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Submitted by Salil Mehta via Statistical Ideas blog,

The current stock market level is disconcertingly well below not just the Wall Street forecasts for 2016 (made a couple months ago), but also below those made for 2015… or for even 2014!  One can see our recently tabulated list (the lengthiest available ever) of market calls, which was recently enjoyed by leaders such as billionaire Vinod Khosla, and economist Noah Smith.  One doesn’t need a Harvard PhD to grasp the chart below for 10 Wall Street soothsayers, consistently giving their views to Barron’s (and anyone else) in each of the past few years.

 

Even as we proved the flagrantly poor performance of these “forecasters” (not just relative to the market but -depressingly- even relative to a fair coin toss), it’s worth noting that the recent stock market level of just <1900 is below all 10 out of 10 2016 forecasts (e.g., Federated is the highest at 2500, or we would need a 32% rise in just 11 months remaining in 2016 to make that target!)  It is also below all 10 out of 10 2014 forecasts (e.g., Federated is again the highest at 2100, or we would need an 11% rise to make that 2014 target.)  In a period of increased suicides among economically stressed men (here, here), let’s not push bogus hope.

As for the most bull of bullish forecasters, it is intriguing that 5 of the 10 forecasters have always had and an upper-half forecast in each of the past 3 years.  They are sequenced here in approximate order of bullishness (most bullish first): Federated Investors, J.P. Morgan, Prudential, Bank of America, and Columbia.  It seems as if these most imaginative firms have much to learn about their prognostication errors and risk.

Assuming they will throw in the towel and bring their buoyant forecasts back to norm, this is not the first time strategists have done so quickly in the New Year.  Even as recently as 2014, we analyzed how year-end forecasts have ineptly come down in the first-month, even as their unknowing outlooks are disproportionately subject to final-month risk.  We will publish an article in an external publication later in February, concerning ideas about what investors can do now, given this wild gap, between optimism and intelligence.

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With Hillary beating a self-proclaimed socialist running on a "raise taxes" platform in Iowa thanks to six coin tosses, one wonders if reality is sinking in among the great unwashed American citizenry that she may not be as 'trustworthy' as mainstream media proclaims her to be.

As the email controversy just won't go away, and with insiders confessing that FBI individuals will "revolt" should a case against Hillary not be brought over her "top secret" personal email server debacle, it appears "we the people" are taking matters into our own hands.

 

American's have the right to full disclosure regarding Hillary Clinton's distribution of Top Secret and Classified Emails on and illegal Email server. Our Government must ensuring voters are well informed during the 2016 Presidential electoral process. Stop the stonewalling on a likely cover-up that may prove a bigger scandal than Watergate. End the partisian equivocation, ensure a truly independent special prosecutor is appointed immediately .

"If men were angels, no government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself" – James Madison, 1788

*  *  *

As we previously noted, the implications are tough for The DoJ – if they indict they crush their own candidate's chances of the Presidency, if they do not – someone will leak the details and the FBI will revolt… The leaking of the Clinton emails has been compared to as the next “Watergate” by former U.S. Attorney Joe DiGenova this week, if current FBI investigations don’t proceed in an appropriate manner. The revelation comes after more emails from Hilary Clinton’s personal email have come to light.

“[The investigation has reached] a critical mass,” DiGenova told radio host Laura Ingraham when discussing the FBI’s still pending investigation. Though Clinton is still yet to be charged with any crime, DiGenova advised on Tuesday that changes may be on the horizon. The mishandling over the classified intelligence may lead to an imminent indictment, with DiGenova suggesting it may come to a head within 60 days.

“I believe that the evidence that the FBI is compiling will be so compelling that, unless [Lynch] agrees to the charges, there will be a massive revolt inside the FBI, which she will not be able to survive as an attorney general,” he said.

 

"The intelligence community will not stand for that. They will fight for indictment and they are already in the process of gearing themselves to basically revolt if she refuses to bring charges."

The FBI also is looking into Clinton's email setup, but has said nothing about the nature of its probe. Independent experts say it is highly unlikely that Clinton will be charged with wrongdoing, based on the limited details that have surfaced up to now and the lack of indications that she intended to break any laws.

"What I would hope comes out of all of this is a bit of humility" and an acknowledgement from Clinton that "I made some serious mistakes," said Bradley Moss, a Washington lawyer who regularly handles security clearance matters.

Legal questions aside, it's the potential political costs that are probably of more immediate concern for Clinton. She has struggled in surveys measuring her perceived trustworthiness and an active federal investigation, especially one buoyed by evidence that top secret material coursed through her account, could negate one of her main selling points for becoming commander in chief: Her national security resume.

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Everyone expected that Chipotle’s results would be bad, and they were with the company missing revenue expectations of $1.01 billion with $997.5 million in sales, on $2.17 in EPS. But what has drawn everyone’s attention in the company’s just announced quarter is that following the previously announced criminal investigation for serving e.Coli tainted food,on January 28 it received yet another, new criminal investigation, one which broadens the scope of the previous one.

On January 28, 2016, Chipotle was served with a subpoena broadening the scope of the previously-announced criminal investigation by the U.S. Attorney’s office for the Central District of California. The new subpoena requires us to produce documents and information related to company-wide food safety matters dating back to January 1, 2013, and supersedes the subpoena served in December 2015 that was limited to a single Chipotle restaurant in Simi Valley, California. We intend to fully cooperate in the investigation.

For now the stock appears to be doing its best to, well, hold it in…

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Against expectations of a 3.75mm expectation (and following last week's massive build), API reports that crude inventories saw a very slightly bigger than expected 3.8mm build. WTI crude had plunged into the data and went entirely chaotic as it hit (swining in a 50c range) before settling lower.

 

Coming into this week's print, gasoline builds continue to stymie crude (which saw a huge build) but Cushing saw a draw…

 

And then API reported a slightly bigger than expected 4mm build…

 

Oil's reaction was chaotic…

 

And finally, don't forget that U.S. crude inventories are at levels last seen when President Herbert Hoover was battling the Great Depression.

 

Charts: Bloomberg

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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Systemic fragility doesn't respond to central bank jawboning or Keynesian claptrap; unlike those "policy tools," fragility is real.

The core narrative of central bank/cartel capitalism is centralized agencies have the power to limit downturns and extend credit-based "good times" almost indefinitely. The centralized power bag of tricks includes fiscal policies such as deficit spending to boost "aggregate demand" in downturns and monetary policies such as lowering interest rates to zero and buying assets, a.k.a. quantitative easing.

If we crawl under the barbed wire and escape the ideological Keynesian Concentration Camp, we find thinkers such as Ugo Bardi, John Michael Greer and Dimitry Orlov, whose work explores the dynamics of collapse, resilience and sustainability.

All three have added a great deal to my own (emerging) understanding of the many dynamics of collapse.

We can summarize the dynamics of collapse in many ways; here's one: collapse is latent fragility manifesting. A familiar (and tragic) health analogy offers an example: a middle-aged man doesn't appear ill, a bit thick around the middle perhaps, but neither he nor his intimates can see the fragility of his clogged arteries and blood-starved heart. Seemingly "out of the blue," the man has a massive heart attack and passes from this Earth, to the shock of everyone who knew him.

Financial collapse isn't "out of the blue," any more than a heart attack is "out of the blue." Actions and choices have consequences, and as resilience and redundancy are slowly stripped from complex systems, systemic fragility builds beneath the surface. At some difficult-to-predict point, a threshold is reached and the complex system fails.

In the financial realm, fragility builds as the system relies ever more heavily on marginal lenders, borrowers, buyers and investments for its "growth." The current "recovery" (smirk) is completely dependent on marginal lenders (China's shadow banking), borrowers (auto buyers taking subprime 7-year loans), buyers (corrupt Chinese officials buying $3 million homes in Vancouver B.C. with their ill-gotten gains) and investments (empty malls, empty factories, stock buy-backs, etc.).

The problem for "growth" based on the fragile margins is that the entire system becomes fragile as a direct result of this dependence on fragile margins. The current global real estate bubble is predicated on one condition: that the supply of corrupt Chinese officials fleeing China with ill-gotten millions to invest overseas is endless.

But no supply of corrupt officials, even in China, is truly endless, and markets based on this thin edge of corrupt capital will collapse once the corrupt capital dries up.

The same can be said of marginal oil production, marginal auto/truck buyers, marginal cafes, marginal malls, etc. When fragile (i.e. highly risky) shadow banking becomes a dominant force in credit, the system itself becomes fragile.

Conventional economists are entirely blind to system fragility. There is no ready Keynesian Cargo Cult econometric formula that measures systemic fragility, so it simply doesn't exist within conventional economics.

This is why financial panics and collapses always appear (like fatal heart attacks) to be "out of the blue" to conventional economics.

I propose that the Global Recession of 2016 will trace the Seneca Cliff as described by Ugo Bardi. This application may not align with Bardi's own work, and I want to make it clear this application is my own, not Bardi's. But I think a strong case can be made that the global financial/economic system is primed for a ride down the Seneca Cliff:

 

Recall that the global "recovery" 2009 – 2015 was entirely based on the expansion of debt taken on by marginal borrowers. Systemic fragility doesn't respond to central bank jawboning or Keynesian claptrap; unlike those "policy tools," fragility is real.

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What The Bank of Japan gives, The Japanese Finance Ministry taketh away…

Artist's impression of the last few days in crude, JPY, and US stocks…

 

Oil closed under $30 after Russian productiuon and OPEC denials… From bull market to correction in 2 days – This was the worst 2-day drop in oil since January 2009…

 

And today's other major driver – exploding US bank risk…

 

USDJPY started to snap today as JPY and NKY erased half their post-BOJ NIRP shifts…

 

But everything was awesome yesterday? US equities erased all the post-BOJ NIRP gains…

 

The worst performer today was Trannies and Small Caps as even Nasdaq was hammered despite GOOG earnings hope…

 

Since The Fed hiked rates, Bonds & Bullion have soared as Crude and Stocks have plunged…

 

Why F.A.N.G performance diverging?  FB and GOOG both very strong sets of #s – and both are ad rev plays unlike AMZN and NFLX (both of which are underperforming).. but in the end the selling pressure was universal in high beta tech.

 

As YHOO flounders around desperately…

 

Sectors breakdown…

• E&P weakness– APC's Al Walker on his CC seemed to be complaining, for lack of a better term, about how Moody’s and how the other rating agencies may change the methods by which they rate E&P companies.  Causing some concern today along with poor S&P 500 and WTI Mar ’16 technicals – Sisto, sector specialist
• Media underperforming – GOOG and FB competitors for the media ad revenues, some think the strong GOOG #s show them taking money from the media plays
• Transports weak DAL prasm # inline, F and GM #s show Car sales continue to be very weak
• Healthcare lower; More neg press on drug price hikes “Shkreli Not Alone in Drug Price Spikes as Skin Gel Soars 1,860%” http://ift.tt/206P3sB …VRX hit on speculation of circulation of House of Rep committee documents that mention the company specifically with regards to drug prices -ttn
• Financials hit as US 10Y falls to multi month lows

• Utes outperformance is impressive. The group has now outperformed the S&P by 14.5% since the day of the fed hike. Flows continue to be driven by LO buyers, but todays action feels XLU driven as i'm quiet and haven't seen any meaningful prints go up

Vroom…

 

VIX started to rise notably

TS VIX vs ES

 

Many traders have noticed that volatility in the last hour of trading has increased significantly in recent weeks.

CS notes that while true, we find that the increase is not isolated to the end of the day. Rather, the effect stems from an increase in overall intraday volatility levels throughout the day. The ratio of the high-low move in the last hour compared to the whole day is actually not far from the norm.  In January, the price swing in the last hour was about 40% as big as the whole day’s swing.

Treasury yields collapsed today… 10Y at 1.85% is the lowest since April 2015…

 

Today's yield plunge was the biggest drop since June 2015

 

The yield curve has collapsed… 2s10s is flattest since Dec 2007!!

 

 

The USDollar Index extended its losses today… very notable strength in JPY today as commodity currencies gave some recent gains back…

 

 

Gold & Silver were flat today as copper and crude flailed…

 

The crude oil roller coaster continues… with increasing volatility…

 

Charts: Bloomberg

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