WARTS: POLITICAL AND OTHERWISE

Negatives are like warts. Some go away on their own, some don't.

The WSJ just released the results of their WSJ/NBC News poll for May 12 and May 16. The gist of  it supposedly compared the popularity of the two presidential front runners, Clinton and Trump, with their so-called core constituents in their own political parties and that of Barack Obama's in 2012.

The first thing you want to know about these meaningless excursions into utter nonsense is these people have way too much time on their hands. And they're probably overpaid in the process.

The second thing is Clinton and Trump are most likely running against each other. The third thing there is a large block of folks going to vote for one or the other in this election who could care less about either party, If we had to guess Trump will get more of these votes than Clinton. Some might call them independents. Others might just call them believers in the Second Amendment.

The implication here seems to be neither of these two candidates is greatly popular with the American public. We needed a silly poll to conclude that? MSM's been tell us for months, starting first with the often described dangerous, shoot from the hip Trump and now lately with Ms Baggage.

This once eminent newspaper opens with this gem:

By now, it is broadly accepted that both Hilary Clinton and Donald Trump generate a lot of negative vibes among voters. Less appreciated perhaps is how broadly those bad vibes are, and how much they extend into segments of the electorate that normally would be more enthused.

Obviously, what--at least among some of the Trump voters-- many are trying to bypass is that segment of the electorate--most likely core party wonks--who would normally be more enthused. They are the problem. The problem this writer and his talking political heads never get.

We could go on, but here's the link. Look at it for yourself. They apparently removed the written versin that we quoted from the Weekend Edition. This is nothing against the writer. He's just being himself, amiable at being dull, writing as if he and his colleagues have their finger on the electoral pulse of things. They don't. And given their condescending attitudes they most likely never will. They are about as estranged from understanding the average voter as one of these candidates is from telling the truth.

Now when it comes to warts, if Trump wins we think his warts will fade away on their own. With Clinton, well, we're not so sure.

 wsj.com/video/clinton-trump-polling-poorly-with-key-demographics

BUBBLE UP

Let the market decide!

When's the last time you heard that in MSM. That's become as politically incorrect today as spanking your kid.

In a recent CNBC interview real estate billionaire Sam Zell, who's been in his selling mode for a while now, said:

“You know what the problem is? The problem is I think the Fed should have raised interest rates two years ago, and therefore today would be able to make a much more rational decision as to what to do. The problem is that they’ve so deferred reality for so long that I think they have a serious credibility problem if they don’t raise rates.”

Then he added another twist to this conundrum: “So now we’re talking about raising interest rates because of credibility and not because of economics.”

wolfstreet.com/2016/05/27/market-timer-sam-zell-fed-interest-rate-commercial-real-estate/

Just today we got more of what we call the "probably" meme from Fed Chair Janet Yellen when she informed raising rates soon will probably be appropriate. 

Another point Zell made is we've had too much intervention. If you bother to spell that backwards it translates: Not enough letting the market decide.

Until the pin prick gets put to this bubbling along there's an equity bubble, a bond bubble, a real estate bubble, a rent bubble, a student loan bubble, a health care insurance bubble and probably--there's that term again--a few more we've missed.

We had a business acquaintance a while back who liked to drown his gin in BubbleUp. We now know he's not alone.

STICKING TO IT

 
We once knew a professional safe cracker, a neighborhood kid. He was good. Enjoyed his work. And he did real well until one chilly, dark autumn night a petrol car pulled him over to the side of a lonely country road because half of a big safe was sticking out of the trunk of his battered old red Buick.

When the officer asked him how it got there, he said that he didn't know, that someone else must have put it there. Claimed he never noticed it before. "That's my story," he said, as the officer pressed him for more details. "I have no song and I'm sticking to it."

This too is a story about the "new normal" guy, the blackjack card counter, the kid from Butler Creek. The famous bond investor from Fashion Island. The new normal ain't so normal anymore. At least, that seems to be his story and from what we read he's sticking to it.

Bill Gross has recently come out and said that the "system itself is at risk" and that a "day of reckoning is coming". Ominous words indeed, but sadly, the truth.

Putting his money where his mouth is, Bill Gross is defying all of his instincts as a bond investor and is revamping his $1.3 billion "Janus Global Unconstrained" Bond Fund. He is moving his fund into a position to sell insurance and credit risk.

These actions are brought on by his deep fear that the market is going to break down in the future. He believes Central Banker stimulus has artificially propped up the markets and this illusion we live in is no longer going to last. The proof of this is in the fact that stimulus by Central Bankers is having less and less effect, even as more and more money is printed.

He also fears that the US government is heading down the path of Japan and envisions a day when the government buys up all the debt, eliminating and forgiving it. This of course would be wildly inflationary and be an admittance that the end is nigh on their own part, likely ending in an epic collapse of the Western monetary system.

The thing that troubles is not so much Gross' outlook. Sounds more than plausible to us. A rumor we recently heard is what's really bothering us, though we can't at this time vouchsafed for it. But we'll share it anyway: We've heard those central bankers, like that kid from the neighborhood, own an old, battered red Buick.

zerohedge.com/news/2016-05-26/bill-gross-goes-against-his-insticts-turns-bearish-bond-markets

ABSOLUTE HEDGING?

 Well, the news is out. Probably.

Here's a headline from CNBC: Yellen: "Rate hike probably appropriate in the coming months."

Federal Reserve Chair Janet Yellen answered questions at Harvard University on Friday as markets looked for more hints of when the central bank will hike interest rates. 

Her appearance comes as colleagues on the Fed's policy making committee have pointed to an increase in the federal funds rate target sooner rather than later. Yellen has expressed caution this year on rates, as inflation lags below the Fed's 2 percent target and possible global risks persist. 

Federal Reserve Chair Janet Yellen said Friday an interest rate hike is "probably" appropriate in the coming months if economic data improve. 

"I think for the Fed to gradually and cautiously increase our overnight interest over time and probably in the coming months, such a move would be appropriate," she said at Harvard University.
Her appearance comes as colleagues on the Fed's policy making committee have pointed to an increase in the federal funds rate target sooner rather than later. Yellen has expressed caution this year on rates, as inflation lags below the Fed's 2 percent target and possible global risks persist.
Yellen said "the economy is continuing to improve." She said she sees growth picking up after a sluggish first quarter. Yellen added that oil prices and the dollar are "roughly stabilizing," which will help inflation move toward the Fed's goal. 

"There's noting more dangerous than absolute certainty," goes an old saying. What about absolute hedging? 

STAY TUNED

It's been pointed out by us and others, praise of the Federal Reserve usually comes near market tops not bottoms. Such occurred during the Greenspan years and we are starting to see some now.

Along with it we usually see the cheerleaders telling any and all who will listen things are better than they appear, including much purposeful denial. This bull market is old. It's benefited from all sorts of artificial stimulants, aberrant cheap money, stock buy backs and what has always been a standard Wall Street favorite, fudged earnings. If it were a human it would've been busted for drug abuse long ago.

Now the Fed is set to make a move, one that's been more broadcast than a hurricane alert. Apparently, the news somehow skipped corporate profits and farmers. Here's the story line from two WSJ articles today, "Farm Belt Banks Tighten Buckle," and "No Relief for Corporate Profits."

Let's take farmers first, "....with the farm slump moving into its third year, banks have become pickier, requiring some growers to cough up more collateral and denying financing outright to some customers who need it to pay for seeds, crop chemicals and rent." The Journal quotes the U.S. Department of Agriculture: "... net farm income will slide this year to $54.8 billion, down 56% from its peak in 2013 and the lowest level since 2002. Debt-to-asset ratios among farmers expected to rise for fourth year in row."

And about those corporate profits. Pinched is the kind term the Journal uses. "As if it wasn't bad enough for investors that the economy has been growing slowly, they are also getting a shrinking share of it."  That shrinking share is corporate profits.  No doubt some will name the energy sector downturn, the strengthening dollar and such, but that's hardly the whole picture.

Fourth quarter domestic corporate profits, excluding greenery, the Journal notes, were "down 3.8% from a year earlier." If as the Fed apparently believes the labor market is tightening than wages--wages that for the most part have been flatter for years than most table tops--should be set to rise, further squeezing corporate profits.

The latest report on corporate profit out today showed:
Friday’s report also offered the first official estimate of U.S. corporate profits during the first three months of the year. Profits after tax, without inventory valuation and capital consumption adjustments, rose at a 1.9% rate from the fourth quarter.
The modest rebound came after two consecutive quarters of falling profits. Still, profits were down 3.6% last quarter compared with a year earlier.

“This weakness in profits is likely contributing to the recent pullback in business spending and hiring growth,” J.P. Morgan Chase economist Daniel Silver said.

A separate measure that more closely aligns with economic output, pretax profits with inventory valuation and capital consumption adjustments, rose at a more modest 0.3% rate in the first quarter and declined 5.8% from a year earlier.

Nor will higher earnings for workers necessarily translate into more consumer spending as household debt levels are nearly back to where they were when this mess all began .As the say: Stay tuned.

ELECTION YEAR PROMISES

It's certainly an election year. And we all know what that means, promises, promises, promises.

Probably the best thing about those promises is they never get kept because they are almost always the wrong promises, short-term in nature at best and never address the real long term problems. Long standing problems seldom get solved without some pain. And that's one of the problems. Few if any have the guts to tell the truth and in turn to address.



It's election season, and that means we're hearing a lot about how to fix the economy. 
It can almost seem as if the government is banging its head against the wall making more and more adjustments, only to see the economy stay in slow-growth mode.
Howard Marks, cofounder of Oaktree Capital Group, ran through all of the attempts or promises from politicians and institutions in his latest investment memo.

He found the proposals to be wanting, mostly due to their short-term nature, rather than an attempt to adjust the economy long-term.

"Most ordinary citizens don’t have what it takes to figure out what is and isn’t economically feasible," Marks wrote. "Since we’re in the midst of election season, with promises of cures for our economic woes being thrown around, this seems like a particularly appropriate time to explore what can and can’t be achieved within the laws of economics."

"It’s my goal here to point out how some of the things that central banks and governments try to do – and election candidates promise to do – fly in the face of those laws," he added.
Marks ran through eight current policies and proposals set forth by the government and their failures to adhere to the basics of economics. They were:

businessinsider.com/marks-government-has-no-idea-how-to-fix-economy-2016-5?

OVERNIGHT

Prime Minister Shinto Abe reportedly has postponed an expected 2017 tax hike until 2019 helped lift Japanese shares in early trading Friday boosting shares that most benefit from a weaker yen.

In thin trading the Nikkei edged higher 0.4% at 16,846.32. Barring any surprise the index could finish the week up neatly one percent. There's no quest the expected VAT tax has weighed on markets as investors worried about that coupled with global concerns. Now, however, with the prospect of higher U.S. interest rates closer suggesting better economic growth in the globe's largest economy investors relaxed a bit.

In other markets, the KOSPI was up 0.42, the Hang Send was down 0.13, the Shanghai Conposite was also down 0.30 and the ASX All Ordinares Index was up 0.57%. Yet to come is Friday's speech at Harvard by Fed Chair Janet Yellen as investors will be scrutinizing for any hints about exactly when rates in the U. S. will be going up, June it July. Maybe even both. Her talk caps off the week of other Fed members speaking at various events softening up investors for what's ahead, some believe.

ABOUT THAT BLOOD TEST

Elizabeth Warren is a strange animal, an officer of the court with some apparent strange views.

• 
  

  

  Chairman of theSenate Banking CommitteeChristopher Dodd (D-CT)
 
• Chairman of theSenate Budget Committee Kent Conrad (D-ND)

  

The liberal Massachusetts Senator now apparently wants to make buying property on the cheap a cardinal offense. We seem to recall a former Democrat Senator from Connecticut who refinanced his home with Countrywide Mortgage on the cheap. Countrywide you might recall was deeply involved in the subprime mess. Their CEO, Angelo Mozilo, was later described "In the documentary film Inside Job Mozilo is cited as one of the persons responsible for the Economic Meltdown of 2008 and named in Time Magazine as one of the "25 People to Blame for the Financial Crisis". Condé Nast Portfolio ranked Mozilo second on their list of "Worst American CEOs of All Time".^[21]  

businessinsider.com/trump-vs-warren-spat-might-be-the-future-of-political-campaigning-2016-5

Did she get into Harvard on the cheap when she checked that box claiming she was a minority?
Seats at Harvard as we understand it are pretty precious, hard to come by. She claims in her book she just took the word of her parents. For someone as inquisitive as she appears to be, Harvard Law School graduate and all, that seems a rather flip answer. Did she never wonder enough to verify it?

But we now have testing available to see if she indeed has any American Indian blood coursing through her political agenda veins. Did she take a true minority's seat on the cheap? Did someone suffer from her possible callousness? Is she a seat grubber? Since Ms Warren invoked the name Dodd in her criticism of Mr. Trump, here's quote from Wikipedia.

The Countrywide financial political loan scandal in 2008-2009 involved U.S. politicians who allegedly received favorable mortgage rates.

In June 2008 Conde Nast Portfolio reported that numerous Washington, DC politicians over recent years had received mortgage financing at noncompetitive rates at Countrywide Financial because the corporation placed the officeholders in a program called "FOA's"--"Friends of Angelo", Countrywide's Chief Executive Angelo Mozilo. The politicians extended such favorable financing included the chairman of the Senate Banking Committee,Christopher Dodd (D-CT), and the chairman of the Senate Budget Committee, Kent Conrad (D-ND). The article also noted Countrywide's political action committee had made large donations to Dodd's campaign.^[1] The largest recipient of campaign contributions from Countrywide, though, was Rep. Ed Royce (R-CA), House Financial Services Committee), who has received $37,500 since 1989. ^[2] Dodd has advocated that the federal government, through the Federal Housing Administration, insure up to $300 billion in refinanced mortgages for distressed homeowners.^[3]

Franklin Raines, then Chairman and Chief Executive Officer of Fannie Mae, on July 31, 2002

It was reported by the Wall Street Journal on 6 June 2008 that 2 former CEOs of Fannie Mae, Franklin Raines and James A. Johnson, who was also an adviser to then-Democratic presidential candidate Barack Obama, had received loans from Countrywide.^[4] On July 16, 2008, The Washington Post reported that Franklin Raines had "taken calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters."^[5] However, Raines and the Obama campaign both allege that Raines has never advised Obama.^[6] See Raines and Obama.

Are favorable mortgage rates synonymous with "on the cheap?" 
The good Senator then calls Trump out: “Donald Trump is worried about helping poor little Wall Street? Let me find the world’s smallest violin,” she said. She later added: “Can Donald Trump even name three things that Dodd-Frank does?” 

One would think Ms Warren, being a lawyer, might be interested in facts. Here's a fact, a known one, a published one. Hillary Clinton received more money from Wall Street than both of the other current presidential candidates together. Just ask Bernie. 

And here's list from CBS of some others during that time who received loans from Countrywide:
Speaker of the House Nancy Pelosi's son Paul Pelosi, Jr. also received a loan with Countrywide. Barbara Boxer, Adam H. Putnam, Richard C. Holbrooke, James E. Clyburn, and Donna Shalala are among those with mortgages from Countrywide. CBS News has obtained the following list of then-Fannie Mae employees whose names have been turned over to investigators as having received VIP loans from Countrywide:^[19]

Even if Ms Warren's charges are true, apparently he's not the only prominent person who likes to make money on the cheap. Meanwhile, we don't know about Trump, but we can name three things Dodd-Frank does: nothing good, nothing good, nothing good. 

Now, Senator Warren, about that blood test.....?

FED FORECASTING

There are several things amiss with this article. That it appeared on Bloomberg, however, tells you most of what you need to know. That the author is a former member of the Fed is another. Then there's most likely the most damning part: he's an economist.

One could start with the old joke, economists have correctly predicted 10 of the last three recessions. Of all the social sciences, economists are probably the most pathetic. And that's saying something because sociologists are right up there, too.

In the main when it comes to clear writing neither one could pass a decent freshman composition class in even a subpar English department. But to be precise we'll focus on economists and their  econometric babble. A data wonk is a data wonk.

He writes:  bloomberg.com/view/articles/2016-05-25/the-fed-s-amazing-self-fulfilling-forecast

The Federal Reserve’s track record of economic forecasting is a lot better than many observers recognize. It might also offer some insight into the central bank’s approach to managing the recovery.

Criticism of the Fed’s forecasting has focused largely on its failure to recognize, as late as mid-2008, the depth and persistence of the recession that the global financial crisis would engender. I agree that this error -- which the Fed was not alone in making -- should lead economists at the central bank and elsewhere to do a better job of including financial markets in their forecasting models.

That said, the Fed’s forecasters did better after the recession. Consider, for example, the projections they supplied for the central bank’s November 2010 policy-making meeting (the latest for which staff materials have been released to the public). Here’s how their estimates of unemployment and inflation, formulated in October 2010, compare to what actually happened:

What the good author conveniently leaves out is the "actual"  numbers he cites are bogus. Actual unemployment numbers were far higher than that. It's just that this good economist and his friends at the Fed use their well selected indicators to tally the numbers not anyone else's. The same holds true for inflation. Obviously, this dude wasn't out looking for a job during this time.

To suggest, as he does, that the Fed's forecasts even remotely compare with what happened is what your mother used to threaten but is now politically incorrect, wash your mouth out with soap. Notice his little deceptive attempt to misplace the criticism of the Fed, saying most of it centers on the failure to see the recession coming.

Early on that might have been true, but not for the last few years. It's been about excessive money printing. One round of QE after another because they didn't' then and still don't have a clue about what they're doing. Many of the Fed's defenders are like the Trump critics. Trump is rattling cages, pointing out deep flaws in the system's fabric. It's a system, like the Fed, that's in dire need of substantial changes.

People are growing increasingly sick of a system that keeps screwing with their lives. And the same holds for an institution of non-elected, academic, out-of-touch bureaucrats who make up the rules and their bogus indicators as they go along. 

OVERNIGHT

A lot of people said it wouldn't happen and maybe it's only temporary, but Brent crude in Asia overnight just broke $50 a barrel. After recent weeks of trending up oil finally breached the $50 mark for the first time since November of last year. Part of the reasons being given for the surge in prices is supply constraints.

Meanwhile, Japan’s Nikkei Stock Average was up 0.3%, while Australia’s S&P/ASX 200 was down 0.2% and Korea’s Kospi slipped 0.1%. In China, the Shanghai Composite Index slipped 1%. Hong Kong’s Hang Seng Index was down 0.2%.

The WSJ reported: Chinese stocks also extended their retreat, in what could be the Shanghai Composite Index’s third straight day of losses. Energy shares, however, bucked the trend, as China’s CSI 300 energy subindex was up 0.3%.
Concerns about the health of the U.S. economy resurfaced, after an early reading of the Markit Economics’ services purchasing managers index came in weaker than expected overnight.
In a sign of investors’ caution, the price of gold, a traditional safe-haven asset, rebounded in early Asian trading Thursday to $1,232.30 a troy ounce.

Oil prices have been in the doldrums for nearly two years, but recent supply disruptions and growing demand from China and India have injected fresh optimism into the market. Prices are now nearly 80% higher than where they were in February when they hit a 12-year low.

The U.S. dollar lost 0.5% against the yen to trade at 109.64 in early trade notwithstanding the expected raise in interest rates.