Overnight

Stocks in Asia over the past month have generally gone up, but Friday was one of those down days as concerns about global growth bubble back into the picture particularly the U.S. Earlier this week the World Bank cut its forecast for global growth to 2.4% from its January figure of 2.9%

Gold though off overnight in Asia traded at $1,270 an ounce and Brent crude sat around $51.84 a barrel, both numbers most would have not expected a few short weeks ago The Nikkei 225 was off 0.5%, the Kospi edged 0.4% lower and Hong Kong's Hang Seng Index dropped 0.8%.

Markets in China were closed for holiday. One of the few bright spot was the MSCI Asian-Pacific Index ex-Japan trended as it has been higher, nearing a fourth straight week of gains.Yesterday the Bank of Korea surprised with an interest rate cut sending their benchmark to 1.25%, a new low, but equities overnight didn't seem to care as they drifted lower.

One meme making the rounds is subdued sentiment pending next week's Fed and Bank Of Japan meetings.This goes along with the "risk off" theme of late as caution and uncertainty set in and investors prove patience might be the better part of valor at this point.Will the BOJ expand its stimulus program next week is just one of many question on investor minds. There are times when a stronger currency ain't your friend and that's apparently the picture with the yen that put downward pressure of Japanese equities for much of the week.

Decision Time

It often takes a while before people start to notice.

It's the one global central bankers, government bureaucrats and their media apologists hoped people would never get--this economic boat's got a big hole in its side. A lot of people, some reported to be pretty smart, see rough global seas ahead. Sovereign bond yields, if they get any lower, they'll join whale dung and that rests on the ocean's bottom.

The UK now offers a 50 year gilt with a yield lower than that mysterious 2% inflation number central banker have been sniffing around for nearly a decade or more. The Chinese economy is still searching for a cliff to fall off despite what, if it were being pushed in any other venue than finance, would be one of the world's greatest cover-up stories.

Let's look at the Janet Yellen Fed. A year ago she was positive the U.S. economy was recovering, hiked rates 25 basis points and the stock market went into a tizzy, probably just to see what she would do. And she did what they thought--caved. Now a year later she and her minions were out talking up rate hikes when some rotten job numbers broadsided her. True to form she tries to play the numbers down, as does many of her apologists.

There's an old line in poker about if after an hour or so, you don't know who the patsy is, you're it. Yellen looks more and more in her stumbling, fumbling fashion the hand picked patsy to take the blame when Humpty Dumpty finally takes his fall. It happens to those who are usually in over their heads. There's another sign here with the recent push back in Japan against negative interest rates or ZIRP.

To be sure, MSM true to their code will attempt to soften it. In 1993 Coke Cola offered a bond with a 7.31% coupon that matures in 2093. That's right. It has a 100 year maturity date. Few thought tying their money up for 100 years even at that rate was a good idea. Twenty-three years later those who did are looking like bond gurus. The bond recently traded around $1,310.00 but it's 52 week high is somewhere in the $1,540.00 range.

If you listen to people like Mohamed El-Erian, one of the premier apologists for the Bernanke-Yellen Fed, he loves the term "inadvertently" when discussing them. In his newest book, The Only Game In Town, he uses it more than once to describe the Fed. He also throws around the term inherited and attempts to slide this gem by his readers. The Fed didn't know or purposely choose to destroy the COLA crowd and the poor when they decided to create and keep artificially low interest rates for so long.

In his twisted economic view it was a courageous save The Good Ship Globe from sinking act. For people who are supposed to have an economic fix on events these folks spend an inordinate amount of time, it seems, flying on Inadvertent Airways. Here's just one pathetic example: With the world suffering significant damage and dangerously standing on the edge of an even greater calamity as a result of financial irresponsibility, it was only a matter of time until the blame game started in earnest. Banks would find themselves in the direct line of fire, of course, and understandably so. Central banks would also be targeted, if only because they had evolved--inadvertently--into naive enablers of malfeasance. 

It's old news now but hedge fund icon George Soros has after a long hiatus returned to trading. Supposedly he has some concerns about China and he's buying gold and some commodities and selling equities. A while back we noted that real estate tycoon Sam Zell as reported was unloading his real estate holding after their big run-up. Stanley Druckenmiller, a former Soros associate and a pretty good hedge fund guy himself, recently expressed similar views. Two more well known Wall Street giants, Leon Cooperman and Carl Icahn, lately chimed in with comparable refrains.

We're not suggesting for a moment that these well known investors are right and people like Janet Yellen and El-Erian are wrong. We just saying they both can't be right. And won't be. In the investing world some people call that decision time.

A Dollar's Worth Of Growth

How much debt doe sit take to create one dollar of growth? Well, here's an interesting post from
zerohedge.com/news/2016-06-09/it-took-10-new-debt-create-1-growth-first-quarter.

When the Fed unexpectedly stopped reporting the data for Total Credit Market Instruments in September 2015, the most comprehensive series of total credit in the US economy, there were many screams of disappointment and frustration from US debt watchers. However, this was unnecessary, as all the Fed did was break up the series into its two constituent components: total debt (found here) and total loans (found here).

So today we had a chance to update the total US credit following the release of the Fed's Flow of Funds (Z.1) statement, which is usually parsed for its tracking of changes to household wealth. And while it showed that in  the first quarter the net worth of US residents, mostly the wealthy ones as the bulk of financial assets is held by a small fraction of the total population, rose by $837 billion to $88 trillion mostly as a result of a change in real estate holdings, we were more interest in the aggregate picture.

It wasn't pretty.

As a reminder, according to the latest BEA revision, nominal Q1 GDP was $18.23 trillion, an increase of just $65 billion from the previous quarter or an annualized 0.7% rate, the question is how much credit had to be created to generate this growth. Well, according to the Z.1, total credit rose to a new record high $64.1 trillion. This was an increase of $645 billion from the previos quarter. It means that in the first quarter, it "cost" $10 in new debt to generate just $1 in new economic growth.

 


And here are the two other key charts: the first, showing total credit (debt and loans) vs GDP growth since 1950. The trend is hardly anyone's friend, except for those who create the debt out of thin air to pocket the ever lower cash flows associated with it (and await the next inevitable bailout):


More importantly, on a leverage ratio basis, the US economy is now at a level of 352% total credit/GDP, the highest since Q1 2013, and a level which has been relatively flat since it peaked at 380% just before the crash. One way to read this chart perhaps is that the "carrying debt capacity" of the US economy is roughly 380% at which point something "unexpected" happens. At the current rate of surging credit relative to slowing GDP, the US economy should be there in the not too distant future.

You Decide

Here is one more thing for UK voters to consider with Brexit day nearing. It's about the European Central Bank.

German Finance Minister Schaeuble said in April that the ECB’s record low interest rates were causing “extraordinary problems” for German banks and pensioners and risked fuelling the rise of euroscepticism in Germany, where voters had flocked to the right-wing Alternative for Germany in state elections.

As the ECB has pumped more than 1 trillion euros of fresh money into the system – most of which has flowed towards countries such as prosperous Germany – banks have been hoarding ever more with the central bank.

Deposits by European banks at the ECB now stand at more than 850 billion euros, at a considerable cost to banks. Demand for loans in the euro zone, where the economy remains in the doldrums in some quarters, has not spiked despite the ECB measures.

The ECB hoped that negative zero interest rates would spur banks to lend rather than an interest penalty for storing funds with the central bank. Called it the law of unintended consequences. But refused to lend the money because they cannot find the quality loans they wanted. So in essence you have thus bureaucratic miasma of officials really forcing banks to make risky loan or pay the interest.

davidstockmanscontracorner.com/the-german-revolt-begins-commerzbank-plans-to-hoard-billions-in-vaults-rather-than-pay-negative-rates-to-ecb/

Overnight

A weaker dollar pushed up gold and crude oil overnight as the New Zealand dollar soared to a one year high as the central bank there held rates unchanged though some were expecting a possible cut. Asian markets moved up in mixed trading.

New Zealand is a commodities based economy and the weaker U.S. dollar helped push some commodities higher. The Korean Kospi gained 0.3% after a rate cute to a record low of 1.25% as slow exports and the absence of inflation take their toll. The Nikkei 225 shed 1% as the yen strengthened .The MSCI Asia-Pacific moved up 0.2%. Meanwhile, markets in  China and Hong Kong were closed for a holiday.

The WSJ reported: Many market participants are also starting to refrain from aggressive betting ahead of significant political events in coming weeks, including the U.K. referendum later this month and Japan’s upper house election in July.

“You’d need to see the main framework before betting. In fact, I suspect trading will be directionless like this until the U.S. presidential election,” said Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management Co.

Policy makers at various corners of the globe are under pressure to take steps to support their economies.

It may also be looking to cushion the economy as the government drives a major overhaul of the struggling shipping and shipbuilding industries that could see large job losses

An Interesting Chart

 
If you follow charting at all you can see, with some of chart reader's favorite tools, a little imagination, a head ans shoulders pattern in January and March, a reverse head and shoulders pattern March and May, and what could be a double top if oil prices fail to go higher between the October high the current June high.

We have liked oil since before it hit $27 a barrel and we have said so. That doesn't mean it will keep going straight up. On any sizable pullback we'd being buying more not for 2016 but 2017 and even further out. Once zero and sub-zero interest rates get recognized for what they are, central bankers' pig in a poke, we expect higher commodity prices.

Meanwhile, here's source for the chart and a read you might find interesting.
cnbc.com/2016/06/08/crude-prices-this-chart-says-oil-could-hit-60--and-fast.

The WSJ Editorial Staff

The editorial staff at the WSJ never ceases to amaze.

In their recent blurb, High Trump Anxiety, they sound like a professional big honcho employment agency seeking jobs for some disgruntled out of work so-called political campaign pros. Some might say hacks, but we're feeling a bit more generous today than usual.

Mrs. Clinton has 21 press aides including a communications director, a lead press secretary, a day-to-day spokesman, a travelling press secretary, a rapid-response director, a rapid-response spokesperson and a variety of handlers dedicated to regional and specialized outlets. This is what it takes to drive a coherent national message.

Apparently, the writer of this pathetic paragraph doesn't understand it's a clear, concise reason why many are voting against Mrs. Clinton. It's another version of It Takes Village all over, a mere foreshadowing of how needlessly complicated, heavy-handed and messy government will be under her. Hasn't the Obama tribe after eight years taught this benighted writer anything?

Mr. Trump may believe a similar apparatus is a waste of money, and that he can run his campaign out of his hip pocket like the Trump Organization: shoestring, centralized and ad hoc, with nearly every decision made at the top. He may think, too, that the political professionals are dummies and he’ll keep winning like he did in the primaries.

Dear Editorialist: The public has had a belly full of political professionals. What part of that in this election is it so hard for you to get? There's a certain exclusiveness of "decisions made at the top," especially when you're not there.

But the pros know that competing in a general election, and appealing to a voting-age population of some 240 million, is different than winning 40% of the Republican primary vote. It also doesn’t inspire confidence that Mr. Trump’s political and business operations are so fungible: Many Republicans will conclude that he chose the self-interest of his personal brand in a petty Trump U lawsuit over increasing his odds of winning the White House.

Dear Editorialist: P.S. Spare us the fungible stuff. We won't think any less of your brilliance. Nor for that matter any more. His political and business interchangeability is not why most folks are going to vote for him. That, it seems, is another part you can't get your petty little editorial mind around.

Take our money, please, so we can have some influence if the seemingly impossible happens. Your money here, kind sir--we almost hate to say it--is not fungible.

Vacant And Vermont Rhyme

 
This is welcome talk despite what many might say. First of all, it shows how little Americans know about their own history. It clearly notes how there was in the 1800s more talk about secession among New England states than all those hated (then and still now) southern states.

It also shows that a part of the Declaration of Independence left a way for people to declare their own independence. As far as Bernie and Vermont, should they decide to go, we say God speed you and Good Riddance!

During the Vietnam era you had the Right saying controversial things that drew much objection about America and its war critics:" Love It Or Leave it!" How strange history and time are. Now you have the Left saying get on board or we will force you. Accept climate change as a fact of we will punish you.

These are indeed interesting times. The major networks and media outlets need to use whatever influence they have to stop the stop Trump people because if Clinton and Trump are the two that square off later this year the media will get more viewers than 10 Super Bowls and reap more revenue than even their greedy little fists can hold. You won't need Fourth of July.

It should be a nuclear war and most entertaining. And that doesn't include how many spinoff series cable television networks can come up with once the smoke clears. You might want to pick up some media company shares. This should be a no-holds-barred, let-it-all-handout, rock 'em-sock 'em event with no interference. Forget the fake stagings and the phony niceties. Let it rip.

Let's find out who the real liars are, the real fakirs. Make MSM report the truth as it happens, not as they think it happened. Let the American people decide. This could be, if let alone, one of the most healthy events in the history of this nation. Either you believe the American people are strong enough to take the news or not. We're betting they are. We are also betting they're more decent than given credit for. 

Bernie Sanders will not become president of the United States. But he could still become president of Vermont if the Green Mountain State secedes.

It’s not such a far-fetched notion. Vermont was an independent republic from 1777 to 1791, and despite signing the Constitution, Vermont reserved its right to leave the union. New York, Rhode Island and Virginia explicitly did so.

In researching “Free Dakota,” my novel about secession, I discovered that in the early 1800s, talk of secession was more common among the New England states than among the southern states. Few people questioned a state’s right to secede.

Bernie Sanders refuses to concede defeat to Hillary Clinton, vowing to "continue the fight" for the Democratic nomination despite his rival declaring herself the party's flagbearer for the US presidential race. Video provided by AFP
Media: AFP

It is the Pledge of Allegiance that claims the United States is an indivisible nation. And, of course, the Pledge of Allegiance is not a founding document. It was written in 1892 and popularized by the American Legion and other groups in the 20th century.
For its part, the Declaration of Independence clearly recognizes the right to form a new government when “it becomes necessary for one people to dissolve the political bands which have connected them with another.”

sfgate.com/news/article/How-Bernie-Sanders-can-still-become-president-7969545

In MSM We Trust

One thing you know for sure about this Fed and it's MSM apologists as soon as a disturbing number pops up those apologists will be firing up their key boards.

An example is yesterday's Wall Street Journal story, You Know A Little About the Economy, by James Mackintosh, calling Friday's U.S. payrolls report unusual: "Not just because it was so disappointing (new jobs haven't been so far below expectations since November 2008, shortly after Lehman Brothers failed), but also because the miss might, just possibly, tell us something for a change."

And what that might be, kind sir? You can bet one thing: whatever it is will be some kind of attempt to soften or even fully negate the negative impact. And Mr. Mackintosh doesn't, unlike those payroll numbers, disappoint.

"Investors typically care far too much about the payrolls data, treated now as the most important economic release each month," he notes. "The figures are hyped up and then extrapolated, in Friday's case leading traders to cut the likelihood of a Federal Reserve rate increase this summer. This gave the dollar it's fourth-worst day in seven years against a basket of currencies."

Now here comes the but. Yet and but are from the same semantic school. They're like the jab in boxing designed to set up and disguise the real punch that's on it's way, the straight right hand. "Yet, these aren't numbers on which to bet the ranch. The payroll figures have a huge margin of error, are subject to big revisions and offer little in the way of guidance to the future," he writes.

First off what numbers the Fed follows don't have wide margins for error and don't get widely revised? Name them. And we don't recall anyone betting the farm on these obviously negative numbers. The market responded favorably by going up two days in a row. Most of that probably came from short term traders and hot money. There's an underlying feeling people want to push the indexes to new highs to sweep in maximum profits before the lights go out.

Seldom have we seen MSM print a similar disclaimer when the latest numbers favored their position. The intended message should be clear, things are not so bad as many as saying. Trust us in MSM. We know more about the economy than you do.

For a long time it was believed and pushed by MSM that the Bernanke-Yellen led monetary madness was leading the U.S. economy back to growth and that growth in the globe's largest economy would help lead others to higher ground. The EU was late to the money printing madness. So obviously some will note that. But bond yields in the EU just hit the lowest levels ever and that includes German bonds, a nation with some semblance of financial probity that was not hit nearly as hard as other EU members.

These low bond yields and negatives interest rates symbolize one and only one thing: central bankers around the globe are clueless and panic is their weapon of choice. Here's an interesting chart we came across at David Stockman's site that will shed some indirect light on those jobless numbers. And you can see from the time frames it's no aberration.

 The number of male adults living with mom goes up during every recession and after all this time it's still rising.


In Italy it is more common for adult men to live longer at home with moms, they even have a term for it, but not in the U.S. If you're a bartender the job numbers might be on the upswing, but if one is seeking decent steady employment it's another story--and has been for a long, long time.

If a certain candidate takes over the White House in this fall's election, look for the next administration's Treasury to start printing "In  MSM We Trust" on the currency.

Overnight

Wednesday was mostly a flat day for Asian shares as poor Chinese export data, according to Reuters, offset would-be positive news about U.S. interest rates and a more positive outlook about oil.

The yen appreciation helped push down the Nikkek 225, 0.3%, the Shanghai Conposite fell 0.7% and the Hang Seng lost 0.4%. The MSCI Asia-Pacific slid 0.1%. The Australian ASX 220 was down 0.14%.

CNBC reported: Oil prices advanced overnight on expectations of stockpile drawdowns in the U.S. and global supply shortfalls. Reuters said a report from the American Petroleum Institute, released after prices settled, showed a higher-than-expected crude drawdown of 3.6 million barrels. 

During Asian hours, U.S. crude futures were nearly flat at $50.38, after settling up 1.4 percent on Tuesday. Global benchmark Brent was also flat at $51.41, following a 1.8 percent increase overnight. 

Chinese exports were soft, declining 4.1% in May from last year. Pundits expected a 3.6% drop while imports also fell 0.4% . Six percent was the expect d drop.