I can find no grounds for optimism on the economy | Will Hutton

All the signs are there that a recession is just around the corner – but who will admit it?

In any other world there would be national soul searching. Britain’s economic growth rate over the past 12 months is half its average over the previous 25 years – and set to deteriorate further. Investment is stagnating. Mortgage approvals in March slumped by almost 21%. Car output for the domestic market has dropped in the same month by 13%, for export by 12%. These are dramatic numbers.

To drive the point home, on Friday we learned that in the first three months of the year, Britain grew at its slowest rate for five years. One comforting explanation is that the “beast from the east” hit construction. But dig a little deeper, and the cold snap also prompted a surge in demand for electricity and gas. As the Office for National Statistics observed, the weather alone explains little of the setback.

Everyone, outside the closed world of the Brexit advocates, knows that vandalising our hi-tech sector is supreme folly

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Yemen War Great For US Jobs: Watch CNN’s Wolf Blitzer Proclaim Civilian Deaths Are Worth It

With the still largely ignored Saudi slaughter in Yemen now in its fourth year, RT’s In The Now has resurrected a forgotten clip from a 2016 CNN interview with Senator Rand Paul, which is currently going viral.

In a piece of cable news history that rivals Madeleine Albright’s infamous words during a 1996 60 Minutes appearance where she calmly and coldly proclaimed of 500,000 dead Iraqi children that “the price is worth it,” CNN’s Wolf Blitzer railed against Senator Paul’s opposition to a proposed $1.1 billion US arms sale to Saudi Arabia by arguing that slaughter of Yemeni civilians was worth it so long as it benefits US jobs and defense contractors. 

At the time of the 2016 CNN interview, Saudi Arabia with the help of its regional and Western allies — notably the U.S. and Britain — had been bombing Yemen for a year-and-a-half, and as the United Nations noted, the Saudi coalition had been responsible for the majority of the war’s (at that point) 10,000 mostly civilian deaths. 

At that time the war was still in its early phases, but now multiple years into the Saudi-led bombing campaign which began in March 2015, the U.N. reports at least “5,000 children dead or hurt and 400,000 malnourished.”

And now as the death toll tragically stands at many tens of thousands, and with a subsequent U.N. report from 2017 documenting in detail “the killing and maiming of children” on a mass scale, Blitzer’s words are even more revealing of the role that CNN and other major American networks play in enabling and excusing U.S. and allied partners’ war crimes abroad.

Senator Paul began the interview by outlining the rising civilian death toll and massive refugee crisis that the U.S. continued facilitating due to deep military assistance to the Saudis:

There are now millions of displaced people in Yemen. They’re refugees. So we supply the Saudis with arms, they create havoc and refugees in Yemen. Then what’s the answer? Then we’re going to take the Yemeni refugees in the United States? Maybe we ought to quit arming both sides of this war.

Paul then narrowed in on the Pentagon’s role in the crisis: “We are refueling the Saudi bombers that are dropping the bombs. It is said that thousands of civilians have died in Yemen because of this.” 

CNN’s Blitzer responded, “So for you this is a moral issue. Because you know, there’s a lot of jobs at stake. Certainly if a lot of these defense contractors stop selling war planes, other sophisticated equipment to Saudi Arabia, there’s going to be a significant loss of jobs, of revenue here in the United States. That’s secondary from your standpoint?”

Paul countered, “Well not only is it a moral question, its a constitutional question.” And noted that Obama had partnered with the Saudi attack on Yemen without Congressional approval: “Our founding fathers very directly and specifically did not give the president the power to go to war. They gave it to Congress. So Congress needs to step up and this is what I’m doing.”

* * *

For further context of what the world knew at the time the CNN interview took place, we can look no further than the United Nations and other international monitoring groups.

A year after Blitzer’s statements, Foreign Policy published a bombshell report based on possession of a leaked 41-page draft UN document, which found Saudi Arabia and its partner coalition allies in Yemen (among them the United States) of being guilty of horrific war crimes, including the bombing of dozens of schools, hospitals, and civilian infrastructure. 

The U.N. study focused on child and civilian deaths during the first two years of the Saudi coalition bombing campaign – precisely the time frame during which the CNN Wolf Blitzer and Rand Paul interview took place. 

Foreign Policy reported:

“The killing and maiming of children remained the most prevalent violation” of children’s rights in Yemen, according to the 41-page draft report obtained by Foreign Policy.

The chief author of the confidential draft report, Virginia Gamba, the U.N. chief’s special representative for children abused in war time, informed top U.N. officials Monday, that she intends to recommend the Saudi-led coalition be added to a list a countries and entities that kill and maim children, according to a well-placed source.

The UN report further identified that air attacks “were the cause of over half of all child casualties, with at least 349 children killed and 333 children injured” during the designated period of time studied, and documented that, “the U.N. verified a total of 1,953 youngsters killed and injured in Yemen in 2015 — a six-fold increase compared with 2014” – with the majority of these deaths being the result of Saudi and coalition air power.

Also according AP reporting at the time: “It said nearly three-quarters of attacks on schools and hospitals — 38 of 52 — were also carried out by the coalition.”

But again, Wolf Blitzer’s first thought was those poor defense contractors:

…Because you know, there’s a lot of jobs at stake. Certainly if a lot of these defense contractors stop selling war planes, other sophisticated equipment to Saudi Arabia, there’s going to be a significant loss of jobs, of revenue here in the United States.

* * *

This trip down memory lane elicited suitable responses on Twitter:

And here’s the full CNN interview segment from 2016: 

As Wolf Blitzer is known to pal around with Clinton’s former Secretary of State Madeleine Albright, it appears he’s a quick understudy:

Lesley Stahl on U.S. sanctions against Iraq: We have heard that a half million children have died. I mean, that’s more children than died in Hiroshima. And, you know, is the price worth it?

Secretary of State Madeleine Albright: I think this is a very hard choice, but the price–we think the price is worth it.

60 Minutes (5/12/96)

David Stockman: Jumping The Great White Shark Of Bubble Finance

Authored by David Stockman via Contra Corner blog,

Wall Street has now truly jumped the shark – the one jockeyed by Jeff Bezos.

Last night Amazon reported a whopping 41% plunge in free cash flow for the March 2018 LTM period compared to prior year. Yet it was promptly rewarded by a $50 billion surge in market cap—-with $10 billion of that going to the guy riding topside on the Great White Shark of Bubble Finance.

That’s right. Amazon’s relatively meager operating free cash flow for the March 2017 LTM period had printed at $9.0 billion, but in the most recent 12 months the number has slithered all the way down to just $5.3 billion.

And that’s where the real insanity begins. A year ago Amazon’s market cap towered at $425 billion—meaning that it was being valued at a downright frisky 47X free cash flow. But fast forward a year and we get $780 billion in the market cap column this morning and 146X for the free cash flow multiple.

Folks, a company selling distilled water from the Fountain of Youth can’t be worth 146X free cash flow, but don’t tell the giddy lunatics on Wall Street because they are apparently just getting started.

Already at the crack of dawn SunTrust was out with a $1900 price target—meaning an implied market cap of $970 billion and 180X on the free cash flow multiple.

At this point, of course, you could say who’s counting and be done with it. But actually it’s worse—-and for both Amazon and the US economy.

That’s because Amazon is both the leading edge of the most fantastic ever bubble on Wall Street and also a poster boy for the manner in which Bubble Finance is hammering growth, jobs, incomes and economic vitality on main street.

Moreover, soon enough a collapsing Wall Street bubble will bring the already deeply impaired main street economy to its knees. So Amazon is a double-destroyer.

In this context, Bezos e-Commerce juggernaut racked up $174 billion of sales during the March LTM period, which represented a massive $45 billion or 35% gain over prior year (both figures exclude AWS). By way of comparison, that one-year gain is nearly double Macy’s total annual sales!

Even when you adjust for the Whole Foods acquisition that was not in the 2017 LTM numbers, the sales gain was about $35 billion or 27%.

Either way, the robo-traders got damn excited, scooping up AMZN’s shares hand-over-fist on the back of its “great sales momentum”. But as we said yesterday, headline reading algos don’t get far below the surface, and in this case they didn’t even break the skin.

Fully 96% of Amazon’s $5.0 billion of  LTM operating income was accounted for by its cloud services business (AWS).

The e-Commerce juggernaut, by contrast, posted just $188 million of  LTM operating income, which am0unts to, well, 0.1% of sales on a computational basis. But we’d round that to zero—especially because Amazon’s e-Commerce business was already almost there in the year ago period when its margin on sales came in a tad higher at 0.6%!

Needless to say,  AWS  has nothing to do with e-Commerce, and, instead, is in the brute force, capital-intensive server farm business. As the leader of a rapidly growing pack of cloud farmers,  AWS racked up a 44% year-on-year sales gain.

Even then, the world can only migrate from desk tops and discrete devices to the cloud once—so there is no conceivable way that current growth rates can be sustained or should be capitalized in perpetuity.

Still, give AWS the benefit of the doubt and value it at Microsoft’s red hot multiple of 50X, which we don’t think makes much sense, either. After all, it’s a 42-year old company that has posted essentially zero earnings growth over the last 7 years and much volatility of results.

In any event, at Microsoft’s elevated multiple of the moment, the cloud business is worth $200 billion. That reflects 50X the $4 billion of LTM net income attributable to AWS, which happens to be 100% of AMZN’s net income because e-Commerce earned zero after attributable interest and taxes.

Needless to say, that means the loony bins down on Wall Street are valuing Bezos’ profit-free e-Commerce monster at $580 billion. And that goes right to our double-destroyer point.

Amazon is undoubtedly one of the craziest momo stocks of all-time—meaning that there is $300 billion or even more of bottled air lodged in the implied $580 billion value of e-Commerce. That’s because the vast bulk of Amazon is in the GDP business—-that is, the moving and storage and delivery of good and services.

These grow at 3-4% per year in today’s geriatric US economy, and therefore merit perhaps a 15X multiple of steady-state operating free cash flow. And that would be generous in a world with normalized cap rates, which sooner or later must come.

Accordingly, to be worth even $280 billion, e-Commerce would have to generate nearly $19 billion of free cash flow, and that would be no lay-up. There are not that many malls left in the US to destroy and AMZN’s attempt to go international has been a huge thumb-sucker.

To wit, North American e-Commerce sales ex-Whole Foods were $26.5 billion in the quarter just ended and represented a 26% gain from prior year. At the same time, the LTM operating loss for the international e-Commerce business has grown from $1.2 billion in the December 2016 LTM period to $2.6 billion in Q3 2017 and $3.2 billion for the LTM period just ended.

In other words, Amazon’s e-Commerce business is digging deeper and deeper into red ink abroad and growing steadily slower at home, where it does manage to eek out a marginal profit. So how does it ever generate the above postulated $19 billion of free cash flow?

Indeed, therein lies the skunk in the woodpile. Customers love Amazon precisely because it doesn’t generate any free cash flow at all and never could. The implicit business model is that Amazon returns to customers 100% of the prices they pay in the form of costs for logistics, storage, transportation, fulfillment and the underlying goods and services.

Moreover, minor tweaks like the announced increase of the Prime membership fee to $119 per year ( from $99) won’t make any difference because more than the resulting $2 billion gain ($20 X 100 million members) is being absorbed into the maws of Amazon video streaming and entertainment content services which are free to Prime members.

In short, there is $300 billion, $400 billion or even more bottled air in the e-Commerce business and the $200 billion we have ascribed to AWS isn’t all that rock solid, either. That’s because you simply can’t value “growth” stemming from a one-time shift to the cloud at a 50X multiple—-especially in the case of a capital intensive business like server farms.

Perhaps that’s why Amazon doesn’t break-out assets by segment: the return on capital at AWS, as opposed to sales, might look at lot less impressive.

Stated differently, Amazon’s $780 billion market cap is a giant momo hotel, and when that mega-bubble finally breaks the contagion and spillover effect will be monumental. Even our Microsoft benchmark will take a pasting.

After all, if not for the enormous forces of momentum in the casino, you couldn’t explain the chart below, either.

During the LTM period reported last night, Microsoft generated net income of $14.2 billion, and even if you reverse out the huge write-downs last year, the annualized run-rate is no higher than $20 billion. Yet its net income has been cycling around the $20 billion mark for the last 7 years.

At the same time, its market cap more than tripled from $200 billion to $740 billion—meaning that its valuation multiple also tripled.


We’d bet its the same reason that AMZN is capitalized at $780 billion: Namely, it reflects a casino that has run wild on central bank Bubble Finance, and that is itching for a giant fall now that central bankers are trying to climb off the ledge.

MSFT Net Income (TTM) Chart

And that gets us to the second part of the doubly-whammy. Amazon is just the poster boy for value destruction on main street owing to the Fed’s Bubble Finance regime.

In this case, Jeff Bezos was paid another $10 billion last night for filling a report with the SEC which implicitly documented his massive predation on the main street economy and Amazon’s far reaching destruction of assets embodied in regional malls, shopping centers and mom and pop emporiums alike.

Yes, we understand all about Schumpeter’s “creative destruction” and that the genius of free market capitalism is that it continuously innovates and invents the new and discards the old, inefficient and obsolete. But the great Austrian also presumed that there was a level playing field—an honest free market, and most especially when it comes to pricing capital, debt and money.

Today there is no such thing—-that’s the ultimate evil of monetary central planning. It substitutes the fallible will of 12 mortals on the FOMC for the genius and continuously self-correcting verdicts of the free market.

And that lamentable result is not a bad thing just in the abstract. In fact, it’s a terrible thing in the concrete here and now because it utterly distorts the signaling system of the capital markets.

At the moment, those central bank engineered signals are telling Bezos and his army that their profit-free predator is worth nearly $600 billion, and that they should keep doing more of the same.

We will address this point at greater length in the near future, but suffice it to say that the C-suites all over the US economy are being given the same kind of false signals. And, most especially, signals to invest their cash flows and balance sheet capacity in Wall Street financial engineering schemes rather than main street growth, productive assets and human resources.

Unfortunately, the metrics which inform the daily economic narrative are rooted in the Keynesian models from which the GDP statistics are derived. That means current spending for consumption and capital goods get added to GDP but the current period costs of destroyed malls and their support infrastructure including employees don’t get deducted.

In the longer run, of course, the premature and non-free market based destruction of capital and other economic resources takes its toll. Ultimately, the result is lower productivity, reduced output, less GDP and lower living standards.

In the interim, however, Amazon’s predation is actually contributing to officially measured GDP because it’s building warehouses and distribution infrastructure like there is no tomorrow.

Yet that’s just another version of Bastiat’s broken window fallacy. The stones are being thrown by the Great White Shark of Bubble Finance, but the incentive to do so was mediated by Wall Street and fostered in the Eccles Building.

That is worth mentioning because  lurking beneath this morning’s slight beat on real GDP was a living example of this very broken window fallacy. When you strip-out the volatile short-term impact of inventories and exports, you get a reasonably serviceable measure of contemporaneous economic activity as measured by the Keynesian concept of “spending”.

Needless to say, a lot of windows were broken last summer during the great storms of 2017 and heavily repaired during Q4. So it is not surprising that the annualized rate of real final sales surged by 4.5%.

It’s also not surprising that the number reverted back to its tepid trend line in Q1, when real final sales expanded by only 1.6% at an annual rate.

As is also evident from this chart, even Keynesian style spending is running out of gas after 9-years of tepid business expansion, and in the Amazon story we have the reason why.

Bubble Finance is breaking way too many windows.

Early Facebook Investor And Zuckerberg Mentor: “I Feel My Baby Has Turned Out To Be Something Horrible”

Even if Facebook’s stellar Q1 earnings report hadn’t helped erase some of the losses that Facebook shares incurred in the aftermath of the Cambridge Analytica scandal, Facebook executives Mark Zuckerberg and Sheryl Sanderberg would still believe that the company’s troubles are largely behind them and that the company had essentially repaired the damage done to its reputation.

That was the assessment delivered by early Facebook investor and one-time Zuckerberg mentor Roger McNamee, who warned during an appearance at an event organized by Quartz in Washington DC last week that the company’s leaders are deeply complacent and still haven’t accepted the fact that Facebook has badly mislead its users about how the company profits off their data.


Despite Zuckerberg’s warning, embedded in his opening statement to Congress earlier this month, that the company planned to make changes that could “significantly impact” profitability, McNamee believes it’s likely Facebook is “going to get away” with the bad things that it has done, which is “particularly dangerous” considering the 2018 midterm elections are only months away. McNamee said he’s deeply disappointed in how Zuckerberg and Sandberg have responded to the crisis by refusing to accept responsibility.

During their post-crisis media tour, both executives insisted on blaming Cambridge Analytica for “misleading” Facebook, even though Facebook never bothered to alert users whose data had been affected.

“They’ve done bupkis to protect us,” McNamee said.

The whole affair has left McNamee – who considers his involvement with Facebook during its early days to be the “highlight of a long career” – deeply saddened.

“Every part of this has made me sadder and sadder and sadder. I feel like my baby has turned out to be something horrible, and these people I trusted and helped along have forgotten where they came from,” he said in a conversation with Kevin Delaney, Quartz’s editor-in-chief.

McNamee has become an outspoken critic of the company, comparing its role in the 2016 US election to “the plot of a sci-fi novel” while at the same time admitting that he has “profited enormously” by backing Facebook early on. The organization he helped found, the Center for Humane Technology, has made it a mission to expose Facebook’s multiple flaws, and to try to fix them.

The longtime venture investor explained that he had started becoming disillusioned with Facebook long before the latest in string of scandals involving the company. During his talk, he echoed criticisms by early Facebook executive, Chamath Palihapitiya, who compared Facebook to “Internet crack” and said it’s “ripping apart the social fabric of how society works.”

Like Palihapitiya, McNamee believes Facebook isn’t doing enough to mitigate the negative effects of social media addiction and misinformation spread on its platform. In other words, Facebook is sacrificing the well-being of its users in the name of uninterrupted growth.

It’s not just about the money, McNamee said, comparing his former protégé to a cult leader. “Zuckerberg believes he’s given the world a massive gift,” he said, and the mentality at the company remains focused on becoming “the most important thing in the world.”

Because of these issues, McNamee said the last 12 months have been “the most depressing of his life.”

Of course, like Palihapitiya before him, McNamee’s criticisms would carry a lot more heft if they were followed by action – perhaps establishing some kind of organization meant to combat social media’s near-total influence over society. 

Still, McNamee is hardly alone: A recent survey revealed that nearly one-third of Americans believe Facebook has a negative impact on society. And with early indicators showing user engagement numbers starting to slip in the aftermath of the company’s user-data scandal, perhaps we’ll need to wait until the company’s next batch of quarterly results to see how its users are responding to the latest user-data crisis.

* * *

Meanwhile, Facebook’s campaign to win back the trust of its vast user base is manifesting in an advertising blitz that has already arrived in the corridors of New York City’s subway system.

Inside New York’s 700-Member “Millennials-Only” Sex Club

Daniel Saynt, a Puerto Rican bisexual ex-Jehovah’s Witness who changed his name and opened up 700-member NYC “Millennials only” sex club “NSFW” (New Society for Wellness), has a few rules for those seeking to get their group-sex on.

  • You have to be hot
  • You have to be young
  • You have to be interesting and active on social media
  • Saynt has to be able to imagine himself having sex with you or next to you
NSFW has 700 members who all meet the following criteria: attractive, successful and social-media savy

If a guy applies and says, ‘I just want to have sex with as many girls as possible,’ that’s not someone we want here,” said Saynt. “I use my bi[sexual] sense … Like, do I want to hook up with them? Would I want this person having sex next to me? If not, then we won’t accept them.”

All is not lost however for fat, sexually frustrated New York City millennials – as they’ll have ample time to work on their sex-club bodies and social skills while NSFW chews through its waiting list of over 300 horny people, while more than 9,000 applicants didn’t make the cut

The average age of a NSFW member is 28, who pay a one-time membership fee of $96, and an extra charge of $30 – $150 per sex party. Around 60% of members are in open relationships, and the majority are bisexual. As we’ve mentioned, Saynt’s standards are incredibly high. 

“Being a hot woman, I don’t want to fuck everyone and I don’t want ­everyone to think they can fuck me,” said member Lola Jean, 28, who works as a sex educator and is known in the sex-club community as a wrestling dominatrix. “At other parties, it’s hard to be the hottest person in the room and have all this attention coming at you — but here, everyone is hot so they all get it.”

The club also holds thematic events:

THE bacchanals — the biggest of which take place at city venues such as House of Yes — celebrate themes ranging from BDSM and foot-fetish workshops to caviar dinner parties, but all end with little to no clothing on and plenty of hooking up.

“Members dress in layers to allow for various stages of nudity as the night develops,” said member Melissa Vitale, 25, a publicist. Sometimes there is a strict all-black dress code that includes masks. –NY Post

Saynt, born Daniel Santiago, grew up poor in New York. Raised by Puerto Rican parents who were strict Jehovah’s Witnesses, he attended church every Sunday, woke up at 6 a.m. every day, and spent 10 hours a week at Bible study. 

“As per the tenets of his religion, he did not celebrate birthdays or holidays, including Christmas.” –NY Post

“It’s not just a religion, it’s a lifestyle,” said Saynt. “Your friends, family and everyone you interact with are all Jehovah’s Witnesses.”

Then Saynt had his first sexual experience at 13 with another boy from the neighborhood.

“It was very confusing and scary being in a faith that is so traditional in their approach to LGBT people,” Saynt said of the Jehovah’s Witnesses – who consider homosexuality a punishable sin. “It really stunts you.”

In 2001 – against his parents’ wishes to become a missionary, Saynt enrolled at Berkeley College in Midtown, graduating in 2005 with a degree in e-commerce and legally changing his surname to from Santiago. Saynt says that he began to sexually experiment in college, hooking up with men and women on Craigslist and attending sex parties. 

After a failed six-year attempt at a straight marriage, Saynt left the digital lifestyle-marketing company he co-founded and opened up an Eyes-Wide-Shut tier sex club in NYC

“I got tired of selling shoes and handbags and beauty things that people don’t need,” said Saynt of his fashion-marketing days. “I wanted to sell things that make people happy, like sex.”

SAYNT began accepting applications for NSFW in 2015. Potential members must answer a detailed questionnaire about their fantasies and preferences, submit photos of themselves and provide links to their social-media accounts. –NY Post

“We look for people with a story to share,” said Saynt. “If you can’t share a conversation with someone, you can’t share a bed.”

In order to decide who makes the cut, Saynt has a trusted “council” of five judges “want people who post photos of themselves with friends and at local hot spots, doing fun activities and traveling the world. Hateful political views, too few photos or awkward close-ups are an automatic “No.”

Members who enter NSFW’s Williamsburg clubhouse will find six beds in the basement with mesh dividers, adorned with Christmas lights, lanterns, and a large “XXX” marquee sign which greets guests over the door. 

Photos of tattooed models holding pizza and hot dogs over their genitals line the walls. Black leather toys are on display for members to test.

Wonder if they’ve got this one?

Saynt isn’t just selling experiences either – he’s selling sex dolls out of his sex club!

Saynt’s marketing company, also called NSFW, works with brands such as Real Love Sex Dolls to market directly to club members by letting them test out and buy discounted products. The partnerships, in turn, help fund the parties.

So – in addition to all the hot sex with incredibly attractive people, members receive the fringe benefit of a discount on a wide variety of sex toys.