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Even though the economy may not have normalized fully, it is also clearly no longer in crisis, and yet, as Bloomberg Brief’s Carl Riccadonna notes, monetary policy remains calibrated at a crisis stance. There are numerous reasons for this as we have expounded vociferously but the make-up of the Federal Reserve’s voting members next year bends notably to the dovish side… no matter how much they want to get off ZIRP and achieve some breathing room into the next crisis. As Bloomberg’s “Fed Spectrometer” shows, from Hawkish Fischer (non-voting) to Dovish Yellen (voting) and uber-dovish Kocherlakota (non-voting) this handy guide will clear up any confusion when the FedSpeak begins again…

 

 

 

Source: Bloomberg Briefs

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Zee overnight stabilitee (and brief dead-cat-bounce this morning) has turned into a renewed bout of selling pressure and for the first time since July 2009, WTI has broken below the $60 level. Canada Heavy is trading $42.10 (down almst $4 today!), its lowest since April 2009. Energy credit spreads are wider once again, now at +952bps.

 

Canada Heavy has crashed…

 

And WTI breaks below $60 (and bounces) after multiple stop run attempts…

 

Now we have a problem…

 

Who could have seen that coming?

 

As Deutsche Bank warned last month, a drop in the oil price to $60 a barrel “is likely to push the whole HY energy sector into distress.”

 

Charts: Bloomberg

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Faber Favours Commodity Stocks In India, Asia … and Gold

Respected economic historian and author of the “Gloom, Boom and Doom Report,” Dr Marc Faber has warned about the continuing and coming decline of western economic power.

He believes that the generation of young people starting to work today will be the first in two hundred years to have a lower standard of living than their parents had. He believes dividend paying Asian stocks will grow wealth in the coming years and remains an advocate of owning physical gold.

In a video interview with Barron’s, Dr Faber states,

“I meant that with respect to western societies and Japan where essentially the younger people – today’s generation – will earn less than their parents and they will have less wealth than their parents, inflation adjusted.”

“[This is] because we will have wealth taxes, we will have more estate taxes and we have essentially declining real median incomes in the western world and Japan.”

Faber has consistently warned since the late 1990s that this dynamic would come to pass as the West and the U.S. in particular exported its industrial infrastructure and binged on consumer junk fuelled by easy credit while the emerging economies of east Asia used the proceeds to focus on production rather than consumption to become industrial powerhouses.

He went on to say,

“In the countries that opened up post breakdown of the socialist/communist ideology – China, Soviet Union, Eastern Europe – and India of course we have an entire generation who will earn much more and will have a better standard of living than their parents had.”

He highlighted certain factors that are leading to this lower standard of living for young western people. Banks now generally charge more to hold one’s money than the interest they pay out. He cites the yields on Swiss ten year bonds at 0.46% as an example of how people, and especially young people, are disadvantaged relative to previous generations.

“These people will not enjoy the compounding impact that I enjoyed having started to work in 1970 when bond yields were 6% and they went to 15% and so forth. So during that period of time wealth was accumulating very rapidly plus we had a huge boom in real estate and in equities and bonds between 1980 and 2007.”

“That is not going to happen again.”

Agricultural commodities including palm oil and Asian companies processing agricultural produce is where Dr. Faber currently sees value. Some of these companies in Malaysia and India, for example, pay dividends between 2% and 4%.

The young people who invest in these types of company will see their wealth steadily rise as opposed to their western counterparts who rely on the casino of rising paper asset prices.

Faber also likes the stock market in India and thinks it could see gains of 15% next year. The new government is free market and enterprise friendly and Faber believes the central bank in India is the “world’s best central bank.”

Dr. Faber is a long time proponent of owning physical gold. He has consistently urged people to act as their own central bank in acquiring bullion coins and bars as financial security and he believes that storing gold in Singapore is the safest way to own gold today.

Dr Faber has said that in the long term, he thinks gold could rise to over $10,000 per ounce.

More importantly, he continues to emphasise the importance of owning physical gold as part of a diversified portfolio in order to protect against a coming stock market correction and the possibility of another global financial crisis and crash.

The short Barrons Interview with Dr Faber can be seen here

Our recent comprehensive Webinar with Dr Faber can be seen here

MARKET UPDATE
Today’s AM fix was USD 1,219.50, EUR 980.94 and GBP 778.24 per ounce.
Yesterday’s AM fix was USD 1,228.25, EUR 991.88  and GBP 783.82 per ounce.

Spot gold fell $2.20 or 0.18% to $1,227.40 per ounce yesterday and silver climbed $0.04 or 0.24% to $17.08 per ounce.

Gold in Singapore ticked marginally lower and this trend continued in London. Gold is down from Wednesday’s seven-week high as the dollar and European shares firmed, leading to a decline in a safe haven bid for gold.

The precious metal is still on track for a 2.6% weekly gain so far, its strongest since mid-October, as safe haven demand and short covering have given support.

Gold remains just below its highest in more than six weeks as investors weighed the possibility of deflation contributed to by falling energy prices against signs of rising demand.

Chinese demand saw volumes on the Shanghai Gold Exchange (SGE) for gold of 99.99% purity rise for a second day yesterday to 28,152 kilograms. This is the highest since November 18 in the world’s biggest gold buyer.

An improvement in sentiment was seen in the holdings of SPDR Gold Trust, the world’s largest gold exchange-traded fund. The fund saw inflows of nearly 3 tonnes on Wednesday, bringing total holdings to 724.80 tonnes.

Silver continues to consolidate above $17 per ounce, while platinum rose 0.4 % to $1,238.25 an ounce and palladium gained 0.5% to $814.70 an ounce – the highest level since September.

Get Breaking News and Updates On Gold Here

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Submitted by Lance Roberts via STA Wealth Management,

S&P 2300 By May???

Well, it is that time of the year again when analysts all across the country begin to roll out their predictions for the coming year. This is a pretty fruitless exercise considering that the most accurate forecasters are meteorologists, and their predictions are only good for a 3-day view into the future. However, it keeps the media busy reporting them, and you focused on all of those delicious returns you will reap in the coming year. That is if everything goes according to plan.

The latest prognostication topper was from Sam Eisenstadt who was the former research director at Valueline, Inc. His prediction is that the S&P 500 will hit 2,300 by May of 2015. That is an 11% gain over the next six months.

Now, before you scoff at the forecast, his econometric model has a fairly decent historical track record. For example, as Mark Hulbert quoted:

"To appreciate how good his model is, consider what its forecast was six months ago — when the S&P 500 stood at 1,924. At the time, investors were expecting a big summer correction, but Eisenstadt’s model was forecasting that the index would surpass 2,100 by the beginning of December.

 

As fate would have it, the market has made it 'only' to 2,074. But I don’t think any of Eisenstadt’s followers are complaining. On the contrary, in the messy world of stock market predictions, Eisenstadt’s has to be graded remarkably accurate."

Here is what is important. This move to 2300 would very likely correspond with the 2015 "market melt-up" I discussed very early this year.  To wit:

"There is another piece of historical statistical data that supports the idea of a market 'melt up' before the next big correction in 2016 which is the decennial cycle.

 

The decennial pattern is certainly suggesting that we take advantage of any major correction in 2014 to do some buying ahead of 2015.  As shown in the chart above, there is a very high probability (83%) that the 5th year of the decade will be positive with an average historical return of 21.47%.

 

The return of the positive years is also quite amazing with 10 out of the 15 positive 5th years (66%) rising 20% or more.  However, 2015 will also likely mark the peak of the cyclical bull market as economic tailwinds fade, and the reality of an excessively stretched valuation and price metrics become a major issue.

 

As you will notice, returns in the 6th and 7th years (2016-17) become substantially worse with a potential of negative return years rising.  The chart below shows the win/loss ratio of each year of the decennial cycle."

But here is an important point, already stretched market valuations will become extremely stretched with such an impressive move higher. With earnings growth already decelerating, a substantial move higher in the "P" of the P/E ratio will cause multiples to accelerate sharply. The chart below shows the Shiller P/E ratio extrapolated for such a move in price.

While multiple expansions are good for "bullish investors," it is also a warning sign of a very late-stage bull market. The question is whether you need to be reminded of what happens when "multiple expansions" eventually turn into "contractions?"

 

Is The Secular Bear Finally Dead?

John Authers, via the Financial Times, asks that very important question:

"Are we in a bull market, or are we still in a secular bear market? It is a profound question, and — at least when it is applied to stocks in the US — it also sounds like a stupid one. US stocks have more than trebled since March 2009. The S&P 500 is at an all-time high, and it has been rising, with only one interruption of any significance, for almost six years. The US labour market has now expanded for a record 50 months in succession, and the latest numbers outstripped the most optimistic projections. If this is not a bull market, what is?"

The entire article is worth reading as he goes through various metrics in his discussion. However, I agree with his current premise that we are currently within a cyclical "bull" market still contained inside of a secular "bear" market.

My reasoning is much more simplistic in nature.  As I discussed previously in the "Repeating The Secular Bear Of The 70's:"

"Despite much hope that the current breakout of the markets is the beginning of a new secular 'bull' market – the economic and fundamental variables suggest otherwise. Valuations and sentiment are at very elevated levels (greater than 23x trailing earnings) which is the opposite of what has been seen previously. Interest rates, inflation, wages and savings rates are all at historically low levels which are normally seen at the end of secular bull market periods."

The simple reality is that secular "bull" markets are driven from periods of excessively low valuations, high dividends and extremely negative market sentiment. None of those exist currently.

 

Another Year Of No CapEx Revival

There has been much hope that at any given moment U.S. companies were going to release their coffers on an unprecedented spending spree. Of course, like the annual migration of Hooded Merganser, these hopes have been dashed on the rocks of economic reality. This coming year is likely to disappoint once again due to the recent collapse in oil prices.

Via Deutsche Bank:

"US private investment spending is usually ~15% of US GDP or $2.8trn now. This investment consists of $1.6trn spent annually on equipment and software, $700bn on non-residential construction and a bit over $500bn on residential. Equipment and software is 35% technology and communications, 25-30% is industrial equipment for energy, utilities and agriculture, 15% is transportation equipment, with remaining 20-25% related to other industries or intangibles. Non-residential construction is 20% oil and gas producing structures and 30% is energy related in total.

 

We estimate global investment spending is 20% of S&P EPS or 12% from US. The Energy sector is responsible for a third of S&P 500 capex. 35% of S&P EPS from investment and commodity spending, 15-20% US"

As I discussed in "The Market Is Detached From The Real Economy:"

"The analysts estimate that S&P 500 companies will put around $740 billion into capital expenditures next year alone. This is roughly a 6% growth rate in Capex down from 8% in 2014. This decline in capex spending is going to disappoint market bulls who have been anxiously awaiting the revival of massive capex spending as companies ramp up to meet burgeoning consumer demand.

The problem, however, continues to be a lack of demand follow through to justify further increases in capital expenditures. With oil prices falling due to global demand pressures, the resurgence in capex will likely be put on hold for another year as the energy sector makes up roughly one-quarter of the total S&P 500 capex and R&D spending.

The problem for the "economic growth is coming" crowd is that corporations are indeed spending their cash, but not in ways that directly impact economic growth like capex and R&D does.

---

While none of this analysis suggests that a market crash is imminent, it does imply that we are very late in the current market and economic cycle. A market melt up in 2015 would certainly be exciting, but should be used to sell overly priced assets to what will probably be a dwindling supply of "greater fools."

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Congress Just Passed Legislation Ramping Up Mass Surveillance to Super-Steroid Levels

Remember how Americans are overwhelmingly opposed to mass surveillance, and how the government promised to rein in spying on Americans?

Yeah, that never happened …

Instead, Congress snuck a provision into the Intelligence Authorization Act which will ramp up spying on us normal, average, innocent Americans.

Congressman Justin Amash explains:

When I learned that the Intelligence Authorization Act for FY 2015 was being rushed to the floor for a vote—with little debate and only a voice vote expected (i.e., simply declared “passed” with almost nobody in the room)—I asked my legislative staff to quickly review the bill for unusual language. What they discovered is one of the most egregious sections of law I’ve encountered during my time as a representative: It grants the executive branch virtually unlimited access to the communications of every American.

 

On Wednesday afternoon, I went to the House floor to demand a roll call vote on the bill so that everyone’s vote would have to be recorded. I also sent the letter below to every representative.

 

With more time to spread the word, we would have stopped this bill, which passed 325-100. Thanks to the 99 other representatives—44 Republicans and 55 Democrats—who voted to protect our rights and uphold the Constitution. And thanks to my incredibly talented staff.

 

###

 

Block New Spying on U.S. Citizens: Vote “NO” on H.R. 4681

 

Dear Colleague:

 

The intelligence reauthorization bill, which the House will vote on today, contains a troubling new provision that for the first time statutorily authorizes spying on U.S. citizens without legal process.

 

Last night, the Senate passed an amended version of the intelligence reauthorization bill with a new Sec. 309—one the House never has considered. Sec. 309 authorizes “the acquisition, retention, and dissemination” of nonpublic communications, including those to and from U.S. persons. The section contemplates that those private communications of Americans, obtained without a court order, may be transferred to domestic law enforcement for criminal investigations.

 

To be clear, Sec. 309 provides the first statutory authority for the acquisition, retention, and dissemination of U.S. persons’ private communications obtained without legal process such as a court order or a subpoena. The administration currently may conduct such surveillance under a claim of executive authority, such as E.O. 12333. However, Congress never has approved of using executive authority in that way to capture and use Americans’ private telephone records, electronic communications, or cloud data.

 

Supporters of Sec. 309 claim that the provision actually reins in the executive branch’s power to retain Americans’ private communications. It is true that Sec. 309 includes exceedingly weak limits on the executive’s retention of Americans’ communications. With many exceptions, the provision requires the executive to dispose of Americans’ communications within five years of acquiring them—although, as HPSCI admits, the executive branch already follows procedures along these lines.

 

In exchange for the data retention requirements that the executive already follows, Sec. 309 provides a novel statutory basis for the executive branch’s capture and use of Americans’ private communications. The Senate inserted the provision into the intelligence reauthorization bill late last night. That is no way for Congress to address the sensitive, private information of our constituents—especially when we are asked to expand our government’s surveillance powers.

 

I urge you to join me in voting “no” on H.R. 4681, the intelligence reauthorization bill, when it comes before the House today.

 

Justin Amash
Member of Congress

The House subsequently passed H.R. 4681.

Top NSA officials previously said that we’ve got a “police state” … J. Edgar Hoover (or the Stasi) “on super steroids“.

Now what do we call it?

 

 

via Zero Hedge http://ift.tt/1vVJS3V George Washington

As is widely known by now, in a largely token vote, since it has the blessing of the White House, in a few moments the House will vote on H.R. 83, the bill containing $1.1 trillion in appropriations to fund the government through 2015, aka the “Cromnibus”. As noted previously, among the provisions in the bill is Citi-directed watering down of Dodd-Frank by way of a Swap “push-out” provision, which as we explained over the weekend, would put taxpayers on the hook for derivative losses as it “would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. — potentially putting taxpayers on the hook for losses caused by the risky contracts.”

 

 

Then again, since we are talking about some $303 trillion in US-based derivatives (at just the top 25 US holding companies alone), the bottom line is that it really doesn’t matter where the swaps are traded from: if and when these goes bad, it doesn’t matter if they are located in a FDIC-insured shell or somewhere else: the entire system will collapse all over again, unless it gets yet another multi-trillion Fed bailout.

Those wishing to follow who votes for and against the Spending Bill may do so on C-Span after the jump.

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