The BS Filter: BOJ Nonsense & Helicopter Money Speculation

Takeaway: Here's our take on some of today's top financial stories.

The BS Filter: BOJ Nonsense & Helicopter Money Speculation - Central banker cartoon 03.03.2015



The mainstream media continues to cite "back room" musings of conflicting Japanese officials and their views on helicopter money.


According to Reuters: "There is no chance Japan will resort to 'helicopter money' any time soon, government and central bank officials directly involved in policymaking told Reuters on the condition of anonymity."


Those unidentified Japanese goverment officials eagerly dismissed the notion of helicopter money. Below are a selection of their comments:


  • "Adopting helicopter money in the strict sense is impossible as it's prohibited by law," said one of the officials. "If it's about the BOJ buying huge amounts of bonds and the government deploying fiscal stimulus, we're already doing that."
  • "It's an illusion to think that a country can spend as much money as it wants, without having to pay it back," said another official on condition of anonymity.
  • "I haven't heard of any such discussions taking place in the Ministry of Finance," a third source said, adding that adopting helicopter money was "unthinkable."
  • Koichi Hamada, an economic adviser to Prime Minister Abe, told Reuters on Thursday Japan should not resort to helicopter money as it could lose control of inflation.
  • "Resorting to such a step would be sending a grave message to the international community" on Japan's fiscal management, he told Reuters on Thursday. "We need to think carefully about how markets will react if we even signal it as an option." -Masahiko Shibayama, another influential aide to Abe


The BS Filter: BOJ Nonsense & Helicopter Money Speculation - Kuroda cartoon 02.18.2015


Meanwhile, Bloomberg reports...


"Ben S. Bernanke, who met Japanese leaders in Tokyo this week, had floated the idea of perpetual bonds during earlier discussions in Washington with one of Prime Minister Shinzo Abe’s key advisers.

Etsuro Honda, who has emerged as a matchmaker for Abe in corralling foreign economic experts to offer policy guidance, said that during an hour-long discussion with Bernanke in April the former Federal Reserve chief warned there was a risk Japan at any time could return to deflation. He noted that helicopter money -- in which the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them -- could work as the strongest tool to overcome deflation, according to Honda. Bernanke noted it was an option, he said.


Though Honda said he thought Japan was already engaged in a strategy that involved helicopter money, he wanted to convey the idea to Abe and asked Bernanke to meet with the premier in Japan. While this didn’t happen in the spring, Bernanke joined central bank chief Haruhiko Kuroda over lunch this Monday and on Tuesday he attended a gathering with Abe and key officials, including Koichi Hamada, another influential economic adviser."


The BS Filter: BOJ Nonsense & Helicopter Money Speculation - Japan cartoon 08.10.2015

Whether you believe the rumors or not...


OUR TAKE: As Japan's moribund economy continues to flounder, what makes central planners so certain helicopter money will finally pull it out of stagnation? The BOJ is already firing up the monetary printing presses to the tune of ¥80 to ¥90 trillion a year. In other words, the best efforts of Japanese central planners continue to fail. None of this bodes well for Japan.

Tick Tock | Jobless Claims: The Late Cycle, Recession Indicator

Takeaway: Claims have been sub-330k for 29 months, now just 16 months shy of the all-time duration record: 45 months set in the 1990s.

Editor's Note: Below is a complimentary excerpt from an institutional research note written by Hedgeye Financials analysts Josh Steiner and Jonathan Casteleyn. If you would like more info on how you can access our research please email


Tick Tock | Jobless Claims: The Late Cycle, Recession Indicator - jobslatecycle


While claims moved momentarily higher in early May, they have resumed a breakneck pace lower for now with the most recent week coming in at an impressively low 254k. However, the keyword here is "breakneck." While the labor market remains strong for now, the current level of claims seems unsustainable in the context of history.


The chart below shows that in the last three cycles claims have dropped below and remained below 330k for 24, 45, and 31 months (average: 33 months) before the economy entered recession in the last three cycles. With the current cycle in its 29th month below that level, we are 5 months past the minimum, 4 months shy of the 33-month average, and 16 months from the max.


With the market at all-time highs and the labor market classically late stage, we remain bearish.

Tick tock.


Tick Tock | Jobless Claims: The Late Cycle, Recession Indicator - lt job claims

Valeant Bankruptcy Risk Is Rising | $VRX

Takeaway: "The probability of a Valeant bankruptcy is high, and the probability that we see a sub-$20 stock over the next 12-months is even higher."

Valeant Bankruptcy Risk Is Rising | $VRX - Ackman cartoon 10.26.2015


In November, our Healthcare analysts Tom Tobin and Andrew Freedman wrote the research note: "VRX | Bear Case $20." The stock has plummeted since then -- down -75%.


Here's an exclusive update from Andrew Freedman:


"Our $20 “Bear Case” valuation was based on acquisition price of the assets less accumulated debt and assuming the assets perform on par with historical trends. Clearly the latter part of that assumption is no longer valid given the deterioration in the core business that is likely permanently impaired. With $18.6 billion of Goodwill on the balance sheet and the stock down 91.8% from its peak, the market is already telling us that Valeant overpaid for these assets. We are surprised that Valeant has yet to take a write-down to reflect this reality.


The probability of a Valeant bankruptcy is high, and the probability that we see a sub-$20 stock over the next 12-months is even higher. At this stage, it makes more sense to sell the company off in pieces, repay debt holders, give what is left over (if anything) to stockholders and call it quits."


Chart below is from March, 17 2016.

Valeant Bankruptcy Risk Is Rising | $VRX - z q


Valeant Bankruptcy Risk Is Rising | $VRX - 20160714 VRX Writedown


Tobin and Freedman have been laying out the short case for some time. Here's a video from earlier this year which largely predicted what's happened at Valeant, including the precipitous drop in VRX shares and "we would be surprised if Mike Pearson survives as CEO."


Click below to watch. It's instructive to understand what's to come. 



Additional updates worth reading from our Healthcare team:


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My Thoughts On a ‘Heartbreaking’ Healthcare ‘Horror Story’


In this brief excerpt from The Macro Show this week, Hedgeye Healthcare Sector Head Tom Tobin answers a “heartbreaking” question from a subscriber on the collapse of ACA exchanges and the impact it’s having on American families.


Subscribe to The Macro Show today for access to this and all other episodes. 


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JPMorgan Beat Earnings Estimates? Everyone Beats Estimates

Takeaway: Companies rarely miss consensus earnings estimates. That's why it's the year-over-year earnings and sales numbers that matter.

JPMorgan Beat Earnings Estimates? Everyone Beats Estimates - earnings cartoon 04.25.2016


JPMorgan shares are up more than 2% today after reporting earnings that beat consensus estimates. Not so fast. As our Macro team points out in a note sent to subscribers earlier this morning, overcoming analyst earnings expectations isn't the metaphorical albatross the media makes it out to be:


"JPMorgan kicked off bulge bracket earnings this morning and the headlines of the top stories all centered around JPM 'beating' estimates. As you can clearly see [in the chart below] where we show an earnings beat/miss heatmap (where companies print relative to where consensus expects) everyone beats estimates. It’s part of modern financial reporting, and much less relevant than Y/Y earnings growth. JP Morgan reported a -1.4% hit to net income in Q2 Y/Y to kick off what we think could be another disappointing earnings season for Q2."


In essence, companies rarely miss consensus earnings estimates. That's why it's the year-over-year earnings and sales numbers that matter.  


Click the image to enlarge.

JPMorgan Beat Earnings Estimates? Everyone Beats Estimates - earnings beat


While we're on JPMorgan...


Hedgeye Financials analyst Josh Steiner has the brief breakdown of JPMorgan's results today:



Here's to digging deeper than perceived reality.

Hedgeye Guest Contributor | O'Rourke: Fairy Tale Earnings

Takeaway: Earnings estimates appear untethered from reality.

Editor's Note: This is a special Hedgeye Guest Contributor note written by Mike O'Rourke. Mike is the Chief Market Strategist at JonesTrading where he advises institutional investors on market developments. He publishes "The Closing Print" on a daily basis in which his primary focus is identifying short term catalysts that drive daily trading activity while addressing how they fit into the “big picture.”


Hedgeye Guest Contributor | O'Rourke: Fairy Tale Earnings - earnings cartoon 04.12.2016


Now that Q2 earnings season has commenced, it is an opportune time to examine the expectations landscape. 


According to Standard & Poor’s, 2015 earnings finished at $100.45, down from $113.01 in 2014.  The current forecast for 2016 earnings is $113.96. Considering Q1 2016 earnings were down 7% year over year, it obviously makes 13% full year earnings growth a tall order. Per the S&P data, the last 6 quarters have posted year over year declines.  Despite that disappointing trend, Q2 earnings are forecast to rise 7% year over year. As is typical, earnings estimates are very back end loaded, allowing more time to deny reality. 


For Q3, earnings are forecast to grow 19% year over year, and in Q4, they are forecast to grow a whopping 37% year over year (chart below).  Of course, quarterly earnings in excess of $30 per share would be new record levels (chart below).  For some reason, this does not seem like an environment primed for posting record quarterly earnings.


Certain aspects of the environment that led to the peak in earnings in 2014 softened, but they have not reversed.  The Dollar remains relatively strong.  Although the Dollar index is down 4% from its recent peak, it is still up over 20% from the 2014 level from which it broke out.  While Crude has managed a remarkable rebound from its February low, the average price of spot WTI was $48.65 in 2015, and thus far in 2016, it is just over $40. 


The volatility around earnings due to the broad decline should fade and this is expected to be the Energy Sector’s first positive earnings quarter since the end of 2014.  The Health Care sector will be key, and is expected to do much of the heavy lifting for index earnings, growing close to 30% in 2016 (table below).  Considering Q1 earnings for the sector only grew 3.3% year over year, Q2, Q3 and Q4 are forecast to grow 31.7%, 37.7% and 40.5% respectively.  There is not much else based on reality in the markets these days, so maybe there is no reason to expect earnings estimates to be any different.


Hedgeye Guest Contributor | O'Rourke: Fairy Tale Earnings - z a


Hedgeye Guest Contributor | O'Rourke: Fairy Tale Earnings - z aa

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