3d USA/Yen rate now well below the important 120 barrier this morning

3e WTI::  38.86  and Brent: 39.65

3f Gold DOWN  /Yen DOWN

3g Japan is to buy the equivalent of 108 billion uSA dollars worth of bond per month or $1.3 trillion. Japan’s GDP equals 5 trillion usa.

Japan to buy 100% of all new Japanese debt and by 2018 they will have 25% of all Japanese debt. Fifty percent of Japanese budget financed with debt.

3h Oil UP for WTI and UP for Brent this morning

3i European bond buying continues to push yields lower on all fronts in the EMU. German 10 yr bund FALLS  to 0.180%   German bunds in negative yields from 8 years out

 Greece  sees its 2 year rate RISE to 9.97%/: 

3j Greek 10 year bond yield RISE to  : 8.77%   (YIELD CURVE NOW INVERTED)

3k Gold at $1217.60/silver $15.25 (7:15 am est) 

3l USA vs Russian rouble; (Russian rouble UP 5/100 in  roubles/dollar) 68.12

3m oil into the 39 dollar handle for WTI and 40 handle for Brent/

3n Higher foreign deposits out of China sees huge risk of outflows and a currency depreciation  (already upon us). This can spell financial disaster for the rest of the world/China forced to do QE!! as it lowers its yuan value to the dollar/expect a huge devaluation imminently from POBC.

JAPAN ON JAN 29.2016 INITIATES NIRP. THIS MORNING THEY SIGNAL THEY MAY END NIRP

30 SNB (Swiss National Bank) still intervening again in the markets driving down the SF. It is not working: USA/SF this morning .9774 as the Swiss Franc is still rising against most currencies. Euro vs SF is 1.0906 well above the floor set by the Swiss Finance Minister. Thomas Jordan, chief of the Swiss National Bank continues to purchase euros trying to lower value of the Swiss Franc.

3p BRITAIN STARTS ITS CAMPAIGN AS TO WHETHER EXIT THE EU.

3r the 8 Year German bund now  in negative territory with the 10 year FALLS to  + .180%

/German 8 year rate negative%!!!

3s The Greece ELA NOW at  71.4 billion euros,

The bank withdrawals were causing massive hardship to the Greek bank. the Greek referendum voted overwhelming “NO”.  Next step for Greece will be the recapitalization of the banks and that will be difficult.

4. USA 10 year treasury bond at 1.91% early this morning. Thirty year rate  at 2.68% /POLICY ERROR)

5. Details Ransquawk, Bloomberg, Deutsche bank/Jim Reid.

With European markets closed across the continent on Monday as the Easter holiday continues, overnight Asia was busy with the Shanghai Composite letting off some steam, and closing down 0.7% at session lows on concerns the Shanghai and Shenzhen home bubble have been popped prematurely by the politburo.

Japan was a different story with the Yen sliding following a report by the Sankei newspaperthat Abe will announce in May his intention to delay the planned April 2017 sales tax hike from 8% to 10%, coupled with additional reports that Japan will unveil a major fiscal stimulus (and just on Friday Abe said he is “not thinking at all about supplemental budget” at this time).

This turned out to be nothing but the latest Japanese market trial balloon, because hours after the report, Abe reiterated that Japan’s sales tax will indeed be raised as scheduled in April 2017 “barring a crisis like the one caused by the collapse of Lehman Brothers”, while cabinet secretary Suga said there is no truth in the report that the government has decided to delaythe sales tax hike. By the time these denials hit, however, the FX momentum algos were engaged, and the USDJPY jumped, leading to seven straight days of Yen losses, the longest losing streak since October 23 and in the process sending the Nikkei higher by 0.8%.

And thanks to the low volume, illiquid futures market, U.S. equity index futures followed the Japanese rebound, with the E-Mini rising 0.3% to 2034.5 in the thin premarket trade. Dollar falls slightly, reversing earlier gains, while gold also declines. Oil rises for first day in 3. Traders are pricing in a 6% chance of a U.S. rate increase in April, and about 38% probability of a boost in June, according to Fed funds futures. Increasingly many strategists are concerned that the market is underplaying the risk of a June rate cut and as a result odds will have to rise substantially in the coming weeks so the Fed will avoid a “surprise.”

Markets Snapshot

• S&P 500 futures up 0.3% to 2035
• Stoxx 600 closed
• MSCI Asia Pacific up less than 0.1% to 128
• Nikkei 225 up 0.8% to 17134
• Hang Seng closed
• Shanghai Composite down 0.7% to 2958
• S&P/ASX 200 closed
• US 10-yr yield up less than 1bp to 1.91%
• Dollar Index down 0.06% to 96.22
• WTI Crude futures up 1.1% to $39.88
• Brent Futures up 0.8% to $40.78
• Gold spot down less than 0.1% to $1,216
• Silver spot up 0.3% to $15.23

Top Global News

• Japan’s NTT to Acquire Dell Units for $3.055b: NTT Data to acquire Dell Systems Corp. and other units related to IT services.
• Sanders Says He’s Seized Momentum After Crushing Caucus Wins: Sanders received 73% in Washington state, day’s biggest delegate prize, 70% in Hawaii, 82% in Alaska.
• Bull Market in U.S. Stocks Goes AWOL as History Rewards Patience: S&P 500 Index hasn’t seen a new high in 10 months, longest streak outside a bear market since 1995.
• Avon Activists Near Deal to Call Off Proxy Fight: WSJ: Deal would allow Barington Capital, NuOrion Partners to approve new independent director.
• Third Point Warns Seven & I Against Nepotism Deciding CEO: Seven & i CEO Toshifumi Suzuki, 83, is having chronic health problems; investors fear he may try to name his son, Yasuhiro Suzuki, to lead Seven?Eleven Japan, eventually become president of Seven & i, Loeb wrote.
• Microsoft Said to Meet With Possible Yahoo Bidders Seeking Funds: MSFT met with possible bidders for Yahoo! such as Verizon, private equity firms, who may seek backing from the software maker for their offers.
• Fed’s Williams Sees ’Huge Impact’ on U.S. From China, Brazil: “The real issue is the global financial and economic developments. There’s uncertainty about what’s happening around the world and how that feeds back to the dollar and the U.S. economy,” Williams, who doesn’t vote on monetary policy this year, told CNBC.
• ‘Batman v Superman’ Soars in Boost to Warner’s DC Franchise: Film opened with weekend sales of $170.1m in North American theaters, meeting estimates, giving studio a new foundation to build on.
• Qlik Tech Said to Hire Morgan Stanley for Possible Sale: Reuters: Co. has begun exploring strategic alternatives.
• Oil Halts Two-Day Slide After U.S. Rig Count Resumes Decline: Rigs targeting oil in the U.S. fell by 15 to 372, according to Baker Hughes.

Looking quickly at regional markets, we start in Asia where equities traded mixed with Topix, Nikkei 400 outperforming and CSI 300, Sensex 30 underperforming. As noted earlier the Chinese weakness was led by concerned about the potential bursting of the housing bubble: “developers are facing some headwinds as these measures are likely to cause immediate negative impact on the demand side,” said Wu Kan, fund manager at JK Life Insurance in Shanghai. “The market is in the stage of building a bottom so we’ll see lots of ups and downs.” 8 out of 10 sectors rise with health care, utilities outperforming and finance, energy underperforming.

Over the weekend, we got the latest China Jan.-Feb. Industrial Profit data, which rose 4.8% Y/y while China Feb. Diesel Stocks Increased 38.26% M/m; Shanghai New Home Sales Rise 48% on Week, Uwin Says.

Asian Top News

• Online Property Companies Soar on China’s Real Estate Recovery: Leju’s ADRs jump most on Bloomberg China-US Equity Index
• Woes Descend on Japanese IPOs as Stocks Tank on First Day: 6 of 21 cos. this year opened below their offer price
• Amazon to Flipkart Clash in India’s Nascent E-Commerce Market: Battlefield challenges accelerate pace of innovation
• Indian Paradox: As Economy Soars Modi Reforms Face Big Headwinds: IMF warns prosperity at risk without structural reforms
• Pakistan Vows to Hunt Terrorists After Easter Sunday Carnage: At least 65 people killed, death toll may rise further

European markets are closed today due to the Easter holiday.

European Top News

• Belgium Conducts More Raids in Aftermath of Terror Attacks: Authorities conducted 13 raids in Belgium on Sunday, detaining nine people as part of their efforts to prevent further terrorist attacks.
• Abengoa Wins Support of Creditors for Extension: Europa Press: Co. lined up enough support from creditors to ask court in Seville for an extension of several months in process of negotiation of financial restructuring; Abengoa Presents Standstill Request, Has 75% Creditor Support

FX markets are in consolidation mode for the most part, with the run up to US payrolls on Friday a usually quiet affair. This should keep many specs on the side-lines for now, but there looks to be some respite for GBP despite the uncertainty over the Brexit vote  overwhelmingly restrictive. Nevertheless, Cable has recovered towards 1.4200, but any move through the figure should find plenty of sellers from 1.4225-50. EUR/GBP should find some support from the mid .7800’s also, though larger support not until the mid-.7700’s.

USD/JPY has made some decent gains from the mid 111.00’s, but will start to find better offers ahead of 114.00, with 113.65¬70 capping the Asian session today. The commodity currencies are still looking heavy, but with Oil up off the lows, USD/CAD is threatening a return through 1.3200. All very tight so far, with much of Europe away, but North American players may take advantage of thin markets.

In Commodities, the energy complex was in a consolidation mode amid holiday thinned trading volumes and ahead of the eagerly awaited meeting by oil producing countries on April 17th to discuss the output freeze plan.

Bulletin Headline Summary from Bloomberg

• Treasuries fall in overnight trading while European markets closed for holiday and Asian equity markets mixed; week’s U.S. auctions begin today with $26b 2Y notes, WI yield 0.87%, compares with 0.752% awarded in Feb., was 21st straight 2Y auction to stop through or even with WI yield at bidding deadline.
• Hedge funds are crowding into U.S. Treasuries, and that has bond traders bracing for more turbulence. While the Federal Reserve doesn’t break out hedge-fund ownership, a group seen as a proxy increased its holdings to a record $1.27 trillion
• Japanese primary dealers say negative bond yields are here to stay in 2016; bond investors are still trying to adjust to the conditions that have turned yields on 70% of the market negative; Japanese banks are sitting on profits made last year and can withstand the impact of negative rates, according to the Bank of Japan
• Gold has been thrown onto the defensive by a resurgent dollar, sinking to the lowest in more than a month as the U.S. currency’s rally hurts the allure of the metal that’s been the best-performing commodity of 2016
• Oil’s rebound to about $40 a barrel means some investors are nursing losses after betting that Saudi Arabia would abandon its three-decade-old currency peg
• It’s been barely a month since investors first started betting on a copper rally, and they’re already on the retreat. Money managers cut their wagers on price gains for a second week, pulling back just before futures capped the worst slump in a month
• Terrorism probes advanced across Europe in the wake of last week’s deadly bombings in Brussels, with suspects arrested in Italy and the Netherlands, and Belgium carrying out police raids in several areas
• Sovereign 10Y bond yields mostly unchanged; European equity markets closed, Asian mixed; U.S. equity-index futures rise. WTI crude oil higher; gold and copper fall

Friday trading in China:

Sunday night/Monday morning

China Beige Book Reveals Employment Plunges To 4-Year Low, Capex Worst In History

Hugh Hendry is another extremely bright individual and we must always pay attention to what he says.  He was invited for a conversation with another brilliant individual by the name of Raoul Pal, a close friend of Grant Williams (Hmmm fame).  They have a paid webcast and their thoughts are always enlightening.

Today’s talk was about China.  Strangely Hendry went against his host as stated that if China devalues by 20%  (to 8 yuan/dollar)” the world is over, everything hits the wall”.  He states that the USA dollar will rise to astronomical heights, causing scarcity of that currency together with a collapse of all commodity prices and in turn, a collapse in emerging markets with huge defaults on their sovereign bonds etc.He describes if that happens, China will be king of a MAD MAX world and who would want that? Hendry states that the only way out for China is for a stronger yuan, yet with a high Debt to GDP ratio of 350% he does not know how this is possible.

SCARY!! Belgian nuclear guard murdered Thursday night and had his access badge stolen.

(COURTESY ZERO HEDGE)

Bombshell: King Of Jordan Blames Turkey For Terror In Europe, Says Israel “Looks Other Way” On Al-Qaeda

The ancient city of Palmyra has been rescued by Hezbollah forces and Iran. Putin congratulated ASSAD but no congratulatory  message was sent by Obama:

A very important warning from Deutsche bank.  They are stating that global trade has lagged behind GDP growth. They actually state that peak global trade occurred in 2007 and has been downhill since. I have always used the Baltic Dry Index as a barometer of global trade and with the index at just above 400, having fallen from 10,000 in 2009, you can visually see the writing on the wall.  Thus currency wars to get a little bigger piece of a declining trade is futile

It is now official, the entire surge in price of oil was nothing but the biggest short squeeze ever

Stocks Shrug Off Dismal Data, Shootings, Bomb Alerts, And Viruses To Close Unchanged

While the final revision to Q4 2015 GDP was so irrelevant it was released on a holiday when every US-based market is closed, even the futures, it is nonetheless notable that according to the BEA in the final quarter of 2015 US GDP grew 1.4%, up from the 1.0% previously reported, and higher than the 1.0% consensus estimate matching the highest Q4 GDP forecast. The final Q4 GDP print was still well below the 2.0% annualized GDP growth reported in Q3.

The figure marks a slowdown from the 2.2% average pace in the first three quarters of 2015. For all of last year, the U.S. economy grew 2.4% matching the advance in 2014.

The reason for the change was largely due to upwardly Personal Consumer Spending, which rose from a contribution of 1.38% to the annualized bottom line to 1.66%. In CAGR terms, personal consumption rose 2.4%, following the 3.0% increase in Q3, higher than the 2.0% previously estimated.

Stripping out inventories and trade, the two most volatile components of GDP, so-called final sales to domestic purchasers increased at a 1.7 percent rate, compared with a previously estimated 1.4 percent pace.

The rest of the GDP components were largely unchanged, with Fixed Investment adding 0.06% to the bottom line, up from 0.02% in the previous estimate, Private Inventories contracting fractionally more than previously estimated (-0.22% vs -0.14%), net trade subtracting 0.1% less from growth (-0.14% vs -0.25%), and finally government spending largely unchanged and hugging the unchanged line at 0.02%.

But while the “resilient consumer” once again carried the US economy in the fourth quarter, largely due to an estimated jump in spending on Transportation and Recreational services, which added an annualized $13 billion to the US economy vs the prior estimate, more disturbing was the drop in profits which we already knew courtesy of company reports and is known confirmed by the BEA whose GDP report also showed that corporate profits dropped in 2015 by the most in seven years.

As Bloomberg writes, the earnings slump illustrates the limits of an economy struggling to gather steam at the start of this year. Some companies, encumbered by low commodities prices and sluggish foreign markets, are cutting back on investment while a firm labor market and low inflation encourage households to keep shopping.

Pre-tax earnings declined 7.8 percent, the most since the first quarter of 2011, after a 1.6 percent decrease in the previous three months. The estimate of nonfinancial corporate profits was reduced by a $20.8 billion settlement, considered a transfer to the government, between BP and the U.S. after the 2010 oil spill in the Gulf of Mexico.

Profits in the U.S. dropped 3.1 percent in 2015, the most since 2008. Corporate earnings are being weighed down by weak productivity, rising labor costs and the plunge in energy prices. Economists at JPMorgan had expected a 9.5 percent drop in pre-tax earnings in the fourth quarter.

“The pace of growth slowed as we ended 2015, though consumer spending is still the primary underpinning of this economic expansion,” Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, said before the report. “Any pickup we might see is still likely going to be capped given the overall global picture.”

And now that we can put 2015 GDP growth to rest, it’s time to focus on Q1 2016, where as the Atlanta Fed reported yesterday, growth is on pace to match the anemic 1.4% GDP growth of Q4.

“If profits remain depressed, the prospects for capex and hiring will come under greater pressure,” Wells Fargo’s Bullard said in a research note. Corporate outlays for equipment declined at a 2.1 percent annualized pace, subtracting 0.12 percentage point, the Commerce Department said.

Finally, the upward revision to Q4 consumer spending primarily on services, likely means pulling forward some of the growth that was supposed to prop up Q1 GDP growth, and as such we expect Wall Street economists to promptly revise lower their first quarter growth forecasts as soon as they come back from vacation, which however considering the Fed is now looking for excuses to have cut its dots as drastically as it did a week ago, will be very welcome by Janet Yellen.

Something Just Snapped In The VIX ETF Complex

The “Restaurant Recovery” Is Over: Casual Dining Sales Tumble For Fourth Straight Month

end

Headline data for income modestly beat expectations (+0.2% MoM vs +0.1% MoM) and spending met expectations at +0.1% MoM respectively. Income growth YoY slowed to 4.0% however – near its weakest since Nov 2013. Spending growth also slowed to +3.8% YoY (from 2.9% in Jan) but the big story is the major downward revisions in spending. January’s +0.5% ‘surge’ in spending was revised to a mere +0.1% trickle – the weakest in over a year.

Since QE3, income growth has been a one way street lower…

And January’s “surge” in spending has magically disappeared…

Still what does anyone care about the reality of a collapsein real economic data? We have Bullard to keep markets afloat.

The Fed’s Next Headache: One Third Of Q1 GDP Growth Was Just “Revised” Away

We have been covering the consumption tax, pardon, endless spending black hole that is Obamacarefor over a year, so we doubt it will come as a surprise to anyone that in 2015 healthcare was the second biggest use of US consumer funds, soaking up a record $1.9 trillion in real dollars, and more importantly for US economic “growth”, the single biggest source of incremental spending by nearly a factor of two.

Incidentally, with spending on healthcare (courtesy of the Supreme Court’s Obamacare tax) soaring, while outlays on the traditionally most consumption-intensive category, housing and utilities, going nowhere for the past several years, it is only a matter of 2-3 quarters before Healthcare surpasses Housing as the biggest use of American cash.

So, without further ado, this is what drove American consumer spending in the officially concluded, for GDP purposes, 2015. We show this just in case there is still any confusion why US households are unable to channel more spending into “discretionary”, non-mandatory purchases unlike Obama’s “health insurance” scheme.

end

If you need evidence that Wall Street is a financial time bomb waiting for ignition look no further than the recent meltdown of Valeant Pharmaceuticals (VRX). In round terms, its market cap of $90 billion on August 5th has suddenly become the embodiment of that proverbial sucking sound to the south, having plunged to less than $12 billion by Wednesday’s close.

That’s nearly a 90% haircut and VRX was no microcap penny stock. It was a giant inhabitant of a hedge fund hotel.

Needless to say, the cliff-diving pattern in the graph below provides evidence that the ticking bombs in the casino are of the neutron variety. In this case, the hotel may be still standing but the inhabitants have been ionized. On a single day last week, hedge funds lost $5.3 billion in value.

Condign justice, some might say, for the likes of rank gamblers like William Ackman (Pershing Square) and Jeffrey Ubben (ValueAct Holdings) who lost $700 million each that day. The fact that they have successfully promoted themselves for so long as masters of the universe, however, is the real moral of the story.

The financial markets and media have been so corrupted by central bank bubble finance that they did not even recognize that Valeant was a monumental scam and that Ackman and Ubben are snake oil salesman in $5,000 suits.  Presently it will become clear that the hedge fund hotels are heavily occupied by many more of the same.

Alas, Valeant wasn’t caught selling poisoned pills or torturing kittens during the last seven months. What it was doing for the past seven years——aggressively pursuing every one of the financial engineering strategies that are worshipped and rewarded in the Wall Street casino——finally came a cropper.

Indeed, Valeant’s evolution during that period arose straight out of the financial engineering playbook. That is, it was a creature of Goldman Sachs and the various dealers, underwriters, hedge funds and consulting firms which ply the Bubble Finance trade.

At the end of the day, the latter have turned the C-suites of corporate America into gambling dens by attracting, selecting and rewarding company-wrecking speculators and debt-crazed buccaneers to the top corporate jobs.

In this case, the principal agent of destruction was a former M&A focussed consultant from McKinsey & Co, Michael Pearson, who became CEO in 2008.

Pearson had apparently spent a career in the Dennis Kozlowski/Tyco school of corporate strategy. That is, advising clients to buy, not build; to slash staff and R&D spending, not invest; to set ridiculously ambitious “bigness” goals such as taking this tiny Canadian pharma specialist from its $800 million of sales to a goal of $20 billion practically overnight; and to finance this 25X expansion with proceeds from Wall Street underwriters, not internally generated cash.

He even replicated the Tyco strategy of moving the corporate HQ to Bermuda to slash its tax rate.

Pearson’s confederate in this scorched earth corporate “roll-up” enterprise was Howard Schiller, a 24-year veteran of Goldman Sachs, who became CFO in 2011, and soon completed the conversion of Valeant into a financial engineering machine.

During their tenure, Pearson and Schiller spent about $40 billion on some 150 acquisitions. And exactly what common expertise and value added leverage did these far flung acquisitions in contact lenses, ophthalmological therapies, dermatology, cosmeceuticals, anti-aging creams, Botox equivalents, acne fighters, toenail fungus ointments and much more bring to the table?

Well, what they brought was an opportunity to slash thousands of jobs, eliminate R&D and fund massive amounts of goodwill and intangible assets with cheap debt. Most especially these deals enabled Valeant to fill its purchase accounting “cookie jars” with fulsome amounts of reserves that could thereafter be used to cause inconvenient integration costs to disappear, as needed.

Indeed, Valeant not only failed to acquire any significant pharmacuetical synergies, but actually went in the opposite direction. That is, it has militantly eschewed investment in drug research and development in an industry who’s very purpose is the development of new drugs and therapies.

Yet the alternative strategy they peddled to the occupants of the hedge fund hotel that became increasingly crowded with VRX punters as its shares soared skyward was downright nonsensical and economically vapid. It could only have thrived during the late stages of a Bubble Finance mania.

In essence, Pearson and Schiller claimed that the rest of the industry was infinitely stupid, and that tens of billions of market cap could be created instantly by the simple expedient of buying companies with seasoned drugs and then jacking up prices, often by orders of magnitude.

In fact, Valeant has acquired a reputation for ferociously raising prices. In one year alone the company jacked-up the price of 81% of the drugs in its portfolio by an average of 66%.

The point here is not to echo the Hillary Chorus in favor of government drug price controls. Quite the contrary. Despite a crony capitalist inspired patent regime and the endless legal obstacles thrown up by the Big Pharma cartel, the drug market is not immune to the laws of economics.

Raise the price of drugs radically enough and you will eventually attract competitors into the market with new formulations that circumvent the patent; or get greedy enough and generics will swamp you on the patent’s expiration.

Stated differently, what seasoned industry executives know that may have escaped the attention of Wall Street hot shots like Pearson and Schiller or the spreadsheet jockeys who congregate in the hedge fund hotels, is that massive, wanton, overnight price escalation is not a business strategy that builds sustainable value and reinforces brand equity; it’s a scalping tactic that works in the casino, but not the real world.

At the same time, Pearson and Schiller slashed staff and chopped down R&D spending to a comically low 3% of sales. That compares to an industry norm of 12% to 18%.

Finally, this Wall Street witches brew was stirred together in pro forma financials that assumed these predatory price hikes would be permanent and that these back-of-the-envelope cost savings would be immediately realized in full.

The resulting profit projections, of course, had virtually nothing to do with the company’s actual results, but they did conform to sell-side hockey sticks like a hand-in-glove. Thus, in 2014 it earned only $912 million under GAAP accounting principles, but claimed “cash” earnings of $2.85 billion.

The latter meant that at its peak market cap in mid-2015 it was trading at a sporty 32X earnings, but not really. It was actually being valued in the casino at 101X the type of  profits you don’t go to jail for when you report them to the SEC.

Needless to say, on the back of that kind of financial scamming, it did not take long to turn Valeant into a veritable debt-mule. Its debt outstanding rose from $400 million in 2009 to $31 billion at present, and that 78-fold eruption of debt is the skunk in the woodpile.

To wit, Valeant has been a veritable cash burning machine during its Wall Street driven M&A spree.During the 12 months ending in September, for example, VRX  generated only $2.54 billion of operating cash flow, but spent $14.3 billion of cash on CapEx, M&A deals and other investments.

Nor was that an aberration. During the 27 quarters since the end of 2008, VRX has generated a mere $7 billion in operating cash flow, but has consumed nearly $26 billion of cash on investments and deals. Stated differently, it was a Wall Street Ponzi pure and simple.

Likewise, during that 27 quarter period, which roughly tracks Pearson’s tenure, the company has posted rapidly rising sales—-with the top line growing from $757 million in 2008 to $10 billion in its most recent LTM report.

But it has been an absolutely profitless prosperity—–not unlike the typical financial engineering driven roll-up. Thus, over this 27 quarter period as a whole, sales totaled just under $30 billion, but its cumulative net income amounted to a miniscule $130 million.

That’s right. Over the last seven years, Valeant’s GAAP profits have amounted to just 0.4% of sales. 

So why did Valeant’s market cap soar from $1.2 billion, when Pearson arrived in 2008, to the recent peak of $90 billion during a period when the company has generated hardly a dime of profits?

It was just another case of Wall Street financial engineering and speculative hype at work. The entire story has been based on pro forma, ex-items forward looking Wall Street hockey sticks, and not the least those published by Goldman Sachs.

It goes without saying, of course, that these Bubble Finance deformations have resulted from the lunatic cheap money and wealth effects levitation policies of the Fed. Financial repression and QE deeply subsidize corporate borrowing to fund financial engineering deals, thereby reducing the after-tax cost of even sub-investment grade debt to low single digit levels.

Likewise, ZIRP is the mother’s milk of Wall Street speculation. It enables hedge funds and other fast money traders to build-up positions in rocket ships like Valeant at virtually no cost through the options and dealer financing markets.

Indeed, as VRX’s market cap grew from $14 billion to $90 billion in just 36 months from mid-2012 to mid-2015, it generated a daisy chain of rising “collateral” value that enabled leveraged speculators to chase its stock to an ever more absurd height relative to the company’s GAAP financials.

Yet there is no mystery as to why these financial engineering scams happen over and again in financial markets which have been corrupted and disabled by the Fed and other central banks.

Namely, because the deal fees from financial engineering are so lucrative; and because the checks and balance of a healthy free market in finance——such as short-sellers, heavy hedging expense and meaningful carry costs for debt financed speculations—–have been destroyed by the central banks.

Needless to say, Valeant is not a one-off aberration. It is the epitome of today’s speculation swollen and highly combustible financial markets.

Yet the all-powerful central bank which has fueled this dangerous, unhinged casino is now being led by a Keynesian school marm stumbling around in an explosives vest. She apparently has no idea that a 38 bps money market rate is not a pump toggle on some giant bathtub of GDP; it’s an ignition fuse that is fueling the greatest speculative mania in modern history.

As I said earlier this week:

Given the overwhelming facts on the ground—–4.9% unemployment, 2.3% core CPI and a 23.7X PE multiple on the S&P 500—-her decision to “pause” after 87 months of ZIRP actually proves she is a blindfolded monetary arsonist—-armed, dangerous and lost.

Janet and her posse of pettifoggers don’t even have the “Humphrey-Hawkins made me do it” excuse any longer. The truth is, there is nothing in the act that says they must hit 2.00% inflation to the second decimal point or anything else more specific than “stable prices”. Nor is there any quantitative target for full employment, let alone something like 4.85%—- since we apparently are not there at 4.90%.

But even if these targets are taken as a serviceable approximations of its so-called ‘dual mandate’, who in their right would be quibbling about the second decimal point so late in the recovery cycle that the next recession is fairly palpable? .

Simple Janet is lost in a time warp. The 1960’s notion that the US economy is a closed bathtub in which inflation, unemployment and all of the other crude, ill-measured macro-variables on Janet’s dashboard can be mushed around by central bank injections of ethers called “aggregate demand” and  “financial accommodation” was not true even back then.

It was also never true that the financial market is merely a neutral transmission channel to the main street economy that can be used as a pumping device to manage GDP and the dual mandate variables embedded in it.

In fact, financial markets are the delicate mainspring of the entire capitalist economy. The nuances of pricing in the money and debt markets, the exact shape of the yield curve, the cost of carry and maturity transformations, the price of options and hedging insurance, capitalization rates on earnings and cash flows and much more are what actually enable sustainable growth, real wealth creation and financial stability.

But the blunderbuss Keynesians who have taken control of the Fed and other central banks lock, stock and barrel are clueless. Their massive, chronic, heavy-handed intrusions in financial markets have falsified all prices and turned the financial markets into incendiary gambling casinos. There is no true price discovery left—-just an endless cycle of speculation and front-running that eventually reaches a breaking point and implodes.

We are there now. Valeant’s spectacular implosion didn’t happen on another planet. To the contrary, it’s a product of what the Wall Street casino does.