Regime Change

By Doug Noland

Deutsche Bank (DB) dropped 13% this week to a 15-month low. DB is now down 28% y-t-d. European banks (STOXX) sank 5.0% this week. Hong Kong (Hang Seng) Financials were down 4.9%. Japan’s TOPIX Bank index fell 3.3%. In the U.S., banks (BKX) were slammed 8.0%, the “worst loss in two years.” The Broker/Dealers (XLF) fell 7.3%.

It was also an active week in Washington. The Powel Federal Reserve raised short-term interest rates, and the new Chairman completed his first news conference. President Trump announced trade sanctions against China. There was more shuffling within the administration, including John Bolton replacing National Security Advisor H.R. McMaster.

Let’s start with the FOMC meeting. Analysts – along with the markets – were somewhat split between “hawkish” and “dovish.” As expected, the Fed boosted short rates 25 bps. On the dovish side, the Fed’s “dot plot” showed a median expectation of three rate increases in 2018 versus pre-meeting average market expectations of 3.5 – and fears of four hikes. The Fed upgraded its view of GDP prospects and lowered its forecast of the expected unemployment rate. Steady as she blows for normalization – markets not so much.

Continue reading Regime Change

High Debt Levels Rant

By Kevin Muir

[biiwii comment: not only is Keith my favorite git fiddler of all time, but he’s one of my favorite people. Bravo Macro Tourist; you’ve outdone yourself!]

I am going to break from regular market commentary to step back and think about the big picture as it relates to debt and inflation. Let’s call it philosophical Friday. But don’t worry, there will be no bearded left-wing rants. This will definitely be a market-based exploration of the bigger forces that affect our economy.

One of the greatest debates within the financial community centres around debt and its effect on inflation and economic prosperity. The common narrative is that government deficits (and the ensuing debt) are bad. It steals from future generations and merely brings forward future consumption. In the long run, it creates distortions, and the quicker we return to balancing our books, the better off we will all be.

Continue reading High Debt Levels Rant

Banging Bonds

By Tim Knight

As I wrote earlier, yesterday was completely bizarre for me, because soaring bonds and weakening interest rates really put the chill on my day (until the end, when it all worked out). Even though, as of this moment, the ES is green (OK, just barely) and the NQ has done about a 100 point about-face from the downside, I’m just as excited about today as I was yesterday at this time, simply because my positions are so interest-dependent. It seems to me bonds are offering great respect to that trendline I’ve drawn, having bounced off it twice.


Continue reading Banging Bonds

Crude Oil Swooping Up On Schedule

By Tom McClellan

Gold's leading indication for crude oil
March 23, 2018

The movements of gold prices lead similar movements in crude oil about 20 months later.  So if you watch what gold has already done, you can see the script for what oil prices are going to do.

It does not work perfectly; it is merely amazing, not perfect.

Crude oil prices had a brief swoon, dipping to $59/barrel in early February.  That matched a brief dip in gold prices 20 months earlier in May 2016.  Now oil prices are recovering, just as gold recovered to its July 2016 top.  But the recovery in oil prices should only be a brief one, as gold’s chart plot shows a big decline ahead for oil prices.

There is agreement in this next chart for that thesis that oil prices are headed lower.

Continue reading Crude Oil Swooping Up On Schedule

“Trade War”


It has in the past been “the financial crisis”, “the Euro crisis”, “Greek debt”, “Italian banks”, “the fiscal cliff”, “Brexit” and so on. Every one of those events an extension of Keynesianism and its debt-leveraged monetary magic tricks. But now the buzz phrase is “trade war”, a different kind of animal.

The brewing trade war with China is different. With every damn one of the events noted above we here in the anti-hype environs of (and before it, have tried to maintain perspective about why it was occurring (Thing 1, which we had anticipated in essence if not in the exact way it played out) or why they would not prove long-term bearish or bring on the end of the world (Things 2-6).

Indeed, we often note that inflammatory market events prove most often to be sentiment resets and buying opportunities as the herd pukes up its asset holdings. Keynesianism after all, has an elasticity to it despite its obvious and one day terminal faults. The elastic keeps stretching to this day.

Continue reading “Trade War”

When NDX Has Closed At A Multi-Week Low On A Fed Day

By Rob Hanna

As far as Fed Days go, Wednesday was a disappointment. Not only did it fail to rally, but it also left SPX and NDX at 10-day lows. With Fed Days typically bullish, finishing at a 10-day low is quite unusual. The results table below is part of a larger examination I did in last night’s Subscriber Letter (click here for free trial). It looks at prior Fed Day instances of 10-day low closes for NDX when it was in a long-term uptrend.


The numbers are quite impressive, and point to a move higher over the next several days. The suggestion is that the Fed Day decline is often an overreaction, and that the market is likely to bounce. NDX looks like it is going to get off to a rough start on Thursday, so it is going to take a momentum shift if we are going to see historical odds play out this time. But seeing some additional selling is not unusual. Every one of the 16 instances saw a pullback of at least 0.6% from the entry price at some point over the next 7 days. I’ll also note that every instance saw a run-up of at least 0.8% over the next 7 days. And the lone loser after 7 days actually experienced a run-up of over 3% before turning down. This study, though limited in its scope, suggests the NDX is setting up for a bounce over the next several days.

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One Day to the Next

By Notes From the Rabbit Hole

So yesterday market participants were instigated by the media to get hysterical about interest rates. I saw a prominent headline talking about how a market expert (whose name escapes me) forecast that when 10yr yields go through 3% stocks are going to go down big.

Then today, as risk flies ‘off’ ostensibly due to the Trump/China tariff war, yields tank, Treasury bonds rise and stocks go down anyway. Ha ha ha…

If you click the headline they will tell you all you need to know, and way more than you need to know as a rational and calm market participant.

Meanwhile, the Continuum had indicated that a caution point was at hand long ago.

tyx Continue reading One Day to the Next

Out of the Way

By Tim Knight

As usual, Fed Day gave us quite a ride. The big news was that our friends at the FOMC plan to give us another 3 rate hikes this year instead of 4. Guess how many Fed meetings there are with accompanying press conferences left this year? Three. How about that.

My stomach went into a knot the moment the news came out, because everything – – EVERYTHING – – went against me big time. It didn’t last though. Just imagine how many people were short the utilities and got stopped out, all because of a stupid, multi-second Fed spike.


Continue reading Out of the Way

Powell Don’t Talk Much Like Yellen…

By Heisenberg

Jury Still Out On Whether That’s Good Or Bad

Ok so in sum, on the Fed: three hikes (total) projected in 2018, a steeper trajectory in 2019 and 2020, upward revisions to growth this year and next, lower unemployment trajectory across the board, and a modest inflation overshoot on core next year and on headline and core in 2020.

Here’s what Neil Dutta, head of U.S. economics at Renaissance Macro Research had to say:

So, next year, the median FOMC official sees a slight overshoot on inflation (+0.1ppt) another 0.3ppt drop in the unemployment rate and just one more rate hike. That’s somewhat less than you’d expect in a standard Taylor Rule type model. That is not really hawkish, in my view. Buy stocks. Buy front end.

Inline with what I was suggesting earlier, the statement was kind of lukewarm on growth, describing economic activity as rising at a “moderate” rate, while describing job gains “strong” – that’s as opposed to the “rising at a solid rate” language and the less exuberant take comes courtesy of household spending and business fixed investment having “moderated”.

Continue reading Powell Don’t Talk Much Like Yellen…

Fed Comes A Little Bit Closer To Taylor Rule…

By Anthony B. Sanders

Raises Target Rate To 1.75% While TR Rudebusch Calls For 6.62% — Only 447 Basis Points To Go!

Yes, Jay (Powell) and the Americans (FOMC) came a little bit closer to The Taylor Rule (Rudebusch Model) with the FOMC voting to increase their target rate to 1.75%. The lower bound is now 1.50%.


The Taylor Rule (Rudebusch Model) calls for a Fed Funds Target rate of 6.62%. Only 447 basis points left to go, Jay!

Continue reading Fed Comes A Little Bit Closer To Taylor Rule…