Nudge at Neptune

By Michael Ashton

Okay, I get it. Your stockbroker is telling you not to worry about inflation: it’s really low, core inflation hasn’t been above 3% for two decades…and, anyway, the Fed is really trying to push it higher, he says, so if it goes up then that’s good too. Besides, some inflation isn’t necessarily bad for equities since many companies can raise end product prices faster than they have to adjust wages they pay their workers.[1] So why worry about something we haven’t seen in a while and isn’t necessarily that bad? Buy more FANG, baby!

Keep in mind that there is a very good chance that your stockbroker, if he or she is under 55 years old, has never seen an investing environment with inflation. Also keep in mind that the stories and scenes of wild excess on Wall Street don’t come from periods when equities are in a bear market. I’m just saying that there’s a reason to be at least mildly skeptical of your broker’s advice to own “100 minus your age” in stocks when you’re young, which morphs into advice to “owning more stocks since you’re likely to have a long retirement” when you get a bit older.

Many financial professionals are better-compensated, explicitly or implicitly, when stocks are going up. This means that even many of the honest ones, who have their clients’ best interests at heart, can’t help but enjoy it when the stock market rallies. Conversations with clients are easier when their accounts are going up in size every day and they feel flush. There’s a reason these folks didn’t go into selling life insurance. Selling life insurance is really hard – you have to talk every day to people and remind them that they’re going to die. I’d hate to be an insurance salesman.

Continue reading Nudge at Neptune

How Much Should You Expect Your House to Appreciate?

By Charlie Bilello

You just bought a house. If you’re like most Americans, it will soon become the largest component of your net worth, and only increase as a percentage over time. Naturally, you would like to see it go up. But by how much?

Predicting future home prices is a difficult a game, made complicated by the myriad of factors influencing the housing market, including: the supply/demand for housing, affordability, inflation, economic/wage growth, availability of credit, mortgage rates, unemployment, demographics, location, etc., etc.

If a homeowner can’t predict such things, what can they reasonably expect in terms of appreciation over time?

A good starting point is the rate of inflation (CPI), which national home prices have tracked relatively closely over long periods of time.

Data Sources for all charts/tables herein: S&P/Case Shiller, BLS

From 1891 through 1996, national home prices only exceeded inflation by 15% on a cumulative basis, and few considered housing “an investment.”

Continue reading How Much Should You Expect Your House to Appreciate?

Dollar Strength Is Hiding In Plain Sight

By Heisenberg

And One Strategist Says It’s Here To Stay

Overnight, the yen rose against all its G10 peers because Donald Trump has lost his mind completely and is now firing everyone in sight.

On Thursday evening, the Washington Post reported that a “very stable genius” called “Dennison” is now planning on ridding himself of national security adviser H.R. McMaster who, according to some accounts, once called Trump an “idiot” with “the intelligence of a kindergartner” at a dinner with Oracle CEO Safra Catz.

This kind of thing usually gets reflected in risk appetite one way or another and right now USDJPY is even more of a natural expression than it would be anyway thanks to a variety of factors not the least of which is that the ongoing land scandal has everyone on edge about Aso and ultimately Abe, which in turn raises questions about the future of Abenomics. Here’s USDJPY overnight:


Continue reading Dollar Strength Is Hiding In Plain Sight

Atlanta Fed’s Q1 GDP Forecast Drops From 5.4% To 1.9% (Kudlow To Replace Cohn In Trump Admin)

By Anthony B. Sanders

As Bruce Springsteen warbled, we’re going down. At least the Atlanta Fed’s Q1 GDP forecast is going down … from 5.4% to 1.9%.


The latest shoe to drop? The CPI report on 3/13, PPI on 3/14 and the retail sales report. And PCE growth is slowing.

Continue reading Atlanta Fed’s Q1 GDP Forecast Drops From 5.4% To 1.9% (Kudlow To Replace Cohn In Trump Admin)

Slow Cycle Rally All Played Out?

By Kevin Muir 

It’s 819 days since the start of the Fed tightening cycle. Why would I know that so precisely? Because I just finished creating a chart of the stock market performance before and after the first fed tightening.

Indexing the stock market performance around certain events like the first Fed hike is not novel. Tons of market strategists create these sorts of visuals. But Ned Davis created a chart I found so fascinating – what’s that line about good and great artists? Well, I am stealing it.

Actually, I just wanted to see it updated, so I thought it was worth recreating from scratch, but all the credit goes to Ned.

As I mentioned, in a lot of ways it’s just a regular piece of research. The truly insightful part of Ned’s chart was to divide the tightening cycles into slow and fast campaigns. For example, when the Fed began hiking in April of 1955, they raised rates at a gradual, slow pace. This was in contrast to November of 1967 when the Federal Reserve raised rates quickly.

Continue reading Slow Cycle Rally All Played Out?

Will Higher Mortgage Rates Kill the Housing Market?

By Charlie Bilello

U.S. Mortgage Rates have risen for 9 consecutive weeks, hitting their highest levels since January 2014.

Source Data: Freddie Mac

That certainly seems like a sharp increase, but is 4.46% high?

Only when compared to recent history, which includes the all-time low in yields from November 2012 (3.31%). In a historical context, mortgage rates today are still quite low.

How low? Lower than 85% of monthly data points going back to 1971. The median 30-year Mortgage Rate over that time: 7.70%.

Continue reading Will Higher Mortgage Rates Kill the Housing Market?

Seasonal Surge

By Callum Thomas

As investors pore over multitudes of data and factors, exploring lofty valuation metrics, swings in investor sentiment, trends and technicals, earnings and economics, one interesting aspect is that of seasonality.  Economists and laypersons alike are profoundly aware of the impact of the physical seasons on activity and behavior. And sure enough, even the stock market appears to go through seasons of better and worse performance through the year.

I highlight this now because we are in the middle of one of the strongest positive seasonal periods of the year, historically speaking.  Aside from November and December, March and April historically have been some of the best performing months in the market.  The same can not be said of the proceeding May-October period, which tends to be the worst.

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Jeff Gundlach Unveils Groundbreaking Theory: Says Stocks May Fall If 10Y Yields Rise Above 3%

By Heisenberg

Listen, I don’t think I need to tell you this, but Jeff Gundlach is a guy who has shit figured out, ok?

And last year, he was sick and tired of just sitting idly by while the rest of us idiots fumbled around in the dark in search “truth.”

So what Jeff did was, he started a Twitter account and as his handle, he chose @TruthGundlach.

See it occurred to Jeff that when it comes to fighting “fake news” (and especially fake Gundlach news, which he swears to Christ is actually a thing), the only thing he needed to do was make “Gundlach” synonymous with “truth”. Because the “truth” cannot (by very definition), “lie”.

So if “truth” = “Gundlach”, well then “Gundlach” = “truth”, ergo everything that comes from that Twitter handle is true my its very nature.

And it’s a good thing Jeff cleared that up right off the bat, because starting pretty much immediately after he took the plunge into the Twitterverse he commenced to saying some crazy-sounding shit like, for instance: Continue reading Jeff Gundlach Unveils Groundbreaking Theory: Says Stocks May Fall If 10Y Yields Rise Above 3%

Bi-Weekly Economic Review: The New Normal Continues

By Joseph Calhoun

There has been a lot of talk about the economic impact of the recent tax reform. All of it, including the analyses that include lots of fancy math, amounts to nothing more than speculation, usually informed by little more than the political bias of the analyst. I am guilty of that too to some degree but I don’t let my personal political views dictate how I view the economy for purposes of investing. I am, to put it mildly, a skeptic. I don’t believe half of what I hear from politicians or economists – sadly not that much different these days – and even less of what I hear from Wall Street.

I rely on the markets – the wisdom of crowds – to understand the economy. While almost everyone on Wall Street and Main Street are trying to read the economy in the hope they can predict the future of the markets, I concentrate on trying to figure out what the markets are saying about the present economy. I eschew the impossible for the merely difficult. When people ask me about our outlook I’m often at a loss for words because we really don’t have one. We take things as they come and adjust as necessary. Contrary to popular belief, it is not necessary to predict the future accurately – an impossible task – to be a good investor. But you do need to see the present clearly. And our internal biases – political and other – make that difficult but not impossible.

Continue reading Bi-Weekly Economic Review: The New Normal Continues

Open Letter to GATA

By Keith Weiner

Dear GATA and Mr. Chris Powell:

I am writing this in response to your article Monetary Metals’ Weiner refuses to see anything wrong in the gold market.

There is a certain irony for me to read that I refuse to see. I have spent eight years studying the mechanics of the market, building a model, developing software to run the model through several generations, and licensing nearly three terabytes of data giving every bid and offer in both the spot and futures markets with sub-millisecond resolution, going back to 1996.

In my previous company, I architected a massively scalable 3D voice server. In a normal world, I would be working on another Internet software company. Instead, I made a huge investment in drilling deeper into the gold market. The reason is that I am driven by a powerful need to see.

Two theories compete to explain the gold and silver markets. One, the conspiracy theory, holds that the big banks are naked short futures in a long-term effort to keep the gold price far below what it should be. The other, my theory, is that the banks are primarily market makers and they do not hold a massive and perpetual short position.

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What Real Returns Should Bond Investors Expect?

By Charlie Bilello

At 2.9%, the 10-Year Treasury yield is near its highest level in the past 4 years. At the current rate of inflation (2.2% CPI in the past year), this translates into a real yield of 0.7% (real yield = nominal yield minus inflation).

Is such a real yield good or bad value for Treasury bond investors? And what does it suggest, if anything, for real returns going forward? Let’s take a look at the historical evidence…

We have monthly inflation data (CPI) in the U.S. going back to 1948. Since then, the median real yield on 10-year Treasury bonds has been 2.2%.

Source Data for all charts herein: FRED

Does that mean we always see real yields around 2.2%? No, far from it.

Continue reading What Real Returns Should Bond Investors Expect?