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Submitted by Lance Roberts via RealInvestmentAdvice.com,

Wow…things are certainly happening faster than I expected. As January kicked off the new year, I posted my outlook for 2016 in which I discussed why, despite views of Goldman Sachs and many others, interest rates were going lower rather than higher.

“With the Federal Reserve raising interest rates on the short-end (Fed Funds), it will likely push the long-end of the curve lower as the economy begins to slow from the effects of monetary policy tightening.

 

From a purely technical perspective, rates have been in a long-term process of a tightening wedge. A breakout to the upside would suggest 10-year treasury rates would soar to 3.6% or higher, the consequence of which would be an almost immediate push of an economy growing at 2% into recession. The most likely path, given the current economic and monetary policy backdrop, will be a decline in rates toward the previous lows of 1.6-1.8%. (Inflation will also remain well below the Fed’s 2% target rate for the same reasons.)”

“Of course, falling rates means the ongoing “bond bull market” will remain intact for another year. In fact, if my outlook is correct, bonds will likely be one of the best performing asset classes in the next year.”

Here is that same chart today:

With interest rates now at my target levels in February, and bonds now extremely overbought, this is an opportune time to take some profits out of interest rate sensitive investments.

However, what the plunge in rates also suggests is that the economy is FAR weaker than Ms. Yellen, the mainstream financial media or the bullish blogosphere realize. Unfortunately, by the time the economic data is revised to reveal what rates are already telling you, it will be far too late to protect your investment capital.

But that is just my view. This weekend’s reading list, as usual, is a compilation of reads that provide both sides of the market and economic debate. Our job, as investors, is to reduce our confirmation bias in order to make more logical decisions with our money even though our emotions may be trying to lead us elsewhere. Hope, optimism and greed are all emotions that have led to far greater destructions of capital than negativity and fear ever have. 

1) The Greatest Bull Market Of All Time by Ben Carlson via Wealth Of Common Sense

“How many hedge fund managers would kill for the following performance characteristics over a 40-year time frame?

• Annual Returns: 7.7%
• Volatility: 6.9%
• Number of Up Years: 37
• Number of Down Years: 3
• Annual Win %: 93%
• Worst Annual Loss: -2.9%
• Average Annual Loss: -1.9%
• Max Drawdown: -12.4%”

But Also Read: Equity Bubble Update by Jeremy Grantham via GMO

2) I Was Too Bullish by Matthew Belvedere via CNBC

“I was far too bullish last December,” Siegel admitted, referring to his call on “Squawk Box” that “valuations can stay on the high side.” He also had predicted on CNBC in November that Dow 20,000 was a “real possibility” in 2016. It was above 15,900 on Monday.

 

The Wharton School finance professor on Monday summed up his view on the headwinds to the market. “Those deflationary forces … from China, from commodities are really, in the presence of debt that so many of these energy and other companies have, … causing the market turmoil right now.”

Also Read: Just A Bullish Pause by Avi Gilburt via MarketWatch

Opposing View: Deteriorating Liquidity by Luke Kawa via Bloomberg

And Also: America’s Earning Recession Deepens by Alex Rosenberg via CNBC

3) Global Growth Fraying At The Edges by Gavyn Davies via FT

“The weakness in global risk assets that started in May 2015 raises a major question for macro-economists. Is market turbulence foreshadowing – or perhaps causing – a much broader weakening in global economic activity than anything seen since 2009?

 

Until now, the Fulcrum activity nowcasts have failed to identify a major turning point in global growth. This conclusion is still just about intact, but is subject to much greater doubt in this month’s report. There are some signs that growth in the advanced economies may be fraying at the edges, and China may be embarking on another mini downturn.”

Also Read: Clueless Economists & The Coming Recession by Aaron Layman

4) EVERYTHING YOU NEED TO KNOW ABOUT NIRP

• An Explanation Of Negative Rates by Econobrowser
• Negative Rates: A Giant Policy Failure by Narayana Kocherlakota
• The Fed May Follow Japan’s Path by John  Mauldin via Fortune
• The Futile Negative Rates Club by Daniel Gross via Project Syndicate
• Why Japan Went NIRP by Jeffrey Snider via Alhambra Partners
• Bizarro World Of Negative Rates by Marc Chandler via Real Clear Markets
• The New Frontier Of NIRP by Clive Crook via Bloomberg
• NIRP Confirms QE Failure by Jeffrey Snider via Real Clear Markets

5) Why Stocks Could Fall By 10-20% by Jack Bouroudjian via CNBC

“The market tone began to shift in December — and the warning signals started to flash red.

 

We started to witness a contraction in earnings for a couple of quarters in a row, which resulted in the price-to-earnings ratio of the S&P 500getting rich. We watched crude oil have a parabolic move to the downside as producers couldn’t pump fast enough. And we started to see the Federal Reserve move rates at a time when all the other central banks were doing the exact opposite which created risk aversion.

As it turns out, this became an I.O.U. market: interest rates, oil and uncertainty.”

But Also Read: 16 Charts The Explain The Market by Sam Ro via Business Insider

MUST READS

• Markets Disappointed By Fed by Louis Woodhill via Real Clear Markets
• Wall Street Strategist Still Full Of Bull by Salil Mehta via Statistical Ideas
• 5 Questions To Ask Yellen by Mohamed El-Erian via Bloomberg
• Fed Made Recession Worse by David Beckworth & Ramesh Ponnuru via Bloomberg
• Why You Can’t Afford To Buy A House by Joel Kotkin via The Daily Beast
• Faster Growth Is A Panacea by Steve Chapman via Reason
• Easy Money No Help by John Hussman via Hussman Funds
• KISS – Applying It To Investing by Joe Calhoun via Alhambra Partners
• Jobs Report Full Of Oddities by John Crudele via New York Post
• 70% Of Obama’s Budget Is Writing Check To Individuals by Editorial Staff via IBD
• Recession Ahead by David Stockman via Contra Corner
• Pro’s Are Just Like Us by Meb Faber via Faber Research
• Comparing Yields To Rates Is Stupid by Jesse Felder via The Felder Report
• Shades Of 2000 & 2007 via Dana Lyons via Tumblr
• Effects Of Buybacks Exposed by Michael Lebowitz via 720 Global Research

“A good player knows when to pick up his marbles.” – Anonymous

via Zero Hedge http://ift.tt/1QcA0hD Tyler Durden

By EconMatters

No real damage to shorts yet in the oil market, only a little flesh wound. I predict that by May 6th we are above $42 a barrel in WTI, lots of repositioning to come about by this date.

via Zero Hedge http://ift.tt/20t4GLl EconMatters

From Robin Landry of Raymond James

Since the last update the market has fallen to test the 1810 area as seen on the attached chart. The news and various indicators I use are getting more bearish. The world is drowning in debt and the central banks are showing themselves to be powerless to turn the economies of their respective countries around. Now they are moving to negative interest rates which only confirms my view of the world being in a DEFLATIONARY trend that has years to go. The talk of doing away with currency and moving to a digital currency is also showing the desperation. I believe a digital currency is coming much sooner that most people realize. The count shown in the attached chart is the one which gives a little larger view of where I believe the market is headed over the next few months if the top is already in. The rally happening, as I write this, is mainly due to the rally in oil. If the market is to make a new high, as I have suggested in earlier updates, this rally must break through the resistance in the S&P 500 around the 1950 area on increasing volume. If it fails, then the decline will drop to the 1740 area which I have repeatedly said MUST HOLD or the markets are in a MAJOR BEAR MARKET that will test the lows reached in 2009.

A Chief Investment Strategist that I have great respect for has always said that people don’t care whether things are good or bad but ARE THEY GETTING BETTER. The evidence I am looking at does not say things are getting better. THEY ARE GETTING WORSE!!! I have been in the investment business for over 40 years and have found that the charts of the various markets tell me what is going on in the longer term. I have repeatedly said that the Central Banks and the various Governments CAN change things over the short to medium term but THEY CANNOT CHANGE THE LONG TERM.  Cycles have always existed and while they may be skewed to the left or right for awhile they ultimately happen until they are finished.

In Graduate school I took a Humanities course which I hated and was one of the few which I did not make an A in. Life is funny because that course taught me something which has turned out to be one of the most eye opening things I have experienced so far in my 69 years of life and my 40 plus years in this business.

The book used in that course was a book about Civilization.  It outlined the dominance of Eastern and Western countries and how the Dominance changed every 500 years with a smaller 250 year cycle inside that where the major country in that hemisphere also changed. For example, the dominant hemisphere over the last 500 years has been the West. For about 250 years it was Great Britain, then it has been the United States. Now it is time for it to swing back to the East and we can easily see that happening every day in the news. China appears to be the next leader in the world, at least the way it looks now. You might ask what does that have to do with the stock market? Everything!! While the change does not happen overnight, it does happen and involves great turmoil. I got interested in cycles after reading that book in the Humanities class and wrote my Master’s thesis on the stock market. In that process I ran across the Elliott Wave theory. It allows one to map, as best as I have ever found, where we are in cycles at various degrees. One of the things that stands out in the study of cycles is that approximately every 80 years or so there is a Depression and then every 250 years an even greater change which I call a revolution. I believe that is what we are in the very early stages of. In the revolution cycle governments fall and new one’s rise. Look at all the changes going on around the world with everything changing in ways many of us would have never dreamed unless we had studied History and Cycles.

I won’t attempt to explain the Elliott Wave theory in this update. Robert Prechter along with A.J. Frost have written a book titled “Elliott Wave Principle” and explains it far better that I ever could. Elliott Wave International’s website is www.elliottwave.com. There you can find his book, newsletter’s and other materials if you want to learn more. The reason I bring this up, I have said in recent Market Updates that if we have already topped out in the stock market, then the market decline will be the biggest one anyone alive has ever seen and the result will be changes in every aspect of life that few people have ever dreamed of. It has been said that because the wave structure pattern can be very subjective that you can have 3 experts in Elliott Wave in the same room and have 3 different opinions. I have worked to take as much of my own opinion out of my analysis by using various technical indicators others have created over the years to help me determine where we really are in the wave structure.

I have expressed my opinion that we are in a large Cycle wave 4 correction and once it is finished a final 5th wave up to new highs will happen before the big downturn starts. Very few other EW technicians agree with me and think the top is already in and the downturn has already started. That is why over the years I have shown charts with my preferred count and my alternate count. What my personal opinion is does not matter. What does matter is what does the wave structure and the technical indicators say. They are telling me we are at a critical juncture. There are numerous supports from the recent low around 1810 down to the 1740 area which I IMHO believe will determine what the true count is. I am hoping for the best but also trying to prepare for the worst. I could go on for hours explaining all the things which tell me why I believe this support area is so important but I do not have the time and my typing skills are almost nonexistent.

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

And all of this on a Dudley statement (that said nothing), an oil rumor (repeatedly uttered with no actual news), a billionaire bank CEO buying some more stock in his firm, and a seasonal adjustrment (which made retail sales 'appear positive')… 

Public Service Announcement:

Crude is the headline of the day…WTI RISES 12% TO $29.44/BBL, BIGGEST PCT GAIN SINCE FEB. 2009

 

via Zero Hedge http://ift.tt/1QcwLH9 Tyler Durden

Donald Trump is no fan of illegal immigrants.

The problem, Trump reckons, is that Mexico “isn’t sending their best people.”  “They’re bringing drugs. They’re bringing crime. They’re rapists.” the bellicose billionaire famously remarked last summer when his bid for The White House was still largely regarded as a sideshow.

“Some, I assume, are good people,” he added, apparently realizing that what he just said might be rather inflammatory.

Since then, Trump hasn’t let up at all on immigration. In fact, he’s gone out of his way to let the American electorate know that he wouldn’t just seek to shore up the border with Mexico (by forcing the country to pay for a wall), he also wants to create an invisible anti-Islam fence to keep Muslims from coming to America “until we can figure out what’s going on” that makes tragedies like the San Bernardino massacre possible.

Of course Trump also wants to deport all illegal immigrants. “They have to go,” he said aboard his 757 in an August interview with Chuck Todd. “We either have a country or we don’t.”

All of this comes as the Obama administration has had a difficult time implementing an executive order designed to shield non-violent migrants from deportation.

In December, the Department of Homeland Security began to prepare to deport hundreds of families who came to the US in 2015 fleeing Central America. “The nationwide campaign, to be carried out by U.S. Immigration and Customs Enforcement (ICE) agents as soon as early January, would be the first large-scale effort to deport families who have fled violence in Central America,” The Washington Post reported at the time, adding that “groups that have called for stricter immigration limits said the raids are long overdue and remained skeptical about whether the scale would be large enough to deter future illegal immigration from Central America.”

“I’ll believe it when I see it,” Mark Krikorian, executive director of the Center for Immigration Studies told WaPo. “What share is this going to be?. . . It’s a drop in the bucket compared to the number they’ve admitted into the country. If you have photogenic raids on a few dozen illegal families and that’s the end of it, it’s just for show. It’s just a [public relations] thing, enforcement theater.”

Krikorian, it turns out, was wrong. The DHS chief Jeh Johnson said on Thursday that the deportations have sharply reduced the number of Central American migrants entering the country. “I know this has made a lot of people I respect very unhappy,” Johnson said, “But we must enforce the law in accordance with our priorities.”

Yes, yes you “must” and here are the results as reported yesterday by NBC: “Since the enforcement action began in late December, the number of unaccompanied children apprehended at the southwest border dropped 54 percent, and the number of those in families fell 65 percent.”

We’re reasonably sure those figures will please Donald Trump as they seemingly prove that deportations have a direct and pronouned impact on the number of people streaming across the southern border. We can almost here to stump speech soundbite now. As VOA notes, “Trump applauded the raids last month and took partial credit for them, claiming the pressure he placed on the administration had resulted in the deportations.”

One person who isn’t enamored with the DHS effort is Bernie Sanders who VOA goes on to say “wrote a letter to the president, asking for the raids to stop and for the country to protect the immigrants.”

The White House defended the program. “This is consistent with the way we’ve described our priorities, that we are seeking to deport felons, ” spokesman John Earnest said, “not break apart families.”

In January, protesters staged demonstrations in front of the White House in an effort to convince the president to stop the raids. One immigrant who arrived illegally from El Salvador 36 years ago and eventually became a citizen said he would go on hunger strike. “I think I’m going to lose some of the pounds I need to lose,” he told VOA. “At least they are going to listen.”

It turns out they didn’t listen and if the numbers out of the DHS are any indication of the effect deportations will have, you can expect Trump to cite these stats as proof positive of why all illegal immigrants should be sent back where they came from.

And you can surely expect Bernie Sanders to take the other side of the argument – and quite fervently so. That should make for a spirited debate assuming both “protest” candidates receive their party’s nomination.

As for Obama, the President doesn’t seem to know if he wants immigrants to stay or go.

via Zero Hedge http://ift.tt/1Psb9Db Tyler Durden

In his final state-of-the-union address, President Obama famously accused anyone who dares to question the strength of the US economic “recovery” of “peddling fiction.”

Shortly thereafter, we learned that the US economy grew at a paltry 0.69% in Q4. Below estimates. 

Perhaps the most disturbing thing about the state of the economy – well, besides the fact that healthcare spending is essentially driving “growth” – is that the labor market has becoming a waiter and bartender creation machine. That’s come at the expense of manufacturing jobs, where skilled workers can actually earn a decent living.

Here’s what the disparity looks like since 2007:

No fiction “peddling” there. Just numbers. 

Additionally, we’ve noted the fact that foreign born workers account for the vast majority of job creation in America since the crisis:

On Wednesday, United Technologies decided to reinforce both of these trends all at once, when the company announced it would be eliminating 1,400 jobs at a Carrier plant in Indianapolis in favor of hiring some new “foreign-born” employees – only these “foreign-born” workers will be hired in Mexico.

“Two Indiana plants that make products for the heating, ventilating and air conditioning industry are shifting their manufacturing operations to Mexico, which will cost about 2,100 workers their jobs,” The Indianapolis Star reports. “Carrier is shuttering its manufacturing facility on Indianapolis’ west side, eliminating about 1,400 jobs during the next three years [and] United Technologies Electronic Controls said that it will move its Huntington manufacturing operations to a new plant in Mexico, costing the northeastern Indiana city 700 jobs by 2018.”

Watch below as 1,000 soon-to-be Donald Trump voters react to the announcement: 

Economists called the move “highly unusual.” “Today’s surprise announcement was without warning,” the mayor said.

Actually, it’s neither “highly unusual” or “surprising.” Here’s why (again from The Star): “Carrier’s workers are separated into a two-tier wage system. A quarter of the workers make about $14 an hour, or about $30,000 a year. The rest make about $26 an hour, or about $55,000, but make well above $70,000 a year with overtime.”

Something tells us labor costs will be “slightly” lower south of the border.

Who’s “peddling fiction” now?

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

Submitted by Martin Armstrong via ArmstrongEconomics.com,

We are on the precipice of what can only be described as a rising systemic risk for all markets. The Fed is now hinting that banks should prepare for NEGATIVE INTEREST RATES. This insanity of following the crowd is undermining the entire world economy. The increasingly unstable footing that we find ourselves standing on is reflected in widening credit spreads that demonstrate that CONFIDENCE is indeed collapsing.

The EU Commission will no longer classify government bonds in bank balance sheets as “risky.” Banks would have government bonds on par with “equity” yet government bonds have proven risky and are inferior to what would, in some financial institutions, result in an increased capital requirement.

 

Turning to Goldman Sachs, we saw the so-called world’s greatest trader close out its long USD trade against a basket of euros and Japanese yen with a potential loss of around 5%, which is being bantered about on the street showing they too got this all wrong. This early 2016 destabilization is stopping out short gold positions, but it is not replacing them with any buying conviction. The euro trade of long Italian 5-year against short German 5-year has also turned into a bloodbath as the euro finally rallied begrudgingly to reach our first resistance target in the mid-113 area.

 

Global economic growth has been anemic at best; and in the US it is clearly turning down since Q3 2015.

This new world order of NEGATIVE INTEREST RATES is so insane and focuses solely on trying to stimulate borrowing. This is undermining pensions for the elderly and creating the economic storm of the century that is on the horizon that will be far worse than the Great Depression of the 1930s. Even the Japanese 10-year bond has gone NEGATIVE, demonstrating the total collapse in CONFIDENCE.

Why, you ask?  Because this time, the defaults will engulf all governments at all levels. Like a drunk who just won the lottery, all is always lost in a matter of time.

Bankers in German and Italian banks are looking rather pale in the face. The question is: will the ECB bail out Deutsche Bank or let it fall?

They will probably blink and this will be part bailout/bail-in. They have no way out of this mess created by the euro without surrendering their own power. We are looking at a European credit crunch beginning in the periphery and spreading to the core, just as we are looking at the emerging market debt imploding and spreading to the rest of the world.

The Fed now sees the external threat as systemic and is considering abandoning domestic policy objectives for international policy objectives precisely as they did in 1927, which created a major crisis.

via Zero Hedge http://ift.tt/1QcenI6 Tyler Durden

It was just two days ago when we laid out what could be “the trade of the year”: namely, going long Chesakeapke’s $500MM 3.25% bonds of March 15, which were then trading at 80 cents on the dollar in anticipation of a Chesapeake bankruptcy, yielding a whopping 299%.

This is what we said:

… yes, Chesapeake will default, but the question is when. For those who think the company will somehow survive for a more than a month without filing Chapter 11 or arranging some prepackaged bankruptcy, and actually repays the $500 million issue, this could be the trade that makes someone’s full year, because with a yield of 299%, and a cash on cash return of 25% (being paid par on March 15 for a bond that can be purchased today for 80 cents), it does look somewhat attractive, especially if hedged with a short on CHK stock, which at last check was trading at an implied market cap of $1.3 billion.

Fast forward barely 48 hours later, when we get this:

• CHESAPEAKE SAID PLANNING TO PAY $500 MILLION DEBT DUE IN MARCH

This is what Bloomberg added:

Chesapeake Energy Corp. is planning to pay $500 million of debt maturing in March, using a combination of cash on hand and other liquidity that may include its credit line, according to a person with knowledge of the matter.

 

The second largest natural gas producer in the U.S. is also considering selling assets to shore up its capital so it can address more than $1 billion of debt coming due in 2017, said the person, who asked not to be named because the matter is private.

With the bonds trading as low as 55 on Monday, and at 80 cents on Tuesday, there was clearly a substantial short overhang in the name just waiting for the company to roll over and die.

Not so fast: even the mere hint that the company would make the bond payment (it may, it may not: a lot will change in the next month) has unleashed a furious short squeeze and sent the 3.25s soaring, and as the latest bond run indicates the bonds which were offered at 80 on Wednesday, are now marketed 92-94, and just traded at 93 for a yield of just over 100%.

We would hit that 92 bid, pocket the tasty 15% cash on cash bond return in 2 days, and close the trade out, which is further juiced by the 15% drop in the stock assuming one put on the equity short leg, because while the bonds have soared, the equity is down 15% since the “recommendation” for an all in return of 30%. 

And now we sit back and await for more “Top Trade Recommendations” by Goldman Sachs to do the opposite, and to generate risk-free returns for the rest of the year.

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