A little overdue but today we heard from the Bank of Japan and possible proposals to take rates even further negative and the likelihood banks passing these levels on to end retail. The Nikkei obviously liked it rallying 1.2% on the day whilst the Yen weakened over 2%. Both the Shanghai and HSI had mixed responses as most continue to talk Japan. The Nikkei’s rally was a great effort considering Mitsubishi Motor stock fell over 13% again today (after a 20% decline Thursday) after they admitted cheating on fuel economy test results.

Auto’s were the focus in Europe too with falls from both Daimler and Volkswagen. Dealer were hoping fresh data releases would help them out but unfortunately the better than expected data proved insufficient and actually added to the stocks declines. With the exception of IBEX (+0.4%), rumoured to be supported by the additional capital injection via the ECB accepting more corporates paper, all core indices were down DAX -0.6%, CAC -0.3% and FTSE -1.1%.

The US saw futures trading lower even before cash opened. We saw the lows hit around mid-morning then managed an impressive rally especially given a core stock (Microsoft -7.17% on missed earnings). Data failed to offer support after the U.S. Manu PMI fell to 50.8 from 51.5 seen in March. However, ahead of the weekend the DOW did offer some encouraging signs closing up on the day and above the key psychological 18k level.

Gold had a very poor day today dropping over $20 to close $1233 (-1.6%), having seen an earlier low of $1227. Silver also saw a large turnaround dropping from the days high of $17.34 to a low seen of $1690. DXY again moving better closing 95.95 (+0.55%).

In the Bond market US curve steepened 1bp with 2/10 trading +107bp. US 10’s closed 1.89% with the German 10yr Bund closing 0.23% closing the spread at +166bp. Italy 10yr closed 1.47% (+1bp), Greece 8.21% (-26bp), Turkey 8.97% (-1bp), Portugal 3.26% (+8bp) and Gilt 10yr closed 1.60% (+1bp).

Tensions are starting to rise between Germany and the ECB because Draghi will not admit his negative interest rates are causing an economic meltdown. “We continue to expect them (interest rates) to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases.” Draghi is absolutely clueless and this experiment has no end game. The rest of the central banks are starting to see that Draghi is risking it all for he cannot admit failure. Inflation is a function of interest rates insofar as the rate of interest is compatible with the expected rate of inflation. This is fundamental. Punishing savers and wiping out pensions is not the way to create a future. This will not end very nicely.

All Draghi is doing is making the smart banks richer. They don’t have to pay anything, but they charge people money for having an account. Yet, if you want to take out a mortgage for 10 years, fully collateralized, they demand 5%. The smart bankers are making the widest spreads in history on a percentage basis between bid and ask. Is Draghi insane? Or is he simply looking at this from the perspective of his former employer — Goldman Sachs?

Herbert Clark Hoover (1874 – 1964) was the 31st President of the United States (1929–33). He was elected on Tuesday, November 6, 1928, and took office in 1929. He was blamed for 1929 although he was not its cause. Whoever wins this year’s Presidential election will be blamed for what the establishment has caused. People have asked if I support Trump. From a realistic perspective, if we were not facing what we face, I would prefer someone in there as a check and balance against the establishment. From a practical perspective, I would prefer Hillary for she deserves the legacy of what lies ahead.

Another example how everything runs in cycles, this year will be the 17-year cycle when the cicadas make their appearance. It will be noisy for about a month, then they mate and die.

401K is a Private Retirement Fund under US Law

QUESTION: Martin,

I’m still fairly young, so I don’t have a lot saved in my retirement accounts yet, but I’ve been maxing out my IRA for the last few years to get the tax deduction. I worry because I’ve heard you and others talk about congress wanting to steal our 401k and IRA accounts to “save” social security and/or state pension funds. Do you think that is likely to happen, and will we have time to liquidate our retirement accounts before they steal them? What should we watch out for that would indicate congress is getting ready to move on our accounts?

I am not a lawyer, but I imagine this would take an act of congress to accomplish. Do you think something like this would be a swift action where they just seize them outright, or a gradual change through a combination of penalties and incentives that get people to move their money from private retirement accounts to a government one? If you were going to nationalize everyone’s retirement accounts, how would you do it?

Thanks for all you do,

Dave

ANSWER: I am very cautious about what I say. I never speak in speculation or hype. The markets have taught me that humility is the best course of action. So I will state bluntly when I know something to be a FACT. I try to be responsible and this is why I never comment on anyone else’s forecasts or even care to know what they say. I will respond to emails but will omit names. I am not here to be some politician who says the other guy is a piece of shit. I am not endorsing what anyone else has said about 401Ks.

So on this subject, it is a VERY SERIOUS ISSUE. I have reported on “lobbying” efforts that have been taking place behind the curtain from my direct sources. There are states looking for Congress to create some sort of mandatory contribution that would take from people’s private savings to bail out state workers. Nothing has been decided as of yet. However, I would expect this to become more forceful next year when Social Security goes bust.

We will be doing a special written report on this topic with suggestions that will not be provided on the blog. We are investigating alternatives right now. Far too many people read this blog and we do not require registration to enter the site. So this is economic freedom for all, but the price of that is opponents reading the blog as well. So it is best to make such recommendations off the blog so the whole world does not catch wind of this possible solution, which should be for clients only.

We will be providing the links to sign up and for the hotel rooms hopefully by the end of the day. We have a special price for the hotel which includes free transportation to Disney World for those bringing their families. Seating will be limited.

Hang Seng decided to join the Nikkei’s performance overnight with both indices returning a 2% gain for the day. Sadly, the Shanghai was unable to join the fun with that market eventually closing down -0.7%. Actually, that was a result as earlier in the day it had been down 4%. A large shortage of liquidity was a possible reason dealers provided for the equity weakness and we did see the PBOC do a seven-day reverse repurchase agreement for 250 bln Yuan during the day. Late in the US day all core Asian indices are trading roughly 1% lower.

Europe opened small positive as we awaited for the next instalment from the ECB. No change in rates (Depo -0.4% and Refi at 0%) or QE size as expected and so we waited for the press conference, followed by the release of the credit bond details. The Govy Bond Markets did not like it (see below) and the equity markets were not that keen either. Closing with a mixed response we were influenced late in the European day as the weakness seen in the US market.

Having seen a strong performance in the DOW yesterday and closing at levels not seen in nearly a year, it really was not a surprise we see a retracement today. However, as we mentioned in last Fridays Market Talk we are nudging up against Weekly Reversals and so resistance is expected at the end of this week and at these levels. The DOW closes tonight down 113 points (-0.6%) and so a little profit-taking is to be expected. Weekly Jobless Claims released at 247k against a forecast of 263k and was the lowest since 1973. Also, Phili Fed data released -1.6 versus a consensus of 8.9.

It took until the US afternoon session before we saw the USD start a recovery of recent losses. This evening we are watching the DXY trade at 94.60 with gains made against both the Euro and GBP (-0.9%). Gold also saw a change in direction this afternoon after running out of steam above the $1270 level.

Early in the day we saw weakness in the fixed-income markets from Asia through to the US. Obviously, Europe saw some wild swings with the peripherals no exception, whilst the US 10yr remained relatively calm eventually closing at 1.86%. In Europe, flowing the ECB action, Bunds traded down (price, up in yield) 8.5bp to close at 0.24%. This closes the US/Bund spread this evening at 162bp (6.5bp tighter). Italy 10yr close 1.46% (+7bp), Greece 8.47% (-58bp), Turkey 8.98% (+5bp), Portugal 3.18% (+6bp) and UK Gilt 10yr closes 1.59% (+11bp).

COMMENT: Marty; Stunning! Silver bounced off your number by 3 cents. It was 30 cents in gold. No wonder the government wanted your code.

REPLY: The numbers are the numbers and the timing is the timing. Yes, this was the target week. Be careful. We have two weekly Directional Changes here so expect this to be very choppy.

So-called helicopter money involves using a central bank’s power to create money to directly inject funds either into government coffers or straight into the pockets of the public. Yet, nothing has been working and the ECB is now stating that they will continue to buy in debt, but they will also buy corporate debt. On the other side of the table lies the banks. The banks are advising the ECB what to buy so they can clean out the crap from their books. This is by no means in any textbook on how to manage the economy for dummies. The ECB is just shooting in the dark, hoping this will one day have some effect.

While in theory this should be creating money that would be inflationary, no such impact would take place if all they are doing is buying in debt from banks who are desperate to get their balance sheets in order. This money is just monetizing money already lost. Hence, they are not really creating helicopter money until the real money supply increases and passes through the banks into the hands of the public, which has NOT been taking place.

Central banks rely WAY TOO MUCH on commercial/investment banks who both front-run them in the markets of today. The ECB says they will buy corporates and the spread comes in 30bp instantly because the banks have a buyer who has announced they will be a buyer. Those in government are really clueless. When Gordon Brown announced in advance that he would see the British gold reserves, the price fell, the market bought the gold and then it rallied. Those in government have absolutely no idea how markets function.

This is the same with the claimed market “manipulations” in currency and commodities. The banks knew where the stops were and knew when orders would come in. They ALWAYS hunted for stops and moved spread according to the activity of the players. When you just trade, that is one thing. When you have inside info as to where those stops are that become manipulation.

The banks are front-running the ECB today and there is nothing wrong with that. If I said I was going to punch you in the face, would you just stand there and wait? Those in government are fools. Anyone would anticipate and move the market when you announce you will be buying billions.

There is talk that Obama may go to Britain to express support for Cameron’s position on Britain remaining in the EU, even though it will surrender its sovereignty to do so. The USA would NEVER agree to such terms itself. How could anyone tell Britain to surrender its very soul to the insanity of Brussels, as if they have done such a wonderful job? The EU is being eaten alive from the inside and now 66% of Germans are against Merkel. Yet, Britain should surrender everything to this madness? It has been 43 years since Britain entered the EU. It did quite well before 1973. If Britain remains in the EU, well, these people have already passed laws against short-selling. They will destroy London as a financial hub and reduce it to a third world status.

We will be issuing a special report on Britain given the serious of what is at stake.

Since the issue is sovereignty being surrendered, the queen should rightfully say yes or no as well.