Archive - Jan 2016

The chart below, showing the total number of monthly FBI Firearm background checks - a direct proxy for gun purchases in the U.S., needs no commentary.

The main lessons from today is that market shocks can be quite quick, when they suddenly unravel. There is no need for markets to follow an observable pattern (therefore casting an omen just for you). Recall as well that this is just "day 1"! There are ~20 additional dramatic trading days ahead this month, where anything can precipitously take place.

Panic. That is, according to some of the best strategists on Wall Street, the most concise summary of trader sentiment today following a near history rout in the market on the first day of trading of 2016. But don't worry: according to Citi's Brent Donnelly, "It is too early to panic." Here's why.

"It was over. The guard led me into a room daubed in graffiti, with the faint smell of cigarettes and urine. He allowed me to use the toilet, but it had no door – the days of privacy and dignity were over. A plastic toilet with no seat. I couldn’t really comprehend it."

Earlier today the US Census released its latest, November, construction spending data, which not only missed expectations of a 0.6% rebound, but tumbled -0.4%, the most since June of 2014, while all the recent data had been mysteriously revised lower. And then the source of the mystery was revealed, because in the fine print the government made a rare admission: all the construction spending data for the past 10 years had been "erroneous."

Much of the world is now running out of candy. The latest version of Bread and Circuses is reaching its inevitable end. Each of us has the opportunity to make a choice as to whether we wish to be Takers, Payers, or Preparers. The choice we make may define our future.

Away from the endless chattering of talking heads proclaiming that "they do not see any recession on the horizon" despite the manufacturing segment of the economy collapsing, JPMorgan notes that in fact the three best leading indicators for recession are: Credit spreads, yield curve shape, and profit margins. Unfortunately for The Fed and its congregation, JPM warns credit spreads are not giving a positive signal.

Because our macroeconomic policies have false targets and actually incentivize short term strategies the Fed has directly led us off of an economic cliff. Now that the Fed has boxed itself out of any further action, the market is at the peril of a collapsing, breadwinner-job-less and debt ridden economy and so prepare yourself for the largest market ‘correction’ the world has ever faced.

From EM darling to depression, it's been a rough ride for the "B" in BRICS. As we kick off 2016, analysts are growing increasingly concerned that Brazil's economic downturn could well be deeper and longer than anyone expected. The market's collapsing expectations are summarized in one stunning chart.

With market valuations elevated, leverage high, economic weakness pervasive and profit margins deteriorating, investors should be watching the month of January carefully for clues. The weight of evidence suggests that despite ongoing “bullish calls” for the markets in the year ahead, this could be a year of disappointment. Pay attention, things are beginning to get interesting.

Just two weeks ago we warned of the looming "hyperinflation monster" in Africa with the continent appearing to be running out of dollars as some of Africa’s largest economies, including Nigeria, Angola, Ethiopia and Mozambique, are restricting access to the greenback to protect dwindling reserves. Specifically we warned of Angola's already-soaring inflation hampering its ability to 'adjust' its currency towards its black market 'reality'. But that did not stop the central bank devaluing Kwanza by 15% over the weekend - the most since 2001 - to record lows as crude prices crush their economy and the flow of USDs.

Gold is poised to rebound dramatically this year, mean reverting out of its recent deep secular lows. The drivers of gold’s weakness have soared to such extremes that they have to reverse hard. The resulting heavy buying from dominant groups of traders will fuel gold’s 2016 upleg.

When a pair of Sunni mosques were bombed in Iraq on Sunday, the assumption was that the attacks were carried out by angry Shiites protesting the execution of Sheikh Nimr al-Nimr. Iraqi officials on the other hand, blame ISIS. If Islamic State is behind the attacks, the question becomes this: were they instructed to carry out the bombings by a handler or a benefactor with a hidden agenda?

There’s really one supreme element of this story that you must keep in view at all times: a society (i.e. an economy + a polity = a political economy) based on debt that will never be paid back is certain to crack up. Its institutions will stop functioning. Its business activities will seize up. Its leaders will be demoralized. Its denizens will act up and act out. Its wealth will evaporate. Given where we are in human history - the moment of techno-industrial over-reach - this crackup will not be easy to recover from. Things have gone too far in too many ways. The coming crackup will re-set the terms of civilized life to levels largely pre-techno-industrial. How far backward remains to be seen.