Issues 2016

Submitted by Doug Noland – Credit Bubble Bulletin 

January 8 – CNBC (Ritika Shah): “Billionaire investor Mark Cuban is ‘doing nothing’ about the market sell-off. In his latest note to his ‘dusters’—a term for users of the Cyber Dust app that he advises and funds—Cuban revealed his investment strategy. ‘While all the selling seems to be based on China and the price of oil, I really don’t know what the long term implications for our stock market is,’ he wrote… ‘So I follow the number one rule of investing. When you don’t know what to do. Do nothing.’”

It’s being called the worst start for global securities markets ever. The Shanghai Composite was down a quick 10% this week. Japan’s Nikkei sank 7.0%. Hong Kong’s financial index dropped 8.7%. Germany’s (investor “darling”) DAX equities index was slammed for 8.3%. Here at home, the S&P fell a relatively moderate 6.0%. Biotechs sank 10%. Gloomily, the financials (banks and broker/dealers) were down almost double-digits. The small caps were hit for 8%. The Nasdaq100 fell 7%. “FANG” was defanged.

Credit spreads widened across the board. With “money” flowing out of bond funds, even top-tier bonds are now feeling the effects. Investment-grade spreads widened this week to a three-year high. It was another tough week for high-risk corporate debt.

Currency markets commenced the year in disarray. The yen jumped 2.7% against the dollar, surpassing August tumult-period highs. Borrowing in cheap yen to finance leveraged holdings in higher-yielding currencies was a fiasco. The Australian and New Zealand dollars were down almost 5%. Some key EM currencies were under intense pressure. The Mexican peso fell 3.9%, the South African rand 4.8%, the Russian ruble 3.1%, the Turkish lira 3.6%, the Chilean peso 2.9%, the Colombian peso 2.9%, the Singapore dollar 2.4% and the Malaysian ringgit 2.3%. China’s yuan declined 1.6% against the dollar.

WTI crude was down 10.5% to a new 12-year low. After sinking 26% in 2015, the Goldman Sachs Commodities Index fell 5.2% to begin 2016. Ten-year Treasury yields declined a modest 13 bps, with fixed-income this week offering little protection against major losses throughout global risk markets. Benefiting from safe haven status, bullion surged 4.1%. Conversely, copper sank 5.3% to an almost seven-year low.

It was an ominous beginning to what is poised to be a most tumultuous year. Market participants are quickly coming to appreciate that China does in fact matter. Few understand why. Most – from billionaires to fund managers to retail investors – will “Do Nothing.” This has worked just fine in the past – repeatedly. Not understanding and not doing anything will be detriments going forward.

Yet Another Fabricated Jobs Report

Submitted by Dr. Paul Craig Roberts – Institute for Public Economy

According to Friday’s (January 8) payroll jobs numbers, almost 300,000 new jobs were created in December. Additionally, the previous two months were revised upward by 50,000 jobs. Apparently, the equity market did not believe the report, with the averages moving down today.

As I have pointed out almost monthly for what I think could be approaching two decades, the alleged job growth always takes place in nontradable domestic services, that is, in areas that do not produce exports and have no competition from imports. This is the job profile of a Third World country.

Twelve years ago I predicted at a major Washington, D.C., conference that was nationally televised that in 20 years the United States would have a Third World economy if jobs offshoring, which benefits only corporate executives and shareholders, continued.

Jobs offshoring has continued, and judging by the payroll jobs reports from the US government, the US is already a Third World economy.

The presstitute financial media—and what they are is a bunch of whores—always reports the alleged jobs increase as if it is a great thing, testimony to the continuing strength of the American economy, and so forth. Only a handful of us look at the data and reveal its meaning. Once again I will strip away the Matrix and show you the reality.

Allegedly, the US economy has been in recovery since, if memory serves, June 2009. If so, it is an unusual recovery. Normally, the rising job opportunities associated with economic recoveries bring entrants into the labor force, but the US labor force participation rate has been declining. In December, 2015, there are 1,185,000 fewer Americans in the labor force than in December 2014; yet, the working age population is higher today than a year ago.

The Canary in the Gold Mine

Submitted by Pater Tenebrarum  –  The Acting Man Blog

South African Gold Stocks Surge

Late last year we discussed one of the world’s most marginal mid-sized gold mining companies, South Africa-based Harmony Gold (HMY) (see “Marginal Gold Producer Takes Off” for details). We did so for two reasons: first of all, the stock has a well-established seasonal pattern – it tends to rally strongly from roughly November/December to January/February.

 

Photo via hdwallpapersbin.com

 

Secondly, this pattern is not merely a statistical artifact, but it actually supported by a clearly discernible fundamental driver – namely, this is the quarter during which the group traditionally posts the strongest results of the year. Thirdly, recent fundamental improvements (stronger than expected earnings and guidance) and a breakout in the Rand gold price to new highs seemed especially supportive this year.

 

Gold in Rand, weekly. This is a rather bullish looking chart at this stage – click to enlarge.

 

At the time we wrote in conclusion that we wouldn’t recommend chasing the stock, because it had become short term overbought (it did in fact pull back shortly thereafter). However, we also noted that we personally believed that the rally was likely to continue.

This has in fact happened – and in the meantime, other South African gold stocks have likewise begun to move noticeably higher. In other words, the market is apparently not only reversing last year’s tax loss selling effects to some extent, it is also beginning to recognize the potential for sharp improvements in the earnings and cash flows of these companies. Most South African mines are fairly marginal, so even a relatively small rise in the gold price can have a big effect on their net income.

The Cloud of Wholesale Autos

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Lost amidst the celebrations about the new auto sales record achieved in 2015 was that sales in December were more than disappointing. There were an overwhelming number of articles on the subject, and nearly all of them identical in focusing almost exclusively on 2015 as a whole rather than how sales were at the end. It is entirely understandable, not just because of the record but because autos have been one of the only actual bright spots in the economy (forgetting how it has been made so by pure credit debasement).

Whatever the displeasure in December, nobody seems to expect that to be much more than a minor blip.

“Missing one month for the domestic consensus isn’t a big deal,” said Jessica Caldwell, an analyst with automotive pricing website Edmunds.com, in a telephone interview. “It doesn’t take away from the larger picture of just how strong auto sales were in December and, really, all of 2015 — and how they’re set up to continue in 2016.”

Maybe, but the scale of the miss was at least cause for making sure. For a year in which sales were strong but perhaps more inconsistent than they had been in past years, ending on such a sour note was at least enough to suggest a harder look.

Automakers on Tuesday set a new U.S. sales record for 2015 even as December sales fell short of expectations, and most forecasters said sales should rise to another record this year…
Autodata said December sales rose 9 percent. On an annualized rate, accounting for seasonal factors, December sales were 17.34 million vehicles, well below the 18.1 million vehicles expected by a Thomson Reuters poll of 38 economists and analysts.

There is a big difference between 18.1 million and 17.34, though it is difficult to figure out the actual scale of that difference. There were a high degree of seasonal components that went into the 17.34 million owing to the calendar changes between November and December 2014 and November and December 2015 (which ones have five weekends and more selling days vs. which that don’t). Whatever was ultimately sold in actuality of US autos in December, however, likely wasn’t enough to even start to undo what is building in wholesale inventory.

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

 

• Worst First Five Days of Year Ever For US Stocks Dim Outlook (WSJ)

• The End of the Monetary Illusion Magnifies Shocks for Markets (BBG)

• More Than 40% Of Young Americans Use Payday Loans Or Pawnshops (Ind.)

• British People Donating Bodies To Science To Avoid Funeral Costs (Tel.)

• Multiple Jobholders Responsible For 64% Of Net US Job Gains (ECRI)

• First Profit Fall In 48 Years Looms Over US Energy Sector (MarketWatch)

• Mining’s $1.4 Trillion Plunge Like Losing Apple, Google, Exxon Combined (BBG)

• Inventor of Market Circuit Breakers Says China Got It Wrong (BBG)

• China Market Tsar In Spotlight Amid Stock Market Turmoil (Reuters)

• As Growth Slows, China’s Era of Easy Choices Is Over (WSJ)

• Why China Shifted Its Strategy for the Yuan, and How It Backfired (WSJ)

• China Finds $3 Trillion Just Doesn’t Pack the Punch It Used To (BBG)

• Shock, Laughter Greet Plan for Saudi Arabia’s Record Oil IPO (BBG)

• Saudi Aramco’s Fire Sale (BBG)

• US Accuses Volkswagen Of Poor Co-Operation With Probe (FT)

• Visible Light From Black Holes Detected For First Time (Guardian)

• Refugees Struggle In Sub-Zero Temperatures In Balkans (BBC)

• Greek Police, Frontex To ‘Check’ Volunteers On Islands Receiving Migrants (Kath.)