Another Dead Cat Bounce – And They’ve Already Buried The Cat

That didn’t take long. We’ve just had another short-covering rip from the 1870 Bullard Bottom on the S&P 500 and it’s already petered out. Not even another one of the St. Louis Fed President’s bouncing billiard balls could keep the machines slamming the buy key.

And that’s why there is a monumental market storm brewing dead ahead. Yes, James Bullard is a complete joke who gives zig-zagging a whole new meaning. After yesterday’s about face from rate increase hawk to dove, I’d even be inclined to designate him as a “monetary whirling dervish”. His policy pronouncements fit the urban dictionary’s definition perfectly:

(n.) A person whose behavior resembles a rapid, spinning object. These actions are often spastic fidgeting and incessant babbling. The actions of the whirling dervish are irritating and annoying, often exhausting other people in the immediate vicinity.

You can’t disagree with that, but the issue isn’t Bullard; its the entire central bank policy regime that is now racing towards a fiery dead-end. Bullard is just idiomatic—–the least reluctant of what will soon be a desperately flailing gaggle of Fed heads trying to explain that recession has returned, but that they are out of dry powder without a clue on what to do next.

So it won’t be long before we get the big breakout to the downside. The stock market has been churning and cycling in no-man’s land between 1870 and 2130 on the S&P 500 for 700 days now. There have been upwards of 35 rally attempts and all of them have failed, including this most recent machine driven three-day spasm.
^SPX Chart

^SPX data by YCharts

It is a sheer understatement to say that the market’s generals are in full retreat and that the internals are looking ever more precarious. As to the latter, fully 60% of the S&P 500 members are down 20% or more and are thereby already wrestling hard with the bear. Continue reading

The true role of gold

Submitted by Alasdair Macleod – FinanceAndEconomics.org

At a time of growing concern about the global financial system, it is time to remind ourselves why physical gold is so important for the benefit of the nearly three quarters of a million BitGold and GoldMoney customers, as well as those who might be considering what the benefits are of opening a gold deposit account.

This article explains the role of gold as money, and the dangers of leaving money on deposit in the banking system. In the interests of informing and educating a wider audience about the potential benefit of using gold for day-to-day payments, I would be grateful for readers to share this article with their friends and family as widely as possible.

We all know that for thousands of years, gold has been used as money. It qualified for this role because of its rarity and its ornamental utility: in other words, it will always have a value, come what may. This contrasts with unbacked paper money issued by governments, which has no such fundamental value. It is no accident that all collapses in money’s purchasing power have involved either debasing gold and silver coinage, or far more often the over-issuance of government paper currency. To these two versions of fraud on ordinary people, we must add a third, and that is by banks licenced by governments to create credit out of thin air.

How banking works

Let us look at bank credit for a moment, because that is the source of most money in circulation today. If a bank agrees to lend you money so you can pay your creditors or buy new equipment, you pay these obligations by transferring money from your loan into their banks. Meanwhile your bank does not need to have the money to lend to you. It balances its books by borrowing the funds from other banks with surplus funds to lend.

To illustrate the point as simply as possible, imagine there is only one bank. The bank lends you money, and you spend it. And as you spend it, the people and businesses who sell you stuff see their bank balances rise as they are paid. The bank created the loan for you, which was then covered by the deposits created by your spending, as you draw down funds from the loan. This works for multiple banks as well. All they need is a mechanism to ensure deposits are efficiently allocated between them, so that all the banks end up with balanced books. That is the function of the money market.

So by this magic, the money originally lent to you was created out of thin air by your bank, and then covered by deposits taken from the other banks where necessary. Banking is in effect a closed money-creation system. Note that your bank has not had to use its own money to create the loan to you. So a simple banking balance sheet consists of its own money (its capital, or shareholders’ funds), money owed to it by borrowers, such as you in the example here, and owed by it to depositors, such as the people you have paid.

If you borrow money from the bank, they will charge you a rate of interest, which if you are an ordinary person, can be anything perhaps between five and twenty per cent. With interest rates close to zero, the bank can fund this loan to you at about half of one per cent. That is nice business, particularly when it doesn’t have to put up its own money. Obviously the bank faces a risk which it it has to cover out of its own capital if necessary, and that is if you default on the loan. Continue reading

Industrial Production Is Leaving Little Doubt

Submitted by Jeffrey Snider  –  Alhambra Investment Partners

Industrial production fell 0.7% in January 2016 which was slightly better than the (revised) -1.9% estimated for December. It was, however, the third consecutive month showing a decline and, more importantly, the 6-month average turned negative for the first time in the “cycle.” Industrial production, at least as far as the Federal Reserve’s estimated series for it, is actually a lagging indication particularly in the average. In other words, in every other cycle by the time the 6-month average falls below zero the recession is already several months old.

The consistency with which we find that to be the case is very significant. In every recession since World War II, we find contracting IP shortly after each official cycle peak (declared by the NBER). The one exception is the 1990-91 recession where industrial production briefly dropped to slightly negative several months prior to the start of that recession, only to rebound somewhat into its early stages and before again falling further below zero in accordance with this overall long-term pattern.

ABOOK Feb 2016 IP SA YYABOOK Feb 2016 IP SA YY LongerABOOK Feb 2016 IP SA 6m Longer

Continue reading

ABN AMRO Predict Gold At $1,300 By Year End, Up From $900

Submitted by Mark O’Byrne  –  GoldCore

Gold is holding solidly above $1,200, brushing off news of the freshly released Fed minutes. Iranians cautiously welcome the Saudi-Russian oil production pact, while stating that they support cooperation to achieve higher oil prices, they also have domestic pressure to ramp up export of supply and cash in after years of being locked out of the market. This may possibly weigh down future oil price rises.

gold_year_usd

Gold in USD -1 Year

Interestingly, one of the biggest gold bears, ABN AMRO group have changed their long-held negative slant on gold and turned bullish — targeting $1,300 for 2016, stating that the global economy continues to weaken with lower oil prices affecting emerging markets, but the U.S. in particular. Analyst Georgette Boel wrote, “Having been long-standing bears we have now turned bullish on precious metal prices,” and “Our new scenario sees a longer period of weaker global growth.”

You can read the full article on Bloomberg here. Continue reading

The Daily Debt Rattle

Submitted by Raúl Ilargi Meijer  –  The Automatic Earth

• Negative Interest Rates Set The Stage For The Next Crisis (Stephen Roach)
• Why Negative Interest Rates Spell Doom For Capitalism (Romano)
• Central Banking Is In Crisis. Can The World Economy Be Far Behind? (Economist)
• Bank of Japan Baffled by Negative Reaction to Negative-Rate Policy (WSJ)
• Nomura Sees Yen Falling More Than 10% on BOJ Negative Rates (BBG)
• Abenomics? How About Kurodanomics? (BBG)
• OECD Calls for Urgent Increase in Government Spending (WSJ)
• China Bears Say the Capital Outflow Is Just Beginning (BBG)
• Red Ink In China (Economist)
• Overproduction Swamps Smaller Chinese Cities, Revealing Depth of Crisis (WSJ)
• You Cannot Print Your Way to Prosperity (Ron Paul)
• The Real Economy Is Talking, but Treasuries Aren’t Listening (BBG)
• Number Of UK Homes Worth More Than £1 Million Set To ‘Triple By 2030’ (G.)
• 400,000 Americans In Jeopardy As Giant Pension Fund Plans 50% Benefit Cuts (ZH)
• The Political War on Cash (WSJ)
• Swiss MPs Want New 5,000-Franc Banknotes To ‘Save Privacy And Freedom’ (L.)
• The Stressed-Out Oil Industry Faces an Existential Crisis (BBG)
• Oil Gives Up Gains as Inventories Build (WSJ)
• Anglo American Cut to Junk for Third Time This Week (BBG)
• Wary On Turkey, EU Prepares For Refugee Crisis In Greece (Reuters)