Bad Omen for Markets From First Signs of Yield Curve Inversion…

By Anthony B. Sanders

Q1 Auto Registrations YoY Down To -12.2%, Lowest Non-Recession Reading Since 1989

There are troubling signs in the US economy, not the least of which is the lowest YoY growth in US automobile registrations (non-recession) since 1989.


Another troubling sign is the possible yield curve inversion.

Continue reading Bad Omen for Markets From First Signs of Yield Curve Inversion…

What is the Relationship Between Crude Oil and Energy Stocks?

By Charlie Bilello

At the end of the first quarter, Crude Oil was up 7.5% while Energy stocks were down 6.1%. How unusual is such a divergence? Let’s take a look…

Note: References to Energy/Energy Stocks/Energy Sector throughout this post are referring to the S&P 500 Energy Sector ETF (XLE), total return data from 

Since the inception of the Energy sector ETF (XLE) in December 1998, Crude Oil and Energy stocks have moved in the same direction on a rolling 3-month basis roughly 74% of the time. On a rolling one-year basis this moves up to 76%.

Continue reading What is the Relationship Between Crude Oil and Energy Stocks?

Weekly S&P 500 #Chartstorm

By Callum Thomas

Those that follow my personal account on Twitter will be familiar with my weekly S&P 500 #ChartStorm in which I pick out 10 charts on the S&P 500 to tweet. Typically I’ll pick a couple of themes and hammer them home with the charts, but sometimes it’s just a selection of charts that will add to your perspective and help inform your own view – whether its bearish, bullish, or something else!

The purpose of this note is to add some extra context beyond the 140 characters of Twitter. It’s worth noting that the aim of the #ChartStorm isn’t necessarily to arrive at a certain view but to highlight charts and themes worth paying attention to.

So here’s the another S&P 500 #ChartStorm write-up!

1. An Unfortunate Analog: Analog charts are often interesting and always dubious, but there is obviously merit in looking at historical scenarios and drawing parallels and lessons.  In this case the chart, shared by Lance Roberts, and originally featured on Zero Hedge, shows an apparent similarity between today’s market and the 1987 episode. I can’t give an assurance either way on this one, other than saying here it is and make your own mind up.

Bottom line: According to some analysts there are some similarities between now and 1987.

Continue reading Weekly S&P 500 #Chartstorm

Market Realities

By Doug Noland

Markets have grown well-versed at disregarding structural issues. I’m still amazed at what the marketplace was willing to ignore throughout the mortgage finance Bubble period: A doubling of mortgage Credit in just about six years; California’s housing market out of control by 2005; $1.0 TN of subprime CDS in 2006; the unprecedented growth in leveraged securities holdings and so on. Unrelenting Trade and Current Account Deficits. Didn’t the excesses of the cycle ensure a crash?

For those of us who have studied financial history, 2002-2008 financial follies pale in comparison to “Roaring Twenties” excess that unfolded without ramifications in the eyes of the securities markets – well, that is, until the Great Crash. What today’s markets have chosen to overlook – and what people have come to believe – are even more astounding.

Excesses over the past (almost) decade have been in the “Roaring Twenties” caliber: Prolonged, deeply structural and accompanied by epic misperceptions. And there’s no mystery why markets regress into a dysfunctional mechanism that hears no evil, sees no evil and speaks no evil. Given time (and ample “money” and Credit), asset inflation trumps worry; greed concurs fear.

Continue reading Market Realities

Trade as a Zero Sum Game

By Steve Saville

[This blog post is an excerpt from a TSI commentary published on 27th March 2018]

The policies of the Trump Administration are being influenced by the view that international trade is a zero sum game, where whoever receives the most money is the winner at the expense of whoever receives the most goods. Under this line of thinking, which sometimes goes under the name “mercantilism”, policies are beneficial if they increase the amount of money coming into the country relative to the amount of money going out of the country. As discussed below, it’s the wrong way to look at the world.

Another way of framing the mercantilist position is that the winner is the one who ends up with the larger amount of the medium of exchange and the loser is the one who ends up with the larger amount of real wealth. For reasons we’ll get into in a moment there are actually no winners and losers, but if it were true that one side was getting the better deal then surely it would be the one that ended up with the most real wealth; especially these days, when the medium of exchange is created out of nothing by the banking system.

Continue reading Trade as a Zero Sum Game

As the Macro Turns…


We began months ago, noting the 3 Amigos destined for their goals. Here’s a post from November 2017 explaining the macro fundamentals involved:

Updating the 3 Amigos of the Macro

  1. Amigo #1 (SPX vs. Gold): Either reach major theoretical resistance (it’s a ratio, after all) or abort mission by establishing a downtrend.
  2. Amigo #2 (10yr yield to 2.9% and 30yr yield to 3.3%): Destinations reached!
  3. Amigo #3 (also known as the slower, dumber Amigo, the 10yr-2yr Yield Curve): Still on his journey, flattening. The trouble would be indicated by steepening.

As we’ve noted, the two star Amigos (Steve Martin & Chevy Chase) were bracing for a smash against the yield Continuum ™ limiter and the conspicuous weakening of stocks vs. gold since February. The Martin Short Amigo is goofier, and on his own schedule. He’s a lesser light, after all. The two stars are making the headlines.

Beginning with Steve Martin’s character, the 30yr yield Continuum ™ hit the 100 month EMA ‘limiter’ and reversed. This does not have to be a long-term reversal. The point was for yields, which had been riding higher with stocks and risk ‘on’ assets, to hit and reverse or consolidate. What comes next is open to new analysis. We’d been expecting yields to rise to these limiters since last October and they have done so.

Continue reading As the Macro Turns…

Investors And Analysts Tire Of ‘Childish’ Trump: ‘It’s Just Too Much’

By Heisenberg

Investors and analysts aren’t particularly enamored with Donald Trump’s ongoing effort to prove something (although it’s not entirely clear what) to the world about his willingness to engage in trade brinksmanship until global equity markets take away his policy keys by plunging into an outright bear market.

Overnight, Trump of course ratcheted things up another notch by instructing the USTR to look into additional tariffs on China in connection with the 301 probe. Hilariously, Trump seemed taken aback that Beijing responded.

“Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers,” Trump complained, in a Thursday night statement.

Do note that this is exactly what bullies do. They lash out at people and then when they get hit, they claim it’s “not fair”. “In light of China’s unfair retaliation, I have instructed the USTR to consider whether $100 billion of additional tariffs would be appropriate under section 301 and, if so, to identify the products upon which to impose such tariffs,” he continued.

He’s probably feeling emboldened by the fact that U.S. equities shook off the China retaliation on Wednesday and have risen for three straight sessions despite getting off to their worst start to any Q2 since the Great Depression on Monday.


On imagines the President was aghast at the idea that China would target his base with their own tariffs. More specifically, his pride was likely hurt when farmers lashed out at him over the soybean boondoggle. As a reminder, this is all about politics. Trump wants to be able to point to his “tough” stance on China to bolster the GOP ahead of the midterms and as Bloomberg wrote on Wednesday, “[China’s] levies appear to be targeted at states, particularly in the Midwest, where Trump’s support is strongest, but, crucially, many of these states also have pivotal Senate and gubernatorial races in November [and] the economic blow from new tariffs could upend many of these races, potentially shifting control of statehouses and the U.S. Senate to Democrats.”

Continue reading Investors And Analysts Tire Of ‘Childish’ Trump: ‘It’s Just Too Much’

Not Your Grandfather’s Trade War: The Revenge Of Bad Money, Part 2

By David Stockman

The effect of central banking’s bad money has been to preternaturally bulk up China’s industrial economy and hollow out America’s. It’s as if some accelerated form of economic plate tectonics had broken off large chunks of the US industrial midwest and southeast and implanted them in the Pearl River Delta (Guangzhou), the Yangtze River Delta (Shanghai) and the Bohai Economic Rim (Beijing, Tianjin, Hebei).

This historically abrupt transplantation happened after 1987 because in a world of virtually unlimited central bank credit, there is no settlement process. Deformations do not get culled out on a regular basis by the mechanisms of the free market. Instead, under the tutelage of the state and its central banking branch they metastasize indefinitely until they finally hit a politically-inspired wall of resistance.

At the present world historical moment that wall of resistance is bedecked with an Orange Comb-Over. That is to say, Donald Trump’s real mission has been to crush the 30-year old toxic symbiosis under which mercantilism in China and financialization in the US functioned as two mutually reinforcing peas in a pod.

In effect, bad money caused the substitution of massive household debt and drastically inflated financial assets for the wealth and output of America’s lost industrial provinces. At the same time, and in conjunction with the militant mercantilism of China’s all-powerful post-Maoist state, it generated today’s upside-down global economic order.

We are referring, of course, to the fact that as a relatively poor, developing economy, China became the de facto $4 trillion banker to the rich, developed world. Accordingly, the 21st century to date has risibly mocked the rules of 19th century gold standard capitalism: It’s as if economically backward India had been the banker and the booming industrially advanced regions around London had been the borrower.

The absurdity of this arrangement—–China’s reckless debt-besotted Ponzi functioning as the world’s putatively solvent and sober banker and capital exporter—is lost on the Wall Street/Washington ruling classes owing to the scourge of financialization. That is, they have become so addicted to measuring economic health through the S&P 500 that they are oblivious to the vast economic deformations that bad money has wrought.

In that respect, there is a certain flavor of free market ideologues who contribute—perhaps inadvertently—to the mainstream blindness. Their argument goes that America is such a wonderful place that global capital comes beating on its door.

So if you want to enjoy the fruits of vast capital inflows you need to run large trade deficits; and presumably forever, world without end. It’s just an accounting identity!

Then again, the laws of compound arithmetic do put a damper on the theory of eternal deficits. Since the last US surplus on its international investment account in 1988 ($21 billion), the balance has plunged southward on a virtually uninterrupted basis and now stands at negative $8 trillion.

A polite word for the orange bars in the graph below is “US international indebtedness”, and it has been rising at a 21.5% annual rate for 28 years. Another 28 years at that rate and the US would owe the world $2 quadrillion, and at just one-half that rate it would still be a $150 trillion debtor by 2045.

Obviously, Stein’s Law of unsustainability (it tends to stop) would come into play long before either eventuality, but our point involves more than just arithmetic.

To wit, the US economy’s (positive) +$300 billion net investment balance with the rest of the world in 1980 (you can see it by squinting) represented about 10% of GDP. That figure was not unusual or unreasonable for what had been the world’s leading export economy and creditor nation during the previous six decades (since 1914).

But America most surely did not become rich by plunging deep into debt with the rest of the world thereafter—-such that by 2017 its net investment position amounted to (negative) -42% of GDP. What the academic free traders forget is that bad money and free trade do not play well together; the former destroys price signals and blocs market clearing adjustments.

So doing, it attempts to violate Stein’s Law. But now we know in fact, rather than just in theory, that it’s impossible.

At length, you get Donald Trump instead, and you get his half-baked advisor, Peter Navarro, on bubblevision this morning explaining that protectionism is the new route to free trade!

Continue reading at Contra Corner →

Hello, Larry

By Tim Knight

They say not to judge a book by its cover. I’m sure my mother must have told me this as a child. And yet I’ve ignored this advice all my life. I instantly judge people, sometimes based on just a glance. And I’m equipped with all the “-dars” out there – – gaydar……..jewdar…….and so on. And the amazing thing, my “-dars” have proved themselves utterly infallible. 100% track record. It’s uncanny.

So, shame on me, Mr. Judge-not-lest-you-be-judged failure, for ignoring my kindly mother’s advice. And I offer yet another judgment of someone I’ve never met, I don’t know, and I know very little about. Larry Kudlow. At a glance, I concluded this guy was a complete and utter dork.


Continue reading Hello, Larry