/S%26P%20from%20highs.jpg?itok=qhSNB0d4

However the relatively stability at the index level has masked turmoil among individual names where some 1,256 stocks hit 52-week lows, while only 21 establishing new highs.

https://www.zerohedge.com/sites/default/files/inline-images/Blood%20on%20Wall%20St.PNG?itok=Om2dtkhx

More concerning, and a testament to the tech-heavy leadership of the market concentrated amid just a handful of stocks, is that while the broader S&P 500 index has yet to enter a correction, more than three quarters of all S&P stocks – or 353 – have already fallen more than 10% from their highs. Worse, of those, more than half 179 have already fallen by 20% or more from their highs, entering a bear market.

https://www.zerohedge.com/sites/default/files/inline-images/stocks%20reuters%201.PNG?itok=5eZQDzEv

The reason why the broader index has so far avoided a similar fate is because Apple, whose $1 trillion market value makes it by far the most heavily weighted stock within the S&P 500, has fallen only 4.6% from its October 3 record high. That has helped the S&P 500 itself stay out of correction territory.

Broken down by sector, the S&P 500 materials index – the closest proxy of Chinese economic growth – has fared the worst in October, leaving it down 19% from its 52-week highs, with the utilities index is the outperformer, down just 5 percent.

https://www.zerohedge.com/sites/default/files/inline-images/Sectors%20vs%2052-week%20highs.PNG?itok=N1dR9Xc5

At the individual level, among the bottom 10 S&P 500 performers, are names likes Wynn Resorts and Western Digital, both highly exposed to China. Nektar Therapeutics and Newell Brands are also among the S&P 500’s worst performers.

https://www.zerohedge.com/sites/default/files/inline-images/Stocks%20furthest%20from%20highs.PNG?itok=t0do72Y-

Taking a step back, despite its relative resilience, the S&P 500 is still on track for its worst month since August 2015, while most global equities are down for the year. North America is still the best performing region with 67% of the six countries having benchmark equities trading higher on the year in US dollar terms, according to Deutsche Bank. In EMEA, only 23% of countries are up, and only 6% of countries in the European Union (in USD). In South American (6 countries) and Asia (18), not a single country has a positive return in USD terms this year.

One day later, and despite widespread call for an imminent market bounce, traders remain completely ambivalent as today’s market cash open action shows:

  • Half of S&P 500 stocks rising, half falling
  • 5 of 11 S&P 500 groups rising, 6 falling
  • 15 DJIA stocks rising, 15 falling

Meanwhile, the Nasdaq has a more negative tone with decliners outpacing advancers. In other words, as Bloomberg’s Andrew Cinko writes, “there’s no follow through on either the upside or the downside after yesterday’s epic rebound. At this moment, he who hesitates isn’t lost, in fact, he’s got a lot of company as stock market pundits engage in verbal duel over where we go from here.”

Source: ZeroHedge

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Trader: “Well I Think There’s A Problem Here”

For those looking for key market inflection points, BMO’s Brad Wishak highlights a divergence that was a key tell for recent market action, and may portend even more pain in the coming weeks.

According to Wishak, one place that telegraphed the recent market turmoil was the venerable New York Stock Exchange: the NYSE is the worlds largest stock exchange by market cap (21 trillion) yet “seems to get very little main stream attention for reasons I’ll never understand.”

And, Wishak adds, “when the largest stock exchange in the world throws up a few negative divergences, I want to listen” for the following three reasons:

  • While the other major indices are hugging their 200 dma, the NYSE is firmly through it
  • Additionally, the 2018 Channel trend line support broken
  • But the biggest tell for me took place in September….while all the other majors were marking fresh all time highs, the largest exchange in the world wasn’t even close to confirming ….this doesn’t happen often………another one for the radar

https://www.zerohedge.com/sites/default/files/inline-images/wishak%20oct%202018.jpg?itok=xnycGL86

Emerging-Market Selloff Deepens Amid Fresh Alarms Over Contagion

  • Rand sinks as South Africa enters recession in second quarter
  • Developing-nation currencies set for lowest since May 2017

Emerging markets sold off anew Tuesday as South Africa entered a recession and Indonesia’s rupiah joined currencies from Turkey to Argentina in tumbling toward record lows, reinforcing concern that contagion risks are too big to ignore.

MSCI Inc.’s index of currencies dropped for a fifth time in six days, set for the lowest close in more than a year. The rand led global declines as data showed the economy fell into a recession last quarter. Turkey’s lira slid on worry the central bank will disappoint investors at its rate meeting next week, while the Argentine peso slumped to a record and Indonesian rupiah sank to the lowest in two decades even after the central bank intensified its fight to protect it.

https://assets.bwbx.io/images/users/iqjWHBFdfxIU/iI9vU5hzApkI/v2/775x-1.png

The dollar extended its advance to a fourth day as Donald Trump threatened to ramp up a trade dispute with China with an announcement of tariffs on as much as $200 billion in additional Chinese products as soon as Thursday. As U.S. rates rise, investor fears over idiosyncratic risks in emerging markets have climbed, including Argentina’s fiscal woes, Turkey’s twin deficits, Brazil’s contentious elections and South Africa’s land-reform bill.

Meantime, the dollar is winning by default, according to Kit Juckes, a global strategist at Societe Generale SA.

“There’s not much to make me think the dollar should be going up, but there’s plenty to make me nervous about other currencies,” Juckes said. “The dollar is very strong and lacking rate support, but other currencies are worse.”

HIGHLIGHTS:
  • The rand plunged as much as 3.4 percent after a report showed South Africa’s economy unexpectedly entered into a recession for the first time since 2009. GDP shrank an annualized 0.7 percent last quarter from the prior three months.
  • The lira sank as much as 1.3 percent and Mexico’s peso weakened as much as 1.6 percent.
  • Argentina’s peso slid to a fresh record low. 
  • Indonesia’s rupiah fell for a sixth day, sinking to a fresh two-decade low.
  • CBOE’s emerging-market volatility gauge rose to the highest in almost three weeks.
  • MSCI’s index of EM stocks dropped for a fifth day; MSCI’s currency measure slipped 0.6 percent, the most in almost a month.
  • Russia’s ruble pared losses after the central bank edged closer to raising interest rates for the first time since 2014.

READ: JPMorgan Survey Shows How Quickly Emerging Markets Can Unravel

Here’s what other analysts are saying about the latest in emerging markets:

It’s Not Enough

Tsutomu Soma, general manager for fixed-income trading at SBI Securities Co. in Tokyo:

  • “The measures announced by Argentina and Turkey are probably not enough to lead to a significant improvement in their fundamentals”
  • “Contagion risks to other emerging markets are growing especially as the Fed tightens”

‘Set to Suffer’

Michael Every, head of Asia financial markets research at Rabobank in Hong Kong:

  • “Emerging-market FX are set to suffer almost regardless of what they do, the only issue is how much”
  • The dollar will remain on the front foot against emerging markets as long as the U.S. continues to raise rates and boost fiscal spending while keeping the trade war fears on the radar

‘Further Pain’

Lukman Otunuga, research analyst at FXTM:

  • “Emerging market currencies could be destined for further pain if the turmoil in Turkey and Argentina intensifies”
  • “The combination of global trade tensions, a stabilizing U.S. dollar and prospects of higher U.S. interest rates may ensure EM currencies remain depressed in the short to medium term”

‘A Penny Short’

Stephen Innes, head of Asia Pacific trading at Oanda Corp. in Singapore:

  • Argentina’s measures are “likely a day late and a penny short”
  • “These moves are a step in the right direction, but they’re unlikely to be convincing enough to remove currency speculators from the driver’s seat. I guess it’s all down the IMF’s ‘White Knight’ to the rescue. However, we are getting into the realm of unquantifiability which makes the market utterly untradable”

Most Vulnerable

Masakatsu Fukaya, an emerging-market currency trader at Mizuho Bank Ltd.:

  • Contagion risks from Argentina and Turkey are growing for other emerging markets and economies with weak fundamentals such as those with current-account deficits and high inflation rates
  • Currencies of countries such as Indonesia, India, Brazil and South Africa have been among most vulnerable
  • The Fed’s rate increases and trade frictions means the underlying pressure on emerging currencies is for a further downward move

— With assistance by Tomoko Yamazaki, Yumi Teso, Lilian Karunungan, and Ben Bartenstein

Source: Bloomberg

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More Emerging Market Chaos – How Long Before It Spreads To The Developed World?

Emerging market chaos is now front page news.

https://i0.wp.com/www.dollarcollapse.com/wp-content/uploads/2018/08/Argentine-peso-Aug-18.jpg?w=600&ssl=1

A Call To Ban Share Buybacks… Immediately

American corporations are simply raking in profits. Some are so bloated and cash-rich they literally can’t figure out what to do with it all. Apple, for instance, is sitting on nearly a quarter of a trillion dollars — and that’s down a bit from earlier this year. Microsoft and Google, meanwhile, were sitting on “only” $132 billion and $63 billion respectively (as of March this year).

However, American corporations in general are taking those profits and kicking them out to shareholders, mainly in the form of share buybacks. These are when a corporation uses profits, cash, or borrowed money to buy its own stock, thus increasing its price and the wealth of its shareholders. (Big Tech is doing this as well, just not fast enough to draw down their dragon hoards.) As a new joint report from the Roosevelt Institute and the National Employment Law Project by Katy Milani and Irene Tung shows, from 2015 to 2017 corporations spent nearly 60 percent of their net profits on buybacks.

This practice should be banned immediately, as it was before the Reagan administration.

https://www.zerohedge.com/sites/default/files/inline-images/buybacks%20jpm%202_0.png?itok=j4so_hp_

The most immediately objectionable consequence of share buybacks is they come at the expense of wages. Milani and Tung calculate that if buybacks spending had been funneled into wage increases, McDonald’s employees could get a raise of $4,000; those at Starbucks could get $8,000; and those at Lowes, Home Depot, and CVS could get an eye-popping $18,000.

Some economists are skeptical of this reasoning, arguing that wages are set according to labor market conditions. But if you set aside free market dogmatism, it is beyond obvious that this sort of behavior is coming at workers’ expense. Wall Street bloodsuckers are not at all subtle about it, screaming bloody murder and tanking stocks every time a public company proposes paying workers instead of shareholders. Indeed, it provides a highly convincing explanation for something that has been puzzling analysts for months: the situation of wages continuing to stagnate or decline while unemployment is at 4 percent. The answer is that wages are low in large part because the American corporate structure has been rigged in favor of shareholders and executives.

This raises an objection: What about dividends? (These are payments made directly to shareholders, as opposed to buying stock to increase their price.) Wouldn’t banning buybacks just lead to increased dividends?

It might. But buybacks are worse, for three reasons. First, selling shares is generally counted as capital gains, which are usually (though not always) taxed at a much lower rate than dividend payments. Secondly, where dividends are regular occurrences, buybacks happen at erratic intervals, making it easier for huge payments to slip by unnoticed.

More importantly, share buybacks incentivize corporate short-termism and Wall Street predation. Making a quick buck at the expense of the underlying corporate enterprise is easy: simply pressure the company into spending all its money on buybacks — or more than all; Milani and Tung find the restaurant industry spent 136 percent of profits on buybacks from 2015-17, through cash and borrowing — then sell the stock once the price pops up. Money that might have gone into badly-needed investment or debt repayment is now in your pocket, and if the enterprise collapses later, who cares? Not your problem — you’re already on to the next victim.

Dividends, by contrast, are a lot more amenable to the value investor who wants the company to succeed over the long term. In general, banning buybacks will make it somewhat harder for corporations to be turned into a wealth funnel for the top 1 percent.

That said, dividends payments are also out of control — enabled by low top marginal tax rates and special loopholes, plus a powerless working class — and should be wrenched down as well. Banning buybacks should be considered the first step in reining in the outrageous abuse of the American corporate form, not a panacea.

Before about 2005, postwar corporate profits had never reached 9 percent of GDP (save for a couple quarters in the early 1950s). Immediately after the financial crisis, they bounced back up to that level, where they remain to this day.

This is a social crisis for the United States. Having an economy rigged to suck the wealth out of society and place it in the pockets of a tiny, already ultra-wealthy minority is an extremely risky situation for a democratic state. We need big, aggressive moves to club down corporate profits, and start directing that money back into the country as a whole. Banning buybacks is a simple and straightforward way to get started.

Source: ZeroHedge

Excluding FAANG Stocks, The S&P Would Be Negative

Two weeks ago, Goldman made a surprising finding: as of July 1, just one stock alone was responsible for more than a third of the market’s YTD performance: Amazon, whose 45% YTD return has contributed to 36% of the S&P 3% total return this year, including dividends. Goldman also calculated that the rest of the Top 10 S&P 500 stocks of 2018 are the who’s who of the tech world, and collectively their total return amounted to 122% of the S&P total return in the first half of the year.

And another striking fact: just the Top 4 stocks, Amazon, Microsoft, Apple and Netflix have been responsible for 84% of the S&P upside in 2018 (and yes, these are more or less the stocks David Einhorn is short in his bubble basket, which explains his -19% YTD return).

https://www.zerohedge.com/sites/default/files/inline-images/tech%20performance%20H1%20goldman.jpg

Now, in a review of first half performance, Bank of America has performed a similar analysis and found that excluding just the five FAANG stocks, the S&P 500 return in H1 would have been -0.7%; Staples (-8.6%) and Telco (-8.4%) were the worst.

https://www.zerohedge.com/sites/default/files/inline-images/FAANGs%20bofa%201.jpg?itok=W9oqBHbb

FAANGs aside, here are the other notable sector observations about a market whose leadership has rarely been this narrow:

  • Only three sectors outperformed in the 1H (Discretionary, Tech and Energy). Meanwhile, Staples and Telecom were the worst-performers in the 1H.
  • Energy staged the biggest comeback in 2Q to become the quarter’s best-performing sector after turning in among the worst returns in 1Q.
  • Industrials and Financials notably underperformed in June, the 2Q, and the 1H while Discretionary and Energy outperformed in all three.

https://www.zerohedge.com/sites/default/files/inline-images/bofa%20h1%20by%20sector.jpg?itok=FHIK56Qt

Looking at the entire first half performance, tech predictably was the biggest contributor to the S&P 500’s 1H gain, contributing 2.6ppt or 98% of the S&P 500’s 2.6% total return.

https://www.zerohedge.com/sites/default/files/inline-images/FAANGs%20bofa%202.jpg?itok=4riTYxLJ

The broader market did ok: trade tensions, negative headlines, and the slow withdrawal of Fed liquidity contributed to volatility’s return in June and earlier in February, but the S&P 500 still ended 2Q +3.4% and the 1H +2.6%, outperforming bonds and gold.

The Russell 2000 led the Russell 1000 by 4.9ppt in the 1H as small caps may have benefitted from expectations of a stronger US economy, a strong USD and the sense that smaller more domestic companies are shielded from trade tensions (where we take issue with this notion). However, mega-caps also did well: the “Nifty 50” largest companies within the S&P 500 beat the “Not-so-nifty 450” in the 2Q and the 1H. Non-US performed worst.

Some additional return details by asset class:

  • US stocks outperformed most other asset classes in the 1H, including bonds, cash, and gold.
  • Within equities, the US was the only major region to post positive returns, outperforming non-US equities by 6.1ppt in US dollar terms in the 1H.
  • Amid concerns over global growth, a stronger dollar and trade, coupled with a strong US economic backdrop, small caps outperformed large caps in the 1H.
  • Megacaps also did well: the “Nifty 50” mega-caps within the S&P 500 beat the “Other 450” stocks in 2Q and the 1H.

https://www.zerohedge.com/sites/default/files/inline-images/bofa%20asset%20class%20h1%202018.jpg?itok=rm6exHcj

Performance by quant groups:

  • Growth factors were the best-performing group in the 1H (+6.7% on average), leading Momentum/Technical factors (the second best-performing group) by 1.7ppt while Value factors were among the weakest.
  • Despite the macro risks, the best way to make money was to stick to the fundamentals and own stocks with the highest Upward Estimate Revisions (+12.4% in the 1H), a Growth factor.
  • Low Quality (B or worse) stocks beat High Quality (B+ or better) stocks in June, 2Q and the 1H. But both the lowest and highest quality stocks outperformed the rest of the market in all three periods.

https://www.zerohedge.com/sites/default/files/inline-images/bofa%20quant%20factor.jpg?itok=Vy0wSJvJ

The Russell 1000 Growth Index beat the Russell 1000 Value Index by 9ppt in the 1H, on track to exceed last year’s 17ppt spread. Growth factors were the best-performing group in the 1H (+6.7% on avg.), followed by Momentum factors. But Momentum broke down in June, and June saw the 56th worst month out of 60, -1.4 standard deviations from average returns.

https://www.zerohedge.com/sites/default/files/inline-images/russell%201000%20bofa%20relative.jpg?itok=JcbOK05i

What About Alpha?

Unfortunately for active managers, BofA notes that while pair-wise correlations remain lows, alpha remained scarce. The average pairwise correlation of S&P 500 stocks rose sharply in 1Q with the increased volatility which typically hurts stock pickers, but quickly came down below its long-term average of 26% in 2Q. However, performance dispersion (long-short alpha) continues to trail its long-term average.

https://www.zerohedge.com/sites/default/files/inline-images/pairwise%20bofa%2022.jpg?itok=2FsATdHP

What does this mean for active managers? According to BofA, never has the herding been this profound: since the bank began to track large cap fund holdings in 2008, managers have been increasing their tilts towards expensive, large, low dividend yield and low quality stocks. And today, their respective factor exposure relative to the S&P 500 is near its record level.

https://www.zerohedge.com/sites/default/files/inline-images/large%20cap%20bofa.jpg?itok=EmzXA19Z

This is a risk because as we discussed recently, the threat is that as a result of an adverse surprise, “everyone” would be forced to sell at the same time. As BofA notes, “positioning matters more than fundamentals in the short-term, and this has been especially true around the quarter-end rebalancing. Since 2012, a long-short strategy of selling the 10 most overweight stocks and buying the 10 most underweight stocks by managers over the 15 days post-quarter-end would have yielded an average annualized spread of 90ppt, 15x higher than the average annualized spread of 6ppt over the full 90 days.”

https://www.zerohedge.com/sites/default/files/inline-images/bofa%20posdt%20quarter%20return.jpg?itok=xZPqePPa

Keep an eye on the first FAANG today when Netflix reports after the close.

Source: ZeroHedge

Is This Why Tesla Executives Are Fleeing? Investors Want To Know

Is Tesla The New Theranos?

I originally started following Tesla as I felt it was a structurally unprofitable business nearing a cash crunch as hundreds of competing products were about to enter the market.

https://www.zerohedge.com/sites/default/files/inline-images/11325d20-260e-46c8-87de-fb9bbec62749.jpg?itok=QPDAqoOh

As I’ve studied Tesla more closely, I’ve come to realize that Elon Musk appears to be running a Ponzi Scheme disguised as an auto-manufacturer; where he has to keep unveiling new products, many of which will never come to market, in order to raise new capital (equity/debt/customer deposits) to keep the scheme alive. The question has always been; when will Tesla collapse?

https://www.zerohedge.com/sites/default/files/inline-images/Tesla-Bullshit-Conversion-Cycle.jpg?itok=O2KMdlapTesla’s Bullshit Conversion Cycle is the key financial metric underlying this scheme (from @ProphetTesla)

As part of my research on Tesla, I decided to read Bad Blood by John Carreyrou, the journalist who first uncovered the Theranos fraud. It is the story of how Elizabeth Holmes created Theranos and then lurched between publicity events in order to raise additional capital and keep the fraud going, despite the fact that the technology did not work. The key lesson from Theranos for determining when a fraud will implode is that there are always idiots willing to put fresh money into a well marketed fraud – so you need a catalyst for when the funding dries up.

The other salient fact was that most senior employees actually knew that something wasn’t quite right, but feared losing their jobs or getting sued if they did anything about it. Therefore, employee turnover was off the charts but no one was willing to risk their career by saying anything publicly. However, when Theranos started risking customers’ lives, the secret got out pretty fast. This is because most people are inherently ethical – especially when they know that their employer is doing something immoral, like releasing flawed lab results to sick patients. Eventually, some employees felt compelled to become whistle-blowers and started to reach out to journalists and regulators. This started a cascading event.

First, one intrepid journalist took the career risk to write about the Theranos fraud. Then other whistle-blowers felt emboldened to step forward and contact this first journalist, as they also wanted their story told – especially as they had already reached out to government regulators who were too scared to investigate a politically powerful company.

https://www.zerohedge.com/sites/default/files/inline-images/2018-07-05_9-30-27.jpg?itok=G3zMzfEt

Once a few good articles had been written about Theranos, the dam broke open and the feeding frenzy began. Other journalists, smelling page-clicks rapidly descend on Theranos; more workers spoke out, more incriminating evidence came to light and then there was a sense of voter outrage. Finally, the regulators who were first contacted by the whistle-blowers many months previously, felt compelled to act – at which point the fraud collapsed and the money spigot shut off.

https://www.zerohedge.com/sites/default/files/inline-images/Tesla-executive-departures.jpg?itok=TEBxT2PFExecutives Fleeing Tesla Is A True Bull Market “Up And To The Right”

We’ve already seen the mass exodus of senior Tesla executives. When they say they “want to spend time with their family,” it really means they “want to spend less time in prison.” Next, we have the first whistle-blowers—there will be MANY more. Currently there are at least 3 different ones feeding information to journalists. Using past frauds as a guide, once we get to this point of the media cycle, the fraud usually unravels pretty fast.  Given the perilous state of Tesla’s finances, they are in urgent need of new capital. The question is; who would want to invest new capital when Tesla is now admitting to knowingly selling cars without testing the brakes in order to hit some arbitrary one week production target? When a company admits that it will sacrifice vehicle quality and even risk killing its customers to win a twitter feud and start a short squeeze, regulators must step in. The question is; what else has Tesla done illegally to hit its targets? We know that Tesla long ago passed over the ethical threshold of selling faulty products that have killed people—what other allegations will soon come to light? Elon Musk demanded that Tesla stop testing brakes on June 26. Doug Field, chief engineer, resigned on June 27. Is this a coincidence? Of course not—Doug Field doesn’t want to be responsible for killing people. I think Tuesday’s article will speed up the pace of Tesla’s bankruptcy quite dramatically and I purchased some shorter dated puts after reading it.

Tesla is the fluke stock-promote that found a way to address society’s fascination with ‘green technology’ and the ‘next Steve Jobs.’ Elon Musk eagerly stepped into the role of mad scientist and investors gave him a free pass. It now increasingly seems that everything he’s done for the past few years was simply designed to keep the share price up, keep the dream alive and raise more capital – as opposed to creating shareholder value. Along the way, customer safety has been ignored in order to hit production targets and appease the stock market. In addition to not testing brakes, a recent whistle-blower has accused Tesla of installing over 700 dangerously defective batteries into Model 3 vehicles.

I suspect there will be many more allegations as whistle-blowers come out of the woodwork. It really is the Theranos of auto makers. I suspect it will all end soon. Theranos and Enron both collapsed within 90 days of the journalists getting up to speed. The reporters now know the right questions to ask and Tesla will be out of cash by the time they are all answered.

https://www.zerohedge.com/sites/default/files/inline-images/2018-07-05_9-33-07.jpg?itok=kqXN3GzmStock Promotion In Overdrive Lately. What’s Elon Trying To Distract People From?

Besides, Elon Musk isn’t even all that innovative. Hitler already tried this same automotive customer deposit scam 80 years ago (From Wages of Destruction)

https://www.zerohedge.com/sites/default/files/inline-images/2018-07-05_9-34-55.jpg?itok=Cc-tNH4U

Source: ZeroHedge | Submitted by Kuppy Via AdventuresInCapitalism.com

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“Short-Tempered” Musk Reportedly “Snapped” At Staff Working 12-Hour Shifts In Model 3 “Production Hell” Week

https://www.zerohedge.com/sites/default/files/inline-images/Elon%20Musk_0.JPG?itok=x0ZWpkN6

The conditions at Tesla’s production facility leading up to meeting its Model 3 production goal have been reported as nothing short of hellish as Elon Musk “barked” at employees working 12 hour shifts, bottlenecking other parts of the company’s production and reportedly causing concern by employees that the long hours and strenuous environment would cause even more workplace injuries and accidents.

“How Wrong I Was, My Reputation For Calling Stocks Is In Tatters”

SocGen’s permabear skeptic Albert Edwards is best known for one thing: predicting that the financial world will end in a deflationary singularity, one which will send yields in the US deep in the negative, and which he first dubbed two decades ago as the “Ice Age.” He is also known for casually and periodically forecasting – as he did a few weeks ago in an interview with Barrons – that the S&P will suffer a historic crash, one which will send it back under the March 2009 low of 666.

In this context, a couple of recent events caught Edwards’ attention.

First, speaking of the above mentioned Barron’s interview, Edwards was taken aback by one commentator who took the SocGen strategist to task for his relentless bearishness. Indirectly responding to the reader, in his latest letter to clients Edwards writes that “it’s good to have a little humility in this business because it’s so darn humiliating when forecasts are proved wrong. And the bolder the forecast, the more humiliating it is!” He continues:

That is one reason why most commentators on the sell-side never stray too far from consensus. When I was an avid consumer of sell-side research some 30 years ago, there was one  thing about the macro sell-side that I truly marvelled at – namely the analysts’ ability to totally reverse a view and pretend that had been their view all along! In the days before the internet and email, I had to rifle through our storage cupboards to find the evidence of what were often 180 degree handbrake turns. In the internet age, there is no hiding any more. 

One of the most leveling experiences at the end of an article or interview about my thoughts is to scroll down and read some of the readers’ comments. In my case, they often marvel that I am still in any sort of employment at all! Some are witty and make me smile -– like the one below in response to a recent interview I did with Barron’s.

Edwards refers to the comment titled “‘Prescient as a Broken Clock?” authored by one Gordon Gould from Boulder, Colorado who writes:

“Barron’s notes that Société Générale’s Albert Edwards is a permabear (“S&P 500 Could Still Test 2009 Lows,” Interview, April 7). However, your readers would surely like to know how some of his previous calls have turned out. A quick Google search revealed that nearly five years ago, Edwards called for the Standard & Poor’s 500 index to hit 450 and gold to exceed $10,000. While even a broken clock is correct twice a day, perhaps in Edwards’ case, we’re talking about a broken calendar on Saturn, which takes about 29 years to orbit the sun.”

Albert summarizes his response to this comment eloquently, using just one word: “ouch.” Hit to his pride aside, Albert asks rhetorically “Where did it all go so wrong?” and explains that in the Barron’s interview, “I explain why in my Ice Age thesis I still expect US equity prices to fall to new lows in the next recession.” To be sure, this is familiar to ZH readers, as we highlight every incremental piece from Edwards, because no matter if one agrees or disagrees, he always provides the factual backing to justify his outlook, gloomy as it may be. 

He explains as much:

I always expected the equity market’s day of reckoning to come in a recession with equity valuations falling to lower lows than in the two previous cyclical bear market bottoms in 2001 and 2009. If I am right, the next recession will see a lower level than the forward PE of 10.5x in March 2009. A forward PE of 7x and a 30% decline in forward earnings would take the market to new lows as part of a long-term secular valuation bear market (which began in 2001). Then the stratospheric rise in the market over the past few years will be seen as just a temporary aberration fuelled by QE.

The moment of truth for my strategic Ice Age view will come when we know how far the equity bear market will fall in the next recession, or conversely whether the bond bull market will continue with 10y US yields, for example, falling into negative territory.

And yet, here we are a decade into central planning, and global stocks are just shy of all time highs. How come?

If I were to identify the major error that led me to be too bearish on equities, it would not be the inflationary impact of QE on asset prices. What I got wrong is that after the end of the Great Moderation, which saw an extended period of economic expansion from Dec 2001 to Dec 2007 – as well as low financial volatility, triggering rampant credit growth – I expected economic volatility to return to normal. The lesson from Japan I told clients was that once their Great Moderation died in 1990, the economic cycle returned to normal amplitude as private credit growth could no longer be induced to keep it going. Thus I expected that after the 2008 economic debacle the US economic cycle would return to normality and for recessions to become much more frequent events – as they were in Japan after 1990. And as in Japan, I expected each rapidly arriving recession would take equity valuations down to new lower lows. After 2008, I expected the US economic recovery to quickly fall back into recession and the cyclical bull run in equities to be surprisingly short-lived. How wrong I was!

Indeed, because as Bank of America observed recently, every time the stock market threatened to tumble, central banks would step in: that, if anything, is what Edwards failed to anticipate. The rest is merely noise:

Despite the economy flirting with outright recession on a couple of occasions, this current recovery has endured to the point where we now have enjoyed the second longest economic cycle in US history. We have not returned to ‘normal’ economic cycles as I had expected. QE has helped this, one of the most feeble economic recoveries in history, to also hobble into the record books for its length!

To be sure, Edwards will eventually get the last laugh as the constant, artificial interventions assure that the (final) crash will be unlike anything ever experienced: “a recession delayed is ultimately a recession deepened as more and more credit excesses have built up, Minsky-like, in the system.”

Then again, will it be worth having a final laugh if the S&P is hovering near zero, the fiat system has been crushed, modern economics discredited, and life as we know it overturned? We’ll cross that bridge when we come to it, for now however, Edwards has to bear the cross of his own forecasting indignities:

… having stepped away from the crazed run-up in equity prices, my reputation for calling the equity market correctly has been severely dented, if it is not actually in tatters. I know that.

Still, it’s not just Edwards. As the strategist notes, increasingly wiser heads than I, who did not leave the equity party early, are suggesting a top might be close. He then goes on to quote Mark Mobious who we first referenced earlier this week:

The renowned investor Mark Mobius is also getting nervous. The Financial Express reports that “After Jim Rogers recently warned of the ‘biggest crash in our lifetimes,’ veteran investor and emerging markets champion Mark Mobius warns of a severe stock market correction. “I can see a 30% drop. The market looks to me to be waiting for a trigger to tumble.” He then goes on in the article to cite some possible triggers.

To be fair, there are plenty of others who have recently and not so recently joined Edwards in the increasingly bearish camp (among them not only billionaire traders but economists and pundits like David Rosenberg and John Authers), although one thing missing so far has been the catalyst that will push the world out of its centrally-planned hypnosis and into outright chaos. Now, Edwards believes that this all important trigger has finally emerged:

Perhaps the greatest near-term threat to the stability of the equity markets is seen as the recent surge in bond yields, which are now testing the critical 3% technical level.

https://www.zerohedge.com/sites/default/files/inline-images/edwards%20breach%203.jpg?itok=zXmjbaG5

As this is so important, I want to repeat verbatim what our own Stephanie Aymes says on this point. She says, referring to the front page chart, the “10Y UST is marching towards the major support (price) of 3.00%/3.05% consisting of the multi-decade channel, 2013-2014 lows, and the 61.8% retracement of the 2009-2016 uptrend. Moreover, this is also the confirmation level of the multi-year Double Top, which if confirmed, would act as a  catapult towards the 2-year channel limit at 3.33%/3.43%, and perhaps even towards 2009-2011 levels of 3.77%/4.00%, also the 50% retracement of the 2007-2016 up-cycle. The Monthly Stochastic indicator continues to withstand a pivotal decadal floor (blue line in chart) which emphasizes the relevance of the  3.00%/3.05% support.”

So with everyone chiming in on the significance of the 3% breach in the 10Y, here is Edwards:

Let me translate: 3% resistance is very strong but if broken, there is big trouble afoot!

The irony, of course, is that yields blowing out is precisely the opposite of an Ice Age, although to Edwards the implication is simple: once stocks tumble, it will force the Fed to return to active management of markets and risk, and launch the next Fed debt monetization program which will culminate with the end of the current economic paradigm, and Edwards’ long anticipated collapse in risk assets coupled with the long-overdue arrival of the Ice Age.

Or maybe not, as Edwards’ parting words suggest:

I think, like Mark Mobius, that equities are looking for an excuse to sell off and the current rally may abruptly end for any number of reasons. Although I personally do not think it likely that US bonds can break much above 3%, if at all, I discount nothing given the clear ‘end of cycle’ cyclical pressures that have built up. But if I am wrong on bonds and we have seen the end of the bond bull market, after having been wrong on equities, maybe it is time to think hard on what the Barron’s correspondent said and take a sabbatical – maybe on Saturn.

And while we commiserate with Albert’s lament, it could certainly be worse: have you heard of Dennis Gartman?

Source: ZeroHedge