The Uncomfortable Hiatus

By James Howard Kunstler

And so the sun seems to stand still this last day before the resumption of business-as-usual, and whatever remains of labor in this sclerotic republic takes its ease in the ominous late summer heat, and the people across this land marinate in anxious uncertainty. What can be done?

Some kind of epic national restructuring is in the works. It will either happen consciously and deliberately or it will be forced on us by circumstance. One side wants to magically reenact the 1950s; the other wants a Gnostic transhuman utopia. Neither of these is a plausible outcome. Most of the arguments ranging around them are what Jordan Peterson calls “pseudo issues.” Let’s try to take stock of what the real issues might be.

Energy: The shale oil “miracle” was a stunt enabled by supernaturally low interest rates, i.e. Federal Reserve policy. Even The New York Times said so yesterday (The Next Financial Crisis Lurks Underground). For all that, the shale oil producers still couldn’t make money at it. If interest rates go up, the industry will choke on the debt it has already accumulated and lose access to new loans. If the Fed reverses its current course — say, to rescue the stock and bond markets — then the shale oil industry has perhaps three more years before it collapses on a geological basis, maybe less. After that, we’re out of tricks. It will affect everything.

Continue reading The Uncomfortable Hiatus

Chart: TED Spread and LIBOR-OIS

By Callum Thomas

Here’s a couple of interesting charts which are behaving in a boring fashion.  The first is the 3 month LIBOR-OIS spread, and the second is the TED spread.  Both are basically measures of funding stress/bank credit risk, and ever since the financial crisis have attracted as much attention as risk gauges as the VIX (equity volatility index).  Even in an environment of quantitative tightening both are behaving in a fairly subdued manner.  It goes to show how unperturbed US markets have been in the face of risk flareups in Europe and in particular emerging markets.  Of course, as with the VIX, contrarians will note that the time to worry is not when these metrics are spiking, but when they are “too low” and indicate complacency.  Certainly indicators to have on your radar.

 

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Unassailable

By Doug Noland

I’ve been here before and, candidly, it’s not much fun. Lodged in my mind this week was the brilliant quote from the 19th century German philosopher Arthur Schopenhauer: “All truth passes through three stages: First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as self-evident.”

It’s fascinating how it all works. Looking back, there was definitely a Bubble in 1999. Clearly, 2007 was one huge Bubble. Everything is obvious in hindsight, and most look back now and contend it was pretty conspicuous even at the time. Having toiled through both prolonged Bubble periods – arguing against deeply embedded bullish conventional wisdom – I can attest to the fact that the Bubble viewpoint was violently opposed at the late stages of both cycles.

I don’t feel I’m venturing out on a limb to predict that some years into the future the 2018 Bubble backdrop will be recalled as rather self-evident. Years of experimental “whatever it takes” global monetary stimulus (rates, QE and market manipulation) nurtured excess and imbalances on an unparalleled global scale. EM borrowed excessively, too much denominated in foreign (U.S. dollar!) currencies. The Federal Reserve (all central banks) held rates too low for much too long. Prices for virtually all asset classes were inflated to dangerous extremes.

Continue reading Unassailable

7 Charts on Quantitative Tightening

By Callum Thomas

As the Fed is steadily progressing through its balance sheet normalization plan, it’s worth checking in on a few charts that highlight the path to normalcy, and some of the potential stumbling blocks along the way.  This article provides an update and follow on from a previous post “5 Charts on Quantitative Tightening“.

The beginning of large scale asset purchases (or QE – Quantitative Easing) in the wake of the financial crisis was a grand monetary policy experiment, and we are now entering into another grand monetary policy experiment which will test portfolio managers and asset allocators.

Already we have seen plenty of examples of how Fed tightening is presenting ripple effects across global markets, with a stronger US dollar and higher interest rates putting stress on emerging markets, shaking commodities, and presenting more uncertainty for stock prices and bond yields.  Given the importance of monetary policy for the economic and financial market outlook, this is a topic worthy of your attention.
Continue reading 7 Charts on Quantitative Tightening

Gold is the Sun, and an Anchor

By NFTRH

The ‘Gold as Inflation Hedge’ Canard

On the one hand you have the sons of Harvey & Erb, who called gold to $800/oz. and caused a stir in the gold “community”. Per Campbell Harvey in this video with Kitco’s Daniella (dig the flowing golden locks of hair)…

“Gold is just too volatile” to be an effective inflation hedge.

Well yes sir, you are right. Gold does not track inflation in any kind of a convenient time frame. Gold’s volatility is a reflection of the volatility of the assets orbiting around it in the constellation of risk.

This cool NASA illustration makes the point. Those planets – like equities, commodities and the various FrankenVestments concocted by Wall Street – are in motion. All is often fine, but when a meteor of risk discovery hits one of them well, it is suddenly marked down vs. gold. See?

Continue reading Gold is the Sun, and an Anchor

Deja Voodoo, 1994 Edition

By Tom McClellan

1994 SP500 Analog
August 30, 2018

In the election of 1992 there was an insurgent candidate, who did not win a majority of the popular vote, but who took the White House and set about reorganizing the government in a manner more to his liking.  The first two years of his term in office were marked by numerous scandals, and by a stock market which saw a scary dip in the 2nd year which eventually resolved itself into a strong uptrend during the 3rd year of his presidential term.  At that time, the Federal Reserve was commencing a program of rate hikes, which had market participants worried.

Does this sound familiar?

Continue reading Deja Voodoo, 1994 Edition

What’s So “Cryptic” About Trading Cryptocurrencies?

By Elliott Wave International

Lots and lots. Trading is not easy, period. But a few things can help.

Here’s a cool parlor trick: If you want to bring a loud, rowdy room to a screeching silence, ask if anyone can explain how cryptocurrencies work.

Cue crickets chirping.

Turns out, the “crypto” part of the name originally signified the encrypted nature of digital assets and their anonymous owners. But it’s proven foretelling, as cryptocurrencies have become synonymous with a cryptic impenetrability the likes of which no modern mainstream financial market — especially not one so fervently embraced — has known.

Even the experts are stumped by the exact logistics involved in cryptocurrencies, as these recent opinions suggest:

  • “[Cryptocurrencies] are volatile by nature and thus don’t follow traditional rules and conventions.” (May 22 Coindiary.net)
  • “The public’s fascination with cryptocurrencies is tied to a sort of mystery, like the mystery of the value of money itself, consisting in the new money’s connection to advanced science. (May 21 The Guardian)

That’s the bad news.

Continue reading What’s So “Cryptic” About Trading Cryptocurrencies?

Friday May Have Been the Day (but don’t count on it), From IKN 483

By Otto Rock

Here’s the intro to last Sunday’s edition of The IKN Weekly, IKN483:

Friday may have been the day (but don’t count on it)

If there is one thing you can count upon in the wild and whacky world of gold stocks and all who sail with her, it’s that sentiment among its investors and speculators will turn on a sixpence. By way of example, we’ve just come out of an eight week period when gold was repeatedly hammered by the strong dollar, by Trade Wars!, by disdain for the whole precious metals complex and talk of dying demand. Most recently, gold spent two weeks under the U$1,200/oz line and spiked as low as $1,152/oz at one point and the whole process has been boring, painful or just plain horrible in turns.

And then, suddenly, Friday wakes up and gold pops over U$20/oz, going back above the U$1,200/oz and bringing a welcome relief rally to the sector. That’s why I decided to run this small poll on Twitter that day and here are the results of the 169 people who took a click of their time to answer:

Continue reading Friday May Have Been the Day (but don’t count on it), From IKN 483

Control Top

By Tim Knight

Before I get started, I wanted to mention that I just received the full-color version of Silicon Valley Babble On, and it is just gorgeous. If you’re one of the well-to-do Slopers out there, you might want to spring for this luxury item, because it looks absolutely fantastic. It’s not cheap at 79.95, but here’s a link if you’re interested.

Now I’d like to share with you three charts of the S&P 500 cash index. I have deliberately left off the axis labels, so you’ll know neither the times nor the prices.

Continue reading Control Top

Downside Not Upside Global Risk

By Jeffrey Snider

The UST yield curve continues to flatten (as it does elsewhere). All sorts of mainstream articles have been published lately about it. Many of them often refer to academic pieces ostensibly trying assuage all fears about the yield curve’s threatening inversion. Fret not the distortion, they say.

And they are right. As I constantly remind people, it’s not inversion that anyone should worry about. All that matters is where the curve has been flattening, and not just recently. For years, it’s been shriveling and shrinking, a poignant likeness for the global economy.

Not so in the mainstream. The economy is booming. To reconcile how the yield curve could behave this way while strong growth is happening all sorts of intellectual byproducts are employed. Here’s another one published today:

Continue reading Downside Not Upside Global Risk

Home Prices Continue To Rise Faster Than Wage Growth

By Anthony B. Sanders

Las Vegas Fastest, Washington DC Slowest, First Time Homebuyers Face Grim Reality

Case-Shiller has released their June housing report.

The 20 metro home price index rose 6.31% YoY. The bad news? Hourly earnings for US private sector workers is only growing at 2.70% YoY.

csyoyearnmay18

As they say, all real estate is local. The fastest growing city in term of home prices is Las Vegas at 13% YoY with Seattle in close second at 12.8% YoY.

Continue reading Home Prices Continue To Rise Faster Than Wage Growth