Psychological Overhang: Full Week Ahead Preview

By Heisenberg

U.S. politics and trade are likely to dominate the headlines this week, which means market participants will yet again be forced to cope with the psychological overhang from Donald Trump’s ongoing legal trials and tribulations (and “trials” can now be taken quite literally) and the threat of another escalation on the tariff front.

Last week was easily the worst week of Trump’s presidency. In addition to Michael Cohen pleading guilty and implicating the President in open court, Paul Manafort was convicted on eight counts and Trump Organization CFO Allen Weisselberg was granted immunity by federal prosecutors, a development that bodes particularly ill given how much he likely knows. It also seems likely that Trump will move against Jeff Sessions sooner rather than later.

On trade, there’s progress on the NAFTA front as Robert Lighthizer appears to be closing in on a deal with Mexico, but low-level talks between the U.S. and a Chinese delegation went nowhere last week, setting the stage for Trump to move ahead with duties on an additional $200 billion in Chinese imports. Here’s BNP with a bit of color:

Continue reading Psychological Overhang: Full Week Ahead Preview

Weekly Global Trade Indicators

By Callum Thomas

Global trade growth has been something we’ve picked really well both going into the global trade recession in 2015/16 and the subsequent recovery and acceleration in 2016/17.  It has helped raise conviction on risk management calls around commodities and emerging markets, and getting more aggressive on the growth vs defensive asset allocation (respectively).  So it’s worth highlighting this chart of weekly global trade indicators, which after a notably deceleration in the combined signal, there has been a significant improvement in the past few weeks.

With the global manufacturing PMIs softening recently, it’s interesting to see some data which presents a contrastingly bullish picture. Indeed, the seeming chorus of bearishness spurred by the deceleration in global trade may simply be wrong footed as global trade growth stabilizes.  In any case, we see no signs of imminent collapse in our key indicators at this point.

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Gold at the Crossroads

By Steve Saville

[This post is a modified excerpt from a TSI commentary published last month]

Although I’m not in total agreement with it, I can highly recommend Erik Norland’s article titled “Gold: At the Crossroads of Fiscal and Monetary Policies.” The article is informative and, unlike the bulk of gold-related commentary, actually deals with fundamental developments that could be important influences on gold’s price trend.

The article was published in early-May and states that the U.S. is in a mid-to-late stage recovery. While that statement was probably correct at the time, evidence has since emerged that the economy has entered the “Late-Expansion” stage.

Note that the “Late-Expansion” stage could extend well into 2019 or perhaps even into 2020 and that the best leading indicators of recession should issue timely warnings when this stage is about to end. By the way, the extension of the Late-Expansion stage is why the industrial metals markets probably will commence new intermediate-term rallies later this year.

My only substantial disagreement with the above-linked article is associated with the relationship between gold and fiscal policy. Parts of the article are based on the premise that expansionary fiscal policy and its ‘ballooning’ effect on federal debt are bullish for gold. This premise is false; expansionary fiscal policy is not, in and of itself, either bullish or bearish for gold.

The effects that fiscal policy and the associated change in government debt have on the gold price will be determined by their effects on economic confidence. Of particular relevance, there’s no good reason to assume that an increase in government debt will bring about a decline in economic confidence, which is what it would have to do to be bullish for gold. In fact, if an increase in government indebtedness is largely the result of reduced taxes then it could lead to increased economic confidence for a considerable time and thus put DOWNWARD pressure on the gold price.

That there should not be a consistent positive correlation between the gold price and the extent of US government indebtedness is borne out by the empirical evidence. In particular, the following chart shows that there was a NEGATIVE correlation between the US$ gold price and the US government-debt/GDP ratio between 1970 and 1995, with debt/GDP drifting lower during the long-term gold bull market of the 1970s and then trending upward during the first 15 years of gold’s long-term bear market.

Continue reading Gold at the Crossroads

New Highs on Low Volume During August

By Rob Hanna

SPX closed at a new all-time high on Friday. But NYSE volume came in at the lowest level since mid-July. Low volume at new highs can sometimes be a negative. Of course August frequently has low volume as many market participants are on vacation and not trading as actively. So I decided to look back at other times the SPX made a long-term high on light volume during the month of August. Results were bearish from 1-15 days out. The downside was generally realized over the next 3 days, though. Below is the list of instances along with their 3-day results.


It appears these low-volume August moves to new highs have not seen short-term follow-through momentum in the past. The number of instances is low, but all 6 saw the market lower 3 days later. So perhaps it is worth some consideration when determining your market bias over the next few days.

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Powell, Greenspan and Whatever it Takes

By Doug Noland

Fed Chairman Powell is in a tough spot, one made no easier now that he’s on the receiving end of disapproving presidential tweets. The global Bubble has begun to falter, which only exacerbates divergences between various markets and economies. The U.S. is booming, while China struggles and EM economies now stumble into the dark downside of an epic cycle. The U.S. economy and markets beckon for tighter financial conditions, while higher U.S. rates pose significant danger to fragile global markets already confronting a major tightening of financial conditions.

Powell played it safe in Jackson Hole. I imagine he’d have preferred to sit this one out. As such, his presentation was too heavy on rationalization and justification. The FOMC is trapped in Greenspan-style “baby steps,” and it is curious that the Fed Chairman would choose to praise Alan Greenspan for his nineties policy approach:

Continue reading Powell, Greenspan and Whatever it Takes

Architecture Billings Index Flashes Warning on Economy

By Tom McClellan

Architecture Billings Inquiries Index
August 24, 2018

The news of a 4.1% rate of GDP growth in Q2 of 2018 got the financial media excited.  4.1% was the rate of change compared to the prior quarter.  When we use a 1-year lookback, it is not quite that strong of a number, but still good news in terms of what it does to getting more people working and paying taxes.

The troubling news this week is that the latest data from the American Institute of Architects,, shows that their Architecture Billing Inquiries Index is headed downward, and that tends to be a problem for future GDP numbers.  This week’s chart shows a 6-month moving average of that Inquiries Index, and its recent downward movement does not offer a lot of hope for another really strong quarter for GDP in Q3.

Continue reading Architecture Billings Index Flashes Warning on Economy

Bond Market Volatility

By Callum Thomas

Following on from yesterday’s post on Cross Asset Volatility, the chart of today is a focus on bond volatility.  Specifically what we’ve got here is a look at the rolling annual sum of daily changes in the US 10 year treasury bond yield which exceeded varying hurdles (the smallest hurdle being 5 basis points).  What the chart shows is a collapse in bond volatility.  What’s interesting about this is that the smallest hurdle indicator is starting to turn up, and typically when these types of indicators turn up from such low levels it can mark a major turning point.  The issue is that a rise in volatility can come in a falling yield environment as well as a rising yield environment.

Continue reading Bond Market Volatility

Money Show

By Tim Knight

I’m on my way to the San Francisco Money Show right now, where I hope to spend a little time with my Tastytrade colleagues (which only happens about once a year). I’m bouncing along a train right now trying to hack together something resembling a post, so I’ll share a few thoughts on some ETF charts I find more interesting than the others.

First up is the commodity ETF symbol DBC, which is forming a beautiful top; it looks like the pattern is about 90% done. Here’s hoping for a break beneath that horizontal.

I realize EUR/USD isn’t an ETF, but I wanted to use it to mentioned something else: I believe the Euro is going to start pushing lower, and that’s going to drag emerging markets with it (as if they needed any other anchor this year).

Continue reading Money Show

Cross Asset Volatility

By Callum Thomas

This unassuming chart contains a wealth of information about the challenges we currently face with active asset allocation and the global macro backdrop.  Basically what it shows is an alternative measure of the average volatility across stocks, bonds, commodities, and currencies.  The bottom line is volatility across asset classes is starting to wake up from a deep sleep.

What’s driving this?  We can talk about how you should expect higher volatility as the market/business cycles mature (and indeed they are), but a big driver is and will continue to be politics and policy.  We’re in the middle of a major monetary policy experiment (quantitative tightening or QT) – if QE was a force for volatility suppression, it’s pure logic that QT should work in the opposite direction.  So investors need to start thinking about how to deal with this in their investment process, because with greater volatility comes greater opportunity.

Continue reading Cross Asset Volatility

Bad News For That Massive Treasury Short As Goldman Slashes Bond Yield Forecasts

By Heisenberg

Well, bad news for that crowded spec short in the 10Y: Goldman just slashed their year-end targets for G10 yields across the board.

Last Friday, when the latest CFTC data hit, Jeff Gundlach was pretty adamant about the possibility that a short squeeze might be imminent.

“Massive increase this week in short positions against 10 &30 yr UST mkts. Highest for both in history, by far”, Jeff tweeted, before warning that the lopsidedness “could cause quite a squeeze.”

As a reminder, the net non-commercial short in the 10Y increased to a record 698,194 contracts in the week through last Tuesday.



Continue reading Bad News For That Massive Treasury Short As Goldman Slashes Bond Yield Forecasts

Mortgage Purchase Applications Rise 4.2% WoW! And 2 More Fed Rate Hikes To Go

By Anthony B. Sanders

But Refi Apps Still Dead and Purchase Apps Declining

The good news is that mortgage applications, according to the Mortgage Bankers Association (MBA) rose 4.2% from the preceding week. Both purchase and refinancing applications rose.


The bad news? Refi applications are still dead.  Notice that the last large increase in mortgage rates (end of 2016) produced a large decline in refi applications. But the large increase in 2018  has produced a much smaller reaction.

Continue reading Mortgage Purchase Applications Rise 4.2% WoW! And 2 More Fed Rate Hikes To Go