Category Archives: Financial Markets

May Payrolls & Some Thoughts

With all this talk of Hindenburg Omens, market crashes and QE taper, you just knew that ‘jobs’ would come in okay.  US Generates 175,000 Jobs in May.

payrolls

Source: Labor Department via MarketWatch.com

Gold immediately gets hammered on the ‘news’, which really should not be news.  ‘Jobs’ is on a little trend and came in just about right.

gold

The problem for gold is and has been the massive world wide obsession with US QE policy.  Greenspan is in the media talking about how the Fed should begin tapering now.

I happen to agree.  Taper the damned thing already; job well done Ben!  Now you can let the banks ‘carry’ the load the rest of the way.  It’s a real and sustainable economy and stock bull market after all, isn’t it?  Sarcasm aside and strong potential for a summer correction aside, the makings of a bullish (and inflationary) phase are in place.  The banks (‘carry’ beneficiaries) may even be an investment target sooner rather than later.

Gold is going to have to go it on its own, less the QE hype, which has obviously not helped the monetary metal/value retainer thus far.  Gold is just a currency alternative in a world full of screwed up currencies.

Yet the USD is relatively strong (and still unbroken despite yesterday’s hard drop to support).  As for the gold stock sector, I am constructive there but the pumpers of this sector’s tires have got to understand that QE and the obsession with inflation are hurtful, not helpful in the big picture.  Economic contraction is the counter cyclical gold sector’s key.  Right now, policy makers are not letting the contraction take hold.  A void between ‘QE taper’ and when the would-be ‘carry’ scenario comes about might be the time for the gold sector’s fundamentals to actually get a boost.

Today’s okay ‘jobs’ report puts a short-term cap on things in the precious metals but it is due to be a long, hot summer.  One ‘jobs’ report does not change anything really.  The economy is tepid at best despite the systematic bond purchases.  The stock market is due for relief and the precious metals, which have become nicely inverse, are getting hit.

The Fed needs to taper and many inflation boosters seem to think they will not dare do so.  I have doubts about that.  I think they will if the ‘carry trade’ scenario is at all near being on base.  Interesting stuff.

[edit]  A long time reader notes that I was heavily on the ‘QE and gold relationship and that what I wrote above is not consistent with that.  i.e., I am trying to look smart or have it both ways.  But the reality is that the money supply broke up and out and yet gold got clobbered.  The dynamic changed and so did the analysis, which was proved wrong.  The analysis is not bigger than the market.  The market is bigger than the analysis and indeed directs it.  If readers want a booster of one ideology or another, said readers should look elsewhere.

Carry Trade Scenario Updated

I am leaning toward any bullish (read: inflationary) effects of a T bond ‘carry’ by the big banks being pushed out to end of summer or the fall; except possibly for the banks themselves, which should be watched (along with interest rates) in an ongoing way to keep track of whether or not this scenario remains on course.

bkx.spx

BKX-SPX ratio w/ 10 year yield, daily

For now the BKX-SPX ratio is testing the breakout.  If this fails and we get a T bond rally (there is a case for this given over sold technicals and the prospect for a bearish stock market this summer) then the Carry would be delayed if not eliminated.

For now, BKX-SPX is still broken out and it will be very important to watch the Piggies going forward.

Guest Market Analysis, News & Commentary

biiwii.com

(e) = external link

Deflation Isn’t an Export; Crazy Talk is  Michael Ashton  6.4.13
Out on a Limb  James Howard Kunstler  6.4.13
Sell the Dollar?  Case for Hard Currencies  Axel Merk  6.4.13
Explaining the Gold Bull Market  Steve Saville  6.4.13 (pdf)
Annual Report 2012  Federal Reserve Bank of St. Louis  6.4.13 (e)
Wounded Heart  Bill Gross  6.4.13 (e)
Gameplan for a Completely Corrupted Market  Cody Willard  6.4.13 (e)
Japan’s Easy Money Tsunami  David Howden  6.4.13 (e)
March Housing Numbers  B.I.G.  6.4.13 (e)

More…

Pierced Bubbles

Here are two of them; Japan and Junk.

dxj.hyg

DXJ & HYG daily

And I distinctly remember using emerging market bonds as an indicator to bullish things a year ago.  Now?  Not so much.  This market continues to look very opposite to a year ago.

tei

TEI daily

A ‘Carry Trade’ Returns?

As I was charting long-term Treasury yields in NFTRH 241, I ran a chart of the ratio between the banks and the S&P 500 and what do you know?  The ratio had broken out to the upside right along with long-term interest rates.  ‘Hmmm…’ said I, ‘maybe this is relevant to the analysis.’  ;-)

Excerpted from NFTRH 241:

bkx.spx.tnx

BKX-SPX ratio w/ 10 year yield, weekly

“The Bank Index ratio to the S&P 500 (BKX-SPX) is breaking out to the upside in defiance of a bear case in stocks.  The BKX has modestly led the SPX since 2011.  We have noted that this is a necessary bullish factor for the financialized economy, which is quite different from a real or organic economy.

Remember the ‘carry trade’ of the Greenspan era?  That would be the same carry trade that helped bloat the banking sector, putting its big, fat too big to fail hands in just about every cookie jar in America.
 
The banks love rising long-term yields because they basically receive free money from the Federal Reserve as the first users of newly created funds on the short end, which is being held down by ZIRP.  They then roll these funds into loan products, mark them up per long-term yields and voila, instant profits courtesy of a ‘borrow short, lend long’ gimmick.
 
Let’s see how this develops, but we should note that Bernanke has not created anything new under the sun.  The great carry trade of last decade was just another unnatural systemic stress that led to the 2008 resolution.
 
Do you suppose that Fed officials are ready to let the banks do the heavy lifting, now with the incentive (carry) to get the funds ‘out there’ to the public?  This condition came hand in hand with an inflation problem last decade and now that everybody seems to know there is no inflation, would not a new phase of rising inflation expectations go well right about now?”

Bottom Line

Talk of QE tapering may not only not mean the end of any prospects for inflation, but may actually be part of the kickoff to a new phase of increasing inflation expectations as the banks may now have incentive to get the newly printed money ‘out there’.  The banks have been liquified through ZIRP and the prospect of a profitable ‘carry trade’ dynamic becoming engaged going forward should be factored into investors’ outlooks across a broad spectrum of assets and markets.

With precious metals and commodities so far down in the dumps and a certain NYU rock star economics professor out front talking down gold and talking up a dis-inflationary backdrop, might we not at least consider the contrarian possibilities of an inflationary phase to come?

If you’d like an affordable weekly guide (with interim updates as needed) that is always on the job for its clients’ best interests, I’d be more than happy to welcome you to the ‘Notes From the Rabbit Hole‘ Premium subscriber base.

Biiwii.com, NFTRH, Twitter, Free eLetter

NFTRH 241 Out Now

Aside from various indicators that seem to be working better now, a new and potentially critical ripple entered the analysis this week as I was analyzing long-term T bond yields.  Hint:  Remember the inflationary Greenspan era?  Remember the ‘no-lose’ carry trade for the banks?

I am sure this theme will start getting fleshed out here on the blog going forward.  But for now, it is making its appearance in NFTRH along with some conclusions.  It is never too soon to start looking around the next bend.

nftrh241

I Helped Wreck America, Now I am Here to Tout its Virtues…

Here’s the JPM guy that is at the heart of the problem cheer leading for Team America.

The United States is Still in an Extraordinarily Good Position

  • The United States has the world’s strongest military, and this will be the case for decades. We also are fortunate to be at peace with our neighbors and to have the protection of two great oceans.  No Jamie, our neighbors are fortunate that we are at peace with them.
  • The U.S. has among the world’s best universities and hospitals. √
  • The U.S. has a reliable rule of law and low corruption. Ha ha ha… did you actually write that last part Jamie?
  • The people of the United States have a great work ethic and “can do” attitude.  Despite the roadblocks people of your ilk have erected.
  • Americans are among the most entrepreneurial and innovative people in the world – from those who work on the factory floors to the geniuses like Steve Jobs. Improving “things” and increasing productivity is an American pastime. And America still fosters an entrepreneurial culture where risk taking is allowed – accepting that it can result in success or failure.  …and JPM sucks off of it like another Vampire Squid.
  • The United States is home to many of the best businesses on the planet – from small and middle sized to large global multinationals.  Yes, I know.  So what are you doing blabbing about it?  What does it have to do with you?
  • The United States also has the widest, deepest, most transparent and best financial markets in the world. And I’m not talking about just Wall Street and banks – I include the whole mosaic: venture capital, private equity, asset managers, individual and corporate investors, and the public and private capital markets. Our financial markets have been an essential part of the great American business machine.  Go eff yourself.

Now here is some real news courtesy of MarketWatch.  One wonders what this guy is up to.  He wouldn’t have the nerve to run for office, would he?  We have not gone that far off course morally, have we?

J.P. Morgan spending on lobbying dwarfs rivals

jpmlobby

“Overall, J.P. Morgan spent more than $8 million on lobbying in 2012.

Compare that to spending in the same year to its rivals:

Citigroup spent $5.52 million
Goldman Sachs spent $3.54 million
Morgan Stanley spent $3.35 million
Bank of America spent $2.95 million”