Corroboration Under the ‘Rising Dollar’ Economy

By Jeffrey Snider of Alhambra

Last week, the American Bankruptcy Institute (ABI) released its updated statistics for commercial bankruptcies through June 2016. For yet another month, bankruptcies jumped by 30% over the same month in 2015. Total commercial filings were 3,294 in June, compared to 2,442 in June 2015; Chapter 11 filings were up 36% year-over-year. The turn in apparent liquidity and business struggles occurred at the end of last summer and into the autumn. Though the energy sector is prominent in the inflection, it is noteworthy that the ABI singles out one other particular industry:

“As economic challenges continue to weigh on the balance sheets of struggling companies, especially those in energy and retail, more businesses are seeking the financial fresh start of bankruptcy,” said ABI Executive Director Samuel J. Gerdano. “Commercial bankruptcy filings for 2016 will likely total close to 40,000.”

Announced job cuts in the retail sector at the beginning of the year seemed to confirm the growing distress. Though layoffs have come down over the past few months, there remains a divergence between what these figures suggest and the BLS employment numbers for the industry. According the payroll statistics, employment in the retail sector paused only for two months in April and May, with no net gains. Rather than signal a change in economic behavior, however, it was as likely a regular statistical variation; there was a similar 2-month pause recorded for last August and September.

ABOOK July 2016 Bankruptcies

The pace of expansion is far out of line with what we find in so many other accounts – including retail and wholesale sales (and inventories on both levels). For an industry that might be struggling to the point of increased bankruptcies, the government figures that employment in the industry is unrelated to the possibility. For the most part, the BLS continues to suggest hiring without any serious break apart from the typical statistical variations.

Continue reading Corroboration Under the ‘Rising Dollar’ Economy

Two Times Was Convincing…

By Jeffrey Snider of Alhambra

Two Times Was Convincing; Five, Maybe Six Times Cannot Be Coincidence

People are often mistaken for thinking the eurodollar is somehow related to the euro, but that is in many ways quite understandable. In reality, the eurodollar system is shorthand for a global, offshore monetary regime that is dominated by “dollars” but includes every major currency. Thus, the participants in these currency markets are usually the same banks, meaning that if there is trouble in Europe and euros (or euroeuros) you can bet (literally) on finding it also in eurodollars. The eurodollar is like dollar, but in many important respects it is inseparable from euro as all of it is cobbled together by bank balance sheets from all parts of the globe.

The Northern Rock Building Society was founded in July 1965 as a merger between two relatively primeval, British financial firms. These are cooperative savings groups that sprung up in the 18th century in England, similar in mission and framework as credit unions or certain S&L’s in the US. Financial growth into the 1960’s had pared back the number of building societies in competition with the (reborn) growing English banking system. Following the merger, the combined firm set about on a buying spree, adding another 53 building societies to its banner over the next few decades.

It was in the later 1990’s, however, that Northern Rock became so distinguished; it was the first UK bank to embrace (enthusiastically) the financial innovation of securitization. By 1997, the company realized that the expansive business model would be better served by converting from a private building society to a public limited company, floating shares and entering the relatively new and exciting world of global money markets. Deposits were and are a serious constraint; wholesale money seemed at the time an invitation toward the infinite.

In 2001, Adam Applegarth took over and began an even more aggressive growth campaign. At its heart, Northern Rock possessed one key advantage – information. The public bank had developed one of the most efficient technology foundations in the business, a vital asset in the wild world of math-as-money. It started closing branches and encouraging its customers to use electronic communications and transactions methods exclusively. The bank used its competitive position to offer consistently lower cost mortgages, which were highly attractive to UK independents who sent the firm about 95% of its volume during the height of the bubble.

By the start of 2007, the former sleepy building society was writing about one-fifth of all new mortgages in the UK. Despite signs of distress in not just mortgages and housing markets but really the global money markets that fed them, Applegarth was still pushing for 20-25% growth in 2007. What had gone unappreciated and almost totally unnoticed was the hubris of “low cost” in wholesale terms; meaning that in addition to streamlining operations and keeping physical costs of Northern Rock low, the bank had also extended this “all or nothing”-like approach to funding. Unlike its UK competitors, the bank’s liability side was proportionally far more exposed to rollover risk.

Continue reading Two Times Was Convincing…

Norma Rae Meets Her Match

By Danielle DiMartino Booth

Norma Rae Meets Her Match

One woman, one word, one sign held high above her head standing alone and defiant atop her work table: “UNION”.

For those who have seen 1979’s Norma Rae, it is impossible to forget Sally Field’s Oscar-winning portrayal of a textile worker who defies the establishment for the greater good. That real-life scene, which ignited a movement to unionize, took place on May 30, 1973 at the J.P.Stevens Textile mill in North Carolina, then the country’s second largest textile manufacturer. The real Crystal Lee Sutton would be fired that very day but would find eventual redemption in unionizing and would not only be reinstated, but receive back pay to boot.

Sutton’s drive for change was rooted in her own roots as a second generation mill worker who witnessed her parents’ lifetime of work for that same company, J.P. Stevens, amount to nothing. After 30 years, they had one week of paid vacation. Her then husband, a unionized paper mill worker, had four weeks of paid vacation.

As today’s clarion calls for a higher minimum wage rise to a fevered pitch, it’s worth noting that in inflation-adjusted dollars, Sutton was making nearly $15 dollars an hour. She wanted more and got it, but, sadly, it should be noted that unionization didn’t just land them better working conditions and benefits. It bought mill workers something their 1970’s era minds could never have envisioned. From that zealous bargaining, higher everything emanated swelling cost structures overnight and laying the ground work for the subsequent gutting of the south’s textile industry.

To take but three statistics: In 1948, 40 percent of North Carolina’s jobs were in textile and apparel manufacturing. By 2013, that share had plummeted to 1.1 percent. Across the nation, more than 100,000 textile jobs were lost in the decade to 2013. In all, 650 plants were closed between 1997 and 2009.

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Corporate Profits & Cash Flows Rebound in Q1, But Not Really

By Jeffrey Snider of Alhambra

These are not business conditions that would suggest a robust hiring environment; quite the opposite

Accompanying the final estimate for Q1 GDP is the first estimate for the corporate profits and cash flow components. Profits rebounded from a dismal Q4, but that actually means much less than it sounds especially in the more important segments. Corporate profits before tax (without IVA and CCadj) were an estimated $1.86 trillion in Q1, better than the $1.77 trillion in Q4 but still below the $1.94 trillion of Q3 2015. Corporate profits After Tax accelerated from $1.64 trillion in Q4 to $1.69 trillion in Q1, but that was again less than Q3 and 2.3% below Q1 2015. The same pattern is found in all the subcomponents.

Corporate profits with IVA and CCadj (the BEA’s version of profit from current production) actually improved by much less than the others. Year-over-year, profits fell 4.3% after declining a large 11.5% in Q4. It was the third consecutive Y/Y contraction, the first time that has happened since Q2 2009. Corporate cash flow also fell 2.6% in Q1, and also the third consecutive decline.

ABOOK June 2016 GDP Corp Profits Curr Prod YY ABOOK June 2016 GDP Corp Profits CF YY ABOOK June 2016 GDP Corp Profits After Tax YY

What we find in this part of the GDP report is simply more refutation of anything like “full employment.” It does, however, blend perfectly within the idea of monetary strangulation. Corporate cash flow, for example, stopped recovering as early as Q4 2010, and began to tread sideways from the familiar 2011 crisis window. Despite three additional QE’s, corporate cash flow in Q1 was 3.4% less than Q3 2010 just prior to the start of QE2, and 6.7% below the end of 2011. Profits from current production are only 6% above Q3 2010 and 2.4% below Q4 2011.

Continue reading Corporate Profits & Cash Flows Rebound in Q1, But Not Really

Details Behind Semiconductor Leadership

By Biiwii, as posted at

I am prompted to write this article because TA’s are starting to pick up on the Semiconductor index’s bullishness and even the overwhelmingly bearish website, the Daily Reckoning is calling bull on the Semiconductor sector.

These Tech Stocks Are Ready to Lead the Market. Before Buying, Read This…

The author uses only charts to clue readers in to this little secret (Semis led the market down and now they are leading it up) but there is much more to the story, and since it has been our story (for its upside and downside market leadership) since 2013 I’ll lay claim before the whole enchilada opens up and every wise guy with a chart or a stock pick is touting the Semis.

In NFTRH we have been noting the relatively bullish status of the SOX (and this week, in light of the May book-to-bill, begun charting equipment stocks in NFTRH+), along with a few other ‘relative bull’ sectors.  But I came across the most compelling evidence of a Semiconductor revival quite by accident while running through the US market indexes.  Well, it was on purpose, but I was surprised at the timing as you’ll see.  Here’s a clip from NFTRH 400…

<begin excerpt>

I took a long on the Banks [edit: quick profit taken on Monday, along with another on rising rates vehicle TBT] as BKX dropped to support. That did not reflect a view on the pigs, it reflected a view on the hysteria surrounding declining interest rates, inflation expectations, etc. The warning here is that hysterias can last longer than your trade tolerance, so I’ll not be too patient. SOX is still bullish and the book-to-bill data will be out on… folks, we interrupt our regularly scheduled programming for (see below)


Attn: Stock Market Players & Gold Bugs Alike

I just went to check the date of the coming SEMI equipment sector book-to-bill data release and what did I find? This is what I found. Unexpectedly, it is already out.

Continue reading Details Behind Semiconductor Leadership

Giving Up on China’s Consumers

By Jeffrey Snider of Alhambra

As always, there is the attempt to put a brave face on what is shaping up to be the worst year yet. China’s “big 3” economic data were all disappointing in the context of what the last “brave face” was supposed to suggest – where weakness at the start of the year was only due to “global turmoil” and would quickly recede. Instead, industrial production stayed at 6% while retail sales expanded at only 10%, matching the worst growth rate (April 2015) of the last ten years.

The real problem, however, is as noted last month: fixed asset investment. FAI was the heart of both the Chinese “miracle” as well as the government efforts to deal with the fallout from its curious end coincident to the eurodollar system’s. The latest figures are suggesting a growing disaster. Total FAI, which includes fiscal activities (“stimulus”), grew by just 9.6% in the January to May period (the National Bureau of Statistics reports FAI in accumulated totals). That was the first rate below 10% since December 2000!

For just the private economy, the accumulated growth rate was 3.9% in the first five months of 2016, down sharply from 5.2% in the four months including April and 10.1% for 2015 as a whole. By my calculation, private FAI in May was up just 1.0% from May 2015 leaving the Chinese economy careening toward disaster.

The mainstream is finally acknowledging the precarious state of Chinese fortunes but once again being careful to “balance” it all out with hopes placed squarely upon consumers.

A slowdown in private investment is particularly worrisome because it indicates that companies are holding off spending, signaling limited confidence in the future and denying the economy what is often more effective and sustainable investment than government spending.

Sheng Laiyun, a spokesman with the country’s National Bureau of Statistics, cited overcapacity and a difficulty in obtaining financing as reasons private companies are reluctant to invest, though he said China’s economic fundamentals remain sound. “The slowdown in private investment shows that economic growth momentum needs to be strengthened,” he said.

“Though…China’s economic fundamentals remain sound”? These are just words stripped of all meaning as the first quoted paragraph devastates any idea of a “sound” economy. The spokesman basically claimed that the economy is sound except for all the primary and basic foundations which are not. The Wall Street Journal does its orthodox job of trying to put consumers at the leading edge of Chinese growth rather than at the end where the economy actually places them. The article starts off by claiming that “other, more upbeat economic data” were overshadowed by all this weakness, including the proper reference to “difficulty in obtaining financing.” That last part is the key which brings together the entire global transition.

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Mood Swings

By Jeffrey Snider of Alhambra

Each time it looks like weakness might only be short-lived, sentiment shoots higher only to be foiled in short order by continued “dollar” and economic pressures

The ISM Chicago Business Barometer PMI fell back below 50 again in May, the ninth time in the past sixteen months that the index came out under the supposed dividing line. It is more likely, however, that US businesses especially in manufacturing just don’t know what to make of the past year and a half or so, and have switched more so to being cautious (even more than they already had been throughout this “recovery”). With the index average hovering right around 50, that might be the only way to interpret the violent mood swings in manufacturing sentiment in the Midwest.

According to MNI Chief Economist Philip Uglow:

Firms ran down stocks at the fastest pace for more than 6 years in May, and while a rebuilding over the coming months could support output, the underlying message appears to be that businesses are not confident about the outlook for growth.

It is rather amazing that the PMI could suffer such a huge setback and then remain under conditions of such stasis for so long. The Chicago BB started 2015 at 59.4, which the mainstream took as a forward indication that Yellen was right about “transitory” weakness. Unfortunately, the very next month, February 2015, the index dropped precipitously to 45.8. Since then, monthly volatility has been the operative condition in what can only be a war between believing Yellen and the business reality of this economy.

Continue reading Mood Swings

Economic Reports Scorecard

By Joseph Calhoun of Alhambra

scorecard 5-29-16

The standout reports from the last two weeks are mostly real estate related. The Housing Market Index kicked things off two Mondays ago with a solid reading of 58 (this is a sentiment index with 50 as the dividing line between positive and negative). Homebuilders are not gaga with optimism but this number has been fairly consistent recently. Housing starts were then reported higher and higher than expected, up 6.6% from the March pace. One is less impressed with the number when looking at the year over year decline of 1.7%.

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Did AMAT Chirp? Implications for the Economy and Gold

By Biiwii

As posted at

The following is the opening segment of this week’s Notes From the Rabbit Hole, NFTRH 396. The report also covers, in detail, the technical status of US/Global stock markets, precious metals, commodities, currencies and even a few individual gold miners and a couple of new (non-gold related) NFTRH+ trade ideas.

In January of 2013 we noted that the “Canary’s Canary” chirped and signaled an economic up phase (such as it was) on the horizon. The Canary was the Semiconductor sector, which is cyclical and economically sensitive. The Canary’s Canary is the Semi Equipment sector, manned by the likes of Applied Materials and Lam Research.

On Friday the market got a nice quarterly report from AMAT as it beat estimates across the board and offered positive guidance. The broader market used it as an excuse to at least temporarily neutralize a perfectly good (daily) bearish pattern on the S&P 500. AMAT received $3.5 Billion in new orders, which is up 37% from last year. Now, does this rhyme with something we have reviewed recently? Recall that the March Book-to-Bill ratio (‘b2b’, shown below) for the Semi equipment sector was positive and more importantly than that, the ‘bookings’ side of the equation was strong. The next b2b is due to be released on May 24 and it will be a key to our analysis going forward.

Display and NAND Flash memory chips saw big jumps while DRAM floundered. This illustrates why more modern, specialty chip companies are doing well and dinosaurs are lagging. But is it an economic signpost? I have created new multi-paneled charts with relevant gold ratios and this seems like a convenient time to introduce them. So lets interrupt the Semi discussion and see how the counter-cyclical theme is shaping up.

Gold vs. stock markets (counter-cyclical indicator) has been flat to down for several months now as markets positively correlated to the global economy have experienced relief. That is fine, we knew it would happen. At this time Au-Stocks remains on a counter-cyclical theme (above the moving averages), but it is being tested.

Continue reading Did AMAT Chirp? Implications for the Economy and Gold