The Daily Shot Brief – November 3rd, 2018

By The Daily Shot


The United States: This chart shows the difference between CEOs’ future expectations and their assessment of the present situation. The second chart has the same measure for the consumer.

Source: Gavekal


China: The Caixin/Markit Composite PMI (manufacturing + services) is approaching 50 (business activity growth is stalling).

Continue reading The Daily Shot Brief – November 3rd, 2018

We Shall See

By Tim Knight

Well, let’s take one last look at what the odds are saying about the election today. I guess we’ll know in about 16 hours or so where things really wound up.

Over the course of time, it certainly seems like the odds have been strengthening for the Dems. You wouldn’t know it from a lot of the news out there, though. Depending on where you look for the news, it’s either going to be a huge red wave, a huge blue wave, or no wave at all. No one seems particularly interested in data. Just conjecture.

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Economic Policy Uncertainty and Global Equities

By Callum Thomas

It seems over the past few years the only certainty has been rising uncertainty, and the folk at Economic Policy Uncertainty have a set of indexes which map this trend out well.  Their indicators use algorithms to generate readings based on the flow of news.  As the charts below show, there are some important trends in these indicators, and a couple of key linkages with global equities and global stock market volatility.

The key highlights on global economic policy uncertainty are:

-The trend of the past decade has been for rising economic policy uncertainty.

-The peaks and troughs of policy uncertainty tend to line up with the swings and cycles in global equities, for a few good reasons.

-The spike in volatility is consistent with the rise in the economic policy uncertainty index, and the global equity market correction – and is a possible contrarian signal.

1. Global Economic Policy Uncertainty Trend: The first stop is to remark on the overall trend in global economic policy uncertainty, which has been on an almost consistent upward path.  Aside from the broad trend there are clear spikes and troughs in the indicator, and visually this tends to map to the swings and cycles in global equities. Like clockwork, the indicator has made a particular surge in the October readings, which lines up with the heightened market volatility we’ve encountered.  This makes sense both from the point of view that greater policy uncertainty is bad for markets, and bad market conditions also feed-back to foster policy uncertainty.

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Wizard’s First Rule

By Keith Weiner

Terry Goodkind wrote an epic fantasy series. The first book in the series is entitled Wizard’s First Rule. We recommend the book highly, if you’re into that sort of thing. However, for purposes of this essay, the important part is the rule itself:

“Wizard’s First Rule: people are stupid.”

“People are stupid; given proper motivation, almost anyone will believe almost anything. Because people are stupid, they will believe a lie because they want to believe it’s true, or because they are afraid it might be true. People’s heads are full of knowledge, facts, and beliefs, and most of it is false, yet they think it all true. People are stupid; they can only rarely tell the difference between a lie and the truth, and yet they are confident they can, and so are all the easier to fool.”

Does this not aptly describe the belief that the dollar will lose its reserve status, will collapse relative to other paper currencies, and is facing imminent hyperinflation with a skyrocketing gold price?

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Midterm Elections Have Not Provided A Reliable Short-Term Market Edge

By Rob Hanna

Today I decided to look at SPX performance following past mid-term elections. I did not find much that suggested a strong edge. Below is a look at results since 1970 following mid-term elections.


The numbers suggest perhaps a mild inclination for the market to “celebrate” the results on Wednesday. After that there does not appear to be a strong tendency in either direction. Below are the 1-day instances listed out for those that are interested.

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M1 Money Multiplier FINALLY Exceeds 1.0

By Anthony B. Sanders

As Banks Reduce Their Excessive Reserves

It has been an agonizing 10 years since the housing bubble collapse and the financial crisis, not mention a surge in banking regulations such as Dodd-Frank and the creation of the Consumer Financial Protection Bureau.

But 10 years after, the M1 Money Multiplier has FINALLY broken through the 1.0 barrier.


The M1 Multiplier means that every dollar created by the FED (an increase in the monetary base M0) will result in a <1 dollar increase of the money supply (M1), as is evident from the figure below. So, the credit and deposit creation of commercial banks is limited in this case. The banks are still holding on to a lot of excess reserves, but that amount is finally starting to comedown so that the M1 Money Multiplier has finally broken the 1.0 barrier.

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MBS and the Core

By Doug Noland

The Dow (DJIA) traded as low as 24,122 in late-Monday afternoon trading. By Friday’s open, the Dow had rallied 1,457 points, or 6.0%, to 25,579. Relatively speaking, the Dow was a tame kitten. From Monday’s intraday lows, the Nasdaq100 rallied as much at 7.8%. The Semiconductors won this week’s Wild Animal competition, rallying 12.7% (week’s lows to highs). At 11.9%, the Biotechs were a close second. The Homebuilders (XHB) rallied as much as 11.3% before ending the week with a gain of 7.3%.

A couple obvious questions come to mind: Bear market rally or just another “buy the dip, don’t be one” opportunity for a market again ready to scale new heights? Is President Trump now ready to strike a trade deal with China – or was he just goosing markets ahead of the midterms?

Let’s start with the markets. They certainly had the likeness of a classic “rip your face off” bear market rally. The Goldman Sachs Most Short index surged 9.0% off Monday lows. For the week, this index rose 6.1%, showing off a 2.5 beta versus the S&P500’s return (6.1%/2.4%). In the semiconductor space, heavily shorted On Semiconductor, NXP Semiconductor, AMD and Micron Technology gained 23.9%, 18.5%, 14.8% and 13.9%, respectively. A long list of heavily shorted retail stocks gained double-digits, as the Retail index (XRT) surged 4.3% for the week.

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Positive Implications for Gold Miners if Crude Oil Breaks Down


It’s an over obsessed upon commodity, previously hyped for its (Hubbert’s) “peak” status by “experts” like T Boone Pickens and a whole clown show of promoters amplified by the media at the time.

Now WTI Crude Oil has reached a thick resistance zone (as managed in NFTRH for the last couple of years) and may be breaking down from a peak of a whole other kind. Here is the monthly chart we use.


It is preliminary, and one weekend OPEC jawbone could put oil back up in the consolidation. But as of now the price has ticked below the previous 2018 low to close the week. It is not a good look… unless you’re a gold bug, that is. More on that later.

Continue reading Positive Implications for Gold Miners if Crude Oil Breaks Down

The Stocks-Bonds Interplay

By Steve Saville

It’s normal for the stock market to ignore a rising interest-rate trend for a long time. The reason is that while the interest rate is a major determinant of the value of most corporations, the interest rate that matters for equity valuation isn’t the current one. What matters is the level of interest rates for a great many years to come. Therefore, a rise in interest rates only affects the stock market to the extent that it affects the general perception of where interest rates will be over the next decade or longer.

To further explain, the value of a company is the sum of the present values of all its future cash flows, with the present value of each future cash flow determined via the application of a discount rate (interest rate). Nobody knows what these cash flows will be or what the appropriate discount rate should be, but guesses, also known as forecasts, are made. Clearly, when discounting a set of cash flows spanning, say, the next 30 years, it won’t make sense to simply use the current interest rate. Instead, the analyst doing the calculation will have to make a stab at what will happen to interest rates in the future.

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This Incredibly Bullish Seasonal Period Has Just Begun

By Rob Hanna

With the calendar moving from October to November, it has now entered its “Best 6 Months”. The “Best 6 Months” tendency was first published by Yale Hirsch, founder of the Stock Trader’s Almanac, in 1986. The concept behind the “Best 6 Months” is simple. Seasonality suggests that over the last several decades the market has made a massive portion of its gains between November and April. And during the remaining 6 months, it has generally struggled to make headway.

Additionally, the market shifted into the 3rd year of the Presidential cycle. Here at Quantifiable Edges we measure the Presidential Cycle years from November – October rather than January – December. That allows the cycle years to better match up with the elections, which take place in early November. It also makes for easy evaluation when combining it with the “Best 6 Months” cycles. The 3rd year of the Presidential Cycle has been a strong one.

When the Best 6 Months and the 3rd Year of the Presidential Cycle have been active at the same time, the results since 1960 have been outstanding. In the table below I have listed out each instance.


Continue reading This Incredibly Bullish Seasonal Period Has Just Begun