is scary...as opposed to what is considered news and information from the media world and most of the candidates running for president in 2016 by both of the major political parties. I'm sorry, dear reader the facts are not optimistic. Of course, it goes without saying that the Obama administration will never address these aspects, issues or trends. There are too many indicators and all are signaling a recession for the US. It could have already started. The bureaucratic government stats are lagging information. The government can't see the forest due to all the trees. Having said that, a stat from the Bureau of Labor Statistics reported a 2.4% rise in inflation. This is the highest rise in over three years for a monthly reading. I see this inflation in housing, whether renting or buying. I see it in the price of eggs and other dairy products. I see it in the cost of a Big Mac. It is up 6.7% last year. I see it in insurance and clothing. The federal government only sees lower fuel costs. It is the excuse for not giving social security recipients a "Cola" increase this year.
However, my personal economic situations do not collectively effect the nation. This does.
Baltic Dry Shipping
index fell to an all-time low under 300. Global shipping is falling off the earth. If it were only ocean containers that were hitting a rough patch, that would be one thing. However, land rail traffic is also at a standstill. If you were to visit a locomotive hub in Colorado, you would see idle locomotives that appear like a rental car lot at a major airport.
Corporate Profits
margins are all but erased since the third quarter of 2014. Declines in the S & P 500 will reach 4% and this is two straight quarters of profit declines. Some call this a "earnings recession."
Banks
too are feeling the pinch. Rock solid oil loans are hitting dust with commodity prices falling. This in time will trigger the derivative market which could devastate the global economy. The flat lining of yields reflects this worry. There were 112 global bond defaults last year and 2016 at the moment looks worse.
Employment
just fell under 5%, but job cuts also just surged 218%, according to the January reading of the Challenger Report. US factory orders have dropped 14 months in a row. Not only that, but take a look at the following releases by various companies.
* Royal Dutch Shell announced 10,000 jobs to be eliminated.
* Johnson & Johnson is dropping 15% of its workforce.
* Caterpillar is closing 5 plants and another 670 jobs.
* Sprint laid off 8% of their people.
* Go Pro is laying off 7% of its personal.
* Wal-Mart is closing all their new small stores(269). Think of all the lost jobs for workers and less revenues for the company.
There are many other behind the scene actions taking place, especially in the oil industry and all the businesses that service that industry. Add the latest release of oil inventories to the worries: Oil in storage is over 500 million barrels and climbing.
Together, all this adds up to a gloomy picture that the Fed is only making worse as they returned to their playbook. They are now increasing the money supply. It rose over 9%. This is the way the Fed usually pays off old debt by creating new debt with cheaper money and a way to devalue the dollar. It will raise the price of oil, all commodities and everything. It is why I say, End the Fed!
Tuesday, February 23, 2016
Wednesday, February 17, 2016
Gold: The Historic Choice
Valentine's Day just passed and we find that the flower business continues to shrink. In fact, in Iran it is a felony to practice the West's concept of Valentine's Day. I hope that this was not a sub-agreement in the nuclear treaty. Anyway, I got to thinking about gifts that show a deep respect and possibly love. I could only come up with one, but it is time proven. It is one of the three gifts from the Three Wise Men. It has been used throughout history as a tribute, a store of wealth and that custom still lingers in India and China. I'm talking about the lustrous, precious metal, gold.
- "If you don't own gold, you know neither history nor economics."
- Ray Dalio
2016
it is up 18% while everything else is down. The rally last Thursday caught the fiat people flatfooted as it rocketed higher than the North Korean test rocket. People who deal in gold attribute the surge due to investors and buyers from all global exchanges. The gold dealers were smiling and singing, "Love is in the air..."
Gold reflected this faith in it and flowing in the melody, it gained 25% for Russians against the ruble. Mexican avocadoes were no match to the 23% gain versus the peso. South Africans were rewarded with a 18% gain against the rand.
Gold spread the good feeling to the "old" hard currencies too. It gained 17% against the British pound. It rose 14% versus the Canadian loonie and another11% against the negative interest rate of the Swiss franc.
As for the US dollar, the Fed is turning red with its 13% rise.
RBC Capital Markets
George Gero, added that some investors were seeking to buy US treasuries, but they were crowded out by the Fed. They were seeking safety from negative interest rates. They found the all-time, number one, safe haven.
It Keeps Getting Better
Gold showed its permanent luster best against the yen and euro. It is up 10% in 60 days against the euro and 6% against the yen. That is one sweet move!
Looking Ahead
I see a rise to $1392 for gold and $16.28 for silver. From a technical stand-point, gold is above the 50 and 200 - day moving average which is very bullish. If I'm correct and we get there, then, we will have to look at the number of contracts to see if it can activate a booster rocket. At the moment all systems are go!
In that vein I think that NASA's "LIGO" experiment blew a circuit because as you read this piece, you realize that the two biggest buyers, China and India are hardly mentioned. I consider them a known known like Jewelry buyers. However, with that implied, some gold dealers are reminding the followers of the precious metal that the market will be extremely volatile in the coming months. One reason is the current inflow of buyers and investors can be manipulated by the second reason, the Fed. Keep in mind both Wall Street and the Fed hate gold and they will attack gold at some point. Just as I dotted the sentence, Goldman Sachs declared that investors should "sell" gold as it will fall in price. However, they did not disclose that they probably had a short position and sweat was entering their brow. Citi says, "Buy until May, then, go away." If we keep applying the pressure, they will have to move money to cover their position losses or if they close and attack another day, they risk another surge in gold due to this short covering. I say that they may lose like in 1980. For example, their shills always remind investors that gold does not pay interest, but now, neither do the banks and it could get worse. By the way, dividend paying corporations are also cutting back their rewards. In fact, dividend cuts in 2015 were higher than in 2008 (295 v. 394). On the flip-side physical gold sales keep climbing. In the Shanghai Gold Exchange, 2,596 tonnes were sold. This figure represents 90% of the total global output. If you seek small by buying some gold coins, the US Mint and Australian Mint are over-loaded with orders, but today's price is a lot lower than the future cost. Buy now and profit later. The Fed hates gold and I hate them. They have a one hundred year history. The facts say that since the Fed started the US dollar lost 95% of its value which is why I say, End the Fed!
Under a disclaimer: I have a long-term position in SLW and trade LSG and GFI.
- "If you don't own gold, you know neither history nor economics."
- Ray Dalio
2016
it is up 18% while everything else is down. The rally last Thursday caught the fiat people flatfooted as it rocketed higher than the North Korean test rocket. People who deal in gold attribute the surge due to investors and buyers from all global exchanges. The gold dealers were smiling and singing, "Love is in the air..."
Gold reflected this faith in it and flowing in the melody, it gained 25% for Russians against the ruble. Mexican avocadoes were no match to the 23% gain versus the peso. South Africans were rewarded with a 18% gain against the rand.
Gold spread the good feeling to the "old" hard currencies too. It gained 17% against the British pound. It rose 14% versus the Canadian loonie and another11% against the negative interest rate of the Swiss franc.
As for the US dollar, the Fed is turning red with its 13% rise.
RBC Capital Markets
George Gero, added that some investors were seeking to buy US treasuries, but they were crowded out by the Fed. They were seeking safety from negative interest rates. They found the all-time, number one, safe haven.
It Keeps Getting Better
Gold showed its permanent luster best against the yen and euro. It is up 10% in 60 days against the euro and 6% against the yen. That is one sweet move!
Looking Ahead
I see a rise to $1392 for gold and $16.28 for silver. From a technical stand-point, gold is above the 50 and 200 - day moving average which is very bullish. If I'm correct and we get there, then, we will have to look at the number of contracts to see if it can activate a booster rocket. At the moment all systems are go!
In that vein I think that NASA's "LIGO" experiment blew a circuit because as you read this piece, you realize that the two biggest buyers, China and India are hardly mentioned. I consider them a known known like Jewelry buyers. However, with that implied, some gold dealers are reminding the followers of the precious metal that the market will be extremely volatile in the coming months. One reason is the current inflow of buyers and investors can be manipulated by the second reason, the Fed. Keep in mind both Wall Street and the Fed hate gold and they will attack gold at some point. Just as I dotted the sentence, Goldman Sachs declared that investors should "sell" gold as it will fall in price. However, they did not disclose that they probably had a short position and sweat was entering their brow. Citi says, "Buy until May, then, go away." If we keep applying the pressure, they will have to move money to cover their position losses or if they close and attack another day, they risk another surge in gold due to this short covering. I say that they may lose like in 1980. For example, their shills always remind investors that gold does not pay interest, but now, neither do the banks and it could get worse. By the way, dividend paying corporations are also cutting back their rewards. In fact, dividend cuts in 2015 were higher than in 2008 (295 v. 394). On the flip-side physical gold sales keep climbing. In the Shanghai Gold Exchange, 2,596 tonnes were sold. This figure represents 90% of the total global output. If you seek small by buying some gold coins, the US Mint and Australian Mint are over-loaded with orders, but today's price is a lot lower than the future cost. Buy now and profit later. The Fed hates gold and I hate them. They have a one hundred year history. The facts say that since the Fed started the US dollar lost 95% of its value which is why I say, End the Fed!
Under a disclaimer: I have a long-term position in SLW and trade LSG and GFI.
Wednesday, February 10, 2016
The Market: What I See - Now
- Gravity: what goes up must come down.
Some truths have a universal application. I guess that is why they refer to them as tautologies. Logic if you will. For those of you who see the word to mean redundancy, I prefer its other meaning. In any case the present market is range bound and although the market declined last week, I don't see a follow through at this moment. It is like a glider that is falling, but catches an updraft to defy gravity.
Spreads
continue to widen, but treasuries continue to be range bound. At present they are testing their highs, but the dollar failed in repeated tests to rise further. The dollar could decline and test the .94 cents level. The bond market is saying that they don't believe the Fed will continue to raise interest rates.
In fact, negative rates are gaining traction with Japan joining Denmark, Sweden and Switzerland. It begs the question, who is next - the EU members?
Stock Market - Present
China's market entered into bear territory and Japan is following their price action. Europe is range bound and in the US, many sectors of the market are in bear territory, although the market itself is only in correction mode. The fear is that oil and oil services will pull the rest of the market south with them.
Commodities
The commodity rout has put Canada in a recession and its currency, the loonie is in a freefall. Canada is not alone as two other commodity exporting nations, Brazil and Australia are also suffering declines in valuation. Russia is on the brink of a recession because of the oil glut and Saudi Arabia's budget is in the red. When you look at the Baltic Dry Shipping Index it hits new lows every week. It fell below 300 last week. This indicates global trading is lower than even during the recession. Together, the effects is that global banking stock prices are at the same level as the recession. They will need to prepare their balance sheets for defaults with their portfolio of oil loans. As stated in a previous piece, I see a need for a new world forum on currencies because the present race to the bottom could not only trigger a recession, but a depression. The problem is that the so-called leaders generally wait until a crisis is at hand. Then, responding under pressure, they only attempt Band-Aids and never address the cause. Let us dear reader,take a look.
China devalued in early January and after their New Year's holiday, the "Year of the Monkey" their currency could slip like a monkey missing a tree branch and slipping. They won't do this in isolation. Asian nations will devalue to hold market share and Japan could institute another devaluation, taking the Yen to 140 and then, 160 even 200 is possible.
Stock Market - Near Term
With all of the above stated, the market declined last week, I still do not like the price action. There is no conviction in either the up or down movements. Even though the declines took darlings like Apple with them, there is no volume. This is an important indicator. If, they cannot push it down, then they will push it up. I see a bounce. They will try to get oil over $37, but I see this as another failed test. The bounce will be short lived. Then, I see the return to the current downtrend as I predicted in my Forecast 2016. Eventually, I see the market testing the August lows of 2011. By the way, all the effects of QE and debt is making one commodity, gold look more lustrous. I see a retest of the January 2015 highs of $1300. At that point the global fiat powers-to-be will attack it because they fear it and the possibility in an election year, a desperate candidate picking up the torch for true money and the gold standard. We can always hope.
Some truths have a universal application. I guess that is why they refer to them as tautologies. Logic if you will. For those of you who see the word to mean redundancy, I prefer its other meaning. In any case the present market is range bound and although the market declined last week, I don't see a follow through at this moment. It is like a glider that is falling, but catches an updraft to defy gravity.
Spreads
continue to widen, but treasuries continue to be range bound. At present they are testing their highs, but the dollar failed in repeated tests to rise further. The dollar could decline and test the .94 cents level. The bond market is saying that they don't believe the Fed will continue to raise interest rates.
In fact, negative rates are gaining traction with Japan joining Denmark, Sweden and Switzerland. It begs the question, who is next - the EU members?
Stock Market - Present
China's market entered into bear territory and Japan is following their price action. Europe is range bound and in the US, many sectors of the market are in bear territory, although the market itself is only in correction mode. The fear is that oil and oil services will pull the rest of the market south with them.
Commodities
The commodity rout has put Canada in a recession and its currency, the loonie is in a freefall. Canada is not alone as two other commodity exporting nations, Brazil and Australia are also suffering declines in valuation. Russia is on the brink of a recession because of the oil glut and Saudi Arabia's budget is in the red. When you look at the Baltic Dry Shipping Index it hits new lows every week. It fell below 300 last week. This indicates global trading is lower than even during the recession. Together, the effects is that global banking stock prices are at the same level as the recession. They will need to prepare their balance sheets for defaults with their portfolio of oil loans. As stated in a previous piece, I see a need for a new world forum on currencies because the present race to the bottom could not only trigger a recession, but a depression. The problem is that the so-called leaders generally wait until a crisis is at hand. Then, responding under pressure, they only attempt Band-Aids and never address the cause. Let us dear reader,take a look.
China devalued in early January and after their New Year's holiday, the "Year of the Monkey" their currency could slip like a monkey missing a tree branch and slipping. They won't do this in isolation. Asian nations will devalue to hold market share and Japan could institute another devaluation, taking the Yen to 140 and then, 160 even 200 is possible.
Stock Market - Near Term
With all of the above stated, the market declined last week, I still do not like the price action. There is no conviction in either the up or down movements. Even though the declines took darlings like Apple with them, there is no volume. This is an important indicator. If, they cannot push it down, then they will push it up. I see a bounce. They will try to get oil over $37, but I see this as another failed test. The bounce will be short lived. Then, I see the return to the current downtrend as I predicted in my Forecast 2016. Eventually, I see the market testing the August lows of 2011. By the way, all the effects of QE and debt is making one commodity, gold look more lustrous. I see a retest of the January 2015 highs of $1300. At that point the global fiat powers-to-be will attack it because they fear it and the possibility in an election year, a desperate candidate picking up the torch for true money and the gold standard. We can always hope.
Wednesday, February 3, 2016
Turning Point?!
The Monday QBs of the pundit world will all claim to have known the exact moment which caused a turn in the stock market and the economy too. They just never stated it publicly. I have. I see some serious buildup over the last eight years, especially in credit which the media forgets to remind you, is debt.
$29 Trillion
is the present total in corporate bonds. For example, Netflix will be adding to this total as they owe $4.7-billion due this year for payment for content. I surmise that because the company only brings in $6+b and the liability is two-thirds the amount. All the borrowing is reaching a debt overload point and it must be repaid. The strains of all this borrowing is starting to show. The first signs have been in all the downgrades by the rating services. These quiet notices are the highest since crash of 2008. The reason behind the downgrades in some US and some global entities is because they are failing to earn enough revenues to fund their respective companies and cover their liabilities.
Things Are Connected
Then, there is the connection of this risky debt to the bond market. Borrowing spreads reveal this risk. Spreads have widened to 1.84 percentage points from the 1.18 back in March of 2015. This change has not gone unnoticed by investors or the market. It snapped the winning streak of six years of investing in corporate bonds. Investors took a small loss of .02%, however this could be the turning point. I have long opposed the Fed in general and especially, their zero rate policy. Global and US companies are on the hook for $29 T and if rates rise, the value of these bonds declines which only makes their debt exponentially more costly. Peter Schiff predicted the other day that he sees a recession and the Fed turning to negative interest rates. His call on the Fed in 2015 was perfect and if he is correct again, he should have his own talk show.
Standard and Poor's
said the downgrades of global companies is because there debt is 3x earnings before adjustments like taxes and depreciation. This negative aspect is why S & P downgraded 863 corporate issuers last year. Yes, many of these companies are commodity in nature if that is what you are thinking, but the misleading of CEOs of the value of shares is high on the list.
Usual Suspects
Most of the borrowing went for share buybacks, dividends and merger activity. On the bright side of Standard and Poor's report is that the global outlook is stable. Sorry, dear reader I don't see it that way. For example, the same rating services said that Lehman was secure the day before it exploded. In other related aspects global companies borrowed $9.6 T in US denominated issues in 2015 and since their currencies have declined in value the payment becomes much more costly. Japan just realized this aspect and the BOJ just joined the negative interest rate for fools of fiat money. Just think my Japanese brothers, now you have to pay the bank to hold your money. This was one of the arguments against gold as it doesn't pay interest and by the way, gold is growing in value against the Yen...against the Yuan...against the Rand...against the Euro...against the Ruble, Rupee and on and on.
End the Fed!
$29 Trillion
is the present total in corporate bonds. For example, Netflix will be adding to this total as they owe $4.7-billion due this year for payment for content. I surmise that because the company only brings in $6+b and the liability is two-thirds the amount. All the borrowing is reaching a debt overload point and it must be repaid. The strains of all this borrowing is starting to show. The first signs have been in all the downgrades by the rating services. These quiet notices are the highest since crash of 2008. The reason behind the downgrades in some US and some global entities is because they are failing to earn enough revenues to fund their respective companies and cover their liabilities.
Things Are Connected
Then, there is the connection of this risky debt to the bond market. Borrowing spreads reveal this risk. Spreads have widened to 1.84 percentage points from the 1.18 back in March of 2015. This change has not gone unnoticed by investors or the market. It snapped the winning streak of six years of investing in corporate bonds. Investors took a small loss of .02%, however this could be the turning point. I have long opposed the Fed in general and especially, their zero rate policy. Global and US companies are on the hook for $29 T and if rates rise, the value of these bonds declines which only makes their debt exponentially more costly. Peter Schiff predicted the other day that he sees a recession and the Fed turning to negative interest rates. His call on the Fed in 2015 was perfect and if he is correct again, he should have his own talk show.
Standard and Poor's
said the downgrades of global companies is because there debt is 3x earnings before adjustments like taxes and depreciation. This negative aspect is why S & P downgraded 863 corporate issuers last year. Yes, many of these companies are commodity in nature if that is what you are thinking, but the misleading of CEOs of the value of shares is high on the list.
Usual Suspects
Most of the borrowing went for share buybacks, dividends and merger activity. On the bright side of Standard and Poor's report is that the global outlook is stable. Sorry, dear reader I don't see it that way. For example, the same rating services said that Lehman was secure the day before it exploded. In other related aspects global companies borrowed $9.6 T in US denominated issues in 2015 and since their currencies have declined in value the payment becomes much more costly. Japan just realized this aspect and the BOJ just joined the negative interest rate for fools of fiat money. Just think my Japanese brothers, now you have to pay the bank to hold your money. This was one of the arguments against gold as it doesn't pay interest and by the way, gold is growing in value against the Yen...against the Yuan...against the Rand...against the Euro...against the Ruble, Rupee and on and on.
End the Fed!
Wednesday, January 27, 2016
Risks Escalating
- "It's tough to make predictions, especially about the future."
- Yogi Berra
In my Forecast 2016 I mentioned many factors that could cause a severe reaction in the market and overall economy. In just a few weeks many of those risks have increased rapidly and this in itself has caused the market to stagger. As I claim in my unpublished work that every action has a reaction and things seldom operate in a vacuum. Let us take a look.
Weather: is being mentioned in this election year and climate change will be such an issue that new regulations will develop. The problem is both what is offered and the behind the scenes pushback on businesses that these rules could effect. Good ideas are out there, but many factors suppress their formation like creditability of influence, the willingness of politicians to weigh success over ego and how it is presented to the public, especially after the response of the opposition.
Cyber-Hacking: The Chinese Premier shook hands with President Obama, saying that he will look into ending cyber-hacking. The next day the hacking continued. Candidates like Donald Trump are looking to impose tariffs on Chinese products to help American workers and companies. It is a small step to punish Chinese hacking by adding financial fines to cutting them off completely until the theft stops. I like this protection for our economy, however one must be careful not to offend a nation and start another cold war.
New Bretton Woods: With the currency battles going full blast like China devaluing amongst others and the consequences of low oil prices to exporting nations like Canada which some analyst see falling to .52 cents against the US dollar, something needs to be done. Going back in time when Tricky Dicky took the US off the gold standard(1971) and ended convertibility to gold, the world has lacked a stable financial currency to transact trade. The US dollar won by default since we had the largest economy and strongest military. However, even President Nixon knew his bombshell would have repercussions. He offered in a speech to have another Bretton Woods which was an allied agreement to undertake world commerce after WWII. All these years later, the world still waits for an agreement. It needs one, least a bureaucratic agency like the IMF takes control, especially if another crisis develops and it introduces its SDR currency to the world. It is always best to have things and feelings expressed without the pressure of a crisis rather than take what is pushed out in times of turmoil. Does TARP ring a bell? You remember that, don't you: Money for the banks at taxpayer's expense. Keep in mind we haven't heard about Greece in awhile and Brazil may get the Olympics in 2016, but its economy ain't worth bronze or its currency.
MISC.
At certain times certain industries merge. We are at that time in the oil industry and all the service branches that extend from its core. There has been talk of Western Refining taking over NTI. I'm sure the phones are ringing off the hook as oil hit $26 this past week before rebounding to $32 as if that is a rebound? Many small or under-capitalized firms will be force into bankruptcy. The smart ones will utilize a merger to survive. Don't listen to the talking heads who say this is normal which it is, but okay which it isn't. There could be serious problems like derivatives firing off. Every action has a reaction and things seldom operate in a vacuum. Sound familiar? One problem. The potential merger talks will uncover "poison pills" and class action suits will fly all over the place like on late night TV ads.
One related aspect to mergers is funding and its cost. A serious liquidity problem is developing in the market. The Fed is now controlling the "repo" market by injecting one trillion on a daily level. They have crowded out all the old players. In addition, treasury bonds are separating to extreme levels from the cost of junk bonds. This is a sign of liquidity problems in the market. It reveals the market is stressed.
P.S. :This just in - Apple reported a sales decline. Can Samsung be far behind? After all how many people are left who don't have a cell phone and so many have more than one. Can you say, saturation point?
Taxes
desperate governments will seek revenues. Good companies like Silver Wheaton and others will be in their crosshairs. I predicted a rise in the US gas tax, but it won't happen until after the election. However, desperate governments could respond sooner than later and it has been months since Greece has been in the headlines not to mention the on going problem with refugees in Europe and budgets that are in duress.
Adding the above and you have a pot brewed by a witch. Keep your eyes and ears open.
- Yogi Berra
In my Forecast 2016 I mentioned many factors that could cause a severe reaction in the market and overall economy. In just a few weeks many of those risks have increased rapidly and this in itself has caused the market to stagger. As I claim in my unpublished work that every action has a reaction and things seldom operate in a vacuum. Let us take a look.
Weather: is being mentioned in this election year and climate change will be such an issue that new regulations will develop. The problem is both what is offered and the behind the scenes pushback on businesses that these rules could effect. Good ideas are out there, but many factors suppress their formation like creditability of influence, the willingness of politicians to weigh success over ego and how it is presented to the public, especially after the response of the opposition.
Cyber-Hacking: The Chinese Premier shook hands with President Obama, saying that he will look into ending cyber-hacking. The next day the hacking continued. Candidates like Donald Trump are looking to impose tariffs on Chinese products to help American workers and companies. It is a small step to punish Chinese hacking by adding financial fines to cutting them off completely until the theft stops. I like this protection for our economy, however one must be careful not to offend a nation and start another cold war.
New Bretton Woods: With the currency battles going full blast like China devaluing amongst others and the consequences of low oil prices to exporting nations like Canada which some analyst see falling to .52 cents against the US dollar, something needs to be done. Going back in time when Tricky Dicky took the US off the gold standard(1971) and ended convertibility to gold, the world has lacked a stable financial currency to transact trade. The US dollar won by default since we had the largest economy and strongest military. However, even President Nixon knew his bombshell would have repercussions. He offered in a speech to have another Bretton Woods which was an allied agreement to undertake world commerce after WWII. All these years later, the world still waits for an agreement. It needs one, least a bureaucratic agency like the IMF takes control, especially if another crisis develops and it introduces its SDR currency to the world. It is always best to have things and feelings expressed without the pressure of a crisis rather than take what is pushed out in times of turmoil. Does TARP ring a bell? You remember that, don't you: Money for the banks at taxpayer's expense. Keep in mind we haven't heard about Greece in awhile and Brazil may get the Olympics in 2016, but its economy ain't worth bronze or its currency.
MISC.
At certain times certain industries merge. We are at that time in the oil industry and all the service branches that extend from its core. There has been talk of Western Refining taking over NTI. I'm sure the phones are ringing off the hook as oil hit $26 this past week before rebounding to $32 as if that is a rebound? Many small or under-capitalized firms will be force into bankruptcy. The smart ones will utilize a merger to survive. Don't listen to the talking heads who say this is normal which it is, but okay which it isn't. There could be serious problems like derivatives firing off. Every action has a reaction and things seldom operate in a vacuum. Sound familiar? One problem. The potential merger talks will uncover "poison pills" and class action suits will fly all over the place like on late night TV ads.
One related aspect to mergers is funding and its cost. A serious liquidity problem is developing in the market. The Fed is now controlling the "repo" market by injecting one trillion on a daily level. They have crowded out all the old players. In addition, treasury bonds are separating to extreme levels from the cost of junk bonds. This is a sign of liquidity problems in the market. It reveals the market is stressed.
P.S. :This just in - Apple reported a sales decline. Can Samsung be far behind? After all how many people are left who don't have a cell phone and so many have more than one. Can you say, saturation point?
Taxes
desperate governments will seek revenues. Good companies like Silver Wheaton and others will be in their crosshairs. I predicted a rise in the US gas tax, but it won't happen until after the election. However, desperate governments could respond sooner than later and it has been months since Greece has been in the headlines not to mention the on going problem with refugees in Europe and budgets that are in duress.
Adding the above and you have a pot brewed by a witch. Keep your eyes and ears open.
Wednesday, January 20, 2016
Firing Blanks ?
In the latest battle within the economy since the financial crisis of 2008, the US government, led by the Fed has responded with all types of stimulus because they believe that you can engineer an economy.
The Fed cut interest rates to near zero. It bailed out dozens of banking institutions. The federal government bailed out GM, AIG and many more. Today, it uses HARP loans for the housing industry along with lowering lending standards in its two SSEs.
Then, the Fed added QE 1. This swelled their balance sheets. They knew that they were putting the bond market out of whack, but they are always right, least of all you and me are wrong. As time passed, they said that QE would end. The addicted markets began to crater. They immediately added QE II. When this failed, they showed their thinking: add credit to debt or more debt upon debt. We got QE III.
The Fed now says, "no more." They insist that rates will rise and return to normal. In December 2015 they demonstatred their conviction with a token quarter point rise. They claim that in 2016 there will be a gradual increase with a possible four more interest hikes.
The market is again cratering under the addiction of cheap money and begets the question, what will the Fed do now? Will they follow through on their guidance?
The Wall Street Journal has the same questions. They worry that if another recession develops, will the Fed have any ammo in its bag of tricks to "engineer" another recovery?
I look at the same questions. Keep in mind the US government has tools for stimulus. The US could...
1) lower interest rates except that they are near zero at present.
2) cut taxes, but our government is already straddled with excess deficits. If interest rates were to return to normal, our payments just on the interest would exceed $ one trillion per year. In addition, the government is facing more deficits to cover entitlements like Social Security and Medicare which are underfunded. Their responses will be muted, especially with gridlock in an election year.
Also, state governments are seeking revenues and they have begun to raise taxes on fees, gasoline and of course, the sales tax. Not good.
3) print money. Banks do this every day with our fractional banking system, but confidence in the fiat system is beginning to wake people up to its dangers. This process is inflationary, but the media at present is another shill as they declare no inflation! People are becoming aware of these lies too. Praise the Lord!
The Fed will help, but the bond market is facing its own crisis. Higher rates make lower yielding bonds lose value and this could trigger a liquidity crisis bigger than the financial disaster of 2008. This approach has serious limitations because fiat value or valueless will be exposed which is good for gold. This is the reason why our Founding Fathers chose gold to back our currency. It is slow and steady rather than boom and bust.
Again, one cannot underestimate the "tools" that these arrogant, unelected men who are taking control of not only the nation, but global economy can perform. According to them, we are right and you and the market are wrong. They insist that they can equate humans to a thesis and I see this ending badly with "pet rocks" flying. I think Yogi Berra has the correct answer for central bankers, "In theory there is no difference between theory and practice. In practice there is." I love Yogi! End the Fed!
The Fed cut interest rates to near zero. It bailed out dozens of banking institutions. The federal government bailed out GM, AIG and many more. Today, it uses HARP loans for the housing industry along with lowering lending standards in its two SSEs.
Then, the Fed added QE 1. This swelled their balance sheets. They knew that they were putting the bond market out of whack, but they are always right, least of all you and me are wrong. As time passed, they said that QE would end. The addicted markets began to crater. They immediately added QE II. When this failed, they showed their thinking: add credit to debt or more debt upon debt. We got QE III.
The Fed now says, "no more." They insist that rates will rise and return to normal. In December 2015 they demonstatred their conviction with a token quarter point rise. They claim that in 2016 there will be a gradual increase with a possible four more interest hikes.
The market is again cratering under the addiction of cheap money and begets the question, what will the Fed do now? Will they follow through on their guidance?
The Wall Street Journal has the same questions. They worry that if another recession develops, will the Fed have any ammo in its bag of tricks to "engineer" another recovery?
I look at the same questions. Keep in mind the US government has tools for stimulus. The US could...
1) lower interest rates except that they are near zero at present.
2) cut taxes, but our government is already straddled with excess deficits. If interest rates were to return to normal, our payments just on the interest would exceed $ one trillion per year. In addition, the government is facing more deficits to cover entitlements like Social Security and Medicare which are underfunded. Their responses will be muted, especially with gridlock in an election year.
Also, state governments are seeking revenues and they have begun to raise taxes on fees, gasoline and of course, the sales tax. Not good.
3) print money. Banks do this every day with our fractional banking system, but confidence in the fiat system is beginning to wake people up to its dangers. This process is inflationary, but the media at present is another shill as they declare no inflation! People are becoming aware of these lies too. Praise the Lord!
The Fed will help, but the bond market is facing its own crisis. Higher rates make lower yielding bonds lose value and this could trigger a liquidity crisis bigger than the financial disaster of 2008. This approach has serious limitations because fiat value or valueless will be exposed which is good for gold. This is the reason why our Founding Fathers chose gold to back our currency. It is slow and steady rather than boom and bust.
Again, one cannot underestimate the "tools" that these arrogant, unelected men who are taking control of not only the nation, but global economy can perform. According to them, we are right and you and the market are wrong. They insist that they can equate humans to a thesis and I see this ending badly with "pet rocks" flying. I think Yogi Berra has the correct answer for central bankers, "In theory there is no difference between theory and practice. In practice there is." I love Yogi! End the Fed!
Wednesday, January 13, 2016
Emerging Market Malise
There has been a media divide in the last decade over who is considered to be in the emerging market category. The BRICS(Brazil, Russia, India, China, South Africa) were all members of that global family, although I never saw Russia as an emerging market nation. They are leaders in many categories and not just oil, but they still get slighted due to the Cold War.
No, today it is comprised of third tier trading nations like Thailand, Viet Nam, Chile and so forth.
I guess from time-to-time nations like Libya were in this grouping as well as other examples, except social change has also caused economic woe. In fact, one could make an argument that the Arab Spring, now in the forefront of social change, will cause tumultuous economic change both in the nation of origin and the European nations where the refugees finally settle. Nevertheless, this piece is directed toward the present make-up of the third tier group as well as the BRIC nation's since the global market is interconnected. A ripple off one coast could become a tsunami when it crosses the ocean to another shore.
US Bond's
were issued in mass by the emerging market community. Governments and corporations took advantage of cheap money created by the US Fed. They knew the US market was safe and secure. This money funded government programs and allowed corporations to expand their capacity to grab market share. The timing was excellent from 2010 until 2015. Then, the slowdown in China and Europe ricocheted back to their border like a boomerang as Australia is a prime example. In addition, the period marked the introduction of QE in EU. Japan devalued along with China. The market devalued Brazil, India, South Africa, Russia along with almost every world nation. This is the central point of contention. The money raised by issuing bonds must be repaid and repaid in dollars. The problem for emerging nation's is that the devaluation of their currency makes this payment of the bonds more costly. The dollar rise also sent inflation around the world. Imports cause more and eventually people buy less to evade inflation. As a result governments cut back on programs and future plans as they struggle to meet the obligation of the bonds. Argentina is the poster child for failure to repay. The next step along those lines is Zimbabwe. Only a fool would follow that path.
Declining Oil
has not helped that much because again, oil is priced in dollars and since currencies are lower, this almost becomes a wash. There has been some help with lower prices, but then again, many of this group gets its revenues from oil. The International Energy Agency(IEA) says oil reserves are at 3 billion which is an all-time high. This is not good for the price of oil or nations who export oil for revenues. The OPEC leader, Saudi Arabia is pumping oil like crazy to discombobulate the US shale industry. This action is not going over so well with the other members of OPEC. Some world exporters like Libya has seen their production decline, but soon, sanctions to Iran will end and even more oil will be available. Speaking of sanctions, the one placed on Russia not only hurt Russia, but world trade which declined in 2015.
The iShares MSCI Emerging Market Index(EEM) plunged another 1.9% and is down 4.4% for the first week of 2016. It has returned to the 2009 level which is a valuation below the level at which these nation's first issued the bond's back in 2010. This could also cause another crisis because insurance on these bonds or derivatives will alarm the world markets because written contracts call for certain evaluation levels to be current. I have no idea how bad that can be or the bond's issued could be called and rolled over, but whatever happens, it can't be good.
No, today it is comprised of third tier trading nations like Thailand, Viet Nam, Chile and so forth.
I guess from time-to-time nations like Libya were in this grouping as well as other examples, except social change has also caused economic woe. In fact, one could make an argument that the Arab Spring, now in the forefront of social change, will cause tumultuous economic change both in the nation of origin and the European nations where the refugees finally settle. Nevertheless, this piece is directed toward the present make-up of the third tier group as well as the BRIC nation's since the global market is interconnected. A ripple off one coast could become a tsunami when it crosses the ocean to another shore.
US Bond's
were issued in mass by the emerging market community. Governments and corporations took advantage of cheap money created by the US Fed. They knew the US market was safe and secure. This money funded government programs and allowed corporations to expand their capacity to grab market share. The timing was excellent from 2010 until 2015. Then, the slowdown in China and Europe ricocheted back to their border like a boomerang as Australia is a prime example. In addition, the period marked the introduction of QE in EU. Japan devalued along with China. The market devalued Brazil, India, South Africa, Russia along with almost every world nation. This is the central point of contention. The money raised by issuing bonds must be repaid and repaid in dollars. The problem for emerging nation's is that the devaluation of their currency makes this payment of the bonds more costly. The dollar rise also sent inflation around the world. Imports cause more and eventually people buy less to evade inflation. As a result governments cut back on programs and future plans as they struggle to meet the obligation of the bonds. Argentina is the poster child for failure to repay. The next step along those lines is Zimbabwe. Only a fool would follow that path.
Declining Oil
has not helped that much because again, oil is priced in dollars and since currencies are lower, this almost becomes a wash. There has been some help with lower prices, but then again, many of this group gets its revenues from oil. The International Energy Agency(IEA) says oil reserves are at 3 billion which is an all-time high. This is not good for the price of oil or nations who export oil for revenues. The OPEC leader, Saudi Arabia is pumping oil like crazy to discombobulate the US shale industry. This action is not going over so well with the other members of OPEC. Some world exporters like Libya has seen their production decline, but soon, sanctions to Iran will end and even more oil will be available. Speaking of sanctions, the one placed on Russia not only hurt Russia, but world trade which declined in 2015.
The iShares MSCI Emerging Market Index(EEM) plunged another 1.9% and is down 4.4% for the first week of 2016. It has returned to the 2009 level which is a valuation below the level at which these nation's first issued the bond's back in 2010. This could also cause another crisis because insurance on these bonds or derivatives will alarm the world markets because written contracts call for certain evaluation levels to be current. I have no idea how bad that can be or the bond's issued could be called and rolled over, but whatever happens, it can't be good.
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