Thursday, 4 February 2016

America Rocks, Shakes, & Wobbles.

Baltic Dry Index. 303 - 07        Brent Crude 35.21

LIR Gold Target in 2019: $30,000.  Revised due to QE programs.

The best argument against democracy is a five-minute conversation with the average voter.

Winston Churchill.

Tired of covering the dying EUSSR, imploding China, Germany’s Merkel Migrant Madness, and HMG’s Chamberlain kowtowing to continental Europe, today we open with America, the land of the not quite so free, between the shining seas, struggling to come to terms with who to pick to be the next President next year. What’s so strange from a rest of the world view,  is the elderly age of the front runners in each of the two parties. A zimmer frame election it looks from London. America apparently, is no place for a Justin Trudeau.

From the relative safety of faraway Brexit London, America seems to be rocking, shaking and wobbling, and it’s nothing to do with fracking. Has “escape velocity” escaped yet again, or been Trumped by a new recession. If America sneezes all the rest of the world still catches a cold. Right now Uncle Scam seems in the midst of a sneezing fit.

Ugly earnings may mean a scary 20% S&P 500 plunge

Published: Feb 3, 2016 3:53 p.m. ET

Are corporate earnings signaling a market crash?

A storm may be brewing in corporate earnings.

Lackluster economic data, plunging oil prices CLH6, +0.68% petering global economic growth and a rising dollar DXY, +0.06% are just some of the issues the U.S. stock market is wrestling with.

All are weighing on corporate earnings, which are on track to register a third consecutive quarter of year-over-year declines, according to John Butters, senior analyst at FactSet.

That earnings picture may be an ominous sign, as MarketWatch’s Ciara Linnane and Tomi Kilgore have written: Read: Earnings take a dark turn as profit warnings sales miss mount

But Keith McCullough, the CEO at Hedgeye, takes it one step further, saying that back-to-back quarters of declining earnings have “always” resulted in declines of at least 20% in the S&P 500 SPX, +0.50% Here’s the Hedgeye chart:

----“We’re looking at 3 straight quarters of year-over-year earnings declines and 4 straight quarters of year-over-year revenue declines, Butters told MarketWatch.

The following table shows the S&P 500 is on track to post a fourth-quarter earnings decline of 5.6%:

Opinion: It’s the earnings, stupid (and they’re going down)

Published: Feb 3, 2016 10:15 a.m. ET
Analysts and pundits have been trying to understand why stocks have had such a bad start to 2016.

The S&P 500 SPX, +0.50%   lost 5% in January, and it continues to slide. Is the decline due to decelerating growth and currency devaluation in China? Is it a global economic slowdown reflected by shockingly low oil prices? Or perhaps the market is reacting to the Federal Reserve hiking rates for the first time in nearly a decade?

The truth is that nobody knows why markets move as they on a day-to-day, month-to-month or even year-to-year basis. But long-term returns hinge on earnings-per-share (EPS) growth and dividends. Even overall GDP growth seems to have no effect on long-term stock returns if it’s not accompanied by earnings-per-share growth and dividend growth.

So if short-term market moves are inexplicable, and long-term returns depend on EPS growth and dividends, what can investors expect?

A new report from Research Affiliates offers some insight. According to the firm’s report, as-reported EPS of the S&P 500 have declined 14% from an apparent third-quarter 2014 peak to the third quarter of 2015.
Over the past quarter-century, drops of such magnitude have occurred only in 1991, 2001-02, and 2008-09. Each drop coincided with substantial losses for stocks.

---- The real challenge investors confront now is what the longer-term growth rate of EPS will be. On this question, the report cites a previous Research Affiliates missive arguing that a quarter-century earnings supercycle may be ending.

According to Research Affiliates, for more than two decades corporate profits have been growing faster than GDP, which means a greater percentage of earnings has gone to investors or capital rather than to wages. At some point this trend will violate our “sense of social fairness” as “[c]apital’s share [of profits] cannot rise in perpetuity.”

One reason for profits accruing to capital is globalization, the firm asserts. Free global markets raised poor countries out of poverty but caused wages to stagnate in richer, more developed countries.

Retail Apocalypse: 2016 Brings Empty Shelves And Store Closings All Across America

Tyler Durden
Major retailers in the United States are shutting down hundreds of stores, and shoppers are reporting alarmingly bare shelves in many retail locations that are still open all over the country.  It appears that the retail apocalypse that made so many headlines in 2015 has gone to an entirely new level as we enter 2016. 

As economic activity slows down and Internet retailers capture more of the market, brick and mortar retailers are cutting their losses.  This is especially true in areas that are on the lower portion of the income scale.  In impoverished urban centers all over the nation, it is not uncommon to find entire malls that have now been completely abandoned.  It has been estimated that there is about a billion square feet of retail space sitting empty in this country, and this crisis is only going to get worse as the retail apocalypse accelerates.

We always get a wave of store closings after the holiday shopping season, but this year has been particularly active.  The following are just a few of the big retailers that have already made major announcements…

-Wal-Mart is closing 269 stores, including 154 inside the United States.
-K-Mart is closing down more than two dozen stores over the next several months.
-J.C. Penney will be permanently shutting down 47 more stores after closing a total of 40 stores in 2015.
-Macy’s has decided that it needs to shutter 36 stores and lay off approximately 2,500 employees.
-The Gap is in the process of closing 175 stores in North America.
-Aeropostale is in the process of closing 84 stores all across America.
-Finish Line has announced that 150 stores will be shutting down over the next few years.
-Sears has shut down about 600 stores over the past year or so, but sales at the stores that remain open continue to fall precipitously.

But these store closings are only part of the story.

All over the country, shoppers are noticing bare shelves and alarmingly low inventory levels.  This is happening even at the largest and most prominent retailers.

Non-Manufacturing ISM Cracks Appear: 8 of 18 Industries in Contraction

NMI Cracks Appear
The non-manufacturing (services) ISM is still growing but prices and new export orders both plunged into contraction. Moreover, 8 out of 18 industries fell into outright contraction.

The Econoday Consensus Estimate was for a slight decline to 55.5 from 55.8 but once again economists were on the optimistic side. ISM reports a reading dip to 53.5. While still growing, this report portends significant, and growing weakness.

Monthly growth is slowing noticeably in ISM’s non-manufacturing sample. The composite index for January fell a sharp 2.3 points to 53.5 from December’s revised 55.8 which is 2 points below the Econoday consensus. Slowing is most apparent in output (as measured by the business activity component) with employment growth also slowing sharply, to 52.1 for a 4.2 point dip. However new orders, at 56.5, remain solidly above breakeven 50 though here to there is slowing, from December’s 58.9. Supplier deliveries, the fourth component of the composite, slowed in the month in a sign of congestion in the supply chain in what is an offsetting positive for the month.

Weakness is signaled by both contraction in import orders, which points to business caution among U.S. businesses, and also for export orders, the result of weak foreign markets and the negative effects of the strong dollar. Input prices, which have been subdued, fell in the month.

Through much of last year, this report was among the most resilient, consistently pointing to steady strength that for the most part proved correct. Today’s declines, along with the dip in the PMI services report released earlier this morning, unfortunately hint at soft growth for the first quarter while this report’s employment index, hitting its lowest point since January last year, points to modest disappointment for Friday’s employment report.

Let’s dive into the NMI Report for more details.

We end on America today with politics. In the land between the shinning seas, American’s get the best government money can buy. Poor Brits on the other hand, merely get the best government Europe’s agitprop can scare.

“A good politician is quite as unthinkable as an honest burglar.”

H. L. Mencken.

New Hampshire Flooded By $100 Million in Political Ads

The presidential candidates, and the super-PACs supporting them, are spending big in 2016.

February 3, 2016 — 8:10 PM GMT
Money is gushing into New Hampshire as presidential candidates see the first in the nation primary as a make-or-break moment for their campaigns.  

About $100 million has already been poured into broadcast and cable television ads courting voters for the Feb. 9 vote, according to estimates from Kantar Media's CMAG and an analysis by Ken Goldstein, a Bloomberg Politics analyst and University of San Francisco professor. In comparison, about $2 million had been spent in New Hampshire by this point in the 2012 race that ultimately came down to Mitt Romney and Barack Obama.

The spending in New Hampshire shows how American politics is being transformed by U.S. Supreme Court decisions in recent years that cleared the path for unbridled spending in elections. The sheer number of candidates and the lack of an incumbent in the race has also intensified the flow of money.

So far, the vast majority of New Hampshire ad spending—about 80 percent as of Feb. 1—has come from the Republican candidates and outside groups supporting them, according to Goldstein. Even Donald Trump, who rode a wave of free publicity through the early months of his campaign, began TV advertising in early January, according to CMAG. 

CMAG estimates $82 million was spent through Feb. 1 on broadcast ads in four TV markets that cover New Hampshire. On top of that, Goldstein estimates another $20 million has been spent on local cable channels, which aren't tracked by CMAG. Of the broadcast ads, Republicans and their allied super-PACs account for $64 million. 

“Every normal man must be tempted, at times, to spit on his hands, hoist the black flag, and begin slitting throats.”

H. L. Mencken.

At the Comex silver depositories Wednesday final figures were: Registered 28.53 Moz, Eligible 127.74 Moz, Total 158.27 Moz. 

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.
Officially China says that the Yuan is “stable” and that they have no plans to devalue the Yuan. Then again Japan’s top Central Bankster Kuroda said there were no BOJ plans to introduce negative interest rates just 8 days before he introduced them. Will China follow Japan’s lead and boldly devalue the Yuan during next week’s Lunar New Year holiday? I don’t know either, but in the failing endgame of the Great Nixonian Error of fiat money, communist money, our central banksters are increasingly desperate, and all out of ammo, ideas and talent.
"When it becomes serious, you have to lie"

Jean-Claude Juncker. Failed Luxembourg Prime Minister and ex-president of the Euro Group of Finance Ministers. Confessed liar. EC President.

Yuan Gap Widens Again as Depreciation Bets Swamp PBOC Fightback

February 3, 2016 — 5:47 AM GMT Updated on February 3, 2016 — 10:21 AM GMT
The gap between the Chinese yuan’s exchange rates at home and abroad expanded to the biggest in three weeks, a sign that international traders are reviving bets against the currency after getting burned by the central bank earlier this year.
The yuan traded in Hong Kong fell as much as 0.4 percent, taking its discount to the currency in Shanghai to 1.1 percent. That’s the most since Jan. 11, when the People’s Bank of China launched a two-pronged attack on short-sellers by mopping up the currency overseas and choking supply of yuan from the mainland. The assault pushed the offshore rate to a premium that week, before it swung the other way again.
“Bears are not giving up on shorting the yuan simply because of the PBOC’s attacks, and they are preparing to return to the game," said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. "There will be a very intense confrontation between short-sellers and the PBOC in the near term. While the market strongly believes there’s room for further declines, the central bank will try its best to keep the yuan stable."
The offshore yuan fell 0.25 percent to 6.6444 a dollar as of 6:20 p.m. in Hong Kong on Wednesday, data compiled by Bloomberg show. It earlier dropped to 6.6512, the weakest since Jan. 11. The onshore currency was little changed at 6.5779. The monetary authority lowered its daily fixing by 0.02 percent to 6.5521. Chinese financial markets will be closed next week for the Lunar New Year.

Man who made billions on housing crisis is betting against China’s yuan

Published: Feb 3, 2016 6:07 p.m. ET

China is embroiled in a battle against investors shorting the yuan

Kyle Bass, founder of hedge fund Hayman Capital Management, made the case for why his firm is making a big wager against the yuan.

“Very few people have looked at kind of what the cause of the problem is [in China] and I believe the cause of the problem is No. 1, the real effective exchange rate since 2005 has appreciated 60%,” explained Bass during an interview on CNBC Wednesday.

Bass’s bet against Beijing’s currency is worth noting, given some of his successful trades. The hedge-fund manager was one of the few investors whose prescience resulted in him making billions during the heart of the U.S. subprime mortgage crisis.

Bass’s main point is that the share of bad loans at China’s banks is growing and has the potential to roil the world’s second-largest economy. Bass questions whether China’s banks have enough capital on hand to weather tough times, particularly as its economy shows signs of slowing.

“This isn’t an aberration. This isn’t a speed bump. This is China’s excess — let’s call it misallocation of capital — coming home to roost,” Bass said.
“There are a terrible lot of lies going about the world, and the worst of it is that half of them are true.”
Winston Churchill.

Solar  & Related Update. 

With events happening fast in the development of solar power and graphene, I’ve added this new section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards? DC? A quantum computer next?

Graphene optical lens a billionth of a meter thick breaks the diffraction limit

David Szondy January 31, 2016
With the development of photonic chips and nano-optics, the old ground glass lenses can't keep up in the race toward miniaturization. In the search for a suitable replacement, a team from the Swinburne University of Technology has developed a graphene microlens one billionth of a meter thick that can take sharper images of objects the size of a single bacterium and opens the door to improved mobile phones, nanosatellites, and computers.

One of the key obstacles in advances in optical microscopes is the lens or, more precisely, the diffraction limit, which is the theoretical limit of the resolution of a particular lens. There have been a number of attempts at overcoming the diffraction limit by using such techniques as interferometry, holography, lasers, and electrons, and although scientists have enjoyed some success, it has only been at great cost and complexity.

Another approach has been to explore the use of ultrathin flat lenses that are etched with concentric circles and act like tiny Fresnel lenses. According to the Swinburne team, this has also had some success, but only by crafting the lenses out of gold and other metals that don't lend themselves to mass production.

Swinburne's breakthrough came when Xiaorui Zheng, a PhD student at the Centre for Micro-Photonics, used graphene oxide to form a lens. This material allowed the team to make ultrathin flat lenses that are 300 times thinner than a sheet of paper and weigh a microgram. This was achieved by effectively printing the lens, first spraying a sheet of graphene oxide solution, then molding the circles using a laser beam.

According to the team, the new lens is flexible, can resolve objects as small as 200 nanometers, and can even see into the near infrared. This is possible a it breaks the diffraction limit and allows a focus of less than half the wavelength of light.

Once the technology is mature, the team sees it as having applications beyond microscopy, such as in lighter, thinner mobile phones with thermal imaging capabilities, smaller endoscopes for surgery, as a replacement for conventional lenses in nanosatellites to save a couple of hundred grams of launch weight, and to increase the efficiency of photonic chips in supercomputers and superfast broadband distribution.

The monthly Coppock Indicators finished January

DJIA: -06 Down. NASDAQ: +75 Down. SP500: -02 Down.  Both the DJIA and the S&P 500 have now turned negative.

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