About That $61,372 Report Of Real Median Household Income

By Anthony B. Sanders

Obama Administration Changed The Way It Was Measured In 2013 (Tell The Story Right!)

True, real median household income (RMINC) has been rising since 2014.


In fact, real median household income looks far better from 2014 to 2017 than it did from 2007 to 2012 (orange line). Yes, that declining RMINC line looks pretty bad if you are trying to convince voters that the economy is doing well. Particularly with average hourly earnings plummeting and remaining stagnant until 2015.

Continue reading About That $61,372 Report Of Real Median Household Income

Pieces of the US & Global Stock Market Puzzle Come Together


This article is edited slightly from the original to clean up some wording and make points a little clearer.

All through the summer NFTRH had a “top-test” view on the primary US stock index, the S&P 500. We were 100% right on that; SPX spent all summer grinding upward to that test.

That is where the would-be market genius aspect of the analysis ends because it appears that the favored outcome of that test – that it would fail into a correction – will be negated in favor of the alternative outcome, which we have also carried forward. That outcome is a continuation with a measured target of SPX 3000+. So the favored and alternate views have traded places. The alternate now being that the bullish state of things is one big, post-Labor Day bull trap.

Continue reading Pieces of the US & Global Stock Market Puzzle Come Together

What Happened to the Eurodollar COT Model?

By Tom McClellan

eurodollar COT leading indication

One of my favorite predictive models had me looking for a decent selloff in the summer of 2018, but the U.S. stock market decided not to participate.  So what happened?

The model in this week’s chart contains data from the weekly Commitment of Traders (COT) Report, published by the CFTC.  This data is on the eurodollar futures contract, the most liquid and widely traded of all futures contracts.  I should emphasize that in this context, the term “eurodollar” is not a currency futures contract, but rather it refers to dollar-denominated time deposits in European banks.  So it is an interest rate futures contract, which major banks utilize to hedge their deposit and loan balances.

The net position of the big-money commercial traders of eurodollar futures turns out to give a really good 1-year leading indication of what stock prices are going to do.  It is not a perfect leading indication, just a really good one.

Continue reading What Happened to the Eurodollar COT Model?

3 Charts on EM vs DM Equity Allocations

By Callum Thomas

Emerging markets have taken a beating this year on the back of softer China growth, the trade wars, a stronger USD, and Fed tightening… along with a few idiosyncratic issues (Turkey, Argentina, et al).  While I think EM still faces a number of headwinds in the short term I wanted to highlight a few longer term charts on the representation of emerging markets on the global economic stage, global equity markets, and portfolio allocations.

There’s a lot of debate around emerging markets, even with issues like what’s the difference between EM and DM,  And invariably EM assets fall in and out of favor through the cycle like any freely traded asset market.  But there are a couple of key structural trends that don’t appear likely to change any time soon, and will only continue to grow in importance.

1. EM vs DM – Share of World GDP: First of these key trends is the rise of emerging markets on the global economic stage.  Around the time of the financial crisis, not only was there great upheaval in global financial markets, but there was a perhaps little noticed moment of history where emerging markets took the lead.  From about 2008 onward EM took over as the dominant share of world GDP.  This is a key event in economic history and will have wide reaching implications for the path of economic growth, volatility, and capital market opportunities.

Continue reading 3 Charts on EM vs DM Equity Allocations

Does Currency Hedging Reduce Volatility?

By Charlie Bilello

“Currency adds volatility – and that can be costly.” – Sales Pitch

One of the main selling points for hedging currency exposure in foreign equities is a reduction in volatility.

The argument typically goes as follows: as a U.S. investor, why take on additional currency volatility if you don’t have to? Simply hedge the foreign currency exposure, leaving you with just the equities, a lower volatility exposure.

On the face of it, this seems to make perfect sense. Currencies have volatility, and so adding them to the risk equation would appear to make an investment more volatile (equity volatility + currency volatility = more volatility). But is this actually the case? Let’s take a look…

The oldest and largest currency hedged ETF is the WisdomTree Japan Hedge Equity ETF (DXJ), with assets under management of over $5 billion. Since its inception in June 2006, DXJ has an annualized volatility of 22.9% versus 21.6% for EWJ (the unhedged iShares MSCI Japan ETF).

Continue reading Does Currency Hedging Reduce Volatility?

Stronger U.S. Economy May Warrant ‘Restrictive’ Rates: Boston Fed’s Rosengren

By Anthony B. Sanders

Consumer Credit Growth Slowing With Fed Fund Rate Increases

Now that the US economy is stronger, Boston Fed’s Eric Rosengren wants to  raise rates. Again.

BOSTON (Reuters) – When Boston Federal Reserve Bank President Eric Rosengren switched from advocating low interest rates to tighter monetary policy, he argued it was time to start crawling back toward “normal” rates even with 5 percent unemployment and weak growth and inflation.

Two years later, Rosengren has joined colleagues in beginning to lay the groundwork for those rate hikes to potentially continue longer and to a higher level than currently expected as the outlook for the economy strengthens.

Rates may not only need to become “restrictive,” but the definition of that may be moving up as well, Rosengren said in an interview with Reuters on Saturday following an economic conference here.

“This is not hair on fire. There is upward pressure on inflation, and given that we are already at 2 percent, labor markets are already tight … that is going to be a situation where we start persistently having inflation above what our target is,” Rosengren said. “There is an argument to normalize policy and probably be mildly restrictive.”

The Fed maintains a 2 percent inflation target, which it is only now reaching after a decade struggling to consistently hit and maintain it.

Yes, it has been a long, hard road to get to 2% core inflation … again.


But here is the problem. Consumer credit YoY is slowing quite rapidly with increases in The Fed Funds Target rate.

Continue reading Stronger U.S. Economy May Warrant ‘Restrictive’ Rates: Boston Fed’s Rosengren

The Monster Eurodollar Option Trade

By Kevin Muir

Quick – someone asks you whether you will bet on Hillary Clinton winning the next election. Would you take that bet? At even odds, you would have to be insane. But what if someone offered you 100-to-1 odds? How about 1000-to-1? At a certain point, it’s worth a punt.

And this is the trouble with discussing option trading. At times, even if you don’t think a specific outcome the most probable result, it still makes sense to take a position based on the market underpricing the probability of that outcome. It’s a nuanced difference, but often missed by the financial media.

I am not a big Eurodollar futures trader, but I recognize that it is one of the biggest, most liquid markets in the world. And if you are a STIR (short term interest rates) trader, then you are most likely aware of the interesting option order flow that has been crossing the tape all summer long. The pits are abuzz with talk, but for the rest of us who aren’t clued into the intricacies of the fixed-income option market, we are probably overlooking this huge bet that is being slapped on.

Continue reading The Monster Eurodollar Option Trade

Everybody’s (Not) Talkin’

By Tim Knight

Once again, after a tiny, tiny dip in the market, everybody’s talking about a push higher. S&P 3000 is offered as a foregone conclusion. Indeed, even to this poor old bear, I can see an argument to be made for a bounce at current levels:

Yet something has been developing recently which I’ve been watching all year long. Indeed, my Gold and Diamond members know that I’ve been sort of obsessed with what I’ve been calling the Most Important Chart Ever, which has been slowly but surely forming precisely as I hoped.

Continue reading Everybody’s (Not) Talkin’

Prefiguring The Expected Expectations Fail

By Jeffrey Snider

The Boston Fed held its 62nd Annual Economic Conference over the weekend. Not quite as well-known as the KC Fed’s Jackson Hole symposium, this Eastern branch’s meeting still attracts many big-name speakers. The “right” speakers, that is, meaning academic and mainstream bank Economists, supranational think tank thinkers, as well as current and former central bankers. The echo chamber is just as thick and impenetrable as it is in Wyoming.

Appearing in Boston alongside former Treasury Secretary Larry Summers, Goldman Sachs chief Economist Jan Hatzius, and Cleveland Fed President Lorretta Mester was Olivier Blanchard. Dr. Blanchard has every bit of pedigree covered: former director of research at the IMF, M. Solow Professor of Economics emeritus at the Massachusetts Institute of Technology, and now a Senior Fellow at the prestigious Peterson Institute for International Economics.

The purpose of this year’s gathering was to decipher if there might be any lingering effects from “long spells” of low interest rates. From what I can tell, nobody addressed the biggest one – why there were long spells of low interest rates. They’ve moved on from all that to fretting over what that might say about the ability of Economists to decipher the major economic problems confronting the global economy.

Continue reading Prefiguring The Expected Expectations Fail

Inflation-Related Impressions From Recent Events

By Michael Ashton

It has been a long time since I’ve posted, and in the meantime the topics to cover have been stacking up. My lack of writing has certainly not been for lack of topics but rather for a lack of time. So: heartfelt apologies that this article will feel a lot like a brain dump.

A lot of what I want to write about today was provoked/involves last week. But one item I wanted to quickly point out is more stale than that and yet worth pointing out. It seems astounding, but in early August Japan’s Ministry of Health, Labour, and Welfare reported the largest nominal wage increase in 1997. (See chart, source Bloomberg). This month there was a correction, but the trend does appear firmly upward. This is a good point for me to add the reminder that wages tend to follow inflation rather than lead it. But I believe Japanese JGBis are a tremendous long-tail opportunity, priced with almost no inflation implied in the price…but if there is any developed country with a potential long-tail inflation outcome that’s possible, it is Japan. I think, in fact, that if you asked me to pick one developed country that would be the first to have “uncomfortable” levels of inflation, it would be Japan. So dramatically out-of-consensus numbers like these wage figures ought to be filed away mentally.

Continue reading Inflation-Related Impressions From Recent Events

The “Big Bond Short” Illusion

By Kevin Muir

Before we even start, I want to point out I deserve zero credit for this next idea. All of the following insightful observations are brought to you by Adam Collins of Movement Capital. Adam’s work on COT data is second-to-none and he is a must-follow.

Over the past few months I have struggled with a glaring inconsistency.

The CFTC’s Committment of Trader’s (COT) data for the 10-year US treasury note has displayed a large increase in the size of the net speculative short position, yet this is at odds with what I observed in terms of market sentiment amongst traders and portfolio managers.

This increase in speculative net shorts has pushed it to a record position.

Continue reading The “Big Bond Short” Illusion

The Myth of Gold Stock Leverage

By Steve Saville

A few years ago I wrote a couple of pieces explaining why gold mining is a crappy business. The main reason is the malinvestment that periodically afflicts the industry due to the boom-bust cycle caused by monetary inflation.

To recap, when the financial/banking system appears to be in trouble and/or economic confidence is on the decline, the perceived value of equities and corporate bonds decreases and the perceived value of gold-related investments increases. However, gold to the stock and bond markets is like an ant to an elephant, so the aforementioned shift in investment demand results in far more money making its way towards the gold-mining industry than can be used efficiently. Geology exacerbates the difficulty of putting the money to work efficiently, in that gold mines typically aren’t as scalable as, for example, base-metal mines or oil-sands operations.

In the same way that the malinvestment fostered by the creation of money out of nothing causes entire economies to progress more slowly than they should or go backwards if the inflation is rapid enough, the bad investment decisions fostered by the periodic floods of money towards gold mining have made the industry inefficient. That is, just as the busts that follow the central-bank-sponsored economic booms tend to wipe out all or most of the gains made during the booms, the gold-mining industry experiences a boom-bust cycle of its own with even worse results. The difference is that the booms in gold mining roughly coincide with the busts in the broad economy.

Continue reading The Myth of Gold Stock Leverage