The Daily Shot Brief – October 17, 2018

By The Daily Shot

Greetings,

The United States: Here, we have a few additional updates on the housing market.

• This chart shows mortgage originations by loan type.

Source: John Burns Real Estate Consulting

• The housing sector’s contribution to the GDP remains below the pre-crisis highs (the housing recession began in 2006).

Source: John Burns Real Estate Consulting

• And here is the housing affordability index by region.

Continue reading The Daily Shot Brief – October 17, 2018

Consumer Confidence and Global Equities

By Callum Thomas

One of my favorite things to do is discover and utilize somewhat obscure, new, misunderstood, or underutilized datasets.  Or indeed, to look at an existing and well-understood set of data in a different way.  In today’s post we look at a little bit of all of the above.  What we’ve got here is a global composite consumer sentiment indicator I’ve calculated from the Thomson Reuters IPSOS consumer sentiment surveys (using IMF GDP data for the weightings).

I’ve shown this indicator against the key global equity benchmark (the MSCI All Countries World Index or ACWI for short), and the global manufacturing PMI (basically business confidence).  The interesting thing about this chart is that up until the turn of the year, these 3 inter-related indicators were all headed in the same direction (i.e. up)… so what’s changed?

Continue reading Consumer Confidence and Global Equities

The Daily Shot Brief – October 16, 2018

By The Daily Shot

Greetings,

The United States: Google search frequency for home financing continues to drift lower.

Source: @biancoresearch

Rates: Here is an updated FOMC dove-hawk spectrum.

Source: BofA Merrill Lynch Global Research

China: China’s domestic liquidity has contracted. Will we see interbank rates spike as we approach the year-end?

Continue reading The Daily Shot Brief – October 16, 2018

When Will Chasing the Hot Stock No Longer Work?

By Kevin Muir

If someone had asked me to name the driving factors influencing US stock market performance return over the past year, I might have guessed the cut in the tax rate, but I would then be at loss to further explain what has been moving stocks.

Lucky for me, Bloomberg has this great function that allows us to examine how various portfolio factors have performed over different time frames. It works by taking the stock market universe, then ranking the companies by the requested factor (whether it be P/E, cash flow, etc…) into five quintiles. Using the average return of the top quintile during the requested period, minus the average return of the bottom quintile, gives a great sense of the sensitivity of that factor in individual stock market performance.

Let’s have a look at the best and worst factors during the last year:

Continue reading When Will Chasing the Hot Stock No Longer Work?

US Industrial Production Rises 5.14% YoY

By Anthony B. Sanders

Highest Since 2010 (New Surge In Subprime Lending Courtesy of NACA And Bank Of America)

The Good News! US industrial production YoY rose 5.14% in September, the highest growth rate since 2010.

ipyoyfed.png

The Bad News? Subprime mortgage lending is starting to boom … again.  When lenders feel comfortable because of a booming economy  and home prices things change … again.

Continue reading US Industrial Production Rises 5.14% YoY

Credit Spreads and the Stock Market

By Steve Saville

This post was prompted by a recent article authored by the always thought-provoking Pater Tenebrarum (a pseudonym) at acting-man.com. The article looks at the relationship between credit spreads and the stock market, in particular the historical tendency for credit spreads to begin widening prior to substantial stock market declines and thus to act as timely warning signals of impending stock market trouble. The conclusion is: “…it seems…more likely that a stock market decline will put pressure on junk bonds, instead of weakness in junk bonds providing advance warning of an impending stock market decline. The stock market sell-off in the past week did in fact very slightly lead a surge in high yield spreads.” I don’t know that this conclusion is wrong, but at this time the evidence to support it is not persuasive.

It first should be understood that credit spreads generally begin widening ahead of bear markets, but they generally DON’T lead short-term stock-market corrections. Therefore, the fact that they didn’t warn of the October-2018 sell-off is not meaningful at this time. It will become meaningful only if the October-2018 sell-off proves to be the first decline in a bear market, which is unlikely.

Continue reading Credit Spreads and the Stock Market

The Daily Shot Brief – October 15th, 2018

By The Daily Shot Brief

Greetings,

The United States: The probability of a recession over the next six months remains modest.

Source: Oxford Economics

Rates: This chart shows who is long and short the two-year Treasury futures.

Source: @ljzaz

China: The rate differential between China and the US has been closing, which has been putting downward pressure on the yuan.

Continue reading The Daily Shot Brief – October 15th, 2018

You Can’t Eat Gold

By Keith Weiner

“You can’t eat gold.” The enemies of gold often unleash this little zinger, as if it dismisses the idea of owning gold and indeed the whole gold standard. It is a fact, you cannot eat gold. However, it dismisses nothing.

This gives us an idea. Let’s tie three facts together. One, you can’t eat gold. Two, gold is in backwardation in Switzerland. And three, speculation is a bet on the price action.

The fact that gold is inedible is supposed (by the enemies of liberty) to be proof positive that a gold standard wouldn’t work. Of course, there’s always the retort: You can’t eat dollars!

That may be emotionally satisfying, but there is a deeper issuer that the anti-gold crowd is missing. Yes, money makes terrible food but, also, food makes terrible money. A car makes a lousy airplane. And a shoe makes an awful TV. Cow poop is putrid as food for people, but it works well as fertilizer for plants. Each thing fits a particular purpose.

Why does food make terrible money? One reason is that it’s perishable. No one—other than a refrigerated warehouse—can make a bid on food beyond his own short-term needs. Without this robust bid, food has limited marketability. That is, it has a wide spread between its bid and offer prices.

Continue reading You Can’t Eat Gold

The Ultimate Financial Crisis Will Be Inflationary

By Steve Saville

I’ve read many comments to the effect that the next financial crisis will be like 2007-2008, only worse. However, the sole reason that many people are talking about a coming 2008-like crisis is because the happenings of 2008 are still fresh in the memory. Market participants often expect the next crisis to look like the last one, but it never does. Consequently, the general prediction about the next financial crisis with the highest probability of success is that it won’t be anything like 2008. It could, for example, revolve around an inflation scare rather than a deflation scare. In fact, the current monetary system’s ultimate financial crisis, meaning the crisis that leads to a new monetary system, will have to be inflationary.

The ultimate financial crisis will have to be inflationary, because deflation scares provide ‘justification’ for central bank money-pumping and thus enable the long-term credit expansion to continue with only minor interruptions. To put it another way, a crisis won’t be system-threatening as long as it can be ameliorated by central banks doing what they do best, which is promote inflation.

A related point is that a crisis won’t be system-threatening as long as it involves an increase in demand for the official money. The 2007-2008 crisis was such an animal. Like every other crisis in the US since 1940 it did not involve genuine deflation, almost regardless of how the word deflation is defined. The money supply continued to grow, the total supply of credit did no worse than flatten out, and, as illustrated by the following long-term chart, there was nothing more than a downward blip in the Consumer Price Index. However, with the stock market losing more than half its value and commodity prices collapsing, for 6-12 months it sure felt like deflation was happening.

CPI_LT_151018
Chart source: dshort

Continue reading The Ultimate Financial Crisis Will Be Inflationary

A Look At How Fridays Create The Most Reliable Bounces

By Rob Hanna

Friday is generally not terribly reliable in being a day where the market bounces from a low. It is one of the least popular days for this to occur (along with Wednesday). But a potential positive about a Friday bounce is that when they do occur, they tend to be the most reliable moving forward. The below tables look at performance following a bounce from a 50-day low. The 1st table looks at performance 1 day later, and the 2nd table looks at performance 5 days later.

2018-10-14-1

Continue reading A Look At How Fridays Create The Most Reliable Bounces