ONCE UPON A BIAS

Once upon a time there was a semi-popular television news show called "The Week That Was."

For the past several weeks much of the attention has focused on the Fed's upcoming December meeting and the first interest rate hike in seven years. So, right or wrong, there's been no shortage of opinions about the Fed's much anticipated actions. Here's another one.

Peter Schiff, the CEO of Euro Pacific Capital, is a controversial financial figure, not so much because his views are always wrong but because he says things MSM and the Fed apologists don't want you to hear.

Schiff recently told CNBC " that the Federal Reserve is playing a 'dangerous game' with benchmark interest rates that is likely to end in tears for stock-market investors.

“I think it is a very dangerous game the Fed is playing because I think the economy is already decelerating…and the Fed still has rates at zero,” Schiff said during the interview.

Long a critic of the Fed, Schiff made comments just after the Fed’s October policy-setting meeting hit the wires, giving "the clearest signals yet that Janet Yellen’s central bank is close to ending a nearly decade long period of ultra loose monetary policy."

He  added that "he isn’t convinced that the Fed is prepared to lift rates in December, though Wall Street has priced in a 68% probability of a rate increase next month. He described the Fed’s talk about raising rates as a pretense to mollify investors."

That the Fed is data-paralyzed shouldn't surprise anyone. Fed Chair Janet "Don't-Rock-the-Boat" Yellen is the first female to head up the big outfit lodged in the Eccles Building down on Constitution Avenue. Unless her performance improves drastically in the near future, her term will become a throw-away one, notwithstanding it's historical significance.

Just as there's no shortage of Fed apologists, there is likewise reams of critics. The accuracy of the Fed, let alone the national economic picture, should be obvious based on the number of revisions they undergo quarter after quarter, year after year. The old joke economists have correctly predicted nine of the last two recessions applies to the Fed.

The same holds true for other so-called prognosticating organizations like the IMF and the World Bank. People either forget or overlook the fact that forecasts are just forecasts, nothing more and nothing less. Take the case of biases.

Research has identified numerous instances of persistent bias in the track records of professional forecasters. These findings apply not only to forecasts of growth, but also of inflation and unemployment (Coibion and Gorodnichencko 2012). Overall, the evidence raises doubts about the theory of “rational expectations.” This theory, which is the dominant paradigm in macroeconomics, assumes that peoples’ forecasts exhibit no systematic bias towards optimism or pessimism. Allowing for departures from rational expectations in economic models would be a way to more accurately capture features of real-world behavior.

So as we said: There is no shortage of opinions or biases. And as a colleague used to say after he made a presentation at another one of those stodgy corporate meetings many of us suffered through over the years, "That's my bias. I hope you know yours."

If only all those television talking heads, bureaucrats and members of MSM would stoop to being as candid, we'd all be better off.

And here's one more aside. Both Yellen and Obama are precedent setters. Yellen is the first woman to head up the Fed and he is the first African-American to occupy the White House. Now we know first hand that precedence has nothing to do with competence.

PRECIOUS HOLD?

For those who wonder what's going on with gold here's an interesting read from The Daily Bell.

Some will think it's just hype over an asset that's about as out of favor as an asset can get. Some might even question whether it's even an asset anymore. Much of what you think should be based on your trust in monetary authorities.

Will the precious metal become so precious again only the monetary authorities are allowed to hold it?

Reuters claims, "Financial market transparency has been a major focus for regulators after evidence of price manipulation in lending rates between banks with the LIBOR scandal in 2012." But we would suggest that the real reason for the sudden interest in transparency has to do with the gravity of the gold market migrating to Asia. 

To counteract this trend, the LBMA is proposing an electronic gold-trading platform that will make trading more efficient and "transparent." As there are some "$5 trillion of gold trades estimated to be made over the counter in London," an electronic facility would certainly be significant. Our take remains a cynical one, however. In the money profession, an institutional bias against precious metals is not likely to be reduced by an electronic facility. The forces arrayed against precious metals are enormous and involve the fabric of Western society itself. If London is moving to address some of the issues around gold trading, you can probably bet it is in order to reassert control over world markets. 

The sociopolitical and economic bias against gold remains a fundamental and stubborn fact. Elite institutions, in our view, are ultimately going to make it a good deal more difficult to purchase gold and silver, especially the physical stuff, as the world's economy inevitably unwinds. Prudent investors and savers who understand the reality of precious metals will continue to find holding precious metals to be an important part of a well-balanced portfolio. Even if acquiring and holding precious metals ultimately becomes more difficult – and it probably will sooner or later – the acquisition of yellow and silver metals should not be abandoned. 

Paul Rosenberg carried an interesting article on the subject this week in his Free-man's Perspective entitled "Golden Disobedience." Author Sandy Sandfort relates in this article how his parents practiced determined civil disobedience when it came to FDR's decision to put people in jail for buying and holding gold. A snippet: Back on April 5, 1933, His Majesty, Franklin Delano Roosevelt (FDR), had a pen and a telephone. So he issued Executive Order 6102, which made it a federal crime for Americans to own or trade gold anywhere in the world. There were some minor exceptions for some jewelry, industrial uses, collectors' coins, and dental gold, but the vast majority of the gold had to be turned in. My father instantly understood what was going on and he didn't like it. "They're going to devalue the dollar!" he predicted. ... My parents made the conscious decision to become outlaws. At every possible opportunity for the next three weeks (and substantially longer), my parents followed Gresham's law ("Bad money drives out good."), not federal law. They spent paper and collected gold ....thedailybell.com/news-analysis/36660/Sandy-Sandfort-Michael-Pento-Buy-and-Hold-Gold/

INDISPUTABLE THANKS

Thanksgiving is more than a traditional day for giving thanks

A lot of eyeballs today will watch some sports before that big Thanksgiving meal and, if they're still awake, most likely after it. Blame it on the tryptophan. 

This might not apply to all ball sports, but it's an interesting read especially for football fans given all the increasingly controversial decisions that continue to crop up in the game by the review crews and that ever so abstract term indisputable evidence.

So here is an indisputable thanks to all our readers as we look forward to 2016.

technologyreview.com/view/543986/why-ball-tracking-works-for-tennis-and-cricket-but-not-soccer-or-basketball

THE WEEK AHEAD

Christmas is not here yet, but it's beginning to look a lot like next week will be one of 2015's most important if the schedule on tap is any indication.

Even in a Thanksgiving holiday lull, financial markets are gearing up for a week of drama.

"Next week could be one of the most important weeks of the whole year," said Marc Chandler, head of foreign exchange strategy at Brown Brothers Harriman. U.S markets are closed for the Thanksgiving holiday Thursday, and stocks trade in a shortened session Friday. So by Wednesday the market focus was already on the coming week, and for investors worldwide, it's a busy one.

First on Monday, the IMF is expected to grant China's yuan reserve currency status. The yuan would be included in the fund's Special Drawing Rights basket which, while largely symbolic, would elevate the currency and China's influence in the global economy. More:

cnbc.com/2015/11/25/why-markets-see-next-week-as-among-most-important-of-year.

STRAW CLUTCHING

There is an old saying about clutching for straws.

With the start of this year's final month closing in on us, December 16 is the could be magical date when the Fed ends its long drought of higher interest rates. Though the expected hike won't be much since most are predicting 25 basis points, the pros and cons of such a move continue to be debated.

Is the economy and by proxy the market ready for such a move however small it might seem? In short, given the global picture, is the economy too fragile for even such a small hike?

As the Federal Reserve contemplates lift-off in December from seven years of near-zero interest rates, policy makers should not ignore the global backdrop.

I’m not talking about equity markets, whose tremors were instrumental in encouraging the Fed to take a pass on a rate increase at the September meeting. I refer instead to the broad-based collapse in industrial commodity prices, including oil, copper and nickel. While the 60% decline in crude oil pricesCLF6, +0.35%  since June 2014 reflects both an increase in output — a result of hydraulic fracturing in the U.S. — and a decline in demand, the commodity-wide rout points to reduced global appetite for these essential industrial materials, especially from China.

With the ECB apparently set to dump more liquidity on the market and Japan's recent no-inflation-no-pick-up-in-demnd-no-cigar performance after its massive QE programs, the global picture looks indeed dismal. To suggest, then, as the author of this piece does that the Fed has done a better job than either the ECB or BOJ is indeed clutching at straws.

In some circles that would be called damning with faint praise.

marketwatch.com/story/this-economy-needs-ultra-low-interest-rates-just-to-stay-afloat-2015-11-25

PRE-HOLIDAY FOOD FOR THOUGHT

More easing ahead from ECB.

The ECB meets on December 3 and is widely expected to loosen policy via a further cut in the deposit rate or extending and expanding its bond-buying stimulus to stave off the threat of deflation.

reuters.com/article/2015/11/25/us-global-markets

Commodities news continues its bleak downturn and a stronger dollar won't help.
The gauge tracking the performance of 22 natural resources has plunged two-thirds from its peak, to the lowest level since 1999. That shows it’s back to square one for the so-called commodity super 
cycle, a hunger for coal, oil and metals from Chinese manufacturers that powered a bull market for about a decade until 2011. bloomberg.com/news/articles/2015-11-25/if-china-killed-commodities-super-cycle-fed-is-about-to-bury-it

Geopolitical events present risks to investing. It's not like the globe is getting any safer.
money.cnn.com/gallery/investing/2015/11/24/isis-russia-china-geopolitical-threats-2016

U.S. Consumer confidence drops. wsj.com/articles/consumers-outlook-on-u-s-economy-down-sharply-in-november

There's nothing like gratitude. It belongs among the most practical things in your life. Given the start of the holiday season, this post is more than a reminder. It's a must read.
cnbc.com/2015/11/24/what-am-i-thankful-for-the-next-5-minutes-joe-terranova-commentary

Before and after pictures are well known. So here's a before and after note about how stocks perform before and after the Big Meal every November.
marketwatch.com/story/how-stocks-perform-before-and-after-thanksgiving-2015-11-24

Some investment food for thought.

Everyone has grown accustomed to thinking about emerging markets as a monolith -- a collection of undifferentiated countries aspiring to the big leagues, with all of the heft and stability of more developed economies,” writes Kaissar.

He goes on to separate the five most expensive markets from the five least expensive (based on their normalized P/Es) and calculated an average P/E for each.

“The five most expensive trade at an average P/E of 16.8, whereas the five least expensive trade at an average P/E of 8.5 -- half the price,” he adds. “For example, Brazil and Russia are laughably low by any measure, even after accounting for the incremental emerging market risk and whatever idiosyncratic risks you wish to attribute to them (Vladimir Putin, anyone?). At the same time, the valuations in China and India are princely by any measure, particularly after accounting for the incremental emerging market risk, to say nothing of their own unique risks.” barrons.com/articles/can-stocks-rise-on-wave-of-global-liquidity-

A FIRST DEVOUTLY WISHED

 
To the discredit of the WSJ they side with Fed Chair Janet Yellen who recently wrote a letter to the House of Representatives after they passed a bill calling for a mathematical rule to determine short-term interest rates.Threatening to hold peoples' feet to a flame scares everyone, but it scares government bureaucrats the most. The bill is now on its way to the Senate.

In so doing, the Journal rolled out the old, tired and tedious yarn about science versus art.The truth is, like a bunch of data whores, the Fed's been weaving its so-called art for decades pretending it was science. For anyone who's looked at their past record these past 30 or so years and believes it's anything other than dismal, we borrow a ditty from a classic Dustin Hoffman movie: "Here's to you, Mrs Robinson. Heaven holds a place for those who pray. Hey, hey!"

The only thing the Journal article gets correct is it's challenging Congress to clean up its own messes first. Now that would be a first.

GOLDMAN SPEAKS

The now long gone Wall Street brokerage firm E.F. Hutton had a popular moniker in its day, something like: "When E.F. Hutton talks, people listen."

Well, given Goldman Sach's recent report, we'll see next year if the same applies to Goldman, the Wall Street house with close ties to the Federal Reserve.

CNBC is reporting cnbc.com/2015/11/24/goldman-sachs-no-stock-market-gains-in-2016 investors won't have much to look forward to next year when it comes to stock market gains.

Goldman Sachs analysts believe 2016 will have pretty much nothing to offer investors.

In fact, the firms' strategists forecast the year to end right about where it began, with the S&P 500 stuck at 2,100 amid a morass of higher interest rates, the end of margin expansion and a "bifurcated" market through which participants will have to tread carefully.

"We forecast the S&P 500 index will tread water for a second consecutive year in 2016," Goldman said in a report for clients this week. "In many ways our 2016 forecast is 'deja vu all over again.'"

The weak market will come amid little growth in fundamentals, with gross domestic product projected to increase just 2.2 percent in both 2016 and 2017 and a 10 percent rise in corporate profits but a plateau in margins at 9.1 percent. Goldman said the increase in profits will be "misleading" in part because of a reversal in this year's earnings story. Much easier comparables in energy, which is expected to decline 58 percent for the full year, will inflate the 2016 picture.

As they say, time will tell. But for the good contrarians out there, you might want to make up your own mind and consider fading that report. 

FUEL FOR THE FIRE

The WSJ described the incident over Syrian air space today as follows:

The Turkish government said its military shot down a Russian jet fighter along the Syrian border on Tuesday, in an escalation of tensions between Moscow and a key North Atlantic Treaty Organization member in the chaotic Middle East civil war.

A while back we pointed out when discussing weak energy prices that the globe was an unsafe place. And getting more unsafe by the day.That was before the Paris tragedy. You can talk about OPEC quotas, rig counts, oil-laden tankers languishing off the Caribbean coast and such all you want, but crude oil is still--as much as its sanctimonious critics deplore the black stuff--a critical part of the global equation.

The current incident, as many hope, will come and go without further problems. But the powder is there. And with an administration that now wants to put U.S. special forces at harm's door, the plot can ramp up even further. And no one knows just who or just what situation holds the match.

There's a couple of key points in that opening paragraph: "escalation of tensions between Moscow and a key North Atlantic Treaty Organization member and the chaotic Middle East civil war." There is two distinct implications there: chaotic and choosing up sides.

Televison talking heads and other self-appointed gurus are likely, like this clueless administration, well behind the curve on this one. Temporary situation or otherwise, don't exit your long oil holdings just yet. In fact, on any further weakness add to them.

OVERNIGHT

Reuters reported Turkey downs Russian war plane over airspace violation in Syria and Asian markets shares struggle.

Japan's Nikkei .N225 ended a choppy session with a 0.2 percent gain, after a long weekend. Markets were closed for a national holiday on Monday.

"We're post Japan Inc earnings now and the focus is back on China where local brokers are talking about market reforms, many of which have direct market impacts, which is important because China is a policy-driven market," said Gavin Parry, managing director of Parry International Trading."

There's also a continued focus on the U.S. Federal Reserve, with a lot of sell-side banter about quantifying what level of rate increase brokers are expecting," he said.

Chinese shares wilted, with the blue chip CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen off session lows but still down 0.2 percent, while and the Shanghai Composite Index .SSEC edged down 0.1 percent.

On Monday, Wall Street marked modest losses as Pfizer's (PFE.N) plan to buy Allergan Plc (AGN.N) in a $160 billion deal quickly drew criticism from politicians as a tax dodge.