ALL IN ALL IT'S MORE OF THE SAME

 
Next week is a busy one if you're a central banker. Minneapolis Fed President Neel Kashkari kicks off the week jawboning it at a town hall meeting on "too big to fail," as if we need more discussion on that. Boston Fed President Eric Rosengren discusses cyber security and financial stability. We didn't know central bankers were "hacking" experts. What a surprise.

Tuesday, Chicago Fed President Charles Evans enlightens us on current economic conditions and monetary policy from old Hong Kong. Seems like a far piece to go, but maybe  it was his turn to reap the Hong Kong perk. The same day Magic Man ECB President Mario Draghi reveals all about Europe's economic and financial situation.

On Wednesday, Cleveland Fed President Loretta Mester describes the U.S. and it's regional and economic outlook. Cleveland has one? But you have to hold your breathe until Thursday when the big guns--past and present--capture the cynosure with Janet Yellen, her comrade and predecessor, Ben Bernanke, Alan Greenspan and Paul Volcker on the marquee in New York. Not to be outdone, Thursday the IMF releases it analytical mumbo jumble on World Economic Outlook. Kansas City Fed President Ester George wraps up the week Friday speaking about--get this--the economy.

Being a bureaucrat seems to be a pretty good gig if one can get it. But at this level it's a perk-laden privilege. Tax payers might want to start asking what they're getting for their bucks with these folks.

Just to pile on the already mountains of economic data for the week, the ISM non manufacturing index for March is set for public consumption Tuesday. The Senate-Banking committee views the effects of consumer-finance regulations. Wednesday, Christine Legarde of IMF fame talks at the Women in the World Summit. Who'd a even thought there were actual women in the world. When did that happen? Thursday, those all-life changing jobless claims the Yellen crowd pay so much heed to are out. Factory orders for February are set for Monday. Tuesday it's international trade. And Wednesday those coveted minutes from the Fed's last meeting get released.

So all in all, it's a full week of reporting what many already know.

OVERNIGHT

The WSJ reported overnight that China factory output picked up,of one can believe the numbers, a fact that might make the Yellen-led Fed cheerier.

Two key gauges of Chinese factory output registered a pickup in March on signs that policies aimed at boosting growth were having some impact.

China’s official manufacturing purchasing managers index increased to 50.2 last month month from 49.0 in February, according to the National Bureau of Statistics. This is the first time in eight months the figure has been at or above 50, the level dividing expansion from contraction. A separate indicator, the private Caixin manufacturing PMI, rose to 49.7 in March from 48.0 in February. The statistics agency also said the official nonmanufacturing PMI rose to 53.8 in March from 52.7 in February.

Economists said optimism in March among manufacturers was boosted by greater stability in the yuan after a volatile start to 2016, a boost in Chinese stock markets and signaling at China’s annual legislative session earlier in the month that growth will remain a priority.
Policy pronouncements included a higher target for the nation’s fiscal deficit this year, set at 3% of gross domestic product compared with last year’s 2.3%. And China cut required bank reserves in late February by 0.5 percentage point to 17%, releasing an estimated $108 billion into the financial system.

But the Nikkei dropped to a one-month low as further dollar weakness against the yen didn't help investor mood. Down nearly 3% to 16,271.86 in morning trading, after coming off a low of 16,262.68, the volatility index shot up 18% to 26.86, the highest since March 15, Reuters reported.


A BOJ survey released also added  to concerns: Traders said the survey outcome heightened calls for more stimulus but that the Bank Of Japan is running out of ammunition amid concerns about the stronger yen's impact on exporters' earnings. The bad news on corporate sentiment from the domestic market accelerated investors' risk-aversion, which is already driven by a slowdown in the Chinese economy and the prospect of U.S. rate hikes.

The dollar is down 6% against the yen for the first quarter and fell 0.4% in trading this morning to 112.09. Worries about the effectiveness of "Abenomics" continue as investors exect more stimulus.

BRING ON THE NUMBERS

The March jobs report is out tomorrow but we think the number is already in and the giveaway was in part the reason Fed Chairwoman Yellen's abrupt and strange about face Tuesday when she gave her talk in New York.

There were several things strange about it not the least is how much and how often she told those who would listen that the Fed pretty much stuck to its mandate, jobs and inflation. In fact, she specifically noted that the Fed doesn't pay much attention in their decision making process to global economic factors.

The bond market, specifically TIPS and now some recent junk bond offerings, are saying there's some possible overlooked inflation around, given the Fed's track record of not being the most prescient group in the crowded corridor of bureaucrats charged with running things.

We know some of the higher yielding bonds are in the recently beaten down tech sector and the size of the offerings, both excuses offered by some to explain away the higher yields. Third Avenue is behind us and with the threat of higher interest rates on the table for now, investors are throwing money into high-yield funds.

There's a lot of noise in the oil market, most of it owing to concerns about over supple with the threat of more coming on board. Bettors are replacing their short positions again after having to close them a  few weeks ago. Cheap oil brought out energy consuming drivers who lifted U.S. gasoline demand in March to record levels. In some areas pump prices fell to level not seen since 2004. In 2015 U.S. drivers recorded 3.1 trillion miles and the DOE expects that number this year to increase to 3.2 trillion.

Toss that in with the fact she was upbeat about earlier job numbers just a short a time before her speech. But there's more. The jobs numbers on Friday only cover through March 12th. She made her speech on Tuesday the 29th, giving her plenty of time for a warning from her close associate and fellow traveler at the Bureau of Labor Statistics, Erica L. Groshen.

Impossible, you say. Well, these are indeed strange times and strange things happen in strange times. Not to mention there's much at stake here. Central bankers the globe over probably have less margin for error now than ever. In a short few months, we go from being told expect four or five rate hikes this year to a sudden concern about a global slowdown. One would also like to know what deal was hammered out at the last G20 meeting.

OVERNIGHT

Thursday was an up day for most Asian markets as investors took their lead from Wall Street and concerns about rising interests rates moved to the back burner at least for now.

The Nikkei was up 0.7%, the Australian markets tacked on 1.3% and MSCI's broadest index of Asian-Pacific shares outside Japan eked up 0.4%

The U.S. dollar languished near seven-week lows against the euro as the greenback, many believe, has become the fall guy to help offset all the negatives interest rates afloat at other central banks and help revive China. Higher U.S. rates would only complicate China's attempt to stifle capital outflows  and put further pressure on their currency reserves. Most likely as concerns about a global recession grew with China at the center of it some deal was cut at the last G20 meeting.

We've written about risk appetites before. Reuters reported: Investor risk appetite has increased since Fed Chair Yellen said on Tuesday that the U.S. central bank should proceed cautiously as it looks to hike rates, pushing back against some colleagues who have suggested another move may be just around the corner. Yellen's views were echoed by Chicago Fed President Charles Evans, who said on Wednesday there was a high hurdle to raising rates in April, given low inflation. Following such cautious views from top Fed officials, the Dow .DJI climbed 0.5 percent and the S&P 500 .SPX rose 0.4 percent overnight. The CBOE Market Volatility Index .VIX, Wall Street's "fear gauge", ended down 1.9 percent at its lowest level since August. 

SO WHICH IS IT?

 When you're hot you're hot and when you're not.... So which is it Ms Yellen?

Well, if you're a member of MSM's useful idiots society, you follow your orders. And apparently the new orders call for living with a ongoing hot economy. But one not hot enough to cause a piddling 25 basis point rate hike. At least not now.

If that's sounds like a flip from a recent flop about hiking interest rates, you're hot on the trail. This is the same woman backed by her bureaucratic henchmen at the Fed who told us just a few months ago to expect four or five rate hikes this year.

 The WSJ headline after Chairwoman Yellen's speech in New York yesterday was "Market Applauds the Fed." She went on to say the global and economic horizon looks more threatening than before, this so close after her celebrating what many know are phony job numbers. Once upon a time this same lady claimed the Fed didn't put much emphasis in their decision making on global numbers.

So, Ms Yellen, play your fake more transparency game and tell the American people what really happened at the recent G20 meeting. For what economy are you now sacrificing the people of America's economic future, China, Japan, The EU or all three?

There's clearly a lot of confusion in the House of Eccles. But that's no longer the question. At what point, Ms Yellen, does that confusion surpass just misinformation and become outright lying to the American public?

There's a reason Ms Yellen omitted negative interest rates from the Fed's monetary toolbox. Several other central banks are already playing that flute. Someone has to play the foil to balance that balancing act. Okay! But the American people whose economic future and well being you and your cronies hold in your bureaucratic little hands have a right to know.

So which is it?

OVERNIGHT

Gold was up almost 2% overnight trading at $1236.40. Last night we wrote about whether the dove or the hawk would show up at Yellen's talk Tuesday and the price of gold should tell you something to answer that point.

Asian shares rallied overnight partly at least based on Yellen's dovish or cautious tone as she mentioned global dangers to growth and inflation. Translation: go slow on tightening, at least that's how the market read it with the Dow and S&P 500 closing at thier 2016 highs. Her dovish comments were just what the market needed to give it another, although modest, upward boost, a literal put option. Forget the fundamentals, investors seem to be saying, they're still addicted to the juice.

The Korean Kospi hit a high for the year while Japanese shares were the rare losers as the yen rallied against the dollar. Weaker dollar stronger gold. The Shanghai Composite Index was up nearly 2%. The MSCI index of Asian-Pacific shares outside Japan shrugged off a four-day losing streak rising 1.4%. In the currency markets, the Australian dollar along with the yen, as noted, moved higher,just above 76 cents, not far off it recent peak of $0.7681. The dollar not only fell against the yen, it also faded against the euro trading at $1.1300.

U.S. government bond prices rallied pushing the yield of 10-year Treasury note to a one month low at 1.814% while oil prices languished below $40 a barrel, a level that seems to be the magic resistance point for now.

THAT UTOPIAN LEVEL PLAYING FIELD

Fear and greed, safe assets versus riskier ones are considered polar opposites and, as some would say, that's the usual. One problem with "that's the usual" is its linear as in thinking. If you think such is superior, take a look at U.S. foreign policy over that last two or so decades. The other is it's usual until it isn't

Traders talk risk-on, risk-off jargon. See Japan or China earlier when officials there did what officials officially do--intervene. Usually, there's that word again, they intervene under some guise--false or otherwise--of helping things or making them better. Better for whom? There's two choices here. Pick one. You and me or them.

Fear remains. Those who lose site of it can lose more than that when markets turn. There are enough concerns in the world today without compiling a huge list. That's the province of bureaucrats and officials. One of them is the "muddle through" meme that if successful invalidates a basic market principle--blame or ownership. It's every bureaucrat's dream.

With the pale rise in commodities of late, inflation-assets swung into the picture after being lodged in the investment orphanage for years. Say hello to junk bonds, emerging markets and a sector that's  been DOA for longer than the list of lies most politicians tell, mining firms. They have a couple of ugly birthmarks: They're polluters and their cyclical.

Linear thinking said at the end of 2015, with the Fed's threat of higher and more frequent interest rate hikes, the utility sector was toast. And it has been, with peanut butter and jelly on top, leading the market so far this year. Like mining stocks they too are polluters and cyclical. We're most likely at the point now where bureaucrats and central bankers the globe over are secretly hoping for a little of both. We'd say praying but that might get us in trouble.

Back in the dark ages of the 1950s there was another presidential election going on for those who bother with their history that featured a campaign button: "We Like Ike."  Collectors might well know about that. In this another mindless presidential year, it seems few people like anybody. Some think this is unhealthy.We beg to disagree.

The stock market has its own history, not much different from presidential elections.  At the start of 2016 and well before that: We liked utilities. It was just our anti-linear thinking sort of sick way of assessing things rather than a high IQ. We're still trying to find our IQ, if we actually have one. It's been accepted wisdom most people usually do.

Way back in the dark ages of the early 1980s utility stocks were yielding around 13-14 percent and 30-year Treasury bonds the same. By our feeble calculation those bonds matured for the most part at the end of the last decade. During those intervening years there was a raft of mergers and acquisitions of those utility firms to add to the spicy yield of those that survived. Just ask a fellow name Buffett.

So what's the theme here? Anything you want it to be. From our perspective, attempts, however well intentioned, to eradicate fear and greed successfully means eradicating the species, something those who are always seeking to establish that utopian level playing field never get.

It also means eradicating any pretense of open and even semi-free markets.

OVERNIGHT

The Nikkei was up 0.8% and the Shamghai Composite Index was down 0.7% in early, light trading overnight as investors await who will show up, the hawks or the doves later today when Fed Chair Janet Yellen is scheduled to speak in New York.

As the WSJ reported, in later trading many Asian markets declined ahead of Yellen's talk.

Japan’s Nikkei Stock Average NIK, -0.27%   was down 0.2%, Australia’s S&P/ASX 200 XJO, -1.67%   was down 0.8% and Korea’s Kospi SEU, +0.27%   was up 0.2%. In China, the Shanghai Composite Index SHCOMP, -1.14%   was down 0.1%, while Hong Kong’s Hang Seng Index HSI, -0.26% was little changed.

Investors were being cautious before U.S. Federal Reserve Chairwoman Janet Yellen was scheduled to speak Tuesday in New York on her views of the U.S. economy and monetary policy. Her comments could offer hints to when the Fed expects to raise rates, a move that Fed official James Bullard recently said could be as soon as April or June.

Many money managers are also expected to adjust portfolios before the first quarter ends Thursday. Large Asian stock markets, including Japan, China and Hong Kong, are down for the three months ending March. Smaller markets in Thailand, Indonesia and the Philippines, look set to book gains for the quarter. Japan shares fell despite data showing consumer spending in February gained from a year earlier. Employment also rose slightly to 3.3% in February from 3.2% the previous month.

Gold traded lower, down 0.2% at $1,218.70 apparently owing to weaker U.S.data. The dollar held steady at $113.90 against the yen amid a game some are calling "Guess what's left in the toolbox of Japanese officials."  It's a reference to negative interest rates and concern more might be coming.

UNWANTED VOLATILITY AHEAD?

Not everyone is pleased with central bankers around the globe. With the upcoming hint by the Fed's apparent new-found consensus, rates in the U.S. might be going up sooner than later. That could set off some volatility that investors are not prepared for. 

Here's what one UK fund manager recently said about central bank officials in general after his firm suffered loses in the volatility many believe had its root in central bankers fidgeting with monetary policy.  businessinsider.com/crispin-odey-market-is-a-battlefield-2016-3?

London-based hedge fund manager Crispin Odey, who runs $11 billion in assets, said this is "no longer an investment market but a battlefield."
In Odey's OEI Mac fund's February investment update, Odey slammed central banks for lowering or not raising interest rates.

"Several years of watching central banks watching central banks responding to ever falling productivity numbers by reducing interest rates have shown that they can effect asset prices with their actions, but that not only do they have almost no effect on economic activity, but they positively damage it," Odey said.

Markets need equilibrium to prosper. When the authorities have a problem, markets have a problem. We have been hurt by this rally in China-related companies, and indeed we reduced the gross and net positioning of the fund significantly in mid-March, to help reduce the short term volatility of the fund, but we remain convinced that China is in many ways in an even greater bind over policy than the developed world. By mid-March the fund was rising and falling by over 5% per day. At which point this was no longer an investment market but a battlefield. On the day that Draghi came out with his massive market support operation, the stock markets rose 2.5% and then closed down 1.5% on their lows. Imagine how painful it was to see the markets bounce the next day and celebrate his success. At that point I reduced the short book by a third and the long book by 10%.

Despite this strong rally, there is, aside from a pickup in government spending in China, little to support growth in the world economy. Everything from rising default rates in the booming auto financing industry to new lows in LNG, dry bulk shipping prices, points to slowdown everywhere.

OVERNIGHT

Asian stocks opened higher Monday, the WSJ reported, partly based on better U.S. recovery numbers Friday. The Fed has been giving various signals that an interest rate hike sooner rather than later might be in the cards if the numbers show what the Fed thinks are good enough to tolerate a hike without trashing the rebound.

Most Asian stock markets were higher on Monday after an upward revision in U.S. gross domestic prodMost Asian stock markets were higher on Monday after an upward revision in U.S. gross domestic product data stoked expectations for a steady recovery in the world’s largest economy Japan’s Nikkei Stock Average was recently up 0.8%. The Shanghai Composite Index was 0.3% higher. Singapore’s Straits Times index was up 0.1%. Meanwhile, stocks in Taiwan were 0.2% lower. 

Sinochem International Corp. offered to buy Singapore-listed Halcyon Agri Corp. in a deal that values the latter company at 450 million Singapore dollars (US$328.4 million). The deal will create the world’s largest listed rubber company. Halcyon shares will resume trading later today. On Friday, data showed that the U.S. economy grew at a 1.4% seasonally adjusted annual rate in the fourth quarter, compared with a previous estimate for 1% growth.

Another reason cited for the rebound in the Nikkei is March 31. The business year-end for most listed companies and investors buying shares before they go ex-dividend. Overall, though, trading was considered light.