THE WEEK AHEAD

You could call it the week ahead, but it really has the look of a Fed week as some of the big guns, past and present, speak. This should tell you something. No doubt some will offer these speaking engagements, like sporting events, were booked in advance.

Maybe and maybe not? One interpretation is they are panicking because they know they're behind the curve. It also raises the question about a deal being cut to bailout certain economies. One must recall these are bureaucrats no more immune from irrational acts than anyone else.

The upcoming week.www.marketwatch.com/story/fed-speakers-data-to-take-over-as-earnings-slow-to-trickle-2016-05-21

With earnings season all but over, investors will turn their full attention to economic data and how Fed members are parsing that data in their decision to raise rates. On the heels of Fed minutes that raised the possibility of a June rate hike, the raft of Fed speakers this week will have particular influence on markets, said John Canally, chief economic strategist for LPL Financial, in an interview.

“They’re all going to be pushing for a hike, and we might get more hawkish talk,” Canally said.
On Monday, nonvoting San Francisco Fed President John Williams will speak about monetary policy in New York, and St. Louis Fed President James Bullard, a hawkish-leaning voting member, will deliver a speech in Beijing. Philadelphia Fed President Patrick Harker, a hawkish-leaning but nonvoting member, is also scheduled to speak on Monday and Wednesday.

On Wednesday, nonvoting members Minneapolis Fed President Neel Kashkari and Dallas Fed President Robert Kaplan also are scheduled to speak. Bullard speaks again on Thursday in Singapore, and Fed Gov. Jerome Powell is set to speak about the economy in Washington, D.C., on Thursday. Then, on Friday, Fed Chairwoman Janet Yellen is scheduled to appear at Harvard University on Friday, along with former chairman Ben Bernanke.

As far as what data will be of interest, Canally said he’ll be looking at Markit purchasing manager’s index data for May on Monday for signs that the manufacturing sector is stabilizing. In that vein, Thursday is also a big data day with the April durable goods report.
Canally, however, doesn’t see a June hike as likely because Britain’s national referendum on whether to leave the European Union, or the so-called Brexit, won’t come until June 23, a week after the Fed’s next scheduled policy meeting.

OVERNIGHT

UPDATE: Euro zone May flash composite PMI falls to 52.9 versus 53.0 in April (Reuters poll was for 53.2)

CNBC.com staff | @CNBC

Below are four quotes from stories on Reuters about Japan overnight. It should give you a decent idea about how a couple of the globe's largest economies are doing, China and Japan but also some emerging market ones.

The yen went up as Japanese stocks went down. The Nikkei was down 1.1% in early trading before recovering a bit as concern about a future tax hike might still be on the table after some investors believed otherwise given the weak economic numbers.The Shanghai Composite was up 0.52%; the Hang Send edged higher 0.34%; Singapore up 0.28%.

The Kospi was higher slightly, 0.3% and Australia's ASX 225 remained flat.Some tension cropped up between Japan and the U.S. over the weekend about whether the BOJ should be able to intervene in the currency market to stem the yen recent rise.

Asian shares rose on Monday after a solid session on Wall Street, while the dollar moved away from recent highs though remained supported as investors bet that the U.S. Federal Reserve was on track to raise rates sooner rather than later.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.6 percent, after U.S. shares rallied on Friday, shrugging off growing expectations of further tightening in monetary policy.

But Japan's Nikkei stock index .N225 extended losses, shedding 1.1 percent on worrying economic data and reports that Japan's sales tax increase would proceed as planned. Data released before the open showed Japan's exports tumbled 10.1 percent in April from a year earlier, in line with expectations but down for a seventh straight month, reflecting sluggish demand from China and emerging markets. Imports fell sharply, which in turn boosted the country's trade surplus above expectations. 

Japan's exports fell in April at the fastest pace in three months as a stronger yen and weakness in China and other emerging markets take their toll on the country's shipments, boding ill for growth prospects for the current quarter.Japanese manufacturing activity contracted at the fastest pace in more than three years in May as new orders slumped, a preliminary survey showed on Monday, putting fresh pressure on the government and central bank to offer additional economic stimulus.The Markit/Nikkei Flash Japan Manufacturing Purchasing Managers Index (PMI) fell to 47.6 in May on a seasonally adjusted basis, from a final 48.2 in April.

THEM OR YOU

 Is it really obscene to note that there have been several attempts either to knit Europe together or establish hegemonic domination by one country? Is it obscene to point out that whether violent, peaceful or idealistic, every attempt ended in failure because an entire continent is too complex to lend itself to seamless integration? And would one brand as an obscenity the observation that the EU is currently over-centralised, inflexible and causing misery for some of its members? We think these problems should be articulated and discussed without fear telegraph.co.uk/opinion/2016/05/22/is-it-really-obscene-to-point-out-the-faults-with-the-eu.

The above quote from an editorial piece in today's UK Telegraph, though many will try to deny it, is most relevant to the up-coming U.S. presidential election for more reasons than one can cover here. Nevertheless, the parallelisms are there.

Is it really obscene that the status quo of government in the U.S. has harmed, in many cases callously, innocent people whose only possible transgression is the desire to live out their gift of life in their own way without harming anyone else? Is it really obscene to point out the corruption and lack of honesty in Washington and on Wall Street and in MSM?

Is it really obscene to point out the baggage, much of it well documented, these candidates are carrying in their quest for public office? Is it really obscene to note one of them is a self-professed, public announced socialist who spent his honeymoon in the Soviet Union? Is it really obscene to note that these two, tired, trite, tedious bankrupt parties have been running the show for years and this is where we are today? Is it really obscene to point out that super-delegates chosen by insiders get to determine a candidate's fate in either of these two phony parties that mouth reams of verbiage about democracy and open elections.

This is the best that America can offer?

The parallelisms between the EU and the U.S. in the above quote are more than appropriate--over-centralized, hegemonic, debt-ridden, in-tolerant, inflexible, misery-provoking, sovereignty-disrespecting and secretive.

Whether you're in the UK or the U.S. this is your election year. We are not telling anyone how to vote. Either individually or collectively, this is your future your voting. Once these bureaucrats, politicians and elitists get these elections safely behind them, you can expect something big. They say preparing to prepare is half of any struggle.

Believing that all these central bankers can print all this fake money out of thin air without any serious consequences will qualify you for a seat at next January's meetings in Davos. Maybe one of the topic there will be who gets to define obscene, them or you?

THE IMBALANCE GROWS

What do we know about debt? Well, like most things in life, it can be good or bad. You can draw your own conclusions. We are just making the point, as we have before, low interest rates have encouraged lots of kinds of debts, not all of it transparent.

As this chart illustrates the imbalance between cash and debt is growing during what has been quite good times for equity and bond markets. It's from businessinsider.com/companies-masking-66-trillion-of-debt-2016-5?

"At the same time, the imbalance between cash and debt outstanding we reported on last year has gotten even worse: Debt outstanding increased 50x that of cash in 2015," wrote Chang and Tesher.

"Total debt rose by roughly $850 billion to $6.6 trillion last year, dwarfing the 1% cash growth ($17 billion)."

To be fair, Chang and Tesher do mention that the $1.84 trillion in cash that the over 2,0000 companies they analyzed are holding is the largest amount ever. The issue is, a big pile of cash doesn't help mask the much, much larger mountain of debt.

Even more worrying, according to the analysts is the distribution of cash and debt among the companies they covered.

"Removing the top 25 cash holders from the equation paints an even more concerning picture: Total debt rose $730 billion in 2015, while cash declined by $40 billion," wrote Chang and Tesher.

 Now to be fair, cash isn't the only way to pay off debt. If necessary, companies can liquidate assets or refinance in order to pay creditors beck. Doing so, however, usually means that the company is in big trouble and is much less preferable.

In S&P's case, one of the key factors used to determine a company's credit rating is the ability to pay down debt. So as the cash to debt ratio gets even more out of whack, debt problems could be around the corner.

"Given the record levels of speculative-grade debt issuance in recent years, we believe corporate default rates could increase over the next few years, especially given diminished growth prospects in China, weak commodity and energy prices globally, and the sizable universe of lower-quality non-financial corporate debt outstanding," said the report.

Therefore, the amount of debt and cash on hand to pay for it is not particularly encouraging.

How did this happen?

According to Chang and Tesher it's all about investor appetite. As we've hit on before, the so-called reach for yield among investors has increased the appetite for higher yielding bonds. These companies have clearly obliged, opting to issue debt in order to fund operations or return cash to shareholders.

"This jump in debt reflects the scant resistance borrowers faced from yield-starved investors as companies pursued acquisitions and returned cash to shareholders," said the report.

Some have said that this has led to a massive bubble in the bond market, or it could just be a cycle. Regardless of its future ramifications, it is by any measure quite a lot of debt.

What do we know about imbalances? Well, like most things in life, we know they usually sooner or later get corrected.

JUST FOR OPENERS

It shouldn't surprise that MSM gloats over every tiny glimmering bit of economic data like recent existing home sales rising for the second straight month, trying to spin such in as positive light as they can.

We've said before and we'll say it again most of MSM are Keynesian shills for the Federal Reserve. We've said before and we'll repeated it: The Fed in particular and central bankers in general are clueless with the Fed given it recent warning about a June or July rate hike, looking for an exit. They need to CYA and rescue their friends in big banking.

Along with the spin about existing home sales or whatever, these purveyors of bureaucratic nonsense usually toss in a line or two about steady job growth and low interest rates. Well, here's something you might want to read about low interest rates and how effective they really are in revamping economic growth. businessinsider.com/the-world-economy-is-running-on-monetary-fumes-2016-5?

And here's a quote from the article to whet your reading appetite.

As our new Council on Foreign Relations Global Monetary Policy Tracker shows, a record 23 countries — accounting for a quarter of world GDP — now have central-bank policy rates of zero or less. A further six — including the United States — have policy rates of 1 percent or less. This means that the scope for monetary stimulus using conventional tools, such as policy-rate cuts towards zero, is — as the graphic below shows — nonexistent or limited in nations accounting for 60 percent of the global economy.

But what about unconventional tools?

Central banks in Europe and Japan have shown that monetary policy rates can go below zero, but there is a lower limit. This is because banks and individuals can switch to holding physical cash — which pays zero interest — instead of deposits earning negative interest. Holding cash is not costless, particularly large sums that need to be stored and insured, which is why slightly negative rates can potentially be effective.

Just in case you don't get it: Investments--yes, we said investments--like putting cash into zero interest rate holdings and the notoriously MSM maligned-pay-nothing yellow metal, gold, are the actual high yield investments here. 

Both are the worst nightmare for bureaucrats and central bankers everywhere who want nothing more than you to open your already strained wallets and spend more and take on more debt to bail their pathetic butts out. Unlike their banker friends, however, they won't be around to bail you out.

These people subscribe and want you too likewise to swallow the belief that there is no such law as the law of limits. With monetary stimulus already there, you're already hearing from the Keynesian crowd to roll out their last supposed big gun, fiscal stimulus. In short, pile more debt on the heads of already drowning taxpayers.

That's should remind of an old song, "Hard Hearted Hannah." She was last seen down at the seashore with a great big pan pouring water on the head of a drowning man.

The world is drowning in debt. Debt has a lot of different names, like a thousand trillion derivatives afloat out there. And that's, just for you poker players, for openers.

OVERNIGHT

Is it June or July, the next interest rate hike?

That's the message investors heard Thursday from New York Federal Reserve Bank President William Dudley pushing the DJIA and the S&P 500 to two month lows before rallying a bit. It was the third straight day the Dow finished lower.

The WSJ reported: The New York Fed's William Dudley, a permanent voting member of the central bank's rate-setting committee, said there was a strong sense among Fed officials that markets were underestimating the probability of policy tightening and that the bank was on track for a rate hike in June or July. Dudley said he was "quite pleased" investors had apparently increased bets that a rate hike would come soon.

Dudley's comments came a day after minutes of the Fed's April meeting revealed that most policymakers felt a rate increase might be appropriate as early as June.

Markets are pricing in a 32 percent chance of a rate hike in June, according to the CME FedWatch tool, up from 15 percent on Tuesday. A majority now expect a rate hike at the July meeting.

The Nikkei was up slightly ahead of the G7 meetings trading at 16,739.28, set to possibly gain 1.6% for the week. No doubt the G7 meeting will capture much focus and just what is in store for the yen as currencies are expected to be at the top of the discussion list Friday. The dollar was at 110.08 against the yen, down from its recent three-week high of 110.39.

Meanwhile, other Asian markets were up, the Korean Kospi 0.07%; ASX 200 0.57%; the Hang Send 1.20% and the Shanghai Composite 0.10%. Oil was up with Brent crude approaching the 450 a barrel mark, trading at $49.25. Gold overnight was trading at 1253.90.

There are those who believe that the Fed's sudden change in sentiment about rates is part of a currency deal cut last month a the G20 meeting to help rescue other flagging economies. By hiking rates the U.S. would be what many see as its role in the global slowdown, the consumers of last resort. 

FED FRIENDS

They know they've created a mess and now they are starting to panic looking for ways to undue their creation.

Who is they? The incompetents that run the Federal Reserve.

Jeffrey Gundlach, chief executive officer of $95 billion DoubleLine Capital, says the Federal Reserve has changed the conditions required for a potential interest-rate hike this year.

“The Fed has shifted from, ‘if the data pattern improves we will have the green light to hike,’ to ‘unless the data pattern weakens we have the green light to hike,’” Gundlach, 56, wrote in an e-mail Thursday.

The above quote captures the sense of their panic to get off the hot seat they created. It's more proof they know not what the hell they're doing. Incompetence, however, always has it's victims. And usually it's spelled the people. They want to exit this crisis before it goes down so they can say that they tried to warn everyone by doing their part, the right thing at the right time. But they wouldn't know either if they had 10 data-filled crystal balls to supplement their dot-plot board.

The ploy here is as simple as it's obvious. Goldman Sachs just did a sudden reversal on the price of oil and the no longer attractiveness of equities. They also set up savings account yields to ensnare the proletariat. So who do you think higher interest rates will profit? Here's a short list: Goldman Sachs and the big banking crowd. It pays to have friends at the Fed.

It turns out 1913 was an historical watershed moment in the nation's history.. Two behemoth, now out-of-control institutions detrimental to your future and to the financial health of that future, were birth that year--the IRS and the third Federal Reserve bank of the land. Both are in dire need of being revised, revamped and perhaps even being totally mothballed.

Trading profits vanished and the spread trade has been deader than Ted Cruise's presidential campaiSo who do you think will profit from higher interest rates? Here's short list: Goldman Sachs and the big banking crowd. It pays to have friends at the Fed.

OVERNIGHT

Asian stocks along with gold was down as investors started to digest the possibility of a June interest rate hike by the Fed while the dollar rallied Thursday. The prospect to higher interest rates is usually a negative for gold as is a stronger dollar.

The South Korean Kospi shed 0.5% and the Australian market joined in the downturn giving up 0.6% while the MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.8%. Gold isn't the only investment hurt by a stronger dollar as emerging markets have to go through the dollar for many of their transactions as many commodities go through the greenback one of which is oil also down.

The yen hit a three week low against the dollar given the outlook for a possible rate hike in June by the Fed partly on the basis of  the weaker yen only to later give some of its early gains back. According to a Reuters report here is what the Fed notes said:

The Fed minutes noted Fed officials said it would be appropriate to raise interest rates in June if economic data points to stronger second-quarter growth as well as firming inflation and employment. Up to this point many investors had discounted any such Fed action and were no doubt caught off guard.

China and its struggles continue to weigh on markets as it proved to be for years the big fat whale swimming past that everyone came to count on for their sustenance. The dollar index, DYX, stayed just below a a seven-week high of 95.27.  

The Wall Street Journal reported:

SINGAPORE—Expectations that the U.S. could increase interest rates in June drove the dollar sharply higher against major Asian currencies Thursday, with the Chinese yuan at its weakest level since February and the Japanese yen giving up much of its recent strength.
The U.S. dollar index rallied to a two-month high, as the market was caught off-guard by the hawkishness of the Federal Reserve, which concluded that a rate increase in June was a distinct possibility, according to minutes of their April policy meeting released in the U.S. on Wednesday.

Many traders had earlier discounted the possibility of an interest-rate increase in June, but the latest Fed minutes, along with a batch of strong economic data, have changed that view.
Asian currencies are falling to multi-month lows as traders adjusted positions to reflect the interest-rate expectations. The Indonesian rupiah hit a three-month low, as did Thailand’s baht, while the South Korea won, the Philippine peso and the Singapore dollar hit two-month troughs versus the U.S. unit.

High-yield currencies in emerging markets are likely to be vulnerable to further weakness, said Tareck Horchani, senior sales trader at Saxo Capital Markets in Singapore.



 

BUNKERS TO THE LEFT AND BUNKERS TO THE RIGHT

We've been questioning the Fed's--as well as that of other central bank lemmings--now way overdone quest for that magical two percent inflation number for months. It seems the whole globe's existence depended on it. How stunning, how convenient, how simple.

Data freaks love data. You have to know that. You also have to know the magic in data is often interpretation not necessarily the numbers. Some call it framing. Like the Federal Reserve, MSM is famous for framing. Some call it propaganda. Be careful, however, when you use that term.

How do you tell whistling past the cemetery when you hear it. Well, here's an example from our illustrative lame duck administration and it's leader noted on davidstockmanscontracorner.com/trumped-washingtons-fiscal-hypocrisy-is-too-rich-for-words.

“……(Trump has no) sense of the economic and historical importance of America maintaining an iron-clad commitment to stand by its word on our national debt……… U.S. Treasury obligations are the least risky financial asset on the planet and the benchmark against which the price of all other financial assets is set……(not).even the slightest awareness from Trump that he that he might be playing with economic fire because if Treasuries were seen as no longer risk-free that would shake to its very foundations literally the core assumption of global financial markets, meaning that the interest rate on every other financial asset—mortgages, car loans, credit for businesses large and small—could go up perhaps by a lot.

In case you don't get it, Trump recently hinted that the U.S. like most other countries have done throughout history should default on some of its debt. Like what the Fed and others are currently doing now with these bottom sucking interest rates.

What's conveniently left out here and these folks' great fear is another benchmark will take those Treasuries' place. It's known in some quarters as history and the fate of those who ignore it. What was once your benchmark--printing press--becomes that of another.

Exxon the big oil giant climate changers and Sandernistas love to hate lost its AAA credit rating a while back. And so did the U.S. The propagandists, like their idols at the Fed, would like you to believe these killer artificially-suppressed interest rates marched the economy from the precipices of another Great Depression kicking off their monetary madness in 2008. If so it's been a long march from a deep hole somebody helped dig. Can you spell aloud status quo, bureaucrats, neocons, climate freaks, lobbyists, unions, investment bankers and politicians of every stripe in the same breath?

Most of us like abbreviations, so we will offer one--Washington.

When the population finally awakens from their long and deep slumber to just how debt-ridden this nation already is and the next tsunami of inflation rolls in, those responsible will safely be ensconced in all their bunkers they're now building. Bunkers to the left and to the right. But none in your neighborhood.

OVERNIGHT

The dollar seemed to be the story in overnight trading coupled with stronger GDP numbers for Japan than many expected. After hitting an 18 month low at yen 105.55 May 3, the dollar has been range bound  between 108-109 since last week, a support level some traders view as solid.

While economists in a WSJ survey expected GDP growth of 0.3%, the first quarter number surprised, coming in at 1.7%. That compared with a revise fourth-quarter one of negative 1.7% on an annualized basis. The stronger number most likely delayed for now any further monetary easing from the Bank of Japan and lent further doubt about a proposed sales-tax increase planned for next year. A weaker number investors believe would put pressure on officials to hold off that plan. Meanwhile, despite the comments of two Federal Reserve presidents about the June meeting being open to interest rate hikes, the dollar failed to rise suggesting traders have a different view.

Japan's economy suffered slow wage growth that hurt private consumption last year while exports also suffered from sluggish emerging market demand and a strong yen. Prime Minister Abe in 2014 raised the sales tax to 8 percent from 5 percent which tipped the economy into recession. That led Abe to delay a second tax hike to 10 percent by 18 months. Japan like a lot of other countries faces social security and high debt problems. The Nikkei 225 at 16,644.69 was down slightly.

The WSJ reported: Across the region, stocks were hit by worries about the potential fallout of higher U.S. interest rates on riskier assets. Upbeat U.S. economic data and comments from U.S. Federal Reserve officials helped to heighten investor expectations that interest rates there will rise as early as June. Australia’s S&P ASX 200 fell 0.7% and South Korea’s Kospi was off 0.6%. Both the Thai bahtand South Korean won reached two-month lows against the U.S. dollar, while Indonesia’s rupiah was also weaker. Investor sentiment toward China is turning gloomy for a number of reasons. Several state and local media reports suggested Beijing is tightening its grip on financial markets, ranging from getting tougher on the amount of leverage investment products can take on, to clamping down on speculation surrounding backdoor listings and false buyout announcements among listed firms.

The Shenzhen Composite Index finished the day 2.7% lower, falling from the morning, after high-ranking Chinese official Zhang Dejiang failed to mention the launch of a trading link between the Hong Kong and Shenzhen stock markets, which traders hope will generate excitement about China equities. Hong Kong’s Hang Seng Index ended 1.5% lower and stocks in Shanghai fell 1.4%.