April 15th Weekly Recap

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(Articles from Jordan Wirsz, Nell Sloane and Jim Willis)


Savant Report Week End Summary

By Jordan Wirsz – Savant Investment Partners

CANADA:
This week, I dug into researching Canada’s economic stats, which confirmed my thoughts on the overall Canadian economy’s fragile state. There is a very large debt bubble in Canada that has world governments concerned. The truth is, per capita, Canada is one of the top 7 largest “in debt” countries in the world. Canada’s debt isn’t based on public (government) sector debt, but it is the private sector (consumer) debt that has economists worried. Government sector debt can be overcome with a wide array of tools that governments can manipulate. Consumer based debt, however, is a whole different story.

A study was published by Steve Keen, a professor of economics at Britain’s Kingston University. Keen believes that the U.S. “bust” was fueled by consumer speculation rather than true investments. Additionally, a Forbes article published not too long ago details the theory that Canada is one of seven countries that is likely to see an economic crisis in the next one to three years. The others include China (which I’ve been talking about for a while now), Australia (again which I’ve talked about for a while now), Sweden, Hong Kong, South Korea and Norway. The theory is that any country with a private debt to GDP ratio of 150% and that has a five-year growth rate of 18 percent or greater in that ratio experiences a financial crisis (at some point). These milestones were met and exceeded in recent years as Canada’s consumers went on a borrowing spree. Canadians collectively owe more than 208% of GDP. From 2011-2016, private debt in Canada rose from 182% of GDP to 208%. Wow.

This has been going on for a while…Look at this chart from back in 2015 showing how far above the U.S. debt to income ratio that Canada has…And it’s grown even more since 2015. NOTE: This is household debt to GDP, a different measure of total private sector debt***

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In 2016, Canada unquestionably qualifies for a private sector (consumer) debt crisis, the likes of which may exceed anyone’s expectations. With Canadian private debt growing at more than 5% annually and GDP at a recessionary rate, it is nearly impossible for Canada to be immune to the consumer debt issue. Rolling over existing debt and paying interest on the interest will become harder to do. Next, financing growth and expansion in consumption, business investment, automobiles, real estate, etc. become more difficult.

In 2015, Canada officially entered recession.

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I’ve had the opportunity to get to know the Canadian people and markets a little bit over the last 4 or 5 years more than I had in the past. During trips to Canada, it became really clear that many folks drove brand new cars, were buying bigger homes, had a garage full of recreational vehicles and other toys, and that the overall tone was “euphoric”. Young bucks who were in the oil or agriculture world found themselves in a great bull market, and they made sure to leverage as high as they could in many instances.

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Speaking of real estate, look at this one:

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The collapse of natural resource prices and activity has made the unsustainable situation even worse. One recent example from this week is Peabody Energy which filed for chapter 11 bankruptcy this week…The largest coal mining company in the world. The large base of agriculture in Canada is also hurting, with grain prices hitting extreme lows after only a few years ago topping all-time highs. Boom…And bust. Some people might say that Canada has other industry aside from commodities and natural resources (particularly energy). While they are correct, that percentage of the Canadian economy has been shrinking for over a decade…

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So where does it end for Canada? I’m not sure. But I think it starts here. How long will it take to unravel the consumer debt issue? I can’t answer that either. It takes time…How much is a guessing game.

The economic issues for Canada have been looming for the last several years. One way to clearly see when they started to show the cracks in the armor is to look at the Canadian Dollar against the U.S. Dollar. Clearly, since at least 2014, the market has been pricing in some concern, and that selloff has continued and deepened.

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Although the Canadian Dollar is substantially off it’s lows below $.70 (now trading near $.78), I don’t think the currency’s problems are over. Much like the U.S. Dollar, the economy will need to see a bottom before making its run higher. At this point, I think it is far too soon to call a bottom in either the Canadian economy, or the Canadian Dollar currency.

If you have assets in Canada, be vigilant, and perhaps consider using this bounce in the currency to trade into U.S. assets. If you don’t have Canadian assets, keep some cash ready on the sidelines to buy in once the economy has hit bottom…A point in time not yet determined.

The Canadian investment opportunity remains one of my top 3 investment ideas at this point in time. Wait for a probable bottom in the Canadian economy, currency, and real estate…Then it will be time to buy Canadian equities and real estate at discounted values with a low currency…And wait for it to swap ends. This will, no doubt, be an opportunity for massive gains for those who are patient enough to wait for the right entry point (which may be years away) and wait for the next bull cycle in Canada. Warren Buffet is a patient investor…And he’s done quite well picking opportunities during depressed times. I like that strategy.

– Jordan Wirsz


Weekly Update

By Nell Sloane – Capital Trading Group

In a leveraged fiat world, all that matters is access to liquidity in times of stress. The carnage in the price of oil not only hurts the sovereign oil producers but it also hits the little leveraged guys very hard. See the true inflation of money, doesn’t come from the central banks, it comes from banks making loans and keeping a fraction on deposit against that loan. So without loan growth, there most likely cannot be inflation. This is something that the FED rarely talks about, yet it’s quite obvious the correlation between reserve balances and the velocity of money or lack of inflation. Some will simply call it too much debt and not enough capacity to take on more. Yes we would tend to agree with that notion as well, but that is why economics is a science, there are at any one point in time a multitude of affecting factors and inputs that drive a given outcome. However let’s not lose our focus. Instead of focusing upon the little levered oil players, let’s focus upon who actually holds their loans. We would think it’s quite prudent to do so don’t you. So here is a chart from Barclays:

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These banks will have to set aside some loan loss reserves, which will affect their tier 1 capital ratios.1 Most likely these banks will down play these losses and not put forth adequate amounts to loan loss reserves in hopes for an oil rebound. It seems to be in the banks best interest to underestimate these loan losses and rather opt to allocate income to “retained Earnings,” instead which are counted fully as Tier 1 capital.

Why is all this important to an average investor?

Because it points out what the true motive and intent is when it comes to Federal Reserve and central bank policy targeting. In plain words, there are many factors to keeping the economy afloat and sometimes the dynamics of such factors change with the times. There was a time where lower oil was an expected boon for consumers and discretionary spending. However given the amount of credit and leverage inherent in the system, lower oil, real lower prices (Sub $40) is actually very negative economically for the US and the world abroad for that matter. So we think that it’s very important to watch the price of oil, it is also no wonder to us that the equity market have been tightly correlated and driven higher by this oil bounce: (Russia / Saudi Headline was, “Hope that an oil freeze agreement can be reached.”

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*Chart courtesy of zerohedge.com

It seems to be a matter of necessity as opposed to correlation. How long can the oil tanker stay afloat? That is a question of fundamentals and central bank and fiscal policy. Can governments agree on reduced production? Is the global slowdown as deep as some say? Is a recession on the horizon globally, not just stateside? These are all important questions and time will only tell. As for now the SP500 above 2040, Oil above $40 is offering a brief respite, but many are still aware that danger lurks just below these nominal levels. We think that the Federal Reserve and the rest of the global central banks are keenly aware of these levels as well.

While we are on the subject of debt, let’s look at a few charts that reflect the gravity of the situation brewing amongst US corporate’s shall we:

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These charts depict a very troubling scenario going forward. A very simple question to ask any investor in US equities is how will future cash flows be affected by this much debt growth and at what point does it start to deteriorate the underlying equity asset?

The central banks can mask the lack of earnings with increased debt subsidies, but what it cannot mask is the massive growth that US Corps are taking on just to keep their multiples up. Swapping debt for treasury stock (buybacks) is hardly a recipe for future sustainable cash flow growth.

This is clearly unsustainable and it is why the global central banks are continuing to ramp up QE and NIRP, they are in an all out war against the rising tide of the debt piper. For any novice that thinks interest rates can move higher, this should all but put that argument to rest.

It troubling to think of how devastating these QE and NIRP policies are for the true market dynamic of pricing risk. The skew is so high toward central bank incompetence that markets, for all intents and purposes have stopped functioning as markets. They are nothing more than a mirage in a desert of debt. There to entice you from the distance, at the margin if you will, to only disappoint you as time goes on. Perhaps this is why so many funds have trouble beating a basic index fund, not only do most lack any foresight whatsoever, they also cling on to market dynamics of old and fail to realize the market of old is dead and buried. The real market is quite clearly driven by global central bank funding. Driven by massive amounts of future earnings pulled forward, turbo charged with front loaded negative interest rate schemes that have little to do with quantifying risk.
Risk, as a measured by the rate an entity is entitled to pay on its debt, died long ago. This new paradigm is being shape shifted and twisted by constant central bank intervention that many managers find, simply too hard to grasp.

The current investment conundrum can be best described via the character Morpheus from the movie “The Matrix”:

Morpheus: “What you know you can’t explain, but you feel it. You’ve felt it your entire life, that there’s something wrong with the world. You don’t know what it is, but it’s there, like a splinter in your mind, driving you mad.” (the Matrix 1999)

I am sure this is how many a nary manager feel today. They cling to a system they believe is real, honest, true and pure and their actions reflect their belief in this system. They have yet to wake up to the reality, the truth that despite all they were taught, all that they know, there is only one true driving force in the market, Central Banks. To invest in traditional manners is a bet against the manipulation of economic laws these central banks continue to partake in.

Most managers will look at the fundamentals and remain very, very cautious, but with a troubling devil on their shoulder, trying to force them to commit, to toss a few chips in. This is why most can’t beat the index fund, they are using their instincts that warn them, something is wrong, something doesn’t “feel” right, well in a binary algorithmic driven investment world, your feelings have no place at the table. Shelve them, leave them at the casino’s door, or at least that is what they want you to believe. DON’T FALL FOR IT.

Time will test things in due course and nature always find away, the laws of mathematics and physics are absolute and nothing up to this point no matter how giga-fast the computer chip is or nanosecond the connection is, is going to change that. Keep your wits about you and trust that behind the scenes lurks an impending disaster that must always be guarded against, your profits and your future may very well depend on that very hedge.

This letters intent is not to scare you, but inform you, to “Free Your Mind” from the shackles of central bank largesse. Its smoke and mirrors, invest with confidence in things that make sense, fundamentally, technically and place a stake in protecting the future. If it’s one thing that QE and NIRP warn us all of, it’s the fact that all isn’t right in the global economic landscape and eventually the music does indeed stop, usually without warning.

Another interesting tidbit out this week was the “alleged” $5 billion dollar settlement Goldman was bestowed with by the US government.

In The New York Times, Nathaniel Popper took a careful look at the consumer relief provisions and found that Goldman Sachs could pay up to $1 billion less than advertised, because the company gets extra credit for spending in certain hard-hit communities or for meeting its obligations within the first six months.2

It is really a whole lot less than what Mr. Popper is leading on to, as noted by David Dayen’s piece entitled, “Why the Goldman Sachs Settlement Is a $5 Billion Sham”.

“The penalty might sound pretty stiff. But get a load of the real math.” -Dayen

Mr. Dayen even noted that Bernie Sanders recently commented about these ridiculous penalties, as he shouted “If you are a kid caught with marijuana in Michigan, you get a police record. If you are an executive on Wall Street that destroys the American economy, you pay a $5 billion fine, no police record.”

In his article he noted that $2.385 billion of the total penalty comes in the form of a cash civil penalty. He goes on to say that, “the rest is tax deductible, as a business expense. Considering the indeterminate dollar value of the consumer relief, it’s hard to say how much money Goldman will be able to write off. But going with the Justice Department’s numbers, you have $2.615 billion in tax-deductible penalty, which at a 35 percent corporate tax rate equals a write-off of $915 million. That means nearly $1 billion of the settlement is effectively financed by taxpayers.”3

So when the penalty continues to not even closely fit the crime, well you can guess what type of actions will continue. It only been a mere 8 years since 2008, yet the impending financial fraud and disaster that was once such a threat, is treated as if it’s merely just an afterthought. The type of who cares attitude and blatant lack of any regulatory or federal penalty set down on anyone of the characters that were at the forefront of this disaster is what’s truly tragic. Then again, we wouldn’t expect anything different now would we?

2 http://www.nytimes.com/2016/04/12/business/dealbook/goldman-sachs-to-pay-5-1-billion-in-mortgage-settlement.html?_r=0
3 https://newrepublic.com/article/132628/goldman-sachs-settlement-5-billion-sham


Weekly Update

By Jim Willis – Beacon Bay Asset Management

OBSERVATIONS

1Q-2016 SPX500 Action:
January was the WORST first month of the year in the history of the markets. Followed by a total recovery from mid-February to the end of the quarter.

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1st Quarter – 2016 Forecasted Metrics:
The forecasted growth metrics for both top line revenue and earnings are again in the red. The forecasted top line revenue is slightly negative at -0.8% Y/Y and earnings is -8.4% Y/Y. Takeaway: this could be the fourth quarter in a row reporting negative earnings. This is partly the reason why the Federal Reserve did NOT raise interest rates again.

2nd Quarter – 2016 Forecasted Expectations:
Currently, the analysts indicate another negative earnings total of -2.2% along with year another negative forecast on top line growth of -0.6%. Earnings season is just getting into swing this week. Next week will set the tone for the next few weeks. If the anaylsts are correct (even 50% so), it’s unlikely the FED will raise rates in June. As always, the analysts are forecasting a large uptick in both earnings and top line revenue for 2H-2016.

US ECONOMY

GDP Update:
Q215 was reported to be a great quarter at 3.9% growth. Q315 came in at a low 1.5%. Less than half of the prior quarter. Q415 final GDP numbers came in at 1.4% annualized. Import numbers were the lowest in a year. The higher USDollar is being felt globally. 1Q16 will be reported on April 28th. The early forecasts are around .1% with a margin of error of 1.3%. So, it could come in negative. At any rate, this low a figure will absolutely postpone any FED rate increases until June at the earliest.

Federal Reserve Update:
After raising rates in December with 25 basis points or 1/4th of one percent, the FED stood still in March. It does not appear that the FED will raise possibly again until June, and that is in question due to global conditions. The global markets are not doing that well and that impacts what our FED may do.

International Trade:
After 13 months of declining trade we saw a pickup last month albeit worse than last year. Overall the US is still negative for 14 months going. The high value of the USD is greatly impacting our trade metrics.

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Emerging Markets:
The chart at below is an index of most of the emerging market exchanges around the world. Last quarter we wrote it would reach $28.xx and it found support there and rebounded to a multi year support level. This steep decline since last year had spooked the FED and major markets. This rebound is welcomed. This index is an excellent barometer of world emerging economies.

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ENERGY: The Saga Continues…Until it Stops.

Crude Oil:
OPEC met in January and proposed to FREEZE production at January levels if EVERYONE would agree. They all did not. Notably IRAN did not. So, the result was a quasi-freeze that most OPEC members agreed to (they couldn’t pump any more than they were currently pumping)…. so the saga continues. Iran and Saudi Arabia are still at odds. But, Iran is not exporting all the excess surpluses they were purportedly holding awaiting sanctions from the USA to be lifted. To date they have merely shipped 8-9 cargoes, mostly to Europe. The insurance entities cannot get the ships insured against environmental mishaps, and settlements in USD are at risk with banks having problems honoring letters of credit due to fear they are breaking existing sanctions with the USA. There is another meeting scheduled in Doha, Qatar on 17 April, but all observers suspect little will occur as Iran is not in line to agree to any freezes while Russia is rumored to agree to a ‘CAP’ on exports. There is a difference between production and exports. Most countries export a lot LESS than they produce due to local consumption.

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Bottom line: The USA rig count is down month over month to 348. Canada dropped from 206 to only 69. Global supply and demand is beginning to balance. USA Shale production has fallen another 250K/BPDay during 1Q16. Since last April, our onshore production is off 1 million BPD and we are now importing about 800K/BPD more than a year ago. The difference is from off shore production. So, the USA is importing (buying on global markets) a lot of new oil. In the Middle East about 500K/BPD went off line in 1Q16 spiking up the global prices from mid $20s to over $40 inside of two weeks (along with traders covering their short positions). This just indicates how volatile crude is with just minor changes. Changes are coming. Before June we should see a move in crude into the mid $40s. Demand is coming on strong in the northern hemisphere due to summer gasoline demand. A mild winter can hamper that some but not much. The Mideast chaos remains at high levels while Iran and Saudi Arabia are still not talking with one another. Iran also has significant issues with allowing non-Iranian companies (oil corporations) own property or have rights inside their country. Also over the past few years the black market has benefited those in power opposed to legal sales of oil via regular channels. Not a big incentive to play by the rules. With all the talk that Iran will re-enter the market… it will take a lot longer than is currently expected.

Iraq also dismissed their oil minister. Iraq recently instructed their international drillers to HALT new production due to their inability to pay them the concessions they would owe them. There is no agreement today between Iraq and Kurdistan (northeast section of Iraq that produces about 1/4th of all Iraq oil production). Security issues are increasing in Iraq as some oil sites were bombed last month by ISIS. The increase in supply from Iraq is in serious question. Yet, oil demand is coming.

Natural Gas Production:
The production DECLINE in Natural gas production is now increasing. But the ceiling on natural gas should be around $2.75 for the next 12-18 months. One of our biggest fields, the Marcellus/Utica area in the northeast is essentially locked due to insufficient pipelines to get the gas to market. Without unencumbered access to market the gas produced has lower value. The pipeline infrastructure is not going to increase with new pipes until late 2016 and into 2017. Natural gas is linked to oil as well. With a drag on oil prices and pipeline restrictions the pressure is on to keep natural gas prices low.

Liquified Natural Gas [LNG] Production:
Cheniere Energy Partners (CQP) has shipped a few cargoes since early February. They are now moving LNG to contracted customers selling left overs on the spot market. It’s been a long wait and they are now in the game. As time passes the process to liquefy and load/ship will become more efficient and we should see Cheniere move around 10 loads a month. Later this year their 2nd line comes on-line.

Other Oil/NatGas Producers:
Laredo (LPI), PDC Energy (PDCE), Concho Resources (CXO), Diamondback Energy (FANG), and Parsley Energy (PE) are all responding to the oil recovery from mid $20s to $40 with each selection UP over 30% since mid February. As crude moves higher into demand these picks should continue to move higher. Each has excellent fundamentals with great production growth planned this fiscal year. There may be some profit taking just ahead of this great run, so another window may offer itself up to enter in early May post-earnings and the redermination value of asset bases for the sector.

2016 Strategy

It is working. Growth selections in a slightly bullish/flat market can produce excellent returns.

AAPL: Apple, Inc.
Then the encryption issue is now over with the media and the stock has ran unexpectedly. We shall see a small window of iPhone 5Se sales at the upcoming earnings release. The catalyst this year is launching in India. Their population of 800 million is a vast new market.

SBUX: Starbucks, Inc.
They changed their loyalty program, launching it’s largest retail outlet in NYC, are initiating liquor sales in Canada, branded a new VISA CCard, and are opening an outlet in Italy. SBUX is moving ahead on all fronts.

NKE: Nike, Inc.
The Port of Los Angeles strike impacted some of Nike inventories. That has now passed. Recent earnings indicated an increase in both top and bottom line numbers. Earnings grew by 20% and revenue grew by 7%. These are good results. The catalyst is 3Q-16 ahead of the Summer Olympics.

NFLX: Netflix
The stock price is performing exactly as desired—a slow ascent moving forward. In the next month they will increase their domestic pricing around $1.00. Ahead are other increases totaling around an aggregate increase of $2.00/month. But, having said that Hulu, HBO, and Prime Video are still higher than the $9.99/month so NFLX is still a bargain. The price increase can deliver around $33 Million/month in NEW top line revenue. The stock price should begin to reflect this during 2Q.

SWHC: Smith and Wesson
Guns are STILL selling. Although background checks were down in March by around 6% and that initiated a selloff in SWHC although overall background checks were up over 36% Y/Y. We anticipate the selling of their hunting summer products to increase during 2Q ahead of the summer vacations/hunting.

NXPI: NXP Semiconductor N.V.
This firm makes semiconductors chips. Mobile pay chips. Automotive sensor chips. Wearable chips. These are global trends that NXPI is in the center with substantial market share. The stock is performing as expected with good gains since entry.

NVDA: Nvidia
These four segments of products will propel NVDA forward: Driveless cars, Gaming, Virtual Reality, and Smart TVs. All are explosive and gaining ground. This is a great longer term stock to own.

OLED: Universal Display Corporation
Their technology is a series of organic films between two conducters offering better performance, efficiency, a thinner/flexible form factor, cool to touch, very long life, better color, non-breakable and higher contrast: this is a disruptive technology with patents to protect its ownership. (Catalyst) This year Apple is releasing the iPhone 7 along with a smaller form factor. Apple is also entering India this year for the first time. A smaller iPhone, new, first time entry into India with and OLED screen can sell 50 million units the first year. OLED has already partnered with NEC, Philips and LG Chem in the lighting sector. Global manufacturing capacity is being built to go on-line 1Q17 for large screen TVs.

PANW: Palo Alto Networks (do not own yet)

Some mergers have happened and more will in the next two quarters. The best of breed is PANW as they offer an edge to edge solution covering both the CYBER prevention, both enterprise-based and cloud solutions for enterprises and cloud based infrastructure companies. PANW has the biggest shot at becoming the largest vendor in the cybersecurity space. We identified this firm in January ahead of the February selloff.

GILD: Gilead
Biotechs live by their pipeline of drugs COMING to market. GILDs total clinical 2’s and 3’s are lengthy enough to rank it #2 among its peers. The stock is performing as expected INSPITE of the pressure in this sector.

CELG: Celgene
CELGs total clinical 2’s and 3’s are lengthy enough to rank it #1 among its peers. The stock is performing as expected INSPITE of the pressure in this sector.

CQP: Cheniere Energy Partners
CQP is a master limited partnership under LNG (Cheniere) that actually produces the Liquefied NatGas for export. They shipped 3 cargoes in March and are slated to increase that run rate as efficiencies are built into the loading process.

Demand is increasing globally for LNG and CQP is our pick in this space.

GLNG: Golar Inc.
This company is one of the global transport companies for LNG. They have a large fleet of young ships, and a good orderbook of newbuilds. They also provide a solution for countries without facilities to produce LNG and then will deliver it as well. Each month new purchase orders are emerging for LNG buyers. Golar is best positioned to take advantage.

RYAAY: Ryanair
This is an Ireland-based low cost airline led by CEO Michael O’Leary (Irish enough for you?). They are the down and dirty price player in the European markets. This airline has increased their customer base by 25% in December, no debt, 1B$ cash in hand, P/E is less than 13, fuel is hedged at 95% of usage, pay a 4% dividend, and profit margin is over 24%. They serve 78 European locations, #1 market share, #1 lowest costs, and intend to reduce their fares this year by another 6%. They release earnings on 2 May. As the summer holiday season approaches the travel will increase in Europe.

Good luck and will report again next month.

– Jim Willis


Update from Last Week

By Nell Sloane – Capital Trading Group

The Fed minutes were released last week and there wasn’t much to take other than the usual Fed double speak that we have become accustomed to. What was interesting and its what we here have noted for some time, is that the FED is truly the “Global” central bank. Despite their dual congressional mandates, most should ask the FED the real question, exactly who do they work for? We know it’s a bit naïve to think that the FED can ignore China or global economics in general, considering all the interconnectedness via “globalization.”

However, we would like to hear it from them in an explanation worthy of the general American consumer. We find it hard to believe that the basic American will benefit from keeping interest rates low, so Chinese, European and Japanese banks and all their QE can export deflation. Yea great, so we get cheaper junk, but cheaper is a relative term isn’t it, a $20 million Manhattan apartment is cheap to some. On the other hand cheap cannot be sold to the unemployed, undereducated or overeducated indebted American consumer for that matter. This is where policy is failing, in the upper echelons of 33 Liberty and most notably obvious at the New York economic forum, this was quite obvious, yet does the commoner even matter anymore?

This is Keynesian totalitarian control at its finest, yet flying at the wheel in autopilot, does not provide the majority with pertinent investment information. Rather it provides a sort of conditioning that the world has been accustomed to since the early days of Greenspan and his plunge protection team. Yes Steve Liesman, it was as real back then as it is today, despite all your denial of such. It has simply morphed into the Bernanke “Put” and now the Yellen “Carry” it forward. The world has never seen such “global Central Bank coordination to this scale, but it truly represents an “all in” mantra that most have truly yet to realize.

Considering that this 1st quarter according to BofA just 19% of funds outperformed the SP500. This was the lowest rate since 1998, growth funds weren’t this bad since 1991. So what gives? Why can’t the pros outperform? Well its simple, the investment arena knows of the widespread Central Bank manipulation and continually invests with caution and disbelief. They know the prudent thing is to be mindful of the real catalyst behind asset prices, QE and NIRP. These are new constructs that do not fit well into traditional investment models, a negative interest rate? Come on, we all know fundamentally this makes ZERO sense, yet here we are.

Now considering all those investment funds and their fee structures, this will add to the investor’s woes and continue to strip out fees on top of under-performance, once again, the basic commoner loses in the long run. Isn’t this what all this trouble is about? Protecting the long run? As an investor you are taught to think long term, that it all smooths out in the long run. Yes it is a good old adage, but mindsets and constructs change and in the lightning quick investment world, people better begin to notice the real investors of today, the high speed, quick hitting algorithms that dominate the financial landscape. They aren’t a myth but a new dynamic that needs to be reckoned with. Perhaps this is why the majority funds are losing out. The system that is in place now doesn’t exactly reward the long term anymore, it rewards the quick hitting algorithmic schematics and investment managers better take notice.

Someone else that should take notice is Mr. Kuroda in Japan. There is a reason why the commoners there are purchasing home safes. They know fundamentals and tradition in Japan and negative rates have taken their toll. The investors and the people are going to walk with their Yen and park them in the mattress. There is not much Mr.K can do but watch idly by as the Yen spikes higher and higher and the pressure mounts on these central planners as the capital ratio’s plummet across the land. This type of negative feedback loop will be hard to stop. Sometimes you can’t have your cake and eat it too. Anyway here is a chart of the Yen and it has a long way to go:

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This move shouldn’t come as a surprise, the nice base formed down at 80, coupled with these insane policies means someone is about test the BOJ’s resolve. The upside doesn’t look like there is much resistance.

As for US 30yr yields the real money is voting that volatility and uncertainty is still abound and why not, EU and Japanese yields this far below US, come on this has to offers someone some enticement don’t’ you think? Without further adieu the chart:

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On another note, a correlation set up that we like to watch between the US bond future and the SP500 future has shown notably narrowing in the spread. We use this as an asset allocation guide post and potential asset flow indicator, here is the chart:

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Ok that is it, another week goes by and the continued guessing game will continue until either fundamentals take over or the investment community balks at all these central banks game playing.

– Nell Sloane


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