Bringing Bad Things to Life

By Tim Knight

General Electric has been falling for two solid years, having lost about two-thirds of its value. Let’s face it, ANY stock which can do that poorly in this completely fake, central-bank-supported, sugar-high of a market has got to have SERIOUS trouble. I thought it might manage to double bottom, but nope – – even with markets near lifetime highs, this piece of crap is breaking down to levels not seen since 2011.

Continue reading Bringing Bad Things to Life

Is the Fed Model a Good Valuation Tool?

By Charlie Bilello

Should investors use bond yields as a baseline to determine if stocks are over-or-under valued?

If you believe in the “Fed Model,” your answer is “yes.” The model instructs investors to compare the S&P 500’s earnings yield (Earnings/Price, the inverse of the P/E ratio) to the 10-Year Treasury yield:

  • If the Earnings Yield is above the Treasury Yield, stocks are said to be “undervalued.”
  • If the Earnings Yield is below the Treasury Yield, stocks are said to be “overvalued.”

With the Earnings Yield (“EY”) today currently above the 10-Year Treasury Yield (“TY”), many pundits are arguing that stocks are still undervalued (and therefore attractive), despite other metrics indicating otherwise (click here for recent post on this). Are these pundits correct? Is comparing the Earnings Yield to Treasury Yields an effective way to value stocks and forecast future equity returns? Let’s take a look…

Continue reading Is the Fed Model a Good Valuation Tool?

Monetary Consequence of Tariffs, Report

By Keith Weiner

Last week in Monetary Paradigm Reset, we talked about the challenge of explaining a new paradigm. We said:

“The hard part of accepting this paradigm shift, was that people had to rethink their entire view of cosmology, theology, and philosophy. In the best case, people take time to grapple with these challenges to their idea of man’s place in the universe. Some never accept the new idea.”

We were talking about the fact that money is the unit of account, and the assertion that irredeemable paper currencies are money.

Monetary Relativity

This week, Turkey provides an opportunity to discuss this in a way most people can relate to. Their currency, the lira, has been falling for years, but the rate of its plunge accelerated dramatically this week. It closed last week at 19.6 cents, but on Friday it was 15.5. This may not seem like a lot, but those 3.1 pennies are about 21 percent. In a week!

Continue reading Monetary Consequence of Tariffs, Report

Where’s the Outrage?

By Tim Knight

James: Hey, Tim, do you want to know how to make a small fortune from cryptocurrencies?

Tim: Sure, James, how DO you make a small fortune from cryptocurrencies?

James: Start with a large fortune!

{rim shot}

Tonight, as I’m watching the crypto space continue to do what it has been doing for the entirety of 2018 – – that is, fall in value – – I am reminded of those ads which absolutely flooded the Internet late in 2017. Surely you saw them. There were dozens of flavors of this ad, but they all pretty much looked like these:

The basic come-on, if you followed any of these ads, was roughly along these lines:

Continue reading Where’s the Outrage?

Pullbacks Heading Into Opex Week

By Rob Hanna

Opex week often carries some bullish seasonality. Pullbacks into strong seasonal periods will often offer substantial edges. The study below utilizes this concept and examines pullbacks of at least 3 days just prior to opex week.

2018-08-12-1

Numbers here are strong, and suggest a possible upside edge. Of course, August opex week has NOT been great. (Click here to see opex week broken down by month.) So that generates the question of whether the above study would be effective in August. Below are the instances that have previously occurred during August.

Continue reading Pullbacks Heading Into Opex Week

Congratulations, Argentina! A New Record!

By Otto Rock

A round of applause for the Macri government, which has managed to push the Argentina Peso (ARS) over the 30-to-1 barrier against the US Dollar (USD) for the first time ever:

Yes, Mauri, we know you have inflation under control. Of course, relax. Now, cue up those front page headlines about how Chileans are happy to come and buy in Buenos Aires and how that’s going to benefit the economy. You know it makes sense.

You guys can keep your Turkish Lira, I’ll take the 62.3% deval in the Argy Peso in 2018 YTD and the total fruitcake country behind it every single time.

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Gold: Bearish Fundamentals, Bullish Sentiment

By Steve Saville

For the first time this year, about two weeks ago the sentiment backdrop became decisively supportive of the gold price and remains so. At the same time, the fundamental backdrop is unequivocally bearish for gold. What will be the net effect of these counteracting forces?

Before attempting to answer the above question let’s briefly review the most important sentiment and fundamental indicators.

The following chart from goldchartsrus.com shows that at Tuesday 7th August (the date of the latest COT data) the net positioning of traders in gold futures was similar to what it was in December-2015, which is when a powerful 7-month rally was about to begin. Therefore, in terms of net positioning the COT situation (the most useful of all the gold-market sentiment indicators) is as bullish as it has been in many years.

The one concern is that while the open interest (the green bars in the bottom section of the following chart) is well down from where it was a month ago, it is still more than 50K contracts above where it was at the December-2015 and December-2016 price lows (the two most important price lows of the past five years). The open interest may have to drop to 400K contracts or lower before there is a strong, multi-month rally.

goldCOT_130818

Continue reading Gold: Bearish Fundamentals, Bullish Sentiment

Global Equities Death Cross Breadth

By Callum Thomas

Given the swiftly changing picture in global markets, this is a key chart to keep on your radar.  In fact, I like this chart so much that it actually featured in my top 10 charts to watch for 2018 back at the start of January.  What it shows is the proportion of the 70 countries we monitor whose stock market has seen a death cross (50-day moving average trading below the 200-day moving average).  As of the latest data 64% of countries (45 out of 70) are in death-cross mode.  Within cohorts, Developed Markets have 48% of countries in death cross mode, while Frontier Markets are sitting at 73% and Emerging Markets at 71%.

So it’s clearly being driven by emerging markets, and this makes sense – I’ve written a lot about the headwinds facing emerging market currencies and EM risk assets more broadly due to the impact of a stronger US dollar and Fed tightening (rate hikes and QT).  And this is where indicators like the one in this chart prove their value by flagging the emergence of real fundamental issues in drawing on information in the price.  So the key takeaway from this chart is that below the surface there is trouble stirring in global equities.

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Or better yet, subscribe to NFTRH Premium for an in-depth weekly market report, interim updates and NFTRH+ chart and trade ideas to get even more bang for your buck. You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar. Or follow via Twitter @BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.

US Dollar Purchasing Power Continues Falling At The Same Rate As Avg Hourly Earnings Growth

By Anthony B. Sanders

No REAL Gains For Middle Class

The purchasing power of the US Dollar for consumers has been declining since the creation of The Federal Reserve System in 1913. The decay in the US Dollar purchasing power has slowed in recent decades.

purchasefed.png

Although the decay in purchasing power has declined since 1980, the yearly change in purchasing power (blue line) continues and almost completely offsets the yearly growth in average hourly earnings.

Continue reading US Dollar Purchasing Power Continues Falling At The Same Rate As Avg Hourly Earnings Growth

Post-CPI Summary

By Michael Ashton

Below is a summary of my post-CPI tweets.

  • half hour to CPI. Welcome again to the private channel. Tell your friends!
  • Another easy comp (0.143%) versus year ago. August 2017 was +0.222%, Sep was 0.132%, Oct was 0.214%, and Nov was 0.121%. So we still have some easy comps ahead although not easy as they were. That means core should keep rising, although slower than over the last 6 mo.
  • Pretty safe economist estimate for 0.2% on core and for y/y to stay 2.3% rounded. As long as m/m core is 0.162%-0.259%, y/y will stay in that range.
  • Rents have been leveling out recently, and not providing as much upward oomph. That passes the baton to core goods and more generally to core ex-shelter.
  • Ironically, even though core goods started to accelerate before any sign of tariffs, investors I think might “look through” inflation like that, which they can explain away by saying “ha ha tariffs trump ha ha.”
  • One other item – I will be especially attentive to Median CPI this month, which jumped to 2.80% y/y last month. That looks a little like an acceleration past the prior trend (meaning 2013-2015), well past merely erasing the 2016-17 dip.
  • I should note that this month’s CPI report is being brought to you from sunny Curacao! Only 20 minutes to the number.
  • Well, 0.23% on core CPI was a bit higher than expected, but oddly got a tick higher in the y/y to 2.354%, rounding up to 2.4%. The SA y/y is still 2.3%, but NSA is 2.4%. This happens from time to time because seasonal factors change year to year.
  • Last 12 Rorschach test.

Continue reading Post-CPI Summary

How Seasonality Has Changed

By Tom McClellan

Annual Seasonal Pattern Now vs Earlier

We all know about the factor of seasonality, and especially about how it is distilled into the bit of TV news wisdom, “Sell In May and go away”.  That phrase has been around for decades, originally supposedly referring to traders in England who would “Sell in May and go away, and come back on St. Leger’s Day”.  This referred to the custom of aristocrats, merchants, and bankers who would skip town and go to the country during the hot months, returning for the St. Leger’s Stakes, a horse race held in mid-September.  Source: Investopedia.

It just happens to be a fun rhyme for the U.S. stock market, minus the St. Leger’s Stakes reference, but only during the past couple of decades.  Years ago, seasonality did not work that way, which is what I explore with this week’s chart.

Continue reading How Seasonality Has Changed