Midterm Elections Have Not Provided A Reliable Short-Term Market Edge

By Rob Hanna

Today I decided to look at SPX performance following past mid-term elections. I did not find much that suggested a strong edge. Below is a look at results since 1970 following mid-term elections.

2018-11-04-1

The numbers suggest perhaps a mild inclination for the market to “celebrate” the results on Wednesday. After that there does not appear to be a strong tendency in either direction. Below are the 1-day instances listed out for those that are interested.

Continue reading Midterm Elections Have Not Provided A Reliable Short-Term Market Edge

M1 Money Multiplier FINALLY Exceeds 1.0

By Anthony B. Sanders

As Banks Reduce Their Excessive Reserves

It has been an agonizing 10 years since the housing bubble collapse and the financial crisis, not mention a surge in banking regulations such as Dodd-Frank and the creation of the Consumer Financial Protection Bureau.

But 10 years after, the M1 Money Multiplier has FINALLY broken through the 1.0 barrier.

m1m111418

The M1 Multiplier means that every dollar created by the FED (an increase in the monetary base M0) will result in a <1 dollar increase of the money supply (M1), as is evident from the figure below. So, the credit and deposit creation of commercial banks is limited in this case. The banks are still holding on to a lot of excess reserves, but that amount is finally starting to comedown so that the M1 Money Multiplier has finally broken the 1.0 barrier.

Continue reading M1 Money Multiplier FINALLY Exceeds 1.0

MBS and the Core

By Doug Noland

The Dow (DJIA) traded as low as 24,122 in late-Monday afternoon trading. By Friday’s open, the Dow had rallied 1,457 points, or 6.0%, to 25,579. Relatively speaking, the Dow was a tame kitten. From Monday’s intraday lows, the Nasdaq100 rallied as much at 7.8%. The Semiconductors won this week’s Wild Animal competition, rallying 12.7% (week’s lows to highs). At 11.9%, the Biotechs were a close second. The Homebuilders (XHB) rallied as much as 11.3% before ending the week with a gain of 7.3%.

A couple obvious questions come to mind: Bear market rally or just another “buy the dip, don’t be one” opportunity for a market again ready to scale new heights? Is President Trump now ready to strike a trade deal with China – or was he just goosing markets ahead of the midterms?

Let’s start with the markets. They certainly had the likeness of a classic “rip your face off” bear market rally. The Goldman Sachs Most Short index surged 9.0% off Monday lows. For the week, this index rose 6.1%, showing off a 2.5 beta versus the S&P500’s return (6.1%/2.4%). In the semiconductor space, heavily shorted On Semiconductor, NXP Semiconductor, AMD and Micron Technology gained 23.9%, 18.5%, 14.8% and 13.9%, respectively. A long list of heavily shorted retail stocks gained double-digits, as the Retail index (XRT) surged 4.3% for the week.

Continue reading MBS and the Core

Positive Implications for Gold Miners if Crude Oil Breaks Down

By NFTRH

It’s an over obsessed upon commodity, previously hyped for its (Hubbert’s) “peak” status by “experts” like T Boone Pickens and a whole clown show of promoters amplified by the media at the time.

Now WTI Crude Oil has reached a thick resistance zone (as managed in NFTRH for the last couple of years) and may be breaking down from a peak of a whole other kind. Here is the monthly chart we use.

wtic

It is preliminary, and one weekend OPEC jawbone could put oil back up in the consolidation. But as of now the price has ticked below the previous 2018 low to close the week. It is not a good look… unless you’re a gold bug, that is. More on that later.

Continue reading Positive Implications for Gold Miners if Crude Oil Breaks Down

The Stocks-Bonds Interplay

By Steve Saville

It’s normal for the stock market to ignore a rising interest-rate trend for a long time. The reason is that while the interest rate is a major determinant of the value of most corporations, the interest rate that matters for equity valuation isn’t the current one. What matters is the level of interest rates for a great many years to come. Therefore, a rise in interest rates only affects the stock market to the extent that it affects the general perception of where interest rates will be over the next decade or longer.

To further explain, the value of a company is the sum of the present values of all its future cash flows, with the present value of each future cash flow determined via the application of a discount rate (interest rate). Nobody knows what these cash flows will be or what the appropriate discount rate should be, but guesses, also known as forecasts, are made. Clearly, when discounting a set of cash flows spanning, say, the next 30 years, it won’t make sense to simply use the current interest rate. Instead, the analyst doing the calculation will have to make a stab at what will happen to interest rates in the future.

Continue reading The Stocks-Bonds Interplay

This Incredibly Bullish Seasonal Period Has Just Begun

By Rob Hanna

With the calendar moving from October to November, it has now entered its “Best 6 Months”. The “Best 6 Months” tendency was first published by Yale Hirsch, founder of the Stock Trader’s Almanac, in 1986. The concept behind the “Best 6 Months” is simple. Seasonality suggests that over the last several decades the market has made a massive portion of its gains between November and April. And during the remaining 6 months, it has generally struggled to make headway.

Additionally, the market shifted into the 3rd year of the Presidential cycle. Here at Quantifiable Edges we measure the Presidential Cycle years from November – October rather than January – December. That allows the cycle years to better match up with the elections, which take place in early November. It also makes for easy evaluation when combining it with the “Best 6 Months” cycles. The 3rd year of the Presidential Cycle has been a strong one.

When the Best 6 Months and the 3rd Year of the Presidential Cycle have been active at the same time, the results since 1960 have been outstanding. In the table below I have listed out each instance.

2018-11-01

Continue reading This Incredibly Bullish Seasonal Period Has Just Begun

Pivotal Events: Stocks & Precious Metals

By Bob Hoye

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Wages and Salaries Jump By 3.1%, Highest Level Since 2008

By Anthony B. Sanders

Dow Jumps >300 Pts After Announcement

One of the most closely watched economic indicators by the Federal Reserve is the Employment Cost Index generated by the US Bureau of Labor Statistics.

Private industry wages and salarie rose 3.1% YoY in September, the highest since 2008.

wagesyea!

And not surprisingly, the biggest increase in benefits (also 3.1% YoY) is for … State and Local Government workers. Apparently, they don’t believe that there is a public pension fund crisis … or don’t care.

Continue reading Wages and Salaries Jump By 3.1%, Highest Level Since 2008