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Submitted by Lance Roberts via RealInvestmentAdvice.com,

Over the last two months, the deterioration in the economic data has become much more prevalent despite the ongoing hopes of the more “bullishly biased” mainstream media.

Furthermore, as I predicted early last year, the Federal Reserve likely made a mistake in hiking interest rates when the economic and inflationary backdrop were exceedingly weak. To wit:

“The real concern for investors and individuals is the actual economy. There is clearly something amiss within the economic landscape, and the ongoing decline of inflationary pressures longer term is likely telling us just that. The big question for the Fed is how to get out of the potential trap they have gotten themselves into without cratering the economy, and the financial markets, in the process.

 

It is my expectation, unless these deflationary trends reverse course in very short order, that if the Fed raises rates it will invoke a fairly negative response from both the markets and economy.”

And so…that has come to pass. Of course, for me, since I am deemed a “bear” for being a “realist”, my writings are more like a “tree falling in the woods.”  The only problem is that just because no one hears it, doesn’t mean the damage to individuals isn’t just as real.

This weekend’s reading list is a compilation of articles discussing “The Awakening” by many to the real problems currently plaguing the economy, the markets, and the Fed.

While it is said “it is better to be late than never,” such sentiment doesn’t sit well with individuals when they are told after the fact what they should have known before hand. But then again, since the turn of the century, “getting back to even” has apparently become a new investing strategy.

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1) It’s Time To Worry About The Economy by Matt Phillips via Quartz

“And now the brightness in the US appears to be dimming, at least a bit. The latest benchmark update on the US manufacturing sector shows activity continued to decline in January, marking four straight months of contraction. The strong US dollar—it’s up about 13% against the currencies of major trading partners—is a key culprit.”

But Also Read:  Citi’s Crash Clock Is 5-Minutes To Midnight by Jim Edwards via Business Insider

But Then There Is: BofA Says Markets Poised For 24% Gain by Jeff Cox via CNBC

 

2) Why The Fed Must Go Negative by Ron Insana via CNBC

“But even the simple act of doing nothing, as other central banks ease further, would strain foreign exchange values, accelerate capital outflows from countries whose currencies are plunging against the dollar, and rapidly increase the debt servicing costs of those countries – like Russia, China and other emerging markets, which have heavy dollar-denominated debt loads.

 

In other words, if global monetary policies continue to diverge dramatically, there will likely be unintended consequences that lead to a rupture in world markets, strained by wildly fluctuating currency values, a further crash in commodity prices and a rush of capital out of the world’s weakest economies.”

Also Read: Trucks & Trains Barely Rolling by Buttonwood via The Economist

Opposing View: Taking Oil Is Just Noise by James Surowiecki via The New Yorker

And Also: The US Is Not In Recession by Econobrowser

3) Blaming The Fed by Ed Yardeni via Yardeni Research

“How did we get into this mess? Despite all the easy money provided by the Fed and the other major central banks, global economic growth is subpar. Indeed, it may be heading into a recession. Inflation remains below the 2% target of the major central banks. Commodity prices are crashing, and stock prices have been weak since the start of the year. Consider the following:

 

High price of easy money. Today’s problems may be traced to the termination of the Fed’s QE program on October 29, 2014 and the subsequent anticipation of a mere 25bps hike in the federal funds rate, which finally happened on December 16, 2015.

 

The Fed’s easy monetary policies at the beginning of the previous decade certainly contributed to the subprime mortgage mess. This time, the Fed’s easy money in recent years encouraged borrowers in emerging markets (EMs) to borrow lots of money from banks and in the bond markets to expand commodity production. A significant amount of that debt was in dollars. The prospect of the tightening of US monetary policy after so many years of near-zero interest rates caused EM borrowers to scramble to sell their own local currencies to buy dollars to pay off their dollar-denominated debts.”

Also Read: Welcome To The Profits Recession by Chris Brightman via Research Affiliates

4) Recession Risks Warn Of Severe Market Drop by Tomi Kilgore via MarketWatch

“Based on current valuations, the prices of most stocks don’t appear to have factored in a recession scenario, “hence the downside should we see a recession could be rather severe,” RBC Capital Markets’ global equity team wrote in a research note to clients.

 

Applying a stress test to their coverage universe, using worst-case, price-to-earnings valuations seen during the 2008-to-2009 recession, RBC analysts said they believe the shares of most companies could still fall another 50% or more from current levels.”

Also Read: Will Stocks Remain Diverged From Global Weakness by Michael Gayed via MarketWatch

Further Read: What The Next Recession May Look Like by Matthew Klein via FT AlphaVille

5) Bounce In Stocks May Be A “Siren’s Song” by Joe Calhoun via Alhambra Partners

“With no improvement in the economic outlook yet – the yield curve is still flattening, credit spreads still moving wider – the move in stocks last week may last a bit longer but I wouldn’t get too excited about it unless you still have some stock to unload. We are still in the transition period I wrote about two years ago – see here – the strong dollar positives not yet apparent. Intermediate and long term momentum is still negative; only short term indicators are turning higher and those only feebly. More monetary stimulus, wherever it is in the world, isn’t the answer for a global economy still trying to find a new growth path. Pay attention to bonds and ignore the sirens of the stock market.”

But Also Read: If It’s A Recession, Stocks Will Fall by George Perry via Real Clear Markets

And: Bonds Suggests Further Correction by Eric Bush via GaveKal Research

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MUST READS

• Apple, FANG’s & Monetary Fools by David Stockman via Contra Corner
• Misdiagnosing Again? by John Sumner via The Money Illusion
• The New Normal Is Now Just Normal by Mohamed El-Erian via Project Syndicate
• How The Fed Confirmed A Recession by Tyler Durden via Zero Hedge
• There Is No Freedom Without Truth by Paul Craig Roberts
• BOJ Warning! by Michael Lebowitz via 720 Global
• The Risk Passive Investors Take On by Jesse Felder via The Felder Report
• Global Shipping Runs Aground! by Dana Lyons via Tumblr
• Dividend Cuts Are Escalating Quickly by IronMan via Political Calculations
• An Escalator Of Optimism by Salil Mehta via Statistical Ideas

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“Should you find yourself in a leaky boat, devote your efforts to changing vessels rather than patching leaks.” – Warren Buffett

via Zero Hedge http://ift.tt/1SQEkCc Tyler Durden

The centrally-planned party is over. Here is BofA’s Kama Sharma explaining why

The sense of calm which had descended on markets in recent weeks has come to an abrupt end.

This time it has been the USD which has been the focal point. Investors continue to rotate through a vicious circle of concerns on China, commodities and US growth and with a still large long position, further near-term USD losses are likely as broader US data momentum remains weak.

Until positioning becomes cleaner, bad news on the US economy will be bad news for the USD. China will once again be back in focus next week with the release of its FX reserves data and though our estimates are for a more modest decline, any relief rally would be an opportunity to sell into.

FX: Financial conditions to hold back the Fed again?

The DXY is on pace for its worst weekly performance since 2009. A weaker-than-expected non-manufacturing ISM report (representing 80% of the US economy) challenged the presumption that the US could weather a contraction in the much smaller manufacturing sector. The dollar has been resilient to slower growth readings and the re-pricing of the Fed Funds curve since end-2015 (Chart 1) which pushed rate differentials against it.

This dislocation suggests there is further room to run, particularly as FOMC members are showing sensitivity to tighter financial conditions, and, a stronger USD. Persistent trade-weighted USD strength in recent months has been a key factor driving tighter financial conditions (Chart 2).

The divergence with rate differentials suggests non-fundamental factors (such as flight-to-quality) could be driving USD strength, making it more likely Fed officials will speak more frequently about it. This poses further downside dollar risk.

The continued wedge between the dollar and rate differentials continues to leave asymmetric risks in the near-term as the market will need to see sustained signs of a US growth turnaround before rethinking Fed policy. Chair Yellen’s Humphrey Hawkins testimony will be a key focus in this regard. Short positioning in CAD, EUR, GBP, and MXN (according to the latest CFTC data dated January 26th). Should Chair Yellen emphasize the theme of the risks from financial conditions and the USD, we would expect further long USD position unwinds in these pairs.

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So much for the “most crowded trade of all time”, as recently as Dec. 15.

via Zero Hedge http://ift.tt/1VWkpB3 Tyler Durden

Don't just blindly follow someone else's path… (FF to 40 seconds for today's analogy)…

 

The Nasdaq's collapse now turns it red since the end of QE3 – joing the rest of the US equity party poopers…

 

Since The Fed hiked rates, things have not gone according to plan…

 

As The "Growth" dream is over…

 

On the week, Nasdaq was boodbath'd but Trannies jumped…

NOTE: Amid all this carnage – VIX remains under 24 and the term structure not inverted – i.e. No Panic

 

Quite a week for The Dow…

 

And Nasdaq was the biggest loser on the day… the biggest single-day drop since August's Black Monday plunge… (Nasdaq lowest close since Oct 2014)

 

The reaction across asset classes to today's jobs report…

 

Financials disappointed as systemic risk surges and Materials' big mid-week squeeze held its gains…

 

FANGs are FUBAR…

 

And Biotechs were battered to 2 Year lows… down 37% from its July 2015 highs…

 

And finally this happened…

 

Treasury yields jerked higher on the jobs data only to tumble as traders rotated out of growth stocks…

 

The USDollar Index crashed by the most since June 2009 this week (despite a bounce today) led by JPY strength (biggest week since Oct 2008!)…

 

A total fail for The BoJ…

 

Commodities were mixed on the week with USD weakness sending PMs higher but growth scares driving copper and crude lower..

 

Gold is "off the lows"

 

Gold's best 3-week gain in over a year to near 4-month highs and Silver's best 3-week run since May 2015…

 

Stocks and Crude remain highly correlated…

 

With China closed for a week, we wonder if the buying in gold is perhaps – just perhaps – anticipating a major devaluation by PBOC with public bank holidays already planned… but of course, this weekend will have all eyes glued to China FX outflows.

 

Charts: Bloomberg

Bonus Chart: Topping Pattern?

via Zero Hedge http://ift.tt/20MlJtH Tyler Durden

We warned earlier in the week that the credit risk of the world's financial institutions were on the rise and that trend has worsened as the week ends.

 

Global Bank Risk is spiking…

 

European Bank Risk is blowing out in Core and Peripheral nations…

 

And China Bank credit risk has broken to new cycle highs..

 

Some idiocysncratic names to keep an eye on…

Deutsche Bank – Europe's largest derivatives exposure (and thus epicenter of collapse should things turn out as bad as the bank's CoCos suggest) – is suffering seriously… It is becomeing very clear that banks are buying protection on DB to hedge their counterparty exposure…

 

ICBC Bank is among China's largest banks (depending on the volatility of the day) and as China bank risk soars so China's sovereign risk is soaring too with devaluation and systemic crisis co-priced into these contracts…

 

National Commercial Bank – the largest Saudi bank and proxy for The Kingdom's wealth – is seeing its credit risk explode. As one analyst noted, if NCB has a crisis then Saudi military adevnturism is in grave jeaopardy…

 

And finally – yes it is spilling over to American banks and their "fortress" balance sheets…

 

But apart from that "storm in a teacup" – Buy The F**king Dip, right?

via Zero Hedge http://ift.tt/1Kvy5T2 Tyler Durden

To be sure, the rumors have been there for a while.

As we first wrote in March of 2015 when it became a topic of conversation, speculation that Cushing may fill, and even overflow, has been around for nearly 10 months.

As we reported then, there were floating predictions that Cushing may top out as soon as the summer of 2015.

In retrospect, these forecasts underestimated just how “stretchy” US commercial storage can be; they also ignored how many millions of barrels could and would be stored at sea even though the contango in recent months had made such storage virtually unprofitable; the recent change in the US oil exporting law helped, and much of the excess inventories were carted off toward Europe which allegedly has more oil excess capacity than the US.

However, as overproduction continues, even the highly adaptive US storage system appears to be reaching its limits. Recall that the primary reason why Goldman envisions $20 oil as a possibility is because US storage capacity will be reached.

 

Then yesterday, the EIA itself in a blog post took on the topic of soaring inventories.

This is what it said:

Several factors have played a part in pushing U.S. crude oil prices below $30 per barrel (b), including high inventory levels of crude oil, uncertainty about global economic growth, volatility in equity and nonenergy commodity markets, and the potential for additional crude oil supply to enter the market. Crude oil and petroleum product inventories, both domestically and internationally, have been growing since mid-2014 and are above five-year averages for this date.

 

 

Although there is still traditional, on-land storage space available, higher inventory levels and expectations for global inventories to continue building in 2016 are lowering crude oil and petroleum product prices for near-term delivery:

• Total U.S. commercial crude oil inventories as of January 29 were 503 million barrels, 132 million barrels above the 2011-15 January average. This marks the first time that U.S. inventories exceeded 500 million barrels.
• Crude oil inventories at Cushing, Oklahoma, the delivery point for the West Texas Intermediate (WTI) futures contract traded on the New York Mercantile Exchange (Nymex), are 23 million barrels above the five-year average as of January 29.
• Total U.S. distillate inventories (which include heating oil and diesel fuel) are 22 million barrels above the five-year average, and motor gasoline inventories in the United States also recently moved above historical averages.

But it was only today that we got the loudest alarm bell yet, suggesting that an “overflow” of Cushing may all too real in the not too distant future.

According to Reuters, the unprecedented build-up of surplus crude oil supplies in Cushing, Oklahoma, is beginning to cause logistical headaches for companies moving crude between thousands of steel tanks in the nation’s most important storage hub.

For one company, Enterprise Products Partners, which is a large participant in the Cushing market, this means telling at least some counterparties that it is experiencing delays in delivering crude from its tanks, Reuters said citing three sources who were informed of unspecified “terminalling and pump” issues.

Alarm bell #1:

“The sources attributed the disruptions to the unusually high level of oil collecting in Cushing, the delivery point of the CME Group’s U.S. oil futures contract. Stockpiles have risen to a record 62.4 million barrels as of last week, according to the U.S. Energy Information Administration, just 9 million barrels shy of their theoretical limit.”

 

“It’s hard to move barrels around right now because there’s so much oil (in Cushing),” said one trader.

And if it’s hard now, imagine what will happen in a few weeks let alone months, when 1-2 million barrels in excess production is dumped in Cushing courtesy of the relentless Saudis and Iranians.

For now at least, it’s not a panic: “The delivery delays are unusual but not severe enough to trigger contractual disputes, one source said. Oil traders routinely pump crude in and out of tanks in Cushing in order to settle futures contracts or create particular blends for refiners. Most trades are usually completed within a month’s time.”

However, that is about to change:

The hiccups may be a sign of things to come as traders fear a further increase in stocks at Cushing would test the upper limits of tanks and cause the next leg of an 18-month rout.

Alarm bell #2:

Enterprise owns just 3.3 million barrels of storage capacity in Cushing, small relative to operators like Enbridge Energy Partners with over 20 million barrels. It is not clear how much space the firm may have leased from other owners. But traders say they remain one of the larger players in that market, and first noticed that something was awry when Enterprise began bidding to buy the Feb/March WTI cash roll earlier on Thursday, indicating that they were potentially short barrels for immediate delivery.

 

The cash roll, which allows traders to roll their long positions forward, traded at larger volumes at negative $1.00 a barrel on Thursday. Those deals raised questions among market participants as the roll does not actively trade outside of the three-day window after the settlement of the front-month futures contract.

To be sure, this is not the first time the roll was negative: a few weeks ago, during the official roll period, it traded at negative $1.95 a barrel.

However, it is becoming increasingly recurring and certainly more acute.

The problem, the sources say, appears to be related to oil volumes being so high in Cushing that there is not enough room to drain existing tanks to blend oil to West Texas Intermediate specifications.

For now, only the smaller firms are affected which is a useful warning sign. Because if and when the large guys like Enbridge get in trouble and are no longer able to store the millions of barrels on location, we won’t learn about it in advance. Instead what we will see is the price of oil suddenly plunging by 5%, 10% or more percent, as attempts to clear and dump excess inventory spread like wildfire across the market.

So for those who are still long oil on hopes of some major supply disruption, or some miraculous surge in demand, consider this a fair warning that very soon things may change.

via Zero Hedge http://ift.tt/1Kvw49q Tyler Durden

On Thursday we brought you the latest from Syria, where Hezbollah and the IRGC have encircled Aleppo and cut off rebel supply lines to Turkey.

It was months in the making, but it now appears that the city – Syria’s second largest – will soon be retaken by forces loyal to Bashar al-Assad. As we’ve explained in the past, that would effectively restore the President’s grip on power as he would effectively control most of the country’s urban centers – even if that “control” is tenuous.

Eastern Syria is of course a different story entirely, as ISIS is dug in at Raqqa, the group’s self-styled capital. If the rebels lose Aleppo, it will represent a huge blow to the effort to topple Assad’s government. Saudi Arabia and Turkey know this, which is presumably why Erdogan was busy criticizing the Russian airstrikes that have facilitated the Hezbollah advance yesterday and why Riyadh now says it’s prepared to send in ground troops (to “fight ISIS”).

Now, as the Russian air campaign continues unabated and Shiite fighters advance on the city, civilians are fleeing what they anticipate will be a bloody battle.

“The Russian (air) cover continues night and day, there were more than 250 air strikes on this area in one day,” Hassan Haj Ali, head of Liwa Suqour al-Jabal, a group that fights under the umbrella of the Free Syrian Army, said.

“Tens of thousands of Syrians fled an intensifying Russian assault around Aleppo on Friday, and aid workers said they feared the city which once held two million people could soon fall under a full government siege,” Reuters writes. “The last 24 hours saw government troops and their Lebanese and Iranian allies fully encircle the countryside north of Aleppo and cut off the main supply route linking the city – Syria’s largest before the war – to Turkey [who says] the aim is to starve the population into submission.”

Now obviously that’s ridiculous. The “aim” is to keep the rebels (some of whom are ISIS fighters) from obtaining guns and TOWs from Turkey where the government in Ankara is desperate to salvage whatever’s left of the effort to oust Assad.

In any event, the fighting looks set to create a new wave of refugees bound first for Turkey and ultimately for a beleaguered Western Europe.

“Video footage showed thousands of people, mostly women, children and the elderly, massing at the Bab al-Salam border crossing,” Reuters continues. “Men carried luggage on top of their heads, and the elderly and those unable to walk were brought in wheelchairs.”

Here are the visuals:

via Zero Hedge http://ift.tt/1miCQ71 Tyler Durden

After someone decided to dump $1.2 billion notional in gold futures this morning as the jobs data hit – sparking a $20 tumble in the precious metal – it appears stock sellers are greatly rotating to the safety of bullion (over bonds)…

 

via Zero Hedge http://ift.tt/1miCQ6N Tyler Durden