Stuporman

By Tim Knight

It appears that the $420 “funding secured” taking-Tesla-private transaction is as real, genuine, and authentic as the hair on top of Elon Musk’s head.

Over the past couple of years, it’s been fairly clear that there’s been some sort of insane ADHD action going on. First there was Tesla. Then there was SpaceX. Then SolarCity. And then Tesla bought SolarCity. And then he decided to revolution transportation with the HyperLoop. And next he decided he needed tunnels to make this happen, so he created The Boring Company (I am not typing these off a sheet; this is strictly from memory).

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In Next Crisis, Gold Won’t Drop Like 2008, Report

By Keith Weiner

Last week, we discussed the tension between forces pushing the dollar up and down (measured in gold—you cannot measure the dollar in terms of its derivatives such as euro, pound, yen, and yuan). And we gave short shrift to the forces pushing the dollar down. We said only that to own a dollar is to be a creditor. And if the debtors seem in imminent danger of default, then creditors should want to escape this risk. The dollar is not redeemable so there is no way to be paid in full for the debt represented by the dollars. The only way to opt out of credit risk entirely is to trade one’s credit paper for gold. That is to buy gold. We said that Federal Reserve insolvency is not imminent.

And then we went on to the case for a rising dollar. It was good timing, as the dollar went up from 25.7 milligrams of gold to 26.5 by Thursday (that’s a drop from $1,210 to $1,175 for those of you who insist on measuring steel meter sticks with rubber bands, lighthouses from the decks of ships that are slowly sinking in stormy seas, and gold in dollars).

Traders’ Consensus

This week, Keith sat at a table with a hedge fund trader. The trader does not think of gold as money, is not into gold other than as a trade along with all other asset classes, and probably would not describe himself even as a libertarian or Austrian. He is, however, very smart and very good at what he does.

Continue reading In Next Crisis, Gold Won’t Drop Like 2008, Report

Sentiment Pitfalls, the Gold Edition

By Steve Saville

In a couple of blog posts last year I discussed the limitations of sentiment as a market timing tool. With the most reliable sentiment indicators now revealing extreme negativity towards gold, it’s timely to revisit this topic using the current gold market situation as an example.

There are two sentiment pitfalls that I mentioned in the earlier posts that are especially relevant to the current gold-market situation. The first is linked to the fact that sentiment generally follows price, making it a near certainty that the overall mood will be at an optimistic extreme near an important price top and a pessimistic extreme near an important price bottom. Putting it another way, there is nothing like a strongly-rising price to get the speculating community and the general public bullish and there is nothing like a steep price decline to get them bearish, so it’s perfectly natural that price-tops will be associated with optimism and price-bottoms will be associated with pessimism. The problem is that while an important price extreme will always be associated with a sentiment extreme, a sentiment extreme doesn’t necessarily imply an important price extreme.

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Instability

By Doug Noland

With the Turkish lira down another 6.6% in Monday trading, global “Risk Off” market Instability was turning acute. The U.S. dollar index jumped to an almost 14-month high Monday, as the Turkish lira, Argentine peso, Indian rupee and others traded to record lows versus the greenback. The South African rand “flash crashed” 10%, before recovering to a 2.3% decline. Brazil’s sovereign CDS jumped 14 bps Monday to a six-week high 252. Italian 10-year yields jumped 11 bps to 3.10%, near the high going back to June 2014, as the euro declined to one-year lows.

The Turkish lira surged 8.4% Tuesday, jumped another 6.8% Wednesday and then gained an additional 1.9% Thursday. Wild Instability then saw the Turkish lira drop 3.1% during Friday’s session, ending the week up 6.9%. Qatar’s $15 billion pledge, along with central bank measures, supported the tenuous lira recovery.

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You Can’t Fix Stupid: U.S. Treasury Will ‘Pressure’ China To Strengthen The Yuan

By Heisenberg Report

They say you can’t fix stupid, which I suppose means the world shouldn’t get its hopes about about the upcoming trade talks between China and the U.S.

On Wednesday, China’s Ministry of Commerce said the U.S. has invited a Chinese delegation to Washington later this month, ostensibly to try and break a stalemate on trade before the Trump administration moves ahead with tariffs on an additional $200 billion in Chinese goods. That escalation, if realized, would trigger a response from Beijing in the form of differentiated duties on $60 billion in U.S. imports, setting the stage for the Trump administration to “go to $500 billion” (as the President put it last month).

According to the New York Times (and there were similar reports out on Thursday), Steve Mnuchin will attempt to pressure China to strengthen the yuan when the two sides meet in Washington.

Continue reading You Can’t Fix Stupid: U.S. Treasury Will ‘Pressure’ China To Strengthen The Yuan

The Next Major Gold Rally

By Steve Saville

[This post is a brief excerpt from a recent TSI commentary]

During the first three quarters of 2016 we were open to the possibility that a new cyclical gold bull market got underway in December of 2015, but over the past 18 months we have been consistent in our opinion that the December-2015 upward reversal in the US$ gold price did NOT mark the start of a bull market. Since late-2016 there have been some interesting rallies in the gold price, but at no time has there been a good reason to believe that we were dealing with a bull market. That’s still the case. The question is: what will it take to set a new cyclical gold bull market in motion?

The simple answer is that it will take a US equity bear market. However, this is not a practical answer because in real time there often will be no way of differentiating the first 6-9 months of an equity bear market from an intermediate-term bull-market correction. The most practical answer we can come up with is that it will take an upward reversal in the yield curve.

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Collateral Silos And The Deflationary Gold Rush

By Jeffrey Snider

It was never really all that much. The best that might have been said was that it was a pause in the building of renewed deflationary pressures. The dollar had “risen” again especially in April and May, but then traded sideways through July. It wasn’t a rebound or even much that was positive, just less immediate heaviness.

That appears to be over with now in August; always August. The dollar is on the move which means the eurodollar is deficient. The squeeze is back and it is being felt almost across the board. Copper is down again as is gold. The metals are, and have been for years, quite clear as to what all this is.

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Fed May End Taper This Year Amid Regime Rethink, Says Zoltan!

By Anthony B. Sanders

(Bloomberg) — America’s growing debt pile may force the Federal Reserve to stop shrinking its balance sheet before the year is out, according to Credit Suisse Group AG analyst Zoltan Pozsar.

With bank reserves at the Fed being pared, the U.S. central bank will soon have to make a choice between activating an overnight facility for repurchase agreements or halting its balance-sheet reduction earlier than many market participants expect, the former U.S. Treasury adviser wrote in a note Monday.

He indicates that policy makers are unlikely to pursue the option of a new facility until alternatives have been exhausted, meaning a premature end to the taper is the most likely outcome. Royal Bank of Canada analysts said last month the balance-sheet runoff could end as early as 2019, while Goldman Sachs strategists in May said they’re assuming an end around April 2020.

Continue reading Fed May End Taper This Year Amid Regime Rethink, Says Zoltan!

Chart: US Dollar, EMFX, Asian FX, and the USDCNY

By Callum Thomas

Well it’s a mouthful of a title, but sometimes you just have to say exactly what’s in the post and today we’re looking at 4 charts-in-one… and they are about as topical as it comes.  The charts come from our weekly Global Cross Asset Market Monitor: the top left is the US dollar index, the top right is an equal weighted emerging market currency index (25 currencies vs USD), the bottom left is an equal weighted index of 10 Asian currencies vs the USD, and the bottom right of course is the Renminbi against the US dollar (USDCNY).  Bottom line is there is a big move underway across global foreign exchange markets right now, and it’s quite likely there’s more to come.

What’s driving this, aside from a few idiosyncratic issues (e.g. Turkey – which I believe is simply a symptom of a wider issue), is monetary policy divergence, a subtle desynchronization of global growth, and softening macro picture in China.  Fed tightening (rate hikes and QT) is a key catalyst, and the trade war just adds fuel to the fire.  I talked previously about how Fed tightening and a stronger dollar is going to put stress on emerging markets, and the charts above show basically this thesis in action.  The biggest risk is that you get a feedback loop of stronger dollar >> EM stress >> stronger dollar >> and so on.  As previously noted, the USDCNY going through 7 could be a critical test (aka nail in the coffin) for the low volatility environment, and as I write the USDCNY is trading just over 6.933, so this test may come sooner than you expect…

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Pure Corruption

By Jeffrey Snider

In December 1999, Princeton Professor Ben S. Bernanke wrote a relatively obscure paper largely denouncing the Bank of Japan’s shyness. Japan’s economy had by then been mired in its first Lost Decade, one which at that moment not everyone was sure should have been lost. It was fashionable at the time to pile on the BoJ.

Dr. Bernanke argued for extreme aggressiveness, truly radical experimentation. Big problems require equally big solutions. These were necessary because of the huge scale of the issue facing them. In conclusion, the future Fed Chairman wrote:

Japan is not in a Great Depression by any means, but its economy has operated below potential for nearly a decade. Nor is it by any means clear that recovery is imminent. Policy options exist that could greatly reduce these losses. Why isn’t more happening? To this outsider, at least, Japanese monetary policy seems paralyzed, with a paralysis that is largely self-induced. Most striking is the apparent unwillingness of the monetary authorities to experiment, to try anything that isn’t absolutely guaranteed to work. [emphasis added]

His larger point was valid, and poignant. In Japan’s case, as anyone’s might be in the same situation, there should be no stone left unturned when confronted by such a substantial break in economic function. A dislocation of that magnitude, meaning length of time if not depths to some 1930’s trough, demands emergency thinking rather than stolid patience almost to the point of indifference.

To be so relatively passive would be a crime, especially if the results were to be losing a decade of actual economic sufficiency. Dr. Bernanke argued for thinking way outside the box, for what else would be demanded by this sort of situation?

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Global Equity PE10 Valuations

By Callum Thomas

As the pressure comes down on global equities – particularly global Ex-US (and particularly emerging markets) – valuations have likewise come down.  But the movement in valuations is so far relatively small.  US PE10 valuations have clawed back much of the decline, while emerging market valuations have moved to new lows for the year, down -15% since the top now (and developed markets ex-US valuations are down -11%).  This places the Emerging Markets PE10 at a 55% discount vs the USA and a 23% discount vs developed markets ex-US.  I wonder though if we wont see even cheaper valuations and a wider discount for EM equities as Fed tightening and US dollar strength start to bite.  Longer term, valuations will speak for themselves, but they will speak louder if they move to a more extreme level…

Continue reading Global Equity PE10 Valuations