Mount Easemore

By Michael Ashton

In short, all of these notable central bankers (which is a little like saying “these notable hobos”) seemed to agree that everything is just fine

Thursday evening’s public discussion between Fed Chairman Janet Yellen and former chairmen Volcker, Greenspan, and Bernanke – these last three in order of gravitas and effectiveness and (perhaps not unrelatedly) reverse order of academic accomplishment – was a first. Never before, apparently, have four current and former Fed chairmen appeared on the same stage. This is less amazing than it seems: prior to Alan Greenspan it was the practice of the Federal Reserve to remain out of the limelight.

Honestly, we all probably would have been better off had they stayed there.

Still, it was a fascinating event. The International House, which hosted the event, called it the “Fabulous Four Fed chairs,” but since they did not serve contemporaneously a better image is probably Mount Rushmore…if Mount Rushmore had the faces by Nixon, Hoover, Carter, and Andrew Johnson instead of Washington, Lincoln, Teddy Roosevelt, and Thomas Jefferson.

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Credit Markets Point to Rising Default Rates

By Chris Ciovacco

Yield vs. Safety Of Principal

If an investor was given the opportunity to invest in two nearly identical bonds with one bond paying 2% per year and the other paying 6% per year, logic says most would choose to invest in the higher-yielding bond. In the real world, the bond paying 6% also comes with a higher risk of default. Therefore, when investors start to become more concerned about the economy and rising bond default rates, they tend to gravitate toward lower-yielding and safer bond ETFs, such as IEF, relative to higher yielding alternatives, such as JNK. The chart below shows the performance of JNK relative to IEF. The chart reflects a bias toward return of principal over yield.

credit markets, default rates

Some cracks have started to appear in the credit markets in 2016. From CNBC:

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TIPS and Gold – Cousins, Not Brothers

By Michael Ashton

Gold is closer to “right” here, and breakevens still have quite far to go

A longtime reader (and friend) today forwarded me a chart from a well-known technical analyst showing the recent correlation between TIPS (via the TIP ETF) and gold; the analyst also argued that the rising gold price may be boosting TIPS. I’ve replicated the chart he showed, more or less (source: Bloomberg).


Ordinarily, I would cite the analyst directly, but in this case since I’m essentially calling him out I thought it might be rude to do so! His mistake is a pretty common one, after all. And, in fact, I am going to use it to illustrate an important point about TIPS.

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Erasing Yesterday’s Selloff

By Doug Short

S&P 500 Snapshot: Erasing Yesterday’s Selloff

Our benchmark S&P 500 erased yesterday’s entire -1.01% slump, the worst selloff in 19 sessions, with today’s 1.05% gain. The index, however, is still down 0.30% for the week at the close of the mid-week session. The S&P 500 rallied at the open, gave back some of the gains with the 2 PM ET release of the FOMC’s March minutes but then recovered and resumed its pre-Fed trend. It closed the day fractionally off its 1.08% intraday high shortly before the final bell. The larger influence on today’s equity action was the surge in oil prices in light of the substantial decline in crude inventories. WTI was up over 5% for May futures.

The yield on the 10-year note closed at 1.76%, up three basis points from the previous close.

Here is a snapshot of past five sessions in the S&P 500.

S&P 500

Here is a daily chart of the index. Despite the drama of the FOMCE minutes and surge in crude futures, volume was light. The market’s lull may soon be broken as we shift to Q1 earnings next week.

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Don’t Buy the Greatest Fool Theory

By Jesse Felder

Don’t Buy The Greatest Fools’ Theory Of Investment Value

We are now entering earnings season once again. Pre-announcements have been the second-worst seen over the past decade.

This has analysts lowering estimates. In fact, they’ve been lowered so far quarterly earnings now look to fall all the way back to 2009 levels.

For the trailing twelve months earnings are now back to 2011 levels…

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Slowdown Continues; Lost Time Accumulates

By Jeffrey Snider of Alhambra

The US trade estimates for February suggest only that the global economy remains in this slowdown phase

US trade statistics for February improved in both exports and imports, but there are questions as to the reason for the reverse and whether it is actually meaningful. After abysmal performance in every segment and category in January, there was some give back in February including positive numbers in some places. That suggests that January’s trade activity might have been suppressed (financing issues?) and shifted somewhat into the following month (and then the 29th day may have added something further).

US imports from China, for example, rose 15.8% in February year-over-year after contracting for the four months prior. This variation, with sudden surges out of nowhere spread between very low or contracting months, has been the dominant feature of the past year and a half. Despite what seems like a very good number for February, the 6-month average remains barely positive at +1.1% because that +15.8% only replaces +10.8% from August (the last time there was a similar “good” month) in the moving average. The net result is the usual mainstream proclamations that the corner has been turned while Chinese industry is still stuck between capacity built for sustained +25% to +30% US import growth and the actual import level that remains at or even below zero if highly irregular in achieving it.

ABOOK Apr 2016 ExIm Imports China, us economy

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The Daily Shot

By Daily Shot


Let’s begin with a few developments in Japan.

1. Dollar-yen fell below 111 as the yen continues to strengthen.

Source: barchart

This is in spite of the BoJ suggesting that the central bank could push rates deeper into negative territory.

Source: MarketWatch

2. Here is the Nikkei 225 response to the yen strengthening,

Source: barchart

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Wage Inflation is Already Here

By Michael Ashton

Wage Growth Tracker – Wage Inflation is Already here

(**Administrative Note: Get your copy of my new book What’s Wrong with Money: The Biggest Bubble of All! Here is the Amazon link. readers: be sure to check out Bruce Stratton’s recent announcement, which also has a link to a special deal for SafeHaven readers).

I am often critical of central banks these days, and especially the Federal Reserve. But that doesn’t mean I think the entire institution is worthless. While quite often the staff at the Fed puts out papers that use convoluted and inscrutable mathematics to “prove” something that only works because the assumptions used are garbage, there are also occasionally good bits of work that come out. While it is uneven, I find that the Atlanta Fed’s “macroblog” often has good content, and occasionally has a terrific insight.

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The (non) Appeal of More Debt

By Jeffrey Snider of Alhambra

While continuing to tout an economic recovery that is being missed by far too many, the government and economists say one thing and then move toward the other. The unemployment rate claims one economic version that is talked about openly, but then there are “little things” that various official capacities seek to carry out suggesting they realize full well the discrepancy. The most obvious is the FOMC’s reluctance to do much more than talk about rate hikes.

In the US, there hasn’t been the same growing favor to revisit fiscal “stimulus” as elsewhere but that isn’t to say there isn’t any activity.

President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

On the surface, it seems as banking had gone from being too far forward during the housing bubble and lending skewed way too much toward NINJA to now the opposite in being far too strict. Governments, as always, want it both ways as if it could possibly divine the difference – to have quite robust lending but without any tomfoolery. To move the pendulum back, part of this new push is being undertaken by the Justice Department, as if the law bureau fits within what is clearly “clogged transmission” of monetary policy. The reason for that is certainly a relic from the housing bust, as the Obama Administration is using Justice as a platform to assure banks that there would be no legal repercussions if another housing bust came around again. It’s not quite a “get out of bubble free” card, but perhaps as close as there will ever be offered.

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What Can We Learn From Economically Sensitive ETFs?

By Chris Ciovacco

Cyclicals Have Lost Their Confident Look

We can learn a lot from the chart below, which shows the performance of economically-sensitive stocks relative to the S&P 500. After the S&P 500 bottomed on February 11, cyclicals (XLY) took the lead off the low as economic confidence started to improve. Notice the steep slope of the ratio off the recent low (see green text). The confident look has morphed into a more concerning look as the S&P 500 has continued to rise over the last month (orange text), which tells us to keep an open mind about a pullback in the stock market.

xly vs. spy, stock market indicator

A similar picture emerges when we examine the high beta stocks (SPHB) to S&P 500 ratio below.

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