Home Selling Price vs. Household Income

Oil Crash Brewing, Swap Dealers Think So

Is an oil crash brewing?  The swap dealers certainly think so.  They are sitting on 900k, as of 1/16/2018, short contracts in WTI, with a net short of 750k.  Yup, they are betting 750 million barrels that the price is going to drop.  Do you really want to bet against these big bankers?

How to know you are in a market bubble 101

Car Companies
Ford
Revenue:  $160B
Earnings:  $6.24B
PE 7.3
Value:  $45.5B and falling fast

GM
Revenue:  $160B
Earnings:  $8.86B
PE 6.98
Value:  $61.8B and falling fast

Tesla
Revenue: < $12B
Earnings:  lost $300 million
PE:  Not applicable, no profit
Value:  $58.4B and rising

So Tesla is treated like it is already equivalent to Ford or GM.

Netflix

Revenue: <$13B
Earnings:  $500 million
PE:  200
Value:  $117B and rising fast

And why own Ford AND GM combined and make $15B when you can own Netflix instead and make 1/30 as much.  Anyone see a problem with the market rushing to buy Netflix and dumping Ford and GM.

Retailers/Distributors
Walmart
Revenue: $485B
Earnings:  $17B
PE:  28
Value:  $318B and rising
Umm, the largest grocery/low end retail store in the world now has a PE of 28.  20 years to break even.  Yah, that ends well.

Target
Revenue: $70B
Earnings:  $2.5B
PE:  16
Value:  $41.3B and rising
Umm, the largest grocery/low end retail store in the world now has a PE of 28.  20 years to break even.  Yah, that ends well.

Macys
Revenue: $26B
Earnings:  $619 million
PE:  12
Value:  $8.1B and falling

Amazon
Revenue: $100B
Earnings:  <$2B
PE:  342
Value:  $660B and rising fast

So you can buy both Target and Macy's and make $1 billion more than Amazon, but instead everyone wants to buy Amazon for 7X as much.  And why buy Walmart for 2/3 the cost of Amazon and make $17B when you can have Amazon instead and make less the $2B.

Hidden debt bomb in the Federal Budget.

This is what happens if interest rates go back to 2007 levels.  Issued treasuries has tripled in 9 years.

Mnuchin's comment about not caring about the dollar strength and knowing that a weak dollar will likely trigger a surge in inflation and interest rates, triggered me to do a thought experiment on what if US Treasury rates go back to 2007 levels. In 2007 the effective interest rate on the debt was 8.7%. It is interesting to note that interest on the debt in 2007 is about equal to the interest on the debt in 2017, even though Treasuries issued has nearly tripled.

In 2007 $5 trillion in Treasuries were issued, now almost $15 trillion have been issued. If interest rates were to go up to 2007 levels, interest on the debt would be $1.2 trillion from a measly $460 billion now, blowing up federal spending by 25%.

This here is the bubble/boogeyman nobody wants to talk about. It's especially scary since we are on pace to issue about $1 trillion in new debt in 2018, and possibly that much and more every year there after for the foreseeable future.

If you ever want to discuss where the money goes, and where to cut for the biggest affect. These charts will come in handy. I tried to make the actual 2017 pie a little smaller than the what if 2017 chart to emphasize the blow up in total spending.

DOW Jones BUBBLES

Where are the corporate income tax payments?

Corporate income tax payments comparison, Where are the Corporate Income Tax Payments

Monthly Comparison of Corporate Income Taxes Paid  (In $Millions)  Orange highlight indicates monthly payments lower than same period in prior year, green highlight indicates greater payment.

See April 2017 comparison blogpost.

For most of 2017 we were told both from the financial media and corporate quarterly earnings reports that US corporations were having a blowout earnings year.  Earnings were supposedly up well over 10% year over year.  Well if that was the case, Where are the corporate income tax payments to match?  

It's pretty clear now no matter how it's sliced, fiscal YoY or calendar YoY, corporate income tax payments were down which implies earnings were as well.  I actually expect January payments to be down as well, and may even show an overall refund.  Why?  Because with the corporate tax cut, companies will do everything possible to push earnings into 2018 instead of 2017 to take advantage of the lower tax rate.  I suspect a lot of the bonuses paid in December were done in an effort to pull 2018 wage expense into 2017 and a there will be matching delays/lowering of raises for 2018 using the bonus as a justification.

We all better hope that the corporate tax cut works and/or the soft income tax payments were simply due to financial engineering by companies that were betting on the tax cut happening.  If not with this sky high stock market, and central banks unwinding their balance sheets, LOOK OUT because stops could IMPLODE!!!!