Covering the Squid

By Biiwii

I am covering the short on Goldman Sachs not because I don’t think it’s going lower (I do), but because I am all about balance and I was out of balance and today just felt like a time to take profit.  I am up nicely over the last week and now it is about getting back into equilibrium (and raising cash).  I don’t want to be heavy short.  I want cash, risk ‘off’ vehicles (like T bonds*), gold mining (now with partial hedging) and a ‘rest easy’ mindset as things play out.

GS had done a turn as a successful NFTRH+ long and then was highlighted as a bear position in the NFTRH+ notes segment of weekly reports.  The measurement on the chart is around 135.

* [edit] Long-term T bond position too good to pass up profit.  Fellow NFTRH+’er TLT is sold for a good profit and a month’s worth of dividend income to boot.  Still holding TIP for reasons illustrated by Michael Ashton, the ‘inflation guy’ in a post a while back.

gs weekly chart

Macro Changes

By Biiwii

As posted at NFTRH

The following is the opening segment of this week’s edition of Notes From the Rabbit Hole, NFTRH 381…

A picture is worth 4-plus years and thousands of words, and the picture below has a lot to say. I’ll say some words as well, since I have kept them bottled up for years in an effort to make sure we operate with discipline as opposed to gold bug style emotion.

The bear market and subsequent inflation-fueled credit bubble early last decade was when I first started paying close attention to macro markets (as opposed to stock trading, which I had done for a few years prior) and how they operate. Having seen well paid professionals lose half of my IRA in 2002, I took over all of our finances and never looked back. But I needed to understand how markets worked and that has been a challenging and rewarding endeavor, not to mention an ongoing learning experience.

I use talky charts like the one below because I need to be talked to, or coached. But I need this coaching to be 100% honest and accurate, not the ranting of some biased lunatic who would have me buy in to his world view. The chart below honestly shows exactly what gold did vs. the S&P 500 during the 2007-2009 US crisis, the Euro crisis and subsequently, the aftermath of unprecedented policy interference in financial markets.

Continue reading Macro Changes

The Adjustment Cycle

By Doug Noland

Credit Bubble Bulletin: The Adjustment Cycle

Crude has rallied about 5% off of last month’s low. The Brazilian real closed Friday at 3.90, having posted a decent rally from the January closing low of 4.16 to the dollar. Brazilian equities have bounced about 10%. This week saw Brazil’s currency rally 2.4%. In general, EM currencies and equities have somewhat stabilized, notably outperforming this week. Stocks posted gains in Brazil, Turkey and China. From Bloomberg: “Yuan in Longest Weekly Rally Since 2014 as China Raises Rhetoric.” The dollar index this week dropped 2.6%, which most would have expected to lend some market support.

If crude, commodities, EM, the strong dollar and the weak yuan were weighing on global market confidence, why is it that global financial stocks have of late taken such a disconcerting turn for the worse?

Continue reading The Adjustment Cycle

Fed’s Debt is Interest Free

By Steve Saville

The US government debt held by the Fed is interest free

There are things that monetary enthusiasts* such as me take for granted that are not widely understood. In an email discussion with a friend and fellow monetary enthusiast it occurred to me that the treatment of interest paid on the debt held by the Fed might be one of those things. That’s the reason for this short post.

The Fed currently has about 4.2 trillion dollars of debt securities on its balance sheet, about 2.5 trillion dollars of which are US Treasury securities. The interest that the Fed earns on all of its debt securities — less a relatively small amount to cover the Fed’s own operating expenses — gets paid into the General Account of the US Treasury. In other words, the interest that the US government pays on the Treasury bonds, notes and bills held by the Fed gets returned to the government. This effectively means that any US government debt held by the Fed is interest free.

An implication is that if government debt is held by the Fed, the interest rate on the debt is irrelevant. An interest rate of 20% is essentially no different to an interest rate of 1%, since whatever is paid by the government returns to the government.

Another implication is that when considering what-if interest-rate scenarios and the ability of the US government to meet its financial obligations under the different scenarios, the assumption should be made that the portion of the debt held by the Fed has an effective interest rate of zero. For example, let’s say that at some point in the distant future the average interest rate on the US government’s debt has risen to 10% and the Fed owns 80% of the debt. In this hypothetical — but not completely farfetched — situation, the effective average interest rate on the US government’s debt would only be 2%.

The bottom line is that it’s not so much the Fed’s interest-rate suppression that benefits the US government, it’s the fact that the interest-rate suppression is conducted via the large-scale accumulation of the government’s debt.

  • People who spend significant time every week tabulating/charting monetary statistics and poring over reports published by the US Federal Reserve and other central banks.

Apple’s Trek to the Ordinary

By Tim Knight

TK takes us back to the future with Apple (AAPL)

Over the past ten months, in steps almost too small to be noticed by the mass media, Apple has shed over two hundred billion dollars in value. That’s nearly one quarter of a trillion dollars in wealth which would have fed shareholder dreams of new houses, new boats, new jewelry, and mink coats, but……….it’s gone.

The thing is, I think the slide is far, far from over. I wrote a piece earlier this year (which got picked up by some of the mainstream press) predicting that Apple would fall to the mid-70s. We’re already heading into the low 90s, so my goofy prediction is seeming a little less insane.

0126-gloomy, apple (AAPL)

Of course, it wasn’t that long ago that buying Apple was a “no brainer” – indeed, a “bargain.” God knows it wasn’t hungry for media attention. This is the unedited home page of MarketWatch a while back:

0910-aapl

So what’s behind this fall? Lots of things (not the least of which is a wildly-overvalued market which, ultimately, will pound the Dow back into 4-digit land), but for Apple specifically, I think it’s simple: the magic is gone again.

Continue reading Apple’s Trek to the Ordinary

NFTRH 381 Out Now

By Biiwii

I began the day fighting a glitch with Gmail’s contacts merge function for 3 hours and then finished up NFTRH 381.  So no promo today.  I am cooked, especially considering 42 pages of market stuff.  NFTRH 381 is out now, it’s good and I’m too pooped to explain why.

nftrh 381

Fed Nonsense and Error Bars

By Michael Ashton

Wages follow inflation, rather than leading it

[Yesterday’s] news was the Employment number. I am not going to talk a lot about the number, since the January jobs number is one of those releases where the seasonal adjustments totally swamp the actual data, and so it has even wider-than-normal error bars. I will discuss error bars more in a moment, but first here is something I do want to point out about the Employment figure. Average Hourly Earnings are now clearly rising. The latest year-on-year number was 2.5%, well above consensus estimates, and last month’s release was revised to 2.7%. So now, the chart of wage growth looks like this.

ahe

Continue reading Fed Nonsense and Error Bars

Wall Street Feels the Bern

By Tim Knight

[biiwii comment: yeh, biiwii goes political.  What of it?]

Hillary Clinton, Wall’s Street’s lap dog (I was going to write “whore”, but I get slammed for such things, so I wisely decided on a different word), shows how forceful she has been dealing with the likes of Lloyd Blankfein and Jamie Dimon. She said………and I quote………..”Cut it out!”

If we have the horrid misfortune of this wretched person becoming our President, you can expect more fiery rhetoric aimed at Wall Street, like “Knock it off”, “Stop, you guys!” and “Thanks for the six-figure speaking fee!” What a disgusting, criminal, money-grubbing hypocrite. Here’s the clip from last night’s debate. The Moral Man is on the left. The Anti-Christ on the right.

IKN Does Lakeshore Gold/Tahoe Resources, Biiwii Does IKN

By Biiwii

Seriously, I do not even have the time today to read these posts, but since they revolve around one of my miners (Lakeshore Gold: LSG, LSG.TO) and the posts are by Otto @ Inca Kola News, well, that means I trust them to be good content.

Tahoe in talks to buy Lakeshore Gold

Three more things about IKN’s Tahoe/Lakeshore deal exclusive

All I know is that I had held LSG off and on for a couple of years as a favored junior gold miner, but when Otto gave it the seal of fundamental approval I became a better holder.  I have also noted him talking on and on about this company being acquired.  So, there ya go.  Anyway, here’s LSG’s chart liking the news.

lsg, lakeshore gold