Really Looking for Inflation, Part 1

By Jeffrey Snider

Most people have been looking at Jerome Powell’s Chairmanship of the Federal Reserve as continuity, a comprehensive extension of Janet Yellen’s (and therefore Bernanke’s). This would by nature include all the nasty habits Chairman Yellen had picked up during her one term. At the top of that list is the word “transitory”, particularly how it came to be used during her tenure in a manner wholly inconsistent with its meaning.

This expression she applied mostly to inflation, or as if somehow a valid excuse for the central bank missing its inflation target (mandate) for the last half of Bernanke’s second term as well as the entirety of her own. Six years cannot fall inside the definition of transitory. But when you have no other alternate theory?

At his Humphrey-Hawkins mandated testimony last month, Jerome Powell briefly mentioned the other undershoot. This one happens to be the very factor that policymakers are counting on for transitory to end. Alongside a great many economic problems, worker wage rates have remained stagnant in nominal terms, and atrocious in real terms even with low calculated inflation.

Powell, however, is upbeat (when is he not?) Wages, he told Congress, “should increase at a faster pace as well,” for one because inflation has been “as likely reflecting transitory influences that we do not expect will repeat.’’ Weak wages are transitory, too?

Continue reading Really Looking for Inflation, Part 1

Navarro Says He’d Short Navarro In Cohn Replacement Race

By Heisenberg

Well, you can rest (a little) easier because according to Peter Navarro himself, Peter Navarro is not likely to replace Gary Cohn:


That soundbite comes from a cameo he just made on Bloomberg TV and to be clear, it was the only positive part of the brief interview.

Markets seem to have pared losses once Navarro claimed he wasn’t in the running for Cohn’s vacated position, which should be a sign to the Trump administration about what investors think about Peter. Of course that nuance will be completely lost on them.

Again, the rest of the interview was a shitshow. Navarro parroted his own talking points that cast America as a victim of globalization and continued to push the absurd narrative that U.S. allies are somehow conspiring to take advantage of us on the way to impoverishing industrial workers and bankrupting American industry.

“Even bigger tariffs imposed on solar panels and washing machines earlier this year have already boosted those domestic industries,” he claimed, before insisting that “all we’re trying to do with the steel and aluminum tariffs is to defend America.”

Obviously, that’s fucking absurd. America is not under attack and thus there’s nothing to “defend” it from. Globalization just is. It is a phenomenon and a consequence of humanity’s advancement away from nationalism and inward-looking policies towards a future where everyone shares a common destiny.

Try as he might, Peter isn’t going to reverse that, and neither is Trump, and neither are you, and neither is Wilbur Ross, who showed up on CNBC this morning as part of the administration’s all-hands damage control effort.

If the best thing Peter said was that he wasn’t in the running to take Gary’s position, the worst thing he said was this:

There you go, allies. Take that.

Oh, and hilariously, he also claimed he’s “going to miss Gary Cohn,” who Peter says he “loved” having conversations with.

We wonder if the feeling was mutual.

Global Equity Winners and Losers

By Callum Thomas

For anyone who has been looking at the detail across sectors, factors, and styles in global equities, there have been a couple of peculiar and extreme standouts.  Relative performance across a select few factors and styles seem to have accounted for much of the new bull market in global equities, and what’s interesting is, the February correction did little-to-nothing to change this stark trend.

The chart comes from a recent edition of the Weekly Macro Themes report, which looked in detail at relativities in global equities, and how the extremes may resolve.

The chart in question shows the average relative performance across momentum, low dividend yield, growth vs value, and cyclicals vs defensives.


 The line in the chart is a simple average of the aforementioned styles and sectors.  So basically, it’s high growth, high momentum, low dividend yielding, cyclical stocks that have performed the best, and been the major drivers of the global equity bull market.

The growth/cyclicals aspect probably makes a degree of sense, given how widespread and substantial the acceleration in global growth has been.  But even so, the performance since early 2017 has been simply extreme.

When you see extremes in markets you ought to pay attention. If there’s a rule of thumb that stands the test of time in markets, it’s that extremes don’t last.  Indeed, often times extremes can unwind faster and further than you expect.  I would say there has probably been substantial flows chasing these styles and sectors too and that his remains a key vulnerability for stocks, and a potential nasty surprise for those who jumped on the bandwagon.

This article originally appeared as a submission at See It Market. Follow us on:




By Tim Knight

Well, the world seems to be treating it as a huge surprise that Gary Cohn is ditching the White House, even though he’s been dropping broad hints about it for a while now. Sadly, the marvelous plunge we saw instantly when trading opened Tuesday night has been cut about in half. The markets are still down, sure, but not nearly as much as before.


Although, let’s face it, Mr. Cohn is a shrewd man. In exchange for his brief stint in Washington, he was able to:

  1. Dump his quarter-billion dollars in Goldman Sachs shares tax free (ostensibly to avoid “conflict of interest” – – uh-huh)
  2. Push through a tax bill to permanently give him and his cronies a greatly-reduced tax liability.

I wouldn’t be surprised if he performed his “public service” career with the intent of making it brief and self-serving. If so, mission accomplished on both fronts.

Or maybe it was out of selfless love for his country, right? Right?

It’s Not Bad Trade Deals–It’s Bad Money, Part 2

By David Stockman

In Part 1 we made it clear that the Donald is right about the horrific results of US trade since the 1970s, and that the Keynesian “free traders” of both the saltwater (Harvard) and freshwater (Chicago) schools of monetary central planning have their heads buried far deeper in the sand than does even the orange comb-over with his bombastic affection for 17th century mercantilism.

The fact is, you do not get an $810 billion trade deficit and a 66% ratio of exports ($1.55 trillion) to imports ($2.36 trillion), as the US did in 2017, on a level playing field. And most especially, an honest free market would never generate an unbroken and deepening string of trade deficits over the last 43 years running, which cumulate to the staggering sum of $15 trillion.

Better than anything else, those baleful trade numbers explain why industrial America has been hollowed-out and off-shored, and why vast stretches of Flyover America have been left to flounder in economic malaise and decline.

But two things are absolutely clear about the “why” of this $15 trillion calamity. To wit, it was not caused by some mysterious loss of capitalist enterprise and energy on America’s main street economy since 1975. Nor was it caused—c0ntrary to the Donald’s simple-minded blather—by bad trade deals and stupid people at the USTR and Commerce Department.

Continue reading It’s Not Bad Trade Deals–It’s Bad Money, Part 2

Trump and Tariffs – Not a New Risk

By Michael Ashton

Last week, the stock market dove in part because President Trump appeared to be plunging ahead with new tariffs; on Monday, the market recouped that loss (and then some) as the conventional wisdom over the weekend was that Congress would never let that happen and so it is unlikely that tariffs will be implemented.

I’m always fascinated by market behavior around events like this. Investors seem to love to guess right, and to put 100% of their bet on an outcome that depends on being right. Here’s what I know about tariffs – prior to last week, if there was a risk that tariffs would be implemented that risk was not priced into the markets. And markets are supposed to price risks. Regardless of what you think the probability of that outcome is, surely the probability is non-zero and, therefore, ought to be worth something on the price. Putting it another way: if I was willing to pay X for the market when I wasn’t worried about the possibility of the detrimental effect of future tariffs, then assuredly I will pay less than X once I start to consider that possibility. Although the outcome may be binary (there will be increasing tariffs and decreasing free trade, or there won’t be), the risk doesn’t have to be either/or.

This is one of the things that irritates me about the whole “risk on/risk off” meme. There is no such thing as “risk off.” Risk is ever-present, and an investor’s job is not to guess at which risks will actually present themselves, but to efficiently preserve as much upside as possible while protecting against downside risks cheaply. Risk management is really, really important, but it often seems to get overlooked in the ‘storytime’ that 24-hour market news depends on.

To be sure, the risk of tariffs coming out of the Trump Administration is not new…it’s just that it has been ignored completely until now. Right after Trump’s election, in our Quarterly Inflation Outlook I wrote about which elements of Trump’s professed plans were a risk to steady inflation. The one area which I felt could be the real wildcard leading to higher inflation as a result of policy (as opposed to higher inflation from natural dynamics, which are also a risk as interest rates normalize) was the possibility of a Trump tariff. Here is what I wrote at that time – and it’s poignant today:

Continue reading Trump and Tariffs – Not a New Risk

Trump Advisor Cohn Resigns, S&P 500 Futures Slide (Tariffs Are A BAD Idea)

By Anthony B. Sanders

Goldman Sach’s Gary Cohn has resigned from the Trump Administration, allegedly over Trump’s threat of imposing tariffs on steel and aluminum.  It is not the resignation of Cohn that is causing the jitters (there are plenty of smart, free trade advocates around). It is the realization that a destructive tariff may be a reality (and the resulting retaliatory tariffs).

(Bloomberg) — The prospect of escalating protectionism depressed European and Asian stock markets on Wednesday as President Donald Trump’s plans to punish foreign imports appeared to gather force. U.S. equity futures slumped, while most government bonds climbed.

The Stoxx Europe 600 Index headed for the first drop in three days, led by mining and auto shares. Gauges in Asia slid earlier as investors mulled the implications of the resignation from Trump’s administration of economic adviser Gary Cohn, a free-trade proponent. News that the White House is considering clamping down on Chinese investments and imposing broader tariffs added to the gloom.

Cohn’s resignation “shows that within the Trump administration the pendulum is swinging toward anti-trade,” said James Cheo, an investment strategist at Bank of Singapore. “What we should be watching out for is how other countries react in response to the tariffs.”


As a general rule, trade tariffs are a BAD idea. They are often levied by a country to protect it’s industries from foreign competition. The history on tariff wars is bleak, such as the Smoot-Hawley Tariff Act that was signed into law on June 17, 1930. The act raised U.S. tariffs on over 20,000 imported goods, allegedly to protect infant industries.

Continue reading Trump Advisor Cohn Resigns, S&P 500 Futures Slide (Tariffs Are A BAD Idea)

That’s Not a Bond Bear Market

By Kevin Muir

MacroTourist Announcement.

I am going to break from regularly scheduled programming with a quick story.

Eighteen years ago today, I was sitting on the institutional equity derivative desk at a big bank-owned Canadian securities dealer. I had not yet turned thirty, but I was lucky to have been given a chance to trade for the bank at an early age, and combined with the great DotCom bull market, I had done better than any young punk deserves. But then my first child was born, and I realized I no longer wanted to deal with the issues of working in a large organization, so I quit. I didn’t know what I wanted to do. I just knew I wasn’t having fun anymore and life was too short.

So I set about to trade for myself. I didn’t know if I would be successful, but I figured I could always go back.

To no great surprise, it was tons of fun. No one to tell me I couldn’t trade such and such security. No office politics. No commuting to a downtown office. And most importantly, I could spend more time with my growing family.

I found the freedom allowed my trading skills to expand into other areas of the financial markets that had always interested me. Soon I was no longer just an equity derivative specialist, but fluent in a wide array of different asset classes. Moving to whatever area of the market offered the best opportunities, I found myself successful enough to never have to go work for a big institution again.

Well, one year faded into another, and last fall my wife and I sent our firstborn off to university.

I always knew at some point I wanted to do more with my career, but I wasn’t sure when. Writing the MacroTourist newsletter was my first step. Sharing the years of wisdom earned from countless hours staring at charts and pouring through research was an enjoyable experience. To be truthful, I often get more than I give with the letter. I am hugely appreciative of the loads of kind readers who share their vast knowledge of the financial markets.

Yet I still wanted to do more. To take my aspirations to the next level, I concluded I had reached the point where it would be better to team up with some people with experience in the money management business.

Therefore, last month I took the next step and joined a colleague at his investment management firm. It’s a great fit for me. It’s an excellent boutique firm that caters to high-net worth individuals and families, with terrific employees that make even the hard work fun. And most importantly, my old friend (and new boss) shares my philosophy about markets and the financial services industry.

I am proud to announce that I now work at East West Investment Management. Together, I believe we can create some innovative and dynamic solutions for our clients. Although it has been a long time since I was a young buck on the desk, I feel like it’s 1994 all over again and I am stepping back on the trading floor for the first time. We have some exciting things planned for our firm. If you are an accredited investor and would like to be kept abreast of the developments, then please sign up for our newsletter.

I am also pleased to announce the ‘Tourist will continue exactly as-is. We commit to keeping the content fun yet informative. As promised, we won’t be spamming you with advertising.

Thank you for your support throughout the years. It’s been a ton of fun writing the ‘Tourist and I look forward to many more. Now, that’s it for the sappy stuff. I promise no more for a long time. Onward to talk about the markets!

What a true bond bear market looks like

A couple of years ago I remember having a discussion with a hedge fund manager. I told him about my theory that the next big surprise would be higher bond rates, not the other way round. I distinctly remember him lecturing me about the overwhelming forces of demographics, technology and globalization. All of these added up to deflation – not inflation. I couldn’t convince him that when everyone agrees on something, it’s time to expect something different. We agreed to disagree.

Continue reading That’s Not a Bond Bear Market

China Going Boom

By Jeffrey Snider

For a very long time, they tried it “our” way. It isn’t working out so well for them any longer, so in one sense you can’t blame them for seeking answers elsewhere. It was a good run while it lasted.

The big problem is that what “it” was wasn’t ever our way. Not really. The Chinese for decades followed not a free market paradigm but an orthodox Economics one. This is no trivial difference, as the latter is far more easily accomplished in a place like China. Economists do love their Keynes, a doctrine that falls on a different part of the same spectrum as Communism.

At the 17th Communist Party Congress way back in 2007, the idea of the “harmonious society” was in trying to strike some balance between growth and living with growth. Rapacious transformation had uglied for a great many the simple basics of human life. The Chinese understandably did not want to give up the economy for it, however.

In seeking that balance, the 17th Party Congress altered slightly Chinese communism. Party officials there going back to Mao had always sought to make sure of their distinct version of political, social, and economic doctrine. Communism in China wasn’t Communism in Russia and the Soviet Union, though you’d be forgiven for mistaking the vast similarities.

For a very long time, starting in the eighties and early nineties, there was an embrace of markets as if that would define China’s ideological difference. After the massacre at Tiananmen Square, as well as the fall of Soviet Russia, a more Western embrace seemed almost easy by comparison. That included total dollarization in money as well as economy. China opened a bit, and the “dollars” flowed in.

Continue reading China Going Boom

Eighteen European Countries Have Negative 2Y Sovereign Yields

By Anthony B. Sanders

Italy’s Banca Monte Dei Paschi Siena Down From 9,097 Euros In May 2007 To 3 Euros Today

Is Europe out of the woods yet? Nope. Eighteen European countries have negative 2-year sovereign yields. Not a good sign.


Italy has positive YoY GDP growth (1.61%), but the second highest Debt as a percentage of GDP (after Greece).


With the Italian elections a complete mess (like their economy and banking system), problem-child bank, Banca Monte Dei Paschi Siena, continues its downward drift.

Continue reading Eighteen European Countries Have Negative 2Y Sovereign Yields

Rick Rule on Pretium (PVG) put through the Ottotrans™

By Otto rock

Rick Rule did BNN’s Market Call today and the whole thing is up on the website’s video shelf now. I’m going to offer up this segment on Pretium (PVG) as the most interesting (for my taste, anyway). Here’s the transcript and below that, the Ottotrans™:

Rule: “I have been a recent buyer of Pretium Resources. I have a very very high degree of confidence in the CEO Bob Quartermain, who I backed in his first venture which was Silver Standard I remember it going from 72c to $45 which of course engendered a certain fondness in me. Pretium as you may know started up a mine in Northern British Columbia and the first quarter they had was extraordinarily good which set market expectations very high. The second quarter was fairly bad. I think what you have to do in a deposit like this is you have to let them break the mine in. I remember saying to my clients six or seven months ago, “It’s going to take four quarters before we see what we see here”. I’m not saying that Pretium is out of the woods, what I’m saying is it is way oversold, risk relative to reward. I personally object to some market participants’ criticism of Bob Quartermain, who has become over 30 years, in addition to somebody who has made me look smart, a close personal friend and any criticism of Quartermain is insane.

Interviewer: “And that aside, what would you say is the biggest misconception about this stock?”

Rule: “I just think it’s too early to know how it’s going to work out. They had a spectacular first quarter which is tough to do when you’re breaking a mine in, obviously with regards to grade they got lucky. In the second quarter they had a lousy quarter. We have known for some period of time, given the erratic and very high grade nature of that gold, you’re going to have good quarters and you’re going to have bad quarters, you’re going to have to look over the course of a year to get a feeling of how that thing is going to produce over time.

Ottotrans™: “I am underwater on Pretium and have averaged down.”

China Property Outlook

By Callum Thomas

This week the “Chart of the Week” is focused on the outlook for China’s property market.  The Chinese property market is perhaps one of the most important markets in the world, if not the most.  What happens to this market has direct flow-on effects to global commodity prices, emerging markets and commodity producers, and considerable influence on the cyclical macroeconomic and risk backdrop domestically.

The chart comes from a report on the outlook for China’s economy (and the impact on the balance of risk vs opportunity for Copper prices).  Basically the chart shows the average year-on-year price change across the largest 70-cities in China against our leading indicator.  The key conclusion being that the Chinese property market is about to head into a slowdown.

The leading indicator incorporates interbank market interest rates, government bond yields, money supply growth, and property stock relative performance.  Historically these factors have proven to offer a good lead on the outlook (and have helped me call tops and bottoms in this very cyclical market!), and the economic logic behind these factors is sound e.g. interest rates have a direct impact on financing costs.

In terms of the implications, it really depends on whether the outcome is a slowdown or a downturn.  Given the lead-indicator has stabilized there is some hope that it will be just a slowdown (a downturn would be where property prices go into contraction, leading the property sector into recession).  However the impact of a slowdown will still be felt across global markets, as it will impact on construction and raise downside risks for commodities.

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