Crypto-Cornucopia Part 2 - "This System Is Garbage, How Do We Fix It?"

Authored by Dr. D via Raul Ilargi Meijer"s The Automatic Earth blog,

Part 1 "Bitcoin Is A Trust Machine" here.

You have to understand what exchanges are and are not. An exchange is a central point where owners post collateral and thereby join and trade on the exchange. The exchange backs the trades with their solvency and reputation, but it’s not a barter system, and it’s not free: the exchange has to make money too. Look at the Comex, which reaches back to the early history of commodities exchange which was founded to match buyers of say, wheat, like General Mills, with producers, the farmers. But why not just have the farmer drive to the local silo and sell there? Two reasons: one, unlike manufacturing, harvests are lumpy. To have everyone buy or sell at one time of the year would cripple the demand for money in that season. This may be why market crashes happen historically at harvest when the demand for money (i.e. Deflation) was highest. Secondly, however, suppose the weather turned bad: all farmers would be ruined simultaneously.

Suppose the weather then recovered: the previous low prices are erased and any who delayed selling would be rich. This sort of random, uncontrolled, uninsurable event is no way to run an economy, so they added a small group of speculators into the middle. You could sell wheat today for delivery in June, and the buyer would lock in a price. This had the effect of moderating prices, insuring both buyers AND sellers, at the small cost of paying the traders and speculators for their time, basically providing insurance. But the exchange is neither buyer, seller, nor speculator. They only keep the doors open to trade and vet the participants. What’s not immediately apparent is these Contracts of Wheat are only wheat promises, not wheat itself. Although amounts vary, almost all commodities trade contracts in excess of what is actually delivered, and what may exist on earth. I mean the wheat they’re selling, millions of tons, haven’t even been planted yet. So they are synthetic wheat, fantasy wheat that the exchange is selling.

A Bitcoin exchange is the same thing. You post your Bitcoin to the exchange, and trade it within the exchange with other customers like you. But none of the Bitcoin you trade on the exchange is yours, just like none of the wheat traded is actual wheat moving on trucks between silos. They are Bitcoin vouchers, Bitcoin PROMISES, not actual Bitcoin. So? So although prices are being set on the exchanges – slightly different prices in each one – none of the transfers are recorded on the actual Bitcoin Ledger. So how do you think exchanges stay open? Like Brokers and Banks, they take in the Bitcoin at say 100 units, but claim within themselves to have 104.

Why? Like any other fractional reserve system, they know that at any given moment 104 users will not demand delivery. This is their “float” and their profit, which they need to have, and this works well as far as it goes. However, it leads to the problem at Mt. Gox, and indeed Bear Sterns, Lehman and DeutscheBank: a sudden lack of confidence will always lead to a collapse, leaving a number of claims unfulfilled. That’s the bank run you know so well from Mary Poppins’ “Fidelity Fiduciary Bank”. It is suspected to be particularly bad in the case of Mt. Gox, which was unregulated. How unregulated? Well, not only were there zero laws concerning Bitcoin, but MTGOX actually stands for “Magic The Gathering Online eXchange”; that is, they were traders of comic books and Pokemon cards, not a brokerage. Prepare accordingly.

The important thing here is that an exchange is not Bitcoin. On an exchange, you own a claim on Bitcoin, through the legal entity of the exchange, subject only to jurisdiction and bankruptcy law. You do not own Bitcoin. But maybe Mt.Gox didn’t inflate their holdings but was indeed hacked? Yes, as an exchange, they can be hacked. Now you only need infiltrate one central point to gain access to millions of coins and although their security is far better, it’s now worth a hacker’s time. Arguably, most coins are held on an exchange, which is one reason for the incredibly skewed numbers regarding Bitcoin concentration. Just remember, if you don’t hold it, you don’t own it. In a hack, your coins are gone.

If the exchange is lying or gets in trouble, your coins are gone. If someone is embezzling, your coins are gone. If the Government stops the exchange, your coins are gone. If the economy cracks, the exchange will be cash-strapped and your coins are frozen and/or gone. None of these are true if YOU own your coins in a true peer-to-peer manner, but few do. But this is also true of paper dollars, gold bars, safe deposit boxes, and everything else of value. This accounts for some of the variety of opinions on the safety of Bitcoin. So if Polinex or Coinbase gets “hacked” it doesn’t mean “Bitcoin” was hacked any more than if the Comex or MF Global fails, that corn or Yen were “hacked”. The exchange is not Bitcoin: it’s the exchange. There are exchange risks and Bitcoin risks. Being a ledger Bitcoin is wide open and public. How would you hack it? You already have it. And so does everybody else.

So we’ve covered the main aspects of Bitcoin and why it is eligible to be money. Classically, money has these things:

 

1. Durable- the medium of exchange must not weather, rot, fall apart, or become unusable.

2. Portable- relative to its size, it must be easily movable and hold a large amount of value.

3. Divisible- it should be relatively easy to divide with all parts identical.

4. Intrinsically Valuable- should be valuable in itself and its value should be independent of any other object. Essentially, the item must be rare.

5. Money is a “Unit of Account”, that is, people measure other things, time and value, using the units of value to THINK about the world, and thus is an part of psychology. Strangely that makes this both the weakest and strongest aspect of:

6. “The Network Effect”. Its social and monetary inertia. That is, it’s money to you because you believe other people will accept it in exchange.

The Score:

 

1. Bitcoin is durable and anti-fragile. As long as there is an Internet – or even without one – it can continue to exist without decay, written on a clay tablet with a stylus.

 

2. Bitcoin is more portable than anything on earth. A single number — which can be memorized – can transport $160B across a border with only your mind, or across the world on the Internet. Its portability is not subject to any inspection or confiscation, unlike silver, gold, or diamonds.

 

3. Bitcoin is not infinitely divisible, but neither is gold or silver, which have a discrete number of atoms. At the moment the smallest Bitcoin denomination or “Satoshi” is 0.00000001 Bitcoin or about a millionth of a penny. That’s pretty small, but with a software change it can become smaller. In that way, Bitcoin, subject only to math is MORE divisible than silver or gold, and far easier. As numbers all Bitcoin are exactly the same.

 

4. Bitcoin has intrinsic value. Actually, the problem is NOTHING has “intrinsic” value. Things have value only because they are useful to yourself personally or because someone else wants them. Water is valuable on a desert island and gold is worthless. In fact, gold has few uses and is fundamentally a rock we dig up from one hole to bury in another, yet we say it has “intrinsic” value – which is good as Number 4 said it had to be unrelated to any other object, i.e. useless. Bitcoin and Gold are certainly useless. Like gold, Bitcoin may not have “Intrinsic value” but it DOES have intrinsic cost, that is, the cost in time and energy it took to mine it. Like gold, Bitcoin has a cost to mine measurable in BTU’s. As nothing has value outside of human action, you can’t say the electric cost in dollars is a price-floor, but suggests a floor, and that would be equally true of gold, silver, copper, etc. In fact, Bitcoin is more rare than Rhodium: we mine rare metals at 2%/year while the number of Bitcoins stops at 22 Million. Strangely, due to math, computer digits are made harder to get and have than real things.

 

5. Bitcoin is a unit of account. As a psychological effect, it’s difficult to quantify. Which comes first, the use of a thing, or its pricing? Neither, they grow together as one replaces another, side-by-side. This happened when gold replaced iron or salt or when bank notes replaced physical gold, or even when the U.S. moved from Pounds and Pence to Dollars and Cents. At first it was adopted by a few, but managed to get a critical mass, accepted, and eventually adopted by the population and entirely forgotten. At the moment Bitcoin enthusiasts do in fact mentally price things in Bitcoins, especially on exchanges where cross-crypto prices are marked vs BTC. Some never use their home currency at all, living entirely according to crypto-prices until home conversion at the moment of sale, or as hundreds or thousands of businesses are now accepting cryptocurrencies, even beyond. For them it is a unit of account the way Fahrenheit is a unit within the United States.

 

6. Bitcoin has the network effect. That is, it is widely accepted and publicly considered money. It’s in the news, has a wide following worldwide, and exchanges are signing up 40,000 new users a month. It’s accepted by thousands of vendors and can be used for purchases at Microsoft, Tesla, PayPal, Overstock, or with some work, Amazon. It’s translatable through point-of-sale vendor Square, and from many debit card providers such as Shift. At this point it is already very close to being money, i.e. a commonly accepted good. Note that without special arrangements none of these vendors will accept silver coins, nor price products in them. I expect if Mark Dice offered a candy bar, a silver bar, or a Bitcoin barcode, more people would pick the Bitcoin. In that way Bitcoin is more money than gold and silver are. You could say the same thing about Canadian Dollars or Thai Bhat: they’re respected currencies, but not accepted by everyone, everywhere. For that matter, neither are U.S. dollars.

Note what is not on the list: money is not a unit created or regulated by a central authority, although governments would like us to think so. In fact, no central authority is necessary or even desirable. For centuries the lack of monetary authority was historic fact, back with medieval markets through to private banks, until 1913, 1933, 1971, and the modern evolution into today’s near-total digital fiat. Besides the technical challenge, eliminating their overhead, oversight, control and corruption is the point of Bitcoin. And right now the government’s response to Bitcoin is a strange mixture of antipathy, ignorance, oppression, and opportunity. At $160 Billion it hardly merits the interest of a nation with a $500 Billion trade deficit, and that’s spread worldwide.

This leads into one of the spurious claims on Bitcoin: that it’s a refuge for drug smugglers and illegal activities. I assure you mathematically, that is not true. According to the U.N. the world drug trade is $435B, 4 times the total, and strictly theoretical value of Bitcoin, coins locked, lost, and all. Besides if you owned $160B coins, who would you transfer them to? You’re the only user. $435B/year can only be trafficked by major banks like as HSBC, who have paid public fines because money flows that large can’t be hidden. This is so well-known the U.N. suggested the drug-money flows may be one reason global banks were solvent in ‘08. Even $160B misrepresents Bitcoin because it had a 10-fold increase this year alone. So imagine $16B total market cap. That’s half the size of the yearly budget of Los Angeles, one city. Even that overstates it, because through most of its life it’s been around $250, so imagine a $4B market cap, the budget of West Virginia.

So you’re a drug dealer in illicit trades and you sell to your customers because all your buyers have Bitcoin accounts? Your pushers have street terminals? This doesn’t make sense. And remember as much as the price of Bitcoin has risen 40-fold, the number of participants has too. Even now, even with Coinbase, even with Dell and Overstock, even with BTC $10,000 almost no one has Bitcoin, even in N.Y.C. or S.F.. So who are these supposed illegal people with illegal activities that couldn’t fit any significant value?

That’s not to say illegal activities don’t happen, but it’s the other half of the spurious argument to say people don’t do illegal acts using cash, personal influence, offshore havens, international banks like Wells Fargo, or lately, Amazon Gift Cards and Tide Detergent. As long as there is crime, mediums of value will be used to pay for it. But comparing Bitcoin with a $16B market cap to the existing banking system which the U.N. openly declares is being supported by the transfer of illicit drug funds is insanity.

Let’s look at it another way: would you rather: a) transfer drugs using cash or secret bank records that can be erased or altered later or b) an public worldwide record of every transaction, where if one DEA bust could get your codes, they could be tracked backwards some distance through the buy chain? I thought so. Bitcoin is the LEAST best choice for illegal activities, and at the personal level where we’re being accused, it’s even worse than cash.

We showed that Bitcoin can be money, but we already have a monetary and financial system. What you’re talking about is building another system next to the existing one, and doubling the costs and confusions. That’s great as a mental exercise but why would anyone do that?

In a word: 2008.

It’s probably not an accident Bitcoin arrived immediately after the Global Financial Crisis. The technology to make it possible existed even on IRC chat boards, but human attention wasn’t focused on solving a new problem using computer software until the GFC captured the public imagination, and hackers started to say, “This stinks. This system is garbage. How do we fix this?” And with no loyalty to the past, but strictly on a present basis, built the best mousetrap. How do we know it’s a better mousetrap? Easy. If it isn’t noticeably better than the existing system, no one will bother and it will remain an interesting novelty stored in some basements, like Confederate Dollars and Chuck-e-Cheez tokens. To have any chance of succeeding, it has to work better, good enough to overcome the last most critical aspect money has: Inertia.

So given that Bitcoin is unfamiliar, less accepted, harder to use, costs real money to keep online, why does it keep gaining traction, and rising in price with increasing speed? No one would build a Bitcoin. Ever. No one would ever use a Bitcoin. Ever. It’s too much work and too much nuisance. Like any product, they would only use Bitcoin because it solves expensive problems confronting us each day. The only chance Bitcoin would have is if our present system failed us, and fails more every day. They, our present system-keepers, are the ones who are giving Bitcoin exponentially more value. They are the ones who could stop Bitcoin and shut it down by fixing the present, easy, familiar system. But they won’t.

Where has our present system gone wrong?

The criticisms of the existing monetary system are short but glaring. First, everyone is disturbed by the constant increase in quantity. And this is more than an offhand accusation. In 2007 the Fed had $750B in assets. In 2017 they have $4.7 Trillion, a 7-fold increase. Where did that money come from? Nowhere. They printed it up, digitally.

The TARP audit ultimately showed $23 trillion created. Nor was the distribution the same. Who received the money the Fed printed? Bondholders, Large Corporations, Hedge Funds and the like. Pa’s Diner? Not so much. So unlike Bitcoin, there not only was a sudden, secret, unapproved, unexpected, unaccountable increase in quantity, but little to no chance for the population to also “mine” some of these new “coins”. Which leads to this:

Near-perfect income disparity, with near-perfect distribution of new “coins” to those with access to the “development team”, and zero or even negative returns for those without inside access. Does this seem like a winning model you could sell to the public? Nor is this unique to the U.S.; Japan had long ago put such methods to use, and by 2017 the Bank of Japan owns a mind-bending 75% of Japanese ETFs:

So this unelected, unaccountable bank, which creates its coin from nothing without limit or restraint, now owns 75% of the actual hard labor, assets, indeed, the entire wealth HISTORY of Japan?

It took from the Edo Period in 1603 through Japan-takes-the-world 1980s until 2017 to create the wealth of Japan, and Kuroda only 6 years to buy it all? What madness is this?

Nor is Europe better. Mario Draghi has now printed so much money, he has run out of bonds to buy. This is in a Eurozone with a debt measuring Trillions, with $10 Trillion of that yielding negative rates. That’s a direct transfer from all savers to all debtors, and still the economy is sinking fast. Aside from how via these bonds, the ECB came to own all the houses, businesses, and governments of Europe in a few short years, does this sound like a business model you want to participate in?

So the volume of issuance is bad, and unfairness of who the coins are issued to is as bad as humanly possible, giving incredible advantages to issuers to transfer all wealth to themselves, either new or existing.

But if the currency is functional day-to-day, surely the issuance can be overlooked. Is it? Inflation is devilishly hard to measure, but here’s a chart of commodities:

CPI:

The US Dollar:

or vs Gold (/silver):

Does that look stable to you? And not that Bitcoin is stable, but at least Bitcoin goes UP at the same rate these charts are going DOWN. One store coupon declines in value at 4% a year, or may even start negative, while the other gives steady gains to loyal customers. Which business model would you prefer?

But that’s not all...

*  *  *

Part 3 tomorrow...

David Stockman Derides The Delirious Dozen Of 2017

Authored by David Stockman via Contra Corner blog,

We have previously noted the massive market cap inflation and then stupendous collapse of the Delirious Dozen of 2000.

The latter included Microsoft, Cisco, Dell, Intel, GE, Yahoo, AIG and Juniper Networks - plus four others which didn"t survive (Lucent, WorldCom, Global Crossing and Nortel).

Together they represented a classic blow-off top in the context of a central bank corrupted stock market. When the bubble neared its asymptote in early 2000, the $3.8 trillion of market cap represented by these 12 names was capturing most of the oxygen left in the casino. That is, the buying frenzy had narrowed to a smaller and smaller group of momo names.

 

That severe concentration pattern was starkly evident during the 40 months between Greenspan"s December 1996 "irrational exuberance" speech and April 2000 (when he told the Senate no bubble was detectable). In that interval, the group"s combined market cap soared from $600 billion to $3.8 trillion.

That represented, in turn, a virtually impossible 75% per annum growth rate for what were already mega-cap stocks. As it happened, in fact, $2.7 trillion or 71% of the group"s bubble peak market cap vanished during the next two years.

What we didn"t mention yesterday, however, is that this bubble top intumescence never really came back. In fact, the market cap of the eight surviving companies---all of which have continued to grow----today stands at just $1.3 trillion or 34% of the 17-years ago peak.

Needless to say, that"s because the market no longer affords the Delirious Dozen of 2000 valuation multiples that are even remotely in the same bubblicious zip code.

Thus, the eight survivors posted combined net income of $52.3 billion during the LTM period ending in September 2017. On the far side of the 1999-2000 tech bubble, therefore, current earnings turn out to be worth 25X---not the 75X recorded back then.

We revisit the rise and fall of these turn of the century high flyers because we believe the same process of market narrowing into a diminishing number of momo names is exactly what is happening again as we reach the asymptote of this latest and greatest central bank fueled bubble.

 

In fact, we have identified a new roster for the Delirious Dozen of 2017 - and have tracked their course over the last 40 months. During that interval, of course, Janet Yellen did not even bother to muse in public about "irrational exuberance" like Greenspan did.

That"s undoubtedly because Fed orthodoxy now holds there just plain aren"t any bubbles---apart from isolated segments like commercial real estate. To the contrary, the 12 geniuses on the FOMC have purportedly vanquished the business cycle entirely, thereby insuring an economic nirvana of perpetual full employment, world without end.

We think otherwise. Accordingly, our new Delirious Dozen consists of the FAANGs (Facebook, Apple, Amazon, Netflix and Google) plus seven additonal high flyers (Tesla, NVIDIA, Salesforce, Alibaba, UnitedHealth, Home Depot and Broadcom).

Not surprisingly, their combined market cap has soared from $1.7 trillion to $4.0 trillion during the last 40 months in a pattern which is highly reminiscent of the last go round. And for our money, that $2.3 trillion gain represents the same kind of bottled air.

Thus, Amazon is now valued at $550 billion and thereby trades at 293X its $1.9 billion of LTM net income. But all of that net income is attributable to its rent-a-cloud service (AWS) which is arguably worth $100 billion on a standalone basis.

That is to say, the great Bezos E-commerce juggernaut is implicitly valued at $450 billion, yet has not generated a dime of profit from the scorched earth its has left behind in retail land. That"s what we call bottled air.

Likewise, Broadcom trades at 246X net income and Netflix is valued at 194X. These companies may well be the equal of Cisco and Intel as innovators and value generators with a long life of growth ahead.

But both are challenged by ferocious competitors, and have no more chance of sustaining their current absurd valuation multiples than did Cisco (200X then, 19X now) or Intel (60X then, 16X now).

Next consider Salesforce (CRM), which is currently valued at $77 billion, and Tesla, which sports a market cap of $54 billion. Yet both had large net losses during the latest 12 months. In fact, during the last five years, CRM has posted cumulative net losses of $650 million and Tesla has lost $3.3 billion.

Even if these two do manage to avoid the fate of Nortel and Global Crossing, the red ink stained charts below suggests that earning into their combined market cap of $131 billion will take more than a few miracles.

Even Alibaba at 55X, NVIDIA at 50X, and Goggle and Facebook each at 35X are essentially defying math and the business cycle.

The latter two companies, in fact, may be the greatest thing since sliced bread, but they are also virtually 100% dependent upon advertising revenue. During the last recession, global ad spending plunged by nearly 9%, as shown below, and by more than 14% in the US alone.

Moreover, the digital capture of market share---of which is 85% is attributable to FB and GOOG----has nearly run its course. Accordingly, no company in a cyclical 3-4% growth industry can sustain a 35X PE multiple for any appreciable period of time.

Much the same can be said for Home Depot (HD), which is currently flying high, but is not capable of permanently sustaining a 25X PE multiple. In fact, its recent results have been flattered owing to the capture of significant market share from the collapse of Sears and due to elevated sales from a standard home improvement spending cycle that is now reaching its peak. Additionally, it has not yet been attacked head-on by Amazon (but that"s surely coming).

But like much else at the current bubble top in the casino, Home Depot"s elevated short-run gains have been confused for permanent growth capacity. However, the verdict on that is crystal clear: During the 11 years since the 2006 housing peak, HD"s net income has grown from $6.1 billion to just $8.6 billion in the October 2017 LTM period.

That computes to a 3.2% per annum growth rate, and Home Depot"s best years are surely behind it. After all, the tsunami of baby boom retires are emptying their nests, not renovating them.

At the same time, America"s soon to be shrinking work force will face ever higher taxes to pay for the upkeep of the former, thereby sharply constraining the discretionary income of the overwhelming share of working households. Man caves and granite kitchen counter-tops are not likely to survive the generational squeeze looming ahead.

Accordingly, we believe that HD"s days as a 25X PE stock are numbered.

In short, among the Delirious Dozen for 2017, only Apple has a reasonable multiple at 19X. But then again, Apple has been cycling along the flat line for more than three years at its towering sales level of $230 billion and $50 billion of net income.

Yet even today"s casino recognizes that given Apple"s monumental size, it is virtually impossible to move the growth needle; and that even one delayed or botched product cycle could cause its $50 billion of net income to take a not inconsiderable plunge.

In short, aside from the unique case of Apple, the Delirious Dozen of 2017 are set-up for a repeat of the massive 2000-2002 deflation of bottled air. That is, in June 2014 the group (ex-Apple) had a market cap of $1.1 trillion, representing 34X its combined net income of $32 billion.

During the 40 months since then, the group"s market cap has nearly tripled to $3.2 trillion, while its net income has climbed to $65 billion. Consequently, the group"s PE multiple has now soared to 49X or to nearly the nosebleed level that pertained among the previous group of high flyers back in April 2000.

Needless to say, the business cycle has not been abolished and this expansion is now 101 months old. In fact, the chart below suggests it may be reaching its "sell-by" date.

But here"s the thing. The bottled air resident among the Delirious Dozen of 2017 is where all the top of the bubble mania has again gotten concentrated.

So when the Black Swan, Orange Swan or Red Swan, as the case may be, finally arrives and they begin to sell AMZN, FB, TSLA or CRM----look out below.

That"s where Wall Street"s next central bank fueled bloodbath is hiding in plain sight.

The Mother Of All Irrational Exuberance

Authored by David Stockman via Contra Corner blog,

You could almost understand the irrational exuberance of 1999-2000. That"s because everything was seemingly coming up roses, meaning that cap rates arguably had rational room to rise.

But eventually the mania lost all touch with reality; it succumbed to an upwelling of madness that at length made even Alan Greenspan look like a complete fool, as we document below.

So doing, the great tech bubble and crash of 2000 marked a crucial turning point in modern financial history: It reflected the fact that the normal mechanisms of honest price discovery in the stock market had been disabled by heavy-handed central bankers and that the natural balancing and disciplining mechanisms of two-way markets had been destroyed.

Accordingly, the stock market had become a ward of the central bank and a casino-like gambling house, which could no longer self-correct. Now it would relentlessly rise on pure speculative momentum---- until it reached an asymptotic top, and would then collapse in a fiery crash on its own weight.

That"s what subsequently happened in April 2000 when the hottest precincts of the stock market---the NASDAQ 100 stocks----began a perilous 80% dive; and it"s also what happened in the broader markets-----including the S&P 500---in 2008-2009, when a thundering 60% plunge unfolded in a hardly a year"s time.

So with the market raging in self-fueling momentum at the 2600 mark on the S&P 500, we reflect back to the great dotcom crash for vivid reminders of what happens next. That earlier meltdown is especially pertinent because in many ways today"s stock market mania is far less justified than the one back then.

Moreover, the dotcom version was also the first great central bank fueled bubble of modern times---a creature that market participants understandably did not fully grasp. Yet to its everlasting blame, the Fed"s subsequent experiments in reflationary bailouts of the casino gamblers has only caused Wall Street"s muscle memory to atrophy further.

Indeed, after 30 years of Greenspan-style Bubble Finance and two devastating crashes, Wall Street is even more credulous today than it was on the eve of the tech crash. Back then, in fact, there was a considerable phalanx of Wall Street old-timers who warned about the dotcom insanity. Now almost no one sees this one coming.

 

Indeed, today"s nutty forecast by Goldman Sachs that the S&P 500 will hit 3,100 by the end of 2020 makes Greenspan"s earlier bubble blindness look clairvoyant by comparison.

In hindsight, Alan Greenspan did see it coming early on--- when he broached the "irrational exuberance" topic in passing during a speech in December 1996. Unfortunately, he has mostly been dinged for being allegedly way too early in making the call.

In fact, we don"t think he was making much of a call at all---he"s was just musing out loud with no intention of reining-in the then rampaging bull. What he actually did was to conduct several gumming fests at subsequent Fed meetings and then diffidently raised interest rates a single time by a pinprick 25 basis point in April 1997.

After that the Maestro (so-called) apparently forgot all about "irrational exuberance" even as that very thing soon began infecting the entire warp and woof of the financial system.

In fact, Greenspan"s fatuous amnesia became so pronounced that by the very eve of the dotcom crash in April 2000, he proved himself blind as a bat when it comes to central bank created bubbles.

Said the Maestro to a Senate committee on April 8 when asked whether an interest rate increase might prick the stock market bubble:

That presupposes I know there is a bubble....I don"t think we can know there is a bubble until after the fact. To assume we know it currently presupposes we have the capacity to forecast an imminent decline in (stock) prices".

At least he got the latter part right. After the NASDAQ had risen from 835 in December 1996 to 4585 on March 28, 2000---or to an out-of-this-world 5.5X gain in 40 months----Greenspan wasn"t even sure he was seeing a bubble!

Accordingly, he apparently didn"t have that capacity to predict an imminent decline---although the 51% crash to 2250 by the end of the year would seem to have been exactly that.

Indeed, after unloading the above tommyrot at the tippy-top of the NASDAQ-100 bubble, Greenspan proved himself a clueless, pitiable fool when this giant bubble deflated by 81% over the next two years.

In fact, the index ended up in September 2002 almost exactly where it had been when Greenspan spoke the words "irrational exuberance" and then moved along with the Fed"s printing press at full speed---claiming there was nothing to see.

Still, back then you could almost have made a (lame) excuse for the Fed chairman"s bubble blindness. The Maestro was operating in the early days of monetary central planning and wealth effects management, and its potent capacity to unleash rampant speculation in the financial system was not yet fully understood----even if the underlying monetary theory defied all the canons of sound finance.

Moreover, in addition to rampant bubbles in the financial market, the Fed"s money pumping during the 1990s did also seem to be producing some seemingly robust real world effects on main street and in the booming new tech part of the economy.

And, in turn, these positive macroeconomic developments were unfolding in a global political/strategic environment that had suddenly become more benign that at any time since June 1914.

Indeed, the outside world fairly buzzed with positive developments. These included the fact that the internet/tech revolution still exuded adolescent vigor, the government"s fiscal accounts were nearing balance for the first time in two decades, the vast market of China was convincingly rising from its Maoist slumber and the Committee To Save the World (Greenspan, Summers and Rubin) had just rescued Wall Street with alacrity from the Long-Term Capital Management (LTCM) meltdown.

Likewise, Europe was launching the single currency and expanding the single market. In place of the Soviet Union, which had disappeared from the pages of history in 1991, Russia, its breakaway republics and the former Warsaw Pact (captive) nations were all bursting out of their statist chains and experimenting with home grown capitalism and reaching out to the west via rising trade and capital flows.

In the US, the combination of the end of the cold war and the internet revolution contributed a doubly whammy to growth and prosperity. When defense spending fell from 7% of GDP on the eve of the Soviet collapse to under 4% by the year 2000, substantial domestic resources were released for private investment and a resulting substantial productivity uplift.

In fact, real private nonresidential investment grew at 7.3% per year from the 1990 pre-recession peak through 2000. That was more than double the still respectable 3.4% rate recorded between 1967 and 1990; and causes the anemic 1.4% real growth of fixed investment between the pre-crisis peak (2007) and 2016 to pale into insignificance.

Notwithstanding all of these positives, however, the great bull stock market of the late 1990s ended-up getting way ahead of itself. That was especially the case during the next 18 months after the Fed"s heavy-handed and somewhat panicked bailout of LTCM in September 1998 had confirmed to the newly energized casino gamblers that the Greenspan Put was most definitely operative.

In the Great Deformation we tracked 12 of the highest-flying big cap stocks ("Delirious Dozen") during the period between Greenspan"s December 1996 speech and the April 2000 dotcom bust. During this 40-month period, the combined market cap of these 12 leading momo stocks---including Microsoft, Cisco, Dell, Intel, Juniper Networks, Lucent, AIG, GE  and four others---soared from $600 billion to $3.8 trillion.

That eruption did indeed give the notion of trees which grow to the sky an altogether new definition. To wit, the total market cap of the Delirious Dozen grew by 75% per annum for nearly 4 years running; and the future outlook was claimed to be even more fantastic.

For instance, as of mid-2000 Intel was valued at $500 billion and traded at 53X its $9.4 billion of LTM earnings. Yet it was argued that this nosebleed multiple was more than warranted because the company had grown its net income from $1 billion to $9.4 billion during the previous decade, and that there was nothing but blue sky ahead.

Here"s the thing, however. Intel was and is a great company that, in fact, has never stopped growing.

But during the 17 years since mid-2000, its net income growth rate has sharply slowed to just 1.79% per annum; and its $12.7 billion of LTM net income for September 2017 is valued at only 15.7X or $210 billion.

In short, at the peak of the tech bubble Intel"s market cap had vastly outrun its long run-earnings capacity. Even today it has only earned back 40% of its bubble peak valuation.

Likewise, Cisco was valued at $500 billion in July 200 and sported a 185X PE multiple on its $2.7 billion of LTM net income. And it, too, has continued to grow, posting LTM net income of $9.7 billion for September 2017.

Yet today"s earnings are accorded only a 19X multiple after 17 years of 2.4% per annum growth; Cisco"s current $181 billion market cap, in fact, sits at just 36% of its bubble peak.

Even the mighty Mr. Softie has experienced pretty much the same fate. Back in mid-2000, it posted $8.3 billion of LTM net income and was valued at $600 billion or 72X. Today its net income has tripled to $23.1 billion, but its PE multiple has receded to just 29X.

Stated differently, Microsoft"s net income has grown at 6.1% per annum since the company vastly outran it true value back in early 2000. Accordingly, its market cap gained just 0.4% per annum during the last 17 years. That is, it has taken one of the greatest tech companies of all time upwards of two decades to earn back its peak dotcom era bubble valuation.

And when it comes to the industrial and financial conglomerate empire that Jack (Welch) built, the story is even more dramatic. GE"s mid-2000 market cap of $500 billion stands at just $155 billion today; and its PE multiple of 60X has shrunk to just 22X.

In short, that was irrational exuberance back then, and it did not take long for the vast quantities of bottled air in the market cap of the Delirious Dozen to come rushing out. By the bottom in September 2002, four of these companies had vanished into bankruptcy and the market cap of the survivors had imploded to just $1.1 trillion.

That"s a fact and you can look it up in the papers. In less than 30 months, $2.7 trillion of market cap had literally ionized.  And these were the leading companies of the era.

None of them, it might be noted, were valued at 280X shrinking net income, as is Amazon today; or at infinite PE multiples like much of the biotech sector and momo hobby horses like Tesla.

More importantly, the promising macro-economic situation at the turn of the century has given way to a world precariously balanced on $225 trillion of debt and the tottering $40 trillion Red Ponzi of China.

Likewise, the benign geo-strategic environment of that era has long since disappeared into the madness of RussiaGate, endless wars in the middle east and Africa and the incendiary confrontation between the Fat Boy and the Donald on the Korean peninsula.

Finally, after 30 years of rampant monetary expansion the central banks of the world have been forced to reverse direction and begin to normalize interest rates and balance sheets.

And that now incepting and unprecedented experiment in massive demonetization of public debts is coming at a time when----after 8 years of business cycle expansion---the US, Japan and most of Europe are running monumental "full-employment" budget deficits.

Even then, these reckless fiscal policies are happening in the teeth of a demographically driven tsunami of pension, medical and welfare spending.

For the period just ended, the S&P 500 companies earned $107 per share on an LTM basis---or just 2% more than the $105 per share posted back in September 2014; and also only modestly more than the $85 per share recorded way back at the June 2007 pre-crisis peak.

Stated differently, on a trend basis S&P 500 companies have grown their earnings at 2.33% per annum over the last decade. How that merits a 24.3X PE multiple on today"s 2600 index price is hard to fathom---let alone Goldman"s 3100 target for 2020.

Indeed, just to retain today"s absurd PE multiple would require $130 per share of GAAP earnings by 2020 at the Goldman target price.

That"s right. By the end of 2020 we would be implicitly in the longest business expansion in recorded history at 140 months (compared to 118 months in the 1990s),

Furthermore, the term structure of interest rates will be 200-300 basis points higher according to the Fed"s current policies, while the US treasury will be running $1 trillion plus annual deficits and experiencing recurring debt ceiling and financial crises.

Even then you would need 7% annual earnings growth to hold onto today"s 24.2X PE multiple at the Goldman S&P 500 target.

As we said, relative to today"s casino madness and the Goldman fairy tale hockey stick, Alan Greenspan circa April 2000 looks like a model of sobriety by comparison.

So if that was Irrational Exuberance back in April 2000, what we have now is surely the mother thereof.

What Risk: Deutsche Bank Ramps Up Loans Business In Desperate Scramble For Profit

We have some sympathy for John Cryan, but only to the extent that he has the near impossible task of putting the biggest German bank back on a sound footing regaining market share and generating some elusive revenue growth: a virtually impossible task as long as Europe is choked by NIRP. As we noted two weeks ago, Deutsche’s 3Q 2017 results confirmed that the situation is still getting worse:

Deutsche Bank’s Q3 2017 revenues were €6.78 billion, below market expectations of €6.88 billion. The share price fell 2.7% shortly after the European market open. The problem – like the previous quarter - was a bigger-than-expected drop in trading revenues. Trading revenue was down 30% year-on-year to €1.512 billion versus €2.162 billion in Q2 2017. The challenge for the embattled CEO, John Cryan, is that the trend is still deteriorating. Trading revenues in Q2 2017 fell 18% year-on-year to 1.666 billion euros versus 2.027 billion euros. Earlier this year, Cryan pledged to turnaround the performance of the investment bank as soon as this year.

At the time, we wondered if Cryan’s time wasn"t running out: "The countdown to Cryan"s replacement is ticking ever louder."

So if you were Deutsche CEO Cryan and you needed revenue growth and you needed it fast, what would you do? One thing is to identify a “hot” sector in capital markets with high margins and go all out for growth, never mind the risk. Which is exactly what Deutsche Bank is doing in the leveraged loan market as Bloomberg implies.

While investors are attracted to the high yields from leveraged loans, investment banks are lured by the fees. “Leveraged finance is juicy, juicy stuff,” said Tim Hall, global head of debt capital markets at Credit Agricole SA until last year. “In corporate banking, it probably hast the best margins.” Yet the fees are lucrative for a reason: banks take the risk that investor appetite for leveraged loans may suddenly disappear before they can sell on the debts. Deutsche Bank lost about 2.5 billion euros on “leveraged loans and loan commitments” in 2007 and 2008 combined, annual reports show. “Anyone getting into this sector today should have a good understanding of where we’re at in the cycle of leveraged loans,” said Knutson. “Are we closer to midnight in terms of the exhaustion of it or are we halfway through?”

So…what is Deutsche doing to generate more revenue in leveraged loans? Here"s Bloomberg:

As John Cryan mulls steps to restore growth at Deutsche Bank AG, he’s counting on U.S. companies’ appetite for ever more debt to help lead the charge. The Frankfurt-based lender added 24 managing directors and directors at its U.S. corporate finance business this year, a record hiring pace, according to Mark Fedorcik, co-head of Deutsche Bank’s global capital markets unit. Among the goals: to become a top arranger of leveraged loans again, the risky debt that has surged amid low interest rates and the prospect of a rollback of post-crisis regulations. “Next year will be a robust one for U.S. leveraged finance and we’re going to capitalize on this,” Fedorcik said in an interview. “It’s an area that we’re going to continue to invest in and regain a top-five position.”

As a result, next year might be a “robust one for leveraged finance”, then again it might not. Still, we know three things about banks’ behaviour:

• They are spectacularly “good” at pro-cyclical investment and the leveraged loan market is very “hot”, especially in the US;


• Deregulation, which loosens credit standards, always makes banks take more risk, rather than less; and


• They never learn from one crisis to the next.

 As Bloomberg explains, Deutsche might be able to tick all three of these “boxes”:

Investment banks have arranged $1.2 trillion of U.S. leveraged loans for clients so far this year, more than any other year since at least 2006 and already 18 percent more than all of 2016, data compiled by Bloomberg show. Adding to the frenzy is the U.S. Treasury Department, which has proposed loosening restrictions imposed on Wall Street banks after the 2008 financial crisis. Some analysts fear this could mean a return to the kinds of high-risk loan deals that saddled lenders -- including Deutsche Bank -- with billions of dollars of debts they couldn’t sell during the crash.

In Deutsche’s defence, it does have “form” in the leveraged loan market, having been a top 5 player before slipping down the rankings as the bank stumbled from one crisis to another. In 2017, Deutsche tumbled to ninth place in arranging US leveraged loans, it’s worst showing since 2012.

Then again, the market is already dominated by JP Morgan and Bank of America who, we suspect, are unlikely to roll over to accommodate more market share for their German rival. Consequently, a critical question is how much risk might Deutsche need to take as it seeks to regain its former market position? None according to Deutsche’s co-head speaking to Bloomberg.

The decline was caused by “a little bit of bad luck,” said Fedorcik. The firm has also been “more selective” on taking risks “in some cases,” further reducing the amount of completed deals, he said. Deutsche Bank has arranged more than 300 U.S. leveraged loans so far this year, helping clients including software giant Dell Technologies Inc. and hotel chain Hilton Worldwide Holdings Inc. borrow about $61 billion, according to data compiled by Bloomberg. The hires in the U.S. corporate finance business bring staffing level back to where they were at the beginning in 2016, before speculation about its financial strength rattled the bank and management introduced the steepest bonus cuts in the bank’s recent history. Hires this year include Philip Pucciarelli and Robert Verdier, two health-care investment bankers who joined from BMO Capital Markets. Deutsche Bank also added professionals in its trading operations, bringing in Alexandra Cannon from Barclays Plc as a director in leveraged-loan sales in July. Paul Huchro, who retired from Goldman Sachs in 2015, is joining to oversee investment-grade trading globally as well as high yield in the U.S. and Europe, the bank said last month.

Okay, but we always get nervous when we sense over-confidence on the part of investment bankers. This was the other co-head speaking to Bloomberg.

Deutsche Bank can revise its stance on how much risk it wants to take on leveraged loans at any time, said Alexander von zur Muehlen, Fedorcik’s co-head. “We have the capital and the ability for the business,” said von zur Muehlen. “U.S. leveraged finance is a core business for us.”

Dial up the risk and dial down the risk. If only it was so easy. Our sense is that Cryan is under so much pressure to deliver growth, his strategy is to close his eyes, hope for the best and go for it. After all, this was the man who last month said that “we are now seeing signs of bubbles in more and more parts of the capital market where we wouldn’t have expected them."

Clearly, he was not referring to leveraged loans. Last month, S&P Global Ratings begged to differ, noting that "the risks of this debt binge are significant, given that excessive leverage can bring down a company as fast as prudent borrowing built it up.”

Retired Green Beret Warns "A Domestic Destabilization Is Underway"

Authored by Jeremiah Johnson (nom de plume of a retired Green Beret of the United States Army Special Forces) via SHTFplan.com,

Under the guise of “political correctness,” cities (such as Baltimore, MD) are removing their Confederate monuments one-by-one and under cover of darkness.

Here, as reported by CBS News:

“The Robert E. Lee and Thomas J. “Stonewall” Jackson monument at Wyman Park Dell was removed with a crowd watching.  The Robert B. Taney monument in Mt. Vernon also came down.  Crews are on the site of the confederate Women’s monument at University Parkway to take that one down.  This comes just days after the Baltimore City Council passed a resolution Monday calling for the immediate deconstruction of these monuments.”

There it is!  Straight out of the movie “The Patriot” with Mel Gibson, as with the character he played, Benjamin Martin: “An elected legislature can trample a man’s rights as easily as a king.”

Where’s the vote by the people in the city?  Oh, just that the elected officials, mind you, can make such a decision…by their vote, a tyranny in itself.  At the bare minimum, it should have been put to a vote.

The important thing to keep in mind is that most of these cities, city councils, and their state legislatures are being run by a pack of liberals.  The “paradigm shift” is in full mode: “Democracy in America” did not mention the tyranny of the minority.  In this case, a minority viewpoint, fueled by Marxists and liberals is attempting to subvert First Amendment rights under the U.S. Constitution and begin a policy of redaction to support their revisionist history.

We are right around the corner from a Civil War. 

The Left is fueling and funding tensions in order to exacerbate them and cause a revolution.  In the middle of this, the President is being blamed and threatened with impeachment.  The root of it is this: the attempt to destabilize the country and cause anarchy.  Black Americans are being used as the vehicle for the destabilization…a vehicle by the oligarchs, such as Soros.  Now with Charlottesville being trumpeted up and down the country, Obama weighs in “with the most popular Tweet ever.”

I wrote that Barack Hussein Obama II would be back: he will be a most useful catalyst for what is to come.  It was also reported that Hillary Clinton is weighing in on attacking the President, but not with words: with dollars.  Fellowship of the Minds ran a piece that cites the Washington Times.  Here’s an excerpt:

“Joe Schoffstall reports for The Washington Free Beacon, August 14, 2017, that Hillary has donated $800,000 from her campaign funds to Onward Together — a new political action group that she formed three months ago in May which will fund a number of established “resistance” groups that counter President Trump with direct action and protests.

According to its mission statement, Onward Together is dedicated to “encouraging people to organize, get involved, and run for office” and advancing “progressive values and work to build a brighter future for generations to come.”

Federal Election Commission (FEC) filings show that on May 1, 2017, Hillary’s presidential campaign committee Hillary for America contributed $800,000 to Onward Together. In addition, Hillary also funded other “resistance” groups that have “impressed” her, including Swing Left, Run for Something, Emerge America, and Indivisible.”

Once again, her money and power is wielded to “influence” the way things are.  She is not acting alone, nor of her own initiative.  Read Shadow Party to find the guy pulling her strings.  (Hint: his real name is Georgy Schwarz!)

By removing the Confederate memorials and markers, a part of American history is effectively being relegated to oblivion.  It is all part of redaction and revision.  The Marxists and Globalists have been relentless in their quest to rewrite American history and demonize whites in general…trying to create a cowed, demure, subservient class of guilt-ridden subjects…to destroy the United States from within.  To destroy the “warrior mentality” of the citizen-soldier of America’s citizenry…that is the objective.  A complete orchiotomy and neutering: nothing less.

Unless the United States falls, the New World Order/Global Governance cannot exist.  This is the goal: enmesh it in a war (initiated by a foreign nation and/or orchestrated by the U.S.), and destroy it domestically from within.  “Top down, bottom up,” to quote Van Jones, is their objective.  Their playbook is Alinsky’s “Rules for Radicals,” and the battle lines are being drawn more decisively by the day.  There will come a time when everyone will have to pick a side, and after it begins, the United States may look a lot different than it does now.

Trump Slams "Grandstanding" CEOs Who Have Quit His Council

Well, on the bright side, it took him around 12 hours to respond to last night"s resignations...

For every CEO that drops out of the Manufacturing Council, I have many to take their place. Grandstanders should not have gone on. JOBS!

— Donald J. Trump (@realDonaldTrump) August 15, 2017

The remaining CEOs on Trump"s council had the following to say (via Business Insider)

• Andrew Liveris, Dow Chemical Company, will remain on the council. "I condemn the violence this weekend in Charlottesville, Virginia, and my thoughts and prayers are with those who lost loved ones and with the people of Virginia," Liveris said in an emailed statement. "In Dow, there is no room for hatred, racism, or bigotry. Dow will continue to work to strengthen the social and economic fabric of the communities where it operates — including supporting policies that help create employment opportunities in manufacturing and rebuild the American workforce."


• Bill Brown, Harris Corporation, did not respond to a request for comment.


• Michael Dell, Dell Technologies, will remain on the council. "While we wouldn"t comment on any member"s personal decision, there"s no change in Dell engaging with the Trump administration and governments around the world to share our perspective on policy issues that affect our company, customers, and employees," a spokeswoman said.


• John Ferriola, Nucor Corporation, did not respond to a request for comment.


• Jeff Fettig, Whirlpool Corporation, will remain on the council. "Whirlpool Corp. believes strongly in an open and inclusive culture that respects people of all races and backgrounds," the company said in a statement. "Our company has long fostered an environment of acceptance and tolerance in the workplace. The company will continue on the Manufacturing Jobs Initiative to represent our industry, our 15,000 US manufacturing workers, and to provide input and advice on ways to create jobs and strengthen US manufacturing competitiveness."


• Alex Gorsky, Johnson & Johnson, did not respond to a request for comment.


• Greg Hayes, United Technologies Corp., did not respond to a request for comment.


• Marillyn Hewson, Lockheed Martin, declined to comment.


• Jeff Immelt, General Electric, will remain on the council. "GE has no tolerance for hate, bigotry or racism, and we strongly condemn the violent extremism in Charlottesville over the weekend," a GE representative said in a statement. "GE is a proudly inclusive company with employees who represent all religions, nationalities, sexual orientations, and races. With more than 100,000 employees in the United States, it is important for GE to participate in the discussion on how to drive growth and productivity in the US, therefore, Jeff Immelt will remain on the Presidential Committee on American Manufacturing while he is the chairman of GE."


• Jim Kamsickas, Dana Inc., did not respond to a request for comment.


• Rich Kyle, The Timken Company, did not respond to a request for comment.


• Richard Trumka, AFL-CIO, said the group was aware of Frazier"s decision and assessing its role. "The AFL-CIO has unequivocally denounced the actions of bigoted domestic terrorists in Charlottesville and called on the president to do the same," Trumka said in a statement. "We are aware of the decisions by other members of the President"s Manufacturing Council, which has yet to hold any real meeting*, and are assessing our role. While the AFL-CIO will remain a powerful voice for the freedoms of working people, there are real questions into the effectiveness of this council to deliver real policy that lifts working families."


• Thea Lee, formerly AFL-CIO, departed as the group"s deputy chief of staff, and it is unclear whether she will remain a member of the council.


• Denise Morrison, Campbell Soup Company, will remain on the council. "The reprehensible scenes of bigotry and hatred on display in Charlottesville over the weekend have no place in our society," a company representative said. "Not simply because of the violence, but because the racist ideology at the center of the protests is wrong and must be condemned in no uncertain terms. Campbell has long held the belief that diversity and inclusion are critical to the success of our business and our culture. Our commitment to diversity and inclusion is unwavering, and we will remain active champions for these efforts. We believe it continues to be important for Campbell to have a voice and provide input on matters that will affect our industry, our company and our employees in support of growth. Therefore, Ms. Morrison will remain on the President"s Manufacturing Jobs Initiative."


• Dennis Muilenburg, Boeing, will remain on the council.


• Doug Oberhelman, formerly Caterpillar, did not respond to a request for comment.


• Scott Paul, Alliance for American Manufacturing, was unavailable for comment.


• Michael Polk, Newell Brands, did not respond to a request for comment.


• Mark Sutton, International Paper, will remain on the council. "International Paper strongly condemns the violence that took place in Charlottesville over the weekend — there is no place for hatred, bigotry, and racism in our society," an International Paper representative said. "We are a company that fosters an inclusive workforce where all employees are valued and treated with dignity and respect. Through our participation on the Manufacturing Jobs Council, we will work to strengthen the social and economic fabric of communities across the country by creating employment opportunities in manufacturing."


• Inge Thulin, 3M, did not respond to a request for comment.


• Wendell Weeks, Corning, did not respond to a request for comment.

Who will be "the last CEO standing"?

Intel CEO Resigns From Trump Manufacturing Council Over "Divided Political Climate"

The CEOs on President Trump"s Manufacturing Council are dropping like flies as they realize, one by one, this weekend"s media mayhem surrounding Trump"s comments about the chaos in Charlotteville is the perfect excuse to detach from the Trump bandwagon.

Following Merck"s Ken Frazier and Under Armour"s Kevin Plank, Intel CEO Bryan Krzanich chose to resign his position by announcing it quietly on a blog post at 2230ET explaining that he is departing the manufacturing council in order to bring attention to the demise of US manufacturing...

In a blog post, Krzanich said that the decline in American manufacturing remains a serious issue, but said that "politics and political agendas have sidelined the important mission of rebuilding America"s manufacturing base."

 "I resigned to call attention to the serious harm our divided political climate is causing to critical issues, including the serious need to address the decline of American manufacturing," Krzanich said in a blog post.

"Politics and political agendas have sidelined the important mission of rebuilding America"s manufacturing base."

Here is Krzanich"s full statement:

Earlier today, I tendered my resignation from the American Manufacturing Council. I resigned to call attention to the serious harm our divided political climate is causing to critical issues, including the serious need to address the decline of American manufacturing. Politics and political agendas have sidelined the important mission of rebuilding America"s manufacturing base.

I have already made clear my abhorrence at the recent hate-spawned violence in Charlottesville, and earlier today I called on all leaders to condemn the white supremacists and their ilk who marched and committed violence. I resigned because I want to make progress, while many in Washington seem more concerned with attacking anyone who disagrees with them. We should honor – not attack – those who have stood up for equality and other cherished American values. I hope this will change, and I remain willing to serve when it does.

I am not a politician.

I am an engineer who has spent most of his career working in factories that manufacture the world"s most advanced devices. Yet, it is clear even to me that nearly every issue is now politicized to the point where significant progress is impossible. Promoting American manufacturing should not be a political issue.My request—my plea—to everyone involved in our political system is this: set scoring political points aside and focus on what is best for the nation as a whole. The current environment must change, or else our nation will become a shadow of what it once was and what it still can and should be.

So who"s left?

Here’s the full list of members on the new manufacturing council:

• Andrew Liveris, The Dow Chemical Company


• Bill Brown, Harris Corporation


• Michael Dell, Dell Technologies


• John Ferriola, Nucor Corporation


• Jeff Fettig, Whirlpool Corporation


• Mark Fields, Ford Motor Company


• Ken Frazier, Merck & Co., Inc.


• Alex Gorsky, Johnson & Johnson


• Greg Hayes, United Technologies Corp.


• Marillyn Hewson, Lockheed Martin Corporation


• Jeff Immelt, General Electric


• Jim Kamsickas, Dana Inc.


• Klaus Kleinfleld, Arconic


• Brian Krzanich, Intel Corporation


• Rich Kyle, The Timken Company


• Thea Lee, AFL-CIO


• Mario Longhi, U.S. Steel


• Denise Morrison, Campbell Soup Company


• Dennis Muilenburg, Boeing


• Elon Musk, Tesla


• Doug Oberhelman, Caterpillar


• Scott Paul, Alliance for American Manufacturing


• Kevin Plank, Under Armour


• Michael Polk, Newell Brands


• Mark Sutton, International Paper


• Inge Thulin, 3M


• Richard Trumka, AFL-CIO


• Wendel Weeks, Corning

"It Won't Be Long Now" - David Stockman Warns "Amazon Is The New Tech Crash"

Authored by David Stockman via The Daily Reckoning,

It won’t be long now. During the last 31 months the stock market mania has rapidly narrowed to just a handful of shooting stars.

At the forefront has been Amazon.com, Inc., which saw its stock price double from $285 per share in January 2015 to $575 by October of that year. It then doubled again to about $1,000 in the 21 months since.

By contrast, much of the stock market has remained in flat-earth land. For instance, those sections of the stock market that are tethered to the floundering real world economy have posted flat-lining earnings, or even sharp declines, as in the case of oil and gas.

Needless to say, the drastic market narrowing of the last 30 months has been accompanied by soaring price/earnings (PE) multiples among the handful of big winners. In the case of the so-called FAANGs + M (Facebook, Apple, Amazon, Netflix, Google and Microsoft), the group’s weighted average PE multiple has increased by some 50%.

The degree to which the casino’s speculative mania has been concentrated in the FAANGs + M can also be seen by contrasting them with the other 494 stocks in the S&P 500. The market cap of the index as a whole rose from $17.7 trillion in January 2015 to some $21.2 trillion at present, meaning that the FAANGs + M account for about 40% of the entire gain.

Stated differently, the market cap of the other 494 stocks rose from $16.0 trillion to $18.1 trillion during that 30-month period. That is, 13% versus the 82% gain of the six super-momentum stocks.

Moreover, if this concentrated $1.4 trillion gain in a handful of stocks sounds familiar that’s because this rodeo has been held before. The Four Horseman of Tech (Microsoft, Dell, Cisco and Intel) at the turn of the century saw their market cap soar from $850 billion to $1.65 trillion or by 94% during the manic months before the dotcom peak.

At the March 2000 peak, Microsoft’s PE multiple was 60X, Intel’s was 50X and Cisco’s hit 200X. Those nosebleed valuations were really not much different than Facebook today at 40X, Amazon at 190X and Netflix at 217X.

The truth is, even great companies do not escape drastic over-valuation during the blow-off stage of bubble peaks. Accordingly, two years later the Four Horseman as a group had shed $1.25 trillion or 75% of their valuation.

More importantly, this spectacular collapse was not due to a meltdown of their sales and profits. Like the FAANGs +M today, the Four Horseman were quasi-mature, big cap companies that never really stopped growing.

Now I’m targeting the very highest-flyer of the present bubble cycle, Amazon.

Just as the NASDAQ 100 doubled between October 1998 and October 1999, and then doubled again by March 2000, AMZN is in the midst of a similar speculative blow-off.

Not to be forgotten, however, is that one year after the March 2000 peak the NASDAQ 100 was down by 70%, and it ultimately bottomed 82% lower in September 2002. I expect no less of a spectacular collapse in the case of this cycle’s equivalent shooting star.

In fact, even as its stock price has tripled during the last 30 months, AMZN has experienced two sharp drawdowns of 28% and 12%, respectively. Both times it plunged to its 200-day moving average in a matter of a few weeks.

A similar drawdown to its 200-day moving average today would result in a double-digit sell-off. But when — not if — the broad market plunges into a long overdue correction the ultimate drop will exceed that by many orders of magnitude.

Amazon’s stock has now erupted to $1,000per share, meaning that its market cap is lodged in the financial thermosphere (highest earth atmosphere layer). Its implied PE multiple of 190X can only be described as blatantly absurd.

After all, Amazon is 24 years-old, not a start-up. It hasn’t invented anything explosively new like the iPhone or personal computer. Instead, 91% of its sales involve sourcing, moving, storing and delivering goods. That’s a sector of the economy that has grown by just 2.2% annually in nominal dollars for the last decade, and for which there is no macroeconomic basis for an acceleration.

Yes, AMZN is taking share by leaps and bounds. But that’s inherently a one-time gain that can’t be capitalized in perpetuity at 190X. And it’s a source of “growth” that is generating its own pushback as the stronger elements of the brick and mortar world belatedly pile on the e-commerce bandwagon.

Wal-Mart’s e-commerce sales, for example, have exploded after its purchase of Jet.com last year — with sales rising by 63% in the most recent quarter.

Moreover, Wal-Mart has finally figured out the free shipments game and has upped its e-commerce offering from 10 million to 50 million items just in the past year.

Wal-Mart is also tapping for e-commerce fulfillment duty in its vast logistics system — including its 147 distribution centers, a fleet of 6,200 trucks and a global sourcing system which is second to none.

In this context, even AMZN’s year-over-year sales growth of 22.6% in Q1 2017 doesn’t remotely validate the company’s bubblicious valuation — especially not when AMZN’s already razor thin profit margins are weakening, not expanding.

Based on these basic realities, Jeff Bezos will never make up with volume what he is losing in margin on each and every shipment.

The Amazon business model is fatally flawed. It’s only a matter of the precise catalyst that will trigger the realization in the casino that this is another case of the proverbial naked emperor.

Needless to say, I do not think AMZN is a freakish outlier. It’s actually the lens through which the entire stock market should be viewed because the whole enchilada is now in the grips of a pure mania.

Stated differently, the stock market is no longer a discounting mechanism nor even a weighing machine. It’s become a pure gambling hall.

So Bezos’ e-commerce business strategy is that of a madman — one made mad by the fantastically false price signals emanating from a casino that has become utterly unhinged owing to 30 years of Bubble Finance policies at the Fed and its fellow central banks around the planet.

Indeed, the chart below leaves nothing to the imagination. Since 2012, Amazon stock price has bounded upward in nearly exact lock-step with the massive balance sheet expansion of the world’s three major central banks.

At the end of the day, the egregiously overvalued Amazon is the prime bubble stock of the current cycle. What the Fed has actually unleashed is not the healthy process of creative destruction that Amazon’s fanboys imagine.

Instead, it embodies a rogue business model and reckless sales growth machine that is just one more example of destructive financial engineering, and still another proof that monetary central planning fuels economic decay, not prosperity.

Amazon’s stock is also the ultimate case of an utterly unsustainable bubble. When the selling starts and the vast horde of momentum traders who have inflated it relentlessly in recent months make a bee line for the exits, the March 2000 dotcom crash will seem like a walk in the park.

David Stockman Warns The Market's "Chuck Prince Moment" Has Arrived... "Only More Dangerous"

Authored by David Stockman via Daily Reckoning,

On July 10, 2007 former Citigroup CEO Chuck Prince famously said what might be termed the “speculator’s creed” for the current era of Bubble Finance. Prince was then canned within four months but as of that day his minions were still slamming the”buy” key good and hard:

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,” he said in an interview with the FT in Japan.

We are at that moment again. Only this time the danger of a thundering crash is far greater. That’s because the current blow-off top comes after nine years of even more central bank policy than Greenspan’s credit and housing bubble.

The Fed and its crew of traveling central banks around the world have gutted honest price discovery entirely. They have turned global financial markets into outright gambling dens of unchecked speculation.

Central bank policies of massive quantitative easing (QE) and zero interest rates (ZIRP) have been sugar-coated in rhetoric about “stimulus”, “accommodation” and guiding economies toward optimal levels of inflation and full-employment.

The truth of the matter is far different. The combined $15 trillion of central bank balance sheet expansion since 2007 amounts to monetary fraud of epic proportions.

The massive injection of fiat credit has drastically falsified prices in the debt and money markets. Through the channels of cap rates, carry trades and corporate financial engineering, the prices of equities and all other risk assets, have been falsified too.

Bond and stock prices are way too high, and that reality has infected the very foundations of the financial system. Like the hapless Chuck Prince last time, today’s traders and robo-machines have lost all contact with the fundamentals of corporate performance, macroeconomic outlooks and the political risks of a Washington.

Traders today are just dancing – blindly. That’s why the Russell 2000 hit 1442 the other day, capitalizing the earnings of small and mid-cap domestic companies at 87.5 times.

That’s crazy in its own right. As measured by valued added output of the U.S. business sector, the main street economy – where most of these companies live — has expanded at a tepid 2.1%  annual rate since 2002. By contrast, the RUT index has increased by 10% per annum since then.

At the same time, the level of speculation in the hyper-momentum tech stocks is even more stunning.

We are in the blow-off stage of the Fed’s third and greatest bubble of this century. Yet the stock market has narrowed drastically during the last thirty months, as is typical of a speculative mania. This narrowing means that the price-earnings ratio (PE) among the handful of big winners have soared.

FAANGs and Bubble Finance

In the case of  the so-called “FAANGs + M” (Facebook, Apple, Amazon, Netflix, Google and Microsoft), the group’s weighted average PE multiple has increased by 50%.

That’s caused the market cap of these six super-momentum stocks to soar from $1.7 trillion to $3.1 trillion during the period or by 82%.

The combined earnings of the group have grown by just 20%. 75% of this huge gain in market cap is attributable to multiple expansion, not operating performance.

The degree to which the casino’s speculative mania has been concentrated in the FAANGs + M  can also be seen by contrasting them with the other 494 stocks in the S&P 500. The market cap of the index as a whole rose from $17.7 trillion in January 2015 to $21.2 trillion at present, meaning that the FAANGs + M account for 40% of the entire gain!

If this concentrated gain in a handful of stocks sounds familiar that’s because this rodeo has been held before. The Four Horseman of Tech (Microsoft, Dell, Cisco and Intel) at the turn of the century saw their market cap soar from $850 billion to $1.65 trillion or by 94% during the manic months before the dotcom peak.

At the March 2000 peak, Microsoft’s PE multiple was 60 times, Intel’s was 50 times and Cisco’s hit 200 times. Those nosebleed valuations were really not much different than Facebook today at 40, Amazon at 190 and Netflix at 217 times PE.

The point is, even great companies do not escape drastic over-valuation during the blow-off stage of bubble peaks.

That spectacular collapse was not due to a meltdown of their sales and profits. Like the FAANGs +M today, the Four Horseman were quasi-mature, big cap companies that never really stopped growing.

For example, Cisco’s revenues have increased from $15 billion to $50 billion annually during the last 17 years and its net income has tripled to $10 billion. Yet Cisco’s market cap today is just $160 billion or only 30% of its 17-years ago bubble peak.

The reason is PE normalization. In this case, the company’s hideously inflated 200 times PE multiple imploded with the tech crash. It now stands at 15 times PE.

Amazon and the Chuck Prince Market Redux

Amazon is now set for that kind of PE implosion during this cycle. It’s stock price doubled from $285 per share in January 2015 to $575 by October of that year; and then it doubled again to $1026 in the 20 months since.

Along the way it picked up a hefty $350 billion in added market cap. That’s nearly $12 billion of value gain per month!

Amazon is now 24 years-old, not a start-up; and it hasn’t invented anything explosively new like the iPhone or personal computer. Yes, it is taking retail market share by leaps and bounds, but that’s inherently a one-time gain that can’t be capitalized to infinity.

Indeed, 91% of its sales involves sourcing, moving, storing and delivering goods — a sector of the economy that has grown by just 2.2% annually in nominal dollars for the last decade.

Amazon embodies the speculative mania of the current market. It is simply ludicrous to put a multiple of 190 times PE on a company that runs a profitless $130 billion e-Commerce sales juggernaut.

Even as its stock price has tripled during the last 30 months, AMZN has experienced two sharp drawdowns of 28% and 12%, respectively. As shown in the first chart below, both times it plunged to its 200-day moving average in a matter of a few weeks.

A similar drawdown to its 200-day moving average today would result in an immediate 16% sell-off. But when, not if, the broad market plunges into a long overdue correction the ultimate drop will exceed that by a greater magnitude.

In the meanwhile, the market mindlessly melts-up because the Fed has destroyed all of Wall Street’s natural forces of financial discipline. Eight years of central bank money printing and intrusion have destroyed short-sellers and caused day-traders and robo-machines to be wired to buy every dip.

Never mind about the gong show in Washington. Or even the fact that the Keynesian economists in the Fed’s Eccles Building does actually intend to normalize rates and shrink the Fed’s balance sheet.

The talking heads wandering around Wall Street have come to the delusional belief that the bubble can live forever without help from Washington or the Fed.

With only a small share of companies having reported, LTM earnings for the S&P 500 have already dropped below $105 per share on a GAAP basis. That’s still below the $106 per share posted way back in September 2014 and barely above the $100 per share reported in 2013.

Make no mistake, this is the Chuck Prince Market Redux. Only the daredevils and Wall Street dancing machines would dare buy the S&P 500 at 25 times PE, the Russell 2000 at 88 times PE, Amazon at 190 times PE.

For everyone else, the present blow-off top is surely a godsend.

Never has there been a better opportunity to get out of harm’s way, nor a clearer warning that a thundering crash is waiting just around the bend.