OVERNIGHT

Couple disappointing U.S. job numbers with weak-than-expected Chinese trade data and you get opening market weakness in Asian shares Monday. That 's what one could consider two strikes against investors coming from, as it does, the two largest global economies.

Add in Canadian wildfires and the fallout they cause in the oil patch by driving up the price and markets have a case of the Monday morning blues as Australian shares dropped 0.4%, the Kospi retreated 0.6% and MSCI's broadest index of Asia edged down 0.2%. The trade data impacted Shanghai shares as they fell 2% with only the Nikkei fighting the trend on the yen's recent upswing weakened. The index rose0.5%. The number on China's exports fell nearly 2%, coming in at 1.8% officially.

The dollar will most likely have much to say about these markets, especially if it spikes up. But many believe that a deal has been cut by the G3 to keep the dollar weak at least going into the upcoming presidential election.  The WSJ reported:

The powerful rallies that have lifted stocks, crude oil and emerging markets for the past three months have one important thing in common—the falling dollar—and investors are growing anxious that it could prove to be the weak link.

While the dollar is down 4.5% this year and near a one-year low against a basket of currencies, other investments have surged. U.S. crude prices are up 69% from their February lows. Gold was up 16.5% in the first quarter, its best in three decades. And emerging-market stocks, bonds and currencies have enjoyed double-digit gains in 2016.

Analysts at Morgan Stanley measured the correlation between a weak dollar and their own index of investor appetite for riskier assets. They found it near its highest level in 20 years.

The concern is that it is a relationship that could easily go in the opposite direction. The dollar is heavily dependent on perceptions of what the Federal Reserve will do with interest rates, and those perceptions could change quickly. Meanwhile, analysts warn that the fundamentals for oil, emerging-market assets and even many stocks look too weak to support the recent price gains on their own.
 

RECKLESS POLICY

They are not going to take this market down before Nomember.

After that a 20% correction would be healthier than a 3-day stay in Maui.That wouldn't take all the excesses out this madness, but it might help. We say might because going all the way back to 2008 and rolling forward to now little if anything has really changed or, to use a more severe, unwelcome note, been corrected. Messes get made, never corrected. It's rule number one in the bureaucratic code.

A famous American general near the end of his life said: "Old soldiers never die, they just fade away." That's the end game hope of every bureaucrat on the planet for the messes they create. And there are few worse messes than a monetary mess. You should know that by now. You've been in one for nearly a decade.

Sometime this summer you'll have your cue: here are some things you might want to consider: take some profits, sell some covered calls, stagger a sprinkle of puts to average the cost of your protection and pull your hard helmet out of the closet if you already have one. If not buy one. But before you do any of that, however, way before, buy some gold, physical and otherwise. And don't let MSM frighten you away from commodities. Scarcity pushes up prices. Scarcity and ugliness are fraternal twins. Just to remind, things could get really ugly.

This is our caveat--and our disclaimer--what we do, or anyone else for that matter, might not be right for you. Corrections are as much a part of cycles as good times. The folly is not in our stars but in those who want to outlaw corrections as if they are unnatural and don't need to be a part of the way things go.

We have lived in an historical period of reckless global monetary policy. To think there won't eventually be some pushback--perhaps quite sever pushback beyond the norm--is about as unnatural as the monetary policy we have lived through.

JOBS REPORT: YOU DECIDE

MSM never tires of trying to bolster public confidence and cover for the utter madness of U.S. monetary policy.

When they can't find anything concrete they turn to a convenient source, jobs numbers. In Friday's WSJ, "Job Market's Underappreciated Strength,"  Steven Russolillo wrote: "In the lackluster, slow growth economy, at least one thing isn't appreciated enough: the steadiness of monthly job gains."

He then covers his you know what and attempts to minimize any upcoming disappointment in the April number set to come out obviously after he filed his story by saying any negative surprise "....will be viewed as an aberration rather than the start of something more problematic."

He the noted it's important since it's the next to last such report before the Fed's June meeting where some think the Fed could surprise and hike rates. Well, the report is now out. Economists were expecting 205,000, a number in line with recent ones. Russolillo points out how favorable these reports have been the last six months averaging 246,000 jobs, the best six month rolling average since February 2015."

But as the man said, "Not so fast." Reuters said that the Labor Department showed the economy gained 160,000 jobs in April, "the fewest in seven months, and Americans dropped out of the labor force in droves, signs of weakness that cast doubts on whether the Fed will lift rates before the end of the year."

Gold immediately on the news rallied 1% before the Fed sent out one of it heavier hitters, New York Fed President William Dudley who told the New York Times that "two rate hikes in 2016 remain 'a reasonable expectation," causing gold to give back of its gains. Gold is a surrogate now for the direction of interest rates as long as this uncertainty continues, rallying on each Fed's delay and indirectly reflect a growing lack of confidence in central bankers.

Dudley's appearance itself was questionable. Was it spontaneous or just waiting in the wings if the number came in sour? Once the job numbers came public stock market around the globe faded and yields on Treasury paper fell. And perhaps less noticed silver and other metals also rallied earlier in the week.

THE END OF APRIL

What a difference a few short months makes.

If you've ever run a portfolio you know what we're talking about. And if you're one of those so-called political soothsayers who predict election outcomes you also are getting the idea.

Coming into this year the investment landscape looked straight forward enough. In December the mighty Fed had not only spoken, it actually acted, hiking interest rates 25 basis points and calmly projected at least four more well-spaced hikes ahead. The mighty emperor QE after a longer life expectancy than anyone but a government bureau could dream of was dead.

In the presidential primary festival that happens every four years many of the political pundits who live, breathe and spout off from their editorial caves poked fun and popped jokes about a well known, brash New York businessman with a strange blondish soufflé hairdo. He couldn't make a splash in a swimming from a ten meter board. And winning his party's nomination, well, that only happens in Hollywood. That's for some middle-aged, uneducated Caucasian Iowa tow truck drivers who butcher what's left, if anything, of decent grammar every time they speak.

The dollar was set so most believed to appreciate against the yen and the euro, the Fed would continue its tightening act and emerging markets should be avoided more than long john underwear in July. But then along came not a fellow named Jones but slower economic growth than most expected including those lovers of everything Chinese.

Bonds continued to rally and consumers either forgot or couldn't afford to spend their expected savings from cheaper gasoline, no doubt much of it siphoned off by soaring rents; and that magical 2% inflation number central bankers everywhere worship so much proved harder to find than a California virgin.

In currencies linear thinking took a drubbing when the Bank of Japan acted not to act. First quarter corporate earnings turned out more disappointing than our old girlfriend and that was with most still wearing their heavy Wall Street makeup. Goldman Sachs, the newest investment banking friend to every proletarian, presciently noted the soaring yen posed an "existential challenge" to the Bank of Japan.

All of this took us through just the end of April.

OVERNIGHT

Last night just after it was announced we discussed the Reserve Bank of Australia cutting its benchmark interest rate 25 basis points to 1.75 and investors need to keep an eye on market reactions.

Well, today we got one, according to the WSJ, as: Stocks and oil futures tumbled and Japan’s yen hit its highest intraday level against the dollar since October 2014, as investors struggled to reconcile recent market gains with unease over the pace of global growth.

The latest tumult erupted after the Reserve Bank of Australia on Tuesday cut its benchmark rate by one-quarter of a percentage point to 1.75%. The move reflects soft inflation and economic sluggishness driven in part by weak demand from China, the largest buyer of Australian exports. Adding to concerns were a drop in Chinese manufacturing and signals that eurozone growth is slowing more than previously forecast, traders said.

Tuesday’s developments reflect worries that have shadowed a surprising 2016 recovery in the prices of stocks and many commodities. Global growth has slowed this year, prompting major forecasters to cut their outlooks. Yet in recent months the decline of the U.S. dollar and easier policy from global central banks have helped fuel gains in many riskier assets, allowing the Dow industrials to recover from a decline of as much as 10% earlier this year.

In other markets the Hang Send was down 1.3%, the Australian S&P/ASX 200 shaved off 1.4% after the above-mention rate cut, the Korean Kospi edged 0.79% lower and the Shanghai Composite Index slipped 09.4%. Another problem hanging over area banks, though not much talked about, is the gap between loan loss reserves and bad loans should things get worse, estimated by some at around $60 billion should we return to 2008-like conditions. An estimated third of that gap is in one country, China.

SOARING RENTS

You can get caught up all you want in the different ways inflation gets measured. Much of that is just a form of intellectual masturbation: Economists writing for other economists, academics writing for other academics and so forth. In truth, the way the Fed measures inflation has over the years had more facelifts than a handful of aging Hollywood stars.

Real live everyday people have to have shelter and they have to have energy for a variety of reasons. Though we would take exception with some of what the author concludes here, this is an article you can read and decide for yourself. We seriously doubt that the government's data, as ugly as it is for renters, captures certain outlying areas like parts of Southern California  and San Francisco where rents have soared.

marctomarket.com/2016/05/great-graphic-us-rents-and-core.

IT'S ALREADY HERE

It isn't this bad in the U.S. yet, but with its love affair with PC it's getting close.

The intolerance of others' views and choices that rattled various campaign gatherings the past few weeks coupled with the barrage of editorial page articles trying to derail the Trump train are just two examples of where we really are as a people and a nation.

 More significantly, it's further evidence neither as a nation nor as a people are we in any condition to tell others around the globe how to conduct themselves. That's a good part of the push back in this election too many--particularly among the elitist crowd--don't get or don't want to get.

If you have any doubt that China's official economic data can't be trusted this should remove all questions. We have been saying for years they're doctoring those numbers even in the good times, but it's more essential to do so in bad times. And China is full of bad times.

There's plenty of other evidence coming out of China about people who criticize or disagree with the government being threatened, quieted or jailed. Don't think it is not happening here. Climate change is a classic example.  One particular U.S. senator has suggested bringing legal action against anyone,scientists or otherwise, who now questions climate change. MSM's persistent covering for an incompetent Fed and it's dangerous monetary policy is another.

That's just one more reason why this upcoming election will be one of the most contentious but important in the history of this nation. There is a strong move afoot to take the reins of controlling the government further out of the hands of the electorate by rewriting the Constitution and centralizing that power in Washington.

BEIJING—Chinese authorities are training their sights on a new set of targets: economists, analysts and business reporters with gloomy views on the country’s economy.
Securities regulators, media censors and other government officials have issued verbal warnings to commentators whose public remarks on the economy are out of step with the government’s upbeat statements, according to government officials and commentators with knowledge of the matter.

The stepped-up censorship, many inside and outside the ruling Communist Party say, represents an effort by China’s leadership to quell growing concerns about the country’s economic prospects as it experiences a prolonged slowdown in growth. As more citizens try to take money out of the country, officials say, regulators and censors are trying to foster an environment of what party officials have dubbed “zhengnengliang,” or “positive energy.”

In the past, Chinese authorities have targeted mainly political dissidents while commentary about the economy and reporting on business has been left relatively unfettered in China in a tacit acknowledgment that a freer flow of information serves economic vitality.

But Beijing has moved to reassert control of the country’s economic story line after policy stumbles that contributed to selloffs in China’s stock markets and its currency last year fed doubts among investors about the government’s ability to navigate the slowdown.

 

IT WON'T STOP

"When everyone is thinking the same thing nobody is thinking."

That insightful gem was tossed out by General Dwight D. Eisenhower who led the Normandy  invasion across a stormy Atlantic when nobody thought it was possible, when conventional thinking recommended waiting until the skies cleared. Later when he became the 42nd president, he gave us another gem. This time about following through.

As a former five star General and Commander in Chief, he was use to giving orders and he was even more use to seeing those orders carried out. After being in office awhile he quipped how much it surprised him hardly anyone in Washington carried out their orders. That was more than half a century ago.

If you think about a slightly expanded definition of orders you'll see that's what elections are suppose to be about, elections include every level, local, state and federal. In this case the orders of the people, like them or lump them. There are primarily three candidates vying in the upcoming November election. If you took the promises and themes of all of them only a third, if you're lucky, will turn out to be honest. And most likely fewer than half of them will ever see the light of action.

Politics gets passed off as the art of compromise. That's old-time BS purer than new born baby poop. The people don't take orders; they give them. It's called elections. What's going on now isn't new. In fact, it's old, really old and tiring. It goes by another name, Democrats and Republicans, the two-party system that's as socially insolvent as most Italian banks are financially. And it will never stop unless you stop it. If you're too lazy or indifferent, then forget about your dreams and aspirations, and those of your offspring too, just get in line to collect your chit and spend it every week at the company store.

Another way in our view of saying it, is when everyone is doing the same thing nobody is doing anything. Think central banks here and a host of others like pitiful management. Names like Puerto Rico, Detroit, Chicago, Atlantic City, Stockton, San Bernardino, to cite just a micro list.

It's in the genetic code of politicians and managers. They get hooked on streams of cash flow they think extend into perpetuity. Or at least until they've ridden into the sunset. They never see or don't want to see the huge hangover coming after the wild partying. Big corporations and whole market sectors like banking and energy and real estate should come to mind. And let's not forget one of the biggest of the Big Daddies, big pharmaceuticals. People rant and rail about corporatism, but the biggest corporation is global government.

The U.S. manufactures more MBAs a year than it does industrial products. It's its own industry. This nation for most of its existence has been run by those with Ivy League pedigrees. To put it kindly, their track record has been less than sterling. It won't stop unless you stop it. Goldman Sachs' new found interest in the proletariat is a case in point. If you see a Goldman Sachs employee approaching walking down the street, you'd be wise to cross over to the other side.

Recognize that globalization is your ticket to the company store. First a one-currency world then a cashless one. Every movement has a hidden meme or two. Convenience and justice are the public ones for a cashless society. More centralized control and less liberty the hidden ones. It won't stop unless you stop it.

A DEAL DONE

We mentioned in our last Overnight that the U.S. just made it harder for Japanese officials to intervene in the currency market to devaluate the yen.

Here's a piece from CNBC about gold and currency manipulation. Note Christine Legarde's comment. She heads the IMF. What do you think she's going to say: "Yes, you've finally caught us with our hands in the currency cookie jar."

Even if she's not jawboning, which we think she is, a deal could be cut without her knowledge. The only damage being done is to her ego.

So which is it: A deal done or a done deal?  What we know is if they're manipulating currencies, they're manipulating gold indirectly. Are they manipulating the price of gold? Deutsch Bank gave us that answer a short time ago.

cnbc.com/2016/05/02/jim-rickards-says-for-gold-prices-will-go-
higher-as-dollar-weaken.

OVERNIGHT

Forget risk on, risk off. The new meme is doubt in, faith out as the Japanese yen continued its climb against the U.S. dollar making a new18-month high Tuesday and investors lose confidence in central banks and their ability to create growth via monetary policy.

If you're a gold investor you see the handwriting clearly. If you're not don't wait too long to put a net under your purchasing power. The debasement of fiat currencies is on. Gold and silver have been two of the better investment in 2016 to date.

To add to the problem China's latest PMI number, minus any attempted MSM spin, continues what has been a bleak story for 14 long months as demand stagnated in April and further job losses mounted. The Caixen purchasing managers index dropped in April to 49.4, below the neutral 50 level indicating further global weakness since China represents the second largest global economy.

All of this wasn't lost on equity investors. Reuters reported that markets in Hong Kong and Taiwan led regional losers down after the report. One of the few bright spot was Australia where the market was up 0.8% ahead the the central bank meeting where economists were not expecting any rate changes. But should one happen it would further add to investor fears about global growth.

In breaking news, RBA cut it's rate 25 basis points to 1.75%. The fallout to investor confidence remains to be seen, but is one investors want to keep an eye on.

In a side bit, noted by Reuters, "The U.S. Treasury put Japan on a new currency monitoring list with four other countries that have large trade surpluses with the United States, seen making it harder for Tokyo to intervene in the markets to stem the yen's gains." Shades of a trade war.