Are You Investing or Merely Speculating?

By Charlie Bilello

“Whether you’re excited or nervous when your favorite asset falls in price marks whether you’re investing or merely speculating.” – Naval Ravikant

Are you investing or merely speculating?

Naval Ravikant had an interesting take on this most important of questions (see above quote). The deciding factor: whether you’re “excited” or “nervous” to see your asset going down in price.

Why in the world would anyone be excited to see something they own moving lower?

Because it is giving them the opportunity to reinvest interest/dividends and add new capital at discounted prices. If you have a long enough time horizon and a diversified portfolio, buying at lower prices will increase your long-term returns. Which is why a stock market crash is the best thing that could happen to young investors.

How do you know if your time horizon is “long enough”? Examine the odds…

Holding stocks for a day or a week is not much better than a coin flip. In that time frame, you don’t have the luxury of waiting for stocks to come back and any decline should make you nervous. In contrast, holding stocks for 20-30 years has never yielded a negative return, even for investors who bought at the peak in 1929 and held throughout the Great Depression. If that is your time frame you want stocks to go on sale – the earlier, the better.

Data Source for all Charts herein: Bloomberg, YCharts.

Continue reading Are You Investing or Merely Speculating?

A Down Fed Day After SPX Closed At A 10-Day High

By Rob Hanna

Reaction to the Fed ended up being negative on Wednesday. The study below is an old one I had not examined in a few years. It looked at other times SPX closed down on a Fed after closing at a 10-day high the day before.


This is a setup that has changed over the years. Prior to 2009, this setup often saw the market move higher the next day. But the recent tendency has been decidedly downward. Below is a look at the profit curve.


With a low sample size, and this only being a recent tendency, I do not consider it a strong edge. But this may be something traders want to consider, especially if the tendency persists over the next several instances.

A large number of more substantial edges related to Fed Day activity can be found in the Quantifiable Edges Guide to Fed Days, which is available now if you make any size donation to the Multiple Sclerosis Society. More details on that promotion are available here.

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Inflation Trade, in Progress Since Gold Kicked it Off in Q1 2016


I am sure you remember the lead up to Q1 2016. The US economy and stock market were transitioning from a Goldilocks environment and narrowly avoiding a bear market while the rest of the world was still battling deflation. Precious metals and commodities were in the dumper and try though US and global central banks might, they seemed to fail to woo the inflation genie out of its bottle at every turn.

Then came December of 2015 when gold and silver made bottoms followed by the gold miners in January of 2016. Then by the time February had come and gone the whole raft of other inflatables (commodities and stocks) had bottomed and begun to set sail.

As I listened to Mr. Powell speak about inflation yesterday my mind wandered back to Q1 2016 as I thought about the Fed trying to manage inflation at or around 2%. I also thought about how inflation tends to lift boats, not sink them. At least that is what it does in its earlier stages, in its manageable stages.

The balls out post-crisis inflation begun by Ben Bernanke was a massive market input and I suspect we have not yet seen its full effects – other than in US stock prices thus far. So dialing back to Q1 2016 let’s look at a few pictures, beginning with the Fed’s 10 year breakeven inflation rate, which bottomed… you guessed it, in Q1 2016. That means that ‘deflation expectations’ topped at that time.

Continue reading Inflation Trade, in Progress Since Gold Kicked it Off in Q1 2016

ECB Announces September Taper, Will End QE In December…

By Heisenberg

…Rates To Remain On Hold Until Summer 2019

And for this week’s second headline event, here comes Draghi.

On Sunday, we brought you “Rome May Be Burning, But Draghi Is No Longer Your Fireman: What To Expect From The ECB“, which, as the title suggests, was a post about what to expect from the ECB (no false advertising here).

To be clear, they need to start taking big steps down the road to normalization. They’ve tapered, but the balance sheet is still growing and they’re still mired in NIRP.

Importantly, the eurozone economy looks like it’s starting to rollover or, if that’s too dour for you, Q1 at least marked a notable deceleration in growth which raises the specter of “quantitative failure“, a worry that topped the list when BofAML asked € IG credit investors what they are most concerned about in April:


As a reminder, if they run up against a downturn without having sufficiently rebuilt their ammo, well then they’re going to be in a real bind. Recall this assessment from BNP:

Continue reading ECB Announces September Taper, Will End QE In December…

Uncertainty, Or You Had One Job To Do (And It Wasn’t Dots)

By Jeffrey Snider

As anticipated, the FOMC voted on both proposals in front of it. There should only be the one, but even routine monetary policy no longer is. Alan Greenspan’s Fed charged ahead with seventeen consecutive moves (the last few completed under Ben Bernanke) with little discussion about uncertainty in the economy (though there was, conundrums and all) let alone in the very place the central bank is supposed to operate with impunity.

The result of today’s action is the first of what is almost certainly going to be asymmetry moving forward. Dating back all the way to December 2008 when policymakers mercifully scrapped the singular federal funds target, the FOMC object had been to maintain a 25bps band or corridor in which they would accept actual trading. As of now, that band has been reduced to 20bps; RRP was increased +25bps; IOER only +20bps.

It immediately brings to mind not just IOER’s failure, as noted before, but also the ECB’s. The European central bank had tried narrowing its corridor starting in May 2013, though with everything reversed. It is a topic that deserves greater devotion at a future date (was it Bernanke’s uttering the word “taper” that ignited the big storm that spring and summer or was it the ECB’s narrowed corridor announced the same day?), so for now I’ll just summarize their experience as the same as it was for the Fed in 2007 forward – losing control.

Continue reading Uncertainty, Or You Had One Job To Do (And It Wasn’t Dots)

Ivanka And Jared Made $82 Million Last Year, Just Like All Public Servants Do

By Stephen Robinson

When Ivanka Trump and her first husband Jared Kushner agreed to work for her father’s already pretty damn corrupt administration, concerns were raised about potential conflicts of interest.

Ivanka allayed those concerns with some pleasant-sounding gibberish. Ivanka and Jared agreed to not accept a salary as senior advisers to the president, because that was totally the only way they could materially profit from this arrangement.
Continue reading Ivanka And Jared Made $82 Million Last Year, Just Like All Public Servants Do

Why You Should Brace Yourself for Big Financial Changes

By Elliott Wave International

Extrapolating current trends into the future leave many people unprepared for major societal shifts

The one thing you can count on in financial markets, and society at large, is change.

I was reminded of this when I read this May 18 New York Times’ headline and subheadline:

The Last Days of Time Inc.

… how the pre-eminent media organization of the 20th century ended up on the scrap heap.

Time Inc. has been purchased by the Meredith Corporation, which plans to spin off Time magazine, Sports Illustrated, Fortune and Money. All four magazines have suffered from declining ad revenue and declining circulation. There are other details, but the bottom line is that an established media empire, which had a long history of reporting on change, has now been swept up by change.

A generation ago, many observers would not have imagined that a company as iconic as Time Inc. would find itself “on the scrap heap.”

But linear trend extrapolation has always had its pitfalls, and on changes that have been on a much bigger scale than one media company, which brings to mind what the 2017 book, The Socionomic Theory of Finance, said:

(1) It is 1975. Project the future of China.

(2) It is 1963. Project the cost of medical care in the U.S.

(3) It is 100 A.D. Project the future of Roman civilization.

In 1975, the Communist party was entrenched in China. … Would anyone have imagined that China’s economic production, in just over a single generation, would rival that of the United States?

In 1963, medical care was cheap and accessible. … Would anyone have guessed that [today] pills would sell for $2, $20, $200 and even $1,000 apiece?

Continue reading Why You Should Brace Yourself for Big Financial Changes

What Wall Street Expects From the Fed

By Heisenberg

Well, it’s Fed day and obviously everyone will be kind of frozen in time in the lead up to the decision and the post-meeting presser where Jerome Powell will probably prove (again) that he prefers to answer questions in a more direct, less academic fashion than Janet Yellen.

I continue to maintain that’s not a positive development, because it leaves less room for obfuscation and paradoxically, academic obfuscation (i.e., model-based bullshitting) is a highly effective way of letting markets know that the committee is willing and able to conjure up excuses to remain dovish even when the data suggests a different path in the event risk assets are showing signs of cracking. And I know what you’re thinking: “The Fed shouldn’t be concerned about propping up risk assets at every press conference meeting!” Yeah, ok man. Just remember you said that when, sometime down the road, Powell accidentally triggers an afternoon rout by eschewing long-winded rambling for a straightforward answer.

Powell of course hasn’t adopted anything that approximates the approach Kevin Warsh might have preferred, but obviously there’s a perception that he (Powell) is more data-dependent than Yellen and that it will take more in the way of turmoil in emerging markets and much more in the way of exogenous shocks and event risk from things that aren’t directly related to Fed policy (e.g., Italy) to deter him.

On Tuesday, WSJ moved markets with a report that once again suggested Jerome Powell may be moving towards holding a press conference after every meeting, which would effectively mean that every meeting is live. That got a reaction across fed funds futures and pushed the dollar higher. A move to take questions after each meeting could potentially set the stage for more volatility – or at least that’s the way I would see that panning out, even though I’m sure that wouldn’t be the intent and I’m sure a lot of folks wouldn’t agree with me.

Continue reading What Wall Street Expects From the Fed

China Credit Flows

By Callum Thomas

The May data for China showed a further slowing in the growth of credit.  To be clear, total credit is still increasing, but the issue is that it is increasing at a slower pace.  Now there are basically 2 reasons people worry about China: 1. because debt levels are “too high”, and 2. because debt growth becomes too slow and therefore activity levels slow down.  Today’s chart will give both of those groups something to worry about!  It shows the monthly growth in “total social finance” (a broad measure of credit growth), standardized against GDP, and the key point is that the pace of TSF growth is slowing down.  I’ve also noticed a broader tightening of financial conditions e.g. slower money supply growth, changes in the currency, real interest rates, property prices, etc.  My base case is that the Chinese economy sees slower growth this year, but aside from the negative impact this will have on commodities/EM at the margin, I’m not particularly concerned about major downside risk in China at this time.

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What A Difference A Few Months Make, Highest Inflation in Six Years And Market Shrugs

By Jeffrey Snider

What a difference a few months make. Perhaps given all that has happened since January people have regained some badly needed perspective. The core of inflation hysteria was the belief the economy was about to take off which would exacerbate underlying price pressures. That would necessitate more aggressive Federal Reserve reaction, corroborated by an epic bond market selloff.

Had last month’s CPI number been released, say, last November, it would have been hugely entertaining. According to the Bureau of Labor Statistics, the consumer price index for the month of May 2018 was 2.80% more than May 2017. This inflation rate bests the 2.74% posted in February 2017 as the highest since the 2.87% recorded for February 2012.

The predictable headlines about the “highest inflation in six years” would have at the end of last year set off a disturbed frenzy. Instead, this update with all the same comparisons is being met with a collective shrug; at most a reasonably toned-down if disappointing murmur.

The difference is economy and risk, often one and the same. Unlike in 2017, in 2018 the global economy has encountered numerous issues and even more “transitory” difficulties that are getting harder to overcome. Right at the front is the “dollar.” Again.

With economic reality setting back in, what’s really going on with US (and European) consumer prices is a bit clearer, though in truth it was always perfectly obvious. Oil and little else is behind these index spikes. It’s the rationalizations about them in the narrative form that no longer weigh so heavily.

Continue reading What A Difference A Few Months Make, Highest Inflation in Six Years And Market Shrugs

Post-CPI Summary

By Michael Ashton

Below is a summary of my post-CPI tweets.

  • 27 minutes to CPI! Here are my pre-figure thoughts:
  • Last month (April CPI) was a big surprise. The 0.098% rise in core was the lowest in almost a year, rewarding those economists who see this recent rise as transitory. (I don’t.)
  • But underneath the headlines, April CPI was nowhere near as weak as it seemed. The sticky prices like housing were stronger and much of the weakness came from a huge drop in Used Cars and Trucks, which defied the surveys.
  • Medical Care and Apparel were also both strong last month.
  • Now, BECAUSE the weakness was concentrated in a small number of categories that had large moves, median inflation was still +0.24% last month, which drives home the fact that the underlying trend is much stronger than 0.10% per month.
  • The question this month is: do we go back to what we were printing, 0.18%-0.21% per month (that’s the 2 month and 6 month avg prior to last month, respectively), or do we have a payback for the weak figure last month?
  • To reiterate – there were not really any HIGH SIDE upliers to potentially reverse. Maybe housing a touch, but not much. To me, this suggests upside risk to the consensus [which is around 0.17% or so and a bump up (due to base effects) to 2.2% y/y].
  • I don’t make monthly point forecasts, but I would say there’s a decent chance of an 0.21% or better…which number matters only since it would accelerate the y/y from 2.1% to 2.3% after rounding. So I agree with @petermcteague here, which is a good place to be.
  • Note there’s also the ongoing risk each month of seeing tariffs trickle through or trucking pressures start to diffuse through to other goods prices. Watch core goods.
  • So those are my thoughts. Put it this way though – I don’t see much that would cause the Fed to SLOW the rate hike plans, at least on the inflation side. Maybe EM or something not US economy-related, but we’d have to have a shockingly broadly weak number to give the FOMC pause.
  • Starting to wonder why we even both with an actual release. Economists nailed it, 0.17% m/m on core, 2.21% y/y.
  • That’s a 2.05% annualized increase. Which would be amazing if the Fed could nail that every month.

Continue reading Post-CPI Summary