February 23: Daily Contrarian Reads

Mind The Improbable—-It’s A Sure Thing Eventually

Throughout modern NFL history, playoff teams that had a 19 point lead or greater in the fourth quarter, as the Atlanta Falcons did, were 93-0. A Patriots comeback was deemed virtually impossible by the odds-makers……Last summer, the odds of Brexit gaining a majority vote briefly dipped below 5% in the days preceding the vote……Leicester City entered the 2016 Premier League season as a 5,000 to 1 underdog to win the league championship. Fortunately for Leicester City, the existence of long odds bear no direct influence on outcomes as they went on to win the Premier League Championship…..To apply this concept to another great global sport, do U.S. equity market valuations imply similar false confidence in future outcomes for the pace of earnings and economic growth?

American Car Buyers are Borrowing Like Never Before—and Missing Plenty of Payments, Too

The US closed out 2016 with just shy of $1.2 trillion in outstanding auto loan debt, a rise of 9% from the previous year and 13% above the pre-crisis peak in 2005, in inflation-adjusted terms…..If America’s car-buying bonanza is being fueled by cheap credit, is consumer sentiment really as robust as it might seem? And is it sustainable? There are reasons to wonder. While car purchases and financing have leapt since 2009, wages have picked up only slightly over the same period. Meanwhile, the average loan taken out to buy a new car has risen steadily.

When War Becomes A Permanent Habit—–The Real Challenge Facing H.R. McMaster

Today it has been largely lost. Like German militarists in 1917, American militarists in 2017 fight on because they lack the capacity to imagine an alternative. In policymaking circles, war has become a habit. The question is whether H.R. McMaster can play a role in breaking that habit, as President Trump in his weird, inconsistent way has suggested he intends to do. To put it another way: Can General McMaster restore the distinction between grand strategy and military strategy and re-subordinate the latter to the former? Little reason exists to suggest that he will do so—indeed, whether he is even inclined to make the effort……For all that, he remains a professional soldier, not a global visionary. For the past two years, McMaster has devoted himself to contemplating about the future of the United States Army, not the future of the international order. On Russia, he appears to be a neo-Cold Warrior, favoring the recommitment of U.S. ground forces to Europe, a prospect welcomed by an army that today finds itself searching for a raison d’être.

17 Signs a Recession is Coming

….Like every other boom, however, it eventually leads to a bust and wreaks havoc on the citizenry. And with the excessive stimulus provide by the U.S. central bank and governments across the country, the bust is going to be unlike anything we have ever seen. The national debt is $20 trillion, the American people are already taxed to death, inflation is on the verge of exploding and the bond market is in a bubble. The boom cannot persist. A recession is coming. And, no, it will not be Donald Trump’s fault. It is the years of ballooning balance sheets, debt-fueled consumption, kicking the can down the road and Keynesian economics that will produce a financial crisis that will be far worse than what the world experienced in 2008 and 2009….Just remember: this bubble isn’t different, despite all of the claims made by the talking heads at CNBC. Here are 17 signs that a recession is coming…

Peak Optimism? Even Goldman Warns Market Heading for a Correction

Peak optimism is fast approaching. Goldman Sachs Group Inc. says the surge in confidence following Donald Trump’s November victory is reaching an inflection point. Investors counting on tax cuts and an economic boom to fuel a surge in corporate profits are getting ahead of themselves, according to the bank. “Financial market reconciliation lies ahead,” David Kostin, Goldman’s chief U.S. equity strategist, wrote in a note. The “S&P 500 Index will give back recent gains as investors embrace the reality that tax reform is likely to provide a smaller, later tailwind to corporate earnings than originally expected.”

Why World Trade in 2016 Was the Weakest Since 2009

It points out that 2016 was the fifth year in a row of “sluggish trade growth.” 2015 had already been the weakest year since 2009, when global trade collapsed as a result of the Financial Crisis. But 2016 was even worse than 2015.Despite the differences in the data, “there is a consensus across data sources that 2016 will register the lowest growth in trade volumes since the Great Recession of 2008–2009,” the report explains. Based on these sources – the IMF, the CPB, and the World Bank – the report estimates trade growth in 2016 at 1.9%…….

Frexit Would be the Largest Sovereign Default In History….Contagion Anyone?

The economic program of the National Front specifically calls for the exit of the euro and the creation of a new currency, the French franc, which would be “closely” linked to the euro while allowing the government to undertake “competitive devaluations” making the transition in an “orderly way”. There is only one problem. It does not work. There is no “orderly exit” from the euro. It is an oxymoron. This would be the largest credit event in history and would create a massive contagion effect throughout the euro zone.

Is Rapprochement With Russia Dead? The Astonishing Anti-Putin Paranoia Of The Imperial City

This was the agenda Americans voted for. But what raises doubt about whether Trump can follow through on his commitments is the size and virulence of the anti-Trump forces in this city. Consider his plan to pursue a rapprochement with Russia such as Ike, JFK at American University, Nixon and Reagan all pursued in a Cold War with a far more menacing Soviet Empire. America’s elites still praise FDR for partnering with one of the great mass murderers of human history, Stalin, to defeat Hitler. They still applaud Nixon for going to China to achieve a rapprochement with the greatest mass murderer of the 20th century, Mao Zedong. Yet Trump is not to be allowed to achieve a partnership with Putin, whose great crime was a bloodless retrieval of a Crimea that had belonged to Russia since the 18th century. The anti-Putin paranoia here is astonishing.

Hedge Funds Continue to Chase the Herd With Record Momentum Bets

Hedge funds can’t get enough of momentum — even if it means embracing an investing strategy they hate.Loosely defined as betting on shares that went up the fastest over the preceding nine-to-12 months, hedge funds are the most reliant on momentum strategies since at least 2010, according to an Evercore ISI analysis of 13F filings with the Securities and Exchange Commission. Meanwhile, they’ve reduced their bearish bet on value stocks, which are priced at deep discounts to earnings and assets, for the first time in nine quarters, the study shows.

Next Comes……Nexit! Anti-EU Party Leading In March 15 Election Polls

As a March 15 parliamentary election looms in the Netherlands — one of the founding members of the European Union — popular lawmaker Geert Wilders is dominating polls with an isolationist manifesto that calls for the Netherlands “to be independent again. So out of the EU.” After Britons voted last year to divorce from the EU, could a Dutch departure — known here as “Nexit,” after “Brexit” — be close behind? “I see the European Union as an old Roman Empire that is ceasing to exist. It will happen,” Wilders said in an interview with the Associated Press.