Want a Sure Bet?

Well here it is; it is a sure bet that a lot of companies are saving their machine tool and high end manufacturing equipment purchases until year end, for tax management purposes.  This graph (from EDA) does not tell me this.  My many years in the industry do.  It’s a Q4 tradition, which I participated in on a few occasions myself.

Indeed, my contact (servicing the Semi industry) is planning to add a couple pieces.  Whether or not this bump will coincide with market strength is another topic, but one might want to watch the best of the machine tool and high end manufacturing equipment sectors.  Much hyped though it is, that would include the the 3D Printing guys too.

machinetools

Stocks Not Over Valued*

* [edit] This is a 5 year relative view.  Longer-term, the S&P 500 remains over valued per its historical corporate profits metrics.

Pretend with me that we are in Wonderland, where policy inputs can keep everything on the macro in control forever and allow conventional mainstream financial industry people to twittle their P/E ratios and growth metrics for individual stocks and sectors as if it is a normal recovery of a normal economy.  In this scenario the S&P 500 is no longer over valued, at least by the corporate profits data compiled by this SlopeCharts graph.

It’s the same one we used to illustrate the over valuation that even a buttoned down Wall Street analyst could see (or should have seen) in the run up to the recent correction.  Well, it’s fixed now.  Again, we’re talking about what the financial services industry will want to promote to its clients, not the macro.

sp500

Why is Gold Mining Such a Crappy Business?

Guest Post by Steve Saville

That gold mining has generally been a crappy long-term investment for almost five decades is evidenced by the following chart. The chart, much of the data for which were provided by Nick Laird of www.sharelynx.com, shows the ratio of the Barrons Gold Mining Index (BGMI) and the US$ gold price from 1920 through to the present*. More specifically, it shows that, relative to gold bullion, the group of gold-mining stocks represented by the BGMI has been in a secular decline since 1968 and is now close to its lowest level since 1948. The question is: Why have gold mining stocks performed so poorly for so long relative to the metal?

saville1

Continue reading

NFTRH 313 Out Now

313screenAfter weeks of bloating up to 35-40 pages in gauging what turned out to be a fully expected market crack, NFTRH slims back down to 26 concise and clear pages dealing with what we have now.  We look at 1998 to 2002, 2007-2008 and 2011 for reference and perspective on previous market tops; secular, cyclical and interim, respectively.

We also keep the relevant indicators in rotation and carve out some favored near to intermediate term plans for the US stock market.  Global markets are a mess and commodities are caught in a deflationary whirlpool circling around the drain.

Then there are the precious metals.  Most gold bugs fetishize inflation and most gold bugs are wrong.

A very enjoyable report to write and speaking personally, it was rewarding as well because it helped me clarify my own views on asset markets.

NFTRH 313 out now.  Check out a subscription.  You’ll be glad you did.

Negative Feedback

Here is some feedback a republished post of mine (Market Summary; Saturday Morning Cartoons) got at a leading gold website from a reader.

“The other support has been the very real economic recovery in the US…”

This is so completely wrong, its scary.

Anyone who makes this claim has absolutely no credibility, and no one should listen to them, and definitely don’t base any investment decisions on their advice or analysis.

The reader cherry picked something positive I wrote about the US economy and left out mitigating information that was right in the same segment…

Deflationary and economic growth troubles across the globe are blamed for the recent strength in the US dollar and to a degree that holds merit.  The other support has been the very real economic recovery in the US (beginning with the Semiconductor sector, which NFTRH 312 looked into in depth last weekend) born of very unreal (i.e. unnatural and unsustainable) policy inputs (ref. the chart in this post showing the S&P 500 tended all the way by supportive policy).

Naturally, it stands to reason that if dollar compromising policy is promoted to keep assets aloft, then a strong dollar is unwelcome because not only would it begin to eat away at exporting sectors like manufacturing, but it would also make assets less expensive.  But that should be a good thing, no?  Declining prices in things like oil, food and services?  Not on the one-way street that is our current system of Inflation onDemand.

By the way, I received an email yesterday from a biiwii reader who has grown tired of the gold websites and “the same old arguments”.  He also notes his boots on the ground information that is very similar to mine with respect to the booming Semiconductor industry.  I am in Massachusetts and he is in California.  These are the hotbeds of the Semiconductor equipment sector.

He notes that his scrap metal vendor (hey, those guys are right there in real time in the manufacturing cycle) “has never seen the kind of rapid growth that he is seeing now” and that rents, traffic and commercial property are booming and that the scrap vendor’s customers (major Semi and machining companies) advise him to keep the bins coming for the next 4 years.  He also notes that this is exactly the kind of talk he heard in 2006, as the last cycle began the process of topping out.

But my point with this post is not to cry over some negative feedback.  It is to sort of shake my head publicly about how some people refuse to open their eyes while digging in to a failed view point no matter how long its failure persists.

I understand that this commenter could be from a depressed region not seeing the boom as opposed to putting his fingers in his ears and going “la la la la la…” every time someone puts forth contrary information to his world view, but here are some facts…

  1. We noted in real time that the Semiconductor equipment industry was ramping up nearly 2 years ago and that its implication would be coming strength in US manufacturing.
  2. A long streak of uninterrupted manufacturing strength followed.
  3. Improvement in employment data followed that.
  4. Every step of the way we have noted that the economy is strong, the stock market was not over valued (until recently) and that it was all built on unsustainable fundamentals (i.e. policy inputs)

I mean, right there in the very same paragraph that the commenter cherry picked was the mitigating discussion about lack of sustainability.  I truly believe that something about human nature makes many people wholly unequipped to deal with financial markets in a rational manner.

The Downside of Do Whatever it Takes

Guest Post by Doug Noland

“Anyone who isn’t really concerned doesn’t understand the situation.”

Goldman Sachs CEO Lloyd Blankfein provided a market-calming interview late Thursday afternoon with CNBC’s Carl Quintanilla. Not surprisingly, I suppose, Blankfein praised the Fed for being “wise and courageous.” He also stated that extreme market views were wrong. Considering the global backdrop, I actually see a curious lack of extreme views (at least from the bear side). Instead, we’re at the stage of the cycle where even “bearish” pundits go out of their way to distance themselves from “the world is ending” prognosis. I guess I would be considered an extremist, though I don’t see the world ending anytime soon. But this week did offer further evidence that history’s greatest financial Bubble is at significant risk.

Continue reading

Yellen Greatly Concerned About Inequality

So am I and so are most decent people.  So bravo Janet, you are a decent person.  You are greatly concerned about inequality in this richest nation on earth.

Yellen says she’s ‘greatly’ concerned by rising inequality

Now let’s work the details…

“It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority,” Yellen said in a speech to a conference on inequality sponsored by the Boston Fed.

It is also no secret that manipulating short-term interest rates toward zero kills regular peoples’ ability to save.  It creates and furthers a wealthy investor class directly at the expense of the public, who have traditionally been savers.

Continue reading

Market Summary; Saturday Morning Cartoons

Allow me to share a simple sketch I drew that was part of an NFTRH interim update for subscribers last night.  The black line is where we have been.  The blue line is a projection of what a typical correction (whether a healthy interim one or a bear market kick off) might look like.

marketgraph

We used real charts of the Dow, S&P 500 and Nasdaq 100 to gauge the entry into the current correction and now the resistance points to the expected bounce off of the US market’s first healthy sentiment reset in quite some time.  But our cartoon above gives you the favored plan on how the correction could play out.

Continue reading