It’s Taking Too Long, the Boom Didn’t Boom

By Jeffrey Snider

At some point, the boom had to have boomed. We are moving into the past tense for all this now, inflation hysteria almost certainly tucked away into the economic ledger alongside four other false dawns. Data is coming in for June 2018, meaning half of this year already recorded and analyzed. It’s not what it was supposed to have been.

Even in terms of inflation, there are only regrets. The US CPI registered 2.87% year-over-year last month, but for still another month there is nothing else but energy inside that number. There is what may seem like an unfair (from the point of view of central bankers) asymmetry to oil. When it’s down that’s deflation and often consistent with the textbook description of what accompanies it.

Continue reading It’s Taking Too Long, the Boom Didn’t Boom

Tank de la Bank

By Tim Knight

As I trust I have made clear, the financial sector is a favorite right now for shorting. This chart of the XLF is, based on over 30 years of staring at charts, one of the most exciting and enticing opportunities I have ever laid eyes on. The analog and breakdown have, thus far, been spot-on.

As the earnings season kicks off, some of the earliest reporters are big banks like Wells Fargo and Citigroup. I was thus eager to see this morning how pre-market trading was going now that their earnings are released. It’s a step in the right direction.

Continue reading Tank de la Bank

Why The Fed Will Be Forced To Halt QT Early And Expand The Balance Sheet In 2020, According To Morgan Stanley

By Heisenberg

The longer the current U.S. expansion drags on, and the more unapologetic Jerome Powell’s Fed comes across, the more obsessed the market becomes with curve inversion.

And when I say “curve inversion”, I mean “pick a curve, any curve.” Swaps, corporates or the old standbys in the Treasury complex. It all works if you’re running down stories. Anything to put the word “inverted” next to the word “curve” in a headline. “It’s provocative. It gets the people goin’!


On Thursday, Morgan Stanley is out with an expansive new note that flags mid-2019 for inversion. To wit:

Continue reading Why The Fed Will Be Forced To Halt QT Early And Expand The Balance Sheet In 2020, According To Morgan Stanley

Post-CPI Summary

By Michael Ashton

Below is a summary of my post-CPI tweets.

  • OK, 15 minutes to CPI. Here goes.
  • Last mo, we had an 0.17% on core m/m, exactly on expectations but after a weak 0.10% in April.
  • The Dec/Jan 0.24%/0.35% seem far away, but even farther away are the 0.14%s of last June and July. That is, comps remain relatively easy.
  • Really no big surprises last month. Still haven’t seen core goods acceleration or any sign of tariff effects. Core ex-housing is rising but still quite low.
  • In fact, I think the big story going forward, not this month per se but for the balance of the year and 2019, is what happens to core goods prices. With trucking prices rising aggressively, tariffs up and globalization down, I’d expect to see movement there.
  • In that vein, keep an eye on Apparel, which though small is an important signal on core goods.
  • This month, economists are looking for 0.18% on core, pushing y/y JUST BARELY to 2.3% with rounding. The consensus nailed it last month.
  • My thesis is that we should be seeing more core inflation than that going forward. So far, that thesis has been unrewarded but I really didn’t expect a whole lot to come through until the second half. This first half was just catching up from base effects of 2017.
  • You can see that median is basically back on the slow uptrend from 2014-15-16-17. Inflation will keep rising. The only question (which would be a scary outcome) is whether it accelerates past that former trend into a new self-feeding inflation cycle. No sign of that yet.

Continue reading Post-CPI Summary

I Hear 1987 New Wave is Back

By Kevin Muir

[biiwii comment: I prefer 1977 punk, personally; and as for new wave, Joy Division over New Order any friggin’ day of the week…]

I don’t know about you, but I’m worried. The economic cycle is long in the tooth. Equity valuations are stretched. The yield curve is flattening. Emerging markets and other liquidity-sensitive markets are sagging. The Federal Reserve is raising rates while also attempting the never-before-accomplished feat of reversing a decade of quantitative easing – seemingly oblivious to the hornet’s nest they are walking into. And President Trump seems determined to antagonize as many trading partners as possible before the summer holidays begin in earnest.

Continue reading I Hear 1987 New Wave is Back

The Next 7 Years

By Charlie Bilello

What returns are you expecting from stocks and bonds over the next 7 years?

This is a question that GMO (one of the largest and most respected asset managers) attempts to answer on a quarterly basis.

Their most recent forecast was downright depressing: -2.2% per year from large cap U.S. stocks and +1.9% per year from U.S. bonds. If correct, it would mean a 60/40 portfolio of U.S. stocks and bonds would generate a return of -0.6% per year over the next 7 years.

By comparison, GMO is expecting +3% per year from cash, implying that there is little to be gained today from taking risk.

Source: Note: Nominal Total Return derived from GMO’s real return and adding their inflation assumption of 2.2% per year.

Continue reading The Next 7 Years

Fool Me 666 Times, Shame on Me…

By Tim Knight

Well, surely you heard the news that Trump has ratcheted up the Chinese Trade War again:

Look, I’ve seen this movie before. I know how the story goes:

  1. Bears are about to lose hope since the market keeps going higher infinitely;
  2. Trump announces another salvo in the trade war;
  3. Market instantly plunges;
  4. Trump slips on a pink skirt and 38C bra and backpedals his threats;
  5. Market swiftly recovers to new lifetime highs.

Make no mistake, I’m short – – 54 positions – – and would love the market to fall 500 points every day until it was at 0 and every bull had committed a painful seppuku. Honest, I’d love that to pieces, since my hatred of bulls almost certainly exceeds that of Jews against Nazis, but I’m past hope at this point. It’s all a rigged game with no hope and no decency left. It will only end with apocalypse.

Expect Dow 30,000 in the morning. This is a sham, and I’m not getting hopeful anymore. Amazon with a p/e of 300 is just too damned CHEAP to pass up for John Q. Public, because he’s SO freakin’ smart.

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The Current Message From the Most Useful Sentiment Indicator

By Steve Saville

As I’ve noted in the past, the Commitments of Traders (COT) information is nothing other than a sentiment indicator. Moreover, for some markets, including gold, silver, copper, the major currencies and Treasury bonds, the COT reports are by far the best indicators of sentiment. This is because they reflect how the broad category known as speculators is betting. Sentiment surveys, on the other hand, focus on a relatively small sample and are, by definition, based on what people say rather than what they are doing. That’s why for some markets, including the ones mentioned above, I put far more emphasis on the COT data than on sentiment surveys.

In this post I’ll summarise the COT situations for five markets with the help of charts from “Gold Charts ‘R’ Us“. I’ll be focusing on the net positioning of speculators in the futures markets, although useful information can also be gleaned from gross positioning and open interest.

Note that what I refer to as the total speculative net position takes into account the net positions of large speculators (non-commercials) and small traders (the ‘non-reportables’) and is the inverse of the commercial net position. The blue bars in the middle sections of the charts that follow indicate the commercial net position, so the inverse of each of these bars is considered to be the total speculative net position.

I’ll start with gold.

Continue reading The Current Message From the Most Useful Sentiment Indicator

What 3 Days Of Strong NASDAQ Breadth Suggests For Today

By Rob Hanna

Not only did we see gains for the 3rd day in a row on Monday, but the NASDAQ put in some strong breadth numbers. This triggered a study that looked at times Nasdaq advancers outnumbered decliners by more than 3:2 for 3 days in a row. It suggested such persistent lopsided breadth was about enough, and it was often followed by a down day. Updated results can be seen below.


The numbers imply a downside edge. I also included the equity curve (which I normally only do in the subscriber letter).

Continue reading What 3 Days Of Strong NASDAQ Breadth Suggests For Today

Is Friday’s Sharp Drop in VXO Meaningful?

By Rob Hanna

The rally on Friday was accompanied by a sizable drop in the VIX (and even more so for the VXO, which is the old calculation for the VIX). This triggered some old studies for me in which I noted that big drops in the VXO have had much different connotations depending on whether SPX is in a long-term uptrend or downtrend (as defined by its proximity to the 200ma). I decided to review those studies, which require a 15% 1-day VXO drop, in this weekend’s subscriber letter.

First let’s consider what has followed when the large VXO drop has occurred during a long-term downtrend.


We see here some bearish statistics over the 1-2 day period. There is rarely upside follow-through when fear dissipates that quickly during a downtrend.

Continue reading Is Friday’s Sharp Drop in VXO Meaningful?

Zuckerburgh! San Francisco Median House Prices Rise $205,000 YoY

By Anthony B. Sanders

Monthly Housing Costs Equal $8,330

Mark Zuckerberg, the co-founder of Facebook, has now surpassed Warren Buffet to the third wealthiest person in the world.  Where is Mark Zuckerberg’s home? The San Francisco Bay Area! (Specifically Palo Alto). We will now rename Palo Alto as Zuckerburgh.

There are a large number of tech firms in the San Francisco Bay Area, including Google, Apple and Hewlett Packard. All these tech companies on a peninsula with tight land use controls makes for ultra-expensive housing. In fact, San Francisco median house prices rose by $205,000 YoY so far in 2008 according to Paragon Real Estate Group.


You know you have an affordable housing problem when the median condo price is around $1.25 million.

Continue reading Zuckerburgh! San Francisco Median House Prices Rise $205,000 YoY