Overnight

A weaker yen and a stronger dollar help push the Nikkei to one month high as most Asian sharesrallied slightly especially Japanese exporting firms. The Nikkei was up 0.9% as the yen hit 111 against the dollar aided by Fed Chair Janet Yellen's comments on interest rates Friday going into the long U.S. Memorial Day weekend. The Nikkei traded at 16,985.62 in midmorning trade, the highest level since April 28.

Shares also got a boost from Japanese Prime Minister Shinzo Abe's decision to delay a sales tax hike scheduled for next April by 2-1/2 years. The tax was expected to hit in 2017. Still investors are concerned about next month's Brexit election though recent UK polls favor the stay versus the go vote. Abe's announcement didn't come without some who questioned it, however, as some officials were calling for Abe to clarify hoe the country was going to handle its defict.

Elsewhere, the WSJ reported: Hong Kong’s Hang Seng China Enterprises Index, which tracks the movement of Chinese companies listed in the city, edged up 0.8% after falling more than 11% so far this year. The broader Hang Seng Index also gained 0.8%, while stocks in Australia, South Korea and Shanghai were roughly flat. In Singapore, shares of Noble Group fell 3.3% after the commodities trader announced the resignation of its chief executive and the planned sale of its North America energy-solutions business, capping months of difficulties for the company. Brent crude oil was down 0.1% at $49.90 a barrel during the Asian trading day.

The Upcoming Week

The upcoming week though shortened by the Monday holiday still has some interesting notes investors might be searching through starting with Tuesday when personal income and spending for April, consumer confidence and the Chicago PMI for May get released.

Wednesday the ISM Manufacturing Index for May and the auto makers report for May are out. The famous Fed's beige book on regional economic conditions hits the airways and the OECD issues its economic data. Thursday and Friday look a bit like the week that was last week with more central bankers stepping into the cynosure.

Thursday the ECB meets and is expected to follow the steady-she-goes route it's been on in interest rates and ECB President Mario "Whatever It Takes" Draghi is holding a news conference. While on this side of the pond, New York Fed President William Dudley, never one to find a television he camera he doesn't like, heads up a meeting at the New York Economic Club. Fed Governor Jerome Powell addresses the role of regulation in today's banking system, no doubt will have many interested listeners, some probably asking: "What is it: Friend or Foe?"

Friday caps the week off with non-farm payrolls for May, factory orders for April and the ISM Non-manufacturing Index reports are out. Two Fed Presidents, Chicago's Charles Evans and Cleveland's Loretta Mester speak, Evans on monetary policy divergence between the Fed and the ECB; Mester on macro and financial stability.

And there you have it, the Upcoming Week.

Last We Looked

Think about this for a minute.

What are people less resistant to? Try the familiar. A smile is more disarming than a frown. Think now about the week that just was with all those Federal Reserve voices speaking around the country, mostly in unison about coming higher interest rates.

One could call it softening up the beachhead for what is to come. Last time around just one hike in rates wreaked an equity havoc of sorts. Investors caught off guard maybe? The creditability of the Fed to all but the lame, limp and lazy is at stake, mostly owing to no one's fault except their own inability to act.

We'd suggest decisively but that term appears to be devoid from the DNA of this and previous Fed leaders. Data-dependent is code for: "What the hell's up with this recovery?" A cynic might argue there's no criticism too harsh for this Federal Reserve crowd and the possible terrible fallout from their cavalier lack of action. But cynics are about as welcome today as vending machines filled with candy bars at an elementary school.

What the denizens of the globe's largest economy, not to mention a few billion others, got was this cute little phrase, "probably appropriate." Apparently, the Fed has never heard the tale about the dog and the rabbit. Meanwhile, Fed Chair Yellen gets to continue playing Pretend, a Fed parlor game that she has a clue about what's happening.

The whole set up of the Harvard interview was staged, no intended pun. Fine for the doting MSM crowd, but pathetic entertainment for a public that deserves far better. But, then again, last we looked this is an election year.

SOBERING READ

Here's sobering read or at least it should be. We've been talking about it for a while.
zerohedge.com/news/2016-05-28/dont-listen-ruling-elite-world-economy-real-trouble.

Note what gold has been doing for the last eight or so sessions versus the dollar. If anyone out there can prove that we have any connections to or any way to make a profit by pushing gold, let them speak now or forever sew their mouths shut.

Do we own gold? Yes. Not a crime yet, though it has been in the past. Are central bankers around the world piling up gold of late? Yes.  Do we trade gold or have any open positions that would profit near term? No. We own gold for one reason, risk management.

And despite what you might think and hear, we believe you're going to need some, lots of, risk management in the not too far off future. Do we have a time limit or specific date? No. We don't know when and neither does anyone else. Does that make us or them wrong? You decide.

There's a lady, Annie Duke, a champion poker player, author and consultant to businesses. We don't know and have never met her. Deception in poker, she notes, is necessary. It's a zero sum game. But not in relationships and business, especially if you want to have a long term meaningful, healthy relationship.

That should be your first question: Is there and has there been any deception going on out there? If so, can you make a reasonable case for it and support your points? It's called expository writing by another name. Deception when it comes to the ruling class is the norm not the exception.

Here's an excerpt.

Andy Xie says the world's elite that are attending the G7, G20, Davos and other wasteful meetings are wrong to try to pin the blame for the turmoil on people’s psychology; all signs point to a prolonged period of global stagnation and instability.

Before the current G7 meetings waste of time, The G20 working group meeting in Shanghai didn’t come up with any constructive proposals for reviving the global economy and, instead, complained that the recent market turmoil didn’t reflect the “underlying fundamentals of the global economy”. The oil price has declined by 70 per cent since June 2014, while the Brazilian real has halved, and the Russian rouble is down by 60 per cent. The global economy is on the cusp of another recession, and these important people blamed it all on some sort of psychological problem of the people.

Over the past two decades, the global economy has been blessed with the entry and participation of 800 million hard-working Chinese, plus the information revolution. The pie should have increased enough in size to make most people happier. Yet, the opposite has happened. The world has gone from one crisis to another. People are complaining everywhere. This is due to mismanagement by the very people who attend the G20 meetings, the Davos boondoggle, and so many other global meetings that waste taxpayers’ money and put inept leaders in the limelight.

One major complaint that people have is that the system is rigged – that is, the rising income concentration is not due to free market competition, but a rigged system that favours the politically powerful. This is largely true. The new billionaires over the past two decades have come mostly from finance and property. Few made it the way Steve Jobs or Bill Gates did, creating something that makes people more productive.

That rigged system that favors the powerful is called intervention.

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?