Submitted by Guest Contributor – EconMatters
Mario Draghi is a Hype Machine
The Gold Market is pretty interesting here as investors realized on Thursday that much that comes out of Mario Draghi`s mouth is complete hyperbole, because things aren`t nearly as dire in Europe as some bankers try to persuade for additional stimulus out of the ECB, and Germany isn`t going to sign off on the extreme bazooka stimulus measures because Germans by nature are conservative, and there is a commensurate symmetry between ratcheting up extreme monetary measures and stoking the fire of unintended consequences.
December Rate Hike Fully Priced into Markets
The Federal Reserve is all set to go on with a 25 basis point rate hike in two weeks, the financial markets have priced this in to the tune of around 80%. The surprising tone of the precious and industrial metals price action of Friday in the face of the US Dollar strengthening and oil getting hammered on OPEC news was interesting to say the least. The entire complex rallied from Copper, Aluminum, Platinum, Palladium and Silver to Gold as new money moved into the sector, and stayed there even after Mario Draghi tried to walk back the Euro from Thursday`s currency gains on the US Dollar.
Gold Price Action
After putting in the low for the year on Thursday morning of $1,045 per troy ounce, Gold finished Friday at $1,084 on the February 2016 futures contract. Gold has been hovering right around the $1,060 – $1,070 level for the last two weeks, and even if this is just short covering, somebody forced some shorts to cover. Maybe financial markets and the Metals markets are starting to realize a ‘One and Done’ rate hike by the Federal Reserve isn`t the end of the world. And given the $18 Trillion and climbing in US Debt facing central bankers at the Fed they are going to have to be doing a whole lot of “monetizing” or in layman`s terms currency printing for the foreseeable future so Gold and other Metals look attractive here at multi-year lows.
Yannis Bahrakis Witnessing the refugee crisis 2015
Perhaps the best way to show what a mess Europe is in is the €3 billion deal they made with Turkey head Erdogan, only to see him being unmasked by EU archenemy Vlad Putin as a major supporter, financial and who knows how else, of the very group everyone’s so eager to bomb the heebees out after Paris. It could hardly have been more fitting. That’s not egg on your face, that’s face on your egg.
But Brussels thinks it’s found a whipping boy for all its failures. Greece. It’s fast increasing its accusations against Athens’ handling of the 100s of 1000s of refugees flooding the country. Everything that goes wrong is the fault of Greece, not Brussels. The EU has so far given Greece €30 million in ‘assistance’ for the refugee crisis, while the country has spent over €1.5 billion in money it desperately needs for its own people. But somehow it’s still not done enough.
The justification given for this insane shortfall is that Greece doesn’t blindly follow all orders emanating from Europe’s ‘leaders’. Orders such as setting up a joint patrol of the Aegean seas with … yes, Erdogan’s Turkey. Where Greece gets next to nothing as the children keep drowning, Turkey gets €3 billion and a half-baked promise to join the Union sometime in the future.
Which was never going to happen, the EU would blow up before Turkey joins and certainly if it does, and most certainly now that Russia’s busy detailing the link between the Erdogan cabal and Europe’s supposed new archenemies -move over Putin?!, which, incidentally, are reason for France to ponder a kind of permanent state of emergency; ostensibly, this is Hollande’s way of exuding confidence. ‘We must protect our way of life’. Continue reading
This “Jobs Friday” ritual is getting truly absurd. So it can’t be repeated often enough: These artifacts of the BLS’ seasonally maladjusted, trend-cycle modeled, heavily imputed, endlessly crafted and five times revised “jobs” numbers have precious little to do with the real health of the main street economy.
Indeed, the six-year run of job gains since early 2010 primarily represents “born-again jobs” and part-time gigs. In economic terms, they do not remotely resemble your grandfather’s industrial era economy when a “job” lasted 40 to 50 hours per week all year round; and most of what the BLS survey counted as “jobs” paid a living wage.
Not now. Not even close.
The Wall Street fools who bought the dip still another time on Friday do not have the slightest clue that the US jobs market is actually quite dead.
The chart below is also generated by the BLS but it measures actual labor hours employed, not job slots. It self-evidently puts the lie to the establishment survey fiction upon which the robo-machines and day traders are so slavishly focussed.
As the manufacturing recession becomes more and more unassailable (and I mean that in more than one way), the fact that it still shows no end or let up suggests still greater difficulty beyond manufacturing. As feedback loops become more established and robust, and thus convince more and more non-manufacturing firms to adjust instead of waiting out for Janet Yellen’s assurances to prove just once useful, the economy can only perform further negatively and among a growing contagion.
The latest update in factory orders was perfectly consistent with the rest of 2015 so far, which is again a highly negative suggestion about future economic performance. Factory orders are forward looking by their nature, orders after all. October’s estimates were 5.7% less than October 2014, following 7% contractions in August and September. Year-over-year, factor orders have declined for exactly twelve months, meaning now a full year of contraction in orders.
Seasonally-adjusted, factory orders were higher in October than September which means nothing toward suggesting anything but monthly variation. Even in these adjusted estimates, the recessionary imprint is perfectly clear. The last peak was June 2014 (not counting the enormous, one-off surge last July) with as estimated $510 billion in orders for future product. Every month after that (again, not including July) has been less, a run of fourteen months that precludes anything like an “anomaly”, “aberration” or especially “transitory.” Continuing month after month at 7% or more below the prior peak is not just significant, it is downright alarming. Continue reading
I’m going to offer something a little different in this week’s Outside the Box. Nate Silver has consistently been one of the best political analysts of the past 12 years. I wasn’t terribly enamored of his move from the New York Times to ESPN – to go back to covering sports rather than politics – but he still covers politics over at 538.
This past week he wrote an article called “Dear Media, Stop Freaking Out About Donald Trump’s Polls.” It’s not that he’s got an anti-Trump bias, but he points out in this insightful article that polls taken this month aren’t really telling us anything, and at the end of the piece he shows us what the breakdown of people who are firmly decided on their presidential candidate probably is for Iowa and New Hampshire. If nothing else, that will either make you happy because your favorite guy or gal may not actually be that far behind (assuming you’re Republican, that is) or it will demonstrate the dubious value not just of political polls but also of consumer and economic surveys as opposed to hard facts.
Silver’s analysis speaks to the skeptic in me. In his analysis, Donald Trump still comes in at the top of the heap of announced candidates, but “undecided” is a massive winner. That won’t be the case on February 1 when the Iowa caucuses are actually held, and Nate discusses how and when people actually make decisions on such things. If you are like me and find yourself faced with the choices given us today, you may be (1) overwhelmed and (2) not exactly sure who to support. There is a lot to like about a lot of them, but the choice is confusing to say the least. Do you pick the candidate you think can do best in November, or do you pick the candidate you would really like to be president? I think you will find this a fun and interesting read.
Even though I am not traveling, I seem to stay just as busy as ever. I am beginning to whittle my inbox down while trying to keep up on my book research. When you start trying to write a book on what the world will look like in 20 years, there are just so many moving parts. We are also dealing with well over 100 different research assistants, and trying to coordinate all that and hit writing deadlines does make for a full day. An interesting day to be sure, but full.
You have a great week and be sure to check your inbox for my letter this week. It will have a major announcement that I am sure will intrigue you.
Your skeptical about polls in general analyst,
John Mauldin, Editor
Outside the Box
Submitted by William Bonner, Chairman – Bonner & Partners
Fools or Knaves?
[ed. note: this article was written shortly before the ECB decision was announced, so the deposit facility rate mentioned in it is still the old one; it has been reduced to – 30 bps in the meantime]
BALTIMORE – Thursday is the big day. Mario “whatever it takes” Draghi is expected to goose up stock markets with more stimulus measures. On the table is more QE… and further cuts to the key lending rate.
The good Lord adds jerks to the mix to keep things interesting … we’re happy to report the operation was a success. It may actually have been a tad too successful.
Cartoon by Gary Larson
The Chinese feds are also supposed to come forward with another gift to asset holders. According to the Wall Street Journal, the expectation is for something targeting property purchases and another interest rate cut (which would make it cut No. 7 since last November).
China’s central bank administered one-year benchmark lending rate – click to enlarge.
And yesterday, Fed chair Janet Yellen told the Economic Club of Washington:
“Were the FOMC [the Fed’s policy setting committee] to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession.”
In Europe, Asia, and America, central bankers, we are told, have the situation in hand. But these policies – in fact ALL central bank policies for the last 30 years – are either a mistake or flimflam.
Purveyors of flim-flam: the world’s leading central bank bureaucrats
Image via via finanzacritica.it
They are perpetrated by either fools or knaves… depending on how you look at it…and they are either an intentional transfer of wealth from the people who earned it to the world’s elite insiders. Or the transfer of wealth is an unintended consequence of botched policy. Continue reading