DIVERGENCE PAIN.....?

 

 There's an old saying: Karma is a beach.

The same might be said shortly about interest rates and currency divergence. The prospect of central bank actions by the U.S. and the ECB creating divergence, maybe even the painful kind, is not going un-noticed by some.

If history is any guide, there are three major issues that warrant careful monitoring in the coming months. First, the U.S. is unlikely to stand by for long if its currency appreciates significantly and its international competitiveness deteriorates substantially. Companies are already reporting earnings pressures due to the rising dollar, and some are even asking their governments to play a more forceful role in countering a stealth “currency war.”

Second, because the dollar is used as a reserve currency, a rapid rise in its value could put pressure on those who have used it imprudently. At particular risk are emerging-country companies that, having borrowed overwhelmingly in dollars but generating only limited dollar earnings, might have large currency mismatches in their assets and liabilities or their incomes and expenditures.

And, finally, sharp movements in interest rates and exchange rates can cause volatility in other markets, most notably for equities. Because regulatory controls and market constraints have made brokers less able to play a countercyclical role by accumulating inventory on their balance sheets, the resulting price instability is likely to be large. There is a risk that some portfolios will be forced into disordered unwinding. Furthermore, the central banks’ policy of curtailing so-called “volatile volatility” is likely to be challenged. More:

MarketWatch.com/story/as-fed-hikes-and-ecb-eases-markets-could-get-wild-el-erian-says-2015-12-3

To be frank, there is nothing stealth about it.

DO YOUR HOMEWORK

One of our goals, we feel, is to bring useful information to readers. We don't vouch for it or intend to suggest you should follow it for your investing chores. But by adding it to any discussion it could help you do your homework.

This is from dailyspeculations.com Doing your homework is really one of your best chances not to get caught unawares.

My take from eyeballing this chart of the day about the gold market: one should prepare in advance for buying opportunity. Chart is longer-term Bullish, as most asset charts are LOL. Trick is: gold bugs are getting progressively more rattled by the corrective phase that commenced 2011. More often than not, the nadir of such correction will trade very quickly - leaving the unprepared behind. Not sure one will be able to buy size on final low (as the algos are very adopt in frontrunning both ways). So if one is looking for size, and just needs to fine-tune timing, one should explore all kinds of venues. Gold equities will be the most leveraged Bullish bet. But the real deal is physical gold (stored under your control). Eventually, when Gold is attractive for extraordinary financial panic reasons - physical will outperform by leaps and bounds!

All this being said, the final low print will likely occur deep in three-digit territory. Any initial Fed tightening will hit all assets hard.

anonymous writes: 

Seems to me like a test of support at $1000 round, which was the 2008 crisis year high, might be in the cards one of these days.

IT'S ALL TOO DEPRESSING

Tomorrow, Mario "The Dragster" Draghi is set to pull out his magic tricks bag again

Some refer to Mr. Draghi as the most dangerous central banker in the world. We don't go that far, but close. Draghi, in case you missed it and if you have we can understand why, is Fed Chair Janet Yellen's counterpart at the European Central Bank. In short, he's been earlobe deep in the monetary pool of indecision for longer than it takes a Brussels bureaucrat to spell Grexit.

For much of 2015 central bankers and their MSM shills discounted the old game of Beggar thy neighbor, protesting against anyone who brooked the topic. The suggestion being those who dare bring it up are either cynics or just plain sinister. Central bankers the globe over wouldn't do such.

The proof of the ploy will be how much money departs the euro against the dollar and other currencies after the former Goldman Sachs executive opens his magical bag. You should take notice, if you have not already, that in Paris this week where all the climate change disciples are gathered, one of the main topics centers on a measly 2 degrees centigrade.

That's the supposed magical number if left uncontrolled destined to obliterate the Eco-sphere. And all the golden warblers along with it. Meanwhile, magical Mario and his other central banker compadres around the globe yearn for another magical 2 number, two percent inflation.

That raises a deeply profound question: What's up with that? Now we're aware of a lot of other twos like tea for two; two for tea; two's company, three's a crowd; to be or not to be; two of a kind and too much money business.

And that brings us to this bureaucratic fixation with the número two, two percent inflation, two degrees centigrade or whatever. From what we can find out--and hopefully we didn't waste too much time doing so--so we are told these now worshiped arbitrary bureaucratic numbers, or the lack thereof, could screw up lots of peoples' lives. And probably already has.

It's all too depressing.

THE TWO Ss OF REAL INDEPENDENCE

We post the following paragraph for a reason.

The possibility of Greece's exit from the EU pulled a Houdini for a while, disappearing from center stage and all the political cynosure. The bureaucratic hand wringing, if it went on, went on behind the scenes.

Why is Greece dragging its feet?  There appear to be technical and political reasons.  Greek laws, it appears, require the country's external borders to be monitored by Greek nationals. There are also some other idiosyncratic reasons offered. There is an unspoken reason that could be key.  From a Greek perspective, the country has already experienced a profound encroachment on its sovereignty.   Remember the key link is between solvency and sovereignty. Greece's problems with the former lead to the erosion of the latter.  

marctomarket.com/2015/12/is-grexit-back-on-table.

When you owe your soul to the company store, your choices are slim, slimmer and none. Call us paranoid, call us whatever, just so you call us something. The way you really damage anyone is by completely ignoring them the way this administration has completely ignored foreign policy.

One of the things behind all this craziness is globalization, a surrogate for one world government. Just a few of those dots are climate change, the Chinese yuan joining the basket of reserve currencies and, yes, Greece. A full, complete Greece exit most likely won't breakup the EU, but it's the first fissure in the stone masonry. And like cockroaches or termites where's there's one, there's most likely more. 

Sovereignty and solvency, as this writer notes, go together. Centralization, just another term for globalization, is an outright attack on your sovereignty and that includes your currency, your culture, whatever it might be, and your individual care. The last thing these elitists want is masses of people who can care for themselves.

So remember the two Ss in your personal lives. Honoring one will keep the other out of trouble.

WHO DOES IT LEAVE?

Whenever one speaks out about the government, one can expect some blowback.

Blowback goes by other monikers, neutralize, marginalize, shame are three of the more gentle terms. Conspirator freak, cynic, un-American, radical, xenophobe, racist are some of the other less kind epithets. Stepping on toes or questioning makes people nervous though they do their best usually to deny it.

Anyone who's seen the just out Whitey Bulger movie, call it fictionalization or whatever you want, knows the FBI is hardly above reproach.There's also all those J.Edgar Hoover years. And more recently the IRS itself. Two powerful government agencies abusing their power and attempting to cover it up.

Certain forces get upset by the number of people another government agency, the CIA, allegedly kill. Then there's the folks at ABC and DEA. Are their hands completely clean?

You ever notice how many notorious suspects like the recent Paris case wind up dead in shoot outs? Is this just random or is there some pattern? Fifty some armed troops supposedly fire 5,000 rounds in the melee. Is that by design, an accident or just misplaced anger and outrage?

Is it a ploy to keep the masses in check, make them heave a sigh of relief or what? The meme is a common one: we responded quickly and decisively; no one is above the law; we can and will protect you. If that indeed was the so-called mastermind of the Paris tragedy,would he be of more value dead or alive? And who gave the order to storm the place?

What we know is what MSM has told us. And most likely it is only what MSM wanted to tell us and wanted us to know.

Another part of that question, does the government have its own list of patsies? Martha Stewart might be a Wall Street case in point. What was the grand-theft total she allegedly realized on that insider trading case? Who in government did she piss off? Was she late or non-compliant with a promised big campaign donation? Talk about blowback.

Governments, all governments, are about centralization and centralization is about far-away not local control. As we all know the more removed or gray you are the more danger you're in of becoming just another shootout victim or government patsy. Pictures prove very little. Any kind of story can be spun to fit a picture. And happens quite often.

Isn't that the charge used against our enemies? They spin tales while our MSM remains pristine.

Don't misunderstand. We're not making any accusations or charges here, just floating some fare for possible thought and discussion. And the real question is: do you trust your government? Or for that matter any government?

In God we trust was removed from coinage a while ago. So who does that leave?

REAL LIGHT

 
 A new normal? Is that a close relative of new plateau? The two are only separated by about 100 years.We've heard that the people at Pimco had the term copyrighted. How's that for conceit?

New normal. That's sounds like some of Bill Gross's nonsense when he and his bearded buddy were at Pimco, the bearded one who once boasted that every Xmas during the break he went home and read John Maynard Keynes' General Theory cover to cover. 

If it is, it's apparently one Gross doesn't understand given his performance since leaving Pimco and going over to Janus. The only thing normal is the absence of common sense and leadership at the Federal Reserve. The only thing new is more and more people are catching on to their charade.

In his younger days, Gross reportedly during his early Pimco years had a special license plate that said something like Bond Guru and he made it his purpose to position his car directly in front of the CEO every night leaving the parking garage after work.

Now that's conceit. Some will say it takes a big ego to make big money. Maybe. And maybe not. Big egos usually are Siamese twins with another attribute--contempt for others, especially those seemingly beneath you.

And that leads us to Wall Street in general and their contempt for you. It's pervasive. If it can be packaged, irrespective of its content, Wall Street will find a way. And over its history Wall Street has packaged and perpetuated some real crap. There is some hidden in the bowels of nearly every bull market waiting to be excreted when Dracula finally climbs back into his crypt at the first sight of real light.

YOU DECIDE

 Here"s a couple of comments about that outcast of the past year or so, oil. This one from
cnbc.com/2015/12/02/investors-look-forward-to-a-better-year-for-oil.

Low prices have curbed capital spending around the world, in particular in U.S. shale wells. As a result, we expect oil production outside of OPEC to contract by at least 0.3 million barrels per day (mbpd) in 2016," Schnider said. 

Strategists at both Societe Generale and BNP Paribas were also bullish, with both expecting a more balanced market by mid-2016, as OPEC members are under pressure to change their current production policy, which is bleeding public finances. 

"Beyond buying oil itself ($60 price target for end-2016), we propose four ways to gear to this positive oil outlook: inflation-protected bonds, commodity currencies, equity sectors such as integrated oils, and equity markets with high oil content," said head of strategy team at Societe Generale, Alain Bokobza. 

Here's another from Barron's. barrons.com/articles/oil-picks-for-100-a-barrel-by-2018

November 30, 2015

Guggenheim Securities

We have become bullish on the oil-services sector for the first time in nearly two years, for three reasons.

1) We believe that the global oil market will begin to tighten in second-quarter 2016 and that oil prices will rise further and faster than the “lower for longer” consensus expects, reaching $100 per barrel by 2018.

2) Energy’s low S&P 500 weighting and high short-interest suggest that supply and demand for oil-services equities is out of balance and that the stocks have a lot of upside from sentiment simply getting less negative.

3) As earnings bottom in first-half 2016, we expect investors will begin to look through the trough and focus more on the full-cycle upside evidenced by low price to tangible book value (TBV) and midcycle earnings multiples.

As always, you decide.

 

OUTRIGHT DEPRESSION

Brazil is the world's seventh largest economy and according to a recent Goldman Sachs report it's crying time again in the land of Ipanema. Part of Brazil's problem stems form the scandal the the nation's big oil company, Petrobras.

Brazil is the largest economy in Latin America and officials just announced it experienced its third straight quarter of downturn, the worst since the 1930s. But Brazil is hardly alone. Japan and Russia are in recessions and Canada doesn't appear all that healthy either. All eyes might be on China, but that might prove a bit myopic.

Latin America’s largest economy shrank more than analysts forecast, as rising unemployment and higher inflation sapped domestic demand, pulling the nation deeper into what Goldman Sachs now calls "an outright depression."

Gross domestic product in Brazil contracted 1.7 percent in the three months ended in September, after a revised 2.1 percent drop the previous quarter, the national statistics institute said in Rio de Janeiro. That’s worse than all but three estimates from 44 economists surveyed by Bloomberg, whose median forecast was for a 1.2 percent decline. It also marks the first three-quarter contraction since the institute’s series began in 1996, and a seasonally adjusted annual drop of almost 7 percent.

The U.S. dollar weakened overnight on the news of a weaker manufacturing number announced Tuesday after making a recent nearly nine month high, raising further questions about how aggressive the Fed will be in hiking interest rates next year.

IT'S ALL OVER THE MARKET

The news is out. In fact, it's all over town. And here it is.

WASHINGTON (MarketWatch) — American manufacturers of goods such as electronics, chemicals and heavy machinery saw their businesses contract in November at the sharpest pace since the end of the Great Recession, reflecting the damage caused by a strong dollar, cheap energy prices and a soft global economy.

The Institute for Supply Management said its manufacturing index fell to 48.6% to last month from 50.1% in October, marking the lowest reading since June 2009. The current economic expansion began one month later.

Economists polled by MarketWatch had expected the index to total 50.5%. Any number below 50% signals that more companies are contracting their businesses instead of expanding.

Without the slightest trace of cynicism, one could say: So much for polls and so much for economists, especially the polled kind.

Now some will say manufacturing is not a big part of the economy anymore. So what? 

That's a decent point and to that point we likewise say: So what?

WHEN DID THEY KNOW IT?

 
 Cross training is a well-known term in the workout world.

In the high pressure world of pushing products it's called cross-selling.

If you've gone lately into your local bank, any of the larger ones for sure, you've probably been solicited for another of the bank's so-called services. At Wells Fargo they're called solutions. It's a euphemism to sell you something like a mutual fund or second mortgage or equity line of credit.

A friend refers to them as SYSs. In many ways, however, banks are under siege, much of it owing to their own greedy devises. It's not just the pressure they put on customers or the increasing federal regulations, it's a lack of service and an growing array of sneaky charges.

At one big bank we know of they even have the lowly-paid tellers answering the phones while customers wait in lines, some patiently and some not so patiently. Make no mistake banks are not stand alone. They represent a huge movement in business toward centralization. And centralization is the exact opposite of local control or any semblance of personal service, despite their claims to the contrary and their huge, costly marketing programs.

Part of this is a result of technology. Technology provides the tools that allow businesses to become more impersonal. Under the guise of becoming less so. Who among us is unfamiliar with telephone menus?  There is even a television commercial, in part meant to be humorous, but really is quite serious, showing a guy repeatedly asking one those answering matching robots to speak to a representative.

It you've seen it you know what we're talking about. Hours later, nearly exhausted and siting on his kitchen floor, the guy's still asking: "Representative!"The piece would probably be more effective if it originators showed they guy aging from his early 30s to being transported to a rest home in his 80s still feebly murmuring: "Representative!"

Now regulators in Los Angeles are going after Wells Fargo, one of longtime shareholder Warren Buffett's favorite banks, for what could be labeled gouging. High pressure tactics for sure. Last May the City attorney of Los Angeles.0, according to the WSJ, filed a lawsuit against the big bank that "cast an unflattering light on a core growth strategy that helped Wells Fargo become the country's most valuable bank."

The Journal goes on: "the lawsuit alleges the bank pressured it's retail employees to commit fraudulent act, including opening accounts for people that don't exist and charging customers for products without permission."

Again, quoting from the Journal: Bank of America's second highest honcho, Thomas Montag, recently " wore a hat and T-shirt to a company function emblazoned 'Cross Sell"--but Wells Fargo is the only major U.S. Financial firm to break out cross-selling in its securities filings." The Journal traces the beginning of the cross-selling to a former CEO dating to 1998-99. 

That leaves us with two questions. Why does the American public tolerate such shabbiness? And what did the Scold of Omaha know and when did he and his sidekick, Charley Munger, know it?