YOU DECIDE

Forget China for a minute and it's recession.There's growing concern about the U.S. falling back into recession. Recall the Fed with one rate hike of a mere 25 basis points under its belt, it's essentially out of economic bullets. And returning rates to ZIRP land again, the globe needs like you need a wart on your nose.

The world’s financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, according to a leading global banker.

William White, chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements, who suggests the stresses in the financial system are now “worse than it was in 2007”.

Speaking to the UK Telegraph’s Ambrose Evans-Pritchard before the start of the World Economic Forum in Davos, White warned that macroeconomic ammunition to fight further economic downturns is essentially “all used up”.

“Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,” he told the Telegraph.

“It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something.”

Davos is that big party in Switzerland, for big people, that gets big press coverage annually that turns out to be a big nothing burger. And maybe someone from the ECB  or the Fed, both of which claim they can't find any inflation, 2% or otherwise, should read this story.

JOHANNESBURG – The weaker rand has resulted in prices sky-rocketing in Davos for South Africans who have travelled there for the World Economic Forum.

A meal has cost one business reporter a whopping R700.

It could cost an individual anything up to R500,000 to attend this year's World Economic Forum in Davos.

Editor and Publisher of biz news, Alec Hogg, says this is his thirteenth trip.

Yesterday he purchased a chicken Caesar salad and a glass of milk - the same meal he bought last year.

“It cost me 41 Swiss francs and 50 cents and that’s worth up to R700 as compared to last year where it was just over R500 and the year before it was under R400.”

Hogg says this shows how the rand is falling.

There are about 80 South African delegates attending this year and the overall cost is about 40 percent more compared to last year.

The  rand is not the only currency falling against the dollar. Look at charts of the Canadian loonie, The Brazilian real, the Russian ruble, the New Zealand and Aussie currencies, to mention a few.

Last week industrial production numbers came out and the news was not what economists expected. According to data from the Federal Reserve, industrial production dropped in December 0.4%

Well, the news is out and  it's not what economists expected. According to data from the Federal Reserves, industrial production dropped in December 0.4% and the previous period was toned down to 0.9%, a drop of 0.6%.  So the 4Q number was on an annual basis down 3.4% for industrial production.

Capacity utilization, an indicator to gauge how ramped up or down industry is as a whole, also disappointed. Economists were expecting a higher number than the 76.5 they got for the month. The indicator is supposedly about mining, manufacturing, electric and gas utilities since it takes energy to run industry.
  
Last week, following a long period of poor internals and weakening order surplus, we observed fresh declines in industrial production and retail sales. Industrial production has now also declined on a year-over-year basis. The weakness we presently observe is strongly associated with recession. The chart below (h/t Jeff Wilson) plots the cumulative number of month-over-month declines in Industrial Production during the preceding 12-month period, in data since 1919. Recessions are shaded. The current total of 10 (of a possible 12) month-over-month declines in Industrial Production has never been observed except in the context of a U.S. recession. Historically, as Dick Van Patten would say, eight is enough

 
 A broad range of other leading measures, joined by deterioration in market action, point to the same conclusion that recession is now the dominant likelihood. Among confirming indicators that generally emerge fairly early once a recession has taken hold, we would be particularly attentive to the following: a sudden drop in consumer confidence about 20 points below its 12-month average (which would currently equate to a drop to the 75 level on the Conference Board measure), a decline in aggregate hours worked below its level 3-months prior, a year-over-year increase of about 20% in new claims for unemployment (which would currently equate to a level of about 340,000 weekly new claims), and slowing growth in real personal income.  advisorperspectives.com/commentaries/20160119-hussman-funds-an-imminent-likelihood-of-recession.

Fear can be oversold and it can be overbought.You have to decide.

MARKETS SPEAK

 
Current concerns over China run way deeper than just the numbers, but that's the focus you see and hear in MSM.

The much deeper, more important lesson people are leaning is you can't trust government numbers. Any government. As a kid growing up in school you hear about those Banana Republics with their economic problems and corruption and you think it can't and won't happen here.Then one day suddenly you're a grown person and you realize it's been going on all along.

If you can't trust government numbers, you can't trust governments. Any government. There's a poll in the WSJ today showing that if Trump and Sanders are the two candidates for president in the up- coming election and if the it were held today, Sanders would win by a fairly wide margin.

That's one of those go figure things. At a time when more and more people around the world are angry and disgruntled with government, Americans would elect an admitted socialist, a guy who would do his best to impose more government on them.

Now we don't know how honest or accurate that poll is because polls are are comprised of numbers with people who have an agenda and there's something called mass-directed propaganda that gets unleashed by private and public sectors.Take a look at the pharmaceutical industry or the CDC.

What we do know is this, though it 's most unwelcome in our PC-controlled society today: People get what they deserve. And dear investors, whether you recognize it, that's what these markets are telling you. One of the major goals of the PC crowd is to abolish the responsibility of caveat emptor.

As an article we recently read about China's economic woes, with more expected, concluded: You have been warned.

HOPE FOR A RALLY CONTINUES

What the market gives the market takes.

That's pretty much the story overnight as Asian shares returned most of Tuesday's gains. The culprit of choice was once again that thick black stuff the climate change crowd loves to hate but a bunch of people of nearly all ages hope will stage some sort of rally soon.

Without energy there's no demand for a real recovery and without a real recovery there's no demand at this point for energy. So it become like a lot of things in the world today a stalemate. Earlier the Shanghai Composite index was down  neatly 1.4% while the Hang Seng in Hong Khong, the ASX 200 and the Nikkei 225 suffered similar fates.

For Japan the market entered bear market land, now down over 20% since it topped out last June. For the Hang Seng it was the lowest level since 2012. It's like one of those déjà vu all over again things. Market after market down double digits from their recent highs. In the case of Australia's ASX 200 it's down nearly 20% from its high last spring.

Crude fell to a new13-year low. Gold eked out a small positive gain as investors continue to wait for more positive news than that of the past few weeks. Hope springs eternal.

WHAT'S YOUR NECTAR?

 One man's nectar is another man's poison.

That appears to be the case with commodities as noted in a report from Macquarie Bank, the big Australian financial services firm. In a word, it's hard to get a little help from one's friends when one doesn't have any friends.
  
Commodities have no friends at the moment.

From energy to softs to base and precious metals, prices have been hammered almost unilaterally across the board, weighed down by a combination of a strengthening US dollar, increased supply, tepid demand and, as a consequence, mounting disinflationary pressures.
The paragraph below, from Macquarie Bank's commodity analyst team, is reflective of the broader investor mood when it comes to commodity markets - they hate them.

The world simply hates commodities at the moment. Prices keep on falling, producers are in a battle for survival and, more worryingly, demand isn’t reacting that positively as of yet. They are providing a catalyst for currency volatility, causing headaches for many emerging market governments and leading to wider concerns around systemic financial risk. This is particularly true as deflationary pressure intensifies which in turn drives business caution and amplifies the fundamental problems pervading commodity markets. We remain in the wrong type of global economy for commodity prices to perform well.

According to Macquarie, there is only one thing that can break the current cycle of ever-lower commodity prices. Unfortunately for those hoping that 2016 will herald a year of accelerating global growth, they believe supply, not demand, holds the key for a move higher in prices.
According to the bank, the crude oil market, in the midst of a severe supply glut at present, holds the key to not only stabilising prices for the energy sector, but the broader commodity complex as a whole.
 
In recent times oil has been leading everything lower. Moreover, the lagged deflationary pressure will push industry cost structures (and pain points) for other commodities even lower. However, we expect global crude oil markets to return to seasonally normal supply-demand balances by 3Q16, while 2017 will be the first year in five that results in an annualised inventory draw. We expect the resulting oil price recovery will at least go some way to breaking or even reversing the current global deflationary down cycle.

Macquarie suggest that the slumping crude oil price has kept more marginal producers of other commodities in production, lowering their running costs and, as a consequence, keeping markets awash with supply that would normally be displaced in the past.
However, given their expectation that the crude market will return to normal supply-demand by the September quarter this year, this will help to support crude prices, placing additional cost pressure on marginal commodity producers.

 Based on this assessment, the bank has compiled a list of commodities that they expect will outperform over the next two years, along with those likely to benefit from short-term seasonality factors along with those to avoid. More:

We don't know what your definition is of blood in the streets and we're not saying this is necessarily one. But if it isn't it's got to be pretty darn close.

businessinsider.com/macquarie-everyone-hates-commodities-2016-1?