Selected from so many Nits to Pick.
By Wolf Richter for WOLF STREET.
This is a collection of 32 tactics, instances, misnomers, immortal fake propaganda, and even wrong-doing cropping up ceaselessly on Wall Street, in the media, in press releases, in earnings reports, and in the broader nexus between Wall Street and the media. All of them were pointed out by WOLF STREET commenters. I put them together and grouped some of them, and added some explanations in a few cases even when not needed. In no particular order:
#1: “The moronic statements regarding ‘money on the sidelines.’”
“That ‘money on the sidelines’ thing drives me nuts. I sit around wondering how captured financial commentators must be to even entertain such concepts on such a regular basis.”
“Money on the sidelines is immortal. It has been cited all my investing life, and it will still be cited long after I’m gone, to be passed proudly from generation to generation, no matter how often it gets debunked.”
“I found a coin on the sidewalk once. It must be the infamous sidelines money. Just a million coins more, and I will have enough to go on vacation.”
#2: “The claptrap surrounding earnings beats – after earnings targets have been quietly but drastically reduced.”
#3: “Forward earnings projections” to rationalize high stock prices. Everyone is doing it, even the Fed. Forward earnings projections are part of the great body of American fiction and get slashed as earnings-report dates get nearer so that the much-lowered projections can then be “beat” (see #2 above). This produces the absurd situation where forward P/E ratios are always far lower (currently 18.4 according to FactSet) than the actual P/E ratios (currently 24.6, highest since the Financial Crisis).
#4: “The revolving door between government and Wall Street – ‘the swamp.’” Drain it already.
#5: “The revolting door between government and Wall Street” – that would be one of Wolf’s infamous typos.
#6: “Exclusion of negative earnings from P/E calculations of broad indices.” The Russell 2000 does this. There are a large number of loss-making companies in the index. Excluding their negative earnings distorts earnings measures of the Russell 2000, such as the P/E ratio of the index. With losses included, the P/E ratio of the Russell 2000 would be about four times higher than the officially quoted P/E ratio without losses. It’s not a secret: FTSE Russell and iShares disclose that losses are excluded; but it’s the fake P/E ratio without losses that is being quoted all the time to rationalize high stock prices.
#7. “Bogus ‘Chinese Walls’ and other internal conflicts of interest.”
#8. “Arms-length Agreements” to describe veiled self-dealing.” Also see #7 above.
#9. “Mark-to-Fantasy accounting standards.” A common situation when an asset is valued on the balance sheet based on whatever (including wishful thinking) instead of market price because the market price would be too inconvenient.
#10. “‘Non-GAAP’ accounting metrics.” This might be fake income with all the bad stuff removed, producing a “non-GAAP” profit vs. a GAAP loss, a common feature in earnings reports by Corporate America. Or it might be homemade metrics that everyone has to pay attention to, while ignoring the GAAP accounting metrics.
In the same non-GAAP vein: “Use of EBITDA and subtracting all ‘nonrecurring items’” – which turn out to recur regularly.
#11: “GAAP accounting metrics…” ha, we knew that.
#12: “Debt-financed share buybacks” – a form of equity stripping.
#13: “Positive coverage of ‘share buy backs,’ ostensibly to enrich share ‘owners,’ but really to enrich share sellers and to recycle management stock options through the corporate treasury?”
In the same vein: “Mopping up overgenerous stock options by looting the treasury with share buybacks, described as “Returning Shareholder Value,” while never paying a dividend.”
#14: “Leveraged buyouts with asset-stripping.” This was a favorite in brick-and-mortar retail some years ago, leading to a massive pileup of bankruptcies by major retailers, such as Toys “R” Us.
#15: “Banging the Close.” This can occur in all markets, including cryptos. Here is a definition for the futures market, where it is illegal: “A manipulative or disruptive trading practice whereby a trader buys or sells a large number of futures contracts during the closing period of a futures contract (that is, the period during which the futures settlement price is determined) in order to benefit an even larger position in an option, swap, or other derivative that is cash settled based on the futures settlement price on that day.”
#16: “Citizens’ United”: The US Supreme Court case on campaign finance, Citizens United v. Federal Election Commission, as explained by SCOTUSblog: “Political spending is a form of protected speech under the First Amendment, and the government may not keep corporations or unions from spending money to support or denounce individual candidates in elections. While corporations or unions may not give money directly to campaigns, they may seek to persuade the voting public through other means, including ads, especially where these ads were not broadcast.”
#17: “Gimmicks to mask stock-compensation expenses.” Also see #13 above.
#18: “Cost-of-Business fines to punish corporate wrongdoing, rather than punitive damages plus jail time for responsible individuals.” This includes fining a company like Facebook what looks like a large amount for serious wrong-doing, but that represents only a fraction of its quarterly profit and just becomes part of the cost of doing business.
#19: “Perfectly Legal tax-avoidance schemes.”
#20: “Quarter-End Window Dressing.”
#21: “Pump-and-Dump” – which is a feature, not a bug in some of the reporting.
#22: “Front-Running and stop-loss harvesting from peeking at orders.”
#23: “Narrative Fraud (hyping fake news).”
#24: “The media conveniently forget to disclose the financial interests of guest speakers in their financial columns and misinformation shows. I wouldn’t put it past the MIC ‘swamp’ to purposely misinform the POTUS, as well. Rid us of the swamp already!”
#25: “Goodwill.” But wait… this is GAAP accounting. See #11 above.
#26: “High-frequency trading which evaporates whenever the market needs genuine liquidity.”
#27: “Wagging the Dog – manipulating markets via fake or incorrect headlines to trigger reactions from speed-reading algorithms.”
#28: “Wagging the Dog 2 – manipulating primary securities prices in liquid markets via small-scale trades in illiquid derivatives markets.”
#29: “Opinion presented as fact, especially on the front page rather than editorial pages.”
#30: “Machine-generated formulaic articles which aren’t labeled as such.” But wait… they’re so cheap and nearly instant to generate, and machines (trading algos) love reading machine-generated articles! No humans needed.
#31: “The mindset in which ‘If 2 sources say the same thing it must be published as if true,’ especially when the 2 sources are colluding behind-the-scenes.
#32: “The savings glut.” Yeah, that’ll be the day.
My patience has been exhausted. Read… The Wall Street Journal (and Other Media) Should Stop Lying About Repos
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Wolf – great list!
I was particularly interested to see your #8. “Arms-length Agreements” to describe veiled self-dealing.”, and #14: “Leveraged buyouts with asset-stripping.”. These items are at the foundation of how modern Private Equity firms make money. A Private Equity firm is simultaneously an investor-owner of a private company, and a seller of vendor services to it, and a supervisor of its management. This allows them to stand on both sides of many potentially valuable transactions by this private company.
So technically a Private Equity firm can influence or authorize the payment of an extraordinarily high dividend in their capacity as management, which is then paid to themselves in their capacity as investor-owners.
https://www.bloomberg.com/news/articles/2019-08-14/ancestry-com-owners-aim-to-extract-900-million-payout-with-loan
Or as management they can influence or authorize the sale of valuable company assets to a private equity related entity (asset stripping) at very attractive or below market prices. Or as management they can influence or authorize the payment of extraordinarily high fees to themselves, as compensation for services of considerably less or nonexistent economic value.
https://www.ft.com/content/06438914-9926-11e9-8cfb-30c211dcd229
Or as vendors they can submit an inflated invoice to the private company, and then influence or authorize its payment to themselves in their capacity as company management. Or as management they can influence or authorize the sale-leaseback of company real estate to themselves which gives them both a below market price asset, and a creditor position in the event of this companies bankruptcy. Or as management they can influence or authorize heavy company borrowing in order to pay for all the above, but only this private company is responsible for the repayment of these debts.
In this way a Private Equity firm can siphon away the valuable assets of a private company, leaving its employees and creditors to contend with the liabilities that remain. Since Private Equity firms will only invest in private companies, which are not required to report their financial actives to the Securities and Exchange Commission (SEC), this means details of these conflicted activities require less disclosure and can be hidden from the public eye.
You are definitely an angel. Thank you.
Wolf, what about the biggest scheme of them all, ‘index investing’.
You mean the low cost form of investing that has beaten active funds by almost every metric the last 30 years? I would suggest the real scam is actively managed funds that return less than index investing and enrich the fund managers.
It’s not what you don’t know that will get you in trouble. It’s what you know for sure that just isn’t so.
I’ve heard this before, but never understood the argument. Can you elaborate?
Excellent list – would be a great basis for a book on modern corporate finance.
Consider including all the insanity of QE (still going on) and TARP. To big to fail banks…because we would have had “tanks in the street.”
Yes it really would.
The reason why the whole the cup full drips down to the lower classes thing doesn’t work is that the rich can datn well afford to keep buying more cups once the first one is full.
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I would love seeing a book with these titles written as for children.
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Example#1
Every year we sell 3 apples. We are predicting we will sell this year 5. We still sell 3 apples. Our company stock has gained value. We do this every year. Every year it works.
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Example#2
We have a company. We are seling apples. To increase company value we buy our own apples and throw the away. Our company stock has gained value as we sold more apples. We do this every year. Every year it works. Where does the money for appples come from?…Look there is a spider behind you! Huh, he went away. What was the question?
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very smartly
There is one very big lie beyond Wall Street. The SUSTAINABILITY of DEBT.
In 2019 the Treasury issued the most bills, notes, and bonds ever. In other words our debt has never been so high.
Whether this debt trajectory can be sustained is doubtful (in my opinion). But the challenge is how to present the numbers in the way the most people can understand them.
We already know that we have a lot of OUTSTANDING debt ($17 Trillion) and there’s no reason to beat a dead horse so I’m not talking about that. I want to talk about is what we are doing to maintain (or increase) that debt. Sort of discussing where do we go from here?
To understand how we got here, we need to remember what we did during the last 2008-09 crisis. We had multiple bouts of QE where we issued a tremendous amount of bills, notes, and bonds. In 2008 we had a 53% increase in T bill issuance. In 2009 we had a 138% increase in Note issuance and 117% increase of bond issuance. Total issuance increased by 47% and 30% in 2008 and 2009, respectively.
From 2010 to 2016, we managed to keep our issuance rather steady and below the 2009 issuance per year. Unfortunately, as soon as the new administration came in, we saw massive increases of new issuances. 2018 and 2019 grew 20% and 25% YoY, respectively. Because these numbers are compared to a high base already, 20-25% yearly increases look quite unsustainable.
To make my point clearer, one only has to look at 2019’s T bill numbers. We issued 9,135.474B (a 26% increase from 2018) but used 9,058.603B of that to retire old debt. We raised only 76.871B in CASH, or a measly 0.8% of what we issued! Essentially all the T bill issuance is used to pay off maturing T bills. If you don’t call this a debt trap, then I don’t know what is. 76% of our total issues in 2019 are in T bills.
You can say then why don’t we shift our borrowings to longer Notes and Bonds?
Well 22% of our issuance are already in Notes and another 2% are in bonds. Currently there is a 3.4:1 ratio of Bills to Notes. Kicking the can down the road 2 to 10 years is not a great panacea either. While we raise more than 25% new money in Notes, a good part of that will be <1 year to maturity each year because of time decay. Today's long term debt is tomorrow's short term nightmare.
Even if we succeed transforming more Bills (short term) to Notes (longer term), we still need to answer the question, who will buy this debt, or why will anyone buy duration?
In 2019 Foreigners (Indirect bidders) bought about 56% on Notes and Bonds. But locals only bought about 27.6% (down from 32.5% in 2018) because the rest of the 9.9% was bought by the Fed SOMA. That's no telling if Primary Dealers sold these as secondary market sales to Foreigners.
Why do you think the locals will buy any more that what they bought in 2019? Seems to me, an issuance increase of Notes and Bonds will have to be bid from the Fed or Foreigners. With the Chinese pissed off at us, then the Fed is left as the only chance.
Correct. It seems either fed will have to buy that debt or yield got to go up.
Since September, Fed balance sheet has grown nearly by the same amount of US Federal debt growth.
Get ready for the next level of:
https://en.wikipedia.org/wiki/Advance-fee_scam
Presently there’s a pretty good court case against PLAID- which is not really a scam but!!! if a bank does not use a vetted API, then CONSUMERS are left holding a bag, with critical personal banking details given to secondary, tertiary, quaternary etc. platforms. These “platforms” will be and probably already the culprits that will have and will use data that they have “skimmed” from bank associations to glean data to “sell” as new retail funds that are really roll-overs of debt that larger, earlier hedges, and private funds will be selling through CBE futures etc. on open markets. I’m saving my little comment to reference if I’m right or not in the next 5 years if not earlier.
The large billion dollar index funds are investing in “PRIVATE” fund groups that retail can not. I think are of “UNKNOWNS” and UNACCESSIBLE to REFERENCE by retail investors will be the real scary depositories of the debt that is being dumped while the few relatively elite are able to harbor their profits from sales at the peak which has been occurring over the last couple of years especially.
What is really occurring is privatizing from raiding public companies, and land of those companies. States and Fed is really cooperating because tax regulations to protect, and set-aside tax revenues that have not been paid for years have also been rolled over due to new contracts after sales that go to the “new” private investment groups that are buying the re-sold real assets. They are not going to open-market process through bankrupt sales within the communities. Many of the resold and repackaged are then sold to FOREIGN MNE groups, head employees are NOT US taxed employees, many sub-contracted foreign employees etc etc, which really further erodes tax revenues.
All of the “depletion allowances” are going off-shore. Ownership of land is increasing to off-shore non-citizen corporate groups.
The real danger is the Saudi Investment Fund. Totally private. Uber is really owned(controlled) by the one fund that is supported globally by the concept and principle of slavery.
Even though I have used the reference to this comment of “scam” funds, the concept of scamming is quite perverse, and what is presently occurring at a rapid pace is really not pretty, and ultimately the extreme antithesis of right actions based on reasonable principles for business operations
This house of cards is going to be one for the ages……just hope I’am buried before it all ends. My kids deserve it…..along with their trips to Maui.
I liked Lisa Hooker’s notion of “negative unemployment”. When enough people have 2-3 different jobs it will be quite possible to calculate it, and thus we have another zero bound that can be crossed in addition to interest. The LH threshold is my proposed name, but I’m far from being an economist, so will check to my betters on that.
Us plebes will be taught to refer to them as “the many over employed” and will accept +n values being assigned to them for employment calculations.
This further obfuscation opens many new PR opportunities for many agendas.
Perhaps a new statistic for the BLS: U7
U7 – Total OVERemployed with 2 or more jobs, plus all persons marginally attached to the labor force (no regular job), plus total employed part time for economic reasons (job=money=economic reason), as a percent of the civilian labor force plus all persons marginally (whatever that means) attached to the labor force.
Wonder what John Williams will do with that one.
Those greedy overemployed (whatever % of U7 they are) are stealing jobs from otherwise hard working unemployed Americans trying to pursue the American Dream, dammit!
Isn’t that a double negative, negative unemployment? arh arh arh
Or, “When you multiply two negative numbers or two positive numbers then the product is always positive.” Thus, two negatives multiplied ensures a stock market rise. Of course, now I get it.
Grammatically, one could say negative interest=not interested.
So that leads to people buying bonds they are not interested in.
(Actually, nobody was interested in that coin in the gutter, either.)
Then having vested negative interest becomes hoping the bond defaults?
So now I’ll spare everyone the tedium of playing with words and numbers simultaneously, or “quantifying” this mess, as I have no idea what I’m doing.
But I secretly would like to incorporate the square root of a negative number or division by zero into my model.
Double plus employment. The stock market doesn’t regard the – sign. Good news is good news and bad news is good news. Two bad news is just double plus good news.
Our great stock market, you may have heard of it. I certainly have. It never falters, and it is really quite something. I am told it is great again.
This little thread delivers the laughs!
I have always enjoyed the comments by your readers, they are interesting and informative.
I like #25 – Goodwill. It makes the point that even GAAP accounting does not give you a clue what a company has actually earned. If a company can say they believe their brand has become more valuable and book an increase in value of the brand as profit they are basically pulling earnings numbers out of Frosty’s magic hat. Would it be asking too much just to have companies tell us how much money they earned and base PE off of that value?
Corporate accounting has basically become useless as a tool for determining valuation – but be sure to do your “due diligence”.
When the stupid money is making money and the smart money is losing their shirt (a first in U.S. stock market history) something is very wrong in the U.S. stock market. The stupid public money which is always wrong they just havn’t lost everything yet in this gigantic ponzi scheme.
One more: Anglo Saxon Capitalism: you have ALL those means of tracking CAPITAL, but NOT ONE required line item on the income statement shows straight payroll LABOR at the firm (direct and indirect). Millions of pages of 10-Ks, no LABOR breakout!
You sure hit a good nail right on the head. Wikipedia is starting to show labor cost on some corporate info. windows. I just finished reviewing Fortune’s list of top 20 and comparing their data
buckets and of course the content. Any conclusions on comparative EPS etc. are only as good as the initial data. Leaving out total evidentiary labor cost data is deliberate, collusive criminality. My opinion, but I’m pretty biased in wanting relevant comparative real facts. The FTC supports and all financial reporting is to conceal rather than reveal.
Fiduciary standard will fix everything. Financial advisors must already adhere to this standard and they never do anything wrong, right?
My favorite is “sharing economy,” previously known as “renting.”
Runner up is “gig economy,” previously known as “part time job.”
Runner up is “gig economy,” previously known as “part time job.”
On-call serfdom. It’ll make Americans competitive with Bangladeshis.
Unamused:
I’ve labeled it, “Rickshaw America”!
Gig is different from part-time. A traditional, historical part-time job still typically had regular hours and one could schedule life (or another job) around those hours. Regular workers as well as part-timers could be offered overtime or called to help in a pinch, but it was discretionary for the worker.
Today’s Gig work is what Unamused said, “on-call” serfdom. If you’re not there when they demand your labor, you lose the gig “employment”.
stock market is crushing it, my net worth has skyrocketed. Praise Trump, praise the markets. Pessimists are always poorer. You can come up with 1000 reasons why things are misstated won’t matter.
Yes consensual hallucination is lot of fun, while it lasts.
No money on the sidelines for Rich Robinson, that much we know.
There were traders who owned a shit ton of tulips in January of 1637 making the same statement. Enjoy the market. Take a lot of photos. You won’t see it again for a long time.
Just financial repression through Fed QE/ZIRP.
https://en.wikipedia.org/wiki/Financial_repression
That is an absolutely great link.
Rich-Just the fact that the 50% plus of your fellow citizen pessimists who are NOT in the market are ALL poor, proves your point even more strongly, no?
Comments like this always remind me of one of my favorite quotes.
“The power of accurate observation is commonly called cynicism by those who have not got it.”
– George Bernard Shaw
Hopefully Rich Robinson will hold onto a large chunk of those gains when the consensual hallucination wears off.
Good one! Though I like even more: “A pessimist is an optimist in full possession of the facts.” (Schopenhauer)
As a small contributor to this big list, I really appreciate how you synthesized it and united the themes (e.g., distinguishing GAAP and non-GAAP as BOTH unreliable sources of information!). What do you call “goodwill” when everybody finally gets pissed off about all the “bad decisions” that got us to where we are now?
“Immortality!”
– cas127
Tell it, brother cas!
Funny how companies never seem to book Badwill against earnings. I guess nobodies trademarks ever lose value.
As near as I can tell corporate profits are basically whatever they want to say they are. As long as the Fed is willing to provide cheap funding in the bond market, profits are not longer necessary – just fund operations with bond sales and keep pretending everything is awesome.
I would start to believe them if they entered it as badwill!
I use to borrow a fair bit of money for my snack bracket.
It went something like this.Borrowed a bit. Then a bit more.
Then a lot. Then just a bit.It was that last little bit that
caused problems cause suddenly the bank starts paying attention.
Countries and companies do the same thing.It when we
all start paying attention that they get into trouble.With countries
it get reflected in the value of their currency and companies
like GE in their stock price.For instance with GE I sold when i
heard how underfunded their pension plan was.This why
they all try to hide their true situations.
“It when we all start paying attention that they get into trouble.”
Yep…all it takes is a few rounds of QE and 20 years of near ZIRP to get people asking if their life savings are nothing more than the Monopoly money of their fiat overlords in DC.
Constitution? What Constitution?
According to the lyrics of Chris Rea:
And all the roads jam up with credit
And there’s nothing you can do
It’s all just bits of paper flying away from you
Look out world
Take a good look what comes down here
You must learn these lesson fast and learn it well
This ain’t no upwardly mobile freeway
Oh no, this is the road
This is the road
This is the road to hell
Used to think that I was cool
Ridin around on fossil fuel
Didn’t know that what I was doin
Was drivin down the road to ruin
Damn this traffic jam
How I hates to be late
I feel like a lot of these complaints can be addressed by the fact that this is not a bug, it’s a feature. We’ve seen this before (albeit not exactly in this manner) with the Gilded Age, and we know how it ends. History doesn’t repeat, but it certainly rhymes. I just hope we learn something from this…or that there’s anyone left to learn afterwards.
JG,
Hell, I’ll happily take gilding, over a politician’s paper promises.
Thanks Wolf made day today. Can’t wait till earnings!
DOES IT REALLY MATTERS?
The indexes keep shooting up as long as the investors believe in the omnipotence of Fed!
Are they wrong, so far? NO!
People do worship the Fed, but that has nothing to do with religious belief and everything to do with money.
This comment is useless without the accompanying link to the article which explains it. That article was about how the Fed blessed Wall St. with six trillion in six weeks. You, by way of comparison, got nothing.
The article was total BS and garbage because these people are clueless about how repos work, and that’s fine with me. But I don’t allow my site to be abused for promos to this type.
All too true. That article doesn’t explain that repos are rolled over and ends up being sensationalistic, misleading rather than informing. I’ll bring that up with the author. My apologies.
I would let it lie. There has been enough of a kerfuffle between them and me. I generally respect the site. And once they figure out how repos work, the issue will go away.
I will let it lie. Still, critics of Wall St. should be sticklers for accuracy, and beyond reproach, lest such critics lend themselves to further Wall St. disinformation. Until that happens, In Wolf We Trust.
“Pro Forma” earnings were the issue twenty years ago. The classification of recurring expenses as non-recurring. By 2000 analysts thought the S&P was 20% overvalued based on Pro Forma. The first event to levitate markets was the additional volume gained through electronic trading. If you ever mailed a stock certificate you know. Then the obsolescence of physical “market markers”, who set the bid and ask, and put up their own liquidity when a crash occurred. Now algos provide “liquidity”, and Fed helps. The second catalyst to modern monetary insanity was the Iraq war. That war provided more deficit spending than all of Reagan’s Cold War deficits. The cost to kill a terrorist is roughly 12M each. The financial crisis parallels the ME wars, including the final act, which is taking the war/financial crisis, “off balance sheet.” The financial system can employ the same accounting practices, or mal-practices that it did in that war, a process by which government creates monetary resources to fight a war that cannot be won, has no mission, or objective, and no terminus, completely befits the working of a financial system. The real question is why are they printing all this money? Investors tend to swoon over large nominal gains, regardless of their underlying worth. The biggest nonplussed response to a term is “rehypothecate”, we all know how it works, it’s like, really, so what.
That one goes in my WS folder for more consideration. Thanks.
REPO ADDICTION CONTINUES! ( the NOT QE !)
‘Just days after we reported that yet another disturbance appears to be brewing below the calm surface of the repo market again, we got another indication just how strong the market’s addition to the Fed’s easy repo money has become, when moments ago the Fed announced that its latest 2-week term repo operation was also the most oversubscribed since December 16, as $34.3BN in securities ($27.65BN in TSYs, $15.5BN in MBS) were submitted for today’s $35 billion operation, as dealers continue to scramble to the Fed for liquidity which they are no longer using for “regulatory” year-end purposes (since it is no longer year-end obviously), but are instead using it to pump markets directly.’
zh
sunny129,
This cherry-picked stuff about “another disturbance” really gets old. So today the overnight repo was undersubscribed by $73 billion, when the Fed offered $120 billion this morning, and only $47B were taken.
AND yesterday’s overnight repo of $60 billion unwound this morning. So in terms overnight repos: +$47B – $60B = -$13B (drain of $13 billion)
Also, today an $8B repo from Dec 30 unwound. (drain of $8 billion)
This brings today’s tally to -$13B -$8B + $34B = +13B compared to yesterday (net add for today of $13B).
On Jan 16, another 14-day repo will unwind.
It looks like MBS submitted accepted seldom fills on the 14 day REPO. It also seems as though MBS is higher as a percent of the total, which is definitely not as ‘cashlike’ as t-bills. One the hand they offload MBS from their balance sheet, then they take it in trade in REPO, when the market breaks they don’t have to make the (QE) swap?
In my opinion, here is good to view today’s 1/14 repo: (in billions)
CASH Net: Borrowed = 12.975B
CASH IN: New 82B
Overnight 47.000
Term 35.000
CASH OUT: Maturing 69.025B, must pay the Fed + interest
Overnight 60.725
Term 8.300
ALSO, the dealers MUST PAY the NY Fed 35.335B for the 4&8 week T bill they just bought last week.
Add the maturing Treasuries 1/14 they own (which we don’t know) and you see the Repo might not cover 100% of their NY Fed bills.
Remember the Repo is settled in the Triparty system which can net Treasury purchases and maturities with the Fed.
Why do keep deleting my post? Can’t handle the truth?
I’m tired of arguing with cherry-picked stuff. It’s never-ending, and it’s boring for everyone else who comes here to read the comments. If you want to know the total of the Fed’s assets, including Treasuries, MBS, and repos — plus from time to time on the liability side, “reverse repos,” because they do the opposite of repos – and how they changed over the past months and years, I cover this at least on a monthly basis, and currently more often.
The monthly articles I do are the most complete because they include the Fed’s MBS activities (continued roll-off). You will find that your total figure and my total figure are not that far apart, but I use the data from the Fed’s weekly balance sheet because that’s the most complete source. The one from Jan 2 is right here:
https://wolfstreet.com/2020/01/02/what-the-fed-did-to-calm-year-end-hissy-fit-of-its-crybaby-cronies-on-wall-street/
stock market is now more than 150% of GDP
it is one of the reason it has to be prop up with non stop liquidity/fresh money injection
and the so good 32 Misinformation Schemes & Other Tactics Used by Wall Street, Corporate America & the Media, you speak about
Question: How long anything can last when it runs on fakery corruption financial gimicks and total disconnection from reality ?
GAAP has enough holes to drive a 100x earnings multiple through so when a company needs “non-GAAP” methods to look good then you know you’re dealing with boarderline fraud.
Also, Citizens United making it officially legal that a billionaire has a billion times more free speech than the common man will be the end of our democracy. The only question is how long we delay until the ultimate authoritarian end.
Back at the lycée we were told the election of Pope Symmachus (d.514) caused a serious schism because, well, Symmachus had bought the elections in too open fashion: while all contemporary sources agree on this point but don’t give many details, one cleric wrote Symmachus distributed 400 solidi (large gold coins) among popular and influential Romans, who in turn proceeded to influence the Roman people who at the time elected the Pope.
While I am sure there were earlier occurences of this (Roman clientelism was far more direct, meaning directly paying the voter to support one candidate over another), this happened over one and a half millenium ago. Nothing has changed bar the physical form of money and how information is disseminated.
I’m personally pretty convinced the Bronze Age collapse was a slave/lower class revolt due to iron technology spread. But slaves still were the fossil fuel of ancient rulers. They were unlimited, fossil fuel (among other resources) isn’t.
Things have changed, it is different this time. TPTB are really in a bind, especially with “the gadget”, which means they lose, too.
Not to take anything away from your political points, “civilized” people are still the same for maybe 13K yrs or so, so I agree and am of the same opinion as you and A in that regard. I send money to Bernie. Good history read, I’m not up to Rome yet, but still have the luxury of learning time in my retirement. Wish there were more on Hominids, DNA helps.
“Use of EBITDA and subtracting all ‘nonrecurring items’” – which turn out to recur regularly.”
Dunkin Donuts has done this for several years uninterrupted.
Not to forget WeWork, Uber, Lyft, ShakeShack, etc., that concoct metrics like “contribution margin” or “operating profit margin” – excluding standard operating costs like rent, stock compensation and marketing – to compute “profits” that, in turn, determine performance bonuses.
WeWork’s “Community-Adjusted EBITDA” is my all-time favorite.
And the SEC couldn’t care less. IMO, a very large portion of earnings reports for US stock exchange listed corps should begin with “Once upon a time” and end with “cross my heart and pinky swear”.
Non GAAP doesnt have the same ring to it as generally unacceptable accounting principles.
We humans are creatures of acceptance and use non-acceptance to weed out unwanted traits to develop our species best traits.
Please someone tell me how the current system of barter and wealth distribution is getting past human discernment and discrimination. How are some allowed to distinguish themselves from others and live distinctly? Owning the media channels helps with the programming.
The connotation of discern is one of perceptive recognition of non-obvious underlying truth; the connotation of discriminate (since the 1860s) is quite the oposite, being more of an unjust imposition of difference where none is deserved.
Distinguish and distinct are from the Latin: dis-, meaning lack of, apart, or oposite; stinguere, meaning to prick; and the -ish ending that tagged on to many English words coming from the Old French which is (as far as I can tell) meaningless. The denotation is thus to prick apart, an intentional and nontrivial separation. The connotation is sometimes simply that things are not interchangeable (distinct, indistinguishable, etc.) and sometimes the object of particular favor (distinction, distinguished, etc.).
Interesting.
Just have to point out how the Black community picked out “Dis” and made it a stand alone everyone uses. Our culture has copied from them a lot.
Have a niece that taught at the Sorbonne and now mostly teaches French in UT. She’s a Medievalist. I’ll check further on that -ish and see if she has any info.
She pointed out the equivalents in English and German. Not a word, a derivational morpheme…..added to mean “sort of” or “kinda like”. Said -tion in English had similar function. Doing this from memory, sorry, don’t know how to cut and paste here.
Probably a good thing.
“generally unacceptable accounting principles” Love it.
I find Latin fascinating but flunked it in 9th grade, which pretty much tells you 1) I had a shitty teacher, and 2) my age.
Great analogy, especially since nit-picking has a tendency of getting prickly and smushy, processing simultaneously.
‘Synergies’ – Job cuts
Here’s one:
If you go the U.S. Bureau of Labor Statistics and ask their CPI calculator to tell how much it will cost you today to buy what you paid $100 for a year ago, they will tell you:
$102.09.
So, with wages coming in at near zero growth in 2019 that means we only got about 1-2% poorer this year.
situation normal= hopeful or hopeless
My personal favorite:
“Unlocking Shareholder Value,” by loading up the company with debt and driving it to bankruptcy.
yells at cloud
Good article. It’s a keeper.
There’s lots of these kinds of lists out and about, and it’s about time WR put together one to post here.
Collect them all!
16 Meaningless Market Phrases That Will Make You Sound Smart On CNBC
https://www.businessinsider.com/meaningless-phrases-that-sound-smart-on-cnbc-2011-6
10 Dirty Tricks Wall Street Con Artists Will Pull to Keep the Rip-offs Going
https://www.alternet.org/2009/02/10_dirty_tricks_wall_street_con_artists_will_pull_to_keep_the_rip-offs_going/
Wall St. is like the weather. Everybody complains but nobody does anything about it.
Right on about the Wall Street mythology. Best article and comments beautiful keep up the superb work.
This article is a great synopsis of the disinformation practiced by Wall Street and MSM.
I watched a recent edition of Max Keiser’s TV programme and he made a very salient comment as to the current mess that the global financial system is in.
Keiser called the current situation “Capitalism without capital”
I think this statement accurately sums up the current mess
How about my pet peeve: “The market cap of a company is determined by the current price of the stock * the outstanding number of shares”.
NO NO NO JUST STOP WITH THAT!
The current price of the stock depends on how much is being offered FOR SALE RIGHT NOW. That is *NOT* the same as it being worth what all the stock together (i.e. the value of a company) is worth.
Yup. It’s too low: The value of an asset is exactly the amount that can be borrowed against it. If nobody checks, one can borrow many times against the same asset.
What? Is this right? The Fed is considering lending Hedge Funds directly at Repo?
https://www.wsj.com/articles/hedge-funds-could-make-one-potential-fed-repo-market-fix-hard-to-stomach-11578997801
If this is true then all our guesses are right. The Hedge Funds are having a hard time financing their Treasuries and MBS.
Yeah, directly instead of indirectly. I wonder who the source was for this was. The WSJ didn’t specify. It only mentions “analysts” as the source, not an “official” or “people with knowledge of the matter.” I’m wondering if hedge funds got the WSJ to run this piece, hoping to pressure the Fed into doing it.
During the Financial Crisis, the Fed did all kinds of things under its alphabet soup of programs, including funneling money to big private investors and hedge funds for them to invest to boost asset prices. Those were direct short-term loans. It wasn’t done through the repo operations. So in principle, the Fed has already done it in the past.
Quote:
Hedge funds currently borrow through a process called sponsored repo, in which they ask a large bank to act as a middleman, pairing their government bonds with money-market funds willing to lend cash. The bank then guarantees that the parties will fulfill their obligations—repaying the cash or returning the securities. Firms trading through the FICC contribute to a fund that would cover a borrower’s default.
Discussion:
In sponsored OVERNIGHT ONLY repo, the sponsoring dealer’s account is used to net the sponsored hedge funds purchases. So it is the broker dealer’s role to provide Liquidity. If they know a hedgie is “dangerous” they just won’t lend them. Doubt you’ll meet a CASH RICH hedge fund since they are usually highly leveraged. The Fed lending them directly is like throwing gasoline to a fire.
I say light it up!
Make Theta Cheap Again!
Wonderful!!
Thanks to Wolf and for all the comments; now a days, I have something other than Lio and other comics to get my day started with a good laugh..
”Laugh and the world laughs with you, cry and you cry alone, eh?”
Solid list, but it’s amazing to me no mention of the Fed. How about comments from the Fed such as repo QE is not QE, or we’re data dependent (I somehow doubt this). The Fed owns the market now, so anything Wall Street analysts say is almost irrelevant.
I’ve heard the current repo injections or whatever you call them, might very well become permanent. If the Fed is going to place a permanent bid under stocks, then the equity melt up has only started. No reason S&P 4000 could not be hit by year end.
The Fed owns the market – The Fed is allowed to do what the people allow it to do.
Policy, regulation, governance, legality – the tools of the people.
The Fed hangs over this site like Central Valley Tule fog. Sometimes Wolf or a commenter gets up high enough to see where we are briefly, and then back down into it we go.
I like your #10. Every quarter tech companies like Shopify love announcing “Ajusted Earnings”, with headlines “blew past earnings..” with 14 cents from the “Whisper number” of whatever like 6 cents. Lol! Would be very surprised if they ever made a GAP earnings profit. Mind you the P/E from Amazon or Shopify is never mentioned in the earnings release.
#4 & #5 the revolting revolving door between Wall Street and government
In my younger days, I used to think this was because Americans were simply more patriotic than those in other countries and thus more willing to serve their country.
Now in my declining years, I realize that this is just simply institutionalized corruption!
In 1970 my Father said the only way he could tell if a company was cash flow positive was to check if the company was up to date on it’s employees’s pension plan contributions!
Today that tell tale is long gone!
A relative of mine was an Air Force combat veteran. He was promoted to manage contracts for the USAF. He retired from the Air Force and was hired to manage technology contract development for corporations selling defense systems to the Pentagon.
You may need to be able to read income statements and balance sheets to begin to be able analyze a company’s finances.
David: Sadly today financials mean whatever you want them to mean!
My VERY short career as a company “officer” early 70’s, the supposedly Econ man (had degree and said he had worked for them) used to say, “We’ll D&B them” as some kind of credibility test? Out of my pay grade, even back then.
There is something strange going on with the GFC repo for the last few days.
Volume of Treasury Repo was way down last 1/10/2020.
Only $17.7B traded. The average per day is close to 50B. Wonder if the snapshots for G-SIB were done later than end of the quarter or year.
My favorite quotes of today are found on zerohedge by Sven Henrich in ‘Reality Versus The Repo Lightning’
“I call it a perversion of the financial markets.” in which he laments the actions of the New York Fed.
This is followed by a classic: “Fed liquidity is too overwhelming and the Fed, all too eager to toss cash around like a drug dealer coke packets at a frat party, does not appear to want to stop.”
And to Wolf for publishing WolfStreet, you are keeping alive the infinite wisdom taught to us by Yogi Berra, “You can observe a lot by watching.”
All the hype reminds me of the line in the late night infomercial for some over priced gold coin: “This is a limited time offer, so buy now and avoid regret”.
“the hype reminds me of the line in the late night infomercial for some over priced gold coin: ”
…And at this low price, we have a strict limit of five coins per customer….”
This reminds me of one of my favorite bands – The Pretenders. New name should be The Exaggerators.
I always find it funny when the press writes:
The quarterly result of company X missed the analysts expectations.
The reality is that the analysts had no clue and wrote nonsense.
Better ask your grandma if company X will do better or worse in Q1 / 2020.
‘Worst thing’ an investor could do right now is take profits, PNC’s Amanda Agati says
https://www.cnbc.com/2020/01/12/worst-thing-investors-could-do-right-now-is-sell-pncs-amanda-agati.html
Sounds like Amanda is scared that enough people might do just that, and that all that “profit-taking” (selling) will end the fun.
This “don’t sell” propaganda after a quick market drop is right up there with “money on the sidelines”.
What they are really saying is – “you are too stupid to figure things out, so let us have our way with you”.
Actually I am quite in favor of Citizens United.
Now I would be willing to trade that for the cessation of the Democrat monopoly in the fields of education, entertainment (hollywood) and the MSM. If conservative viewpoints were given half the time alloted in these areas as well as a ban of censorship on all the major social media platforms, I’d say get rid of Citizens United.
No viewpoint should receive half the media coverage if it’s clearly erroneous or a minority opinion. That would be disinformation.
For example, should people receive media attention when they are clearly making outlandish claims?
And who should be the judge of what is “erroneous”? Who gets to decide what is “outlandish”? That is called censorship. It is not the American way.
Secondly, when you set out to strike out a minority (a metric very difficult to assume) what you are advocating for is one party rule, a tyranny of the majority. Might as well not have elections at that point.
As an added note there aren’t very many cases of a majorities within US politics when you examine the two political parties. They tend to be umbrellas of different positions staked- sometimes you find diametrical positions within the same party.
Does Fox count as MSM in your mind?
It most certainly is. There isn’t a MSM voice that doesn’t want to sell out American workers. The left wants to replace the population with immigrants for more preferable voting patterns, and there is still a formidable part of the right (which includes Fox) that want to sell out Americans for cheaper labor. And show me a MSM entity that champions a small centralized government.
Does anyone really believe the Keynesian fraudsters at the Fed are going to taper their repo madness in February? There’s no such thing as tapering a Ponzi.
One of my favourkites is how, when a grim number is acknowledged (e.g. plunging GDP, profits etc…) articles of that nature are usually concluded with ‘expectations are much rosier going forward’
No explanation as to why expectations are rosier.
I guarantee you the PR teams who control the MSM have psychologists who have decided that it is necessary to temper bad news with a touch of hopium because if they didn’t people would fall into despair and if people are negative, they buy less, invest less – and the economy goes into a death spiral.
Empty investigation.
My favorite is, when there is a big financial crime is committed, .gov will appoint an investigative commission with judges, professors, white collar crime investigators and so on. The inquiry will go on for six months to one year. Finally, they will find nothing and all (alleged) criminals will walk free. Public will forget that issue by then and move on. Whenever there is a investigative commission, most of the times the alleged criminals will walk away free.
Scapegoating.
There will be 100 banks doing wrong. Investigators will focus on the smallest of them. They will leave the big fishes out and catch the smallest fish to fry. Investigators will proudly say to the media that all criminals will be eventually caught and justice prevails and so on. Meanwhile, right under their nose, 99 other guys will walk away free.
Diversion.
When there is news about a 100 billion worth of financial loss, suddenly a scandal involving actress will break out. They will focus on her divorce, alcoholism and drug abuse. As usually, people start taking about urgent matters rather than important issues.
Non-profits (not for common people profits)
I am not talking about pediatric cancer research or anti-drinking campaign. Most of the non-profits have names that sounds so good on paper. If you go deeper and look who is under the hood, then you will find the usual political groups under a different name. For example even the “citizens united” is not a grass root level organization with common citizens as members.
So great this list, it should be a monument of the internet, to be archived (archive.org).
When Wolf says “Fed’s MBS activities” I tend to real it as “Fed’s Massive Bullsh*ting Activities”.
Go on, prove me wrong.
Wolf, How about lobbyist’s and (billionaire) insiders who turn the elected and appointed representatives of the people into their personal servants via political donations and promises to come?
How about when analysts say “there’s blood in the streets” when the indices drop a mere 3%. If that’s blood in the streets, what were 2001 and 2009 – bloody heads dropping from the sky?
Great compilation! Just supports the fantasy world that finance and so called investing has become. The finance world reminds me of my dogs, jumping at fire flies in the summer.
Yep, I’m old school, I gotta see a return on my investment by the business, not the market. If the market rewards me with increased price, fine I’ll take it, but the business has to make money to get me to look at it.
Oh, dear, Wall Street on Parade accuses Wolf of having a ‘hissy fit’ over the repos. Their argument is that instead of paying back the repos, they’re just rolling them over.
But wouldn’t that imply that you would have to have infinite new players, to expand the outstanding balance, instead of the 13(?) players in the game? Or perhaps, the players are paying back, but just increasing their needs exponentially?
So many questions.
The first two stock market crashes this century were due to corruption, collateral was stripped away from investments, into offshore accounts. Margin was unvetted. Fed replaced that collateral which expanded the monetary base doubly fast. No way QE alone accounts for these stock market gains. Money hiding offshore writes it’s own tax cuts. we had to bribe them with our own scheme. Please bring back those lousy jobs, please. Then Wall St inserted itself into our pension funds and retirement savings, and the deal was done. The sellout is complete when we identify with our financial oppressors, which to be honest is a lot easier than fighting them.
Loved reading it all- down to the end.
Tears in my eyes- out the door to
brave the cold and pick up a
copy of a version of Ramayana
to weather the snow storm
this weekend.
In other words, totally out-of-IT
thank you