THE POST SAYS

Well, now it's really official. We philistines have received the vaunted imprimiture of that noted MSM scribe, the Washington Post, the media outlet that nailed the Watergate scandal all those murky years ago.

Slow down your heart rate and heave a couple of heavy sighs of relief. We can all relax now, the news is out and the truth all over town: "The Federal Reserve may have made a huge mistake."

In traditional journalistic style the Post sort of, kind of hedges a bit. But no matter. This is the Washington Post, the property of the Omaha Scold and the once snooty enclave of those journalistic giants, the Bradley's. Genuflecting is gauche. But we understand. Control yourself. It's not the lottery, but it ranks right up there. From this moment forth we will all surely know what to do: Cancel your subscription. The Fed got it wrong.

Markets sure seem to think that the Federal Reserve has made a big mistake.

It hasn't just been stocks selling off 10 percent to start the year. It has also been bonds saying that they don't think the Fed will come close to hitting its target of 2 percent annual inflation anytime in the next 10 years. Markets, in other words, have done everything short of holding a boom box outside of Fed Chair Janet Yellen's window to beg her not to raise interest rates any more after the Fed hiked them in December for the first time in nearly a decade. And it just might work. After all, there's no such thing as an atheist in a foxhole or an inflation hawk in a stock market crash, especially when prices were barely rising to begin with.

Why is that? Well, the stock market might be the worst way to tell the future, except for all the others. So even if, as the old joke goes, it's predicted nine out of the last five recessions, that's a still better than predicting zero out of the last 220. That, as Larry Summers points out, is how many the International Monetary Fund has seen coming at least a year in advance. The fact, then, that the S&P 500 seems to be saying that the recovery is falling apart should make even the most committed inflation-fighter wonder whether there is actually anything to fight.

It's generally not a good thing when the stock market says you might have to start cutting rates right after you started raising them.More:

washingtonpost.com/news/wonk/wp/2016/01/26/the-federal-reserve-may-have-made-a-huge-mistake.

This is a akin to turning on one of your own kind, not an unheard of event in the daffy world of MSM. Surely, there's at least a trace of anti-feminism here, one that another staunch feminist will most likely pick up on the campaign trail, pointing the finger of blame at one of her boisterous opponents.

Meanwhile, back in the real world many of Wall Street's high and mighty along with MSM are scratching their graying pates trying to figure out why there's so much anger afloat today around the globe.

Huh!

SPOOKY IS AS SPOOKY DOES

You should expect it to happen. Of late much of the focus has been on the relationship between oil and equities. In the jargon, it's called correlation. Lately, it's been a fairly tight one with both going the same direction--down.

Things like this bring out the pundits. Here are some examples if you want to know more you might want to check out notwithstanding what economist Alan Blinder, former Vice Chairman of the Fed under Greenspan, in his recent don't worry melody about China and low oil prices in the WSJ.

According to Blinder, China is no big deal and neither is low energy prices. It's just those silly, spooky markets frightening themselves. In short, China will glide to a soft landing. Sometimes it's difficult to figure out which is more dangerous--spooky markets or spookier opinions. But that's your job if you chose to accept it.

1. marketwatch.com/story/what-oil-prices-really-say-about-the-stock-markets-future-2016-01-26?

2. marctomarket.com/2016/01/great-graphic-world-equities-and-oil.

3. dailyspeculations.com/wordpress/?p=10860

OVERNIGHT

Well, that didn't last too long, the rally in oil prices. And by proxy stocks prices.

Energy in Asia was down overnight and it spilled over into Hong Kong where the sector dropped almost 5%, pushing the Hang Seng down almost 2%. The Nikki also fell nearly 2% and the yen rose against the dollar to 118.09.

Oil prices and equities have been tightly correlated for a while now as investors fret about the condition of the global economy and the ending of monetary stimuli notwithstanding the recent statements at Davos to calm and reassure the markets.

On Monday crude in the U.S. fell to $30.34. Prices are down nearly 7% so far this week as investors see no sign of producers cutting output any time soon. Oil declined in Asia 2% to close at $29.90 a barrel. On top of that Iranian oil coming online adding to a market already flooded doesn't soothe the situation.

Other markets down were the Korean KOSPI, off 1.2% and thr Shanghi Composite down 2%. Markets in India and Australia were closed for a holiday. Gold continued to benefit from all the weakness and concern, trading at $1112.80 in early trading, up 0.7%.

Since both the Bank of Japan and thr Fed have policy meetings on the docket this week investors are seeming hoping for a glimmer positive news that the Fed will roll back its planned four rate hikes tentatively set for this year and the BOJ will continue or even increase it monetary stimulus packages.

Probably good advice for investors to follow here is: Don't hold your breath.

PASS THE MAYONNAISE PLEASE

We like to publish silly quotes from high-flying folks whenever we see them. Here's one related to U.S. banks cutting their relationships with Mexican banks owing to increased regulatory rules.

In 2014 Mexico received nearly $25 billion in U.S. dollars from people living in the U.S. At risk here, according to reports, is cross-border transactions that give Mexican banks access to the U.S. financial systems. More and more banks it seems are leaving emerging markets because of this increased scrutiny coupled with possible regulatory imposed fines.

The major concern given: a usual suspect regulators and bankers love to roll out--money laundering. For those with a long memory, U.S. regulators in the 1970s imposed reporting standards on banks for any transaction of $10,000 or more. Though 10 grand today is hardly the big wallop 10Gs was then, the restriction remains, playing much havoc with small business owners and just ordinary citizens in America.

Has it stopped the laundering? How many actual launderers has it caught? Anyone laundering only $10, 000 today, he or she is small peanuts with a capital S and a capital P. How much suspicion and inconvenience has it aroused? Money laundering has become the surrogate for apple pie, motherhood and the American staff.

Back to the quote. It's pretty difficult to find a bigger hitter in the financial industry than Jamie Dimon, CEO at J.P. Morgan.  Dimon in his time has been around many banking rodeos going all the way the back to his days with Sandy Weill at American Express and after that at Citigroup.

"We do move $6 trillion a day and I am terrified if $100 goes to the wrong place."

Not so long ago it was all about the North American Free Trade Agreement and those wonderful opportunities free trade offered. That included the banking world. With all due respect we think Mr. Dimon gets terrified pretty easily.

Either that or Mr. Dimon likes his mayonnaise spread pretty thick.

NATURAL LAWS

 
 We like to write about oil, not because we think we know everything because we don't. What we're interested in is, among many other things, human behavior. Now don't laugh. We know it's an endless, knotty chore.

Our interest doesn't include the kind ladled out in academe. They're probably the last ones with a clue. The recent controversy over the Harvard psych professor's claim about poses is a case in point. Most of the stuff these academic shut-ins produce is for each other not general consumption. If it were for general consumption, there'd be no need for these academics to exist because the masses, despite the popular MSM propagated view, are generally adept at smelling bullcrap on their first whiff.

There's much market hand-wringing these days about excess oil supplies. Given the obvious global slowdown (Please don't share that piece of info with the Fed.), where's the demand going to come from? It's the big question of the hour. Well, if one's looks careful it might come from the nation with the globe's third largest oil reserves, America's northern neighbor, Canada, and their newly elected left-wing government in the Alberta province.

After 44 years of conservative rule, the new administration is threatening to "cap carbon emissions from its oil-sands industry, a move that threatens to strand billions of barrels of crude from supplies so vast that only Saudi Arabia and Venezuela control more," according to today's WSJ.

Now nobody knows if this is a done deal or its full ramifications if it is. You might not agree, but to us this is more about human behavior than macro economics. Human behavior always precedes not follows macro economics. Politicians who claim to be human do stupid stuff and the macro effects wend their way into the social and economic fabric.

Now if you're long energy at these cheap prices, this is a move you devoutly welcome, however stupid it might or might not be depending if you're  a card-carrying fanatic of the climate change society. Forget the trend or the Fed. Follow the actions of politicians. Recall also Keystone here. Notwithstanding all their efforts, bureaucrats, regulators and politicians have tried to proscribe regression to the mean, a natural law of its own sorts.

The safe bet here is against politicians and their behavior not natural laws.

EARNINGS SEASON

A couple of weeks ago earnings season began. About the same time worries over China and the falling price of oil hit the market and for the most part it's been anything but what many expected.

Most by now know the China and low oil prices story. But earning might turnout to be a disappointment for markets that rivals those two. A blurb in the the WSJ notes:

Since companies began announcing results two weeks ago, corporate earnings have moved in the wrong direction.

With 15% of the companies in the S&P 500 having reported results, earnings for the index is expected to contract 6% for the fourth quarter, according to FactSet’s blended earnings forecast. That’s down from the 5% decline analysts anticipated for the S&P 500 on Dec. 31.

If that rate holds through the end of quarter, it would mark the steepest slide in earnings from the year prior quarter since the first quarter of 2009. It would also be the third straight quarter earnings have declined. The last time that happened was during the first three quarters of 2009.
A stronger dollar and tumbling oil prices have weighed heavily on the overall earnings picture of the S&P 500. This latest disappointing earnings season comes as stocks around the world have tumbled on concerns about global economic growth.

Now there's a lot of quarters in there, but don't get confused. It's the trend. Adding to the earnings picture woes, the article continues, are recent results from Goldman Sachs and Legg Mason, both asset managers, as firms in this sector are being hard-hit by withdrawals and low interest rates not to mention the general mood of investors and the global outlook. Though as pointed out the energy sector accounts for much of the decline, providing a convenient scapegoat, there are other problems like fiercest competition and price cutting afoot among these big boys.

In the meantime, forget pulling out your crying towel for these big asset boys and girls with their huge bonuses, they don't mind taking your hard earned money with fees and the like in the good times. We refer you to, once again, the comment the billionaire CEO of BlackRock made in our piece, An Interesting Specimen, financialspuds.blogspot.com.

Keep your eye on earnings as the pallor spreads and hopes of them providing support for the market fade.

OVERNIGHT

Shares in Asia rose Monday, as a rebound in the price of oil boosted energy shares.

Storms are supposed to have silver linings and it appears that the blizzard that hit the eastern part of the U.S. over the weekend and a European cold front helped push oil prices higher overnight in Asia. Couple that with the ECB's statement at Davos last week about possible further monetary stimulus and investors apparently viewed both as a glimmer of hope.

Monetary stimulus is still the market drug of choice as both the Fed and the Bank of Japan hold policy meetings this week. No specific actions are expected, but after the rocky past couple weeks, excluding last Friday, a little of the correct jawboning could provide even more temporary relief. Here's a brief report from Reuters.

The Shanghai Composite Index SHCOMP, +1.03%   gained 0.5%, while the Hang Seng Index HSI, +1.83%   rose 1.4%. Japan’s Nikkei Stock Average NIK, +0.84%   rose 0.4%, Australia’s S&P ASX 200 XJO, +1.65%   gained 1.2% and South Korea’s Kospi SEU, +0.86%   was up 1%.

Investors were buying again after weeks of steep losses — a monthslong slump in oil, uncertainty about the magnitude of an economic slowdown in China and concerns about whether that spills over and restrains U.S. growth have plagued stocks since the start of the year.

But expectations for central banks to possibly introduce fresh monetary stimulus are gaining steam, helping a recovery from last Friday firm up. In particular investors are speculating that the Bank of Japan will announce measures at its meeting later this week, on Jan 28-29.

Meanwhile, energy stocks in Australia and Hong Kong were up more than 2%, after oil prices climbed back above $32 a barrel.

In the U.S. on Friday, the S&P 500 rose 2%, helped by a rebound in oil prices that boosted energy stocks, and a lift in iron ore prices. The Nasdaq Composite closed up 2.7%.

Still, some analysts were wary.

“It should be noted that the Bank of Japan has consistently disappointed the market expectations for further easing over the past couple of months, and they are more likely than not to leave their policies unchanged,” Angus Nicholson, market analyst at brokerage IG said.

AN INTERESTING SPECIMEN

People want it seems to get all befuddled by the recent selloff in the market. But even a hot water bottle looses it heat after a while.

Too simple, you say. Not really. Big long term themes take a while to go snap, crackle and pop. That's the bane of human nature. We want it all to happen now. Nearly all the MSM cheerleaders wanted to believe the Fed's QE magic elixir would, like a good car wax, do the job. And it did put a gloss on things. But then glosses have a way of joining hot water bottles.

The stock market once the Fed confiscated the punch bowl, like the daring trapeze artist in the center ring, has been flying without a net. Current themes center on worries about China, the energy sector, more bankruptcies and the junk bond market partly fueled by the discord in the energy sector. So much for correlation. And those once staunch, reliable dividends, partly fueled by some sleight of the hand bookkeeping, are one of the newer concerns.

And what will the good doctors at the Fed do come April when the next rate hike is expected? If you go around suggesting the Fed, like it central banking brothers around the globe, are out of bullets, you're going to be less welcome than a flat tire in a rough neighborhood at two in the morning. Then there's the strong dollar and it's concomitant damage.

A lot of gurus say it's not as strong as it's been in previous episodes. And we say so what. Does it have to be before tanking? When you say the dollar, you're talking petrodollar in many respects and that itself is a growing issue. Raising interest rates will make that situation even worse. If you're an emerging market country dependent on the price of oil already gasping for air, you will love the Fed tightening that garrote even more.

Judging by all the turmoil around the globe, the U.S. has it's fair share of enemies. Enemies don't just crop up without reasons, pretended or otherwise. This is an election year. It's not just a referendum on the economy, jobs, stagnate living standards, that suspect data the Fed belches up periodically, and a pathetic statement like the CEO of Blackrock recently mouthed, it's about a longtime dreadful foreign policy made even more dreadful by this administration.

That's the not-so-scary part. The real scary part is most of the candidates in this election are guaranteed to make it even worse. Some of the big banks with exposure to the energy patch aren't pressing the strict covenants on their loans for fear of creating more bankruptcies. Wouldn't it be nice if you and I could do that?

My creditors stipulate I have to pay by a certain date or else pay a penalty. The IRS says the same, plus a penalty plus interest based on rates higher than that of the worst credit cards. And this billionaire genius at Blackrock says he doesn't understand all the anger afoot today.

He's an interesting specimen. Some might suggest the title of the firm he oversees is appropriately named.

MISLEADING DATA

 
 Here's what we call a misleading chart and correlation from marctomarket.com.

The perception is the Canadian dollar has held up well against the dollar. Implied is that the falling oil price hasn't hurt the loonie or by association hasn't hurt the soft commodities much. Canada imports a large amount of it's fruit and veggies. Grocery prices have skyrocketed. The Canadian dollar is down nearly 20% against the dollar since May, that's a bear market in equity market standards. It'/s al;so being called a bear market for many global stock markets that are now in that territory.

Falling oil prices have not only impacted the commodity-driven Canadian economy, it has significantly hurt the guy in the street. Here are a few reads on the matter. Forget for the second, the inflated grocery prices, the loss of jobs continues to grow, by some estimates soon to hit 250,000.
Those jobs don't exist in a vacuum. There's plenty of downstream consequences.

  
Low oil prices are rattling global markets and destabilizing economies around the world. They are also posing one of the first big tests to the United States banking system since the financial crisis.Banks of all sizes are marking down the value of loans and setting aside reserves to absorb additional losses as oilproducers struggle to pay their debts.On Tuesday, Bank of America said provisions for credit losses increased $264 million in the fourth quarter, driven by the downturn in the energy sector. Citigroup, Wells Fargo and JPMorgan Chasereported last week that oil issues also weighed on fourth-quarter earnings.While the energy downturn is cutting into profits, it is not threatening the big banks’ capital cushions, a testament, analysts say, to the rigorous regulations put in place to protect the financial system after the collapse of the mortgage market in 2008.Still, the worst pain for the banks may lie ahead. While many banks have reduced credit lines to oil producers, some lenders are loath to cut off financing entirely for fear of forcing energy companies into bankruptcy, according to energy lawyers and consultants.

LONDON — The persistent plunge in oil prices has translated into a new round of industry job cuts.The British oil giant BP said on Tuesday it would eliminate 4,000 of the approximately 24,000 positions in its exploration and production units this year. That would be in addition to about 4,000 jobs that the company cut last year, when it trimmed its work force to about 80,000.“We have to make sure we have a competitive and sustainable business,” David Nicholas, a company spokesman, said by telephone. “External market conditions are getting tougher.”After oil prices began dropping in 2014, BP was among the companies warning that the price plunge could be deep and sustained. After falling about one-third last year, prices are down an additional 15 percent in the first 12 days of 2016.

LOSERS

For starters, oil-producing countries and states. Venezuela, Iran, Nigeria, Ecuador, Brazil and Russia are just a few petrostates that are suffering economic and perhaps even political turbulence. Persian Gulf states are likely to invest less money around the world, and they may cut aid to countries like Egypt.

In the United States, Alaska, North Dakota, Texas, Oklahoma and Louisiana are facing economic challenges.Chevron, Royal Dutch Shell and BP have all announced cuts to their payrolls to save cash, and they are in far better shape than many smaller independent oil and gas producers that are slashing dividends and selling assets as they report net losses. Other companies have slashed their dividends.About 40 companies in North America have gone into bankruptcy protection.

DAVOS TIME

How do you recognize bureaucratic jawboning when you hear it. Well, it's not difficult.Take a government bureaucrat, put him or her in front of the media and presto! It's Davos time.

Central banks still have more firepower they can use to counter a slowdown in global growth, which does not change the outlook for recovery in the euro zone, European Economics Commissioner Pierre Moscovici said on Wednesday.

In an interview with Reuters Television at the World Economic Forum in Davos, Moscovici said he did not believe there would be any return to an international financial crisis, despite turmoil in world markets during the first few weeks of 2016 triggered by China's slowdown and low oil prices.
 
Asked whether the world's main central banks had run out of ammunition to revive the global economy after years of record low interest rates and quantitative easing, he said: "They have got guns and they can act."

While declining to recommend policy to the independent European Central Bank, the French Socialist said the ECB had taken the right action since 2012 to preserve the unity of the euro zone and show it could resist any shock. ECB action had also addressed policy issues linked to weak growth "and we need to go on with that", he said. 

Moscovici said he did not expect any major change in the euro zone's growth outlook when the European Commission issues an updated forecast in early February, despite the sharp slowdown in China and tumbling stock and commodity markets. More:

bnn.ca/News/2016/1/20/No-global-meltdown-EU-growth-outlook-unchanged-EU-economic-chief