AN INTERESTING SPECIMEN

People want it seems to get all befuddled by the recent selloff in the market. But even a hot water bottle looses it heat after a while.

Too simple, you say. Not really. Big long term themes take a while to go snap, crackle and pop. That's the bane of human nature. We want it all to happen now. Nearly all the MSM cheerleaders wanted to believe the Fed's QE magic elixir would, like a good car wax, do the job. And it did put a gloss on things. But then glosses have a way of joining hot water bottles.

The stock market once the Fed confiscated the punch bowl, like the daring trapeze artist in the center ring, has been flying without a net. Current themes center on worries about China, the energy sector, more bankruptcies and the junk bond market partly fueled by the discord in the energy sector. So much for correlation. And those once staunch, reliable dividends, partly fueled by some sleight of the hand bookkeeping, are one of the newer concerns.

And what will the good doctors at the Fed do come April when the next rate hike is expected? If you go around suggesting the Fed, like it central banking brothers around the globe, are out of bullets, you're going to be less welcome than a flat tire in a rough neighborhood at two in the morning. Then there's the strong dollar and it's concomitant damage.

A lot of gurus say it's not as strong as it's been in previous episodes. And we say so what. Does it have to be before tanking? When you say the dollar, you're talking petrodollar in many respects and that itself is a growing issue. Raising interest rates will make that situation even worse. If you're an emerging market country dependent on the price of oil already gasping for air, you will love the Fed tightening that garrote even more.

Judging by all the turmoil around the globe, the U.S. has it's fair share of enemies. Enemies don't just crop up without reasons, pretended or otherwise. This is an election year. It's not just a referendum on the economy, jobs, stagnate living standards, that suspect data the Fed belches up periodically, and a pathetic statement like the CEO of Blackrock recently mouthed, it's about a longtime dreadful foreign policy made even more dreadful by this administration.

That's the not-so-scary part. The real scary part is most of the candidates in this election are guaranteed to make it even worse. Some of the big banks with exposure to the energy patch aren't pressing the strict covenants on their loans for fear of creating more bankruptcies. Wouldn't it be nice if you and I could do that?

My creditors stipulate I have to pay by a certain date or else pay a penalty. The IRS says the same, plus a penalty plus interest based on rates higher than that of the worst credit cards. And this billionaire genius at Blackrock says he doesn't understand all the anger afoot today.

He's an interesting specimen. Some might suggest the title of the firm he oversees is appropriately named.

MISLEADING DATA

 
 Here's what we call a misleading chart and correlation from marctomarket.com.

The perception is the Canadian dollar has held up well against the dollar. Implied is that the falling oil price hasn't hurt the loonie or by association hasn't hurt the soft commodities much. Canada imports a large amount of it's fruit and veggies. Grocery prices have skyrocketed. The Canadian dollar is down nearly 20% against the dollar since May, that's a bear market in equity market standards. It'/s al;so being called a bear market for many global stock markets that are now in that territory.

Falling oil prices have not only impacted the commodity-driven Canadian economy, it has significantly hurt the guy in the street. Here are a few reads on the matter. Forget for the second, the inflated grocery prices, the loss of jobs continues to grow, by some estimates soon to hit 250,000.
Those jobs don't exist in a vacuum. There's plenty of downstream consequences.

  
Low oil prices are rattling global markets and destabilizing economies around the world. They are also posing one of the first big tests to the United States banking system since the financial crisis.Banks of all sizes are marking down the value of loans and setting aside reserves to absorb additional losses as oilproducers struggle to pay their debts.On Tuesday, Bank of America said provisions for credit losses increased $264 million in the fourth quarter, driven by the downturn in the energy sector. Citigroup, Wells Fargo and JPMorgan Chasereported last week that oil issues also weighed on fourth-quarter earnings.While the energy downturn is cutting into profits, it is not threatening the big banks’ capital cushions, a testament, analysts say, to the rigorous regulations put in place to protect the financial system after the collapse of the mortgage market in 2008.Still, the worst pain for the banks may lie ahead. While many banks have reduced credit lines to oil producers, some lenders are loath to cut off financing entirely for fear of forcing energy companies into bankruptcy, according to energy lawyers and consultants.

LONDON — The persistent plunge in oil prices has translated into a new round of industry job cuts.The British oil giant BP said on Tuesday it would eliminate 4,000 of the approximately 24,000 positions in its exploration and production units this year. That would be in addition to about 4,000 jobs that the company cut last year, when it trimmed its work force to about 80,000.“We have to make sure we have a competitive and sustainable business,” David Nicholas, a company spokesman, said by telephone. “External market conditions are getting tougher.”After oil prices began dropping in 2014, BP was among the companies warning that the price plunge could be deep and sustained. After falling about one-third last year, prices are down an additional 15 percent in the first 12 days of 2016.

LOSERS

For starters, oil-producing countries and states. Venezuela, Iran, Nigeria, Ecuador, Brazil and Russia are just a few petrostates that are suffering economic and perhaps even political turbulence. Persian Gulf states are likely to invest less money around the world, and they may cut aid to countries like Egypt.

In the United States, Alaska, North Dakota, Texas, Oklahoma and Louisiana are facing economic challenges.Chevron, Royal Dutch Shell and BP have all announced cuts to their payrolls to save cash, and they are in far better shape than many smaller independent oil and gas producers that are slashing dividends and selling assets as they report net losses. Other companies have slashed their dividends.About 40 companies in North America have gone into bankruptcy protection.

DAVOS TIME

How do you recognize bureaucratic jawboning when you hear it. Well, it's not difficult.Take a government bureaucrat, put him or her in front of the media and presto! It's Davos time.

Central banks still have more firepower they can use to counter a slowdown in global growth, which does not change the outlook for recovery in the euro zone, European Economics Commissioner Pierre Moscovici said on Wednesday.

In an interview with Reuters Television at the World Economic Forum in Davos, Moscovici said he did not believe there would be any return to an international financial crisis, despite turmoil in world markets during the first few weeks of 2016 triggered by China's slowdown and low oil prices.
 
Asked whether the world's main central banks had run out of ammunition to revive the global economy after years of record low interest rates and quantitative easing, he said: "They have got guns and they can act."

While declining to recommend policy to the independent European Central Bank, the French Socialist said the ECB had taken the right action since 2012 to preserve the unity of the euro zone and show it could resist any shock. ECB action had also addressed policy issues linked to weak growth "and we need to go on with that", he said. 

Moscovici said he did not expect any major change in the euro zone's growth outlook when the European Commission issues an updated forecast in early February, despite the sharp slowdown in China and tumbling stock and commodity markets. More:

bnn.ca/News/2016/1/20/No-global-meltdown-EU-growth-outlook-unchanged-EU-economic-chief 

YOU DECIDE

Forget China for a minute and it's recession.There's growing concern about the U.S. falling back into recession. Recall the Fed with one rate hike of a mere 25 basis points under its belt, it's essentially out of economic bullets. And returning rates to ZIRP land again, the globe needs like you need a wart on your nose.

The world’s financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, according to a leading global banker.

William White, chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements, who suggests the stresses in the financial system are now “worse than it was in 2007”.

Speaking to the UK Telegraph’s Ambrose Evans-Pritchard before the start of the World Economic Forum in Davos, White warned that macroeconomic ammunition to fight further economic downturns is essentially “all used up”.

“Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,” he told the Telegraph.

“It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something.”

Davos is that big party in Switzerland, for big people, that gets big press coverage annually that turns out to be a big nothing burger. And maybe someone from the ECB  or the Fed, both of which claim they can't find any inflation, 2% or otherwise, should read this story.

JOHANNESBURG – The weaker rand has resulted in prices sky-rocketing in Davos for South Africans who have travelled there for the World Economic Forum.

A meal has cost one business reporter a whopping R700.

It could cost an individual anything up to R500,000 to attend this year's World Economic Forum in Davos.

Editor and Publisher of biz news, Alec Hogg, says this is his thirteenth trip.

Yesterday he purchased a chicken Caesar salad and a glass of milk - the same meal he bought last year.

“It cost me 41 Swiss francs and 50 cents and that’s worth up to R700 as compared to last year where it was just over R500 and the year before it was under R400.”

Hogg says this shows how the rand is falling.

There are about 80 South African delegates attending this year and the overall cost is about 40 percent more compared to last year.

The  rand is not the only currency falling against the dollar. Look at charts of the Canadian loonie, The Brazilian real, the Russian ruble, the New Zealand and Aussie currencies, to mention a few.

Last week industrial production numbers came out and the news was not what economists expected. According to data from the Federal Reserve, industrial production dropped in December 0.4%

Well, the news is out and  it's not what economists expected. According to data from the Federal Reserves, industrial production dropped in December 0.4% and the previous period was toned down to 0.9%, a drop of 0.6%.  So the 4Q number was on an annual basis down 3.4% for industrial production.

Capacity utilization, an indicator to gauge how ramped up or down industry is as a whole, also disappointed. Economists were expecting a higher number than the 76.5 they got for the month. The indicator is supposedly about mining, manufacturing, electric and gas utilities since it takes energy to run industry.
  
Last week, following a long period of poor internals and weakening order surplus, we observed fresh declines in industrial production and retail sales. Industrial production has now also declined on a year-over-year basis. The weakness we presently observe is strongly associated with recession. The chart below (h/t Jeff Wilson) plots the cumulative number of month-over-month declines in Industrial Production during the preceding 12-month period, in data since 1919. Recessions are shaded. The current total of 10 (of a possible 12) month-over-month declines in Industrial Production has never been observed except in the context of a U.S. recession. Historically, as Dick Van Patten would say, eight is enough

 
 A broad range of other leading measures, joined by deterioration in market action, point to the same conclusion that recession is now the dominant likelihood. Among confirming indicators that generally emerge fairly early once a recession has taken hold, we would be particularly attentive to the following: a sudden drop in consumer confidence about 20 points below its 12-month average (which would currently equate to a drop to the 75 level on the Conference Board measure), a decline in aggregate hours worked below its level 3-months prior, a year-over-year increase of about 20% in new claims for unemployment (which would currently equate to a level of about 340,000 weekly new claims), and slowing growth in real personal income.  advisorperspectives.com/commentaries/20160119-hussman-funds-an-imminent-likelihood-of-recession.

Fear can be oversold and it can be overbought.You have to decide.

MARKETS SPEAK

 
Current concerns over China run way deeper than just the numbers, but that's the focus you see and hear in MSM.

The much deeper, more important lesson people are leaning is you can't trust government numbers. Any government. As a kid growing up in school you hear about those Banana Republics with their economic problems and corruption and you think it can't and won't happen here.Then one day suddenly you're a grown person and you realize it's been going on all along.

If you can't trust government numbers, you can't trust governments. Any government. There's a poll in the WSJ today showing that if Trump and Sanders are the two candidates for president in the up- coming election and if the it were held today, Sanders would win by a fairly wide margin.

That's one of those go figure things. At a time when more and more people around the world are angry and disgruntled with government, Americans would elect an admitted socialist, a guy who would do his best to impose more government on them.

Now we don't know how honest or accurate that poll is because polls are are comprised of numbers with people who have an agenda and there's something called mass-directed propaganda that gets unleashed by private and public sectors.Take a look at the pharmaceutical industry or the CDC.

What we do know is this, though it 's most unwelcome in our PC-controlled society today: People get what they deserve. And dear investors, whether you recognize it, that's what these markets are telling you. One of the major goals of the PC crowd is to abolish the responsibility of caveat emptor.

As an article we recently read about China's economic woes, with more expected, concluded: You have been warned.