Still Easy After All These Years

By Kevin Muir

The other day I was listening to some hedge fund manager or market strategist making the bearish argument for risk assets. He went through his points and then finished with what he deemed as the final knife to the heart of the bulls – “to top it all off, you are now getting paid 2% in cash. We haven’t seen that level in years.”

Continue reading Still Easy After All These Years

Developed Country Demographics are Inflationary, not Deflationary

By Michael Ashton

I’m a relatively simple guy. I like simple models. I get suspicious with models that seem overly complicated. In my experience, the more components you add to a model the more likely it is that one of them ceases having explanatory power and messes up your model’s value. In this it is like (since tonight is Major League Baseball’s All-Star Game I thought I’d use a baseball analogy) bringing in relievers to a game. Every reliever you bring in has some chance that he just doesn’t have it tonight, so therefore you ought to bring in as few relievers as you can.

Baseball managers don’t seem to believe this, so they bring in as many relievers as they can. Similarly, economists don’t seem to believe the rule of parsimony. The more complexity in the model, the better (at least, for the economist’s job security).

Let’s talk about demographics and inflation.

Continue reading Developed Country Demographics are Inflationary, not Deflationary

No Currency Manipulation By China’s Government, Yet

By Steve Saville

[This is a brief excerpt from a commentary posted at TSI last week]

In the 2nd July Weekly Update we discussed the risk posed by the recent weakening of China’s currency (the Yuan), and commented: “We won’t know for sure until China’s central bank publishes its international currency reserve figure for June, but the recent weakening of the Yuan does not appear to be the result of a deliberate move by China’s government.” We now know for sure — the Yuan’s pronounced weakness during the month of June was NOT the result of government manipulation. In fact, it can be more aptly described as the result of an absence of manipulation.

We know that this is so because of what happened to China’s currency reserves in June. As indicated by the final column on the following chart, almost nothing happened (there was no significant change). This means that China’s government made no attempt to either strengthen or weaken its currency last month.

Continue reading No Currency Manipulation By China’s Government, Yet

If It Pleases The Court, Jerome Powell Would Rather Congress Didn’t Ask Him About The Trade War

By Heisenberg Report

Jerome Powell is on Capitol Hill on Tuesday (it’s Humphrey Hawkins week, in case you forgot),  and his testimony will be scrutinized heavily in light of the trade frictions and the prospect that a trade-related downturn in global growth could spill over and put the brakes on U.S. economic momentum.

Last week, in an interview with American Public Media’s “Marketplace” program, Powell was non-committal on the trade issue, but his comments in Sintra as well as the June Fed minutes reflect some consternation about the balance of risks.

Generally speaking, his assessment of the economy will be characteristically upbeat, but as BofAML notes, “the more interesting take may come from his assessment on the risk to the economy, especially around tariffs.”

Continue reading If It Pleases The Court, Jerome Powell Would Rather Congress Didn’t Ask Him About The Trade War


By Evan Hurst

We feel like we say this a lot during these dark days of the Trump era, but WHAT IN THE HOLY MOTHERFUCKING FUCK DID WE JUST WATCH? And how in the hell can anyone who claims to give a shit about this country be OK with the public tongue-bath Donald Trump just gave Vladimir Putin on live TV?

The reviews are starting to roll in:


Trade War Hysteria: Where’s The Beef?

By Anthony B. Sanders

VIX, TYVIX, Baltic Dry, Credit Spreads Calm

The news is constantly abuzz with scary “Trade War!” headlines. But it reminds me of Wendy’s hamburger ads from the early 1980s: “Where’s the beef?”

Let’s look at the VIX (S&P 500 volatility index).  It is showing no signs of stress.


How about the 10-year Treasury Note volatility index (TYVIX)? Nada.

Continue reading Trade War Hysteria: Where’s The Beef?

McEwen Mining (MUX) and the Magic of Accountancy

By Otto Rock

Ladies and gentlemen, boys and girls, sit back, relax and get ready for a super magic trick.

This is from the McEwen Mining (MUX) 2017 annual financials, as posted on SEDAR on February 22nd this year. It explains the financial performance of the San José Mine, which is owned by the Argentina registered mining company Minera Santa Cruz (MSC). As you may be aware, MSC is a company owned 51% by Hochschild (HOC.L) and 49% by MUX, a JV operated by HOC:

Above the red line is the 100% entity that is MSC, which as you can see booked a $4.75m loss for the year in 2017. Below the line is the 49% of the company attributable to MUX, which means MSC returned a loss for Rob McEwen’s precious metals mining company of $2.328m. That, along with benefits on amortization from MSC, meant that MUX could claim a U$11.916m tax credit from MSC for its final tax payments. In fact MUX claimed over $15.3m in tax credits last year, that U$11.9m being the lion’s share.

Continue reading McEwen Mining (MUX) and the Magic of Accountancy

How to Totally Misinterpret Deflationary Impulses

By Jeffrey Snider

Sometimes it pays to wait. Better to be sure than premature. In January 2014, the journal Central Banking handed out its inaugural awards. Among the recipients was Paul Volcker who was bestowed a lifetime achievement prize. The initial Governor of the Year honorific, something like a central banker MVP, went to Mario Draghi of the ECB. He graciously accepted in the glow of universal acclaim for the “unflappable conviction” of his July 2012 promise and the broad, cautious optimism it had provoked.

On behalf of the Governing Council, executive board and staff of the ECB, I’m honoured to be named governor of the year by Central Banking. Thanks to both the ECB’s actions and hard work by governments in implementing fiscal consolidation and structural reforms, conditions in financial markets have gradually eased since July 2012.

Just five months later the ECB was doing NIRP and a little less than a year beyond that the start of a QE program. This has as already expanded once, and as of the middle of 2018 it is still going.

Continue reading How to Totally Misinterpret Deflationary Impulses

Records Are Made to Be Broken

By Charlie Bilello

Viewing the New York City skyline from afar last month, I noticed something strange. I could no longer name a number of the tallest buildings.

The Empire State Building, the Chrysler Building, and the new World Trade Center were readily identifiable. But a new crop of skyscrapers was emerging from the shadows, seemingly overnight.

After doing some research, I learned that this was not just my imagination…

Within the next few years, a list of the tallest buildings in New York will look remarkably different. Of the top 20 tallest today, at least 13 will have been replaced. Explosive growth by any measure that few would have predicted back in the financial/real estate crisis that hit New York so hard just a decade ago.

Continue reading Records Are Made to Be Broken

Inversion Alert! Treasury Slope Plummeting Towards 0 BPS

By Anthony B. Sanders

Corporate Debt To GDP May Be At Credit Cycle High

One of the effects of The Federal Reserve’s zero interest policy (ZIRP) was the massive expansion of both consumer and corporate debt. The US may be at a credit cycle peak (Corporate Debt-to-GDP).

corporate debt to gdp 2

Which brings me to the UST 10Y-2Y slope, plummeting towards inversion (now at 24.5 BPS). The last time we saw the 10Y-2Y slope so flat was in early August 2007, 4 months before The Great Recession began.

Continue reading Inversion Alert! Treasury Slope Plummeting Towards 0 BPS

Freight Volume Does Not Support Imminent Recession Theory

By Chris Ciovacco


The Freight Transportation Services Index, calculated by the United States Department of Transportation, peaked in January 2005 or more than two years before the S&P 500’s major top in October 2007.   After the October 2007 peak in stocks, the  Freight Transportation Services Index dropped sharply as shown in the chart below.


A Look at SOMA Changes Influence on SPX Since Quantitative Tightening Began

By Rob Hanna

The chart below is from this weekend’s QE subscriber letter. It is one I have updated frequently the last few months. It looks at compound performance of two opposing strategies. The blue line represents a strategy that is invested in the market during weeks that the Fed’s SOMA account value rises. During weeks where the SOMA declines, the blue line is sidelined (earning no interest). The red line takes the opposite approach. It is in the SPX during SOMA contraction weeks, and it is sidelined when the SOMA expands. (The SOMA is the Fed’s System Open Market Account that contains all of its bond holdings.) SOMA changes are released each Thursday, and look at a Thursday – Wednesday reporting week.


Continue reading A Look at SOMA Changes Influence on SPX Since Quantitative Tightening Began