Let’s Get This Over With: Factory Orders More Toward Finality

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Factory orders declined for the fourteenth consecutive month. At -4.3%, the year-over-year drop wasn’t huge but we are now into comparing consecutive yearly contractions. In other words, factory orders in December 2015 were 4.3% less than December 2014 which were 2.4% less than December 2013. It isn’t so much the magnitude as the time now in that consistency.

In seasonally-adjusted terms, however, December was a big drop, nearly 3%, which brought the level backward to equivalent with the middle of 2011. If a recession is a prolonged period of wide scale interruption and decline, US factory activity clearly fits the definition already.

ABOOK Feb 2016 Factory Orders SA MM

The entire contraction for factory orders, both down and up, in the Great Recession was 14 months; the dot-com recession was slightly longer in production, with factory orders falling for 16 months straight and 18 out of 19 at the longest. The problem with our current recession is that there is no end in sight even after 14 months. With the large drop in seasonally-adjusted sales for December, the advance figure on inventories was contrarily positive meaning that the sales to inventory gap only widened further; a lot further.

ABOOK Feb 2016 Factory Orders Inv to Sales Manu

The biggest discrepancy in terms of inventory and sales was transportation equipment, where inventories rose 1.3%. Sales in that segment, however, plummeted by 12.6%! With transportation, including autos, a major pillar of even this awkward and uneven recovery so massively out of balance, that indicates only more and greater production adjustments ahead (these figures are for the month of December). Continue reading

Gold And Silver Best Performing Assets – Up 9% and 8% YTD

Submitted by Mark O’Byrne  –  GoldCore

Gold is 3.6% higher this week and is now over 9% higher year to date. The dollar saw sharp falls this week on growing doubts that the Federal Reserve will be able to raise interest rates. The gains this week were due to increasing concerns about the U.S. and global economy.

gold_performance_ytd_2016
GoldCore and Finviz.com

The increasingly uncertain U.S. and global economic outlook has led to an increase in demand for gold and silver bullion. Sharp falls in stock markets globally (S&P down 6% and DAX down over 12% ytd), the Chinese slowdown and the collapse in oil prices (-0.9%), has seen safe haven demand for the precious metals.

Gold rose 5.3% in January and has now seen a further 3.6% gain in the first week of February. This has led to the precious metals being the best performing assets year-to-date, with gains of over 9 percent and 8% for gold and silver respectively.

Silver is 4% higher this week and silver buyers continue to accumulate silver in the belief that it remains great value at less than $15 per ounce. We share this view given the fact that silver remains nearly 70% below the nominal high near $50 per ounce in 1980 and again in 2011.

Also, the gold-silver ratio at 77 ($1,160/$15 per ounce) shows that silver remains great value at less than $15 per ounce.

silver_chart_10year
Silver In USD – 10 Years (GoldCore)

Recent economic news has been poor with the U.S. Unemployment Claims disappointing after it climbed to 285,000. Manufacturing numbers were mixed, as Preliminary Unit Labor Costs posted a gain of 4.5%, well above the forecast. However, U.S. Factory Orders posted a decline of 2.9%, badly missing expectations.

In the heady days following the Fed’s rate hike, there was bullish talk of up to four rate hikes in 2016. We said this was highly unlikely and recent data and deteriorating economic conditions confirms this. We have been contending in recent months that the U.S. economy is much weaker than believed. Recent data has confirmed this weakness.

We continue to see a sharp recession as inevitable – both in the U.S. and globally. The question is more regarding the severity of the recession and the nature of the recession and whether it will be deflationary or stagflationary. Deflation remains the primary risk given the $200 trillion debt laden global economy. Continue reading

Transportation Sector Woes Continue

Submitted by Pater Tenebrarum  –  The Acting Man Blog

Not Getting Better

In late July last year, not long before the stock market delivered a major “warning shot” with its sharp decline in August, we wrote about the transportation sector in Transportation Sector in Trouble – What are the Implications?. As we noted at the time, the sector seemed to send a potential “economic red alert”.

 

ghost fleetThe famous ghost fleet near Singapore

Photo credit: Richard Jones / Sinopix

 

What was at the time a long-lasting divergence between the Dow Jones Industrial and Transportation Averages, has in the meantime turned into a complete rout of transportation stocks. At the moment the Transportation Average is rebounding from severe oversold conditions, but the fact remains that this former upside leader has become a downside leader.

 

1-TRAN      After topping in late 2014, the Dow Transportation Average has suffered a sharp decline – click to enlarge.

 

In recent days we have come across a few other data points and charts in this context, some of which we show below. Yesterday Zerohedge reported on a sharp decline in orders for trucks, which jibes with what we are seeing elsewhere.

The charts below are a bit of an eclectic collection, but they are all making the same point: global trade continues to be in trouble. First two charts from China, the first one of which we have already shown in a recent Bill Bonner missive, namely the Shanghai containerized freight index (a price index).

 

2-containerized freight indexChina containerized freight index has been in a relentless downtrend last year. Lately it has been moving sideways at a low level – click to enlarge.

 

The next chart shows the China railway freight index. Apparently China’s national railway company is set to reports its first ever operating loss this year, as railway cargo volumes have collapsed 11.9% year-on-year in 2015 to a new five year low. In Q4 2015 the decline accelerated to 13.4% y/y. Continue reading

The War On Savers And The 200 Rulers Of World Finance

There has been an economic coup d’état in America and most of the world. We are now ruled by about 200 unelected central bankers, monetary apparatchiks and their minions and megaphones on Wall Street and other financial centers.

Unlike Senator Joseph McCarthy, I actually do have a list of their names. They need to be exposed, denounced, ridiculed, rebuked and removed.

The first 30 includes Janet Yellen, William Dudley, the other governors of the Fed and its senior staff. The next 10 includes Jan Hatzius, chief economist of Goldman Sachs, and his counterparts at the other major Wall Street banking houses.

Then there is the dreadful Draghi and the 25-member governing council of the ECB and  still more senior staff. Ditto for the BOJ, BOE, Bank of Canada, Reserve Bank of Australia and even the People’s Printing Press of China. Also, throw in Christine Lagarde and the principals of the IMF and some scribblers at think tanks like Brookings. The names are all on Google!

Have you ever heard of Lael Brainard? She’s one of them at the Fed and very typical. That is, she’s never held an honest capitalist job in her life; she’s been a policy apparatchik at the Treasury, Brookings and the Fed ever since moving out of her college dorm room.

Now she’s doing her bit to prosecute the war on savers. She wants to keep them lashed to the zero bound—-that is, in penury and humiliation—–because of the madness happening to the Red Ponzi in China. Its potential repercussions, apparently, don’t sit so well with her:

Brainard expressed concern that stresses in emerging markets including China and slow growth in developed economies could spill over to the U.S.

“This translates into weaker exports, business investment, and manufacturing in the United States, slower progress on hitting the inflation target, and financial tightening through the exchange rate and rising risk spreads on financial assets,” she said, according to the Journal, which said she made the comments on Monday.

In the name of a crude Keynesian economic model that is an insult to even the slow-witted, Brainard and her ilk are conducting a rogue regime of financial repression, manipulation and unspeakable injustice that will destroy both political democracy and capitalist prosperity as we have known it. They are driving the economic lot of the planet into a black hole of deflation, mal-distribution and financial entropy. Continue reading

NIRP Is So Simple

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Why won’t monetary policy just work as designed? It sounds so utterly simple:

To review: Interest rates are the price of lending and saving money. When interest rates throughout the economy are low, banks charge less for loans and individuals have less incentive to save; when they’re high, lenders charge more and individuals save more. This is why central banks tighten interest rates when they’re worried about inflation: Discouraging loans and encouraging individuals to sock their money away slows economic activity, which keeps inflation in check. Conversely, cutting interest rates in a recession encourages credit and consumption, which boosts job creation.
If interest rates could go negative — and banks started charging people for depositing their money — then this logic extends out: Not only would we be encouraging people to save less, we’d be actively penalizing them for saving rather than consuming.

This is the cartoonish version of money and banking that is usually sketched out on the chalkboard of any Economics 101 class. The real world, however, looks something like this:

ABOOK Jan 2016 Where is QE EoniaMRO SpreadABOOK Jan 2016 Where is QE Euro Money Markets

But even after that, the author makes this stunning claim about how BoJ’s NIRP & QE repackaging might actually work:

One reason to think the Bank of Japan’s gambit could help is that a lot of actors in the economy can’t really “stuff money in the mattress” in practice. Big financial firms and corporations and the like are dealing with huge sums of money parked in all sorts of wild financial instruments. In many cases, turning those holdings into cash and thus escaping the bite of negative interest rates will just be prohibitively difficult and expensive. So they may well eat the cost of the negative interest rates, and respond to the incentive the way the Bank of Japan hopes they will. This may explain why the negative interest rates from the ECB and others haven’t resulted in dysfunction.

My definition of “dysfunction” in this context is clearly different (as shown in the charts above). Instead, it may presume better understanding to answer where past extremes taking exactly this format as the author proposes failed to generate anything the author and the theory presupposes. It’s the politician who when losing a vote falls back on blaming his/her messaging or communications rather than the more fundamental proposition that there are no monoliths to easily exploit. Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Dollar Tumbles As Fed Rescues China In The Nick Of Time (AEP)
• SocGen: China Only Months Away From Depleting Its Currency Reserves (MW)
• China Foreign Reserves Head for Record Drop on Yuan Defense (BBG)
• Citi: ‘We Should All Fear Oilmageddon’ (BBG)
• Just 0.1% Of Global Oil Output Has Been Halted By Low Prices (BBG)
• US Running Out Of Space To Store Oil (CNN)
• Obama Proposes $10-a-Barrel Oil Tax (MW)
• IMF Honing Tools To Rescue EMs From China Spillover (Reuters)
• BOJ Board Among Those Surprised By Negative Interest Rate Plan (Reuters)
• US Banks Targeted By Activist Investors (Reuters)
• Two Anonymous Whistleblowers Are Pounding on the SEC’s Door Again (Martens)
• Europe’s Ports Vulnerable As Ships Sail Without Oversight (FT)
• Portugal’s Anti-Austerity Budget Provokes Brussels Showdown (FT)
• Saudis Say Cash Crunch Won’t Derail an Ambitious Foreign Agenda (BBG)
• World Food Prices Tumble Near 7-Year Low (CNBC)
• Julian Assange Should Be Freed, Entitled To Compensation: UN Panel (AP)