Was that it for the great February/March bear market rally?
While Asia was up on China's bad data, and Europe was higher again this morning to catch up for the Friday afternoon US surge, US equity futures may have finally topped off and are now looking at this week's critical data, namely the BOJ's decision tomorrow (where Kuroda is expected to do nothing), and the Fed's decision on Wednesday where a far more "hawkish announcement" than currently priced in by the market, as Goldman warned last night, is likely, in what would put an end to the momentum and "weak balance sheet" rally.
The market is worried about China. Worried about growth, worried about whether Beijing can actually manage to pull off the transition to a consumption-led economic model, worried about the yuan, and perhaps most pressingly, worrried about whether a push to stamp out the excess capacity that's driving the global deflationary supply glut will end up creating an employment crisis. Here to 'reassure" you are People’s Bank of China Governor Zhou Xiaochuan and Xiao Yaqing, who oversees the government commission that looks after state assets.
"I hope that oil prices increase but cannot find any substantive reason why they should do anything but fall." As market balance reality re-emerges in investor consciousness and the false euphoria of a production freeze recedes, prices should correct to around $30. A little bad economic or political news could send prices much lower.
"The demise of positive interest rates may be nothing more than the global economy reacting to a chronic oversupply of goods through the impact of globalization including the opening up of formerly closed economies as well as ongoing technological progress." - Deutsche Bank
In the lunar calendar that started February 8, this is the Year of the Red Monkey. "According to Chinese Five Elements Horoscopes, Monkey contains Metal and Water. Metal is connected to gold. Water is connected to wisdom and danger...That implies the status of events will be changing very quickly. Think twice before you leap when making changes for your finance, career, business relationship and people relationship." For those who don’t believe in astrological forecasts, there are plenty of other reasons to anticipate sustained volatility in 2016 that strips certainty and cash from bulls and bear alike.
We are experiencing 1970’s style stagflation, coming from the supply side, not demand. Prices are going up because Norges Bank continues to destroy the Norwegian Krone, turning it into the Nordic Peso. This is where they are “hiding” the damage to save rest of the economy. For example, housing prices will rise in NOK but fall in USD or gold (universal commodity) terms. It’s a shell game, leading to long term decline or even worse, an unexpected period of elevated inflation, requiring a rapid rise in interest rates.
The last time that global liquidity conditions contracted at this pace was March 2008 (right as stocks dead-cat-bounced on the back of The Fed's guarantee of Bear Stearns' sale to JPMorgan)... and things escalated rather quickly thereafter.
Of course, if things were as good economically as we are told by Wall Street and the mainstream media, would the ECB really be needing to drop further into negative interest rate territory and boost QE? By fully committing to hiking interest rates, and promoting the economic recovery meme, changing direction now would lead to a loss of confidence and a more dramatic swoon in the financial markets. Such an event would create the very recession they are trying to avoid.
As Donald Trump speeds toward the White House, the mainstream media will soon be gumming vigorously about how American politics became so unhinged. They need look no further than the Red Suzerains of Beijing. It is their monumental foolishness that has made The Donald possible.
Everything from iron ore to copper to the Baltic Dry Index to stocks to bat guano is rallying. The problem is not a single rally passes "the sniff test:" is the rally the result of changing fundamentals, or is it merely short-covering and/or speculative hot money leaping from one rally to the next? Every one of these rallies is bogus, a travesty of a mockery of a sham of price discovery, supposedly the core function of markets. What shift in fundamentals drove this rally? Higher profits? No, profits are declining, especially once the phony adjustments are stripped away. Is the global economy strengthening? Don't make us laugh!
Many investors today are not very familiar with market history and tend to live only in the day-to-day mainstream narrative while watching little red and green graphs move up and down. This is not so much an issue in a relatively stable economic environment. The problem is, today we live in the most unstable economic conditions possible.
All of life’s odds aren’t 3:2, but that’s how you’re supposed to bet, or so they say. They are not saying that so much anymore, or saying that history rhymes, or that nothing’s new under the sun. More and more 'they's seem to be figuring out that past economic and market experiences can’t be extrapolated forward - a terrifying prospect for the social and political order.
With China's Plunge Protection Team having intervened and set a positive spin on another poor session, traders put declines in Asia behind them as European markets rose along with U.S. index futures and commodities. European shares advanced for the first time in three days on speculation the region’s central bank will ramp up monetary stimulus on Thursday. A gauge of raw materials rebounded from its biggest selloff in a month, buoyed by gains in oil and copper. Furthermore, the previously noted selloff in Japanese government bonds - one which triggered circuit breakers and which some speculated may have been precipitated by the BOJ itself - dragged Treasuries and German bunds lower, gold fell a second day and the euro dropped versus most of its major peers.
Oil prices should fall, possibly hard, in coming weeks. That is because fundamentals do not support the present price.