Monday, July 6, 2020

Trader: "Markets Are Basically Just A Liquidity Meth Lab..."

The Bubble

At this stage markets are basically just a liquidity meth lab, an artificial behemoth constructed and subsidized by the Fed stepping in on any downside in markets. Following $3 trillion in liquidity injections in 3 months ($12 trillion annualized) markets have entirely disconnected from the economy and any traditional valuation metrics. The Fed’s role in managing markets is becoming ever larger and has now expanded into buying $AAPL and $VZ bonds among others in addition to monetizing US debt. Call it what you like, just don’t call it capitalism, rather a nationalization of sorts.
Indeed just in June we saw the Fed making policy announcements 3 times, each time following the S&P 500 seeing downside action toward retesting its 200MA and each time markets reacted with bounces and rallies. Call it a coincidence if you like, but it’s not. These markets remains closely managed and watched by the Fed.
Wall Street analysts have largely been made obsolete as earnings growth metrics have long been rendered irrelevant with everybody bowing to the Fed put as the primary reason for buying stocks.
Cases in point: The 2019 rally didn’t kick off until the Fed expanded its balance sheet via repo beginning in September 2019 and markets rallied 30% on zero earnings growth. The 2020 crash didn’t stop until the Fed went into QE unlimited mode, and the current rally stopped on June 8th for the broader market during the same week the Fed’s balance sheet peaked. Negative earnings growth for 2020 yet $SPX is now flat on the year. Nothing happened. Nothing matters.
With no earnings growth during both years it is folly to pretend markets are about anything else but the Fed.
The state of affairs: The unemployed and poor are dependent on government handouts, the middle class is sweating staring at permanent job losses mounting as the top 1% and billionaire stock owner class is subsidized by the Fed as stocks keeps rising despite the worst economic backdrop in decades. All the while the Fed is steadfastly denying against all evidence that it is contributing to ever expanding wealth inequality even though that is precisely what it is doing.
How to navigate through our new nationalized markets? Buy the dips, sell the rips and watch your back as we’re witnessing a historic asset bubble that could pop at any time or take on ever more extreme proportions as nothing and nobody is stopping central banks from continuing to inject liquidity into the system.
But tech is increasingly dangerous and the bifurcation in market performances getting ever more apparent, a point I highlighted this morning on CNBC:

In equal weight there is truth I mentioned, highlighting the great distortion in markets. On an equal weight basis the S&P500 is actually sitting at the December 2018 lows when $SPX was trading at 2350:
Chart: $XVG equal weight compared to $SPX going back to Jan 2018:
The disconnect of course driven by the Nasdaq which now has 7 stocks equaling $6.75 trillion in market cap hiding that most indices are in substantially worse shape than is advertised:
The rest? Not so much:
The message: The real economy is in much worse shape and the presumed “V” is not confirmed by the bond market or the banks. In fact the contrast in performance between the banking index and the tech sectors couldn’t be more crass:
$NDX+18% year to date with the banking index down 36% on the year.
Which brings me to tech itself. Overvalued and over owned. Massive valuation expansion over the past year.
Examples:
$AAPL forward P/E in the past 12 months has increased from 16 to over 24, a 50%+ increase.
$AMZN PEG ratio (price earnings growth) increased from 1.32 to over 3.0 in the past 12 months, an increase of over 135%.
And this massive multiple expansion has led tech to a multi year resistance trend line with $NDX the most extended above its daily 200MA and weekly 50MA since the year 2000 tech bubble.

And perhaps a monthly linear chart of $NDX highlighting the vertical nature of this latest Fed sponsored rally showing tech far outside its monthly Bollinger band:
No, markets remain beholden to the greatest monetary expansion in human kind making a mockery of the very basic concept of price discovery:
Want to celebrate massive improvement coming from historic collapsing data? Be my guest, but don’t neglect to keep an eye on the year over year data and it’s dreadful. Permanent job losses keep mounting and they don’t speak to a V shaped recovery any time soon:
Bottomline: We have an asset bubble in tech, dependent on unrealistic multiple expansions as Fed liquidity has prompted a chase in the supposed save havens creating the most divergent stock market in decades.
Buy the dips, sell the rips and watch your back. The natural market is much lower in price and risk remains that the broader market is still in bear market rally mode. As it stands $SPX remains below the June highs, as does $DJIA, $RUT, $NYSE, $BKX, you know, the broader market altogether.

Sunday, July 5, 2020

Moon Mining Could Begin As Early As 2025

Plans to start mining the Moon as early as 2025 became more attractive this week after a US National Aeronautics and Space Administration (NASA) team found evidence that the Earth’s natural satellite may, underneath its surface, be richer in metals than previously thought. Using data from the Miniature Radio Frequency (Mini-RF) instrument onboard NASA’s Lunar Reconnaissance Orbiter (LRO), a team of researchers came to the conclusion that the lunar subsurface contains a higher concentration of certain metals, such as iron and titanium, than estimated.
The study, published in the journal Earth and Planetary Science Letters, contends the most popular theory surrounding the Moon’s origins. The hypothesis contends the satellite was formed when a Mars-sized object collided with Earth, vaporizing large portions of the Earth’s upper crust.
“By improving our understanding of how much metal the moon’s subsurface actually has, scientists can constrain the ambiguities about how it has formed, how it is evolving and how it is contributing to maintaining habitability on Earth,” lead study author Essam Heggy said in a statement.
The evidence was discovered while the scientists were looking for ice at the bottom of craters in the lunar north pole region, NASA said. It means that fine dust found at the base of those holes are  parts of the deeper layers of the Moon, ejected during meteor impacts. As such, this dust represents the composition in deeper Moon layers.
The researchers found a pattern in which larger and deeper craters have higher metal concentrations than smaller and shallower ones. Specifically, in craters approximately 1 to 3 miles wide, the dielectric constant or electrical property increased along with crater size. However, the electrical property remained constant for craters between three to 12 miles wide.

Order to mine

US President Donald Trump signed an order in April encouraging citizens to mine the Moon and other celestial bodies with commercial purposes.
The directive classifies outer space as a “legally and physically unique domain of human activity” instead of a “global commons,” paving the way for mining the moon without any sort of international treaty.
“Americans should have the right to engage in commercial exploration, recovery, and use of resources in outer space,” the document states, noting that the US had never signed a 1979 accord known as the Moon Treaty. This agreement stipulates that any activities in space should conform to international law.
Russia’s space agency Roscosmos quickly condemned Trump’s move, likening it to colonialism.
“There have already been examples in history when one country decided to start seizing territories in its interest — everyone remembers what came of it,” Roscosmos’ deputy general director for international cooperation, Sergey Saveliev, said.
Aircraft taking off from Ronald Reagan National Airport in Arlington, Virginia. (Public domain CC0 image.)
The proposed global legal framework for mining on the moon, called the Artemis Accords, would be the latest effort to attract allies to the National Space Agency’s (NASA) plan to place humans and space stations on the celestial body within the next decade.
It also lines-up with several public and private initiatives to fulfill the goal of extracting resources from asteroids, the moon and even other planets.
In 2015, the US Congress passed a bill explicitly allowing companies and citizens to mine, sell and own any space material.
That piece of legislation included a very important clause, stating that it did not grant “sovereignty or sovereign or exclusive rights or jurisdiction over, or the ownership of, any celestial body.”
The section ratified the Outer Space Treaty, signed in 1966 by the US, Russia, and a number of other countries, which states that nations can’t own territory in space.
Trump has taken a consistent interest in asserting American power beyond Earth, forming the Space Force within the US military last year to conduct space warfare.
The country’s space agency NASA had previously outlined its long-term approach to lunar exploration, which includes setting up a “base camp” on the moon’s south pole. 

Trillion-dollar market

The US isn’t the first nor the only nation to jump on board the lunar mining train.
Russia has been pursuing plans in recent years to return to the moon, potentially travelling further into outer space.
Roscosmos revealed in 2018 plans to establish a long-term base on the moon over the next two decades, while President Vladimir Putin has vowed to launch a mission to Mars “very soon.”
Luxembourg, one of the first countries to set its eyes on the possibility of mining celestial bodies, created in 2018 a Space Agency (LSA) to boost exploration and commercial utilization of resources from Near Earth Objects.Unlike NASA, LSA does not carry out research or launches. Its purpose is to accelerate collaborations between economic project leaders of the space sector, investors and other partners.
Thanks to the emerging European network, scientists announced last year plans to begin extracting resources from the moon in five years.
NASA is working on lunar bases that can travel on wheels, or even legs, increasing landing zone safety, provide equipment redundancy and improve the odds of making key discoveries. (Image courtesy of NASA.)
The mission, in charge of the European Space Agency in partnership with ArianeGroup, plans to extract waste-free nuclear energy thought to be worth trillions of dollars.
Both China and India have also floated ideas about extracting Helium-3 from the Earth’s natural satellite. Beijing has already landed on the moon twice in the 21st century, with more missions to follow.
In Canada, most initiatives have come from the private sector. One of the most touted was Northern Ontario-based Deltion Innovations partnership with Moon Express, the first American private space exploration firm to have been granted government permission to travel beyond Earth’s orbit.
Space ventures in the works include plans to mine asteroids, track space debris, build the first human settlement in Mars, and billionaire Elon Musk’s own plan for an unmanned mission to the red planet.
Geologists, as well as emerging companies, such as US-based Planetary Resources, a firm pioneering the space mining industry, believe asteroids are packed with iron ore, nickel and precious metals at much higher concentrations than those found on Earth, making up a market valued in the trillions.

Only 4% of fraud is caught by outside auditors. It’s time for accounting to change its approach

From Fortune.com 

For too long, auditors haven’t held themselves as accountable as they should for identifying potential fraud, instead paying out massive settlements for missing the signs and red flags within audits. Looking at the big picture, it’s more than a matter of missing the signs. 
Auditors aren’t necessarily looking for fraud and won’t see what they aren’t looking for. The numbers show the extent of this: Only 4% of occupational fraud is discovered by external auditors. Many auditors have shaken the responsibility in finding fraud, claiming the onus is on others or that finding fraud is too difficult, especially if there is collusion involved.
It’s time to step up and assume responsibility. The public looks to the accounting profession to be a watchdog, adept at recognizing and uncovering occupational fraud and protecting investments. If we continue to fail at upholding our duty to the public and investors, there is nothing stopping Congress from stepping in and taking away the profession’s exclusive right to perform external audits. 
Part of the problem lies in the lack of training necessary to help auditors own the responsibility of fighting fraud. Since it has never been a focus, there are few measures in place to educate auditors on how to actually do it. The framework is there; standard setters have done a good job in setting the expectation that fraud does fall into auditors’ purview. But there’s catch-up that needs to be done to teach auditors the proper steps in identifying potential fraud, including integrating lessons into the education curriculum, inclusion on the CPA exam, and annual requirements for continuing education on finding fraud. Combining education with technology that puts the tools in auditors’ hands is the only effective way to combat financial fraud at a large level. (My firm makes anti-fraud technology, and could financially benefit from more accounting firms using such tools.)
The tone at the top must also set the stage for a drastic industry change. The longer executives balk at the expectation, the harder it will be to implement a new precedent. If this avoidance remains unchecked and firms continue to get banned from performing audits while getting slapped with increasing penalties and fines, they’ll be forced to change. 
It shouldn’t have to come to that. The profession should take proactive steps now to prioritize fraud detection and avoid the mistakes that have led to major scandals, such as what we’ve seen with Wirecard, Luckin Coffee, Parmalat, Satyam, Olympus, Enron, HealthSouth, and Patisserie Valerie. 
The likelihood of a forced reckoning is increasing. Congress has already taken away the profession’s authority to set its own standards for public company audits after continued missteps, putting this duty in the hands of the Public Company Accounting Oversight Board. Loss of the ability to self-regulate was the first step; if firms can’t follow set standards to protect the public, then it’s fair game to open auditing up to anyone who can. 
If the profession continues on this trajectory, then there is no reason Congress won’t intervene further, especially if called for by the investing public. After all, there is precedent—just look at tax preparation. The IRS ruled that tax preparers don’t have to be CPAs, and now the profession has competition with technology providers like TurboTax and non-CPA preparers like H&R Block.
Calls for action aren’t just coming from Congress anymore, either; some countries are calling to break up the big accounting firms. As fraud scandals continue to be revealed, which is likely to happen, investors will have even more reason to hold accounting firms accountable for the supposed audit work being done. After all, investors are the ones that take the biggest hit when a fraud scandal breaks; when billions of dollars are lost, people start to pay attention and demand change.
This is our opportunity to take ownership of our role in identifying potential fraud at the companies we audit. Otherwise the accounting profession is at real risk of losing its exclusive hold on the audit process to potential disrupters. Let’s step up to our responsibility and do the right thing before we no longer have the option.
Brian Fox is founder and president of digital confirmation platform Confirmation.

Saturday, July 4, 2020

Michigan Passes Controversial Bill To Microchip Humans Voluntarily "To Protect Their Privacy"

The Michigan House of Representatives has passed a controversial bill to microchip humans voluntarily in the state under the guise of protecting their privacy. The Microchip Protection Act would allow Michigan employers to use microchipping of their workers with their consent. However, research has shown that RFID transponders causes cancer.
The plan to microchip humans is sponsored by Rep. Bronna Kahle under the guise of protecting the privacy of workers. The stated objective of the bill is that it will protect the privacy rights of Michigan workers and promote further growth for job providers as it relates to microchipping – a cutting-edge technology on the rise that increases workplace efficiency.
“With the way technology has increased over the years and as it continues to grow, it’s important Michigan job providers balance the interests of the company with their employees’ expectations of privacy.
“Microchipping has been brought up in many conversations as companies across the country are exploring cost-effective ways to increase workplace efficiency. While these miniature devices are on the rise, so are the calls of workers to have their privacy protected.”
- Rep. Bronna Kahle, the Republican who sponsored the bill, said in a press statement.
Radio-frequency identification tags, commonly referred to as microchips, are beginning to seep into the marketplace as new technological devices to help streamline everyday business practices. The chips, roughly the size of a grain of rice, are implanted into the hands of employees and act as a replacement for I.D. badges, timecards, usernames and passwords for security clearance, and even credit cards.
“Despite this type of technology not quite making its way into our state yet, I wouldn’t be surprised if it becomes a standard business practice statewide within the next few years,” Kahle said.
“We should absolutely take every step possible to get ahead of these devices.” 
Under Kahle’s plan, Michigan employers would be able utilize microchipping, but could not mandate employees to have such devices implanted. Kahle said the measure strikes a good balance between protecting workers’ rights and providing businesses with flexibility to increase efficiency and further grow.
However, research has shown that RFID transponders causes cancer. Research has suggested 90 percent of Americans are uncomfortable with microchipping mostly due to studies that suggested a link between RFID transponders and cancer in lab animals.
In May, the plan to chip humans globally through a digital ID was exposed in the Italian Parliament. Sara Cunial, the Member of Parliament for Rome denounced Bill Gates as a “vaccine criminal” and urged the Italian President to hand him over to the International Criminal Court for crimes against humanity. She also exposed Bill Gates’ agenda in India and Africa, along with the plans to chip the human race through the digital identification program ID2020.