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James Quinn
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James Quinn is a senior director of strategic planning for a major university. James has held financial positions with a retailer, homebuilder and university in his 25-year career. Those positions included treasurer, controller, and head of strategic planning. He is married with three boys and... More
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TheBurningPlatform.com
  • WHAT THE FED HAS WROUGHT

    The chart below might be the most powerful indictment of the Federal Reserve and our corporate fascist empire of debt ever created. Some people don't get charts. Charts tell a story. This chart tells the story of elitist bankers supporting the agenda of a corporate fascist state, resulting in the gutting of the middle class. Anyone who views this chart in a positive manner is either a Federal Reserve banker or their paycheck is dependent upon the continuation of the pillaging of the working class. Corporate profits are at all-time highs. Profit margins have always reverted to the mean throughout modern history. If they remain at all-time highs then something is terribly wrong.

    "Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system and it is not functioning properly." - Jeremy Grantham, Barron's

    (click to enlarge)

    Here is the story I see in that chart. Corporate profits as a percentage of GNP have averaged 6.5% over the last 67 years. As you can see, it is a volatile figure. Corporate profits rise during expansions and fall during recessions. That has been a given over time. The reason corporate profits have always reverted to the mean was due to the basic tenets of free market capitalism. When a company is generating outsized profits, that industry will then attract new competitors, resulting in price competition and lower profits. From 1950 through 1971, corporate profits as a percentage of GNP fluctuated in a narrow range between 5% and 7%. This was a reflection of a market driven by competition, a non-interventionist Federal Reserve, and a government not captured by corporate interests.

    It is no coincidence since Nixon closed the gold window in 1971 and unleashed greedy bankers, feckless politicians, and self serving corporate executives to utilize easy money and prodigious amounts of debt to financialize our economic system and deform capitalism, corporate profits have boomed and busted. The Fed created booms and busts are clearly evident on the chart. Nixon toady Arthur Burns created an inflationary boom in corporate profits to 8% of GNP in the late 70's followed by the collapse to 3% caused by Volcker having to raise rates to extreme levels to crush the Burns created runaway inflation.

    You can see exactly when the Maestro assumed command at the Fed and proceeded to introduce the Greenspan Put, encouraging speculation, borrowing and mal-investment. His easy money boom led to the dot com bubble that doubled corporate profits from their 1987 low. Of course the profits vaporized in an instant and plunged to 4% of GNP in 2001. Greenspan and then Bernanke proceeded to drive interest rates to record lows creating a prodigious housing bubble resulting in the greatest level of mal-investment and financial fraud in world history. Corporate profits as a percentage of GNP skyrocketed from 4% to 10% in the space of six years. The banking cabal had captured the system.

    The Fed orchestra kept the music playing and Wall Street kept dancing the rumba with their corporate CEO dates. The Keynesian acolytes were ecstatic. The Austrians warned of the impending bust. No one listened. The collapse of the worldwide financial system was portrayed by the corporate mainstream media, bankers like Dimon, corporate CEOs like Immelt, billionaires like Buffet, captured government bureaucrats like Paulson, and politicians like McCain and Obama, as a systematic risk that required a taxpayer rescue of criminals.

    The $800 billion gift to bankers and mega-corporations by the Washington DC Party of captured politicians was chicken feed compared to the $3.5 trillion of newly printed fiat handed to Wall Street and corporate America by Bernanke and Yellen. Five years of 0% interest rates have impoverished senior citizens and savers, but they have done wonders for Wall Street and mega-corporation profits, along with executive bonuses. Corporate profits soared from 4.5% of GNP to an all-time high of 10.5% in the space of three years and have remained at this elevated level.

    Who Needs Wage Earners Anyway?

    Is it a coincidence that corporate profits as a percentage of GNP are at record highs while employee compensation as a percentage of GNP is at record lows? Is it a coincidence that employee compensation as a percentage of GNP peaked at 51% in 1971? That year certainly seems to be a turning point in U.S. economic history. Gold's purpose as a check on statists, Keynesians, politicians, bankers, and the military industrial complex couldn't be any clearer. The decline has multiple causes, but the storyline about technology being the major cause is patently false. My observations are as follows:

    • From the end of World War II until the mid-1970s employee compensation as a percentage of GNP was consistently between 49% and 51%. The middle class saw their standard of living rise as wages outpaced inflation, savings rates were high and led to capital investment, debt was used for long term purchases like a home or automobile, and bankers accepted deposits and made safe loans. Technological progress over the thirty years was constant, but did not result in declining wages.
    • From the moment Nixon closed the gold window, employee compensation as percentage of GNP relentlessly declined for the next quarter of a century from 51% to 44%. Over this time frame our economy deformed from a goods producing system driven by savings and capital investment into a service/financial economy built upon consumer debt, conspicuous consumption and market gambling. Our iconic mega-corporations fired Americans and hired Chinese slave laborers, lobbied for tax breaks, invested in their own stock, kept wage increases below the level of true inflation, and paid extravagant compensation packages to their Harvard MBA executives.
    • The brief upturn created by Greenspan's irrational exuberance 90's boom was short lived. The relentless decline resumed after the dot com collapse, even as Greenspan and Bernanke blew their epic bubble. Their financial engineering machinations on behalf of Wall Street did nothing for the average worker on Main Street. Employee compensation as a percentage of GNP declined from 47% to 44% BEFORE the financial collapse.
    • Unequivocal proof that Bernanke's sole purpose of QE and ZIRP was to benefit his Wall Street owners can be seen in the continued decline from 44% to 42% since 2008. There has been no recovery for the average American. Wall Street is rolling in dough. Corporate America is rolling in dough. Politicians are rolling in dough. The average American worker is rolling in dog shit.

    The mouthpieces for the Deep State insist corporate profits have reached a permanently high plateau. It's another new paradigm. Just like 1929, 1999, and 2007. Jeremy Grantham is right. The system is broken. The inmates are running the asylum. But financial engineering will not work permanently. Baijnath Ramraika and Prashant Trivedi in their outstanding article Why Jeremy Grantham is Right about Corporate Profit Margins prove that corporate gross margins have not grown, technological advancement has not been a major factor, innovation and capital investment are non-existent, and corporate CEOs have utilized one time schemes to boost profits.

    There are a few major reasons for record corporate profits. The Fed's gift to banks and mega-corporations of zero interest rates have allowed S&P 500 corporations to refinance their existing debt and take on new debt at below market interest rates. The average interest rate paid by S&P 500 companies is now at all-time lows. Any normalization of interest rates would crush corporate profits.

    (click to enlarge)

    Even though you hear constant propaganda from the corporate MSM, corporate CEOs, and captured politicians about the dreadful level of corporate taxes, the truth is that mega-corporations are paying record low levels of actual taxes. When profits are at record highs and tax payments at record lows you know they have captured the system. "Creative" tax avoidance and the FASB allowing banks to mark their assets to fantasy have played an enormous role in record profits.

    (click to enlarge)

    The short term oriented casino mentality of corporate CEOs can be plainly seen in the fact depreciation expense as a percentage of revenue is at 25 year lows, resulting in short term profits but long-term decline. Instead of investing in capital to increase efficiency or expand their business, greedy myopic CEOs have chosen to buy back their own stock at all-time high prices. They did the same thing in 2005 - 2007. Driving up quarterly earnings per share to boost their own stock option compensation is how it rolls in corporate America today. Investing in their workers through higher wages isn't even a consideration. They don't teach that in Ivy League MBA programs. SG&A expenses as a percentage of revenue have been driven to all time lows, as outsourcing, downsizing, and working people to death have done wonders for corporate profits.

    Ramraika and Trivedi reach damning conclusions of corporate America, based on their detailed unbiased research:

    As the world moved increasingly towards the idea of shareholder-value maximization, time horizons for management and the shareholders have shortened. As Montier shows, the average lifespan of a company in the S&P 500 in the 1970s was about 27 years and is down to about 15 years now. In tandem, the average tenure of CEOs is down from about 10 years in the 1970s to about 6 years now. Combine this with the incentive systems prevalent today (think stock options), and it is only logical that a CEO who is going to be around for as few as six years and is going to get a large chunk of her rewards in stock options will want to see higher stock prices.

    Cutting SGA expenses and postponing capital investments - actions that carry positive short-term earnings impact at the expense of a business' competitiveness in the long-term - look promising to managers whose payoffs depend on stock prices in the short-term. Not surprisingly, the renters (there are hardly any owners any more) clamor for just such actions. The problem with this thinking is that the long-term eventually shows up. And when it does, profit margins will have no choice but to remember their long forgotten tendency to revert to mean.

    Are interest rates going to be driven lower for corporations? Are taxes going to be driven lower? How many more people can corporations fire? Have economic downturns been eliminated by the Federal Reserve? Will record profits not result in increased competition and price wars? Can wages be driven even lower?

    The financial, economic and political system has been captured by corporate fascist psychopaths. The Federal Reserve has aided and abetted this takeover. Their monetary manipulations have resulted in this deformity. Psychopaths always go too far. The American middle class has been murdered. Decades of declining real wages have left them virtually penniless, in debt up to their eyeballs, angry, frustrated, and unable to jump start our moribund economy by buying more Chinese produced crap. Yellen, her Wall Street puppeteers, and the corporate titans should enjoy those record profits and record stock market highs. It won't last. Short-term profits will be wiped out, as long-term consequences always arrive when you least expect it. The artificial boom will lead to a real depression. Luckily for the oligarchs, most middle class Americans are already experiencing a depression and won't notice the difference.

    "True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression." - Ludwig von Mises

    Nov 18 4:03 PM | Link | 2 Comments
  • WHY KOHL'S IS A SHORT

    "Facts are stubborn things, but statistics are pliable."

    ― Mark Twain

    I never believe government manufactured numbers. They will always be adjusted, massaged, and manipulated to achieve a happy ending for the propagandists attempting to control and fleece the sheep. Yesterday, the government produced retail sales numbers for August that were weak and the corporate MSM propaganda machine immediately threw up bold headlines declaring how strong these numbers were. Positive stories were published on the interwebs and Wall Street hack economists were rolled out on CNBC, where the bubble headed bimbos and prostitutes for the status quo like Jim Cramer and Steve Liesman declared the recovery gaining strength. Woo Hoo.

    If everyone else is whipping out that credit card, why aren't you? Credit card debt has reached a new post recession high. They tell me consumer confidence is soaring. Forget about the 92 million working age Americans supposedly not in the labor force. Forget about real household income hovering at 1999 levels. Forget about median household net worth still 30% lower than 2007. Forget about what you see with your own two eyes in malls, strip centers and office parks as you motor around our suburban sprawl empire of debt. Those Store Closing, Space Available, and For Lease signs mean nothing.

    I didn't get a chance to peruse the commerce department drivel until this morning. They put out unadjusted data and adjusted data. Shockingly, the adjusted data is always rosier than the unadjusted data. I wonder why? I can understand the rationale for adjusting month to month data due to holidays and calendar events. But I still don't trust the adjustments. There should not be a major difference when comparing year over year data. The adjusted data should reflect the same relationship to the unadjusted data on a year over year basis. Well guess what? It appears our friendly government drones may be pumping the current data to give the appearance of recovery. Here are my observations after taking a look at the government propaganda report:

    • The unadjusted retail sales were only 3.2% higher than last August. Considering government reported inflation of 2%, that is a pretty shitty result. But have no fear. The "ADJUSTED" retail sales for August were 5.0% higher than last August. WTF? Guess which number gets reported to the sheep?
    • Hysterically, your government drones consider lending deadbeats $40,000 for seven years with no money down to drive away with a GM deathtrap SUV as a retail sale. The billions in subprime auto loans led to an 8.8% YoY surge in "ADJUSTED" auto sales. It seems the unadjusted number only went up 5.3%.
    • When you back out the Federal Reserve/Wall Street pumped auto sales, which will ultimately result in billions of written off bad debt (you'll pick up the tab), unadjusted retail sales were only 2.7% higher than last August. With real inflation of 5% or more, real retail sales are negative on a year over year basis.
    • Despite financing deals of 4 years with no interest, furniture and electronics retail sales were flat versus last August. If there really is a housing recovery and 2.1 million more Americans are employed versus last August how could these discretionary sales be flat, and negative on an inflation adjusted basis?
    • Grocery store sales were up only 2.1% over last year. Even the government is reporting 2.7% food inflation in the last year. We all know it is closer to 10%, so people are actually reducing the amount of food they are buying. That is a sure sign of an economic recovery.
    • Clothing store sales were flat and department store sales were negative versus last August. So much for the back to school storyline. I do believe August is back to school time. The Sears and JC Penney Bataan Death March trudges toward bankruptcy.
    • What did surge was sales at restaurants and bars. They soared by 6.8% versus last August. We already know Darden, Yum Brands and McDonalds have reported dreadful results, so either the government is lying, soaring food prices are being passed on to customers, or people are so depressed by this awesome economic recovery they are drinking themselves into a stupor.

    As a side note on the accuracy of this government data, in a previous role at IKEA, when I was a much younger man, I was responsible for filling out the monthly government retail surveys for the Census Bureau. The government drones collecting this data do not check it. They do not require proof that it is right. It is self reported by retailers across the country. Filling out this crap for the government was about as low on my priority list as whale shit. If I was really busy, I'd make the numbers up, scribble them on the form and put it in the mail. The numbers the government are accumulating are crap. And then they massage the crap. And then they publish the crap as if it means something. It's nothing but crap.

    When you see the headlines touting strong retail sales, you need to consider what you are actually seeing in the real world. RadioShack will be filing for bankruptcy within months. Wet Seal will follow. Sears is about two years from a bankruptcy filing. JC Penney's turnaround is a sham. They continue to lose hundreds of millions every quarter and will be filing for bankruptcy within the next couple years. Target and Wal-Mart continue to post awful sales results and have stopped expanding. And as you drive around in your leased BMW, you see more Space Available signs than operating outlets in every strip center in America.

    My anecdotal proof of this relentless slow motion retail trainwreck is twofold. We received our second 30% off discount coupon from Kohl's in the last three weeks. We are so indifferent to these constant offers that we didn't even use the first one. I have to wear dress clothes to work every day, so I went over to Kohl's this morning when they opened at 8:00 am to get some dress shirts and pants.

    The parking lot was an oasis of empty spots and there were maybe 5 customers in the entire store. I went to the mens' section and was shocked to see about two dozen 60% to 80% off racks. There are usually two or three racks. The store was overflowing with summer merchandise. Summer is over. The store should have been overflowing with Fall merchandise. They are clearly in the midst of an inventory disaster. I found excellent dress shirts on the 70% off rack. Everything I bought was at least 50% off, even before my 30% coupon and another $10 menswear coupon.

    I live in a relatively upscale suburban area and still this Kohl's is an absolute disaster. Their gross margin is going to be hammered. Profits are going to implode. Kohl's has always been a favorite retailer of the middle class. Decent quality at reasonable prices. Their comp store sales were between positive 5% and 15% for years, until the 2008 financial collapse. Their struggles since then coincide with the decline of middle class incomes and the fake jobs recovery. The fact that they are spiraling downward flies in the face of the propaganda being spewed by the government and media.There is no recovery for the average American.

    My second data point happened on Thursday. An accident on the Turnpike forced me to take Lincoln Drive and Germantown Pike home from work (1 hour and 55 minutes of agony). I hadn't taken this route in about six months. Germantown Pike winds through the Chestnut Hill section of Philly. This is an artsy fartsy area with boutique retail, chic outlets, and fancy restaurants. The upper middle class frequents the area. The retail stores were always open, occupied and busy.

    Not anymore. I saw dozens of empty storefronts, Space Available, and For Lease signs. The open stores had no customers. The trendy eating establishments had few patrons. Even the yuppie latte drinking areas are beginning to crumble. Every office park I passed had Space Available signs in front. The amount of vacant retail and office space in this country is too vast to comprehend and is being under-reported by the real estate whores whose job it is to rent space. Ignoring the facts and the truth doesn't change the facts and the truth.

    Do you believe the government and the corporate media, or do you believe your own two eyes?

    You can ignore the government reported happy talk. When retailers and restaurants report their actual sales and profits, the truth shall be revealed. It will set you free.

    Sep 15 11:23 AM | Link | Comment!
  • If Consumers Are So Confident Why Aren't They Spending?

    (click to enlarge)

    The sheep have been told their confidence is at a 7 year high by the propaganda peddlers working at the behest of the oligarchy. The sheep are also told that 10 million jobs have been added since the GOTUS played his first round back in 2009. The sheep have been told the record highs in the stock market prove that all is well. If the .1% are doing fantastic, some of the wealth must be trickling down. The sheep are told that QE and ZIRP were really to save Main Street and not the bonuses of Wall Street (at record highs by the way). The sheep are told to fear ISIS, Iran, Assad, Putin, and China. The sheep are told U.S. energy independence is just around the corner and to ignore the fact that gas prices have tripled in the last ten years. The sheep are told drones will keep them safe and the DHS militarizing the police is just for their safety and security. The sheep are told guns are dangerous in their hands, but not in the hands of the government. The sheep passively eat their iGadgets and barely bleat while being led to the slaughter house.

    The propaganda machine is working at hyper speed as the wheels fall off this out of control bus. But all the messaging, packaging, and lies can't change the facts. Ignorance about the facts doesn't change the facts. The oligarchs are getting pissed. You mindless consumers simply won't consume as much as you used to, even with 7 year 0% interest subprime auto loans, $1 trillion of government loans to generate consumption disguised as student loans, and five credit card offers per week from the Too Big To Trust Wall Street cabal. WTF is wrong with you?

    You've ruined the storyline used for months about horrific winter weather being the cause of non-spending in the 1st quarter. Once it stopped being cold you were supposed to spend like drunken sailors again. Just like the old days. How could you spend less in July than you did in June? You've only increased your spending by a mere 1.8% so far this year. With real inflation on stuff you need to live running above 5%, you're actually spending far less than last year. No wonder confidence is skyrocketing.

    A little examination into the facts behind the Commerce Department report might shed a little light on the truth about the good old American consumer:

    • 25% of all personal income in the country is either a transfer from the government to someone or from a government job. That is $3.7 trillion taken from producers and given to takers. In 2000 this figure was 21%. The relentless increase in Social Security, Medicare, Medicaid, Veterans Benefits and Other will drive this percentage to 30% by 2020.
    • Real personal income (excluding government transfers) has gone up 2.6% over the last year and this is using the false CPI figure of 1.6% to reach that pitiful number. Using a true inflation figure of 5% yields lower real personal income than last year.
    • These numbers also fail to recognize the 2.2 million increase in population. On a per capita basis, real personal income is up 1.9% in the last year.
    • Senior citizens and conservative savers are earning $120 billion less today than they did seven years ago. All the grandmothers eating cat food thank you Ben and Janet. If interest rates were allowed to adjust to market levels consistent with inflation, savers would be generating $500 billion to $700 billion more interest income that could be used to propel economic growth. Per capita real disposable income was $37,582 in May of 2008. It is currently $37,553. Again, this is using the fake BLS inflation numbers, so it is even far worse.

    Is it really a shocker that Americans are spending less? The MSM is so captured by the organizations providing their advertising revenue that their faux journalists don't even attempt to examine the facts and reach logical conclusions. Their job is to cheer lead and make excuses for why their storyline of improvement never plays out. The snow storyline is history. The surge in consumer confidence storyline has been proven false by the actual spending data. Now we move onto the surge in jobs storyline that is proven false by the personal income data. I'm sure back to school season will be a resounding success. Just wait until the holidays. The consumer will surely be back this year. And the beat goes on.

    The chart below tells you all you need to know about why this recovery is false. The people who are supposed to be in their peak earnings and spending years have seen their real household incomes decline dramatically since the END of the recession in June 2009. Think about that for a moment. The only people who've seen their real incomes rise are those who no longer spend. I wonder if it is a coincidence that government transfers since June 2009 are up 18% and the grey hairs have seen their incomes rise?

    The consumer is not back. They are not coming back. The decades long debt fueled orgy of consumption has long since peaked and we are on the long road to perdition. Confidence can't cure our disease. More debt to cure a disease caused by too much debt will not save the patient. Our disease is terminal.

    Sep 01 8:44 AM | Link | Comment!
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