Meanwhile On Times Square… “Motorized Skijoring”

When non-exceptional countries get “snowed in” by historical storms, they huddle around their wood burners with fingerless mittens keeping their hands warm while peeling potatoes and playing chess. In America, however, they skijore


Because nothing says USA USA USA like snowboarding through New York City holding a Stars & Stripes being pulled by a Jeep Wrangler…


America – F##k Yeah!!

via Zero Hedge Tyler Durden

Leaked Document Reveals Why China Will Not Roll Out Any Major Monetary Stimulus

In a world in which every nation is now part of the race to debase their currency, or as the Brazilian finance minister first dubbed it in 2010, a “global currency war”, the first and foremost imperative on every central bank’s agenda is to devalue its currency faster than its net exporting peers. But not too fast: indeed, there is a problem, when the threat of devaluation becomes too great and the risk resulting from a flood of capital outflow surpasses than that from the economic contraction that would persist should the currency not devalue fast enough.

This is precisely what is happening in China, where as we reported two weeks ago, the nation has, over the past 18 months, seen $1 trillion in capital quietly exiting the otherwise closed system which has terrified the Politburo that even its $3.5 trillion in foreign reserves (of which about $1.5 trillion are said to be liquid) won’t be enough if the capital outflow accelerates.

This has in turn put the Chinese central bank in a very uncomfortable position: while the PBOC desperately needs to boost monetary stimulus to facilitate debt creation in a nation where company have to issue new debt just to pay their interest, or as Minsky called it, the endgame…

… any further stimulus will also lead to even greater currency debasement and devaluation, more capital outflows, more FX reserve spending, and ultimately the perception that Beijing is panicking and those $35 trillion in Chinese bank assets are about to the NPLed into oblivion as the rollover of bad debt becomes impossible.

This was confirmed earlier today when the South China Morning Post reported that according to a leaked document “the People’s Bank of China is reluctant to further reduce the required reserve ratio (or RRR) for fear of such a move resulting in the weakening of the yuan.”

The information, reportedly leaked from minutes of Tuesday’s meeting between the central bank and commercial lenders, was shared widely after it was published on major mainland online portals including and

As a reminder, the RRR along with the core interest rate, are the two “shotgun” methods that China’s central bank has to easy (or tighten) monetary conditions. As such, every time Chinese economic indicators take another leg down, every one in the sellside screams for more PBOC stimulus, mostly in the form of a RRR cut.

However, that now appears won’t be happening.  SCMP explains why the PBOC is suddenly reluctant to ease aggressively over fears such a move can unleash another torrent of capital outflows:

The memo sheds light on the challenge the PBOC faces in trying to achieve two conflicting goals. It has to ease monetary supply to raise liquidity to boost the ailing economy. But it also has to stop the yuan from weakening too much, which could happen in the case of increased liquidity.


According to the memo, Zhang Xiaohui, an assistant central bank governor in charge of monetary policy, told commercial bankers that the PBOC had to be very careful in maintaining the renminbi’s exchange rate stability when managing liquidity.


A key lesson for the central bank was the aftermath of its move in late October to cut interest rates and the reserve ratio. The move greatly loosened liquidity conditions and “increased yuan depreciation expectations and added pressure on the yuan to weaken”, Zhang said.


The PBOC had to balance ensuring sufficient liquidity in the banking system and managing the stability of the yuan exchange rate, the official said.


A too-loose liquidity situation may result in relatively big pressure on the yuan exchange rate,” Zhang was quoted as saying. “A cut in the required reserve ratio would be too strong a signal [to send to the market], and we can use other tools to provide the market with liquidity.”

Instead of the shotgun approach, the PBOC will therefore be expected to increase liquidity in the economy through open-market operations that were less drastic than cutting the reserve ratio, the memo said.

Indeed, we observed just that last week when the PBOC injected a whopping 400 billion yuan into the banking system – the most in three years – in an overnight operation using 7 and 28-day reverse repos, the same operations it was aggressively relying on in 2011 until 2013, when it resumed RRR and rate cuts once again, only to see a surge in capital outflows starting in mid-2014.


Furthermore, since the Lunar New Year period which falls in early February this year, is when cash demand peaks, it is likely that over the coming week the the PBOC will release an extra 1.6 trillion yuan, nearly a quarter trillion dollars, into the banking system to help banks cope with the increased cash demand.

However, and liquidity junkies expecting a flood of short-term funding may be disappointed: Zhang said banks had lent out money too rapidly in the first half of the month – over 1.7 trillion yuan – and that they had to slow down their lending process. The SCMP quotes Yi Gang, a vice-governor of the PBOC, who again warned banks not to repeat their mistake in the 2009 lending spree, during which many loans turned bad when they could not be collected back, according to the memo.

Of course, if China’s growth contracts any further, and if the central bank is indeed precluded from RRR and interest rate cuts, then a lending spree is precisely what banks will engage in.

Meanwhile, the biggest threat facing China remains its porous capital controls, which despite a max quote of $50,000 in annual outflows, has seen hundreds of billions in funding exit the “closed” capital account system, which in retrospect is not only not closed but very much open.

The central bank was determined to keep the yuan stable, Yi said. “The personal annual quota of $50,000 has not changed. Some individual bank clients are sending messages to their clients, encouraging dollar buying … If you spread false information to cause panic, relevant authorities will come after you,” he said.

As we said in September, when bitcoin was trading 40% lower than its current price, the big question is whether the Chinese population (which has over $20 trillion on deposit in the local banks) has realized that one of the best means of circumventing capital controls is with the digital currency, which however provides a window of opportunity which may not last too long, now that the PBOC is contemplating rolling out its own “digital currency.”

Of course, since the particular “currency” will be nothing like bitcoin, and every transaction will be logged, absolutely nobody will use it voluntarily unless China does what it does so well, and threatens with arrest, bodily harm or worse, anyone who keeps using bitcoin in lieu of the government-mandated currency. Based on history, such an escalation would only make the “forbidden” alternative even more attractive.

The PBOC’s news division did not respond to requests for confirmation of the leaked memo.



via Zero Hedge Tyler Durden

Not “Off The Lows” – World Trade & Industrial Production Growth Near Post-Crisis Lows

After a brief hope-strewn bounce in September and October, world trade volumes have reverted to their recent stagnating growth trend, drooping 0.1% MoM in November as world industrial production swoons 0.4% MoM. On a smoothed year-over-year basis, world trade volume growth is decelerating at the fastest pace since Q4 2012 (right before QE3 was announced to save the world) and world industrial production growth is near its weakest since Q4 2008. It's not just China either as import volumes declined at the same rate in advanced economies and emerging economies.

The Baltic Dry Index hit a new all time low this week.


This is not new: we have been tracking the collapse of the Baltic Dry – aside for the occasional dead cat bounce – to all time lows, a proxy of global shipping and thus trade, for the past 7 years.

To be sure, for staunch goalseeking Keynesian the collapse in Baltic Dry rates had little to do with actual demand for this services, and everything to do with the alleged supply of drybulk shipping, which was the stated reason for the collapse in costs.

In other words, "trade was fine."

Except it's not!!

The last time world trade growth was decelerating this fast, The Fed stepped in with QE3…


And world industrial production growth is collapsing at nearly the fastest pace since Q4 2008…

Source: CPB


Seems like the perfect time to be hiking rates?

As we noted previously, given these trends, the crummy performance of our heavily internationalized revenue-challenged corporate heroes is starting to make sense: it’s tough out there.

And further, as the baltic dry index continues to plumb new record lows, how long until central banks realize that for all their omnipotence and all their attempts to restore growth, inflation and the "wealth effect" they never mastered the only thing worth printing in a globalized world: printing trade?

via Zero Hedge Tyler Durden

“A Historic Wealth Illusion Built On A Foundation Of False Promises”

Excerpted from Doug Noland's Credit Bubble Bulletin,

Global markets were too close to dislocating this week. Wednesday saw the S&P500 trade decisively below August lows. Japan’s Nikkei 225 Index sank to test November 2014 lows. Emerging stocks fell to six-year lows, with European equities at 13-month lows. Wednesday also saw WTI crude trade below $27 (sinking almost 7%), boosting y-t-d losses to 25%. Credit spreads were blowing out, and currency markets were increasingly disorderly. Early Thursday trading saw the Russian ruble down 5.3% (at a record low vs. dollar), with Brazil’s real also under intense pressure. The Hong Kong dollar peg was looking vulnerable. The VIX traded to the highest level since the August “flash crash,” while the Japanese yen traded to one-year highs (vs. $). De-risking/de-leveraging dynamics were quickly overwhelming global markets.

Something had to be done…

Bloomberg adjusted its original Friday morning headline, “Global Stocks Charmed by Draghi Effect as Oil Rallies With Ruble,” to “Global Stocks Charmed by Central Banks as Oil Jumps, Bonds Fall.” Draghi did have some help. The People’s Bank of China (PBOC) injected $61 billion of liquidity into the system, the “most in three years.” China’s Vice President assured the markets that Beijing will “look after” Chinese stock investors. There was also talk of added stimulus from the Bank of Japan (BOJ) and a much more dovish Fed. The markets interpreted a feistily dovish Draghi as evidence that global central bankers had assumed crisis-management mode.

The markets will now have six-weeks to ponder whether Draghi can deliver. Even assuming that he successful drags ECB hawks along, it’s not easy to envisage how an additional $10 billion or so of QE will have much impact on (bursting) global Bubble Dynamics. An emphatic Draghi was, however, certainly capable of reversing global risk markets that were increasingly positioned/hedged for bearish outcomes. Over the years we’ve witnessed powerful short squeezes take on lives of their own, repeatedly giving the global Bubble an extended lease on life. And while bear market rallies tend to be the most spectacular, at this point I expect nothing beyond fleeting effects on the unfolding global Bubble unwind. Draghi is a seasoned pro at punishing speculators betting against Europe.

The media fixates on “corrections,” “bottoms” and “bear markets.” Of late, there’s been some comparison of the current backdrop to previous periods, most notably 2008/09 and 2000. I have no desire to try to leapfrog other bearish commentary. My objective is always to present an analytical framework that assists in understanding the extraordinary world in which we live and operate.

Going back to 2009, I’ve referred to the “global government finance Bubble” as the “Granddaddy of All Bubbles.” I am these days more fearful than ever that this period has indeed been the terminal phase of decades of serial Bubbles. Bubble excess made it to the heart of contemporary “money” and Credit – central bank Credit and government debt. This period also saw a historic Bubble engulf the emerging markets, including China. It encompassed stocks, bonds, derivatives and financial assets generally – virtually everywhere. Central bankers “printed” Trillions out of thin air.

Today’s predicament is becoming increasingly apparent: as the current global Bubble deflates and risk aversion takes hold, there is both a lack of sources of reflationary Credit and insufficient economic growth potential necessary to inflate an even bigger reflationary global Bubble. With confidence in central banking waning and the monstrous Chinese Bubble faltering, there is confirmation in the thesis that a most prolonged period of inflationary financial Bubbles is drawing to a close.

The collapse of the Soviet Union coupled with the Greenspan Fed’s push into activist central banking ushered in what was almost universally accepted as an epic victory for free-market capitalism. Too much of this was a quite powerful illusion. U.S. finance was becoming increasingly state-directed. The Fed manipulated interest-rates and the shape of the yield curve. The Washington-based GSEs moved to completely dominate mortgage Credit. The massive U.S. “too big to fail” financial conglomerates came to dictate securities and derivatives-based finance – and market-based finance monopolized the real economy. And each faltering Bubble ensured more aggressive central bank “activism” – lower rates, greater market intervention and increasingly outlandish talk of “helicopter money” and the government printing press.

With the bursting of the mortgage finance Bubble, the Fed and global central banks resorted to desperate measures – reckless “money” printing, manipulation and market liquidity backstops. Along the way, virtually the entire world adopted U.S.-style market-based finance and policymaking. The process culminated with communist China adopting U.S.-style finance. So long as inflating financial markets were supportive of central planner objectives, everyone could pretend it was a move toward free markets.

What began with Greenspan’s early-nineties covert bank recapitalization evolved into Bernanke’s foolish policy to openly inflate risk markets with new central bank Credit. Amazingly, U.S. inflationism took the world by storm.

The issue today goes much beyond a stock market correction, a bear market or even global financial crisis. Contemporary central banking has failed. Theories have failed. Doctrine has failed. The inability to spur self-sustaining economic recovery has been a major issue. Yet, from my perspective, the critical failure has been the incapacity to generate general price inflation. The delusion has been that central bankers would always enjoy the capacity to inflate away excessive debt levels. Bubbles needn’t be feared, not with central banks “mopping” up with reflationary monetary stimulus. And for quite a while it seemed that “enlightened” contemporary inflationist doctrine had it all figured out.

Central bankers and market-based finance are a dangerous mix. Over the years, I have referred to market-based finance as the most powerful monetary policy transmission mechanism in the history of central banking. Greenspan could inflate the markets – and the entire system – with inklings of a 25 bps rate cut. Later it took Dr. Bernanke Trillions – the dawn of “whatever it takes,” and markets rejoiced.

Central banks around the world abused their newfound power and the power of financial markets. And for seven years egregious monetary inflation has been used specifically to inflate global securities markets. And “shock and awe,” “whatever it takes,” and “push back against a tightening of financial conditions” all worked to ensure the markets that central bankers would no longer tolerate crises, recessions or even a bear market.

For seven long years, risk misperceptions and market price distortions turned progressively more severe. Inflating securities markets around the globe became, as they do, self-reinforcing. “Money” flooded into the markets – especially through ETFs and derivatives. Trillions flowed into perceived safe equities index and corporate debt instruments. With central bankers providing a competitive advantage for leveraging and professional speculation, the hedge fund industry swelled to $3.0 TN (matching the $3 TN ETF complex). Wealth effects and the loosest financial conditions imaginable boosted spending, corporate profits, incomes, investment, tax receipts and GDP – not to mention M&A, stock repurchases and financial engineering.

But this historic wealth illusion has been built on a foundation of false premises – that central bank monetization can inflate price levels and spur system inflation necessary to grow out of debt problems; that securities markets should trade at higher multiples based upon contemporary central banker capacities to spur self-reinforcing economic recovery and liquid securities markets; that 2008 was “the hundred year flood.” In reality, central bankers inflated history’s greatest divergence between global securities prices and economic prospects.

Global markets have commenced what will be an extremely arduous adjustment process. Markets must now confront the harsh reality that central bankers don’t have things under control. Risk premiums must rise significantly – which means the destabilizing self-reinforcing dynamic of lower securities prices, faltering economic growth, uncertainty, fear and even higher risk premiums. This means major issues for global derivatives markets that have inflated to hundreds of Trillion on misperceptions and specious assumptions. I’ll assume Draghi, Kuroda, Yellen, the PBOC and others resort to more QE – and perhaps they prolong the adjustment period while holding severe global crisis at bay. But the global Bubble has burst. And if QE has been largely ineffective in the past, we’ll see how well it works as confidence in central banking withers. Perhaps this helps explain why global financial stocks now trade like death.

via Zero Hedge Tyler Durden

NSA Head Says Encryption is ‘Foundational to the Future’

The head of the National Security Agency (NSA) stepped into the encryption debate this week with remarks to the Atlantic Council, an international affairs think tank based in Washington, D.C.  

As The Intercept reports, Adm. Mike Rogers told the group that the argument over encryption was a waste of time and that the technology was “foundational to the future”: 

“Rogers stressed that the cybersecurity battles the U.S. is destined to fight call for more widespread use of encryption, not less. ‘What you saw at OPM, you’re going to see a whole lot more of,’ he said, referring to the massive hack of the Office of Personnel Management involving the personal data about 20 million people who have gotten background checks.

‘So spending time arguing about ‘hey, encryption is bad and we ought to do away with it’ … that’s a waste of time to me,’ he said, shaking his head.”

Rogers comments contrast to recent positions taken by FBI director James Comey and Sens. Richard Burr (R-NC) and Dianne Feinstein (D-CA) who argued for more government access to back door communications and data. (Read more about the encryption debate here.)

In the video below, Reason TV producer Anthony L. Fisher gives you step-by-step instructions on how to protect your communications from prying eyes in the government and how to chat anonymously online. 

Chatting anonymously on the internet isn’t used solely for shadowy criminal hackers and government operatives. From journalists to congressmen, learning how to adjust the privacy of our digital communication is becoming an ever more important skill.

Browsing and communicating on the internet anonymously is difficult, time-consuming, and painstaking. One weak link or careless trace of metadata can expose your identity to the world. But that doesn’t mean you need a Master’s Degree in computer science to avoid the prying eyes of the NSA. 

In five easy steps, Reason TV shows you the basics of “How to Chat Anonymously Online.”

For full detailed steps, go here:…

from Hit & Run

“The Spread Beyond EM And Materials Is Alarming” – Citi’s Global Earnings Revision Index Drops To 7 Year Low

With the fourth quarter earnings season in progress, some 15% of S&P 500 companies have already reported resulted for the past quarter, and while 73% have beat EPS thanks to such pathetic gimmicks as Intel’s effective tax rate collapse, less than half of companies (or 49%) have beat on the top line.

What is worse, is that for Q4 2015, the blended forecast earnings decline is -6.0%, while revenues are expected to sink by 3.5%. This will mark the first time the index has seen three consecutive quarters of year-over-year declines in earnings since Q1 2009 through Q3 2009.

But an even bigger problem is not Q4 2015, which even the consensus which as recently as Sept 30 anticipated would post a Y/Y increase in earnings has admitted will be a -6% disaster, but the first quarter of 2016, where what until just three weeks ago was predicted to be a 1.0% EPS growth from a year ago, has just tumbled to a -1.7% decline, which would make Q1 2016 the first four consecutive quarters of year-over-year EPS declines since the global financial crisis (despite record amounts of stock buybacks).

It may be even worse than that, with the biggest wildcard again being the price of oil.

According to FactSet, “The estimated average price of crude oil for Q1 2016 is $42.29 (based on estimates from 51 contributors). This  estimate is above the average price of crude oil for Q4 2015 ($42.15). Going forward, the estimated average price for crude oil is expected to increase sequentially each quarter during the course of 2016. For Q2 2016, the estimated average price is $45.19. For Q3  2016, the estimated average price is $49.59. For Q4 2016, the estimated average price is $52.54.”

In other words, another hockeystick – one which is nowhere more visible than in what consensus expects to happen to energy EPS growth, which was just slashed once again relative to December 31, 2015 all the way from Q1 2016 to Q3 2016, but for some reason Q4 EPS is now expected to soar by 75%!?

Good luck.

Meanwhile, the risk is not Q4 but Q1, where as Factset notes, at this point in time, 11 companies in the index have issued EPS  guidance for Q1 2016. Of these 11 companies, 10 have issued negative EPS guidance and 1 has issued positive EPS guidance. Thus, the percentage of companies issuing negative EPS guidance to date for the first quarter is 91% (10 out of 11). This percentage is above the 5-year average of 72%.

It is when looking at this troubing development, and specifically Citi’s global earnings revisions dataset, that the iconic Matt King notes that “one of the most interesting and concerning developments we are keeping an eye on is the drop to a seven-year low in ‘global earnings revisions’, the index our equity strategists compile to measure shifts in consensus expectations.

This is what Matt King adds:

What is alarming is the way in which the downward revisions seem to have spread beyond just emerging markets and materials. They are most intense there, but almost every sector has suffered a deterioration, and many are recording near-record levels of downgrades. Why this should be so is slightly mysterious: GDP forecasts seem mostly to be lagging at this point, so it is unlikely analysts are responding to them; guidance from management is another potential factor, but with earnings season only just beginning, many managements have been in blackout periods.


Could equity analysts be getting cold feet in the same way as equity investors seem to be? After all, 2015 did feel like at least the third year running when equity pundits stated at the start of the year that “this is the year earnings really need to deliver, otherwise the market will sell off” – only to find that the market had again re-rated by the year-end. While we do think the leverage cycle revolves more around psychology than about specific levels, our equity strategists have helpfully pointed out that we have usually ticked into the bubble bursting phase at tighter spreads than these, and the only time we have had these spread levels and not had a recession was in 2011, when we were rescued by Draghi doing Whatever It Took.

Indeed, central banks rescued us in 2011 with the biggest “hail mary” can kicking in history. But as the chart of “global earnings revisions” shown below demonstrates, we are now below the 2011 level when Draghi suspended belief in fundamentals for another 3 years.

Who will be the central banker who pulls a Draghi this time around?

via Zero Hedge Tyler Durden

Betting on Deflation May Be a Huge Mistake. Here’s Why…….


Submitted by StealthFlation Guest Contributor,  Clint Siegner – Money Metals Exchange

Precious metals investors heading into 2016 worry the dollar will continue marching ahead, right over the top of gold and silver prices. The Fed is telegraphing additional rate hikes throughout the year, and commodity prices – led by crude oil – are falling. There have been tremors in the biggest beneficiary markets of all when it comes to the Fed’s QE largesse – U.S. equities and real estate. And the possibility of a recession is growing, both in the U.S. and around the world.

There are plenty of reasons we might see even lower official inflation numbers and a stronger dollar in 2016. But don’t think for a second that consumer prices or living costs will fall. They haven’t, they aren’t, and they never will in a sustained way – thanks to the Fed’s creation in 1913. This is where the deflationists have it wrong.

The impact of further disinflationary forces or even a deflationary episode on precious metals prices is a bit harder to predict.

The bear case for precious metals is rather simple. Should metals trade like commodities, they are likely to follow other raw materials lower. If we get a liquidity crunch akin to the 2008 financial crisis, just about everything will be sold as investors raise cash to meet margin calls or flee to the dollar as a perceived safe-haven.

There is also the possibility that metals prices will simply be managed lower. Growing numbers of investors realize that Wall Street is not a bulwark of free markets. Major banks have admitted to rigging markets against their own customers, and the Federal Reserve aggressively intervenes in markets in its quest to centrally plan the world economy. Why wouldn’t the Fed also be active in trading precious metals? Those dismissing the notion that metals prices are manipulated are naive.

Today’s Situation Is Different Than 2008

The bear case assumes history, in particular the experience surrounding 2008, will repeat. Or that there is still plenty of ability for anyone seeking to force metals prices lower in the futures market to actually do so. Or both.

Maybe. But relying on those assumptions could be a tragic mistake.

For starters, the U.S. dollar is already near record highs. Meanwhile, commodities and precious metals have been beaten down mercilessly. This set-up is the complete opposite of what faced investors leading up to the summer of 2008. And even though stocks and commodities got hammered in 2008, gold posted modest gains for the year as a safe haven from the threat of a collapsing economy.

Lower gold and silver prices have already produced an imbalance between bullion supply and demand. Supply deficits in 2016 are likely to make the developing problem with inventory at the COMEX and other exchanges even bigger. Registered stocks of gold all but vanished recently as bargain hunters, particularly in Asia, have been happy to buy and take delivery. Silver inventories aren’t in much better shape.

More deliverable bars must come from existing stocks, but holders won’t be anxious to sell. Those with “eligible” COMEX bars have certainly been slow to convert them to “registered” of late. By all indications, miners will be unable to provide the needed supply.

With prices below the cost of production, mine output is set to drop significantly this year.

If the metals markets look forward, as markets are supposed to do, they will anticipate the Fed’s response to a strengthening dollar and economic malaise. In 2008, investors knew little about the lengths to which the Fed would be willing to go. Today they DO know. The Fed will overwhelm deflation by creating new inflation.

Markets are completely dependent on Fed stimulus, and people simply expect officials to roll out an even bigger initiative whenever the need arises. Anything to prevent the cleansing effect of corrective forces from restoring health to the economy. In a recent interview, market expert Jim Rickards predicted the Fed will abandon rate increases and actually commence lowering before the year’s end.

Metals investors should take heart in the fact that gold and silver prices have shown some resilience in the face of disinflationary forces recently. Both metals outperformed oil and most other commodities last year. Yes, prices declined roughly 11% for both metals. But crude oil fell 36% and copper lost 22%. The precious metals gained purchasing power against many other things.


Bottom line: Don’t bet on a meaningful deflation. Fed officials will not allow it. And they can keystroke dollars into existence until the power goes out for good.

via Zero Hedge Bruno de Landevoisin

The Real Enemy Of Investors

Submitted by Joseph Calhoun via Alhambra Investment Partners,

Most people who have called themselves bears over the last couple of years had a pretty simple equation to justify their bearishness – High Present Valuations = Low Future Returns. And today’s valuations – the valuations of two years ago – were so high that future returns would be very low and probably, possibly, at some point, negative. The argument was that stock prices were too high to justify the risk of owning a normal allocation, say 60% of the portfolio for the typical moderate risk investor. I made that valuation argument myself in one of these weekly missives in the middle of 2013 so I’ve taken even more flak than the average bear. It has not been a pleasant two years for the bears to say the least.

If you define a bear market by the size of the decline, what we’ve seen so far does not qualify. Indeed, what the stock market has done this year, as volatile as it has been, only briefly qualified as a correction, a drop of 10%, and now doesn’t even do that term justice. Of course, these things are not confined by the calendar and if you measure from the peak last May the S&P 500 is down just over 10%. As you move away from the US blue chips the damage gets larger; the equal weight version of the S&P 500 is down over 13%. The Russell 2000 small cap index is in full blow bear territory, down just over 20% since peaking last June. The EAFE international index is almost there, down 18% since last May and about the same since it first peaked in June of 2014.

The definition of a correction as down 10% and a bear market as down 20% though are just arbitrary numbers agreed upon by no one and everyone. And those thresholds, despite recent history, are met quite frequently. 10% corrections come around every couple of years and most of them are over before most investors get a statement that might scare them into doing something stupid. 20% bear markets are also pretty routine, coming along roughly 1 year out of 4. Corrections and bear markets are generally over pretty quickly, even the ones that turn into financial crises. The 2008 bear market, from peak to trough, lasted 17 months; it only felt like a lifetime.

The real enemy of investors is not these fairly routine 10 or 20% downturns. The real enemy is the bear market that is associated with a recession or crisis, the one that knocks your equity block down by 40 or 50%. And actually it isn’t even the depth that is the real enemy. For most investors the enemy is time. Whether you are a younger investor still accumulating assets or a pre-retiree about to depend on your nest egg for income or a retiree already doing so, bear markets eat up your most precious commodity – time. Recovering from large drawdowns when you are young is obviously easier – if you stick to a plan and don’t get laid off in the recession that caused it. But if you are about to retire, a bear market may mean you have to keep working for a few more years, putting a little tarnish on your golden years. If you are already retired it may mean something even more devastating – running out of money before you run out of years.

It would obviously be ideal to be able to just sell all your stocks right at the top and avoid these big drawdowns, preserving your capital for the next bull market. Unfortunately, ideal is not available in the investment world and we have to accept something less than perfection. High valuations, such as have existed in the US stock market the last few years, are one way we identify markets where the risk/reward ratio is starting to get out of kilter. The valuation bears, who have taken so much abuse the last two years, were, in retrospect, generally right. Future returns have not been anywhere near what they would need to be to justify a full allocation to stocks. At its low last week the bear market in the small cap Russell 2000 had wiped out all the price gains since the spring of 2013. That doesn’t mean you shouldn’t have owned any since then; there were 30% gains from there to the top. But you certainly could have owned less than you normally would, less than your normal allocation and hopefully rebalanced along the way, selling some at those high prices. Those were high risk gains and owning less would have still produced a good, risk adjusted return. For some reason it is hard for some investors to grasp that investing is not an all or nothing endeavor.

The S&P 500 at its low last week had given up all price gains since December 2013. And the gains from those late 2013 levels to the peak were only 17% and I would argue obtained only at very high risk to your capital. What should be learned from this episode is that valuation tells you about risk but it doesn’t tell you an awful lot about immediate reward; valuation is a lousy timing tool. Stocks that are overvalued can and do become even more overvalued. But ultimately, valuation matters and either fundamentals have to grow into the stock price or the stock price has to fall to the fundamentals. Reality, or the perception of it, can only be distorted by monetary policy, not actually altered.

So, is this already a bear market? If we are measuring it for the S&P 500 in terms of price the answer is no. But in terms of time? I think, for a lot of people, we’re already there. For most people it’s been two years of no gains and for some more adventurous investors, a lot worse. Investors who have had any exposure to oil or commodities, whether through the stocks of their producers or directly, are doing a lot worse than the S&P 500. Any investor who had the temerity to diversify their portfolio with small caps, international stocks, commodities or junk bonds, their reward was lower returns, greater risk realized. Heck even for those who managed to confine themselves to the S&P 500, they’ve now gone over 18 months only picking up a paltry dividend. In short, the trend has changed, the inflection point between trending higher and trending lower is long gone. If you’re still looking for it, I’m sorry to be the one to tell you but you missed it.

As to whether this will turn into recession and another big, bad, bear, that is something that can’t be said with a high degree of confidence right now. Certainly the odds of it are rising as the shale industry continues its slow motion train wreck. The only thing booming in the oil patch are oil and gas bankruptcy firms. Credit spreads are blowing out all over the place from investment grade to the junkiest of junk. The HY spread moved over 8 last week which is nearly as high as the European crisis of 2011 and higher than the onset of recession in late 2007 and early 2001. Baa spreads, the lowest of investment grade, also continue to move wider, worse than 2011 now and a lot worse than late 2007. Make no mistake, credit leads the business cycle just as George Soros’ theory of reflexivity predicts. It is not that economic conditions deteriorate pushing spreads wider; it is that spreads move wider causing economic conditions to deteriorate. So, as spreads widen, the odds of recession rise.

It would be easy to just say that these things are sufficient and recession is inevitable but that isn’t how this works. There are no immutable laws in this business. Things that haven’t happened before do happen; things that haven’t happened in a long time, do happen again. Baa spreads got this high in 2012 without a recession; so did junk bond spreads. And I have to say, there are some situations that are starting to get very interesting from an investment standpoint. We may have seen the low in crude oil last week when we touched the mid-20s. Not for sure yet but that may have been the first stab at finding a bottom. Prices in the 20s or 30s don’t just make shale unprofitable, it makes large swaths of the planet’s known reserves unprofitable to extract. It will take a while to work down inventories but it sure seems likely that there will be some money made on the long side of oil or oil stocks somewhere down the pike.

For now, though I think it is still time for investors to maintain a conservative stance. Momentum indicators – short, intermediate and long term – are all still pointing lower. As I pointed out last week, sentiment is negative enough to produce a bounce so last week’s start may continue in the coming week. But turning those long term momentum indicators around will take time or a heroic rally that seems unlikely. Whether it is a bear market in price or just one that needs more time, it doesn’t appear to be over yet.

via Zero Hedge Tyler Durden

Hillary Responds If She Will Release Her Goldman Sachs Speech Transcripts

During the lest Democratic debate on January 17, Hillary Clinton made several populist comments that aimed to show she is “one of the people” and that, like all other candidates, she would aggressively pursue not only bank fraud, but would go after bankers themselves. As we tweeted at the time, these were some of her more prominent soundbites:

  • “no bank should be too big to fail and no individual too powerful to jail”
  • “I am going to defend president Obama for taking on Wall Street and getting results”
  • “I go after the big banks, I am the one the hedge funds are up against”
  • “we are at least having a vigorous debate about reining in Wall Street”

And then there is the reality: as none other than the NYT reported two days ago, Goldman Sachs alone paid Hillary $675,000 for three speeches in three different states, a fact Hillary’s main challenger, Bernie Sanders, has highlighted repeatedly.


As the topic of her speeches, covered her extensively over the past year, has gained prominence, on Friday, Clinton was asked by New Hampshire Public Radio how the “average person should view the hefty speaking fees?”

“I spoke to a wide array of groups who wanted to hear what I thought about the world coming off of my time as secretary of state,” Clinton said, defending her decision to make money from speaking fees. “I happen to think we need more conversation about what’s going on in the world.”

Very well paid conversations as the following list of her 92 private speeches raking in $21.7 million in just the past three years reveals:

Of course, calling these “speeches” a bribe and payment for future goodwill, would not look very good for a candidate who is so desperate to appear as “one of the people” so Hillary decides to pander to the stupidity of Americans: “I think groups that want to talk and ask questions and hear about that are actually trying to educate themselves because we’re living in a really complicated world.”

But at the end of the day, the question is whether Hillary – the person many believe is the most likely next US president – promised banks, and especially Goldman Sachs, something very different from what he is telling the American people now.

In an attempt to get some clarity, the Intercept’s Lee Fang, approached Hillary after she spoke at a town hall in Manchester, New Hampshire, on Friday, and asked her if she would release the transcripts of her paid speeches to Goldman Sachs.

Her response: “ha ha ha ha ha

via Zero Hedge Tyler Durden

“Snowzilla” Buries America’s East Coast: Images From The Aftermath

24 hours after it started, the Blizzard of 2016, aka Snowmageddon, aka Snowtorious B.I.G., is over.

Here we are on Sunday and some 85 million Americans did indeed get “slammed” under an epic blizzard which has now moved beyond the realm of the “potential” and now encapsulates an actual, GDP-sapping winter extravaganza.

“Winter Storm Jonas is the largest snowstorm on record for Harrisburg, Pennsylvania; Baltimore; and JFK Airport in New York City, with all of those locations receiving over 2 feet of snow,” the Weather Channel reports, adding that “snowfall totals from the storm topped out near 40 inches in parts of West Virginia and at least 14 states in total received more than a foot of snow from the storm.”

In short, the entire eastern seaboard is now free to report triple-adjusted Q1 GDP data thanks to the havoc Jonas will most assuredly wreak on comps for America’s “prosperous” retail and services sectors.

The result of the storm: some 25.1 inches of snow in New York City’s Central Park, the National Weather Service said on Saturday, ranking it No.3 among the city’s worst snow storms. The following are the five worst snowstorms to hit the largest city in the United States before this week, according to the NWS:

  • 26.9 inches (68.3 cm), Feb. 11-12, 2006
  • 25.8 inches (65.5 cm), Dec. 26-27, 1947
  • 21.0 inches (53.3 cm), March 12-14, 1888
  • 20.9 inches (53.1 cm), Feb. 25-26, 2010
  • 20.2 inches (51.3 cm), Jan. 7-8, 1996

The deepest snowfall from the blizzard paralyzing the U.S. East Coast has been recorded at 40 inches (102 cm) in Glengary, West Virginia, the National Weather Service said. It said about 28.3 inches (72 cm) had fallen at Dulles International Airport, 26 miles (42 km) west of Washington as of Saturday evening, one of the capital’s biggest storms.

Here are the latest images from the aftermath:

We smell some “residual seasonality” in America’s future.

via Zero Hedge Tyler Durden