It has been a while since we’ve had a 3 Amigos update because a) Italy and global tariffs noise aside, nothing much has changed with the macro and b) I felt my ‘image-based metaphorical content to straight content’ ratio was getting a little excessive. So I gave it a rest.
Now it is time again for an update of these important macro riders in order to touch base with their signals. As always, I’ll remind you that there is much more to the macro market backdrop that NFTRH manages on an ongoing basis, but these three are important.
The quick answer is that only Amigo #2 (long-term yields on a rise to our preset limits) has reached destination. I marked up the graphic as he was approaching our targets.
 The monthly charts driving the view that current trends remain intact can be considered big, dumb (i.e. not overly sensitive) indicators. Shorter-term views of these and other indicators can be used to gauge signs of oncoming changes. As one example, if daily SPX/Gold were to take a hard plunge on any given day or week (as was the case in February and March) we’d pay close attention as we did then before the larger trends ultimately took over again.
Amigo #1: Gold vs. the S&P 500 (or stock markets in general)
The theme for this Amigo is that the stock market (cyclical, risk ‘on’) has been trending up vs. gold (counter-cyclical, risk ‘off’) since 2011 in order to close out the negative cycle that completed that year.
The daily chart shows that despite the stock market’s recent weakness the ratio is making a new recovery high.
Continue reading 3 Amigos (SPX/Gold, Long-term Yields & Yield Curve) Updated w/ edit
Following is the opening segment of this week’s edition of Notes From the Rabbit Hole, NFTRH 504. For months now we have been tracking a divergence in the key cyclical Semiconductor Equipment segment (I am short AMAT & LRCX) to the broader Semi sector and this week put more context to the divergence.
A Bull in a China Shop
In light of the developing trade war between the US and China, let’s review the all-important Semiconductor sector and in particular, the Semi Equipment segment, which is a key economic early bird (and canary in a coal mine).
Various sectors took hits on Friday as Trump moved forward with Tariffs on China. But most of those sectors and industries are follow-on aspects of the economic cycle, which got its start when the early bird chirped in early 2013.
With China in Trump’s crosshairs and China a very key player in Semi Fab Equipment, there is a fundamental reason that the Equipment companies are faltering. From SEMI by way of a post at nftrh.com in March.
“SEMI predicts Samsung will lead the pack in fab equipment spending in both 2018 and 2019, even though it will invest less each year than in 2017. By contrast, China will dramatically increase its year-over-year (YOY) fab equipment spending for the next two years – by 57 percent in 2018 and 60 percent in 2019 – to support fab projects from both overseas and domestic companies. The China spending surge will thrust it past Korea as the top spending region in 2019.”
The rate of Semi Fab spending growth was easing and a heavy reliance was being put on China to pick up the slack. Here is a screenshot from that post…
Continue reading A Bull in a China Shop
I am sure you remember the lead up to Q1 2016. The US economy and stock market were transitioning from a Goldilocks environment and narrowly avoiding a bear market while the rest of the world was still battling deflation. Precious metals and commodities were in the dumper and try though US and global central banks might, they seemed to fail to woo the inflation genie out of its bottle at every turn.
Then came December of 2015 when gold and silver made bottoms followed by the gold miners in January of 2016. Then by the time February had come and gone the whole raft of other inflatables (commodities and stocks) had bottomed and begun to set sail.
As I listened to Mr. Powell speak about inflation yesterday my mind wandered back to Q1 2016 as I thought about the Fed trying to manage inflation at or around 2%. I also thought about how inflation tends to lift boats, not sink them. At least that is what it does in its earlier stages, in its manageable stages.
The balls out post-crisis inflation begun by Ben Bernanke was a massive market input and I suspect we have not yet seen its full effects – other than in US stock prices thus far. So dialing back to Q1 2016 let’s look at a few pictures, beginning with the Fed’s 10 year breakeven inflation rate, which bottomed… you guessed it, in Q1 2016. That means that ‘deflation expectations’ topped at that time.
Continue reading Inflation Trade, in Progress Since Gold Kicked it Off in Q1 2016
Agree 100%, Charlie.
See: Buy in May and Stay Invested
Now, I am not of that ilk personally. My closely held biases are that a) the market’s cycles can be interpreted and managed (although my bias also has led me astray at times, in my execution) and b) that the economy, and by extension the markets, are not normal; not your grandpa’s economy and markets because they are ginned and steroidally goosed by off-the-charts (i.e. experimental) central bank meddling. That’s my bias in line with my entire history of public writing since 2004.
So I am not a stock market apologist, bull wise guy or ‘buy ‘n hold stocks for the long’ run tout. But I am the guy who is frequently nonplussed about the mainstream media fanning the flames of investor/trader sentiment during inflammatory news cycles. As Charlie says “it is their job to entertain” and “your job to ignore”.
But this applies not only in the major media. It applies to the minor media as well. Led by Zero Hedge, a whole raft of blogs and other entities are going to fan your flames with all sorts of opinionated, agenda driven or just plain biased information. And what Charlie has right is that it is absolutely imperative to tune it the hell out. That is because the bias never changes because it is promoting emotional viewpoints, promoting sides, teams. In the market the only side is the right side, whether your little heart of hearts agrees with it or not.
Continue reading “It is their job to entertain. It is your job to ignore…”
From this week’s Notes From the Rabbit Hole, an excerpt from NFTRH 502‘s Precious Metals segment, since I haven’t given the PMs much airplay on the public site lately. It gets a little prickly at one point, with some views on the gold sector’s perma-pompoms but then gets back on track.
First off, let’s review some macro fundamental charts. We know that bond yield dynamics are not yet favorable and neither is gold’s standing vs. major stock markets.
Gold vs. Commodities is still generally not good. Now, this (including gold/silver) is actually a sign that the inflation trades live on. Ref. our thoughts in the commodity segment that it may regenerate for one more thrust. An inflation trade can keep the gold sector afloat, but it is not the preferable fundamental backdrop for buying long-term positions. If this does not change I’d look to sell any decent rallies.
Continue reading Precious Metals (NFTRH 502 Excerpt)