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Once again the internals of the market (advancers vs decliners, new highs vs new lows and trends) triggered a Hindenburg Omen as today's dump-and-pump on the European close and Draghi 'mis-characterization and clarification' headlines left stock green with an hour to go. Then came headlines from Die Welt that appeared to show Draghi has no majority and stocks tumbled into the close (with a small bounce late to get S&P green on the week). For the 2nd day in a row, Treasury yields fell 1-4bps (short to long-end), notably decoupling from stocks after Europe closed. HY Credit also pressed to wider wides after Europe closed even as stocks surged. The USD lost ground as EUR strengthened giving back half the week's gains (USDJPY broke 120 early but faded). Copper and Silver gained modestly, gold was flat, but oil prices slipped 1% lower back below $67. VIX briefly tested below 12.2 but ended the day barely higher at 12.6.

 

US equity futures end the day down from the release of ECB's "nothing" statement this morning… banged around by European headlines…

 

and USDJPY tried to rescue stocks during the ECB conference call… ran the stops over 120.00 then recoupled to fade lower with stocks… fun-durr-mentals

 

On the day, a rescue off the European close dragged stocks green – was then juiced by ECB QE headlines at lunchtime for record highs, but then faded into the close… with a last 30 ramp for good measure

 

which managed to get the S&P barely back into the green On the week, Trannies and Nasdaq are lagging…

 

VIX was actively bid this afternoon – perhaps hedging ahead of payrolls…

 

2nd Hindenburg Omen in 3 days – didn't end well before (2 days after FOMC) and tomorrow we have payrolls…

 

Bonds & Credit notably decoupled from stocks today…

 

as Bonds and stocks remain in different worlds ahead of tomorrow's payroll data…

 

 

As Treasury yields rolled over significantly…10Y under 2.25%, 30Y under 2.95%

 

And the USD closed lower as even with the late-day jawbone they could not rescue EUR back from its strength…

 

Oil prices slipped modestly on the day, silver and copper gained, and gold was flat (with noise around Draghi)

 

Charts: Bloomberg

Bonus Chart: New cycle lows for Shale oil stocks…

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

Wondering why stocks suddenly found a soft patch in the last few minutes of trading? Here is the reason: according to a report in German Die Welt, the ECB’s president and former Goldman Sachs employee, Mario Draghi, has just lost the majority on the ECB Executive Board:

Back row (left to right): Yves Mersch, Peter Praet, Benoît Cœuré
Front row (left to right): Sabine Lautenschläger, Mario Draghi (President), Vítor Constâncio (Vice-President)

From a just released report (google translated) in Germany’s Die Welt:

The outlooks for growth and inflation are bleak. Mario Draghi will therefore open the gmoneyates – and is met with increasing resistance. And on the ECB’s Executive Board, he has just lost the majority.

….

According to information obtained by “Die Welt”, internal resistance to Draghi is now larger than previously thought. He can no longer count on a majority within the Board currently. In the vote on the official opinion of the Governing Council on monetary policy are for information of the “world” three of the six directors supported by the President to the original tune.

 

In addition to Sabine Lautenschlager and Yves Mersch, who had already previously expressed skepticism about bond purchases, one can now add the Frenchman Benoît Coeuré who is against Draghi’s course.  …There had been dissenting voices within the Board on several occasions, but there was always a majority behind the President.

Not this time. Then again, “Draghi is still able to enforce his position easily. Because ultimately decides the proportion of votes on the Board, but in the 24-member Governing Council, in addition to the directors and the governors of the national central banks are represented. Among them there were reportedly more votes against, among others, Bundesbank President Jens Weidmann.”

So will Draghi follow Obama in pursuing QE by “executive decision” without a clear majority support? Recall that even Kuroda had a slim 5:4 majority when he decided to go full-Krugman. And if he does so, expect the cold war between South and North Italy to go ballistic and make the smoldering cold war 2.0 between Russia and the West seem like a dress rehearsal.

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Submitted by Lance Roberts of STA Wealth Management,

Earnings Expectations Are Grossly Optimistic

As we enter into the end of the year, the vast majority of analysts have already come out with bullish forecasts for the S&P 500 going into 2015. The primary driver behind these optimistic forecasts is simply stronger economic growth will lead to higher corporate earnings which will justify higher asset prices. Fair enough.

The problem is that the expectations of earnings growth in the future is currently at levels that do not generally exist outside of a recessionary recovery. The chart below shows the actual and estimated annual percentage change in earnings for the S&P 500 going back to 2000.  (Note: The percentage changes from the financial crisis lows were so great that I had to cap them and label them accordingly.)

There are several important points to consider with respect to this data.

1) Following recessions earnings changes are the greatest as the annual EPS change from lower levels yields significantly higher percentage changes.  (i.e., Increasing EPS by $10 yields a 100% growth rate from $10 to $20 versus just 10% when growing from $100 to $110)

2) Earnings growth has been highly supported in recent years by not only massive share buybacks, cost cutting and other accounting mechanization but also from Federal Reserve interventions. That surge in liquidity increased share values significantly which allowed for high levels of stock based M&A that supported earnings growth. Notice that "Operation Twist" EPS growth slowed significantly but exploded once QE-3 was introduced back into the system. Also, the growth rate of EPS has begun to slow once the Federal Reserve began to taper, and how now eliminated, their bond purchasing activities.

3) The current estimates for EPS growth going into 2016 are currently at levels that exceed historical norms.

With deflation and weak economic growth plaguing every single country outside of the U.S., it is highly likely that estimates of stronger economic growth will be disappointed. Eventually, market participants will realize that current valuations far exceed economic realities and a reversion to norms will occur. That is just a function of how markets work as excesses are eliminated.  The challenge for investors is not only realizing that this will eventually be the case, but also the capability to manage portfolio risk accordingly.

 

Investor Complacency Is Extremely High…Again

Since the beginning of the last round of Quantitative Easing by the Federal Reserve investor exuberance has been pushing levels not seen recent history. This is shown in the chart below which is a composite bull/bear ratio of both individual and institutional investors.

While extreme levels of optimism does not mean that the markets are about to crash, it does suggest that the current advance that created the bullish exuberance is likely near its end.

This can also be visualized in the extremely low levels of volatility in the S&P 500.  I have used a 6-month average of the weekly volatility index to smooth the data, however, the latest readings of volatility are current near the lowest levels on record.

One other point to consider is that the recent spike in the markets is not a normal market advance but rather one that has been more symbolic of excess late stage exuberance as investors rush to take on additional risk.

Again, while NONE of this data suggest that a major market correction is imminent, it does suggest that reducing risk in portfolios temporarily may pay dividends in the near term.

 

Retail Sales Much Weaker Than Headlines Suggest

While it "Tis" that time of the season to whip out credit cards and buy stuff for people that they don't really need, like that "Huxtable-Like" sweater that you Aunt Marge gave you last year, retail sales are seen as the pulse of the consumer. A strong shopping season suggests that the consumer is doing better while a poor turn-out suggests the economy is weaker than expected.

The chart below is a real-time indication of retail sales produced by the International Council of Shopping Centers in conjunction with Goldman Sachs. As of the most currently reported week (November 29th) retail sales fell by 1.77% from the previous week as "Black Friday" promotions ended with a relatively dull "thud." However, weekly data is so noisy that it is hard to derive any real conclusion from one week to the next, so I have smoothed the data using a 4-week average. The chart below shows both the monthly % change is reported retail sales as well as the 3-month average of the monthly change.

They are two important points. Despite surging consumer confidence surveys from the Census Bureau, consumers themselves are less optimistic than they were last year this time. Secondly, the current surge in consumer spending appears to have now exhausted itself, and we may see a second year of more sluggish retail demand than currently estimated.

Currently, discretionary stocks are running well ahead of actual consumer spending, and it is likely that weaker consumer demand will also soon be reflected in both corporate profits and capital expenditure plans by corporations.

Lastly, as discussed previously, there is no evidence of that that the recent decline in gasoline prices boosts consumption. In fact, there is more evidence that suggests sharply falling energy prices actually curtails spending by consumers as the decline in commodities is more reflective of a weak economic environment. My friend Sigmund Holmes recently penned addressed this point:

"Lower oil prices are not the equivalent of a tax cut. At best, it just re-distributes spending from one group of people to another. More spending by the newly favored group will just be offset by reduced spending by the other. One might also consider that the oil companies have used the increased cash flow to borrow and spend some more (look at debt issuance by energy companies and C&I loans). If they have more borrowing capacity than individuals – and I’m pretty certain they do – then the net effect on the economy of reduced spending by energy companies may well be negative."

Newton's third law of motion states:

"For every action there is an equal and opposite reaction."

In any economy, nothing works in isolation. For every dollar increase that occurs in one part of the economy, there is a dollars worth of reduction somewhere else. The real issue is what the fall in commodities in general, including oil, is telling us about the real state of the economy.

via Zero Hedge http://ift.tt/1tM6ijc Tyler Durden

Gold +14.3%, 12.3%, 5.8% and 0.4% in JPY, EUR, GBP and USD 2014 YTD

Despite the worst sentiment towards gold we have seen since the brief 30% price fall in 2008, gold continues to eke out gains in all major currencies. So far in 2014, gold is 14.3%, 12.3%, 5.8% and 0.4% higher in japanese yen, euros, sterling and dollars respectively (see chart).



Gold is again acting as a hedge against currency weakness and the ongoing devaluation of currencies as stealth currency wars continue. Overnight, gold rose to over EUR 986/oz and looks set to challenge the significant and important level of resistance that is EUR 1,000/oz due to euro weakness and concerns that Draghi may launch the ECB money printing ‘Bazooka’ in 2015.

There is a perception that gold has performed badly recently and in 2014 due to the recent dip in gold prices in dollar terms and despite the fact that gold is actually higher even in dollar terms in 2014.

This focus on gold solely in dollar terms is misleading. It shows a peculiarly dollar centric way of looking at the world. It is important for investors in the UK, EU, Japan and elsewhere to always consider performance in local currency terms.

Gold is not “priced in dollars” solely as is frequently, simplistically asserted.

Rather the COMEX price of gold in dollars is a leading benchmark price and is one of the most commonly quoted prices of gold in the world. Traders and speculators tend to speculate on gold in dollar terms.



However, investors internationally buy gold in their own currency. Investors in Switzerland and Germany buy gold in their banks and are quoted Swiss franc and euro prices and pay in Swiss francs and euros. Irish investors buying gold are quoted in euros and pay in euros. UK investors buying gold are quoted in sterling and pay in sterling.

Similarly, in the two largest gold buying markets in the world, India and China, gold is quoted in rupees and yuan and people buy gold in rupees and yuan respectively. In most countries throughout the world, investors are quoted in local currency terms and pay in local currency terms. Indeed, we allow people to pay us in any major currency, they wish to pay us in.

This almost sole focus on gold in dollar terms is can mislead regarding gold’s performance and is contributing to poor sentiment in the gold market.

The mood music and the psychology is as bad as we have seen it in the gold market – worse than after the sharp 30% fall in 2008 after Lehman. It is even worse than very low level of public interest shown towards gold in the period prior to the crisis in 2007.

Sentiment then was neutral. Today it is negative. There is little or no new buyers coming into the market. Demand in western markets is primarily from existing bullion owners  adding to allocations and from investors opting to own gold in safer allocated and segregated storage. This is bullish from a contrarian perspective.



In terms of the cycle of market emotions, we are as close to ‘depression’ as we have seen.

Momentum is clearly down and gold remains technically vulnerable going into year end. We subscribe to the market adage to never catch a falling knife and are cautious in the short term and advise dollar cost averaging into positions.

However, we remain confident that the recent price falls are setting the stage for a new bull market as there are still strong fundamentals including very high demand from the Middle East, India and China.

Official sector and central bank demand from large creditor nation central banks is continuing and they are set to be net buyers again this year. Not to mention, very high levels of demand from the Bank of Russia and the stealth buying of the Peoples Bank of China (PBOC).

The recent price falls were not a surprise. We said in an interview when gold was near $1,900 that there was going to be a correction and that in a worst case scenario gold could replicate the 1970s pattern when gold fell nearly 50%.

It is always worth looking at gold’s last bull market in the 1970s when gold rose from $35/oz in 1971 to over $197/oz by January 1975. In the next 21 months, gold fell in value by nearly 50% to $103/oz by late August 1976. This led to many pronouncements that gold’s bull market was over and the bubble had burst.

In the next 40 months from August 1976 to January 1980, gold rose 8 fold from nearly $100/oz to $850/oz.

We think there is a real possibility of the same pattern playing out in the coming months and years. An 8 fold increase is very unlikely but we believe that gold will conservatively double from here given the scale of debt in the western world, continuing QE and potentially QE in EU and the risk of a global recession or depression.

Negative real interest rates are set to continue for the foreseeable future. Gold will continue to rise until we see positive real interest rates for a period of time. That day is a long way off.   

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MARKET UPDATE
Today’s AM fix was USD 1,204.00, EUR 977.59 and GBP 767.42 per ounce.
Yesterday’s AM fix was USD  1,203.25, EUR  975.24 and GBP 768.95 per ounce.

Gold climbed $12.20 or 1.02% to $1,210.50 per ounce yesterday. Silver slipped $0.03 or 0.18% to $16.42 per ounce.

Gold in EUR – 2014 YTD (Thomson Reuters)

Gold consolidated above $1,200 again today ahead of today’s ECB rate meeting and despite the dollar reaching a 5 year high.

Gold for immediate delivery fell 0.5% to $1,204 in late morning trading in London. Silver for immediate delivery added 0.5%  to $16.50 an ounce. Platinum rose 1% to $1,237 an ounce. Palladium gained 0.5% to $800.75 an ounce.

Today, the European Central Bank (ECB) will give its official interest rates at 1:45 p.m. CET. Following this Draghi will hold a press conference in Frankfurt from the central bank’s new premises in the city’s east end at 2:30 p.m. CET. Starting next month, the ECB will switch to a six-week cycle of monetary-policy decisions, with the first meeting on January 22.

Last month the head of the ECB, Mario Draghi pledged to raise inflation in the euro zone “as fast as possible”. However, Draghi now faces a stalling from multiple members of the Governing Council. Amid German worry over bond-buying and a wait-and-see approach by his own vice president, Draghi is looking for consensus on what further action the ECB can take and when.

Demand from Asian store of wealth buyers has been strong again this week. India, the world’s second biggest gold buyer after China, last week scrapped a rule mandating traders to export 20% of all gold imported into the country.

Gold trading on China’s largest physical bullion bourse is already exceeding last year’s record volume as the world’s biggest gold buyer seeks to exert its influence on the global market according to Bloomberg.

The volume of all contracts on the Shanghai Gold Exchange (SGE), including those in the city’s free-trade zone, was 12,077 metric tons in just the 10 months to October, compared with 11,614 tons during all of 2013, according to data on the bourse’s website. This may climb to 17,000 tons by the end of the year, the exchange’s Chairman Xu Luode told a conference in Shanghai today.

See the 7 Key Storage Must Haves

www.GoldCore.com

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Less than a day after New York had its own Ferguson moment when a grand jury decided not to indict the police officer involved in the chocking death of Eric Garner, in a mirror image of events that took place a week earlier in Ferguson, the tide seems to be turning when moments ago a Justice Department probe concluded that the Cleveland Division of Police “has a pattern and practice of using excessive force, both in firing weapons and in using non-deadly techniques.”

The findings were announced Thursday in Cleveland by Attorney General Eric Holder , who has been spending an increasing amount of time dealing with issues of police force. On Wednesday night, after a New York City grand jury decided not to indict a police officer in the death of an unarmed man in July, Mr. Holder announced a federal civil-rights probe into the incident.

This follows in the aftermath of another report that trookie Cleveland police officer who fatally shot 12-year-old Tamir Rice last month had been deemed unfit for duty at a previous police department and was in the process of being fired when he resigned from his post, according to records released Wednesday.

As a reminder, Cleveland police have said Officer Timothy Loehmann, 26, shot Tamir as the boy held a toy gun at a recreation center on Nov. 22. Video released last week of the incident shows Loehmann and his partner, Frank Garmback, driving up within feet of Rice, then Loehmann shooting him at close-range seconds later.

As the WSJ reports, Cleveland officials have agreed to an outside monitor to improve their training and practices, officials said.

This isn’t the first time the federal government has identified problems in Cleveland. A decade ago, it struck a similar agreement with local officials to correct what federal officials saw as excessive force problems among Cleveland police.

 

The announcement comes at a time when Cleveland police are already facing intense criticism over the recent fatal shooting of a 12-year-old boy carrying a realistic looking toy gun.

 

According to the Justice Department, the problems at the Cleveland police department include: excessive force in shootings and blows to the head; excessive or retaliatory use of tasers, chemical spray and fists; excessive force against mentally ill people; the use of risky tactics that make the use of force unavoidable.

And finally, completing today’s angry social snapback, also moments ABC reported that a judge on Thursday granted Staten Island District Attorney Dan Donovan’s request to allow the release of limited grand jury material in the Eric Garner case Thursday.

The information released does not include any evidence presented, only the following:

• Jurors sat for nine weeks
• Testimony was heard from 50 witnesses
• Those witnesses included 22 civilians and 28 cops, EMTs or doctors
• There were 60 exhibits, including videos, records and photos
• The grand jury was instructed in law regarding physical use of force

So with all this, there is perhaps still some hope that America will step away from the ledge of spiraling into ethnic and social chaos and focus on the underlying factors that have led to class and wealth schism that is manifesting itself increasingly more violently with every passing day.

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