James Altucher, the self-described “crypto genius”, is someone about whom I’ve written in the past, but as I gaze upon the smoldering landscape that used to be the thriving cryptocurrency industry, I feel compelled to write on this topic again, since I think Altucher’s marketing efforts a year ago speak so much about the nature of the crypto craze at that time.
To be clear, I have no axe to grind. I’ve never lost money with the guy. Never had any kind of personal or professional relationship. Never met him. But, like virtually all of you reading this post, I’ve seen his face countless times on ads (especially late in 2017 and early in 2018) touting the surefire investment power of crypto. He became, in the words of the press, the “face of Bitcoin” (I guess all the other faces were taken).
Altucher is definitely a man who could be described in totally opposite ways, all while being completely honest. You could, for example, talk about him as a successful entrepreneur, popular author, widely-followed podcast host, and multimillionaire venture capitalist. Every one of those things would be true. You could, with just as much honesty, describe him as a man with multiple failed marriages and relationships, a person who by his own admission blew tens of millions of dollars and was at the brink of suicide, and a man who has created businesses that have drawn the wrath of customers and the Better Business Bureau alike. All true. It depends on how you want to spin things.
Phillips 66 Plunges 25% (Venezuela’s Crude Basket Down 23%)
US Crude Oil (West Texas Intermediate Cushing OK) spot price has fallen 34% just since October 3, 2018. And using US oil company Phillips 66 out of Bartlesville Oklahoma as an example, Phillips 66 plunged 25% since October 3rd as well.
At the south side of El Caribe, Venezuela has seen a plunge in their crude oil basket of 23% since early October.
We can add realtors to the list of those who are angry with Jay Powell. The housing market continued its perplexing slump in October, according to a broad section of data encompassing everything from construction to sales of existing homes. We have been told since Economics 101 that the central bank is, well, central, therefore it is easy to infer causation from mere correlation.
The Fed is “raising rates” but unlike what’s taught in schools the FOMC doesn’t control all that much. Very little in the modern diagram. But because monetary officials claim to be tightening and now the housing market is clearly within a slump we shouldn’t ignore that correlation does not mean causation.
After all, we begin this study under false (mainstream) pretenses.
After a couple of large down days and a big gap up Wednesday morning, the rest of Wednesday was a disappointment for the bulls. But the failure to follow through on the morning strength is not necessarily a bad sign looking out over the next couple of days. The study below from the Quantifinder was shown in last night’s subscriber letter.
Instances are very low here, but we see some examples of powerful buying over the next few days. While I am seeing a mix of studies right now, this one favors the bulls. Traders may want to keep this in mind as they consider their trading bias.
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Now that we’re in an honest-to-God bear market………….thank the maker…….I am obsessing over charts even more than I normally do (which is saying a lot). I’ve noticed that the most interesting charts are those which are breaking down in stages. That is, they will be locked into a range-bound period of consolidation, and then some “shock event” will lurch them down to a new, lower range, and they’ll stay locked there. It makes for good use of horizontal lines. Apple is a good example:
Indeed, it makes me think that this bear market could be defined as one with “stages of rages”, instead of the old-fashioned name for a bear market which was……..let me think…….oh, yes: a slope of hope.
All through the bear market hopeful rationalizations were served up for a bullish case on the gold miners. All through the bear market we warned people not to eat that rotten turkey!
China demand, the China and India “love trade”, cyclical inflation driving up the prices of commodities and resources and the classic… economic growth in the US will create cost-push inflation through wage increases with the smart money seeking inflation protection in gold. All of those and a veritable Turducken of mishmashed ingredients were served to gold bugs as a decidedly not delectable appetizer before the main course.
But with a top in risk ‘on’ global markets now finally including the US (pending any holiday relief bouncing), the planets are aligning per the fundamentals that matter. This will drive up gold’s relational price to cyclical risk ‘on’ assets and improve gold mining bottom line operations (reducing miners’ costs per ounce of gold produced).
The sector will also be more appetizing to a much wider range of investors, now that their perceived sure things in the FAANGs and other momentum fueled, ‘can’t miss’ areas (like the Semi sector, which we warned on long ago: Semi Canary Still Chirping, But He’s Gonna Croak in 2018) are no longer working.
Authored by Trey Reik, Senior Portfolio Manager, Sprott Asset Management USA, Inc.
On November 14, Fed Chair Jerome Powell and Dallas Fed President Robert Kaplan conducted an onstage question and answer session at the Dallas Fed. Responding to President Kaplan’s questions, Chair Powell’s cool-and-collected delivery made U.S. monetary policy seem like an absolute snap. The upbeat message from the Dallas stage was best summed by Mr. Powell’s observation that “Fed policy is part of the reason the economy is in such a good place right now.” However, because U.S. financial markets have remained noticeably rattled ever since Mr. Powell’s seemingly innocuous “long way from neutral” comment on 10/3/18, we find it constructive to parse cautious nuggets in Chair Powell’s copasetic narratives.
Along these lines, Chair Powell seemed to imply from the Dallas stage a subtle downshift in telegraphed Federal Open Market Committee (FOMC) tightening in stating “we have to be thinking about how much further to raise rates and the pace at which we will raise rates.” After referencing potential headwinds of slowing growth abroad, fading fiscal stimulus and lagged effects of eight Fed hikes, Chair Powell eventually narrowed in on one specific area of growing Fed concern: excessive corporate leverage. In Mr. Powell’s soft-spoken words, “There is some significant corporate borrowing and we have our eyes on that.” Having subsequently refreshed our focus on U.S. corporate debt levels, we can only characterize Chair Powell’s matter-of-fact depiction as dramatic understatement.
Corporate Leverage Locomotive
We have suggested improving U.S. bank balance sheets foster false investor confidence that the excessive leverage at the root of the financial crisis has been repaired. In reality, as the Fed has dedicated eight years and trillions of dollars to nursing systemically important banks back to health, QE (quantitative easing) and ZIRP (zero interest rate policy) have progressively compromised the financial strength of the U.S. corporate sector. Not only have share buybacks imperiled countless balance sheets in the name of ephemeral EPS (earnings per share) gains, but the bulk of U.S. corporate governance has eroded into a culture of undisciplined borrowing and zombie credits.
Last December, something clearly broke. The global basis had swept far under zero again, an ominous sign that eurodollar banks were having trouble creating, finding, and redistributing global funding. A cross currency basis swap is one way to do it, the negative basis indicating a desperate shortage of dollars offshore (eurodollars).
The negative basis wasn’t the only thing suggesting dramatic distress. Concurrently, the domestic repo market had exploded. Repo fails for the week of December 13, 2017, were an astounding $832 billion, the very same moment the cross currency basis (especially against euros) fell off a cliff. Our Chart of the Week for that same week essentially predicted what FRBNY would report for fails:
When the Fed a week later published the data from primary dealer call reports, the updated chart looked like this:
The United States: US railcar loadings (an indicator of economic activity) are still well above the levels we saw in previous years. However, railcar loadings of cyclical cargo have slowed more than they did in 2017 for this time of the year.
China: Lower government bond yields should support the housing market next year.
Trillions of dollars in equity lost. Silicon Valley stocks down 40%, 50%, 70%, or more. Dejected and disillusioned millennials. The smoldering ruins of the failed cryptocurrency industry.
I’m honestly not sure how much more happiness I can take. On top of it all, Slope traffic is going absolutely apeshit (which is kind of bad news, in a way, since we’re frantically trying to keep up with the demand of our suddenly very, very popular website).
And to think this is just the start of a multi-year, global bear market that is going to bring utter ruin to so many. I can hardly stand the excitement. Thus, I thought we’d catch up on my short term “Omega” prediction, which I’ve discussed before, most recently here.
Specifically, where do things stand with respect do the conjectural pattern I suggested?
Well, if this is to transpire, this is kind of what’s next: