Bearish

 
Bearish outlooks are not new and they are not necessarily in short supply today despite what MSM wants you to believe. One investor, billionaire Carl Icahn,  recently expressed his bearish view, net -149% market exposure, a record short bias in an interview with Bloomberg.

Part of Icahn's outlook is at least related to over government regulation and it's impact on capital investment. Here's an excerpt.

Shatter:  Why is it that the stock market is where it is?  That with valuations so high that I noticed in the letter that -- or at least in a statement that you made with your son, Bret, earlier this month, that you don't feel confident making any large investments?

ICAHN:  Aabsolutely, Erik.  I have hedges on, I'm more hedged than I ever was. I will tell you there's certainly good companies.[The market] is way overvalued at 20 times the S&P and I'll tell you why: a lot of it is a result of zero interest rates.  It's just what I said. You have zero interest and a lot of buybacks. Money is not going into capital.

So think of it as a rich family that just decides "we're just going to have a lot of fun, we're going to sit around in the pool, and we'll keep printing up IOUs to the town, we've got a good name." You keep  doing it until you go broke.  And this is what's happening in our economy.  Zero interest rates are building huge bubbles.  You have retirees that saved a million bucks, half a million bucks. 

I think the market is at literally very high levels because of zero interest rates, and if you really look at it, the dollar is pretty strong right now, which is going to hurt international earnings.  The S&P, they live on international earnings.  That's going to be hurt.  There's going to be a day of reckoning here.  I've seen it many times in my life.  When things look good, they look great.  You go into the sky.  But that's when you have to really pull down and really stop buying.  That being said, I'm not going to tell you it's going to happen tomorrow, next week, even next month, even next year possibly.  But it's going to happen, and you have to change the direction of our economy.  I can't say it plainer than that. 

* * *

[T]housands of CEOs understand the problem.  They say one day, a regulatory agency, EPA, waves its wand and we're bankrupt, or almost bankrupt.  We're losing a fortune.  Why the hell should I invest in more capital?  Why should I invest in more machinery?  Therefore, we can't compete, and therefore the middle class does not have manufacturing jobs and we now say, well, we're not a manufacturer, we're a service company 

 What could cause a crash:

Shatzker:  You say, Carl, that a day of reckoning will come for the stock market.  You can't say whether it's going to be this week, this month, even this year or next year.  Let's talk about the factors that you believe would precipitate such a correction.  What could cause stocks to fall?

ICAHN:  Erik, I think I've been talking about it to you this whole interview.  One of the things that's causing it to fall is happening right under your nose, that we have no capital spending.  Capital spending is going way down.  In a society like us, manufacturing is important. I don't care, sooner or later, you can't just keep tweeting to each other.  You can't text each other. 

We say we're a service economy, that's great, we're a service economy.  What does that mean?  That we text more to each other.  Sooner or later, everybody is going to send a text to each other and say isn't that wonderful, so why should anybody work?  Just sit there and text to each other or watch TV.  So I am saying to you, this is what is happening as we speak.  Capital spending is down, obviously. The last two years, I mean, it's just down four percent in the last quarter which is unheard of when you don't have a recession.  OK.  Productivity has not grown.  In fact, it's the lowest growing it's ever been as far as growth goes.  These are very important things in a capitalistic system.  Unless you have a dictatorship, you're going to go the way of Cuba.  Well, Cuba was a dictatorship but it still went that way.  But then you're going to go the way of Venezuela, Argentina.  You're going to be in a major problem.

He then turns to the economy and social tubulence, where he repeats "shocking" allegations made by Trump, namely that "unemployment numbers are not accurate":

 You see GDP is not going up, I could give you a lot of reasons.  But the most important is that the middle class worker is really, does not have good jobs.  This unemployment numbers are not accurate in one way, that a lot of these guys have left the work force, and two, these jobs aren't paying that well.

So I am saying that the middle class - that is why you saw this uprising for Bernie Sanders and you see it for Trump and you see Brexit and you see what's going on in Italy.  I think there's an undercurrent of great unrest in our global economies.  This "one percent", people resent it, and they resent government for allowing it to happen. 

An other  billionaire who is no stragner to the bear club is Paul Singer.

While there have been some very prominent recent entrants into the billionbear club, such as BIll Gross, Jeff Gundlach, Carl Icahn and George Soros, who only recently switched from being bullish on the market to predicting gloom, one name has been a staple when it comes to warnings about the disastrous consequences of the new normal's monetary policy: Elliott Management's Paul Singer. 

And, sure enough, in his latest letter he does not disappoint, dispensing with his usual dose of what Kate Kelly calls "bleakness", warning that the bond market is "broken", and when the unprecedented central bank actions of recent years can no longer prevent a market decline - which considering that both the BOJ and ECB are running out of monetizable bonds may be sooner than many expected - "the subsequent loss of confidence could be severe."

Both of these articles are at zerohedge.com.

Overnight

The  Nikkei was down for the week trading flat Friday at 16,481.29 as the benchmark is off for the week 2.6% while investors remain reluctant going into the weekend. Though down for the week, the  dollar gained against the yen, trading at 100.22 yen after climbing 0.4%.

Meanwhile, the Wall Street Journal reported: The Bank of Japan will likely take bold action next month, an adviser to Prime Minister Shinzo Abe said, rejecting speculation that the central bank may use a coming policy review to justify a paring back of its stimulus.
“However they conduct the assessment, there is already an answer: Monetary policy hasn’t been eased enough,” Etsuro Honda said of the review set for release at the central bank’s next policy meeting in September. Without further action, people would give up on the Abenomics drive to defeat deflation, he added.

The central bank’s planned “comprehensive assessment” of its policies has generated speculation over the direction of Mr. Abe’s 3½-year effort to end deflation. The review was announced at the bank’s previous board meeting in late July, where the BOJ took modest easing action.

In other markets, the Kospi was down 0.14 percent. In Australia, the benchmark ASX 200 added 0.16 percent, as the heavily-weighted financials sub-index reversed early losses to trade nearly flat. In Hong Kong, the Hang Seng index was down 0.53 percent. Chinese mainland markets were also lower, with the Shanghai composite off 0.38 percent, while the Shenzhen composite dropped 0.13 percent. Oil prices once again captured center stage on news that OPEC and other major producers might be cutting a deal to deal with the oversupply that  seems to be overhanging the market suppressing prices. Oil was up overnight at $48.28 a barrel in the futures market after rising Thursday.

The Bruising Truth About Shipping

Maybe some would call this a sign of a bottom. But for those who believe the bond market isn't a bubble, we say may the force be with you.

One sign the global economy isn't what the cheerleaders want it to be is plain, old vanilla shipping. A recent WSJ article had this to say: Until a year ago, the shipping industry was ordering ships in droves. This year, orders of new vessels have fallen to a record low and companies can't get rid of ships fast enough.

About 1,000 that have the combined capacity to haul 52 million tons of metric cargo--about the weight of 142 Empire State buildings--will be dragged onto beaches, cut into pieces and sold for scrap metal this year. That is second only to the record amount of capacity of 61 million  so-called dead weight tons that were scrapped and real cycled in 2012.

The global economic slowdown is putting shipping through its most bruising period since the 2008 financial crisis....As the companies, mostly based in Europe and Asia, fight for bigger shares of the global market, freight rates have dropped so low they barely cover fuel costs.

Much like the energy industry this is capacity going offline. The average for recycling ships is 30 years, the Journal notes. But in 2016 it's been cut to 15 years, a move, as noted, to cut excess capacity. But cutting over capacity doesn't solve the problem. There is something out their called China, not to mention the almost non-existent signs of any growth in Europe.

China's been a big importer of commodities, just ask those exporting commodity nations that are feeling China's slowdown. Or take a look at this. zerohedge.com/news/2016-08-17/japanese-imports-exports-crash-worst-rate-2009

For the 19th month in a row, Japanese Imports plunged - dropping 24.7% YoY (worse than expected), the biggest drop since Oct 2009. Exports were just as dismal, also missing expectations, plunging 14.1% YoY - worst since Oct 2009. The biggest driver of the collapse of Japanese trade was a 44% crash in the Chinese trade balance. 

 

Overnight

It's about the dollar. What it's not about is the Fed. The Fed is becoming more insignificant as time goes on in a world that's being twisted and jerked by crazy central bank policies and bureaucratic incompetence.

 The good thing about both is they create opportunities to make money, lots of money. They create imbalances. As Reuters noted: Asian stocks rose and the greenback languished near two-month lows on Thursday after minutes of the U.S. Federal Reserve's latest meeting showed policymakers were in no rush to raise interest rates.


MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.4 percent as investors added to positions after a 14 percent rise over the last two months.
Technology stocks, especially Tencent (0700.HK) and Lenovo Group (0992.HK) led the index higher

Hong Kong shares .HSI was the top gainer in Asia with a 1 percent rise, while a stronger yen, thanks to the Fed's cautious outlook, pulled Japan's Nikkei .N225 back 0.5 percent. The July meeting minutes released on Wednesday showed that Fed policymakers were generally upbeat about the U.S. economic outlook and labor market. But they also said they wanted to "leave their policy options open" as any slowdown in hiring would argue against near-term monetary tightening.
That's what's known as fence sitting or hedging your bet, something this Fed is now famous for, the lack of will to make a decision. Even the good job numbers are phony and they know it. So what's that say about the bad job numbers. Forget the Fed minutes. Watch the dollar.
The regional story was about stronger currencies with the yen rising and the Aussie dollar up, pushing stock markets down. The Wall Street Journal reported: Shares in Asia were mixed Thursday, with stronger regional currencies putting pressure on some stocks, while China’s plans to further open its equities market provided a delayed boost. The Nikkei Stock Average was hit by a stronger yen, falling 0.2% in morning trade. The yen broke below the 100 level versus the U.S. dollar. Elsewhere, Australia’s S&P/ASX 200 edged down 0.4% as its local currency strengthened following strong jobs data.Hong Kong’s Hang Seng Index was up 1.5%, Seoul’s Kospi added 0.3%, while the Shanghai Composite Index gained 0.2%. 

The Edge Gets Nearer

Everyone has a story or two from their growing up years.

There was a local character in our town who went around the neighborhood telling everyone for months he was leaving until, guess what?, just to save face one day he had to leave. That's what the Federal Reserve has been doing for some time now, telling everyone and anyone who will listen they'd like to raise interest rates.

It's really a backdoor way of asking if it's okay to do so. It's a CYA move bureaucrats are noted for. Given the falling dollar, since late January it's retraced quite a bit, investors are putting it all together and seem to be betting it won't happen this year. The dollar's recent decline, down 5% since December, to its lowest level since June is just one more piece of evidence these central bankers know not what their are doing.

Jawboning has its place, works sometime, but sooner or later it too gets exposed for what it is. Some would label it bluffing, others flat out indecision or incompetence. The real truth is economic global growth  remains quite soft. And all the phony reverenced for econometric models and dot-plot nonsense can't change it. Economists are noted for despising anecdotal  evidence. And why wouldn't they be, since it would eliminate the need for having them.

This Fed loves to hide behind terms like balanced, muted, anything that allows them to hedge or obfuscate their ignorance of what's going on. Messes are difficult to clean up, the most difficult are those you created. The recent surprising strength of the yen in the face of negative interest rates and what can only be called a hog wild monetary policy for years now baffles these textbook gurus. The same holds true for the EU. Australia recently cut its rates and their currency strengthened.

So expect to hear more about "new normals," a term another one of the blowhard, egocentric economists, Mohamed El-Erian, supposedly coined per his latest tome. The only thing new here is central banker incompetence is finally trickling down to the  masses.  Applause to the Internet. The only thing normal is these bureaucrats, left unshackled, are leading us to the same old place they always do, the edge of the monetary cliff without benefit of clergy or recourse.

Overnight

What happens in the U.S. doesn't always stay there. Shares in Asia were up overnight but not with a lot of conviction as comments by New York Fed President William Dudley and Atlanta Fed chief Dennis Lockhart pushed American shares down after both said in public statements that the U.S. central bank could raise the nation's short-term interest rates at its September policy meeting.

The Nikkei Stock Average meanwhile gained 0.6 on the back of a weaker yen, and Australia’s S&P/ASX 200 fell 0.1%. Korea’s Kospi traded 0.7% lower. The dollar edged up 0.2 percent to 100.485 yen during Asian trade after falling to 99.550 overnight, its lowest since June 24. 

The WSJ reported: China got a tepid response from investors on its plans to further open up its equity markets, contributing to Wednesday’s mixed performance in shares across Asia.

At the midday break, Hong Kong’s Hang Seng Index rose just 0.2%, with the Shanghai Composite declining by 0.2%.

Both the Shenzhen Composite Index and the ChiNext index, a listing board focused on fast-growing startups, were up 0.3%.

Late Tuesday, China gave the green light to a stock-trading link between Hong Kong and the tech-heavy Shenzhen exchanges, while scrapping important limits on how much foreigners can invest in the country’s stocks in an effort to entice global investors. However, daily trading flows into both Shenzhen and Shanghai, China’s other main market, will remain capped at 13 billion yuan ($1.96 billion) a day, and many Shenzhen-listed companies still won’t be easily accessible.

Market analysts were skeptical over how attractive this trading link would be to foreign investors, who can already invest in China’s domestic markets through the Qualified Foreign Institutional Investors scheme.

The consensus seem to be investors are waiting to see what central banks are going to do.

It's Bloomberg, Jake!

It's Bloomberg, Jake. What do you expect?

As The Daily Bell, a libertarian site, astutely and correctly points out, the fiat money ship has sprung a huge leak. A spreading lack of confidence in this confetti-drenched world brings out the scaremongers to pillory gold. The green door has been jarred wide open. Central bankers are to be trusted about as far as one can throw them.

Gold Losing Appeal for Investors Retreating From Rally … ‘People don’t believe in the gold rally,’ Holmes says. Investors are growing more skeptical of gold’s lasting luster. Hedge funds and other speculators cut their wagers on a bullion rally for the fourth time in five weeks. As traders tire, the metal’s 30-day historical volatility has dropped to the lowest since November. Open interest is also on the decline. – Bloomberg

Here comes Bloomberg telling us gold (and silver) are moving down.

That’s the implication anyway. Bloomberg rarely has something good to say about precious metals. The news service represents and endorses a technocratic version of the world.

Bloomberg’s vision is one of a world run by vast corporate interests and controlled by an elite group of bankers. These individuals manipulate money and commerce as they wish. Gold and silver only interfere with their control. thedailybell.com/news-analysis/bloomberg-article-bashing-gold-based-on-phony-jobs-report-2
  
Mark Twain once noted: there are lies, damn lies and then there is statistics. Pointing to a story by former Congressman Ron Paul, a libertarian, recently wrote about the phony recent job numbers, here's an excerpt:  A bombshell jobs report [has just been released], with headlines exclaiming that the US economy added over 250,000 jobs in July, far in excess of any forecasts.

The reality was far more grim. Those “jobs” weren’t actually created by businesses – they were created by the statisticians who compiled the numbers, through the process of “seasonal adjustment.”That’s a bit of statistical magic that the government likes to pull out of its hat when the real data isn’t very flattering.

It’s done with GDP, it’s done with job numbers, and similar manipulation is done with government inflation figures to keep them lower than actual price increases.

Those magically revised statistics Paul refers to get revised more often than a noted congresswoman's face. If they were a cosmetic product she's be fronting for it. We differ with the Bell on one point: It isn't disconcerting that Bloomberg doesn’t mention this in the article. "It’s an important point and the reader should be informed that the numbers Bloomberg is quoting are government extrapolations," they write.

It's not disconcerting. It's expected. Know who you're dealing with is the first rule. 

There's an old saying: Don't judge, assess. It's one MSM has long intentionally forgotten.

Overnight

The Nikkei 225 was off 0.2% in mid morning trading Tuesday on thin volume as it couldn't seem to find a real direct slipping further down after some see-sawing 1.1% in the afternoon on weaker oil prices and a stronger yen.

The Hang Seng Index hung around flat, falling 0.1%, the Australian ASX 200 fell 0.2% as weaker oil prices hit the commodity sector. The Kospi was up 0.1%. The WSJ reported: Late on Monday, the S&P 500, Dow Jones Average and the NasdaqComposite all reached record highs—a feat they accomplished last Thursday for the first time since 1999—on the back of hopes for production cuts in the oversupplied oil market. Brent crude oil eased back from a one-month high in Asian trade, though, and was last down to $48.04 a barrel.

The Shanghai market erased earlier gains as investors took profits in financial blue-chips. The benchmark Shanghai Composite Index edged down 0.5% to 3108.9, after trading up as high as 0.5% after the opening. Banking, car manufacturing and insurance stocks retreated the most as investors took profits in blue-chips.

The FTSE Bursa Malaysia Index climbed Tuesday morning alongside positive Asian markets lifted by expectations of more monetary easing around the globe. The Malaysia 30-stocks benchmark index increased 0.5% to 1,699.1 points in early trade, and was up 0.4% year-to-date.

In the commodity sector, copper futures edged higher and nickel fell 0.6%, while gold rose 0.5% to $1,346 a troy ounce.

The Nikkei dropped 0.2 percent to 16,837.98 in midmorning trade.

Overnight

Japan's lack growth was the story overnight pushing Asian shares down slightly Monday as the world's third largest economy continues to lag based on last quarter numbers.

The Nikkei 225 fell 0.3%, Topic index dropped 0.22%, the Korean market was closed for a holiday, the Australian ASX 200 remained flat. One report noted. Before market open on Monday, data from the Japanese cabinet office showed the country's gross domestic product (GDP) was unchanged in the April-June quarter from the January-March quarter, with exports weighing. The economy, however, grew 0.2 percent on an annualized basis.

The subdued numbers will likely revive doubts over Japanese Prime Minister Shinzo Abe's efforts . In July, Abe had announced a fiscal package worth 28 trillion yen in a bid to lift Japan's moribund economy. But analysts believe the package will likely have limited impact in boosting future GDP growth.

Singapore's DBS Bank said in a Friday note, "Although the Japanese government has unveiled a fiscal stimulus package this month to invigorate growth, the actual effects could be very limited, 

CNBC reported: Last week, the government announced a stimulus package worth $278 billion in hopes of increasing GDP growth by 1.3 percent, Reuters said.

But some banks were skeptical on whether the package would be effective.

"Although the Japanese government has unveiled a fiscal stimulus package this month to invigorate growth, the actual effects could be very limited, given that fresh spending in the package is of similar size as in the previous years," DBS said in a recent note.

Monday's data reinforced hopes for more monetary stimulus. The combination of weak growth, a strong yen and moderating underlying inflation increases the pressure on the Bank of Japan (BOJ) to ease further, according to Capital Economics.

The Great Divide

President of Germany
 
There is a saying only a fool never changes his mind. So one assumes one can't be too hard on those who finally experience some sort of epiphany. Better late than too late.

In the weekend edition of the Wall Street Journal, cited below, Peggy Noonan wrties: This is about distance, and detachment, and a kind of historic decoupling between the top and the bottom in the West that did not, in more moderate recent times, exist. 

What she and her fellow lovers of the Grand Old Party failed to see is this is part of Trump traction,  a topic we and many, many others have been writing about for some time, the great divide and the utter elitist contempt of people and for their so-called rights. The subject has never been Trump. It's been the divide.Yet she and her friends at the Journal editorial staff, mostly a group of literary eunuchs, did and have been doing everything they can to derail the Trump train since it first started.

As nearly everyone who cares to know knows, Europe has its own set of problems quite similar to the divide this upcoming election features. If  you think not, there's a new word in Webster's, Brexit. So what just happened in Germany is germane with a capital G. 

You say you want a revolution?

Germany's elite is going to get a well-deserved one soon.

“The elites are not the problem, the people are the problem.”
- German President Joachim Gauck

That may be the dumbest thing anyone has said since Marie Antoinette, and even she wasn't dumb enough to actually say it! 

This is a quote from a Germain outlet and the story posted here:
zerohedge.com/news/2016-08-13/german-president-booed-attacked-after-claiming-people-are-problem-not-elites.  .You can watch the video for yourself and decide.

Official German State TV and State Radio reported that "a handful of right wing extremists" have attacked the president and disturbed the otherwise peaceful and welcoming reception of the President. This is simply not the case, as seen in the video...
The people repeatedly shouted "Traitor!", "Get out!", "We don't want STASI Pigs" and "We are the people!".
One man, carrying his young son on his shoulders, appears to have spit on him whilst exclaiming insults. Other citizens were heard saying "You killed our children" and "What have you done to us?". They were blocked by police in riot gear, to whom they said "You are protecting warmongers, shame on you!"
The situation escalated and the riot police was forced to use pepper spray.

Heiko Maas, the German Justice Minister, called the attackers "cowards who insult the president because of their personal frustration". He himself was booed off the stage as a traitor by hundreds of Germans at the annual Labor Day celebration on the 1st of May. He said that they will be persecuted immediately, as "it cannot be allowed that such a tiny minority has influence on the political climate in Germany".
Writing in The Wall Street Journal, Peggy Noonan explained perfectly...
The larger point is that this is something we are seeing all over, the top detaching itself from the bottom, feeling little loyalty to it or affiliation with it. 

If these disgruntled were such a tiny minority it would hardly be taking on a global magnitude. Look around, something it's far too painful for the entrenched to do, so they must resort to obfuscation and epithets. In the U.S. the big hypocrisy is that neither one of these parties care a big damn about the huge chasm between the top and the bottom.

Here is a letter to the editor of the WSJ about another group of bureaucratic elites who are either out of touch or sadists. Note the term "usually rural." It's is important here because Ms Noonan ends her piece with another rural element in this story, wsj.com/articles/how-global-elites-forsake-their-countrymen.

The Fed has maintained U.S. dollar strength in relation to many foreign currencies over an extended period. This is displayed in 25% to 30% devaluations in Canadian and Australian dollars, Chilean and Mexican pesos, and the South African rand, among others, in relation to the U.S. dollar. The negative results are amply demonstrated in the current status of the U.S. mining and metals industry. Global metals are typically sold in U.S. dollars. While all commodity producers have been impacted by slowing demand, the mining sectors in Canada, Australia, Chile, South Africa, etc., have retained relative health due to appreciation of U.S. dollar prices in local currency terms.

On the flip side, the U.S. mining and metals industry has seen real decreases in the value of its products resulting in mine and plant closures and bankruptcies at an increasing rate. This same dynamic can be extended to the oil, gas and agricultural sectors of our economy. Is it any wonder that many citizens in this country are saying, “enough is enough.” The Fed’s actions at playing the global financial stabilizer is costing jobs in the basic (usually rural) industries of our economy. This is the Trump vote and it is why people are angry. 
James Hesketh
Golden, Colo.

What's interesting about the German Justice Minister's comment is his objection to "such a tiny minority having influence on the political climate." Think that one through all the while comparing it with what exists today and Ms Noonan's opening comment.

Ms Noonan should have become a hedge fund manager. She's excellent at hedging words, "a kind of historic decoupling between the top and the bottom...." Jobs in rural America are notoriously low paying, few in number and difficult to find. When you stack more competitors for those jobs in rural areas just so they won't sully up your tonier suburbs tens of miles away it's hardly an act of egalitarian altruism.