Please Turn Off The Lights

It's over. That's the view of bond guru Bill Gross in his latest report. The last 40 years won't be repeated any time soon, according to the Sage of Newport Beach in this blurb from Business Insider from Gross' June newsletter.businessinsider.com/bill-gross-investment-outlook-june-2016-2016-6?

Bill Gross doesn't think the future will look like the past. 

In his latest investment outlook, published on Thursday morning, Gross wrote that he thinks the stellar returns experienced by both bond and stock investors over the last 40 years are an anomaly that will not be repeated. 

Gross looks at two simple charts — the Barclays US Aggregate bond index and the S&P 500 — and says the steady upward march in bond prices and the rockier but still rewarding upward climb in stock prices can't happen again.

Will someone on their way out please turn off the lights. This party's over. Where is the late Cowboys' QB when you need him.

Credibility At Stake

Whether the Fed will choose to ignore what has been a spate of if not all bad certainly mediocre at best news on the global economic front in making its next interest rate decision remains to be seen. Our guess is they've misplayed their hand and now feel compelled to hike rates sooner than later.

They have reached a damned if you do and damned it you don't point largely of their own making. Either way they will get a reaction, possibly a market selloff whatever they do since if they sit tight after all their recent jawboning it will fire further questions about indecisiveness and incompetence.

Their credibility despite the naysayers is increasingly at stake.

businessinsider.com/global-manufacturing-has-stalled-pmi-jp-morgan-markit-2016-6?

Activity levels across factories the world over stalled last month, according to the latest JP Morgan-Markit global manufacturing purchasing managers’ index (PMI) released on Wednesday.

The PMI came in at 50.0, down from 50.1 in April, continuing the underwhelming start to the year for the global manufacturing sector.

Like PMI readings for individual nations, the survey measures changes in activity levels from one month to the next, with a reading of 50 signaling that activity levels neither expanded nor contracted during any given month.

It takes in responses from over 10,000 firms from 30 individual nations, providing the closest thing to a comprehensive report card for the global manufacturing sector as one can get.

And based on the tepid reading for May, the news on that front is not good.

JP Morgan

Markit notes that levels of expansion slowed in the Eurozone and US, the latter at the slowest pace since October 2009, while activity levels in Asia and South America continued to contract.

“The two largest Asian manufacturing economies – China and Japan – both contracted in May. PMI readings indicated that rates of decline were the sharpest since February 2016 and January 2013 respectively,” said Markit.

“The Brazil PMI sank to its weakest level in over seven years, placing it at the bottom of the global rankings.”

Overnight

Hard times can produce hard comments and that's what at least one member of the Bank of Japan offered today, according the WSJ.

TOKYO—A Bank of Japan board member on Thursday issued stern warnings about Japan’s negative rate policy, underscoring tension within the central bank over Gov. Haruhiko Kuroda’s escalating monetary experiment to end deflation.

In comments that briefly kicked the yen higher, Takehiro Sato, one of the BOJ’s nine policy-setting board members, said negative rates aren’t producing their intended effects and could do the economy more harm than good, in a direct challenge to Mr. Kuroda’s positive messages.

The measure is also “contradictory” with the bank’s massive asset purchase program—its main policy instrument—so “their combination lacks sustainability,” Mr. Sato said in a northern Japanese town of Kushiro.

A former Morgan Stanley economist, Mr. Sato is a well-known critic of Mr. Kuroda’s “what-ever-it-takes” approach and is generally seen as having limited influence over policy. Mr. Sato opposed both an asset purchase increase in late 2014 and the launch of negative rates in January this year. He believes that the BOJ should go more slowly in trying to achieve its 2% inflation target partly because price growth which wasn't backed by wage increases wouldn’t be sustainable.

But Mr. Sato’s latest remarks were so critical that traders took note of them and drove up the yen on speculation that there would be no additional easing measures soon.

In the meantime, more investors and others seem to be questioning the effectiveness of Abernonics as his decision to delay a sales tax hike for two and a half years brings open criticism. The rally in the yen hurt the Nikkei as is faded more than 2% overnight after more weak economic data from surveys on global manufacturing.  The dollar fell to two-week low against the yen.

In other markets, the Shanghai Composite  was off 0.2%, the Hang Seng flat, the ASX 200 up 0.02% and  the Korean Kospi flat. Gold was up $2.40 trading at 1,217.22.

The Vote

With the Brexit voting date drawing closer, here's an interesting article voters in the UK might want to read.

Polls at best have been confusing, especially the accuracy between those taken online versus those taken on the telephone.

British citizens seeking yet another reason to vote Brexit, have one in spades. The roots of this reason go back to last year when European Commission president Jean Claude Juncker hatched a 3-year plan to leverage €20 billion in seed capital to produce a €300 billion gain in Eurozone investment.

As one might expected, the results are nonexistent even though Juncker has already used up the €20 billion in seed capital. Juncker now wants to up the seed capital, make the plan permanent, and extend the plan outside the EU to immigration zones such as Syria and Africa!

Has there been any deception by government officials on this important issue leading up ton? That is the question voters need to answer for themselves before they mark those ballots later this month.

Overnight

Blame it on oil, as some did. Asian shares softened in overnight trading as oil prices receded putting a touch of hesitancy in buying more risky assets. That mixed with some conflicting economic data in the U.S. along with a weaker dollar against the yen dampened some investor spirits.

The Nikkei was off  slightly as the yen strengthened ahead of what is expected to be a concession by Prime Minister Shinto Abe today on delaying what was to be a sales tax hike in an anemic economy. The move is not without consequences as some are calling his commitment to shore up the nation's deep debt problems and stimulating the economy into question.

Australian stocks also backed off while Shanghai shares remained flat despite yesterday's rally on news stocks could be added to a major emerging market index. An aside, and that seems how investors took the news, as an aside, was China's Purchasing Managers' Index, while up slightly for the third month in a row, suffered from weak orders. Reuters reported: "The official PMI was unchanged from April at 50.1 last month, barely above the 50-Mark that separates expansion in activity from contraction on a monthly basis."

The Hang Seng Index and South Korea’s Kospi were flat. The Nikkei Stock Average was down 0.6%, while Australia’s S&P/ASX 200 fell 1.3%. Brent crude oil was last down 0.6% at $49.61 a barrel after U.S. prices slipped below the $50-a-barrel threshold overnight.

Beware of MSM Hype

Here's just one of many MSM's hype the report attempts.

Despite glowing mainstream media reports on personal consumption expenditures and income, the Atlanta Fed GDPNow Model forecast for second quarter GDP did not budge.
Rate hike odds for June shrank substantially.

Latest forecast: 2.9 percent — May 31, 2016

 
 mishtalk.com/2016/05/31/gdpnow-flat-after-pce-report-rate-hike-odds-sink/

How We Doing?

So how's the economy doing? Well, it depends on whom you choose to believe. Here's a report from the state that produces more than 11% of U.S. manufacturing.

Texas manufacturers in May posted their weakest month of production in a year at the tail end of a spring season that previously showed some signs of optimism.

The production index, a key measure of state manufacturing conditions, fell from 5.8 all the way down to minus-13.1. An index below zero indicates a decline in activity, according to a monthly survey data from the Dallas Federal Reserve.

The state’s manufacturing sector has in part felt the ripple effects of the ongoing oil bust, although crude prices have begun to rebound since possibly bottoming out in February.

The index is calculated by the Dallas Fed after receiving survey responses from 111 Texas manufacturing firms. May represented the fifth straight month that both employee counts and work hours declined.

The price of oil could stabilize in the second half of the year, giving some reason for optimism, said one fabricated metal product manufacturing executive whose survey responses were highlighted. “However, rapidly escalating raw material (hot rolled coil steel) prices are very difficult to pass through to the end user, thus further compressing our gross margins,” the executive added.

Several respondents complained about business uncertainty during a crazy election season, as well as the Labor Department’s new rule to expand overtime protections to workers making less than $47,476 per year.he

A machinery manufacturing executive said, “Things are pretty bleak in the oil patch …  I’ve cut payroll, suspended 401(k) matches, etc. trying to hold on, but I’m not optimistic about the options moving forward.”

The survey’s “company outlook” and “general business activity” outlooks also are continuing to see further worsening conditions, according to the Dallas Fed. Those indices measure the perceptions of broader business conditions that are becoming increasingly pessimistic.

Texas produces more than 11 percent of the total manufactured goods in the U.S., behind only California. Many of those goods support the energy industry. The Dallas Fed conducts the Texas Manufacturing Outlook Survey each month.

 fuelfix.com/blog/2016/05/31/texas-manufacturers-post-weakest-month-in-a-year/

Don't Let Them Scare You

 We've written about the upcoming Brexit vote before.

We told you if you love your sovereignty--now thanks to the globalist pushers and it's MSM friends, a dirty word--you'll vote to leave. There are Quislings among you, make no mistake. Here's piece from The Daily Bell. thedailybell.com/news-analysis/anti-brexit-shocker-economists-and-faith-leaders-plot-britains-downfall.

There are currently reports that the EU is pushing hard for the federalization of Europe via a new tax ID number and also via plans for a pan-European army.

A national insurance number will allow Brussels to identify European (and British) taxpayers and would be a further step toward the institution of an aggressive European tax.Additionally, new legislation will ban sovereign states from reducing corporate taxation to below 15 percent.

Neither plans for a European army nor the new tax ID number are apparently getting much coverage in Britain. It really doesn’t matter though. Brussels have proven several times over that the EU’s goal is a United States of Europe.

Surely the economists involved in the survey understand the level of corruption currently infecting the EU.Those affiliated with the EU receive enormous compensation for useless activities. Regulatory advantages are routinely sold to the highest bidder.

And surely they understand that the decision-making bodies have been purposefully divorced from Parliament. The entire setup of the EU is aimed at producing a mega-state responsible only to a handful of bureaucrats.

How on earth British economists, let alone “faith leaders” can endorse the EU is difficult to imagine.If Britain stays in the EU, within a decade the country – as it has existed for perhaps a thousand years – will be disassembled.

These economists and faith leaders are content to support the end of Britain. Faith will not be diminished and industry will not leave if Brexit occurs. But the country will not survive as a historical entity if it remains within Europe.

Don't let them scare you out of your freedom.

On The Bottom Looking Up

In my short stay here, I realized that without a deep understanding of human psychology, without the acceptance that we are all crazy, irrational, impulsive, emotionally driven animals, all the raw intelligence and mathematical logic in the world is little help in the fraught, shifting interplay of two people negotiating
                            Chris Voss, Never Split The Difference, p. 8.

If that sounds like the stock market, two people, buyer and seller, negotiating without any intervention, government or otherwise, you're on to something. But it should also tell you much more about the data-driven crowd, especially those who in their slavery to data and in their ignorance of reality can cause you and yours serious, even irretrievable harm.

There's something else it should remind you of in case you have not figured it out by now, the Federal Reserve Bank of the United States of America. And since we intend to cast a broad net, that includes central bankers the globe over. These are people who most likely never had to change a flat tire on a lonely country road during a down pour at two in the morning or scramble together enough money to take theirs kids to Disneyland all the while chewing on the gnawing thought they might not have enough money left over to buy them lunch.

What Voss is referring to in his book is his experience at Harvard and their world renown negotiating program. Until the robots succeed them, markets are comprised of people, crazy, irrational, emotionally-driven animals, not always but just persistently enough to fall outside the short comings of the data-dependent bureaucrats and party wonks. And you can take that to the bank if you can find one today still worth frequenting.

 A friend recently told me he went to see his family doctor about a month ago. Medicine today is computer and electronically medical record driven, otherwise known as EMR. He said after his young doctor walked into the room offering a brief hello, he sat down at the computer with his back to the patient, firing off a litany of questions but never once lifting his gaze from the computer screen. After a brief exam the doctor politically excused himself with a passing word an aid would shortly be in with his instructions. My friend, smile on his face, told me the whole experience changed forever his definition of a "quickie."

There's another quickie on the horizon, one most likely that will be a lot less enjoyable than even my friend's doctor visit. We'll have more on that as the summer blooms and fades.You can see, though it was obviously never intended to, just where the American people are on that pyramid.

Overnight

The dollar softened a bit against the yen from its recent high after the Fed last week noted higher interest rates are in the offing sometime this summer. Against the yen, the dollar slipped 0.3 percent to 110.83. But it rose to as high as 111.455 in the previous session, its loftiest peak in a month, and was on track to notch a gain of 4 percent in May, Reuters reported. With the U.S. And UK markets closed Monday volume was expected to be lighter as investors looked to the EU action.

The Nikkei dropped 0.3% after a strong 1.4% rally in the previous session. The MSCI's broadest index outside Japan remained flat, ending the month down 2% for the month. In later trading, the Nikkei 225 edged up 0.49% while the Kospi was up 0.39%. In China, mainland markets were performing better, with the Shanghai Composite up 2.12 percent and the Shenzhen composite up 2.418 percent. In Hong Kong, the Hang Seng index was 0.94 percent higher. Japanese household spending fell for second straight month in April, 0.4%, after dropping 5.3% the previous month according to a report released Tuesday.

The Nikkei 225 was up 0.49 percent after trading flat earlier in the session, while Australia's ASX 200 was 0.42 percent lower, weighed by its energy subindex, which shed 1.35 percent, but that follows a 5.6 percent gain over the past. Brent crude trade at $49.67 a barrel