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2018-10-11 07:48 by Karl Denninger
in Market Musings , 289 references
[Comments enabled]  

In early 2007, more than a year before it all went to Hell, I started writing The Market Ticker with a series of articles that exposed outrageous behavior by banks -- including Washington Mutual, which later failed.  These firms featured paying dividends out of money they didn't have, essentially "capturing" additional debt (for which they'd be liable in one form or another) to sustain the payouts.

This was a very solid indicator that the market had essentially backed itself into a corner from which it could not escape.  Stock prices were supported by these "payouts", in that it's very hard for the price to collapse when you have such a yielding instrument.

But when you are paying out more than you are making in operating cash flow the act is a fraud because you cannot sustain that payout, and to claim otherwise is a lie.  Continued into the indefinite future it must cause the failure of your firm; this is a mathematical fact and yet I challenge you to find that disclosure in 10K and 10Q reports.

The SEC and other regulatory agencies have never once, to my knowledge, jailed or otherwise brought criminal charges against any firm for doing this, yet it is exactly identical, in factual terms, to promising that you can jump over the Empire State Building.  You can't, and these firms cannot either, into the indefinite future.  It's impossible.

Buybacks are an inherent fraud upon the public for two reasons: First, they claim to be issuing options and restricted stock to executives at current valuations which, of course, means that there is only value to the executive in them if the company prospers in excess of the current performance.  This is a lie when there is a buyback because when you shrink the denominator the price of the remaining shares rises ratably irrespective of performance.  That's fraud.  Second, they quite-arguably constitute illegal insider trading in every instance because the executives who benefit from same mathematically are the ones voting on the buyback and who have inside information on both the intent to do so and the outcome while obtaining the shares subject to same.

Today we have both dividends being paid out in excess of operating cash flow and buybacks being paid in excess of operating cash flow.  Both are being funded with debt accumulation exactly as was the case in 2007.

There are many who argue that this is "not a big deal" and that debt levels are "reasonable."  Oh really?  They said that in 2007 too, and look what happened.

Today we have an even more-perverse problem due to the EU (specifically, German) rate curve.  Draghi's policies have effectively capped the long end of the US rate curve, which is quite serious indeed -- if "curve inversion" matters.  Who knows if it still does, of course, but it looks like we're going to find out.

What you need to keep in mind in a debt-fueled bubble like this, however, is that valuations do not matter until someone pokes the wrong place with something sharp.  In other words there is exactly no boundary on price -- at all -- but in addition there is no value behind any price.

That's why, when reality returns you get a crash rather than a small dip or "correction"; the forward projections have all been frauds driven by the claim and belief that one can do uneconomic things forever and simply accumulate debt into the indefinite forward future without consequence.

This is the "Illinois head-in-sand" syndrome, where you can pile up a couple hundred billion in forward pension obligations against a ~$40 billion budget -- an impossible-to-fulfill obligation yet the market has not yet called "bullcrap!" on that and collapsed the economy or state government, despite the mathematical impossibility of meeting those obligations.

Then there's the fact that Trump has shot his wad, along with Treasury in compounding the business frauds with monetary shenanigans.  Of course nobody is calling smiley on that, but they all should be.  But heh, it's all good when you run 6%+ monetary expansion during a boom!  Why that's not blowing bubbles! 




Likewise the rest of the so-called "market" is doing the same thing, but just remember how it ended in 2008.  Last time around this was concentrated in housing; a large piece of the economy to be sure, but really not that significant when one looks at it in terms of percentage of the whole.  The key was that the '08 disaster was a larger bubble, in percentage terms, than the 1999/2000 tech bubble -- it had to be, in order to "re-inflate" it.

This time around it's damn near everywhere, from firms like GM to Tesla to your favorite tech firm like Netflix.  It's much larger, and as a result when the fatal stab comes the outcome will be far worse, just as it was in '08 .vs. 2000.

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2018-10-11 07:00 by Karl Denninger
in Market Musings , 108 references
[Comments enabled]  

.... you should consider investing in this as well.

You're going to need it, IMO.

These stocks are ridiculously overpriced and they will crash.  When they do you're going to want one big fat bong-riff, right here and now, to make up for the loss of value in your portfolio.

Don't get me wrong -- the legal cannabis market for both CBD (doesn't get you high) and THC (does) based products is real.  It's going to expand like a big fat bong riff in your lungs but price is always the issue with any investment.

Simply put the market isn't that big and shifting it from illegal marijuana sales to legal cannabis sales channels can't possibly result in enough revenue and thus profits to justify these valuations.

No way, no how, no matter what you do.

I'd like the idea of buying some PUTs on these companies except that their implieds are quite unfavorable and thus the POTential gains are not what I'd like.... after all these firms are not likely zeros -- just way, way overpriced.

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2018-10-10 16:00 by Karl Denninger
in Editorial , 767 references
[Comments enabled]  

Ok *******s, I'm calling you out.

There was no 155mph sustained wind anywhere on the ground in Michael's path.

There was no 140mph sustained wind anywhere on the ground in Michael's path.

There was no 130mph sustained wind anywhere on the ground in Michael's path.

There were 100-110mph sustained winds.  That's a nasty Cat 2, but not a 4 or 5.

There was a stormchaser on the ground, in a truck, that went through the eyewall and into the eye at Mexico Beach.

I know exactly where he was because I've been over there.  There were also multiple wind gauge readings in the same vicinity -- 110ish gusts, 90-100mph sustained.  Entirely believable given what I saw happen live on that stream watching the eyewall and eye pass over him, but not 155.

At 155 his truck would have been lifted and thrown; I would have watched him die on live video.  It didn't happen.

Yes, Mexico Beach and parts of PC got trashed -- mostly by surge.  No big shock there.  But most of those buildings you're seeing have intact roofs.  Not all (there's a fair bit of older stuff over there that was not designed to modern codes) but most.  And that's important because in a Cat4+ storm there's damn near nothing left; that's an EF3 tornado!

Hurricanes are nasty but let's stop with the bull****.  The video coming in (and the livestreams) do not support Cat 4 or 5 winds -- and neither does the available set of data from wind gauges right at impact.  In the same videos you see someone's roof go flying there's a billboard that's standing proud, tall and undamaged.  That does not happen in a Cat 4 storm.

The reason you board up your house is in evidence right there in those videos.  In a Cat 4 or 5 it does not matter as the entire building, unless it's reinforced concrete or similar, will be flattened.  If you get surged you're screwed.  The reason you board up your house is that in a Cat 1, 2 and moderate 3 if your house and roof is up to code and if you do not get hit with surge it will remain intact right up until the guy down the street, who doesn't have a place up to said code or has a bunch of crap laying around in his yard winds up generating missiles that go through your windows!

The "homes that were there and were moved" and are destroyed are nearly all mobile homes - and there are a lot of them in that area.That's very typical Cat 2 damage; most to all mobile homes will be destroyed in a Cat 2.  They simply cannot take 100mph winds.

I'm not trying to make light of this storm folks.  It was nasty at impact and I was fully-prepared to bug out if I had to.  As it stands we barely got tropical storm force winds here and only about an inch or so of rain.  Nothing; we get worse in a thunderstorm.  There are two videos up on my channel from the exact time the storm was coming into Mexico Beach about 20 minutes apart.

If you were between Panama City and Apalachicola, or even east to Carabelle and similar and in a place subject to surge, or in a mobile home, or in a structure not built to modern codes for the roof in particular then yes, you got it in the face.  But the damage I'm seeing is typical of a Cat 2 -- not a Cat 4.

Those running a politicized level of "reporting" on storms like this do a great disservice.  When an actual Cat 4 or 5 impact looms those who went through this one, didn't get surged and were in modern construction will stay and die.

We must put a stop to this sort of "grade inflation" especially among those doing it for political (e.g. Globull**** warming) reasons -- they are going to get people killed.

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2018-10-10 13:58 by Karl Denninger
in POTD , 120 references


Come and get it!  On sale now through the weekend -- email to hang this on your wall tomorrow.

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Quick hits up to and through landfall....


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