THE WEEK AHEAD

The week ahead kicks off with a holiday, President's Day, in the U.S. and China's returning to the market from a holiday, the Lunar New Year. So it should be interesting.

Much of Friday's rally in U.S. markets, some say, stemmed from investors doing what they nearly always do going into a long weekend, close out risky bets that could swiftly turn sour while the market's closed.

Such could be the case in Asia with Chinese investors returning. It's been a rough and wild ride for investors for a while now as pundits of all stripes and veins speculated about what's going on. And as one might expect there's no shortage of theories. Nor is there a shortage of cheer leading, a good case is all the blabber about whether certain job numbers do or don't accurately signal an upcoming recession.

Spare yourself the concern. Much of the stuff is just what these folks love to do. It's just another form of  meaningless economic masturbation like filling airtime. Much of this centers on the egos at stake between the half-empty and the half-full crowd, much of it on the entrenched who smell the growing possibility of a serious sea change not of their ruling.

A case in point is JP Morhan's CEO Jamie Dimon's much ballyhooed $26 million purchase of his bank's stock. The intended message was to put a floor under growing investor concerns about  the credibility and solvency of the global banking system and indirectly that of central banking, both areas where there's been a landslide of inept game playing for a longtime.

The Dimon theme was look: The guy's putting up his own money and lots of it. Dimon had just received a pay increase of 35% over that of 2014 in a so-called no-inflation environment, $20 million of which was a bonus. Now it ain't like Dimon and his creed hadn't received bonuses, big bonuses, before. So even if his $26 million went Poof!, a very unlikely scenario, he really doesn't have much of his actual skin in the game. 

He's really playing with house chips. You can't miss too much what you never received. 

THE WHISTLING CONTINUES

 
How can you tell when a big time bureaucrat is jawboning or whistling past the bone yard?

Usually they come out of the woodwork with tempering statements like this latest one from William Dudley head honcho at the head Federal Reserve bank in New York.

Steve Liesman reports the latest out of the New York Fed's William Dudley. 

Key components of the U.S. economy remain healthy, and recent speculation about the Federal Reserve adopting negative interest rates is "extraordinarily premature," a top Fed official said Friday, amid mounting concerns about slowing growth.

"I think the U.S. economy is in pretty good shape," New York Fed President William Dudley said in response to a question following the release of the bank's household debt and credit report.

Dudley said monetary policy remains "quite accommodative" after the Fed's decision to hike interest rates in December. Policy has only "limited" ability to respond to volatility with rates already low, he said. 

Dudley, a voting member on the Fed's policymaking committee, spoke a day after Fed Chair Janet Yellen wrapped up two days of testimony to Congress. She faced several questions about whether the Fed would follow its counterparts in Europe in Japan to adopt negative interest rates, and left open the possibility that the Fed could do so. However, she noted that the Fed would first need to judge whether it would be appropriate. 

Key components of the U.S. economy remain healthy, and recent speculation about the Federal Reserve adopting negative interest rates is "extraordinarily premature," a top Fed official said Friday amid mounting concerns about slowing growth."I think the U.S. economy is in pretty good shape," New York Fed President William Dudley said in response to a question following the release of the bank's household debt and credit report.Dudley said monetary policy remains "quite accommodative" after the Fed's decision to hike interest rates in December. Policy has only "limited" ability to respond to volatility with rates already low, he said. 

 Dudley, a voting member on the Fed's policymaking committee, spoke a day after Fed Chair Janet Yellen wrapped up two days of testimony to Congress. She faced several questions about whether the Fed would follow its counterparts in Europe in Japan to adopt negative interest rates, and left open the possibility that the Fed could do so. However, she noted that the Fed would first need to judge whether it would be appropriate.

Concerns about a U.S. recession and recent market turmoil have put the Fed under a microscope. The S&P 500 has shed about 10 percent of its value this year, while U.S. crude oil and the U.S. 10-year Treasury note yield have plunged more than 27 percent each.

Dudley took an optimistic stance on the economy despite market volatility. He repeated Yellen's statement that economic expansions do not "die of old age."
However, he said inflation continues to lag behind the Fed's 2 percent target amid "weakness" in commodities prices. While he said that international developments will "factor into" the policy decision at its March meeting, he did not definitively say which policy course he favored 

Healthy depends like many things in life on who is defining it. We been told for months how healthy auto sales in the U.S. have been. It was one of the cheerleaders' for the Fed's ongoing multiple QE schemes major memes for months. A key component in fact, to use a Dudley reference.


Yes, sales are up, mostly trucks and SUVs, owing largely to cheaper gas prices, and so is revenue, but as the nation's third largest new car chain by vehicles sales warned yesterday, because customers are buying fewer sedans and compacts: "We're at a point now we're in discussions with most (auto makers) that we just can't take anymore car inventories at the moment, " the WSJ reported.

He went on to say that 4Q profits fell 12% despite a 5% increase in revenue. The problem is the build up of big inventories of compacts and sedans that require big incentives to move off the lots further impacting profits. The average number of days these vehicles remain on the lot are well above industry norms, in some cases approaching three months. So the higher profit margins on the big boys is being eaten into by the rising incentives needed to move passenger cars.

The above is not an isolated event in the industry, as the Journal notes, because more U.S. new-car dealers are urging auto makers to cutback production of passenger cars owing to the huge consumer demand for bigger vehicles.

Another story on Honda's announced return to selling more trucks reported:" Nearly every auto maker is building more trucks and SUVs for the U.S. as gasoline prices remain cheap and passenger cars fall out of favor, pushing their share of overall sales to a 12-year low. The last time trucks and SUVs were this popular they represented less than 40% of Honda's sales"

The fact that Fed Chair Janet Yellen in her recent talk admitted she was surprised by the lack of return in inflation should also tell you what you need to know. The guru rule gets proved once again: There are no gurus out there, just a bunch of feeble bureaucrats masquerading as such.
cnbc.com/2016/02/12/feds-dudley-key-us-sectors-in-good-shape-financial-system-clearly-stronger.

BEAR HUG

Some people believe that there is nothing worse than not knowing what's going on. But when you're talking central banking there is something much worse, you might even say doubly worse--a stubborn leader who doesn't know what's going on.

Federal Reserve Chair Janet Yellen returned to Congress on Thursday and again stressed that the U.S. central bank was not on a "pre-set" path to return policy to "normal" given a worsening meltdown in global stock markets.

But, testifying for a second day before U.S. lawmakers, Yellen said she still expects the Fed will gradually raise interest rates this year, given a strong U.S. labor market and steady economic growth.

With investors stampeding to safer assets globally, the head of the world's most influential central bank acknowledged that a weakened global economy and a steep slide in stock markets was tightening financial conditions faster than the Fed wants.

As she did at a House of Representatives panel on Wednesday, Yellen on Thursday warned the Senate Banking Committee against jumping to conclusions about the extent of the overseas threat to the growing U.S. economy.

"We are watching developments very carefully," Yellen told the panel of senators. "I would say there is always some chance of a recession in any year. But the evidence suggests that expansions don't die of old age."

But the Fed chief faced a different financial landscape than just a day earlier.
Prices of safe-haven U.S. Treasuries soared, with the yield on the benchmark 10-year bond falling to its lowest level in more than three years, while stocks plunged in Asia, Europe and the United States.

The MSCI all-country world equity index closed more than 20 percent below its record high last May, confirming global stocks are in a bear market. 

reuters.com/article/us-usa-fed

FIVE SCARY THINGS

Here's one of those number-of-things-bothering whatever articles popular today on the Internet.This one about five things worrying investors.

We've been discussing all of these for some time and in our view this is just the tip of the melting iceberg. The growing distrust among investors is spreading; the current presidential race in the U.S. and how MSM is dishonestly handling it; the recent comment by the CEO of the huge BlackRock fund, saying he didn't understand why people are so angry; to today blurb about Jamie "Pirpont" Dimon's 35% increase over his pay in 2014 at a time when real wages for the mob has been flatter than Florida for decades, to name just a few that simmer beneath the headlines.

Global financial markets are just plain scared about a lot of things but perhaps the biggest fear of all is that the world's central banks are no longer able to rescue them. Here are five things that are shaking up markets.

1. Central banks out of bullets? The world's central banks rode to the rescue after the 2008 financial crisis, using innovative policies to stop the globe from sliding deeper into recession. The Fed used its balance sheet to add liquidity and unfreeze the credit markets by loading up on mortgages and other securities, and it took the extraordinary step of holding rates at zero for seven years.

Even before the Fed moved forward to normalize rates with its first rate hike in December, the dollar rose in anticipation, hurting commodities prices and emerging economies. Now central banks are trying to encourage inflation and growth, and some, like the Bank of Japan, are using negative rates in hopes of stimulating activity.
Read MoreYellen: Negative rates not off the table
Negative interest rates, however, scare the markets, and trillions of bonds now have negative yields. The markets have also moved against the BOJ, driving the yen higher and Japanese stocks lower. In the U.S., the fed funds futures market is no longer pricing in a rate hike, but instead is beginning the early speculation about a potential rate cut. This is one reason why traders are wondering if there really is anything left the world's central bankers can do.More: 
cnbc.com/2016/02/11/five-things-scaring-markets.

OVERNIGHT

There's no good so far only the bad and the ugly overnight in Japanese shares as the selling continues. At this rate investors will come to distrust the negative interest bureaucrats at the BOJ for a long, long time.

The spillover in the lack of confidence about central bankers and their game of being the great economic pretenders with all the answers is rapidly approaching checkmate.This is a global game, not an isolated one. The stakes are high.

Things in Korea and Hong Kong weren't much better with Hong Kong languishing slightly but the overall mood was not good among investors as concerns about the global picture mount.

Stocks in Japan were getting absolutely destroyed in early trade on Friday. The Nikkei and Topix indexes, the major benchmarks in Japan, were down over 5% on Friday morning.

The early dump in Japanese stocks follows what was an ugly day in the US, where the major averages fell as much as 2% before a recovery into the close. It was still not a good day in global markets, and the week — a rocky one — looks to be ending on yet another difficult note.

Before markets opened on Friday, Japanese Finance Minister Taro Aso "stepped up his verbal intervention," Reuters reported. The Japanese yen, which rallied on Thursday, was little changed following Aso's commentary.

Here's the drop in the Nikkei:businessinsider.com/japan-stocks-crater

 

Trading on Korea’s tech-focused exchange, the Kosdaq, was briefly halted Friday morning after shares fell 8.2% and triggered a 20-minute circuit breaker.

A large sell-down from a foreign investor and a pension fund helped spark the rout, said Gyun Jun, head of derivatives research for Samsung Securities, based in Seoul. The foreign investor dumped about 60 billion Korean won (US$50 million) worth of shares, and the pension fund sold off 30 billion Korean won (US$25 million) in stock, he said.

Other investors, dismayed by the global market turmoil, trimmed holdings in medical companies with high valuations, including biopharmaceutical firm Celltrion, whose shares plunged 12.4% in the morning, he added.

Hong Kong shares were steady Friday as investors piled into casino stocks.
The Hang Seng Index was languishing in negative territory, down 0.9% at 18,379, as investors are skittish about the strength of the global economy and market turmoil. The Hang Seng China Enterprises Index, a gauge of Chinese companies listed in Hong Kong, is down 1.2% to 7,566.

Macau gaming stocks, however, surged on data showing an increase in tourist arrivals during the Lunar New Year holiday. The number of mainland tourists during the period rose 6.7% from a year earlier to 390,000 visitors.
The positive data gave a fresh boost to shares of casino operators, including MGM China, up 4.9%, Wynn Macau, up 4%, and Galaxy Entertainment, up 2.9%.

“There are some sectors that are doing quite well, such as Macau gaming, so investors may be seeing some light at the end of the tunnel,” says Daniel So, strategist for China Merchants Bank International.

       

CATCHING ON

Gold is glittering one more time.

The question that comes to mind and one not normally asked in popular press is is gold only a super currency or does gold behave sometimes as super currency, sometimes as a super asset and often in normal times as another asset, which many pundits love to dismiss as a latent unproductive asset.

If one were to run correlations of gold across these varying regimes, how can we have a logit or a probit model where a probability distribution of risk-off factor is included.

When risk is a bad word in the markets, does gold first behave as a super currency and only later as a super asset or is it vice versa? Or there is a more likely scenario that the super currency vs super asset status also has a localised idiosyncracy that can be modeled using another function?

anonymous writes: 

It is a manipulated asset. Study the structure of the Futures market, the term "Paper Gold", and the dominance of the handful of bullion banks in the delivery process. Look at the international shifts in holdings, and question the "reality" of the Ft. Knox inventories. 

More importantly, who do you trust? Central bankers, governments, and economists all have biases, some with monstrous financial incentives to have bases for their pronouncements.

You might want to describe what you mean by super asset, since that is not a term used around gold that I know of. dailyspeculation.com
----
Is there any gold in Ft. Knox and if so how much? Maybe under the guise of a real Freedom of Information we might find out. "...monstrous financial incentives," is the outstanding phrase here to keep this fiat ark afloat.

And that's what scares them. The folks are catching on.

EVEN MORE ON GOLD

You might be in London but according to some they're lining up there to buy the yellow metal,  ZeroHedge.com is reporting.

And as Mike Krieger of Liberty Blitzkrieg blog details, physical demand is soaring...

First, let’s look at the improved fundamentals. Gold bugs will exasperatingly proclaim that fundamentals have been great for the past four years yet the price plunged anyway, so who cares about fundamentals? To this I would respond with two observations. First, large institutional investors and sovereign wealth funds have been anticipating a rate hike cycle for a very long time now. They didn’t know when, but they expected it. The fact that the gold bugs never believed this is irrelevant; what matters is that big money believed it, and it was perceived to be very gold negative. In their minds, this anticipated rate hike cycle would confirm that things were getting back to normal, and if things are normal you don’t need to own gold, right?

The problem is that this assumption is quickly being called into question. Sure the Fed hiked rates once, but it is starting to look more and more like a policy error. Meanwhile, other major central banks around the world are going in the opposite direction, toward negative rates. I am a huge believer in market psychology, and the psychology dominating the minds of most institutional investors over the past few years has been that things were slowly getting back to normal. This has weighed on institutional demand for gold in a big way, and been a meaningful factor in the bear market (manipulation aside). If this psychology shifts, the shift back into gold could be very meaningful.

While that backdrop is interesting in its own right, what may make the move into gold that much more explosive is the lack of alternative investments…

– From the February 3, 2016 post: GOLD – It’s Time to Pay Attention

What a difference a couple of weeks can make. The Telegraph is reporting the following:

BullionByPost, Britain’s biggest online gold dealer, said it has already taken record-day sales of £5.6m as traders pile into gold following fears the world is on the brink of another financial crisis.

Rob Halliday-Stein, founder and managing director of the Birmingham-based company, said takings today had already surpassed the firm’s previous one-day record of £4.4m in October 2014.

BullionByPost, which takes orders of up to £25,000 on the website but takes higher amounts over the phone, explained it had received a few hundred orders overnight and frantic numbers of phone calls this morning.

“The bullion market has been building with interest since the end of last year but this morning things have gone bananas,” said Mr Halliday-Stein. “Some London banks are placing unusually large orders for physical gold.”

London-based ATS Bullion added it had been inundated with orders for the past week. The firm has sold 4,000 gold bars and coins since February 1, a 40pc rise on the same period a year ago when it sold 1,500.

“It’s been crazy – it’s been the best week since 2012. We’ve had people queuing round the block,” said Michael Cooper of ATS Bullion, a family run firm that trades online and also from an outlet in the West End.

But that’s just part of the story. As reported by the World Gold Council, the buying really started to pick up in the fourth quarter, courtesy of the Chinese and central banks. Reuters notes:

Buying by central banks as well as Chinese investors seeking protection from a weakening currency helped lift demand for gold in the final quarter of last year and the trend looks set to continue, the World Gold Council said on Thursday.

Chinese demand for gold coins surged 25 percent in the fourth quarter from a year earlier as consumers sought to protect their wealth after Beijing devalued the yuan currency. But stock market turmoil and a slowing economy knocked consumer sentiment and Chinese demand for gold for jewelry fell 3 percent from a year earlier, WGC said.

Central banks have been buying gold to diversify their reserves away from the U.S. dollar and their purchases edged up to 588.4 tonnes last year, second only to a record high 625.5 tonnes in 2013, the report showed.

Central bank buying accelerated sharply in the second half of last year and jumped 25 percent in the fourth quarter, from a year earlier, as the need to diversify was reinforced by falling oil prices and reduced confidence in the global economy, WGC said.

Chinese demand for gold totaled 985 tonnes last year, followed by India on 849 tonnes. They accounted for nearly 45 percent of total global demand, with consumer demand up 2 percent and 1 percent respectively in those countries. More:

zerohedge.com/news/2016-02-11/lines-around-block-buy-gold-london-banks-placing-unusually-large-orders-physical

CAN'T STOP LAUGHING

It's a move old J Pierpont himself would no doubt love.

 

JP Morgan CEO Jamie Dimon has bought 500,000 shares in the bank he runs, according to those familiar with the buy. According to the story, the purchase cost about $26 million for the 500,000 shares. But that's hardly the interesting part. Dimon received $27 million in total compensation for 2015. Broken down, it's $1.5 million in salary, $5 million in cash bonus and $20.5 million in performance share units (PSUs), according to an SEC filing.

That works out to a 35% raise from his $20 million compensation for 2014. Now central banks can't seem to find any inflation with an electron microscope. The COLA crowd got screwed again with no bump up for their cost of living by the current administration, at least the second time in eight years.

Bank stocks are down 20% since the first of the year. Official inflation, depending on whom you choose to believe, is below one percent. So Dimon's raise is about 35% greater than the inflation rate.

We bet you can't stop laughing about that one.

MORE ON GOLD

Here's another view of the precious metal so hated by MSM and those who fear the unraveling of their fiat monetary scheme.

We don't know Mark Cuban, we don't follow him and we don't like the playground game called  professional basketball. It's boring. All that despite our trying to keep an open mind about being open minded. So here's a read you might find of interest from a guy known for being smart. You can take it from there. In this semi-free nation he's entitled still to his opinion.

At least for now.

Billionaire Mark Cuban admitted Thursday that wild market movements have left him "confused." But he has placed a bet on gold — a so-called "safe haven" asset — as investors rush to the precious metal. Cuban said earlier Thursday that he bought "a lot" of call options on gold. He noted he did not think gold was a hedge, but that people looking for momentum would push the price of the metal higher. 

"I think people are so confused about this market. Nobody really understands what's happening, including me. So, things that I thought made sense didn't make sense and weren't working. ... When traders don't know what to do, they go where everybody is. And I thought that would be gold," Cuban told CNBC's "Fast Money: Halftime Report."

Dallas Mavericks owner Mark Cuban shares his trade on gold.

Billionaire Mark Cuban admitted Thursday that wild market movements have left him "confused." But he has placed a bet on gold — a so-called "safe haven" asset — as investors rush to the precious metal. 

Cuban said earlier Thursday that he bought "a lot" of call options on gold. He noted he did not think gold was a hedge, but that people looking for momentum would push the price of the metal higher. "I think people are so confused about this market. Nobody really understands what's happening, including me. So, things that I thought made sense didn't make sense and weren't working. ... When traders don't know what to do, they go where everybody is. And I thought that would be gold," Cuban told CNBC's "Fast Money: Halftime Report."

Gold futures for April delivery jumped about 4 percent Thursday as investors fled to safety. The move came as U.S. stocks broadly fell and Treasury yields dipped.

Earlier, Cuban wrote on social platform Cyber Dust that gold would not have to go much higher than its Thursday price for his trade to make him "happy." However, he added that he was not recommending to buy gold, noting that "if you don't know what to do, do nothing."

GOLD GLOWS

Divergence has been a popular theme in the markets of late. Even before the big January surprises, investors were thinking divergence, in one particular case the U.S. dollar and the U.S. economy were expected to diverge from much of the rest of the globe.

Well, there's another divergence afoot, not one many anticipated as pointed out in an article from The Daily Bell. Simply put, as confidence in central banks grow dimmer, gold and it's attractiveness as a safe haven glow more and more.

Why Buying Gold Won't Save You from the Zombie Apocalypse ... Despite any advice you might have heard to the contrary, gold bullion is far from a good investment, even if the world is coming to an end. The idea of having a hedge against the end of the world and the collapse of our financial institutions might be alluring. But actually, buying and storing significant amounts of gold bullion won't do you any good in that unlikely event, despite any advice you might have heard to the contrary. – Fool.com

Of course the above excerpt is brought to us by the Motley Fool, one of the bigger mainstream investment web destinations. The description is entirely predictable and could have found a home at Bloomberg, CNN or even CNBC. Gold is always to be portrayed as a Keynesian "barbaric relic."

In fact, we learn later in the description that there are specific assets you should own "in the event of an apocalypse." Gold is not one of them.

The featured expert, John Maxfield, has a thing or two to say about gold.

"Here's how I think about gold, and this is how I would recommend that investors think about gold, or anyone who's thinking about buying gold for any type of investing purposes. As a general rule, investing in gold is a bad idea, and here's why.

"When you invest, your biggest ally is compound returns, because that grows the size of your returns without you doing anything on an annual basis, and pretty soon, your small returns of 1% or 2% a year turn into 50%, 60% a year on your original basis. But in order to tap into compound returns, you've got to be invested into an income-earning asset. And the problem with gold is it doesn't own any assets."

Maxfield does grant that gold is a "hedge against anarchy" but says if society is really collapsing, you probably want to stock up on medicine and antibiotics rather than gold.

Ironically, another anti-gold epicenter – Reuters – provides us with a rebuttal to the Fool. In a post just today entitled, "Central banks and Chinese buyers helping to spur gold demand," Reuters is uncharacteristically upbeat about the yellow metal's prospects going forward.

Buying by central banks as well as Chinese investors seeking protection from a weakening currency helped lift demand for gold in the final quarter of last year and the trend looks set to continue, the World Gold Council said ...

China remained the world's biggest consumer of gold last year, ahead of India, with economic headwinds influencing purchasing, the WGC said in its annual "Gold Demand Trends" report. The WGC's members include the world's leading gold mining companies. Chinese demand for gold coins surged 25 percent in the fourth quarter from a year earlier as consumers sought to protect their wealth after Beijing devalued the yuan currency.

It's not just physical gold. Miners are up and silver is up, too. Oddly enough, it is central banks that have been leading the charge toward gold.

Reuters: "Central banks have been buying gold to diversify their reserves away from the U.S. dollar and their purchases edged up to 588.4 tonnes last year, second only to a record high 625.5 tonnes in 2013."

We don't know how you feel about gold. We do know how you should feel about central banks.Trust in gold. The excuses about gold not being an investment and so forth have been going on forever. We've seen, heard and read them all. 

The excuses for the existence of and continuation of central banking with its phony fiat money, however, are far more deceptive and dangerous to your financial health.