Monthly Macro Monitor – November 2018

By Joseph Calhoun

Is the Fed’s monetary tightening about over? Maybe, maybe not but there does seem to be some disagreement between Jerome Powell and his Vice Chair, Richard Clarida. Powell said just a little over a month ago that the Fed Funds rate was still “a long way from neutral” and that the Fed may ultimately need to go past neutral. Clarida last week said the FF rate was close to neutral and that future hikes should be “data dependent” which makes this observer wonder what exactly past hikes were predicated on if not data. Maybe Powell’s thinking has changed since he made those remarks and he sent Clarida – and a few others – out to deliver the message that monetary policy is no longer on auto-pilot. Or maybe the bulls just want that to be true.  Yes.

And my admiration for Chairman Powell rises again. The speech he gave at Jackson Hole a few months ago may turn out to be one of the most important in the history of the Fed. He made it clear that while his predecessors may have depended on their academic models, he would not. And with his speech to the Economic Club of New York today he proved it. It has been obvious for some time now that the “booming economy” narrative was kaput. Our Jeff Snider has been writing about it for months and the market has been signaling it as loudly as it can. Powell finally got the message. It would have taken a crash for Bernanke or Yellen to believe the market over their models.

Continue reading Monthly Macro Monitor – November 2018

Consumer Discretionary Sector Shows Enormity of the Beat-Down

By Tom McClellan

Consumer Discretionary versus Consumer Staples

Investors’ appetites for risk taking can be measured with the comparison of the Consumer Discretionary sector versus Consumer Staples.  The big shift in their behavior recently shows the huge abandonment of risk appetite in October to November 2018, but it also creates a huge oversold opportunity.

The staples companies make things which consumers need all the time; our use of tooth paste and toilet paper does not vary much with the state of the economy.  But if economic prospects are looking grim, we might exercise “discretion” by holding off buying a new pair of $200 Nike sneakers, or a new car.  So if investors perceive a change of attitudes or of spending behavior, they bail out of the stocks of the Consumer Discretionary sector more so than out of the Consumer Staples.  That shows up as a movement downward for the relative strength ratio of the two.

Continue reading Consumer Discretionary Sector Shows Enormity of the Beat-Down

There is Evidence That Deflationary Forces Are Already Taking Hold in America

By Murray Gunn

When I was writing technical analysis reports for the customers of a major global bank, I received some interesting feedback from one of the bank’s relationship managers. The customers liked the reports, she said, but it would be good if I made them less “technical.” Making technical analysis reports less technical, hmmm. (To be fair, it is actually good advice because striking a balance between technical details and readability is an art.) Sometimes, though, an explanation of a concept cannot help but delve into some detail. So please bear with me on this one.

Evidence is emerging that banks in the U.S. are struggling to find the money required to fund their operations. The “Fed Funds Rate” that gets the headlines when it is changed by the Open Market Committee of the Federal Reserve is not the whole story when we are looking at the technicalities of the money market. That rate is actually the Fed Funds Target Rate (Upper Bound). You see, the Fed sets an interest rate range, currently between 2% and 2.25%. Every day, banks in America lend and borrow the reserves they hold at the Fed at a rate which fluctuates in between that range. That rate is called the Fed Funds Effective rate. If there is increasing demand for money from banks, the Effective Fed Funds rate will drift higher. Contrary to popular belief, therefore, the Fed does not control the Fed Funds rate.

Continue reading There is Evidence That Deflationary Forces Are Already Taking Hold in America

VIDEO: Top 5 Charts of the Week

By Callum Thomas

In this video we run through the free weekly email newsletter “The Top 5 Charts of the Week” and add a bit of extra comments and context. It’s a useful tour across some of our latest work and thinking and just a great selection of global macro/market charts.

This week we look at the following charts and themes:

1. Global PMI vs Bond Yields – the composite manufacturing PMI is pointing to a possible move lower in bond yields.

2. Developed Market PMIs – gone from synchronized strength in 2017 to asynchronous apathy in 2018.

3. Global trade growth (EM vs DM) – EM growth is accelerating whereas DM growth is softening. #divergence

4. Global equities death cross – the main global equity benchmark (ACWI) has put in a death cross (bear market warning sign), and now 80% of countries have seen this signal triggered.

5. US Margin Debt warning sign – this risk management indicator is starting to light up, so caution is advised.

Continue reading VIDEO: Top 5 Charts of the Week

One Nightmare to Go

By Tim Knight

Two days left this month, and two days until the summit. Tickety-tock.

As I mentioned earlier today, my speculation on Monday that more “bear pain” was ahead turned out to be agonizingly accurate. The speculative chart I offered back then was:

And we blew through that entire yellow zone and then some. Indeed, let’s take a hard look at the updated chart, since I’ve got a few points to make about it.

Continue reading One Nightmare to Go

Mexico: The New Mining Law and the Changing Scenario Around Mining (from IKN496)

By Otto Rock

You can rant or giggle at this blog’s contents as much as you like, it’s not where the real work goes on round these parts. This from The IKN Weekly IKN496, out on Sunday evening. I’ve been asked by a couple of subscribers to put it on the open blog and yeah, why not. Here you go.

Mexico: The new mining law and the changing scenario around mining

The main political risk news story out of the region last week is the very same we previewed last Sunday, a closer look into what we can expect from the new AMLO government for the Mexico mining sector. At the time last Sunday I expected to preview some of the potential negatives in the pipeline, but events overtook me and last week we saw a range of Mexico exposed mining stocks take steep dives on the political newsflow. Examples:

  • Fresnillo (FRES.L) down 15%
  • Torex Gold (TXG) down 15%
  • Southern Copper (SCCO) down 15%
  • MAG Silver (MVG) ( down 8%

However, not all Mexico exposed miners were whacked hard, or even at all, compared to the benchmarks. More examples:

Continue reading Mexico: The New Mining Law and the Changing Scenario Around Mining (from IKN496)

Bubble Burst? Smart Money Flow Index Continues To Decline To 1995 Levels

By Anthony B. Sanders

The Smart Money Flow Index, measuring the movement of the Dow in two time periods: the first 30 minutes and the last hour, has just declined AGAIN.


The Smart Money Flow Index, like the DJIA, has been around for decades. But it has just fallen to the lowet level since 1995.

Continue reading Bubble Burst? Smart Money Flow Index Continues To Decline To 1995 Levels

When SPX Closes Higher on Bad Breadth

By Rob Hanna

While the SPX closes higher on Tuesday, NYSE breadth was weak – both from an % Up Issues and % Up Volume standpoint. This triggered the study below from the Quantifinder. I also discussed it in last night’s subscriber letter.


Here we see numbers suggesting a substantial bearish edge over the next 1-4 days. Below is the full list of instances and their 4-day returns.

Continue reading When SPX Closes Higher on Bad Breadth