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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Hey, Donald: It’s Not Bad Trade Deals—It’s Bad Money (Part 1)

By David Stockman

The global trading system’s newly activated one-man wrecking crew was at it over the weekend. Mustering up his best Clint Eastwood impression, Trump invited the Brussels trade bureaucrats to make his day. Retaliate against Harley’s Hogs, Jim Beam’s bourbon and Levi’s Skinny Jeans, proclaimed the Donald, and you folks are going to find yourself neck deep in BMW’s:

If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!

Let us reiterate what we said last week. This is not just another case of Trump banging on a twitter keyboard that doesn’t push back—-unlike the courts, most of the Dems, much of the Congressional GOP and a goodly part of his cabinet.

On the matter of trade policy, by contrast, the Donald has considerable unilateral running room owing to the vast presidential powers bestowed by section 232 of the 1962 trade act and section 301 of the 1974 trade act. The former authorizes protectionist measures, including tariffs, to safeguard “national security” and the latter authorizes such measures in order to enforce US trade agreements or to counter “unfair” foreign trade practices.

Continue reading Hey, Donald: It’s Not Bad Trade Deals—It’s Bad Money (Part 1)

The Wait Awaits

By Tim Knight

Hey, first, let’s do a little experiment to see if Wall Street analysts have become any better at their well-paying jobs. Let’s take, for instance, Blue Apron, and see what the boys had to say:


OK. Currently not a single “sell”, and a solid ‘Hold” for the entire available history. How’s the stock doing?


And there we have it. Conclusion: being a Wall Street “analyst” is the easiest job on the planet. Just say everything is a “Buy” (or, if it’s real toilet paper, a “Hold”) and collect a huge paycheck. Done! Some things never change.

Anyway, volatility has come back into the market, but things still seem awfully muddled now. Last week we had a very important break (on an intraday basis) in the ES, circled below. However, we had a lot of “fight back” on Friday and today (Monday). What started out as a nice weak day across the board reversed into a surge toward the horizontal drawn below. My mental “line in the sand” is about 2740 on the ES.

Continue reading The Wait Awaits

The Fed’s Accidental Preoccupation with Housing

By Michael Ashton

I get asked frequently about Core PCE inflation. Because the Fed obsesses over Core PCE, as opposed to one of the many flavors of CPI (core, median, trimmed-mean, sticky-price), investors therefore obsess over it as well.

My usual response is that I don’t pay much attention to Core PCE, for several reasons. First, there are no market instruments that are remotely tied to PCE, so you can’t trade it (and, for the conspiracy-minded among you, that means there is no instrument whose market price can call shenanigans if the government figure is ‘massaged’). Second, while PCE is interesting and useful for some uses – it measures prices from a different perspective, mainly from the supplier-side of the equation so that, for example, it captures what Medicare pays for care as opposed to just what consumers pay – those aren’t my uses. Markets respond to inflation, and to perceptions of inflation, but what the government pays for healthcare isn’t something we perceive directly.

So, I care about PCE more than, say, PPI, but only just. The only reason I care about PCE is that the Fed cares about it.

Now,  PCE differs from CPI in a couple of key ways – apart from the philosophical way mentioned above, that one measures the price of things businesses sell and one measures the price of things people buy. But those key ways are mostly interesting to pointy-head economists who are interested in calculating the third decimal point. Me, I’m just trying to get “higher” or “lower” correct. (Ironically, those folks who are interested in the third decimal point are the same folks who miss the big figure in front). So they wail at the following chart (source: Bloomberg), and moan about how the Fed has been unable to get inflation higher because of this persistent shortfall of PCE compared to CPI. Try harder!

Continue reading The Fed’s Accidental Preoccupation with Housing

A look at the February selloff and the Quantifiable Edges CBI

By Rob Hanna

As the early February volatility explosion unfolded, it was difficult to anticipate when the selling would reach a level that the market would find a bottom (at least temporarily). The selloff exceeded historical levels based on % changes in range and volatility increases. One indicator that once again demonstrated its worth was the Quantifiable Edges Capitualtive Breadth Indicator (CBI). The CBI quickly spiked to 25 and then continued up as high as 31 in the ensuing days. I noted the initial spike here on the blog, and tweeted (@QuantEdges) updates over the following days and weeks.

One CBI-based strategy I have shown in the past involves going long the S&P 500 when the CBI spikes to 10 or higher, and then exiting the position on a return to a “neutral” CBI level of 3 or lower. The chart below shows how this approach would have worked out during the February market.


In this case, the selling was not over, and another brief leg down would have had to be endured to take advantage of the strategy. But those that utilized the edge and showed the fortitude to hold until the CBI again turned neutral were again rewarded.

Continue reading A look at the February selloff and the Quantifiable Edges CBI

Gold Volatility Declines As Stock & T-Note Vol Increase With Fed Balance Sheet Shrinking

By Anthony B. Sanders

As Jerome Powell and The Federal Reserve continue to raise rates and let Treasury Notes on their $4.4 trillion balance mature, we are seeing financial market disruptions, such as spikes in stock market and 10-year Treasury Note volatility. But the one asset that is seeing a decline in volatility is gold.

(Bloomberg) — While volatility surged across asset classes last week, a gauge tracking the cost of hedging against price swings in gold fell. The CBOE/COMEX Gold Volatility Index dropped for a third straight week, the longest streak of the year, as the biggest exchange-traded fund tracking bullion posted its longest run of inflows since September. With the prospect of higher inflation and U.S. tariffs on metals, investors are turning to havens such as gold.


As  The Fed let’s its balance sheet shrink, we have seen a spike in the VIX and TYVIX at th beginning of February after a large block of Treasury Notes matured at the end of January. While VIX and TYVIX subsided, they remaind elevated relative to levels before the end of January.

Continue reading Gold Volatility Declines As Stock & T-Note Vol Increase With Fed Balance Sheet Shrinking

Inflation is Not Under Control

By Keith Weiner

Let’s continue on our topic of capital consumption. It’s an important area of study, as our system of central bank socialism imposes many incentives to consume and destroy capital. As capital is the leverage that increases the productivity of human effort, it is vital that we understand what’s happening. We do not work harder today, than they worked 200 years ago, or in the ancient world. Yet we produce so much more, that obesity is a disease more of the poor than the rich. Destruction of capital will cause us to produce less, and that will mean reverting to a lower quality of life.

Keeping up with Inflation

Let’s start off by addressing how not to look at this destruction. There is a facile belief offered by both Fed propagandists and Fed critics alike. It goes like this. Increased quantity of dollars causes increased prices. Therefore it’s like a tax. And the way to measure your wealth is divide the liquidation value of your portfolio by the consumer price index. This tells you if your stocks, bonds, real estate, and the family farm could trade for more groceries and cars this year. Or less. In this view, you are hoping that somehow your assets keep up with inflation.

We insert the word somehow, because it is a kind of magical thinking. Everyone knows that a central bank cannot print wealth. If it could, Zimbabwe would be the richest country. Yet, if asset prices go up due to central bank policies, most asset owners feel richer. At least if consumer prices do not go up proportionally. One corollary of the fallacy of the Quantity Theory of Money is the fallacy of using consumer prices as the measure of economic value.

Why do we say this is not the method of looking at capital destruction? It’s because over the last 10 years, the Fed and other central banks have overstimulated capital destruction. And yet the above metric of the purchasing power of your estate has gone up. Everyone (at least those who own substantial assets) feels richer, despite economy-wide impoverishment.

If you were a doctor, and your deathly ill patient had a body temperature of 98.6F (37C), you would have to find another measurement tool. Clearly not all diseases cause a fever. Well, monetary doctors need to look past consumer price indices, inflation so called, and purchasing power of your assets.

Our first observation is that the purpose of a capital asset is not for spending. The prudent investor does not think about spending his savings, or selling the family farm. He says “I cannot afford that $300,000 Ferrari” if he has only a million or two in the bank.

Continue reading Inflation is Not Under Control