Author: admin

When it comes to stock market, one thing never changes: price action determines the newsflow, and not the other way around and the recent 7% rebound off the 1812 lows two weeks ago which has pushed the S&P to nearly 1960 (or over 21x on a GAAP P/E basis as we showed this weekend) has been interpreted by many as an “all clear” to any imminent downward drop.

And yet, as Investech reports in their latest weekend note, there is nothing normal about this rebound, or rather, bear market short squeeze aka “rally”, for many reasons of which the most prominent one is that there has been absolutely no upside leadership through the entire bounce.

In fact, “extreme negative leadership readings of this duration generally only occur in bear markets”, which in addition to the PBOC’s panicked RRR cut overnight to halt the latest swoon in stocks, confirms that this is merely the latest bear market rally.

From Investech:

Over the past two weeks, equity markets have rebounded 6.7% off of their lows, yet downside leadership persists. Consequently, the “DISTRIBUTION” component of our Negative Leadership Composite remains locked at -100. Extreme negative leadership readings of this duration generally only occur in bear markets, which means our portfolio defenses will remain high until the technical picture changes.

 

via Zero Hedge http://ift.tt/1TMNC3R Tyler Durden

With the short-end underperforming today, the US Treasury yield curve is flattening once again. The spread between 2Y and 10Y yields has plunged to 93bps today – the lowest level since November 2007 – suggesting US financials have not seen the wost of it yet…

 

 

Which sends a long-term warning for US financials…

 

And short-term…

Charts: Bloomberg

via Zero Hedge http://ift.tt/1LQ2Du7 Tyler Durden

Nothing says buy-the-dip in crude oil like a massive inventory build in an already-near-peak-storage Cushing. Following a dive in prices after Genscape reported a massive Cushing build of approximately 1mm barrels, WTI has surged as algos keep the dream alive in stocks…

 

 

This would be the biggest weekly inventory build at Cushing this year..

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1TMNC3Q Tyler Durden

Submitted by Joseph Calhoun via Alhambra Investment Partners,

“How low do you have to stoop in this country to be President?”

? Hunter S. Thompson, Fear and Loathing on the Campaign Trail ’72

 

“The main problem in any democracy is that crowd-pleasers are generally brainless swine who can go out on a stage & whup their supporters into an orgiastic frenzy—then go back to the office & sell every one of the poor bastards down the tube for a nickel apiece.”

? Hunter S. Thompson, Fear and Loathing on the Campaign Trail ’72

 

“The whole framework of the presidency is getting out of hand. It’s come to the point where you almost can’t run unless you can cause people to salivate and whip on each other with big sticks. You almost have to be a rock star to get the kind of fever you need to survive in American politics.”

? Hunter S. Thompson, Fear and Loathing on the Campaign Trail ’72

 

“In a closed society where everybody’s guilty, the only crime is getting caught. In a world of thieves, the only final sin is stupidity.”

? Hunter S. Thompson, Fear and Loathing in Las Vegas

 

“When the going gets weird, the weird turn professional.”

? Hunter S. Thompson, Fear and Loathing on the Campaign Trail ’72

Negative interest rates. The war on cash. More quantitative easing. Monetary policy described as a “helicopter drop”. An avowed socialist running for President – and competing well. Another candidate under investigation by the FBI for mishandling classified information. A debate that featured a candidate begging for someone to attack him so he could get some air time. One candidate accusing another of stealing from the party and calling another a liar. The closed captioning for most of the debate reading “unintelligible yelling”. An accomplished, serious-minded governor getting drowned out by three buffoons competing to see who can get the biggest guffaws from a crowd that makes the audience at a professional wrestling match look reserved and intellectual.

It’s getting weird and the market is having a tough time figuring out what to take seriously, what to ignore, what to laugh nervously about and what to just laugh at. Are we really about to put up our very own American version of Silvio Berlusconi as the Presidential candidate of a formerly serious political party? Is the other party really having a competitive race with one candidate running on an overtly socialist agenda that is barely distinguishable from his opponent’s? Who doesn’t claim to be a socialist? Are central banks actually considering pushing interest rates more negative after getting basically no positive response from the initial push below the previously sacrosanct zero bound? Has the Federal Reserve actually told banks to prepare for negative interest rates here in the US right after raising rates for the first time in years? Are serious economists actually have a debate about whether it is a good idea to just print up cash and pass it out? Is that really monetary policy? Are governments really talking about banning actual currency, the very money created by that government? Money that depends, oh by the way, solely on people’s trust that the government will stand behind the money they are about to outlaw? Has everyone lost their freaking minds?

I was in a restaurant yesterday having lunch and watching a rally for Donald Trump. I say watching because the sound was turned down in favor of a stereo playing a tune by the Allman Brothers (ironically or not, The Whipping Post). As I watched Trump karate chop the air with wild arm movements, it occurred to me that audio was completely unnecessary. This was not serious political rhetoric at work. It was campaigning by the wild gesture, campaign promise and/or hand. It was meant to work the crowd into a frenzy, to stir the anger – righteous though it may well be – of a populace that feels left out, left behind and powerless against the insiders, the cronies, the big money that controls both parties. What it reminded me of frankly was a certain Austrian corporal and I turned away just a little more frightened than I was before I saw it.

Now before you fire up the old email program to complain that I’m picking on the Donald let me just say that the other candidates that scare me are Sanders, Clinton, Rubio, Cruz and Carson. As far as I can tell there is one sane, serious candidate on either side and his supporters wouldn’t fill a phone booth. And honestly, I don’t think much of him either. I’ve always tried to be fair when I’ve ventured into politics in these weekly rants, skewering both sides as equally as I can, adhering to an extreme public choice view of politics. So don’t think I’m singling out Mr. Trump; there isn’t a single candidate I would feel good about voting for.

In any case, I’m only venturing into the political space because it is part of the general atmosphere of anxiety, the funk of fear, the cloud of consternation that seems to have enveloped markets lately. The global economy isn’t in outright contraction right now – although as noted last week, trade figures are flashing some very worrisome signs – but there is an unease about the situation driven by the constant policy discussion coming from the world’s central banks. Would Mario Draghi be promising more action, more easing, more negative rates at the ECB meeting this week if all was hunky dory with global growth? Would there be widespread expectation that the BOJ would cut rates further into negative territory – even after getting exactly the opposite response as the one expected last time – when they meet again? Would there be hope – almost desperate hope – that the G20 meeting this weekend might produce some kind of coordinated response, a Plaza Accord redux? When that group would have a hard time agreeing on lunch?

Even the widely acknowledged best economy in the world – the US if you can believe that – offers little solace to the economic bulls. There is almost zero expectation that the Fed will continue with their rate hiking during their next meeting at the ides of March. In fact, the futures market says rate hikes are unlikely until at least late this year and more likely to happen next. And we saw testimony from Janet Yellen that the Fed has studied and continues to study the use of negative interest on reserves, a policy of taxing the very reserves the Fed created to begin with. If they’re studying negative rates why would anyone expect them to keep hiking? If they’re studying negative rates and telling banks to prepare for it, what does that say about their outlook for US growth really?

Economic data continues to disappoint, manufacturing still in contraction and showing little sign of improvement outside of a very volatile Durable Goods report tainted by some questionable seasonal adjustments. Home sales were pretty good – taking a better than expected existing number with a weaker than expected new homes tally – but that might be more a reflection of the monetary policy discussion that centers more and more on how to destroy the value of money most efficiently. Personal income is a bright spot but consumption figures mean inventories are likely to need further paring, constraining production in the immediate – at least – future.

The recent discussion labeled the war on cash, the idea to ban large denomination bills in the US and Europe – $100 bills here and 500 Euro bills there – is possibly the most bizarre economic discussion I’ve witnessed in my entire career. Governments are seriously considering banning the money they’ve created. Money is a fragile social construct to begin with and governments should be very careful about doing anything that undermines the public’s confidence in it. If they ban $100 bills will that undermine confidence in all paper money? Will they come for the Fifties next?

It goes hand in hand with the discussion and implementation of negative interest rates. All these radical policies – negative rates, banning cash, QE – are designed in one fashion or another to reduce the value of money, to force people to spend today before the money they have becomes worth less tomorrow. It assumes that spending is spending, all equal before the statisticians and is the source of economic growth. It is a line of thinking that is flawed, the very reverse of reality, as if drinking caused thirst.

The practical result of this environment, one marked by already weak growth and discussions of radical remedies, is that individuals and companies are reluctant to invest for a future they fear won’t be bright enough to justify the capital outlay. Until now, the radical monetary policies have carried only an implied threat to one’s purchasing power but now governments are openly discussing more explicit means of destruction. Faced with that threat individuals will certainly take action to rid themselves of their excess cash, but probably not in the way economists imagine. Faced with a loss of purchasing power individuals will do something to protect themselves, stashing their capital in assets that have proven through the course of history to be reliable stores of real value – hard assets such as gold, silver, commodities and real estate.

This urge to preserve purchasing power is on display right now. Wealthy Chinese are doing everything in their power to get their capital out of China before what they perceive as an inevitable devaluation of the Yuan. The capital flight actually creates the downward pressure on the currency from which they are fleeing. And where is that capital going? Ask anyone trying to buy a house in Vancouver or a co-op in NYC or a house in California. Talk to a gold dealer in Hong Kong or anywhere else in Asia. We saw the same phenomenon a few years ago in Brazil when the wealthy sold their Rio condos in favor of South Beach and Manhattan, getting their capital out before the next, always inevitable in Brazil, devaluation.

Faced now with the prospect of something similar happening in the US but with no other country to which to flee, investors have been flocking to assets that protect their purchasing power. Gold is up 14% in the last three months while the companies that produce the stuff, the miners, are up over 37%. TIPS, Treasury inflation-protected securities, are up 1.76% in the last month, investors so eager for protection they’ve driven the yield on the 5-year maturity into negative territory. Next best performing after gold are long-term Treasuries, long-term rates falling faster than short rates, the yield curve flattening rapidly.

There are economic consequences for these market moves if sustained. The fear – of politics, of radical monetary policies – has pushed capital into non-productive investments in an economy already starved of the same. Ironically too, fear of economic slowdown, fear of the loss of purchasing power, fear of a radical change in the political status quo makes these outcomes more likely. Lack of investment, lack of consumption driven by fear creates the economic slowdown everyone is trying to avoid which makes the radical monetary policies and radical political outcome more likely.

There is no certainty as to how all these things will be resolved though. Negative interest rates – at least in the US – may not happen. Indeed, while Yellen didn’t dismiss the possibility, she hardly endorsed it either. The war on cash may be over before the first battle; there has recently been a pretty strong pushback on civil forfeiture that would seem to fly in the face of these proposals. There seems little appetite at the Fed for more QE and even less in Congress where Yellen would eventually have to defend the policy. As for the politics, I’ve been observing that particular cesspool for a long time and governing reality is often quite sobering for politicians who promise radical changes. It isn’t easy in our system to make big changes – ask the current resident of the White House about that one.

But right now it is fear that is moving markets and we have to live in that world until sanity returns. The current trends in gold, TIPS, bonds and stocks are ones that may be predicting or even contributing to a more severe economic downturn. As for Mr. Trump, I’m reminded of something else Hunter S. Thompson wrote and something the Donald should keep in mind: “Beware of enthusiasm and love, both are temporary and quick to sway.”

via Zero Hedge http://ift.tt/1oT4lWN Tyler Durden

Ten days ago we shared some very relevant insight by JPM’s Marko Kolanovic on the future of the S&P500, who succinctly explained how the broader market is “trapped” as a result of the US Dollar, which is too strong for a specific set of S&P500 constituent assets and not strong enough for another core set. To wit:

S&P 500 and USD: we are not excited about owning the S&P 500 as core exposure to risky assets. The S&P 500 is capitalization weighted, has high momentum bias, is internet heavy, and is implicitly long USD (when the USD is near historical highs). The current correlation of the S&P 500 to USD is ~30%. One of the reasons behind the positive correlation of the S&P 500 to USD is the high weight in Momentum and Low Volatility stocks in the index, and these stocks’ positive correlation to USD. At the same time, the index has low weight in Value stocks that are negatively correlated to USD (correlation of momentum, value and S&P 500 to USD are shown in Figure 1). When it comes to macro drivers of equities, the S&P 500 may be trapped by USD: it can’t rally to new highs without USD (momentum sectors, FANGs, etc.), and at the same time the strong USD is capping any significant upside due to its negative impact on EPS (via value segments such as multinationals and energy).

 

What this means is that before one can form a definitive view on the future direction of the S&P500, aside from BTFD “just because”, one first has to decide what the USD will do from here.

And that’s where we run into a problem, because according to the latest Commitment of Traders data, the outlook of the “smart” money managers has never diverged as much as it does right now.

As BofA’s Athanasios Vamvakidis writes, the USD found support from month-end corporate demand and increasing official sector buying, but hedge funds also continue their tentative USD buying for the third week. The contrast to the CFTC data which showed another week of strong USD selling could be due to the reporting lag for CFTC, which is through Tuesday, whereas our flow captures the positive tone to the US data at the end of last week. Real money USD selling also looks to have been concentrated towards the beginning of the week, so a continued shift in sentiment from real money this week, would imply a more USD positive backdrop, from relatively light positioning (Chart 1). US data this week will be key.

Whatever the reason, as the chart below shows, as of this moment, Hedge Funds are now the most bullish on the dollar they have been in the past year, while “real money” is the most bearish.

 

For those unsure, here is the difference between the two categories as per BofA:

• Real Money: Pension Funds, REITs, Small Institutions/Trusts, Insurance, Asset Management and Finance Companies. RM clients will often trade FX to facilitate transactions in Fixed Income or Equities rather than to take a view on FX itself.
• Hedge Funds: Usually limited-partnership funds with diverse, often leveraged strategies designed to maximize returns. HF flow is speculative in nature, and many HF trade FX as an asset class

By definition, one of these two groups is very wrong on the future direction of not only the USD but also the market. While we look forward to finding out just whose investors will end up footing the bill for their manager’s incorrect macro assessment, one thing is certain: the HFT algos will win.

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

Buffet’s Math Trumped by Gold 

By: Roy Sebag

 

Introduction

Every year, I patiently await the release of Warren Buffet’s Annual Letter written to shareholders of Berkshire Hathaway. Though I have “evolved” when it comes to macroeconomics and my understanding of monetary history, I still consider myself first and foremost a bottom-up deep value investor and view this methodology as the only logical method to analyze, invest, or short securities traded by market participants in a free market. As far as value investors go, Buffet and his mentor Benjamin Graham are not only the best practitioners of the craft but have basically re-invented it and evangelized it. For that, every investor should have and maintain great respect for Warren Buffet, Benjamin Graham and others including Charlie Munger, Irving Khan, Walter Schloss, and David Gottesman.

Value investing is what led Buffett to become the greatest investor of all time. He has, through his initial understanding of value investing, accumulated a collection of nearly 300 businesses spanning the globe. He has also amassed a significant fortune and more importantly, power. The same goes for Charlie Munger. With that power also comes an undoubted level of hubris, patriotism, and dare I say, statism.

Anyone that has followed the two as closely as I have can point to the specific moment when both realized their position of power was far more important to their interests than their ability to deduce market and political behaviour based on logic. It was 2008 when the financial crisis hit. That was when I believe Buffett and Munger realized they had become so successful and so big while the rest of the financial sector was so indebted and insolvent that, unless they started cheerleading, everything they had built would also be lost. It was ultimately fear which led Buffet to support Hank Paulson and even the big banks in stark contrast to his public positions in the prior decade.

I wrote about this in depth in an essay from 2012 which is entitled: “Respectfully Disagreeing with Buffett’s Recent Views on Gold”. I found it difficult to reconcile Buffett’s unsolicited comments about gold with the empirical historical data relating to his investment in silver, his public comments about inflation, and his father’s deep comprehension and support of the gold-standard as a congressman.  Later this year, I will also dismantle Buffet’s comment to Becky Quick on CNBC by demonstrating that gold has actually outperformed the Dow. That piece will show that there has not been any investment vehicle that would have enabled an investor to mirror the performance of the Dow index.

In short, reaching this stage has required a deep understanding of value investing, Berkshire Hathaway’s history, and gold to disprove these arguments, and I am grateful to possess this multidisciplinary approach.

Buffett’s Latest Rhetoric

In Buffett’s 2015 Annual Letter, sandwiched between a logical review of the company’s achievements, is Buffett’s latest attempt to cheerlead and obfuscate. Unfortunately for Buffett, I had nothing to do this weekend and decided to put together a point by point rebuttal to his latest rhetoric and sophistry.

On page 7 of the annual letter, Buffet writes the following:

It’s an election year, and candidates can’t stop speaking about our country’s problems (which, of course, only they can solve). As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do.

That view is dead wrong: The babies being born in America today are the luckiest crop in history. American GDP per capita is now about $56,000. As I mentioned last year that – in real terms – is a staggering six times the amount in 1930, the year I was born, a leap far beyond the wildest dreams of my parents or their contemporaries. U.S. citizens are not intrinsically more intelligent today, nor do they work harder than did Americans in 1930. Rather, they work far more efficiently and thereby produce far more. This all-powerful trend is certain to continue: America’s economic magic remains alive and well. [emphasis added]

Here Buffett is obviously taking a jab at politicians and other market participants that state the obvious: The US and other western economies are slowing, labor participation rates are at an all-time low, fertility rates are declining, household formation rates are declining, inflation is rising in the things we need, deflation is creeping in the things we own and most importantly, the gap in wealth inequality keeps growing to unprecedented levels.

These statements are not hypotheses; they are empirical and point toward a deviation from the historical path which made western democracies such as the US the most impressive prosperity machines in history. Buffett is once again fearful as he was in 2008 because he knows very well that the solution to recalibrating the path is the aggressive revaluation of the ratio of global assets to global debt.

Buffet’s creative solution is to leverage his deep understanding of real-inflation which forms the crux of his insurance float business model to obfuscate US data and convince readers that Americans are better off today than they were in 1930 (the year Buffett was born). He elects US GDP per Capita as the metric to convey this view and authoritatively declares that everyone else is “dead wrong”.

“Real” GDP per Capita – Many ways to Skin the Cat

Buffett arrives at a $56,000 2016 “Real” GDP per Capita for the US. He does so by saying “about $56,000”. Now, I could not reconcile this figure, the closest I came was via the St. Louis Fed’s “Real Gross Domestic Product per Capita” figure published here  which comes in at $50,993 for Q4 2015.  Nevertheless, let us take Buffett’s $56,000 figure at face value.

The Real GDP per Capita is calculated by taking the nominal GDP in US Dollars (which we have a history of dating back to 1790) and dividing that figure each year by the population figures. The result is a nominal GDP per capita figure one can trace back to 1790. A good website for perusing this type of data is: http://ift.tt/VvhIuj. Here is where the monkey magic begins. Economists and now Buffet take this nominal data which is empirical and deflate it with some type of a formula to arrive at what they consider the “real” GDP per Capita figure. This, they claim provides an accurate measurement of historical GDP per Capita figures in today’s unit of account and helps to measure productivity over time.

Of course, any intelligent market participant knows the formula used by most economists (the consumer price index) is severely flawed and doesn’t reconcile with reality. Recently, I published a short piece on ZeroHedge showing how the Economist magazine uses the CPI and other useless formulas to manipulate gold’s true performance.

GDP per Capita Priced in Gold

When it comes to financial analysis, I try and focus on what I consider to be “universal truths”: wisdom or knowledge that is as close to foundational as possible. Mathematics for example, is universally true. Gravitational forces in the universe are also universally true. Buffett’s analysis and conclusion lacks rigor as it relies on a subjective variable (deflating a historical nominal GDP by a CPI index to measure productivity and quality of life) and then disregards the most important one: That 20.67 US Dollars in 1930 was equivalent to 1 Troy Ounce of .9999 or better elemental Gold (Au).

Buffett makes the argument that his $56,000 today is six times better (even after his adjustment for inflation) than the $858 of GDP per Capita each US Citizen earned in 1929 but forgets to mention that $858 in 1929 was equivalent to 41.5 Troy Ounces of Gold in 1929. Here is the math:

 

The result is unequivocal: When measuring on an apple to apples comparison, there has been little to no gain in GDP per capita over the last 86 years in the United States. There is most certainly not a six times increase in productivity nor is there an increase in the quality of life per capita as measured using the same unit of account that was used in 1929. Buffet’s manipulating of the figures without reconciling under the apple to apples gold method is trumped by math.

I have built a graph of US GDP per Capita priced in Gold from 1929 to 2015. On first glance, this graph appears to show that there were in fact times where, as measured on an apple to apples basis, the US was gaining in both productivity and quality of life on a per capita basis.

A part of me agrees with the graph and ascribes the first cycle from 1942 to 1971 as a classic post-war expansion fueled by healthy demographics, sound economic policies, normalized interest rates and the discovery and proliferation of conventional oil as a primary energy source. The second period from 1987 to 2001, in my view reflects the Greenspan era of targeting the gold price with the fed funds rate as he explains in his book “Age of Turbulence”. Though there were many unintended consequences brewing, market observers should agree that interest rates from the early 1980’s to 2001 incentivized savings and productive usage of capital.

Today, we have neither. We don’t have a market rate that incentivizes savings, nor do we have healthy demographics or sound economic policies. Most millennials prefer to remain single and defer household formation. When they do form households, their fertility rates are far lower than their parents.

GDP per Capita Priced in Gold Excluding Government Spending

There is an even more distressing analysis of the GDP per capita figures. In searching through the data, I noticed that government spending as a percentage of nominal GDP has been creeping up from 1930’s through today. If one is to extrapolate productivity or quality of life from GDP per capita as Buffet has done, shouldn’t the government component be excluded? Even the most ardent Keynesian would agree that government spending is not the arbiter of the free market but there to smoothen out the business cycle.

In 1929, government spending as a percentage of GDP was 11.16%. In 2015, it was 36%. Unsurprisingly, the adjustment of nominal GDP each year to exclude government and the subsequent adjustment of the resultant figure to Gold from 1929 to 2015 shows a completely different picture:

Though this graph resembles the prior graph, it’s important to observe carefully. The Gold adjusted Ex Gov Spending GDP per Capita figure shows less pronounced cycles than before. This is crucial as it indicates a longer-term asymptotic decline in peaks achieved by the US economy when excluding government spending. For market participants familiar with technical analysis, this resembles a “lower high” chart pattern. More importantly, the 2015 Gold adjusted Ex Gov Spending GDP per Capita figure is $35,690 down 17.3% over 86 years vs. $43,157 which was the same figure for 1929.

Conclusion

We cannot prosper as a society unless we are using the right measurement tools. In this piece I showed how Warren Buffet was able to fool most people into believing they are six times better off today than their ancestors. It’s easy to convince anyone of anything if the author is both brilliant, powerful, and has an artifice through which they can distort the past. By using a measurement tool that is totally arbitrary such as the CPI to deflate nominal GDP per Capita, Buffett attempts to show empirical and logical analysis.

In reality, he diverted the public’s attention from a critical factor: that the historical dollars were redeemable in gold.

If you understand basic science and elementary physics, you will quickly grasp why only gold should be used as a measuring system for our productivity and prosperity. Most people who own gold don’t fully understand why they do. In my encounters with leading gold investors and market participants, the smartest own it because they understand it to be antithetical to everything else in financial markets. Another popular axiom is: It’s an “asset” without counterparty risk or an “insurance policy”. These are reasons for owning gold that miss the critical reason for why gold ascended as money in the first place. For those interested, I recommend these two pieces. The answer has little to do with economics and lots to do with physics:

Why Gold – BitGold.com by Roy Sebag and Josh Crumb

Gold Price Framework Vol. 1: Price Model by Stefan Wieler and Josh Crumb

At GoldMoney Inc. (TSX: XAU.V), we continue to build the world’s first full-reserve and gold-based financial services company offering savings, payments, wealth services, custody, execution, and research for nearly 750,000 clients in 200 countries. By doing so, we empower people around the world to measure their prosperity with something remarkable and timeless.

 

via Zero Hedge http://ift.tt/1LqqDsO Gold Money

For those interested in hearing some horror stories from ground zero of America’s recession, look no further than Texas, where the best recap of sentiment on the ground comes straight from the Dallas Fed respondents, who have not been this depressed since the Global Financial Crisis.

Here are some key examples, starting with the one that summarizes it best:

• “We are in a recession. Oil prices are a symptom, not the cause.“

Chemical Manufacturing

• Last October we lost about 40 percent of our volume due to customer internal consolidations because of the weak economy. Most of the loss was due to product sourcing out of China. Our U.S.-based customer closed U.S. plants’ processing units and are buying from China sources, so it has no need for us to package its products for export around the globe. We have been granted new business that will come on board in March and April 2016. This will make up for some of the losses.
• Don’t know if it is the weather, uncertainty created by the presidential election, or just a slowdown in the world economy, but things are definitely slowing down. Volumes are down and new orders are quiet. Low energy prices are the saving grace keeping margins good.

Fabricated Metal Product Manufacturing

• The refinery turnaround season has helped with new orders, but the general level of capital goods orders and prospects has decreased significantly. The summer season is the slowest, and we are expecting a very depressed market prior to the fall refinery turnaround season.
• Our backlog has declined (50 percent less than the same time last year). We are receiving a very high volume of requests for proposals, but either are not winning them or the projects are on hold. Pricing to obtain any work has decreased for the benefit of the owner/contractor.
• We’re seeing an uptick in trade training facilities and have been asked to accommodate intern students. We are willing to do this on a grant basis. Previously, training young people has been totally out of our pocket. The precision machining trade has been suffering for years as baby boomers have been retiring and no one is available to fill their positions. Advances in the machine trade help to compensate some, but new blood is sorely needed.
• We are experiencing a severe downturn in our business, as the oil and gas exploration and production segment has significantly reduced their capital budgets for 2016 based on declines in the WTI price.
• Sales bottomed out in February after weakening in January from fourth-quarter volumes. Feedback from customers indicates slower business conditions and a cautionary tightening of inventory levels. A key customer is moving additional production to China and to a large vertically integrated U.S. supplier, adversely impacting our sales after the first quarter. Additional staff reductions will be required.

Machinery Manufacturing

• We are in a recession. Oil prices are a symptom, not the cause.
• Our overall forecast is level; however, we should be on an increased path for volume and pressuring our manufacturing capacity. Due to the low price of oil, there is a direct impact on the overall forecast of increased sales and manufacturing. Other segments of industries such as aerospace and general manufacturing seem static. The end result is we believe the economy overall is not positive.
• Low commodity prices within the energy industry are brutal. Further rounds of headcount reductions are being planned now after multiple waves of reductions in 2015. Trying to plan cash flow in this environment is nearly impossible, as producers continue to cut activity and demand steeper and steeper discounts on products and services. Failure rate of companies in the energy industry will start to ramp up materially in 2016.
• Customers are becoming more cautious about investing in expansion than they were this time a year ago.
• There is continued weakness in oil- and gas-related equipment manufacturing. We anticipate improvement in the second half of the year, but no change in wages.
• It’s a tough time in the oil patch. We plan on cutting 20 percent of staff this month after cutting 25 percent a year ago. We are not sure how we can sustain our skill sets with these dramatic troughs.

Transportation Equipment Manufacturing

• Our business is heavily tied to the health of the Texas economy. Depending on the fallout from the energy sector, our six-month projections may turn negative. If we are able to quickly move into an emerging market, even if the broader Texas outlook turns negative, this may act as a mitigating factor for our business. The coming year does represent the least confidence we’ve had in knowing where conditions were heading since 2010.
• Our business is seasonal, and we generally see an uptick in the spring. With the relatively mild winter this year we may be seeing the spring uptick early. So we remain cautious about our usual spring surge.

Printing and Related Support Activities

• We made heavy investments in new equipment and new capabilities over the last three years, and finally the nationwide salesforce is feeding this plant new business opportunities at a rate I’ve not seen in my 10 years here. Plus our largest customer went out to bid for the umpteenth time and for the first time, all of the competitors raised prices, and a bunch of business came back our way. I am more optimistic about the future for this plant than I’ve been in a while.
• Qualified candidates for machine operator positions are very difficult to fill. The lack of workers is limiting production in this manufacturing business.
• We cannot figure out why it is so slow right now, other than we are indirectly impacted by the downturn in energy. We are four months into our fiscal year and are behind 21 percent compared with last year on incoming orders, and last fiscal year was a down year!

Source: Dallas Fed

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

The diversified “we’re not just oil” economy continues to collapse. Missing expectations for the 17th month of the last 20, Dallas Fed printed -31.9, now in contraction for 14 straight months. While New Orders, Capacity Utilization, Inventories, Prices Paid, Prices Received, Wages, Employment, Hours Worked and CapEx all fell, but future expectations “hope” rose notably from -24.0 to -2.1 (but obviously still a negative expectation).

“Since Lehman”…

 

“Since Lehman”-er…

 

The breakdown shows weakness across the baord…

 

We leave it to Dallas Fed respondents to describe reality…

“Last October we lost about 40% of our volume due to customer internal consolidations because of the weak economy“

 

“Don’t know if it is the weather, uncertainty created by the presidential election, or just a slowdown in the world economy, but things are definitely slowing down“

 

“The low oil price is helping our cost side, but the decrease in oil jobs is concerning“

 

“We cannot figure out why it is so slow right now, other than we are indirectly impacted by the downturn in energy. We are four months into our fiscal year and are behind 21 percent compared with last year on incoming orders, and last fiscal year was a down year!“

Charts: Bloomberg

via Zero Hedge http://ift.tt/1ThN4U0 Tyler Durden

Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

Today is February 29^th. Enjoy it. This is a leap year, which gives us an extra day every four years.

How about an extra week every six years, starting in 2020? That’s what you would enjoy if we
adopted the Hanke-Henry Permanent Calendar (HHPC).  Faced with the Gregorian calendar’s plethora of problems, my colleague Dick Henry, a professor of astrophysics at The Johns Hopkins University, and I devised the HHPC. We propose Monday, January 1, 2018 as its start date.

The HHPC consists of 364 days broken into four identical quarters of 91 days, each containing two months of 30 days and one of 31.  To account for calendrical drift and to maintain seasonal integrity, a leap weak (called Xtra Week) is added every six years at the end of the year.  It is out of Xtra Week that the HHPC’s main feature arises: each day of the year is on the same day of the week, every year, forever.  December 25^th will be on a Monday, year-after-year.  Take a look, and find your birthday.  It will occur on the same day of the week, forever.

You might object to your birthday always falling on the same day of the week.  Don’t worry. Celebrations can be set to any convenient day. The Queen of England officially celebrates her birthday in June, during the warm English summer, even though she was actually born on April 21st. 

Why change from the Gregorian to the HHPC?  After all, the Gregorian has been around since 1582. Well, there are a number of problems and inefficiencies associated with the Gregorian calendar. At present, to easily calculate interest on bonds, mortgages, and the like, there are a myriad of day count conventions. For an example, one requires us to assume that each month consists of 30 days and that each year is 360 days — the 30/360 day count convention. This can lead to huge errors in those months that are made up of 28 or 31 days. The HHPC eliminates the need for day-count conventions altogether.

Under the Gregorian calendar, the scheduling of holidays is also costlier than necessary.
The HHPC would allow the six existing Federal holidays to be scheduled on weekends, and it would also result in New Years’ Day falling on weekends. In the U.K., one study found that eliminating seven of these national holidays could save up to 1% of U.K. GDP annually. In the U.S., that would translate to savings of about $150 billion, or $480 per person, per year.

The benefits go on.  All scheduling activities, for example, would be simplified.  A school schedule would be set once, and last forever.  Just think of the time that would be saved by scheduling sports leagues’ schedules once, instead of every year.

What are the odds that we wake up on January 1, 2018, and the Hanke-Henry Permanent Calendar has been adopted?  I don’t know; they aren’t betting on it at Ladbrokes in London, not yet.

via Zero Hedge http://ift.tt/1oJo6Q6 Steve H. Hanke