DRAGHI SPEAKS

Today was to be an important day for the European Central Bank and what President Mario Draghi would do and say about monetary policy. Here a brief note from Business Insider:

• The euro is up 0.8% at 1.1385 after the European Central Bank left both its key interest rate and deposit rate unchanged at 0% and -0.40%, respectively. The inaction was expected after the ECB cut rates and increased its asset purchases at the March meeting. 

In the Q&A session here are some of his responses:

On inflation, Draghi says inflation rates could slip back into negative territory in coming months but that the ECB expects inflation to pick up in the second half and futher recover in 2017 and 2018. That’s in line with the ECB staff forecasts.

Draghi is asked if he worries German criticism of the ECB’s policies could have a negative impact on investment and business activity.

Draghi says a “polite, lively debate” helps the ECB better explain its policies. But he says criticisms “of a certain type” could be seen “endangering the independence of the ECB.”

That could lead to delayed investment and risk taking, he says, but the ECB will continue mplementing policies it deems appropriate. The only impact will be to delay the achievement of the ECB’s objectives and to require even more policy expansion, he says.

On a related question about Britain’s upcoming referendum on whether to remain in the European Union, Draghi says Brexit concerns have already produced significant market consequences.

Draghi is asked about the prospect of “helicopter money”–a program in which a central bank injects money directly into the economy.

Draghi expresses surprise that his response to an earlier question about the extreme monetary policy measure has drawn so much attention. “The bottom line is that we have never discussed it,” he says.

But what about pensioners? Draghi is asked what he would say to German citizens worried about the fate of their pensions given ultralow and negative interest rates.

Draghi says there’s no doubt pensions and insurance firms are affected, but urges them not to blame everything wrong in the sector on low rates.

He also notes that they’ve also reaped the benefit of large captial gains on their bond holdings as a result of the ECB’s asset-buying program. Also, it’s not just a function of the ECB, he says, noting the U.S. long had rates near zero before the ECB.

Low interest rates are a “symptom of low growth and low inflation, it’s not the monetary policy consequence,” Draghi says. “If we want to return to higher interest rates,” higher growth and inflation is required, he says. Getting back to growth requires the current monetary policy stance.

At the same time, its worth noting real rates–interest rates minus inflation–are higher than they were 20 or 30 years ago, but that’s difficult to explain to savers, Draghi says, telling he questioner, “perhaps that’s your job.”

As you can see his responses were laced with the usual bureaucratic speak. Nobody in their right mind among average consumers cares about inflation adjusted interest rates. That's about as far form the real world as are these bureaucrats. It's a condescending remark, the same ploy used against the price of gold not being higher than it was in 1980.

His comment about pension and insurance funds is another dodge. A recent report noted there are something like 153 underfunded country pension funds today. Did the same savers who it would be sol difficult to explain real rates to cause this also?

And then there's  his "broadly positive" comment about the ECB's experience with negative interest rates. It's right of the waffle iron.

OVERNIGHT

Chinese shares overnight traded in a see-saw fashion as they seemed to be caught between two forces., more liquidity and the possibility of officials turning down the spigot for more monetary stimulation.

The Shanghai Composite Index opened down but veered into positive territory and last traded up 0.2%. The smaller Shenzhen Composite also gained 0.5%. Early trading showed an absence of Wednesday's drama when shared took a bit hit, declining at one point 4.3%.

According to one observer, there's a concern about liquidity and central bank easing policy. The PBOC has been dumping money into the system with various purchases to quell investor concerns about any liquidity squeeze and the possibility that the central bank at some point with have to back off these moves to add further market stimulation sooner rather than later.

In other markets, the Nikkei was up 2%, the Korean Kospi edged 0.5% higher, the Hang Send rallied 1.6% and the Australian S&P/ASX 200 traded 1% higher. The yen traded at 109.75 to the dollar providing some relief to the country's exporters. Oil traded down near $45.60 for Brent. But it was up on other news, taking some of the sting out of the breakdown of  a possible cut in production over the weekend in Kuwait

The rise in the Nikkei lifted shares to a 5 1/2 week high partly on the weakness in the yen and partly on investor hopes for more easing by  the BOJ. At one point the index hit 17,265.67, a high not seen since mid-March.

THE FICTION PEDDLERS

Here's more on the horrible state of the Chinese economy which is the major reason--though it will be denied--for the Fed's abrupt reversal on interest rates. It also part of the cheerleading from the closest friends of the Fed at the big Wall Street banks and MSM parrots who repeated what they're told.

China's credit growth in March (and $1 trillion surge in total social financing in Q1) is a "warning sign"according to billionaire George Soros, "because it shows how much work is needed to stop the slowdown." Speaking at an event in new York this evening, Soros commented on "troubling developments" in China, the anti-corruption drive's impact on capital outflows and the real-estate bubble "feeding on itself." His conclusion, rather ominously, was that despite all the naysayers and fiction-peddlers, China "resembles US in 2007-8," before credit markets seized up and spurred a global recession.

As Bloomberg reports, Billionaire investor George Soros said China’s debt-fueled economy resembles the U.S. in 2007-08, before credit markets seized up and spurred a global recession.

zerohedge.com/news/2016-04-20/george-soros-warns-china-resembles-us-2008-hard-landing-practically-unavoidable

WHEN IS EXACT HARDLY EXACT?

Yesterday we wrote about big banks and their reporting earnings that were made to look much better than they are by coming in above a lower benchmark, in some cases a lower one that had been revised down at least three or four times.

Well, here's a take from a report on the market today from Reuters that clearly shows how MSM tries to paint a rosier picture than the facts. It's an ongoing process and one as a savvy investor you need to be aware of. Here is our piece posted yesterday, IT WILL CONTINUE OR IT WON'T? 

Keep in mind as you read the below that the person quoted is from JP Morgan, one of the big six, and JPM and its fellow traveler Goldman Sachs just came out with more positive views about the economy and China. Yet, it would be harder than hard to find two firms more closely tied to the Fed.


Here are a couple of paragraphs from the site we've cited below you can read for yourself about what a train wreck China really is.

 
If there’s one thing global investors have come to expect over recent years, it’s China’s ability to generate unbelievable rates of economic growth.

Like clockwork, economic growth in the March quarter increased by 6.7% compared to a year earlier, smack in line with forecasts and continuing a trend seen in the previous five GDP reports — in which the figure either met or exceeded expectations by 0.1%.

This regularity is an irregularity in itself, ensuring widespread scepticism from many in financial markets, particularly as it takes just 15 days to generate the figure.

Whether you believe the validity of the government’s growth figures or not, the more overarching question many investors have is whether China will live up to its reputation as the global growth driver in the decades to come.

For every China bull out there, there now seems to be a bear — a complete about-face from only a few years ago when almost everyone was singing China’s economic credentials.

To Roy Smith, an academic at New York University, the breakneck growth seen in recent decades may be nearing its end, suggesting that he sees parallels with Japan’s build-up of bad loans in the late 1980s, which ended up hobbling the once high-flying economy.

We questioned these figures when they were first announced, especially the exact 6.7% one. With the second largest economy in the world to be that exact is most likely an impossibility. That's for openers. But here's another point about such excitability. Back in those high-flying dot.com bubble days, one of the largest darlings of the time, a big firm still around and highly recognized but hardly the big flyer it was then, reported earnings that for 14 straight quarters beat Wall Street expectations by a single cent.

Anyway, here the Reuters excerpt.

U.S. stock indexes were little changed on Wednesday as encouraging earnings reports offset oil prices sliding on renewed concerns about global oversupply.

Crude fell about 2 percent after Kuwaiti oil workers called off a strike that drove up prices and helped the S&P 500 breach 2,100 on Tuesday, about 30 points shy of its record high. A recent rebound in oil and the U.S. Federal Reserve's accommodative monetary policy helped the index recover from a steep selloff earlier this year. Investors are focused on the earnings season as they seek catalysts to drive stocks higher. Big-bank earnings reports last week were better than expected and helped lift sentiment.

"If earnings continue to surprise on the upside, you could see people ... join the rally and that money from the sidelines will move into the market," said Nadia Lovell, U.S. Equity Specialist at J.P. Morgan Private Bank.

Lovell expects the market to edge up on Wednesday, but cautioned that investors remained wary.First-quarter earnings at S&P 500 companies are expected to have fallen 7.6 percent on average and revenues are seen dipping 1.3 percent, according to Thomson Reuters I/B/E/S. http://www.businessinsider.com/china-economy-train-wreck-2016-4?utm

OVERNIGHT

What's was down on Monday, rallied on Tuesday and faded again on Wednesday. That's what Asian stocks looked like so far this week. Confusing to many and just plain upsetting to others. An end to a three-day strike by oil workers in Kuwait contributed to the chaos as many investors try to figure out what's their next move.

Reuters reported: Oil prices again led the way by reversing much of Tuesday's sharp gains. Brent crude LCOc1 shed 83 cents to $43.20 a barrel, while U.S. crude oil CLc1 sank $1.02 to $40.11.

"In the near term we are going to see more downward pressure than upward," said IHS analyst Victor Shum. [O/R]

The retreat dulled risk appetites and dragged MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS down 0.5 percent. It had started at its highest since early November.

Chinese markets were no help as stocks in Shanghai .SSEC slipped 2.5 percent, with every sector from financial to telecoms in the red.

Japan's Nikkei .N225 clung to a 0.3 percent gain thanks to the recent pullback in the yen but was running into profit taking above the 17,000 barrier.

On Wall Street the Dow .DJI ended Tuesday with gains of 0.27 percent, while the S&P 500.SPX rose 0.31 percent to close above 2100 for the first time in 2016.

Gold moved higher hitting $1,252.30 an ounce while other commodities copper, iron ore and silver made gains. The upswing in such aided commodity currencies like the Australian dollar as it moved to $0.7827 while the U.S. dollar against the yen traded at 108.93. The euro moved to the $1.1369 level as traders await the ECB meeting this Wednesday.

IT WILL CONTINUE OR IT WON'T?

If you've hung around markets for a while you're most likely familiar with much of the jargon.

With the Dow recently crashing the 18,000 level, the index is up 15% since it's early 2016 low in February, supposedly because investor fears have receded at least for now about the U.S. economy not to mention a host of other things like what's up the Fed's sleeve on interest rates.

Recession worries were rampant and everything the Fed has done with its usual doctored data has been to quell that perception. Recent earnings reports are another case in point as MSM one of the Fed's major supporters spins these reports as favorable as they think they can get away with. Two recent examples were IBM and Bank of America.

Another case is big bank Morgan Stanley which beat analysts' expectations for the quarter, but who cares where those expectations end if they were ratcheted down, as frequently is the case, beforehand. Profits at the firm dropped 53%. This is an ongoing Wall Street game a lot like whistling past the grave yard at night. Both have their purpose.

It turns out JP Morgan and Wells Fargo turned in similar performances, hailed by MSM as besting phony expectations. Today, Goldman Sachs became the last of the six U.S. big banks to report pathetic profits.www.yahoo.com/news/goldman-sachs-profit-slumps-fourth-straight-quarter-114645813--sector.

(Reuters) - Goldman Sachs Group Inc's <GS.N> quarterly profit fell by more than half and revenue slumped to its lowest in more than four years as market volatility hit the Wall Street bank's bond trading and investment banking businesses.

Goldman, wrapping up a dismal quarter for big U.S. banks, reported a 40 percent drop in net revenue, reflecting declines in all of its main businesses.

As with other banks, Goldman's trading revenue was hit by sliding commodity and oil prices, worries about the Chinese economy and uncertainty about U.S. interest rates.

Highlighting the challenges facing the bank, Goldman's return on average common equity - a measure of how well the bank uses shareholder money - was 6.4 percent in the quarter, down from 14.7 percent a year earlier. (http://bit.ly/22KtaAI)

Many investors think ROE should be at least 10 percent to cover the cost of capital.

Longtime traders know you take markets down to shake out the weak hands and you push them up to bring in the fear-of-missing-out greedy ones. No one knows for sure when this is going to happen, but it will.

If one looks at this market on an historical evaluation it is rich by nearly every measure. Part of the MSM meme to explain away these dangers is the risk on, risk off one. It's a perverse form of going further out on the limb to capture yield only here it's about capturing some dependable yield with perhaps some growth tossed in along the way.

That meme alone is pushing up valuations to questionable sustainable levels. Most of these stocks are part of the Dow and S&P 500. A recent example of this is the largest PC state retirement fund in the largest PC state, California, is now considering investing in tobacco companies. Phillip Morris International, Inc. now trades at 21 times forward earnings estimates and carries a decent dividend. That P/E is the highest since the bubble era of the late 1990s.

And despite all the PC rants against smoking and smokers, it appears the decline in those who imbibe has tailed off and now even among the younger crowd it's becoming at least somewhat fashionable again. Like this upcoming presidential election, this form of investing is all about the status quo. It will continue or it won't?

OVERNIGHT

It was an up day of trading for most Asian markets overnight as shares in the Nikkei 225 led the way, advancing 3.5% gaining back most of what it gave up a day earlier. The deal that turned into a no deal among oil producers over the weekend sent downward ripples through Monday's markets coupled with the earthquake that tore through earlier in the week.

The yen weakened against the dollar helping fuel Tuesday's rally. Exporters rebounded owing to the weaker yen as did bank shares.The dollar gained 0.2% against the yen at 109.10 after hitting a one-week low Monday at 107.75.

Two other markets that rallied were the Australian ASX 200, up 1.13%, and the Hang Send, up 0.84%. The Kospi also edged slightly higher by 0.15%.  For China it was a slightly different tune with the Shanghai Composite down 0.1% while the Shenzhen Composite fell 0.12%.

Brent crude trade at $42.83 a barrel down slightly as some were saying the correlation between share and energy price broke down. The WSJ reported the following:

Remember when what was bad for oil was bad for stocks, and vice versa? That isn’t true anymore.

For investors, this indicates the adverse feedback loops that were rattling markets earlier this year have, for the moment, been broken. A good thing—though it may also make the Federal Reserve more comfortable about raising rates.

Not so long ago, the easiest way to figure out where U.S. stocks were headed was to look at oil. There were only two days in the 20-day trading period that ended Feb. 12 that the front-month Nymex crude oil contract and the S&P 500 went in opposite directions. The correlation between daily oil and stock price changes during that period was an atypically high 0.74, with 1 representing perfect correlation and zero no relation whatsoever.

SIR ALAN SPEAKS

Sir Alan speaks again.

This time in a rare incident of truth-telling. Maybe he's full up on $100K and higher honorariums to deliver what the in-crowd loves like to hear. Quantitative easing had only one purpose, that of wealth transfer.

He conveniently leaves out it was a direct hit on the pocketbooks of the retired, the poor and the less fortunate. War on the poor, the disenfranchised and the fixed-income group. They probably won't want to utter it, but we'll do it for them: Thanks, Alan. Thanks, Janet. Thanks, Ben.

Now you know in part why the Federal Reserve Bank is the most dangerous institution in America when it comes to your liberty, your independence and your financial future.

To paraphrase Voltaire: If you see a central banker jump out of a window, it's probably a good idea to follow because there's most likely a profit in it for them and their wealthy friends.

zerohedge.com/news/2016-04-18/greenspan-admits-feds-plan-was-always-pushing-stocks-higher

SCANDAL WITHIN A SCANDAL

Like any good political scandal there's usually a scandal within a scandal

In the wake of the phony leaked Panama Papers scandal here is a brief excerpt from The Daily Bell that accurately depicts what all the sudden outrage is really about. Once again it's another version of the old ploy of tightening the garrote around the windpipe of the many to catch the so-called evil few.

Since some of the greedy wealthy crowd have abused their rights to privacy, we'll take away yours along with theirs. It's part and package of the giant globalization condom--one size fits all.

From U.S. Treasury officials arbitrarily rewriting the rules to big bureaucrats from the International Monetary Fund to the G20 to the World Bank, all were in a staged, indignant huff much of last week. Something must be done. And now. Now, now is a word we didn't realize was even in the vocabulary of this noted foot-dragging bunch. We'd say go figure, but that would date us. Besides, that's what we're suppose to let them do.

We are supposed to believe that the entire spectrum of international political and financial executives were so incensed with what the Panama Papers revealed that they were able to act in concert within a couple of weeks of the initial hacks.

This is in stark contrast to most international gambits that take months and even years to orchestrate.

And, yes, it is really unbelievable.

The entire Panama Papers leak is unbelievable. The 11.5 million email leak seems carefully calibrated to embarrass US and British “enemies” – especially political opponents such as Boris Yeltsin.

And accusations that Russia itself organized the leak are almost laughable given the recent reactions emanating from Washington DC.

More and more it becomes difficult to deny that a sub stratum of organized globalism exists that is orchestrating a global regime of rules and regulations. These will affect seven billion people around the world while exempting a relative handful of families and individuals doing the orchestrating.

The mainstream media is habitually blasé about what’s taking place and the way the global regime is growing – quickly and powerfully.

It is the biggest story in the world and yet only the alternative ‘Net media gives it the singular urgency it deserves. And even then there are plenty of evolutions that are not fully noted.

This would seem to be one of them. The ramifications of what just happened in DC are enormous. Financial and investment privacy – a hallowed right for centuries if not millennia – has just been outlawed.

You, of course, are reading this article, and perhaps you do understand the heinous ramifications of what just occurred.

For anyone who believes this was anything but a planned, staged event, keep on smoking what you've been smoking. It's working.

IT'S ENDEMIC

There's a lot of screaming of late on both sides in what could be labeled the pot calling the kettle black among the wealthy, left and right. And the recent Panama Papers added to the fray.

Here's an  interesting take on the subject from the UK. This time those wealthy on the left being called out.

The Left-wing war on privilege is hypocritical to say the least. Labour is not a vanguard of equality. Its ranks are stuffed with well-heeled family members, including the sons of former leaders – such as Stephen Kinnock MP, who is also married to a retired Danish prime minister. Lord Kinnock, his father, reportedly earned a total salary of £1.85 million as an EU commissioner and was much criticised for the pay-off he took when he stepped down. The Miliband brothers rewrote their late father’s will, cutting their inheritance tax bill.

“Crusaders for comprehensive schools send their children to grammars and private schools. Defenders of meritocracy put their own children on the payroll.”

The Left ought to be a lot more careful when talking about tax. Jeremy Corbyn has tried to exploit David Cameron’s perfectly legal and ethical investment in an offshore company to trigger a phony war against tax dodging. But recent investigations into the arrangements of another former Labour leader suggest that the Left might be casting stones inside a fragile glass house. It has emerged that Tony Blair used a secret trust to manage his multi-million pound fortune. Interest-in-possession trusts do not have to file accounts, and can offer significant tax advantages, including the possibility of passing on wealth to children free of tax. Mr Blair’s lawyers, however, spoke only of his desire for privacy in setting up the trust and insist that it does not give him a tax advantage. More:

telegraph.co.uk/opinion/2016/04/17/the-left-has-double-standards-on-wealth

The same can be said for the U.S. People get it.