History Says a Big Move is Coming for Stocks

By Chris Ciovacco

What Can We Learn From Last Three Years?

The chart of the NYSE Composite Stock Index below shows equities have been indecisive since the second half of 2013.

stock market: NYSE comp

The lack of sustained progress in either direction tells us the battle between the bulls and bears has been fairly evenly matched.

1993-1995 Bullish Example

A similar indecisive period took place in the mid-1990s.

Continue reading History Says a Big Move is Coming for Stocks

Gold Demand Falling

By Monetary Metals

We now calculate a fundamental on the gold-silver ratio over 81

The price of gold moved down about sixteen bucks, while that of silver dropped about three dimes. In other words, the dollar gained 0.3 milligrams of gold and 0.04 grams of silver.

We continue to read stories of the “loss of confidence in central banks.” We may not know the last detail of what that will look like—when it occurs one day. However, we will wager an ounce of fine gold against a soggy dollar bill that it will not look like today with the market bidding dollars higher.

Loss of confidence is just a meme used by gold bettors. What are they using to make their bets? Dollars. What are they trying to win? More of the dollars they say will soon go bidless.


One benefit to looking at the supply and demand fundamentals is that it tells us, more accurately than price action, what confidence in the central banks is really doing. So let’s take a look at that picture. But first, here’s the graph of the metals’ prices.

The Prices of Gold and Silver
letter may 15 prices, gold and silver

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio. The ratio was up this week.

Continue reading Gold Demand Falling

Ominous Portents

By Doug Noland

Credit Bubble Bulletin: The downshift of Credit and “hot money” flows helps explain the weakness in both corporate profits and the overall stock market

Friday headlines from Bloomberg: “Retail Sales Rise Most in a Year, Marking U.S. Consumer Comeback” and “Consumers Turn Out to Be U.S. Growth Lifeline After All.” Ironically, U.S. retail stocks (SPDR S&P Retail ETF) were slammed 4.3% this week, trading back to almost three-month lows. Poor earnings were the culprit. Macy’s sank 15% on Wednesday’s earnings disappointment. Kohl’s missed, along with Nordstrom and JC Penney.

It may be subtle, yet it’s turning pervasive. Support for the burst global Bubble thesis mounts by the week. With stated U.S. unemployment at 5.0% and consumer confidence at this point still in decent shape, spending has enjoyed somewhat of a tailwind. Yet the overall U.S. economy has begun to succumb to a general Credit slowdown. Despite the bounce in crude, the energy sector bust continues to gather momentum. The tech and biotech Bubbles have peaked. Cracks have quickly surfaced in fintech. There are as well indications that some overheated real estate markets across the country have cooled. Whether it is from China or Latin America or Europe, the rush of “hot money” into U.S. real estate and securities markets has slowed meaningfully.

The downshift of Credit and “hot money” flows helps explain the weakness in both corporate profits and the overall stock market. And with stock prices down year-on-year, Household Net Worth has essentially stagnated. Keep in mind that Net Worth inflated from $56.5 TN at year-end 2008 to a record $86.8 TN to close 2015. Over the past six years, Net Worth increased on average $4.76 TN annually. Such extraordinary inflation in household perceived wealth supported spending – which bolstered profits and underpinned asset price inflation and more spending.

Continue reading Ominous Portents

Strong Summation Index Promises Higher Highs

By Tom McCellan

Strong Summation Index Promises Higher Highs

Ratio-Adjusted McClellan Summation Index, stock market
May 13, 2016

The strong breadth numbers which produced a new all-time high for the A-D Line this year also produced a really high reading for the Ratio-Adjusted Summation Index (RASI), the highest since 2012.  And that action conveys to us the promise of higher price highs.

But it does not preclude a meaningful correction first, and we appear to be in the midst of that right now.  The RASI is falling, as it typically does during corrective periods.

The basic point is that after a correction like we saw earlier this year, with the Feb. 11, 2016 price bottom, the RASI shows a strong market by rising well up above the +500 level.  When the RASI can do that, we like to say that it signals that the new rally has demonstrated “escape velocity”, like a rocket trying to leave Earth’s gravity, and thus the price averages do not need to fall back down to test the prior low.  More importantly, while the RASI may top out and lead to a corrective period, we are promised a higher high after that correction.

Exactly when that higher high comes, and how much higher, are not points revealed by the RASI.  We have to turn to other tools to divine those. But the uptrend should be expected to continue until such time as there is a failure by the RASI to climb back up above the +500 level after dropping below it

Still Focused on Crude

By Tim Knight

Happy Friday the 13th, everyone.

I’m still almost completely focused on crude oil for the overall direction of the market. The good news, for me, is that at least it seems to have stalled out: 0513-cr, crude oil

If crude begins to weaken in any meaningful way, I think you’re going to see the high-yield ETF start to crumble again, which could be one of the great trades of 2016.

Continue reading Still Focused on Crude

The Most Crowded Trade

By Michael Ashton

Wise investors hate crowded trades. Good, high-alpha trades tend to be out-of-consensus and uncomfortable. Bad trades tend to be ones that everyone wants to talk about at the cocktail party. Think “Internet bubble.” That doesn’t mean that you can’t make money going along with a consensus trade, at least for a while; what it means is that exiting from a consensus trade can be very difficult if you wait too long, because you have a bunch of people wanting to go the same direction as you.

So what is the most crowded trade? In my mind, it has got to be the bet that inflation will remain low and stable for the foreseeable future.

This is a very crowded trade almost by default. If you want to be long momentum stocks and short value stocks, and no one else is doing it, then it can get crowded but this takes some time to happen. Other investors must elect to put on the factor risk the same way as you do.

But the inflation trade doesn’t work that way. When you are born, you are not born with equity risk. But you are born with inflation exposure. Virtually everyone has inflation risk naturally, unless they actively work to reduce their inflation exposure. So, from the day of your birth, you have a default bet on against inflation. If there is no inflation, you’ll do better than if there is inflation.

Continue reading The Most Crowded Trade

Sixth Circle of Hell

By Jeffrey Snider of Alhambra

Policy discussions are a mass of meaninglessness

In what can only be a sign of the US and global economy stuck in Dante’s sixth circle of hell, US lawmakers and political figures took the time to write the Federal Reserve chastising it for not being “more diverse.” They, of course, meant physical diversity because surely there is no need for them to suggest anything other than orthodoxy of thought.

U.S. lawmakers including Senator Elizabeth Warren and Democratic presidential candidate Bernie Sanders on Thursday sent a letter to Federal Reserve Chair Janet Yellen urging more diversity at the U.S. central bank.

Ten of the Fed’s 12 regional bank presidents are men; 11 of them are white, the letter noted.

“Given the critical linkage between monetary policy and the experiences of hardworking Americans, the importance of ensuring that such positions are filled by persons that reflect and represent the interests of our diverse country cannot be understated,” said the letter, signed by 116 members of Congress and 11 Senators.

If there truly is a “critical linkage between monetary policy and the experiences of hardworking Americans” it should start with demanding that the very next appointment to the Fed takes the form of someone, anyone who doesn’t think QE worked or will at any point in the future. The criteria should instead focus on actual explanations for “stimulus” having no effect anywhere on the global economic account, because at present there isn’t a single member of the organization who thinks differently on the matter. There is uniformity in the organization, alright, in meaningful terms it has nothing to do with appearance.

Having read through far too many FOMC meeting transcripts, I can assure you there is no debate or so very little that it amounts to different ways to congratulate each other. The policy discussions are a mass of meaninglessness that could be distilled into less than ten minutes of actual conversation so much is just repeated. Even during the worst of times there was no actual, significant distinction of thought patterns, only minor quibbling of “how much” or “how long”; never a single utterance of “maybe we are all wrong.”

Congress should be demanding that the Fed answer for why it did not heed its own warnings as I noted yesterday, why despite a great deal of internal uncertainty there was no investigation into the continued and increasingly troublesome monetary behavior of global banking. You might think, after all, an agency entrusted with the nation’s monetary affairs might expend all effort to all things monetary rather than just self-selected convenience. The next Fed appointee need never utter the words “global savings glut” for it is still dogmatic gospel inside the organization. There is no call for yet another member to ignore the eurodollar system.

It takes tremendous and obscene effort to so uniformly deny economic and financial reality for so long. Throw all the white Fed members out of office if it helps, so long as they are replaced by people who are effective, intellectually inquisitive, and most of all devoted to observable fact rather than orthodox economics. It should start with someone who is actually familiar with the economy rather than having run only regressions and statistics since their first day in college. The problem isn’t white so much as it is all the empty suits that are tailored from the same cloth.

Dante’ sixth circle of hell was reserved for the heretics. The next one appointed to “our” central bank will be the first and therefore most useful. Divine Comedy seems an appropriate title here.

Arizona Governor Ducey Vetoes Gold

By Monetary Metals

There is no cure for zero interest rates

In my testimony in support of the gold legal tender bill this year, I discussed failing pension funds. Retirees who count on their pension checks are being told that their monthly check will be reduced by up to 60%. This is devastating to them, obviously. What isn’t obvious is the cause. In the news coverage of this, the angry pensioners are blaming the union, the fund manager, and Wall Street in general.

None of them point the finger where it needs to be pointed. The Fed has centrally planned our interest rate downwards, ever downwards, for 35 years. Now a 10-year bond pays a mere 1.7 percent interest. Pension funds are designed to invest and earn a real return on the money collected from workers’ paychecks. This breaks down when the interest rate collapses.

There is no cure for zero interest rates (and negative in Europe and Japan). The central banks have created a monster, a Frankenstein that is now ravaging the economy and especially those who depend on fixed income.

It is no longer possible to earn a yield on paper money, without taking undue risk of precisely the sort that retirement funds should not take.

The only antidote to zero yield on paper is a positive yield on gold.

I explained to the legislators that this bill would not fix the problem in itself. It is a necessary but not sufficient step.

I made a different argument to Governor Ducey. Most legislation creates winners and losers. Those who will be hurt by a new law of course lobby against it, and may become enemies of the governor for signing it. This bill created no losers. No one would be hurt by recognizing gold as money. It would have been good for the state, adding jobs, and even tax revenue.

Unpersuaded by either the plight of the pensioners or the prospect of business growth in Arizona, Ducey vetoed gold. This is his second time to shoot down gold.

I have just two points to make about this. One, let’s stop perpetuating the myth that Republicans—or even pro-business Republicans as Ducey brands himself—are for gold. This is a big reason cited by Democrats for why they are against gold.

Two, Governor Ducey knew he could get away with this veto because few people care. While our monetary system drowns under zero interest and runaway debt, people are worried about the Kardashians and the gender of Bruce-now-Caitlyn Jenner.

You had better start letting your government know that you want to start removing the roadblocks and start moving towards the only honest money: gold. No one knows how much time you have, but it is not that long.

The Daily Shot

By SoberLook

We begin with the energy markets where crude oil futures rose sharply in response to the first US inventory draw in weeks. Brent was up over 8% in two days, rising above $47/bbl.

Source: @barchart

US gasoline futures rose 5% on Wednesday.

Source: @barchart

The inventory declines driving this rally took place at the Gulf Coast storage facilities. Oil in storage at Cushing, OK (the settlement hub for WTI futures), however, hit a new record.

Continue reading at TalkMarkets →

Navigating During a Period of Extreme Central Bank Intervension

By Chris Ciovacco

How is it possible the worst ten-day start in U.S. stock market history was followed by what Bloomberg termed the sharpest about face in nine decades? While markets never move based on any one factor, the primary answer is central banks. This article examines the following questions:

  1. Just how far have central banks gone in their recent attempt to keep asset prices elevated?
  2. Why are central banks so concerned about keeping things propped up?
  3. What are the shorter-term investment implications and the potential end game?
  4. How can we navigate this period of hyper central bank intervention?

Central Banks Are Buying Corporate Stocks And Bonds

In an April 20 article, we chronicled the Federal Reserve’s 26-day interest guidance shift that occurred between January 6 and February 1, 2016. The Fed’s extreme shift on rates fell into the rare category. Central banks across the globe are starting to tread into much more radical policy waters.

Do you think it would be concerning if the Fed announced they were going to start buying S&P 500 ETFs in an effort to “stimulate” the economy? That is exactly what is happening in Japan. From Bloomberg:

Continue reading Navigating During a Period of Extreme Central Bank Intervension