Tuesday, 12 March 2013 09:14

Art, China and RBS

I am working a very, very big research piece and story that will be released in a few days. It will be of Lehman Brother's proportions. Those of you who have followed me since 2007 know that I mean it when I say it (I called Lehman Brothers and Bear Stearns out months before the fact). Due to the complexity of this undertaking and the time constraints to get it out before the statute of limitations runs its course, posting will be sparse for a day or two.


I will leave this for my readers and subscribers to chew on though. The Chinese have challenged international art auction leaders Christies and Sotheby's in an attempt to take advantage of the boom in faux wealth emanating from the Chinese region. Of course, this is happening as reality catches up with China. As excerpted from the subscriber only report File Icon Sotheby's Intelligence Note (click here to subscribe):


“Confidence in the Chinese contemporary art market looks increasingly fragile as the ArtTactic Chinese Art Market Confidence Indicator drops 35% from May 2012. The overall Confidence Indicator is now standing at 49, down from 76.

This is the first time the Confidence Indicator has fallen into negative territory since the launch in February 2009. A reading of 49 (Indicator level below 50), means that the current sentiment in the Chinese contemporary art market is now split evenly between experts that remain positive about the market and those that feel increasingly pessimistic about the current market situation.”

ArtTrak Tribal Art

“ArtTactic released a new report on the Chinese art market that contains signs of a significant slowdown in auction sales. China’s four highest-selling auction houses have experienced a 43 percent drop since the same time in 2011

Auction results from 2011 confirmed the Chinese art market as the largest in the world, yet results from spring 2012 sales exhibit signs of a slowing market. The total auction sales (all categories) this spring from the Big Four (Sotheby’s Hong Kong, Christie’s Hong Kong, China Guardian, and Poly Auction) have dropped 32 percent from USD2.2 billion in autumn 2011 to USD1.5 billion this spring. The overall result is 43 percent lower than the peak of the Chinese art market in spring 2011”

The question du jour, "Can the Chinese leverage nationalistic pride to an extent that they can dent the auction powerhouses?" Or better yet, will they get a chance to do it before we continue the 2009 correction (yes, it ain't over)?
Now, many may wonder what this has to do with RBS (Royal Bank of Scotland)? Read BoomBustBlog for the rest of the week to find out.



Published in BoomBustBlog

In May Of 2010, I published a series of reader contributions on the cruise line industry as well some proprietary research on a particular company in said industry - Royal Caribbean Cruise Lines. The consistent, globally synchronized flood of money totally distorted market pricing and risk in public equities - thus often distorted practically applicability of hard core fundamental and forensic research. Long story short, 2+2 equalled 4 arithmetically, but as a speculator in the globally liquidity slush bowl that was the playground of the coordinated international central banking cartel, the sum was more like 8. Of course, this meta-math is quite unsustainable. Quite frankly, it was a wonder that it has lasted this long, but sooner or later, math tends to subvert magic, which at the end of the day, is really nothing short of psychological prestidigitation, smoke and mirrors. We have revisited this industry after finding a tad bit more optimism for one of the leading companies than we feel is warranted. That report will be posted for subscribers tomorrow, but for now let's look at how we came to this conclusion through 2 and a half years of observation.

The following is a summary compilation of contributions from readers and some rough spreadsheet work from our analytical team regarding RCL. It has not been put in formal report form, but we feel the contents are worth perusing. The entire document is available to subscribers here: RCL_050910_Reader Contribution. The proprietary research on this company is available to subscribers here: RCL 050510 Release Candidate 05/06/2010. And now, on to a brief of the analytical view of recent history...

Existing qualities for an optimal short candidate:

  • ROIC < WACC and decreasing, for many years
  • Huge leverage and debt maturities currently with low coupons
  • Altman Z score <1
  • Industry requires enormous capital to grow the business
  • Industry has excess capacity and is adding more anyway
  • Huge exposure to the Euro and US consumer and vulnerable to weak macro
  • High cost producer
  • Weak competitive position with competitors who are lower cost with better balance sheets
  • Bullish investor sentiment and valuation above long term averages
  • Insiders dumping their stock
  • And a catalyst to help investors revaluate their bullish stance

Only thing I’m missing on this short is identifiable fraud and accounting shenanigans

RCL Summary: “Slow Motion Train wreck”

Market cap: $7B

Ev: $15.1B

Target holding period> 1.5 years

One must remain cognizant that the holding period suggested was not that of a momentum, nor a day trader.

Current Valuation: EV/EBITDA of 11.6 street estimates, 18 P/E on 2010 EPS.

Shares already sold short: 27M shares

Total float: 130M shares

Stock Downside: real possibility the equity goes to $0 over next 2 years based on Altman Z score and potential that CCL decreases prices to push on RCL’s stressed balance sheet.  Consider the impact sovereign defaults would have on RCL if credit markets froze up in response while RCL attempts to fund $2.6B in debt maturities and $4.4B in ship building commitments over the next 3 years with a vulnerable balance sheet and minimal/zero fcf.

While this has proven to be historically pessimistic, and frankly even a tad bit pessimistic at the outset, the logic behind the funding issues was (and still is sound). The sovereign debt issue is a credit/currency crisis that has been postponed by central bank prestidigitation, with a literal cornucopia of stop gap measures that have prevented currency collapse and postponed several serial defaults but at the price of compounding the over-indebted problem by piling indebted countries with even more debt while crippling revenue production through austerity measures - thus at the same time not only failing to provide a lasting solution but further exacerbating the problem while simultaneously extending it. Reference 

Stock Upside .: A 20% premium on 10 year average EV/EBITDA multiple gets 11.4x.  Then using 10% higher than the already optimistic 2011 street estimates of EBITDA of $1.5B, so RCL generates $1.65 in EBITDA in 2011.  This would imply an ev of ~$18.8B, subtract ~$9B of net debt at that time and get market cap of $9.8B vs. current $7B market cap. Or potential upside of 40% if they blow away optimistic estimates, issue no equity and earn a 20% premium to historical valuation multiples.  Limited takeout risk given industry fundamentals.

Risk/Reward: 2.5x   (100%gain/40%loss)

“90 second Summary” on short RCL equity

A short of RCL equity as a way to express an opinion of a long term shift in US and EU discretionary spending patterns and increasing savings rates.  RCL equity has further downside from being over leveraged coming into a competitive pricing environment in a business with tremendous fixed costs. 

Due to long lead times on ship orders, I believe the cruise operators are portraying an unrealistic future in order to secure future capital.  Nearly every other leisure industry from gaming, theme parks and airlines are all postponing capex and pushing out orders are much as possible yet the cruise line industry (primarily CCL and RCL) are both increasing capacity steadily in 2010 and 2011 after dramatic capacity increases in the past.  Street estimates call for increases in prices and net yields while capacity is added to an industry with decreasing demand.

I prefer shorting RCL to CCL due to a very stressed balance sheet, weak market position, poor relative profitability and increasing likelihood of price competition with largest and dominant competitor. 


Insider sales have been accelerating with a recent flood of open market sales by a wide range of company insiders including the CEO


Fundamentals and Catalyst

Recently CCL and RCL equity has moved sharply up on talks of price increases.  Given huge inherent leverage in an industry with large fixed costs this is tremendously bullish for the stocks.  Recent talk of price increases but could be marketing just to incent people to book ahead of time since lead times decreased dramatically in 2008-2009.  Not expecting prices to get back to 2008 levels. 

Position Strategy

One could go long CCL to hedge out risk of industry wide rebound and use CCL div to pay RCL short cost.  Could also use put options on WTI to hedge out risk of oil declining.  Short oil not a bad trade in its own right.  One can sell otm puts to help pay for short and help buffer risk. 

5 key points why shorting RCL and the cruise liner industry is attractive

Excess Capacity and aggressively adding more



Very low asset turnover.


Simply not generating enough sales on their assets.



1% change in net yield is .24 for RCL

Over last 10 years capacity has roughly doubled by growing at 8.5% CAGR.  Ended 2008 with over 370k berths on ~300 ships.  Between 2009 and 2012 capacity will increase by another 25% to over 460k berths.  Expecting US gross capacity to grow 3-4% 2009-2012 with Europe gross adds in the 8-9% vs. historical CAGR of 10% over past 10 years.

Cruise lines international association says that global cruise passenger traffic only grew 7.3% CAGR between 1990-2007 and by 5.1% to 13.2M passengers in 2008.  This huge increase in capacity over the last 10 years has been the cause of falling ROIC and decreasing profit margins as supply > demand.  Instead of pulling back on capacity they are adding more!

Increase in global capacity?  8.6% in 2010, 5% in 2011 and 3.6% in 2012, but installed base has increased 50%+ higher than that which existed before the last fleet expansion in 2003. 

Between 2009-2012 CCL expected to spend $9B on 17 new ships, 11 for EU and 6 for NA.  RCL though has 6 ships at a cost of $5B and adding 28% to their capacity.  The 5400 berth Oasis of the Seas and Allure of the Seas will both be the largest cruise ships in the world.  Average cost for both is $225k per berth. 

 In 2010 CCL is growing capacity in 2010 by 8% and 6% in 2011.  RCL by 12.7% in 2010 and 9% in 2011.

The bullish news is that RCL only is going to add 2/3 of a ship per year after 2013?! This industry should be adding NO new ships starting NOW.

Bull case is that new boats will have higher margins and drive more revenue, but it seems logical to me that given the large influx of new boats coming online that the older boats will become less preferable for customers and likely need further discounting  (since discount to get occupancy up to 100%).

More efficient vessels increasing margins while capacity increasing revenue?? Not unless consumer spending rebounds dramatically.


Weaker US and European consumer

  1. Don’t need to tell you that the US and European consumer is facing serious leverage and income issues.  Worth noting that shorter notice of trip planning require more working capital also.
  2. This change in spending patterns though would be the last draw as more capacity chases decreasing demand now, pricing will certainly come under pressure.  In this situation the competitor with lower costs and a stronger balance sheet will emerge the victor.

Huge fixed costs creates enormous operating leverage, if pricing decreases, this devastates cash flow and earnings.

  1. Cruise liners have tremendous leverage as over 40% of costs are fixed with the rest semi fixed (ie personnel).  20% of revenue from onboard spending, with nearly 100% fixed costs. 
  2. RCL and CCl are 75% of the market.  And cruises are priced so they always sail at least 100% occupancy so regardless of pricing they will ensure they fill the boats.   

So, after reviewing this I'm sure many are wondering what went wrong with such a well through out thesis. I will revisit what went wrong and more importantly whether or not the entire thesis is wrong in the next two to three articles.

Published in BoomBustBlog

Subscribers, please see the new research on this media, sports and entertainment company that made it to the consumer discretionary short list at BoomBustBlog: File Icon (Consumer Discretionary). I tweet new research as well as post it in the "Latest Subscription Content" section in the right hand column of the home page.

Published in BoomBustBlog

Excerpt: You see, pretending you create jobs while waiting for an economic recovery that is still many biz cycle units away is a far cry from actually having real jobs that pay real people real money to buy real, tangible, useful things of value that help the real economy. Don’t hate on me, I’m just keeping it real! Here are the investment sectors and particular companies to look out for…

 bernanke on unemployment

A few months ago I went I Went To The NY Fed To Illustrate The Lies Perpetrated By The Fed Chairman Himself. These lies centered around his purported aid to the general economy and in particular the labor market by pledging to buy $1B USD of mortgage back securities per month.

Now, I’m not going to get into how enriching MBS traders and banks holding fraudulent loans get’s Joe Sixpack a job in this diatribe, but those who are interested can join the conversation via the following:

What I do aim to accomplish in this piece is to illustrate the problems of such potential malfeasance in not only the consumer discretionary sectors (see Reggie Middleton's REALity TV #2 - Bernanke's Bank Bailouts Blow Up Consumer Discretionary) but a side variety of other investment sectors. You see, pretending you create jobs while waiting for an economic recovery that is still many cycle units away is a far cry from actually having real jobs that pay real people real money to buy real, tangible, useful things that help the real economy. Don’t hate on me, I’m just keeping it real!

The BoomBustBlog research team has performed another fundamental/forensic scan to uncover near to medium term Bernanke victims. We identified several main sectors and their primary segments. From that we drilled down into:
• Sub-sectors/segments
• Negative factors and their potential impact: factors driving negative outlooks
• Illustrative companies in each subsector (not the shortlisted ones): These are example Companies, with actual shortlisted companies being released to subscribers later this week via detailed exercise
• News articles/key comments from the sell side and independent analysts - includes supporting articles and key comments

The actual document is available to all paying subscribers here File Icon Economic Recession Short Candidate (Global Macro, Trades & Strategy). As promised, specific shortlisted candidates will be upcoming this week and throughout next week, but be forewarned that we are tweaking and improving the list even as I type this. For those that don't subscribe, here's an excerpt...

re-recession short candidate research

The illustrative companies above are pretty much common sense. Ethan Allen, who can't sell much upper middle class furniture in a recession and a faux housing recovery. Fossil, with trinkets and wares whose demand is generated almost solely by trendy name branding. Fedex, UPS and Ryder - all companies which are literally barometers of global economic commerce and health since they represent commercial purchasing and shipping. Below are some less obvious candidates, though...

transport short candidates

Again, these are simply illustrative companies. Subscribers who are interested in those companies from this exhaustive list who have made it to the initial short list of Bernanke victims that:

  1. have underlying options trading,
  2. are liquid enough to short and
  3. still have enough meat on the bones to feast,

should download this document - File Icon Economic Recession Short Candidate. Casual readers may click here to subscribe

Much more to follow... Don't forget Ruminations on the Fed, the Dollar, ZIRP, QE and Math vs Magic - Hey, Even Harry Potter Has Problems...

Published in BoomBustBlog

On or about September 12, 2012 Dr. Benjamin Bernanke, the Chairman of the US Federal Reserve, announced the 3rd round of Quantitative Easing (because the 1st two rounds worked out so well) under the auspices of attempting to reduce the unemployment rate by buying nearly a trillion dollars per year of MBS per year - ad infinitum!!! I posted the following article in response - Bernanke's Lying Through His Teeth and Not A Single Pundit/Analyst/Banker Has Called Him On It!!! The article clearly articulated how and why the man lied straight to the collective faces of MSM consuming America.

mbsvs unemployment

On September 16th, I took it upon myself to right the wrongs perpetrated by the mainstream media in not calling Dr. Bernanke and the US Fed's commented actions for the bold faced lie that it was, and streamed my own reality TV financial show, directly in front of the NY Fed, quoting data pulled directly off of the St. Louis Fed's website. For all of those who feel that there is no audience for the truth and REAL financial analysis, this short video received nearly 13,000 views and a 101:0 like/dislike ration in less than 48 hours with absolutely no promotion, production or advertising. It was simply.... the truth!!!

Now, for those who don't believe me and the machinations of this Bernanke Fed, let's simply fast forward two weeks to the present where we find interesting content...

From ZeroHedge: Fed's 'Trickle-Down' Policy Lines Pockets Of Mortgage Originators

This rally has reduced the spread between 'risky' MBS and supposedly risk-free US Treasuries to practically nothing as the Current Coupon 30Y MBS trades around 1.67%. However, where the real differential has occurred is in the spread between the risky wholesale rate that Main Street is charged on their mortgage and the government-sponsored wholesale rate they finance this debt at. The spread between wholesale and retail mortgage rates has never been higher (in absolute and ratio terms) providing a new ATM for all those banks and mortgage originators trying so hard to scrape by these days. We just assume the Fed's policy transmission-channel had modeled this trickle-down of mortgage banker bonuses (and taxes) into local Ferrari dealerships and Lafite wholesalers.

The lower pane shows the spread between the retail-facing mortgage rate that Main Street pays and the wholesale-facing cost of funds for those mortgages...

and given leverage and capital (and the now risk-free nature of MBS apparently) - perhaps a ratio of the two is more useful - and much more telling of the disconnect...

From the Confounded Interest Blog: QE3 (MBS): Mortgage Rates Decline But The Spread Is Captured by Mortgage Agencies

The results so far?

As of 9/28/2012, the Bankrate 30 year fixed rate mortgage average rose slightly after dropping on the QEternity announcement.

The spread between the Fannie Mae current coupon rate (paid on new Fannie Mae MBS) over the 10 year Treasury yield has risen to a positive spread after dipping into negative territory last week.

On the other hand, the spread between the Bankrate 30 year fixed rate mortgage average and the Fannie Mae current coupon is near an all time high indicating that the agencies are capturing rents from The Fed’s agency MBS purchases.

If the goal of The Fed is to help stabilize HUD, Fannie Mae and Freddie Mac, that is one thing. But if the goal is to lower rates to consumers, the Fannie Mae current coupon would have to fall. An alternative explanation is that lenders have captured the increased spread and not the mortgage agencies.

In the meantime, here is the subscriber content detailing the companies that we feel will be the initial victims of the Federal Reserve Bank catering to its TRUE constituency (the big money center banks) as they collaboratively sell the US worker, saver and consumer down the river.

There are four reports here - Consumer Discretionary with the remainder to be found in the Retail section. All who are interested in accessing this research can click here to subscribe. Those who have not heard of me should look into Who is Reggie Middleton?

Published in BoomBustBlog

Following up on our little documentary on Steinway, I gladly present the valuation report, revenue and valuation models for the company to paying subscribers...

Steinways Musical 092112 unlocked

Subscription materials (click here to subscribe):

The GOOD stuff!

Pro & Institutional Subscribers

Published in BoomBustBlog

No, I didn't even bother to listen to the Bernanke speech! It was a waste of perfectly good hot air. The MSM is all abuzz with the bullshit. A quick Google search for Fed QE3 reveals the cackle...

So, this is the scam story, in a nutshell - Bernanke says he will target the mortgage market to reduce unemployment by pledging to buy $40 billion USD of mortgage securities per month until a demonstrable improvement in the labor force materializes. What the F^ck!!!! So, is it just me or does everyone assume that the most common job in the US is MBS trader? Exactly how direct is the mechanism between MBS purchases and employment? Does anyone truly believe (obviously, from the links above, many actually do) that Bernanke can lift employment by buying mortgage securities? 

Okay, all bullshit aside, this is the skinny. The banks are in trouble again. Actually, they've been in trouble since 2007, but the stress seems to be approaching the acute phase again. The housing scam is once again catching up to this nation's lenders and credit gamblers. The pending downturn in the CS index will prove my point, as will the stress emanating from the inevitable break in Europe. Bernanke has come to save this market and its participants by a) buying the stuff that there is still really no market for, and b) announcing that he will do so indefinitely.

Do I sound conspiratorial? Well, mortgage rates are already at record lows, so what the hell is the purpose of trying to push them even lower, and by force at that? Oh yeah, I forgot... To increase employment. Let's not leave all of those MBS traders to fend for themselves in the unemployment line.

This is what I would do if I was Fed Chairman and I was serious about lowering unemployment - Which Bernanke is not!

 I would take the Fed's resources and purchase SBA bonds aimed at pumping cash into the small business sector, not the housing sector  which is still trying overcome the ramifications of the last bubble popping.  You see, the SBA guarantees loans to small businesses, a group which represents the single largest contributor to employment this nation has. $40 billion per month in SBA bond purchases which would be used to guarantee loans to business creating a significant multiplier effect of no less than 5x - 7x ~ around a quarter trillion US dollars per MONTH in direct small business and direct employment stimulus is like sparking a live wire in a vat of gasoline with a semtex lid - at least in terms of the potential explosiveness this would have in terms of invigorating the small business sector, hiring and within a very short order, the spiking of employment. Now, I admite that this would be blowing a new bubble, but Bernanke is trying to do this now with housing finance, no? Now I admit, the process would not be that simple, but its a whole of a lot simpler than what Bernanke is trying now - that is unless he's really not trying to boost employment... Hmmmm!!!!

The argument can't be made that the SBA loans are not that liquid either. I query, how liquid is the MBS market now?

Of course, the old Bernanke put - which has morphed and metastasized, and is now the Bernanke CDO cubed with inverse kickers - has lit a fire under the ass of stocks. As usual, fundamentals and common sense take second seat to momentum gambling and non-sense. When does the math return? When things get real ugly. This is why my team and I have been focusing on the sector that has mistakenly been seen as much stronger than it actually is - the retailers and vendors of consumer discretionary products and services!

Is The New US Consumer Consumption Bubble Primed To Pop? Yes, There's A Bubble!!!

Recent and related research

Below are three companies that probably will not do well even with Bernanke's machinations. When and if Bernanke fails, look out below.... Click here to subscriber!

Retailer Preliminary Analysis 08/03/2012
Published in BoomBustBlog

The Wall Street Journal recently ran the following: College Debt Hits Well-Off: Upper-Middle-Income Households See Biggest Jumps in Student Loan Burden. Having a college age child myself, I can certainly identify. From my perspective, there is absolutely no way in the world a cogent mind can deny that there is an education price bubble in the US. I most certainly find the "This couldn't be seen coming crowd" to be anathema - to wit, the MSM and even Wikipedia (whaaatttt????) have featured the problem:

What makes this topic so interesting is that it brings to mind the work that we've been doing in the consumer discretionary/durables sector shorts - reference "BS At The BLS Leads To Profitable Short Opportunities As Hopium Smokers Get High Off Of Depreciated Dime Bags Of Manipulated Euphoria!" for a strong supportive fundamental/macro argument and some sample short candidates. Long story, short - I believe the consumer and retail sector is due for a pretty significant correction. My team and I have gathered a material amount of evidence supporting said assumption, and the evidence keeps mounting. The Economonitor ran a most interesting piece that puts a different perspective on this, which I excerpt as follows (the emphasis is mine):

... We look at aggregate consumer credit (and not merely the revolving portion more commonly associated with retail activity) because we believe that term loan borrowing—where available (chiefly student loans and autos)—frees up cash for other consumption.  Another way of viewing this is that transportation and education are not truly elective purchases and not leveraging those purchases would otherwise reduce overall consumption.

What the numbers tell us today (as illustrated in the below graph) is that, as of January 2012, the growth rate in all forms of consumer credit on a 3 month average basis grew at a rate greater than at any time during the credit bubble.  Moreover, at $2.495 trillion, outstanding consumer credit stands a 97% of its peak of $2.576 trillion in August of 2008.  Deleveraging, my friends, this is not.

Yesterday the Consumer Financial Protection Board reported that student loans alone likely moved past the $1 trillion milepost at year end.  

Aren't the post recession eras supposed to be engines of growth? Is it different this time? Of course not, silly rabbits. Tricks are for kids. It's not different this time because we NEVER LEFT THE RECESSION OF 2008! The Fed's liquidity spigot combined with regulator's legalizing outright fraud simply hid the fact that we have been in a great recession ever since. I have discussed this in detail in the post "The Circle of Life -Purposely Disrupted By Multiple Central Banks Worldwide!!!"

Additional tidbits from that most excellent Economonitor article...

    • Are we once again entering a zone similar to the period immediately prior to the Great Recession in which consumer borrowing also grew rapidly, and more and more of the new borrowing was applied to debt service instead of new consumption? Watching retail sales trends over coming months should be instructive in this regard.
    • The crash in the housing market has left us with $873 billion in Home Equity Line of Credit balances (at Q4 2011) owed by consumers, most of which is no longer collateralized by home value. While borrowers may be making payments (many at vastly reduced rates of interest given the floating rate nature of those loans), I would put forward the argument that as a practical matterunsecured consumer debt in the U.S. is actually well over $3 trillion.
    • We are programmed by past cyclical phenomena to look at consumer credit expansion after a recession as being a positive – heralding the arrival of the “confidence fairy” who the more supply-focused in the macroeconomic establishment view as the critical element to a recovery.  There is no doubt that there is an element of this in the expansion illustrated below but, like so many things about the present secular crisis, that is surely not the driving force when a substantial portion of the increased indebtedness is applied to making ends meet, rather than triggered by optimism about the future.

So, what's next? Well,  my next post will illustrate my findings on a company closely tied to consumer credit. Then I will drill down farther into the consumer discretionary/durables sector for casual readers and paid subscribers (privileged content, of course) alike. New subscription research is available for download in the consumer discretionary sector - Preliminary analysis and short candidate (Consumer Discretionary).

For those that do not follow me, I have been pretty spot on in regards to bubble identification... See Who Is Reggie Middleton for my track record

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Published in BoomBustBlog

CNBC has as a headline “US Shares Seen Higher on Jobs Data Boost”, a very interesting (and rather bullish) take on the state of affairs given what I see as the actual situation. If you recall, I had a much less sanguine perspective last May, as illustrated in US Employment Hopium Smoking Idealists? An interesting contrast to the MSM title above comes from a much smaller publication (Hawaii News Daily) which ran this story a few days ago:

Attention subscribers: New subscription research is available for download in the consumer discretionary sector - Preliminary Analysis
(Consumer Discretionary)

 Did you know that a smaller percentage of Americans are working today than when the last recession supposedly ended?  But you won't hear about this on the mainstream news.  Instead, the mainstream media obsesses over the highly politicized and highly manipulated "unemployment rate".  The media is buzzing about how "163,000 new jobs" were added in July but the unemployment rate went up to "8.254%".  Sadly, those numbers are quite misleading.  According to the Bureau of Labor Statistics, in June 142,415,000 people had jobs in the United States. In July, that number declined to 142,220,000. That means that 195,000 fewer Americans were working in July than in June. But somehow that works out to "163,000 new jobs" in July. “

And another interesting snippet...

... the "employment rate" gives a much clearer picture of what is actually going on in the economy.  The employment to population ratio is a measure of the percentage of working age Americans that actually have jobs.  When it goes up that is good.  When it goes down, that is bad.  In July, the employment to population ratio dropped from 58.6 percent to 58.4 percent.  Overall, the percentage of working age Americans that have jobs has now been under 59 percent for 35 months in a row.

The following is a chart of the employment to population ratio in the United States over the past 10 years....

The gray shaded bar in the chart represents the last recession as defined by the Federal Reserve.  As you can see, the percentage of working age Americans with a job dropped sharply from nearly 63 percent at the start of 2008 to a little above 59 percent when the recession ended.

But the "employment rate" kept on dropping even further.

It finally bottomed out at 58.2 percent in December of 2009.

Since that time, it has stayed very steady.  It has not fallen below 58 percent and it has not risen back above 59 percent.

This is very odd, because after ever other recession since World War II this number has always bounced back strongly.

But this has not happened this time.

In essence, it is starting to look like 4 percent of the working age population of the United States has been removed from the workforce permanently.

The good news in all of this is that things have at least not been getting any worse over the last couple of years.  Even though things have been bad, at least we have had a period of relative stability.

The bright guys over at RGE Monitor see it this way:

In July, the U.S. Bureau of Labor Statistics (BLS) employment report showed payrolls grew by 163,000 after rising by a downward revised figure of 64,000 in June;

This is a stunt designed to create a hopium-induced false sense of euphoria. Let's throw some common sense on this. The Bullshit Labor Statistics report show payrolls grew by 99,000 (yes, that's right! Last months report was revised downward, as it usually is on average). 

May job creation was revised slightly higher. Private payroll rose 172,000 after gaining 73,000 in June, while government payrolls fell 9,000; a piskup in services sector jobs led gains. The household survey showed the unemployment rate at 8.3% as both employment and the labor force dropped, and the broader U-6 unemployment measure increased to 15%...  In late July, initial unemployment claims increased 8,000, while the four-week moving average slightly edged down- in line with the improvement in job creation numbers in the July employment report. However, in July, the Conference Board survey of online job demand showed demand falling by 153,600, after showing modest growth in the second quarter.

So, what's the deal with the general state of the economy? 

U.S. Q2 2012 GDP Growth Falls 25% Amidst the Most Aggressive Fiscal and Monetary Stimulation This Country Has Ever Seen As Durable Goods Expenditure Declines

As per RGE Monitor: According to the advance estimate of Q2 2012 GDP by the U.S. Bureau of Economic Analysis (BEA), q/q growth was at a seasonally adjusted annualized rate (SAAR) of 1.5%, after growing at 2% in Q1 2012. The data show a slowdown in the growth rate of real final sales, to 1.2% q/q after rising 2.4% q/q in Q1 2012. The underlying data show a continued weakening in government spending and substantial deceleration in both business fixed structures and fixed residential investment. The data leave U.S. annual growth in 2011 at 1.8%. Clearly, the painfully slow recovery has been insufficient to heal the labor market.

U.S. Consumers: Confidence Continues to Decline in July; Personal Finances and Job Market View Pessimistic

The Reuters/University of Michigan survey of consumer sentiment index in July declined for the second consecutive month, with the index falling to 72.3 from 73.2 in June, but up from 72.0 in the early-July preliminary survey (its lowest level since December 2011, from 73.2 in June 2012). While sentiment around current conditions improved in the July survey, expectations dipped and consumers’ assessment of the labor market and personal finances were negative. The Conference Board Consumer Confidence Index in June fell further to 62.0 from 64.4 from May, registering a decline in the expectations index and painting a mixed picture about the labor market.

U.S. Consumption: Retail Sales Decline for Third Consecutive Month in June

Nominal retail sales in June showed a stronger 0.5% m/m decline, held lower by motor vehicles and parts, building supplies and gasoline spending, while core retail sales—excluding gasoline, autos and building supplies—dipped 0.1% m/m. 

 And on the topic of retail...

Although most see and are starting to admit that we have never really left the 2008 recession, share prices have been called "Cheap" by many "so-called" financial experts despite the S&P flirting with an all time high and Europe preparing to plunge the world back into a concerted global recession (again). Think about the gigantic swath of the S&P that exhibited negative revenue growth but whose shares still rose on higher earnings. They are being rewarded for bringing LESS money into the door. Combining the increasing weakness of the US consumer with the increasing revenue weakness of the US corporation and the upcoming (nearly guaranteed) defalationary shock out of Europa and near all time highs in the stock markets, and you have a recipe for a put parade, no???!!!

I had the BoomBustBlog team carry out a scan of consumer discretionary companies in 'Retail' industries. We started with 102 stocks and whittled them down to 17 based on revenue, operating profit and net profit trend. We also looked at their P/E mutliple, business model and a couple of other more subjective aspects such as analyst expecatation and YTD performance. The same was performed for consumer discretionary companies in the 'Consumer Durable' category. We have one very strong candidate for the consumer/retail short of the year crown, and subscribers (click here to subscribe) can download the preliminary here File Icon Preliminary Analysis
(Consumer Discretionary)

In the meantime and in between time, here are examples of companies that made it to the shortlist but failed to get the crown!

Abercrombie & Fitch and Aeropostale. Two mall stocks and you know how I feel about those malls as Europe pops...


By the way, these are two popular mall stores, and you know how I feel about those malls as Europe pops...

PEI 2nd Quarter Earnings Review - Why Aren't Analysts Asking The Hard, Or Even The Obvious Questions???

Much Of The Developed World Prints Today, But Where's The Wealth? Real Value Of Risk Assets Continue To Plunge!

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Published in BoomBustBlog

This is the result of BoomBustBlog's Tech Research. It follows our wins with Google and Research in Motion.

FB Sep 21 12 18 puts

Professional and institutional BoomBustBlog subscribers can use their own inputs to determine if FB will have further to fall, having access to a simplified unlocked version of the valuation model used for our Facebook analysis, available for immediate download - Facebook Valuation Model 08Feb2012.

As espoused last week - Is Time For Facebook Investors To Literally Face the Book (Value)?

Facebook gave its first quarterly report as a public company yesterday, and it failed to deliver the goods. Unfortunately, but as can be expected, the MSM and the sell side have apparently failed to pick up on the most pertinent aspect of the conference call, which also happens to have been one of the first things uttered by its young CEO. To wit:
We ended June with 955 million monthly active users, over 1/2 of whom used Facebook on a daily basis and over 1/2 of whom used Facebook for mobile devices. We saw more people using our services at the end of June than at the end of March across all key countries, including 3 million more people in the U.S. Growing the network of people who use Facebook and expanding the social experiences available to them remains the foundation of our efforts and the key to our future success.
Let's parse those words... "Growing the network of people who use Facebook and expanding the social experiences available to them remains the foundation of our efforts and the key to our future success." 
Should the astute fundamental investor (of which there aren't many of us left, are they?) take Zuckerberg's word as to the key to Facebook's future success? If so, methinks it's time to start stuffing those long term puts under the mattress, to wit...

Reggie Middleton on Facebook user growth

How much does the guy who called Facebook a dog from the begininng think its worth? Again, as excerpted...

The specific, numerical, actionable answer from my team is the purview of paying subscribes only, but we can always throw some common sense on the topic for free - as per pages 6 and 7 of our March Facebook valuation report -icon FB IPO Analysis & Valuation Note - update with per share valuation (317.36 kB 2012-05-21 09:43:30), pages 6, 7 and 10.

FB IPO Analysis  Valuation Note Page 06FB IPO Analysis Valuation Note Page 06FB IPO Analysis Valuation Note Page 06

FB IPO Analysis  Valuation Note Page 07FB IPO Analysis Valuation Note Page 07FB IPO Analysis Valuation Note Page 07

FB IPO Analysis  Valuation Note Page 10FB IPO Analysis Valuation Note Page 10FB IPO Analysis Valuation Note Page 10

Let's face it, FB was hot not only because FB was a popular destination for the social media crowd, but more so because "sheeple" not only want to follow big name brands to lose money, they need to! They need their hard earned assets removed by none other than the sell side agents doing God's work, among others. I made this perfectly clear in The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1. It's as simple as this, Who are you going to believe, the sell side hype machine or your lyin' eyes (AKA, BoomBustBlog performance and accuracy)? Reference Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best? for more on the same.

Professional and institutional BoomBustBlog subscribers have access to a simplified unlocked version of the valuation model used for our Facebook analysis, available for immediate download - Facebook Valuation Model 08Feb2012. The full forensic opinion is available to all subscribers here FaceBook IPO & Valuation Note Update. It is recommended that subscribers (click here to subscribe) also review the original analyses (file iconFB note final 01/11/2011) as well as the following free blog posts on the topic:

    1. Facebook Registers The WHOLE WORLD! Or At Least They Would Have To In Order To Justify Goldman’s Pricing: Here’s What $2 Billion Or So Worth Of Goldman HNW Clients Probably Wish They Read This Time Last Week!
    2. Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
    3. Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure
    4. The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldman’s Facebook Fund Marketing Brochure Into Our Models
    5. Did Goldman Just Rip Its HNW and Institutional Clients Once Again? Facebook Growth Slows Pre-IPO, Just As We Warned!
    6. The World's First Phenomenally Forensic Facebook Analysis - This Is What You Need Before You Invest, Pt 1
    7. The Final Facebook Forensic IPO Analysis: the Good, the Bad & the Ugly
Published in BoomBustBlog