Tag Archives: #CALEXIT

Jun 21 2017

Top Executives of Barclays Charged


Armstrong Economics Blog/Corruption

Re-Posted Jun 21, 2017 by Martin Armstrong

The British Serious Fraud Office (SFO) has brought charges against Barclays and four former executives surrounding the Qatari investment during the 2008 financial crisis. You may remember at the time Lloyds and RBS were offered UK government support with certain strict conditions attached. However, Barclays declined the government offer and instead turned to Qatar which eventually became the biggest single shareholder, with around 6%.

The rumor around the financial markets at the time was that the UK government offer was better for the shareholders (unqualified) but the restrictions imposed meant that no board members would receive bonus payments until monies had been repaid. Talk at the time was that faced with that proposition of spending bank money to secure future bonus payments – the board declined the UK Government offer and went with the Qatari investment. The SFO also charged former top Barclays executives after investigating a two-part fundraising that included a $3 billion Barclays loan to the Qatar Gulf state.

The men are the most senior bankers ever to be charged in Britain for alleged crimes during the financial crisis. They face jail sentences of up to 10 years if found guilty.

Jun 19 2017

Suicide Over European Banking Crisis


Armstrong Economics Blog/Banking Crisis

Re-Posted Jun 19, 2017 by Martin Armstrong

Greece-Pensioner-2

The European “bail-in” rules have been cheered claiming taxpayer money will be spared. However, many seniors bought bank bonds for their retirement. In the rescue of the small Banca Popolare d’Etruria, a retiree who had lost more than 100,000 euros worth of bonds lost everything and committed suicide. There have been many such events that do not always make the press. In Italy,  the death of a pensioner who also committed suicide after losing his life savings as a result of a controversial move by the government to rescue four banks. The 68-year-old hung himself at his home in Civitavecchia, a port town near Rome, after the so-called “save banks” plan wiped out €100,000 in savings held at Banca Etruria, one of the four lenders included in the government rescue deal announced on November 22nd, 2015. There was the 23-year old who committed suicide over £8000 in debts for student loans. A Greek pensioner who was 77-years old committed suicide in central Athens shooting himself with a handgun just several hundred meters from the Greek parliament building in apparent despair over his financial debts.

The government have made promises and socialism was all about protecting the people from the evil capitalists. But the politicians became the capitalists and now all the promises are being reversed or modified. The crisis we face ahead is so many people believed in what they told everyone. What happens when they discover it has been just a lie?

Jun 17 2017

Amazon Purchases Whole Foods For $13.7 Billion (Cash)…


Re-Posted from The Conservative Tree House on June 17, 2017 by

The business world is buzzing over Amazon’s $13.7 billion purchase of Whole Foods. CTH has received requests for opinion. Amazon stockholders may not like the perspective.

(Via CNN Money) The online retail giant announced Friday that is buying organic grocery chain Whole Foods (WFM) for $13.7 billion in cash. The deal values Whole Foods at $42 a share, 27% higher than where the stock was trading Thursday.

Amazon (AMZN, Tech30) said Whole Foods stores will continue operating under that name as a separate unit of the company. Whole Foods CEO John Mackey will stay on to lead Whole Foods, which will keep its headquarters in Austin, Texas. (link)

Here’s my review. Firstly, Whole Foods was available for purchase because Whole Foods business model was limited; and like the progressively minded organization they are – they allowed their Birkenstocks to travel beyond their limits, which always leads to failure.

In the PC corporate world ‘pending failures’ are called “challenges“, or “opportunities” if you don’t want to get kicked out of the boardroom.

Whole Foods is a high-priced (nicknamed “Whole Paycheck” for a reason) grocery outfit specifically because they were/are generally a niche market operation.

The cost of organic products, in combination with their fundamental flaw (Achilles heel) that economies of scale (warehouse and distribution) are a prerequisite within the low margin industry for cost savings, kept their prices high.

As a regional business, inside specific markets with specific access to locally sourced product, Whole Foods would be ok.  It’s their core operations and reason for their initial success.

However, attempt to expand that operational model nationally (which they did), and you enter a dynamic of trying to sell products in markets that don’t appreciate or value the Vichy experience of dropping $300 for two Eco-friendly canvas bags of fruits, vegetables and oddly pronounced olive oils.

High prices are necessarily part of the Whole Foods overall business model. Expand operations beyond niche markets that can afford such prices and, well, failure (ie. their Birkenstocks traveled to far).  That position is exactly where they were.

♦ Enter Jeff Bezos, Amazon and a distribution network with a high-minded belief their distribution can/will enhance the logistic and efficiency challenges encumbering Whole Foods future success.

No doubt Bezo’s gender neutral Latte bean counters found some like-minded suave millennials, complete with man-buns and algae cakes, to deliver a fabulous Apple-powered presentation therein.  Business graveyards are filled with such enamored and well-meaning carcases.

Whole Foods operates approximately 460 stores.  [How many of them actually turn a profit, and hold up the loss leader footprint, is unknown.] Amazon reportedly paid $13.7 billion (yes that’s billion with a “B”) for the footprint.  Or approximately $29.8 million per retail unit.

$29.8 million per store is approximately $10 million more (per unit) than anyone with a modicum of practical common sense would normally pay.  Then again, Amazon is cash heavy, so what’s a few billion amid like-minded latte power-point-pals; and Mackay’s crew of fellow travelers know how to burn cash better than most.  (See Hillary Clinton’s 2016 boondoggle expenditure for reference.)

However, in Bezo’s world, amid the giddy financial generation, money seems to grow on trust-fund trees.  The bottom line of actual profit is transparently non-existent in this $13.7 billion expenditure.  Even with a modicum of success, it would take a generation of successful operations for all 460 units to pay back such an over inflated purchase price.  So, obviously this is not a decision based on bottom line profit generation for the parent company Amazon.

That brings us to the next set of points which lean more remarkably toward failure.

Technology, and more specifically technological mobility, is now creating individual efficiencies in consumer personalization to exceed any investment value that a retailer would necessarily place in infrastructure.

Does that sound like corporate gobbledyspeak?  Good, it was supposed to.

Plain english version – People are assuming Amazon will be looking to generate shop-at-home (direct delivery) value via a synergy of Whole Foods grocery operations and Amazon’s exhaustive distribution network.   [All of the highfaluting Brioni suit and disposable tailored white shirt crews are espousing that opinion.]  Amazon is anticipated to be able to deliver groceries through this acquisition.

In order for that to be a possible future outcome, layers of cost efficiency would need to be the driver of Whole Foods boardroom discussion very soon. Very unlikely.  Apparently unbeknownst to the algae-cake community, the overall industry, as a direct result of the technological mobility of the consumer, is now less invested in such an approach.

Why?

Simple.  Technology is also creating efficiency for consumerism.  It is entirely possible to go on-line for your grocery purchase, submit your grocery list to your local market, and then utilize Über transport as the pick-up and delivery method.  Über and Lyft won’t be just for taxi service anymore…. watch/wait for it.

The all encompassing process of ‘field-to-fork’ within the food industry is poised to break down into various competing sub-sets and sub business units, external to the food retailer.  Again, efficiency of scale and specialization is essentially the driver (no pun intended).

On the upside of angled considerations for Amazon, they are also looking into entry in the retail store market, and with that in mind actual foot traffic is a prime factor.  No industry drives a higher measure of consistent foot traffic than your local supermarket.  So there can be a reasonable expectation that Amazon stores will have some connective tissue to the locale of Whole Foods. [Somewhat guessing here]

However, in the direct-to-home market for grocery operations, specifically because of the aforementioned mobile distribution specialization, the synergy of Whole Foods and Amazon shouldn’t be predicated on a belief such a new market will necessarily emerge.

Yes, the upper-east side, and those of similar refinement, may welcome Amazon delivery of Whole Foods products.  But that doesn’t change the issues of regional limits for such consumer evaluations.  The baseline Achilles heel of Whole Foods still exists, albeit with a possible delivery service.

Tear it all apart and Amazon just paid about $30 million per store for a business enterprise worth about 30% less than that.  There is no reasonable way, from a profit perspective, for Amazon to ever recapture such an expenditure.  Then again, as stated, it doesn’t look like profit is their motive.

That said, as history customarily shows, sooner or later the value of a common stock will not support the best intentions of well worn Birkenstocks.

Jun 16 2017

France Police Hunting Tourists To Shake Them Down


Armstrong Economics Blog/The Hunt for Taxes

Re-Posted Jun 16, 2017 by Martin Armstrong

COMMENT: Mr. Armstrong; I had the wonderful experience of flying to France to see my son going to school there. Upon my arrival, I was immediately commandeered by the French police asking me how much money I had. I didn’t even get out of the Paris airport. I was not dressed elegantly; just jeans. I wanted to send you this not because reading what you write and experiencing it are two different things.

Thank you for what you do

GK

ANSWER: Yes. France is going nuts. They are stopping trains that pass through France and searching people’s bags for cash. And this is where they want the financial markets moved to from London? I would not have any account there. They cannot be trusted

Jun 15 2017

Merkel Wants G20 Global Taxation of Internet


Armstrong Economics Blog/The Hunt for Taxes

Re-Posted Jun 15, 2017 by Martin Armstrong

Markel is calling upon the G20 to regulate the internet. While she if pretending to be concerned about cyberattacks, which no regulator can prevent, you have to look into the finer details. Chancellor Angela Merkel called for a global regulation sayying: “Industry 4.0 will have to go through the process that we have already gone through at the World Trade Organization (WTO) with real trading operations that we have gone through in the G20 process with financial market regulation.” 

She noted that the “concerns” include “cyberattacks, the responsibility of social platforms to tax issues in international trade, and growing concern in the world Of policy. “

In other words, she wants to tax all sales on the internet. So anyone from Germany buying anything anywhere would have to pay VAT and every online merchant would have to comply with global regulation. Additionally, governments are increasingly becoming concerned about blockchain technology and the avoidance of taxes.

As always, government pretend to be concerned about security, but it is always about the money. She also wants to shut down anyone who talks against government in the social media.

Jun 15 2017

EU Wants to Order All Euro Trading Moved from London to Paris


Armstrong Economics Blog/European Union

Re-Posted Jun 15, 2017 by Martin Armstrong

The European Union is preparing the legal basis to take over London’s extensive trading business with euro derivatives. This is just another complete failure of bureaucrats to comprehenmd market function. Perhaps they should also outlaw euro trading in the USA and Asia. That would be real smart. Then they can all sit down and play cards with euro themselves and guarantee it will never be anything to anyone else no less convertible worldwide.

The EU Commission wants to withdraw the multi-billion-dollar derivatives market from London after leaving the UK from the European Union. Transactions with securities settled in euro should then be transferred to the European Union if the relevant clearing house plays a key role in the financial system with its trading volumes. Their draft law is still in draft form. It is the testament to just how stupid bureaucrats can really be. They have already outlawed naked shorting of the government debt to prevent a crisis in sovereign debt. They fail to comprehend that in the middle of a crash, they ONLY people buying are shorts. No shorts = flash crash and no bid.

You just can’t get more brain-dead than this.

 

Jun 11 2017

SEC Statute of Limitations Applies to Disgorgement


Armstrong Economics Blog/Rule of Law

Re-Posted Jun 11, 2017 by Martin Armstrong

Justice Sotomayor in the Supreme Court just held that the 5-year statute of limitations for penalties under 28 USC 2462 applies to SEC disgorgement claims. This is a monumental decision for in every case the SEC claims they has disgorge you back to birth. In KOKESH v. SECURITIES AND EXCHANGE COMMISSION decided June 5th.

Because disgorgement sought by the Securities and Exchange Commission operates as a penalty under 28 U.S.C. § 2462, in that it is imposed by the courts as a consequence for violating public laws and for punitive purposes, any claim for disgorgement in an SEC enforcement action must be commenced within five years of the date the claim accrued.

This is a major decision that would prevent many of the abuses that the SEC has carried out for decades.

Jun 10 2017

Illinois In Deep Financial Trouble


Armstrong Economics Blog/Sovereign Debt Crisis

Re-Posted Jun 10, 2017 by Martin Armstrong

Illinois Comptroller Susana Mendoza was ordered to make a “substantial” dent in a $2 billion backlog of bills owed to Medicaid providers. The courts ruled that according to the State Constitution, it cannot reduce the pension payments to state employees. What is happening in Illinois is indicative of how governments are imploding and why I am warning get out of all State and Muni-debt before it is too late. Since State and local governments cannot “print” (create) money, they are forced to borrow and raise taxes. Consequently, they have hit the ceiling in tax resistance. What is happening is people are gradually migrating because there is absolutely no hope for states like Illinois. The only way out will have to be bankruptcy and a default on all the pension promises.

A federal judge has now intervened ordering the Comptroller to now prioritize who it pays. This is turning into the clash of titans – the epic battle between medical expenses that constantly rise regardless of the business cycle and state employees demanding pensions. Caught in the middle are the average middle class American who is being exploited from both sides. The judge now ordered the state to pay up towards Medicaid to keep doctors and hospitals from cutting off care for the low-income families that rely on the program.

I have often pointed out the fate of the city of Mainz. They had their technological boom with the invention of the printing press there. The politicians couldn’t wait to spend tax money assuming the business cycle would never end. So they spend the money before the taxes were due and borrowed against future tax revenues. The debt quickly became a Ponzi scheme issuing new debt to pay off the old as we are doing today. The interest kept rising so they just raised taxes. The rich began to leave and the city was quickly left with the people who didn’t really pay taxes. The bubble burst when they could not sell the next new issue of debt to pay off the last one. The city defaulted. The Pope excommunicated the politicians. And eventually the city was simply sacked and burned to the ground.

Politicians are the scourge of human society. They are the great destroyers of civilization and the instruments of war. People champion gold standards as if this would solve anything. The common fault is not what we call money, it is always, and without exception, those who we put in charge of it.

Meanwhile, Moody’s and S&P have both downgraded the general obligation debt of the state of Illinois as of June 1, on a combination of a state government budget impasse and a seemingly unstoppable unfunded pension obligation that has now ballooned into at least a $130 billion shortfall. You better get out of the State before it is too late. Property values will decline further because of the tax burden.

Jun 9 2017

ECB In Serious Trouble


Armstrong Economics Blog/Central Banks

Re-Posted Jun 9, 2017 by Martin Armstrong

The European Central Bank (ECB) left its stimulus programs and record low interest rates unchanged. Pundit was seeing some cyclical signs of what they hoped was a spreading recovery in the 19 countries that use the euro currency rather than just a bounce in anticipation of tourist season. The ECB dropped any wording that it could lower interest rates further, which is a claimed sign of greater confidence in the economy, but in reality, is more of a reflection of it being trapped in desperate nightmarish measures.

The proposal to do a Euro Bond in the form of an Asset Backed Security (ABS) as they did with the mortgages that blew up in 2007, is a reflection of trying (1) to bailout the ECB, (2) provide funding for governments when the ECB stops buying since it owns 40% of Eurozone sovereign debt, and (3) a compromise with Germany who is against surrendering the power to issue debt to Brussels. The policies of Merkel have been to maintain the single currency at all costs, but there will be no single debt.  This is very much a policy of being just a little-bit pregnant.

The central bank’s announcement kept important wording that its bond-buying stimulus program could be stepped up if the economic outlook worsens. This is not very likely, it is simply a statement of denial that the ECB is trapped and in trouble. The entire policy has utterly FAILED to stimulate the economy and has only kept governments on life-support. When the plug is pulled, will their heart stop? That all depends upon finding buyers of government debt to (1) take up the slack that the ECB was buying 40% of all debt and a greater proportion of new debt. Remove the biggest bidder, and you end up with a NO BID crisis

Jun 9 2017

Bank Stocks Have a Completely New Risk


Armstrong Economics Blog/Banking Crisis

RE-Posted Jun 9, 2017 by Martin Armstrong

Spain’s Banco Santander is paying €1 to take over troubled rival Banco Popular, in a deal that illustrates Europe’s new system to rescue failing banks without burdening taxpayers or stressing markets. This is being cheered around the world because the shareholders lost absolutely everything. The bank which was valued in the collapse at €1.6 billion was bought for €1. Forbes wrote:

“This is an excellent example of how the resolution of troubled banks should be done. The shareholders who employed the management which caused the problem lose all their money. The depositors, who were and are not responsible for the bank’s troubles, are protected. And we don’t end up with some great smouldering hole in the financial landscape where Popular used to be, we get new capital raised instead. Further, no taxpayer has been harmed in this operation.”

 

Santander said Wednesday it will take over all the shares in Banco Popular, which had lost more than half their value since last week as concerns grew about the lender’s financial health. It will raise around €7 billion in a share issue to strengthen Banco Popular’s balance sheet. This “takeover” was conducted in an auction sanctioned by European authorities after the main banking regulator in the Eurozone, the European Central Bank, said Tuesday that it believed Popular was “failing or likely to fail.”

This was the first time the ECB had pulled the plug on a bank since it was given new powers aimed at preventing the rescue of banks from overwhelming government finances. European leaders had all agreed to move banking supervision to the EU level. Hence, the ECB took over supervisory responsibility on in November 2014. The collapse was caused by €7.9 billion in non-performing assets, including €7.2 billion in real estate. Banco Popular shares fell about 38% last week and then another 20% this week, to 0.32 euros per share before regulators halted trading in its shares. The bank had 305,152 shareholders as of the end of March.

The sale is “in the public interest as it protects all depositors of Banco Popular and ensures financial stability,” said the European agency that manages failing banks in the 19-country Eurozone, of which Spain is a member. The Spanish government had previously ruled out bailing the bank with taxpayers’ money. The Spanish Economy minister Luis de Guindos said the sale was “a good outcome” given the shortfall of the lender over the past weeks. He added that this takeover “ensures the maximum protection for depositors and the continuity of the bank’s activity.”

So now comes the €64 trillion question. If government will not bailout banks, then eradicating all value to shareholders attaches a completely new kind of risk to shareholders. If they were investors in a manufacturing company that went bust, the assets would go into bankruptcy and there would be a realistic sale of assets.  What has just taken place is that if the net asset value of the bank, its own building, property etc., were say even 20% of the share value, then the shareholder face a 100% loss in bank stocks compared to any other share investment. That leaves one poignant question? Why buy bank stocks at all?

A new risk has just been created. Instead of a bailout loan to bridge liquidity problems as was the case with the original elastic money development of the Clearing House certificates during the 19th century, we now have no government support for which elastic money was invested and bank shareholder are subject to total usurpation of their assets and denied the normal property rights attributed to a free society. The “elastic money” is now central banks trying to “stimulate” the economy solely by means of purchasing government debt.

Something is seriously wrong in the development. Shareholders rarely have full transparency in bank management to be able to make prudent and informed investment decisions. Welcome to the new crisis created by yet another solution.