viernes, abril 29, 2016

VACACIONES MAYO 2016

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VACACIONES MAYO 2016

Jueves 28 de Abril del 2016

Queridos amigos,



Les escribo estas líneas con motivo de mi próximo viaje, el que me tendrá ausente de la oficina y de nuestras lecturas cotidianas, desde el lunes 2 hasta el lunes 23 de Mayo próximo, que me reintegro a mis labores.


Durante estos días no tendré acceso regular al Internet ni a mis correos.
  
  
En los últimos meses la situación económica y financiera internacional se ha seguido deteriorando aun mas, con el consiguiente aumento creciente de la volatilidad de los mercados financieros, según lo ya previsto en mi carta de Octubre pasado, replicada en algunos párrafos líneas más abajo para mayor abundancia, impactando duramente a los países emergentes, las monedas, el petróleo y los precios de los "commodities", el fortalecimiento notable del dólar norteamericano, típico de las épocas de crisis, y una retracción cada vez más marcada del crecimiento del producto mundial, ahora ya reconocido por todos los bancos centrales, lo que nos coloca claramente bajo la sombra del temor de una potencial deflación y de la recesión global, cada vez más inevitable.  
 
En los últimos dos meses el anuncio de una política de aumento de intereses menos agresiva que la anunciada previamente, por parte de la FED, ha debilitado ligera
y temporalmente al dólar, e impactado transitoriamente de manera positiva a los precios de las materias primas y los mercados de acciones.
 
La pregunta es cuanto tiempo puede durar esta situación en una economía global manipulada descaradamente por los bancos centrales y en franco camino de deterioro, con el continuo crecimiento de la desigualdad de los ingresos y una clase media cada vez mas disconforme, como lo reflejan las coyunturas políticas preocupantes de los últimos tiempos, tanto en los Estados Unidos de Norteamérica, como en Europa y el resto del mundo. La enorme volatilidad de los mercados financieros, que pensamos será cada vez mayor, es un síntoma de esta situación insostenible a mediano y largo plazo. 
El artículo de hace unos meses de Doug Nolan, "The Unwind", al que pueden acceder mediante el "link" anterior, describe claramente la situación precaria de la economía global, los mercados financieros, las deudas y el crecimiento económico mundial, por lo que me abstendré de mayores comentarios.  También pueden acceder al  articulo de Doug Nolan, "New World Disorder".  
 
La reciente creciente y notable volatilidad de los mercados financieros, las dudas hamletianas de la Reserva Federal sobre las tasas de interés y la reciente volatilidad de las bolsas, son solo una pequeña muestra de la descomposición de las economías y los mercados globales.

En realidad no podía ser de otra manera, si tenemos en cuenta que no se ha hecho nada en los últimos años para reparar los profundos desequilibrios estructurales en los fundamentos de la economía global, sino que más bien, por el contrario, se ha seguido "maquillando" por parte de los bancos centrales la insostenible situación económica y financiera global, profundizando los desequilibrios y la inestabilidad vía el constante crecimiento de las deudas, aumentando las ineficiencias y dilatando el necesario ajuste. El crecimiento estructural de la economía global es cada vez más frágil, dudoso e insostenible.


Hasta la crisis del 2000 y luego de la del 2008, ahora así llamada la Gran Recesión, la demanda global había sido “subvencionada” por un sistema financiero manipulado e intervenido, creando una demanda y una economía global ficticia, una recuperación así llamada "subprime", liderada por la FED mediante un crecimiento desproporcionado de las deudas, imposible de auto-sustentarse en un crecimiento de la economía real en el largo plazo. 


Deuda, deuda y más deuda, parece ser el mantra de la FED.

Desde entonces, la FED y el resto los bancos centrales de todos los países más importantes del mundo se han negado y se siguen negando a reconocer esta realidad, aceptando el inicio de un ajuste inevitable y estructural, regresando a un nivel real de la economía global de alguna manera manejable. Aún siguen abocados al esfuerzo de una gran represión financiera, manipulando e inflando irresponsablemente los mercados financieros vía una política monetaria de emisiones inorgánicas de papel moneda sin respaldo y muy bajas tasas de interés, o hasta tasas de interés negativas en muchos países del primer mundo. Actualmente se estima que existen aproximadamente 7 trillones de dólares de inversiones en tasas de interés negativas.

Las deudas de consumidores, empresas y gobiernos, eran y son insostenibles.

Por ello creemos que los bancos centrales no aumentarán de "motu propio" las tasas de interés de manera importante a corto plazo, salvo que este aumento provenga final y sorpresivamente de una crisis generada por la desaparición de la confianza de los inversionistas globales en los mercados financieros. Mas bien los bancos centrales seguirán, en la medida de lo necesario, con su política de seguir emitiendo e inyectando moneda sin respaldo a los mercados, bajando las tasas de interés a niveles aun mas negativos e interviniendo los mercados de capitales mediante compras de bonos y de acciones, distorsionando cada vez mas los precios de los activos financieros en todo el mundo.

Inmediatamente sus deudas se volverían obviamente impagables y la crisis que tanto han tratado de evitar reconocer, sobrevendría inevitable.

Solo para mencionar al país con la economía más importante, la deuda de los Estados Unidos de Norteamérica ha crecido por encima de los 18 trillones de dólares, a más del 100% de su PBI. Y si incluimos las deudas contingentes internas, como el Seguro Social y los Fondos de Pensiones, algunos analistas calculan que la deuda norteamericana podría llegar a sumar entre los 80 a 120 trillones de dólares, es decir, entre 5 a 7 veces el producto bruto anual. Y en aumento.

Para un análisis detallado del desarrollo de esta problemática y la verdadera situación actual, ver los artículos del blog, aquí, aquí y aquí.

Esta situación se ha seguido agravando en los últimos años y es insostenible en el mediano y largo plazo.  (ver articulo)

Para evitarlo, es que los bancos centrales han tenido que esforzarse en mantener ficticiamente una apariencia de normalidad en el "statu quo", inyectando cantidades innombrables de papel moneda sin respaldo a los mercados financieros y reducido las tasas de interés a niveles nunca vistos por largo tiempo, desde que la historia económica recuerda. (QE1, QE2, QE3, Q4, Abenomics, China, etc….)

Todo ello nos hace presumir que todo ello se lleva a cabo por el fundamentado temor a perder el control del esquema Ponzi mundial, que es lo que son ahora la economía global y los mercados financieros, y por ende se derrumbe el castillo de naipes enfrentando de golpe un ajuste económico enorme y hasta la posibilidad de una revolución social incontenible, guerras, etc.

El hecho es que el esfuerzo de política monetaria intervencionista llevada a cabo por la mayoría de los bancos centrales del mundo, en los últimos 15 años, más intensa y desproporcionadamente desde los últimos siete años, además, ha producido la transferencia más importante de riqueza que se recuerda en la historia, de manos de los pensionistas y los ahorristas, hacia las clases privilegiadas y los bancos. 

Mas importante todavía, se ha distorsionado y manipulado fundamentalmente las reglas de la economía del libre mercado con consecuencias funestas y aun impredecibles en el mediano y largo plazo para los consumidores e inversionistas del mundo, incrementando la locación  ineficiente de los recursos de inversión, además de multiplicar el costo de la inevitable implosión de los mercados financieros, tanto de las acciones, como de los bonos y otros instrumentos de inversión financiera.

Todo esto para no mencionar a los derivados financieros, estimados por algunos analistas en más de 1 cuatrillón de dólares (1000 trillones de dólares),  que se ciernen como una espada de Damocles, sobre todo el sistema financiero y económico internacional.

El mismo FMI ha advertido hace ya unos meses de la posibilidad que la economía global está entrando a un periodo de "stagnación" y a una probable nueva recesión, con las consecuencias que ello implicaría. (ver articulo) Y recientemente ha vuelto a reducir su estimado de crecimiento para la economía global de 3.6% a 3.2%. No nos extrañaría que estos estimados se sigan reduciendo en el futuro cercano, especialmente si tenemos noticias negativas del desarrollo de la economía China, en la que algunos analistas esta comenzando a prever un "hard landing" y de la enorme deuda interna de la economía China, influenciando negativamente de manera importante  a los mercados financieros globales.

Obviamente estos organismos no pueden decirnos toda la verdad. Ello sería propiciar ellos mismos el adelanto inevitable del descalabro global, el caos y el ajuste sin anestesia, con resultados imprevisibles. 

La pregunta de fondo es ¿hasta cuándo se podrá o podrán mantener esta realidad bizarra?
Y eso nadie lo puede responder con seguridad. La confianza de los inversionistas en los mercados financieros es la verdadera incógnita.

Por ello ahora tenemos que seguir preguntándonos seriamente, ¿Cuál de todos los potenciales "cisnes negros", conocidos o no, que hoy se ciernen sobre la economía global ,y que son muchos, económicos, sociales y geopolíticos, podrían ser el detonante de la nueva catástrofe?

Solo la historia nos responderá a esta crucial pregunta.


Por ahora, podemos especular que las próximas elecciones norteamericanas en Noviembre próximo son y serán un factor de gran importancia para el comportamiento de la FED, manipulando los mercados lo mejor posible, para influenciar de manera  positiva a la administración saliente, o dicho de otra manera, para evitar perjudicarla lo mayor posible, con un ajuste enorme y anticipado de las grandes incoherencias en la que se encuentra la economía norteamericana y la global como consecuencia de dichas intervenciones de los bancos centrales, en especial de la FED. 

Mientras tanto, en medio de este mundo bizarro, tenemos que insistir nuevamente y más que nunca, que la experiencia y la prudencia, el análisis y la inteligencia, la vigilancia y la paciencia, son los socios más importantes en las decisiones de políticas y estrategias de inversión a corto y mediano plazo.

En un cambio importante de ciclos como en el que pensamos que estamos envueltos hoy día, y en el que más allá de lo circunstancial, el pasado y el futuro se bifurcan y se oponen, los riesgos para los inversionistas son profundos. (ver articulo)

Con estas  anotaciones y advertencias que espero les sean de utilidad, me despido de Uds. con un cordial abrazo hasta el regreso a mis actividades, Dios mediante, a inicios de la tercera semana de Mayo próximo, cuando estaré nuevamente a su gentil disposición.

Gonzalo

PD. Para leer los artículos pueden subscribirse directamente entrando al blog:  www.gonzaloraffoinfonews.com

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Is Bad News Suddenly Bad?
 
fist shake animated GIF

GDP data today showed the economy continues on a downward path. In fact, if you strung the last few GDP reports you’d be correct to think the economy is rolling over. Consumer Metrics Institute sums things up correctly as noted below:


Summary and Commentary

Although the headline remained positive, this is not a report that shows a robust economy. Among the troubling aspects of the report:

-- The growth rate for consumer spending took another significant hit, dropping substantially for the third consecutive quarter. In fact, the growth rate for consumer spending on goods was barely positive, at a miserable +0.03%. And non-discretionary spending on health care and housing provided most of the remaining growth in consumer services spending.

-- Private investment contracted for the first time since the first quarter of 2011.

-- Exports went deeper into the red.

Looking at the past three quarters as a group, we can see a slow-motion slide into either stagnation or contraction. It is truly sad when stagnation looks to be the better alternative.
 
The dollar fell sharply this day allowing commodity markets overall but hurting overseas markets at the same time. Bonds were a beneficiary as was gold, gold stocks, silver and a rising VIX.

After the close of trading the focus was on Amazon’s earnings which beat estimates by a mile rallying the stock over 12% or nearly $75. Let’s see if this can hold the Nasdaq together.

Below is the heat map from Finviz reflecting those ETF market sectors moving higher (green) and falling (red). Dependent on the day (green) may mean leveraged inverse or leveraged short (red).


4-28-2016 2-19-36 PM


Volume increases with selling which is not unusual while breadth per the WSJ was negative. 

4-28-2016 2-20-29 PM Diary
 
12-17-2015 9-04-44 PM Chart of the Day



4-28-2016 2-41-54 PM GDX




 
Charts of the Day


  • SPY 5 MINUTE

    SPY 5 MINUTE

  • SPX DAILY

    SPX DAILY

  • SPX WEEKLY

    SPX WEEKLY

  • INDU DAILY

    INDU DAILY

  • INDU WEEKLY

    INDU WEEKLY

  • RUT WEEKLY

    RUT WEEKLY

  • NDX WEEKLY

    NDX WEEKLY

  • NYMO DAILY

    NYMO DAILY
    The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.



  • NYSI DAILY

    NYSI DAILY
    The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

  • VIX WEEKLY

    VIX WEEKLY
    The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation has changed due to a variety of new factors including HFTs, new VIX linked ETPs and a multitude of new products to leverage trading and change or obscure prior VIX relevance.








This commentary is short and perhaps I’ll post another Friday if bulls storm back rejecting bad news as bad in favor of more of the same— “bad news is good”.

There had to be some selling eventually. It’s hard to convince myself this is finally a change in view.

Let’s see what happens

Wall Street's Best Minds

Schwab’s Liz Ann Sonders: Should We Sell Stock in May?

Since 1950 the S&P 500 has returned 1.3% during May through October versus 7.1% November through April.

By Liz Ann Sonders

As April comes to a close, investors are again wondering whether to “sell in May and go away.”
Investors will also be hearing a lot about the Dow’s new “Golden Cross,” which is generally a bullish sign for stocks.
 
Our conclusion is that signals are mixed and now is not the time to take on undue risk.
 
                                  
cat
We are in that “season” when you will hear a lot about whether it’s appropriate this year to “sell in May and go away,” which is one of the most time-honored market adages, and for good reason. Since 1950, nearly all of the Standard & Poor’s 500’s gains have occurred between October and April.
 
The mean return since 1950 for the S&P 500 during May through October was 1.3%; while for November through April it was 7.1%. [Editor’s note: Investors can get exposure to the S&P 500 via the SPDR S&P 500 ETF or the Schwab S&P 500 Index Fund.
 
The “strategy” did not work for the three years from 2012-2014, or for the five years from 2003-2007, when there were gains between May and October in each year. In addition, as you can see in the table below, there is a meaningful difference between how the market performs from a seasonal perspective in secular bull or secular bear markets.
 
Average gains and the percent of positive cases have been higher in secular bulls than in secular bears (even if they are still lower than in the November through April period).

Source: Ned Davis Research (NDR), Inc. (Further distribution prohibited without prior permission. Copyright 2016 Ned Davis Research, Inc. All rights reserved.) as of October 31, 2015.

Ostensibly supporting the bull case as we head toward May, is another market metric which will undoubtedly get some attention this week. The Dow Jones Industrial Average just experienced a so-called “Golden Cross.” This is a technical term used to describe the 50-day moving average crossing above the 200-day moving average as both moving averages are rising. This just occurred again and it’s the first Golden Cross for the Dow since Jan. 2, 2012. It’s generally seen as a very bullish indicator for stocks…but is it?
 
Bespoke Investment Group (BIG) took a look at the past 50 years to see how the market fared in the aftermath of Golden Crosses. The data show that performance following Golden Crosses was no better than the performance over any random time period. It was up exactly half the time over the next month and three months; while returns and probabilities did increase for the six-month period.
 
If you are looking for the glass-half-full perspective, do note that the Dow performed very well following the last two Golden Crosses in October 2010 and January 2012; while the Dow was positive in the six months after the last seven Golden Crosses as well.
 
Another feat by the market last week was the continued improvement in market breadth (which has been much healthier than other rallies over the past year). Last week, the Financial sector finally regained its 200-day moving average, which now puts all 10 S&P 500 sectors above their 200-day moving averages.

The recent streak of over a year without all 10 sectors above their 200-day moving averages simultaneously is rare. According to Bespoke Investment Group, there have only been four previous streaks of a year or more since 1990; and two of those were coming out of major bear markets. This sign of improving breadth was an extremely bullish signal in three of the past four instances (1993 had mixed results).
 
The net is that there are competing forces at work for the market at present. From the February low, the market has rallied sharply, which has triggered indicators like the Golden Cross. Bespoke looked back over the Dow’s entire history to find times when the Dow closed at a 52-week low at some point in the prior three months, then rallied at least 13% over a 50-day period. The last two times this occurred were in October 2011 and November 2015—both marked short-term highs in stocks.
 
However, the current experience is unusual because it’s the second occurrence within a year. The other times that happened (November 1900, October 1921, July 1932 and November 2001), stocks did markedly better.
 
To me, these conflicting forces suggest maintaining our “neutral” rating on U.S. stocks. That means investors should remain at their strategic equity allocation, but be extra mindful of adopting rebalancing strategies in the interest of risk control.
 
 
Sonders is chief investment strategist with Charles Schwab & Co.

 

GLD: The Fed Meeting Will Provide A Breakout Catalyst

by: SomaBull
- If gold surpasses those early March highs with a vengeance, then it's game over for those that are still positioned for a bear market in precious metals.

- If GLD can hold these levels this week and start to move up again, the HUI will ultimately reach the 225-250 region before we see the first real consolidation.

- Silver has really exploded since that April 4th date, and has now clearly started to participate in this sector rally.

- Gold and silver should continue to rally hard in the face of rising interest rates and increasing inflation pressures.

 
The SPDR Gold Trust ETF (NYSEARCA:GLD) continues to trade in the 116-121 range, which it has been stuck in during the last 2 1/2 months. It's no surprise though that the physical metal hasn't made any progress to the upside during this time, as we still have many investors focused on general equities. That is where hope and faith reside at the moment, and the latest rebound in the major U.S. indices since the February lows keeps that hope alive. But what is clear, especially given the volume we are seeing in GLD, is that a major repositioning is occurring. The volume in GLD is double to triple what it was at this time last year on a daily basis, and that is consistent volume as well over the last several months. It's that consistency day after day since January/February that implies that this move has tremendous "staying power."
 
In my previous article earlier this month on GLD, I talked about the possibility of 114 being tested if the 50 day didn't hold. As you can see in the chart below, the 50 day has been a strong level of support over the last few weeks. But I will say that the action on Friday perked up my ears a bit. It's not worrisome at this juncture, just more fascinating to watch than anything as it's clear that both bulls and bears are digging in their heals. You have to keep in mind that this is really the line in the sand for all of those still bearish on the sector. If gold surpasses those early March highs with a vengeance, then it's game over for those that are still positioned for a bear market in precious metals.
(Source: StockCharts.com)
 
 
The gold stocks themselves have been completely ignoring what GLD has been doing, as the HUI has gone from strength to strength while gold has consolidated. I have been warning in my articles since February that we simply might not see that big of a correction in the HUI, as new bull markets are very powerful and you really don't get those large sell-offs in the early stages.
 
However, I wouldn't completely rule out the possibility of one still happening. If GLD sells down to 114 over the next week, then we could see a swift plunge in the HUI back to the 170-180 region. But the correct strategy since the beginning of the year, and the one I have been emphatically recommending, is to keep buying weakness and not try to time this unfolding bull market by jumping in and out of positions. That will most likely result in repurchasing shares at higher prices.
 
If GLD can hold these levels this week and start to move up again, then I feel that the HUI will ultimately reach the 225-250 region before we see the first real consolidation in the gold and silver stocks. That's been my initial target (before a pause would occur) since the breakout in February.
 
Should it play out that way, then that 225-250 level could be reached next 1-2 months, and then I believe the HUI would spend several months consolidating in the 200-250 range. The summer months are usually tough for the gold sector anyway, particularly July, so this fits in with that time-frame nicely. But things don't always play out as expected, that's just what looks most likely at this juncture. We will have to see how the HUI ultimately progresses from this point. I will just say that any breakout of GLD from its current level would most definitely put this scenario in play. And I also wanted to mention that while the HUI has been ignoring GLD's flattish trading pattern, and is instead moving to the beat of its own drum, from this point forward it will be the price of gold that ultimately dictates the HUI's short-term direction. I just don't believe that the two (GLD and the HUI) can continue down different paths over the next several weeks, they will move in lockstep.
(Source: StockCharts.com)
 
 
I also want to point out that I'm seeing a couple of red flags in the gold and silver stock space.
 
Not in terms of this turning back into a bear market, but in terms of this becoming more of a stock pickers market should the HUI reach that 225-250 level over the next month or two.
 
Companies like First Majestic (NYSE:AG), Endeavour Silver (NYSE:EXK), and Coeur (NYSE:CDE) have been the clear leaders when it comes to silver and gold stocks. They have had enormous runs over the course of the last several months, and are sporting gains in the 200-300% range. While they still have upside should the HUI move to 250, I don't envision them doubling in value during that time. And then you have Harmony Gold (NYSE:HMY), which was really one of the early movers in the sector as it bottomed in December 2015 and has proceeded to shoot up like a rocket since (going from $0.50 to $4.00 during that time). It is now about 25% off its most recent high from earlier this month, and is clearly in consolidation mode. While HMY has been a phenomenal performer over the last several months, I'm not sure that its most recent high will be surpassed in the short-term, should the HUI have further room to run. If it does, then I believe the gains will be more muted compared to other stocks in the sector. A stock such as Gold Fields (NYSE:GFI) - which has doubled in value from the lows - has been consolidating for the last few months already and is in no way overbought like the others below. There are several companies like GFI that are lagging somewhat, and I believe a basket of these will far outperform the recent high-flyers, should the HUI continue to trend to that mid-200 territory over the coming weeks.
(Source: StockCharts.com)
 
In other words, it's time to be more selective when it comes to gold and silver stocks. Some might double should the HUI increase by 25%, some might stay flat and consolidate further, others might eke out decent gains but not make significant progress.
 
Again, it's all dependent on what GLD does in the short-term. If it decides to head lower from here then the HUI is going down, possibly by a significant amount (at least I would have to believe given the gains). I still lean towards GLD breaking out to the upside, and we will most definitely have an answer here shortly as the Fed is on tap and will provide a catalyst both in terms of the stock market and the precious metals sector.
 
Silver Finally Joins The Party
 
In my article from early April, I talked about the underperformance of physical silver compared to gold and the precious metal stocks. I stated at the time:
I still believe this is simply a waiting game, and silver will eventually break out to the upside very shortly. It's at $15.05 at the moment, with $16.00-$16.25 being the key level to surpass in the near term to get this party started.
Silver has really exploded since that April 4th date, and has now clearly started to participate in this sector rally.
 
(Source: StockCharts.com)
 
I also said at the time that I'm playing this divergence in silver via the VelocityShares 3x Long Silver ETN (NASDAQ:USLV), which is a highly leveraged physical silver fund. I mentioned that:
Everything at this moment is pointing to physical silver reversing the 4+ year downtrend, we just need confirmation by slightly higher prices first. If that occurs, USLV should have a major spike over the next 3-6 months, one which should produce a return in excess of 200%...Any increase in physical to those levels will also result in large short-term gains for the silver companies, just not nearly to the same extent as what USLV will experience.
Over the last few weeks, USLV is up 48%, far surpassing the gains on average for silver companies (as well as junior gold/silver miner ETFs). USLV is 1/4 of the way to my 200% expected gain, but since this is a highly leveraged fund, I already have a well designed exit strategy and I don't plan to try and realize a 200% return. That wouldn't be advisable on a triple levered ETN, which will ultimately give up all of these gains when physical silver starts to consolidate. As a side note, I still own silver stocks, and mentioned at the time that I didn't plan to liquidate any of those holdings or "rotate" into USLV. Rather I had some excess cash on the sidelines and continually built my position in the ETN.
 
USLV Chart
USLV data by YCharts
 
 
So silver has been performing exactly as I expected over the last few weeks, but gold still hasn't broken out yet since my last article. I continue to believe that GLD will start a new move higher soon, but I just don't know if it will hold support here at the 50 day and then take off or retest that 114 region first before it begins higher again. We are still in wait and see mode.
 
Say Goodbye To Ultra-Low Rates, and Hello To Rising Inflation Pressure
 
Many investors aren't prepared for what's coming down the pipe, at least here in the U.S. Even to this day, we have individuals still firmly in the deflation camp and expecting further decreases in U.S. Treasury yields as well as a declining gold price. That herd mentality mindset will soon reverse if the precious metal sector increases even further.
The conundrum that faces investors with those expectations is that the Fed, more specifically Janet Yellen, is only going to hold back on raising rates if the stock market panics (which she has clearly implied in past speeches and commentary). You have the labor market where the Fed wants and you have the PCE getting close to its preferred target, which is why the Fed has already begun to normalize interest rates. But the stock market is very jumpy and is deathly afraid of any sort of bump up in rates, as the assumption is the economy just can't handle a Fed Funds rate of 1% or higher. Which is a silly notion and has no basis in economic reality, but nonetheless, is firmly embedded into the cerebral cortex of the majority of investors and economists at the moment.
 
If you went back 10-20 years ago and told a group of high valued investors that the market in 2016 was panicking at the prospects of the Federal Reserve lifting rates to 1% or more, the reaction in the room would have probably been an extreme concern about the state of the U.S. Economy. Was there a Depression occurring, a World War, double digit unemployment, significant negative GDP growth, a stock market crash, massive deflation, or some other extreme event? That would be the only logical reason to assume that our financial system couldn't withstand a measly 1% Fed Funds rate, or needed this ultra-low rate environment to continue. Especially when a decade or two ago it was normal for the Fed Funds rate to be in the 5% range.
 
But we are far from any of those scenarios. We have basically full employment at the moment, GDP isn't gangbusters right now but it's still in positive territory, the stock market is sitting close to all-time highs, housing has recovered, global conditions (both political and economical) are not at extremely elevated or worrisome levels.
 
In no way are Treasury spreads indicating that a recession is on the horizon. The difference between the 3-month bill rate and 10 year last month was 1.6%, it's now 1.7% at today's rates.
 
Past recessions have always occurred after the spread was at or around zero, with the yield curve flat or inverted.
(Source: Federal Reserve Bank Of New York)
 
 
The Federal Reserve Bank of New York currently puts the probability of a recession over the next year at just 6.14%. Granted the U.S. economy is due for one soon (given past historical data), but we could still be a few years out in terms of time-frame as we have had numerous 10-year gaps between recessions before.
 
 
(Source: Federal Reserve Bank Of New York)
 
 
The bottom line, is nothing is flashing a warning that the Fed should hold back raising rates, other than a jumpy stock market. I continue to believe the Fed will increase by 25 basis points several times this year, probably back-end loaded though. Gold and silver should continue to rally hard in the face of rising interest rates and increasing inflation pressures as both the PCE and CPI are now clearly trending higher (I have my eye on the "shelter" component of the CPI in particular as we are seeing a continued steady increase over the last few years).
 
The only way the Fed is going to hold off raising rates even more is if the stock market buckles from current levels, and I'm not even sure that scenario would ultimately stop the Fed from increasing the Funds rate. Either way, gold is going to be the sector to be invested in over the next few years, and that is becoming clear to more and more investors everyday. Which is why you are seeing the current reaction in the gold sector.
 
The 10-year Treasury yields have bottomed, as while they have approached their 2012 lows several times over the last few years, yields still remain above that 1.40% level. I see a nice setup taking place for the yield curve to steepen over the next year or so, as long-term rates begin to normalize at a quicker pace that short-term rates.
(Source: Bloomberg)
 
 
And for anybody saying that the U.S. is like Japan circa 1990, and the we could be faced with deflationary pressures for years to come, I would consider the difference between money supply growth for both economies/situations. From each of their respective stock market peaks (Nikkei in December 1989 and S&P in October 2007), and charting the increase in M2 over the next 8 or so years that followed, we can see that the Japanese money supply only moved higher by about 25% during that time. Conversely, the U.S. money supply has risen by 75%. If M2 here in the U.S would have only grown 25% since the stock market peak of 2007 - and subsequent financial crisis that soon followed - then we would be only looking at a current M2 figure of just over $9 trillion. If that's where U.S. money supply stood I could make the case for an ultra-low interest rate environment for several more years. But that's not the road we are on.
 
 
(SOURCE: FRED)
 
 
I'm still of the opinion that general equities trend sideways at best over the next few years, but I also don't envision a major crash. A 20%-30% decline could develop over the course of that time frame, along with a mild recession as well. It's during this lull in the market that gold and silver will really rip higher.
 
It doesn't matter what the U.S. Dollar does during that time either. The continued thinking seems to be that gold needs a declining USD to make further headway, but that is simply not the case - as I have pointed out many times in the past that there is no long-term correlation between the two.
 
Investors needs to keep in mind the U.S. dollar index was flat during 1979 to early 1980, and stayed in a relatively tight range during that time. Gold went from $200 to over $800 per ounce during that period, and interest rates were skyrocketing during that time as well.

viernes, abril 29, 2016

BRAZIL: THE GREAT BETRAYAL / THE ECONOMIST

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Brazil

The great betrayal

Dilma Rousseff has let her country down. But so has the entire political class
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BRAZIL’S Congress has witnessed some bizarre scenes in its time. In 1963 a senator aimed a gun at his arch-enemy and killed another senator by mistake. In 1998 a crucial government bill failed when a congressman pushed the wrong button on his electronic voting device. But the spectacle in the lower house on April 17th surely counts among the oddest. One by one, 511 deputies filed towards a crowded microphone and, in ten-second bursts broadcast to a rapt nation, voted on the impeachment of the president, Dilma Rousseff. Some were draped in Brazilian flags. One launched a confetti rocket. Many gushed dedications to their home towns, religions, pet causes—and even Brazil’s insurance brokers. The motion to forward charges against Ms Rousseff to the Senate for trial passed by 367 votes to 137, with seven abstentions.

The vote comes at a desperate time. Brazil is struggling with its worst recession since the 1930s.

GDP is expected to shrink by 9% from the second quarter of 2014, when the recession started, to the end of this year. Inflation and the unemployment rate are both around 10%.

The failure is not only of Ms Rousseff’s making. The entire political class has let the country down through a mix of negligence and corruption. Brazil’s leaders will not win back the respect of its citizens or overcome the economy’s problems unless there is a thorough clean-up.

Ditching Dilma
 
Sunday’s vote was not the end of Ms Rousseff, but her departure cannot now be far off. Brazil ought not to mourn her. Incompetence in her first term in office, from 2011 to 2014, has made the country’s economic plight incomparably worse. Her Workers’ Party (PT) is a prime mover behind a gargantuan bribery scheme centred on Petrobras, the state-controlled oil company, which channelled money from contractors to politicians and parties. Although Ms Rousseff has not been personally implicated in the wrongdoing, she tried to shield her predecessor as president, Luiz Inácio Lula da Silva, from prosecution.

What is alarming is that those who are working for her removal are in many ways worse. If the Senate votes to put her on trial, probably by mid-May, Ms Rousseff will have to step aside for up to 180 days. The vice-president, Michel Temer, who comes from a different party, will take over and serve out her term if the Senate removes her from office. Mr Temer may provide short-term economic relief. Unlike the hapless Ms Rousseff, he knows how to get things done in Brasília and his Party of the Brazilian Democratic Movement (PMDB) is friendlier to business than the PT.

But the PMDB is hopelessly compromised, too. One of its leaders is the speaker of the lower house, Eduardo Cunha, who presided over Sunday’s six-hour impeachment spectacle and has himself been charged by the supreme court with taking bribes through the Petrobras scheme.

In announcing their “no” votes, some of Ms Rousseff’s allies denounced Mr Cunha as a “gangster” and a “thief”.

The taint of corruption is spread across many Brazilian parties. Of the 21 deputies under investigation in the Petrobras affair, 16 voted for Ms Rousseff’s impeachment. About 60% of congressmen face accusations of criminal wrongdoing.

There are no quick ways of putting this right. The roots of Brazil’s political dysfunction go back to the slave-based economy of the 19th century, to dictatorship in the 20th and to a flawed electoral system that both makes campaigns ruinously expensive and also shields politicians from account.

In the short run, impeachment will not fix this. The charge that is the basis for trying Ms Rousseff—that she manipulated accounts last year to make the fiscal deficit look smaller than it was—is so minor that just a handful of congressmen bothered to mention it in their ten-second tirades. If Ms Rousseff is ousted on a technicality, Mr Temer will struggle to be seen as a legitimate president by the large minority of Brazilians who still back Ms Rousseff.

In any other country, such a cocktail of economic decline and political conflict might be combustible. Yet Brazil has remarkable reserves of tolerance. Divided as they are over the rights and wrongs of impeachment, Brazilians have kept their anger in check. The past three decades suggest that theirs is a country which can endure a crisis without resorting to coups or collapses. And here, perhaps, is a shred of hope.

The fact that the Petrobras scandal has ensnared some of the country’s most powerful politicians and businessmen is a sign that some institutions, especially those that enforce the law, are maturing. One reason politicians are in such trouble is that a new, better-educated and more assertive middle class refused to put up with their impunity. Some of the statutes now being used to put away miscreants were enacted by Ms Rousseff’s government.

One way of capturing this spirit would be for the country to hold fresh elections. A new president might have a mandate to embark on reforms that have eluded governments for decades. Voters also deserve a chance to rid themselves of the entire corruption-infested Congress. Only new leaders and new legislators can undertake the fundamental reforms that Brazil needs, in particular an overhaul of the corruption-prone political system and of uncontrolled public spending, which pushes up debt and hobbles growth.

Second best
 
True enough, the path to renewal through the ballot box is strewn with obstacles. Given its record, Congress is unlikely to pass the constitutional amendment required to dissolve itself and hold an early general election. The electoral tribunal could order a new presidential ballot, on the ground that Petrobras bribe money helped finance the re-election of Ms Rousseff and Mr Temer in 2014. But that is far from certain.

There is thus a good chance that Brazil will be condemned to muddle on under the current generation of discredited leaders. Its voters should not forget this moment. Because, in the end, they will have a chance to go to the polls—and they should use it to vote for something better.


Why Precious Metal Rally On Track

By: Captain Hook
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So it was the biggest bounce in stocks since 1933, and best quarter for gold since the 70's. None of this should surprise you based on what's going on out there (think all forms of debasement), but for us the most important observation is gold has signaled it's ready to start its next leg higher. Silver should still have you wondering, which is of course what the establishment wants. When you see silver go through $20 though, it will run to $50 quickly. And if it makes it through $50, which means bullion buyers will have to chew through JPMorgan's (the government's) entire hoard (if it exists), it will be at $400 quickly as well, matching the bull move of the 70's coming out of its mid-cycle correction. We expect to see these trajectories in the 2021 area, a Fibonacci 21-years from the year 2000 turn.

Just to be clear then, what we got in the first quarter was a buy signal in gold, the shares, and key ratios; highly suggestive the bull market is back on. All we need is for silver to join the party in this regard, and we are off to the races. Further to this, and unfortunately for everybody, it appears this buy signal is not a result of political instability, or the threat of war, or any other result of the general state of debasement the 'powers that be' subject us to, but the result of anticipated currency debasement, the old standard. That's the only conclusion one can to given the pictures (charts) below. That's what we are going to do this week - go through these six charts because they confirm this thinking. The delayed positive reaction in the equity complex to Yellen's comments Tuesday was the tell, boosted by the insanity over at the ECB as well.

Yup - the ECB is talking 'QE for the people' with the economy grinding to a halt, and the Fed won't be too far behind is the message we got from gold in the first quarter - even if we are only in the first inning of the move. And the thing is, we are getting confirmation of this thinking in the charts, where for example, the S&P 500 (SPX) has turned bullish on all accounts, even the monthly plot with a higher high finish in March. (see below) What's more, and as can be seen on the monthly plot below, although RSI will most likely generate a negative divergence in the indicators set against new highs (now likely), the message is still bearish, a 'topping process' if you will - even if the SPX is able to surge to the Fibonacci resonance related target in the proximity of 2450. Such an outcome would shock a great many traders, finally curbing their desires to hedge every advance in stocks. (See Figure 1)


Figure 1
SPX:VIX Monthly Chart


Because authorities have to do something dramatic with stagflation creeping into the economy and the election only months away now. It's not like the old days, where the Fed would remain neutral. Now, with guys like Trump and Sanders threatening to defrock the Fed, they have become very biased bureaucrats fearing for their jobs. This is very important to understand because many either don't, or chose not to believe it, which could be expensive if they are short stocks. Again, this is confirmed in the monthly SPX / CBOE Volatility Index (VIX) Ratio plot seen below, where as with the above, here again we had a higher monthly close, the indicators appear constructive, and the stochastics have turned higher. As unlikely as such an outcome may appear, and although the move can fail at any time, short sellers should be very cautious here at this ratio appears set to vex the sinusoidal again. (See Figure 2)


Figure 2
SPX:VIX Monthly Chart 2


All we need is for tech stocks to catch a bid again and even though earnings are set to crash (9%) this quarter, at a minimum stocks could still grind higher. Remember, stocks are completely detached from the economy and reality now - a video game if you will. Again, at this point, with broad market open interest put / call ratios none supportive of big gains in stocks, the best anyone should expect is grinding action, however if traders were to become more bearish for whatever reason, especially in tech, the NASDAQ / Dow Ratio would bounce off of monthly 'swing line' support seen below, and a big move higher in the entire stock market would ensue. As it stands now however, with traders increasingly thinking the Fed has their collective back, a dramatic change in sentiment is not anticipated until either next year if a status quo candidate gets into the White House, or they fall if the opposite occurs obviously. (See Figure 3)


Figure 3
COMPQ:INDU Monthly Chart


And it's looking increasingly likely the fix is seriously being set up in election land on both sides of the docket, so it will be very important to have the economy and stock market looking as good as possible this fall, which can only be accomplished one way - accelerating currency debasement that actually trickles down to the people. (i.e. because they are not that stupid anymore - it's amazing what being hungry will do to your perspective.) And this is of course why precious metals are doing so well, and why this will continue, now signaled by two consecutive monthly closes below the 'swing line' in the Dow / Philadelphia Gold & Silver Index (XAU) Ratio. (see below) What's more, it should be pointed out that despite numerous attempts on the part of price managers to trigger a sell-off in precious metals, with last Friday's strong (fraudulent) jobs report an excellent example, the shares remain strong. (See Figure 4)


Figure 4
INDU:XAU Monthly Chart


Is this solely because traders see currency debasement rates accelerating and QE for the people? Answer: Nope. The shares remain strong because as traders see status quo tacticians fix the election, they think this means precious metals will come under attack if this trend gains traction. Because a good price fixer knows you can't have higher stocks without kicking the crap out of precious metals - right? Wrong. I can tell you from watching traders my whole life the aggressive ones have it wrong most of the time, and they have it wrong again here. And this will yield an alternative outcome to what the consensus expects. You can set your watch by these people because they are reliably naïve. Further to this, if the broads keep going up, even if only marginally, which is what the picture below suggests, this will light up precious metals even more as process unfolds. This is the message found in the Dow / CRB Ratio continuing to surge to historic highs. (See Figure 5)


Figure 5
INDU:CRB Monthly Chart


Because all that matters in the end (in the price fixing game) is the counterintuitive betting practices of the options gamblers, who are as we speak becoming increasingly bearish on precious metal shares, evidenced in the open interest put / call ratio for GDX (see here) nudging above .80 last week - possibly on its way above unity as the mania unfolds. This, combined with the observation DUST remains pinned to the lows for the same reason, and guess what, we now have the same sentiment related circumstances that keep the broads going higher working for precious metals - you have the algos and machines that drive high frequency trading (HFT) working in our favor. Further to this, if the broads keep going up, this will light up precious metals even more as process unfolds, which is the message found in the Dow / CRB Ratio continuing to surge to historic highs. It's almost at the Fibonacci target now. When it gets there and reverses, this will put a bid under precious metals in discounting future inflation expectations. (See Figure 6)


Figure 6
HUI:Gold Monthly Chart


And this is also the message in the Gold Bugs Index (HUI) / Gold Ratio pictured above, where here too we are through the monthly 'swing line' for two consecutive months, the swing line has turned (up), and its waves are counting in bullish fashion. It's been up four months in a row now, raising the probability it goes up again this month because four is not a Fibonacci number. That's going to surprise a lot of traders if this occurs, because they are all watching the COT's and dollar($) and thinking the opposite. What's more, and as alluded to above, this is causing them to buy puts on the GDX and DUST calls, which will cause the opposite outcome in the shares they expect (down) no matter what the physical metals and $ are doing. Because unlike people, the machines don't discriminate. They follow the logic of the algorithms, and the algorithms are programmed to sell a security when open interest put / call ratios are low, and buy when they are high. The thinking here is price managers know fundamentals for stocks suck, which will cause speculators to buy puts against the broads, which keeps the perpetual short squeeze running - and visa versa for precious metals.

Now though, because of what's happening in the real world, speculator logic loops are being disassembled regarding precious metals, causing them to become increasingly bearish evidenced in the rising put / call ratios on key US ETF's, like GDX, the largest and most important precious metal share vehicle in the market. Again, the COT report for gold last week saw a build in Commercial shorts, taking their position to a new record high. The bankers want to keep a lid on gold badly, so they are selling it down. The speculators are of course watching this, and in being semi-conscious wiseacres, they buy puts on GDX to cash in on anticipated weakness in the shares due to gold declining. Like last Friday, which saw gold down and the shares up however, what the consensus of speculators think and act on never pans out. The machines don't correlate the shares and bullion (they treat them as separate markets), where the two markets can diverge for some time depending on how stubborn and stupid the speculators want to be. History has proven the extremes are increasing in this regard.

So the thing to do is watch the key ETF open interest put / call ratios we follow (see here) closely for more departures from the norm. Hopefully more of the ratios begin vexing unity soon, led by GDX.

If this occurs, the precious metals market will become explosive. A Commercial short squeeze (signal failure) on Comex is even possible under present circumstances. If Sanders for example, continues to kick Hillary's butt up until the convention and wins the popular vote, swinging many of the Superdelegates over to him, things could get very interesting in coming months.

But it's important to understand, a bullish outcome for precious metals can develop no matter what is happening on the political front because with the economy continuing to deteriorate, central authorities will have no choice but to adopt increasingly desperate measures to keep the mob placated - or so they think - because it's already too late for the naybobs in Washington.

And it doesn't matter what the stock market does either - up, down, or sideways. If stocks remain elevated, which we know is the probable outcome based not just on the above profound charts, but the still huge short position as well, this would actually be better for precious metal shares due to liquidity conditions, especially for the juniors. The juniors and the broads were moving in tandem up until 2011 based on currency debasement trends, when the bullish speculators started buying too many calls and the machines took precious metal shares down.

So there no reason if currency debasement rates reaccelerate and precious metal speculators grow bearish that the shares can't make a very big (catch up?) move back up.

Now wouldn't that be nice.