A West Coast State of Mind

By James Howard Kunstler

Driving south on I-5 into Seattle, the Cascadia Subduction Zone came to mind, especially when the highway dipped into a gloomy tunnel beneath Seattle’s relatively new skyscraper district. This fault line runs along the Pacific coast from north of Vancouver down into California. The western “plates” move implacably east and downward under the North American plate, building up massive tectonic forces that can produce some of the most violent megathrust earthquakes on the planet.

The zone also accounts for a chain of volcanoes that tend to produce titanic explosions rather than eruptions of lava and ash as seen in the hula movies. The most recent expression of this tendency was Mt. St. Helens in 1980, an impressive cataclysm by the standards of our fine-tuned complex civilization, but a junior event of its type compared to, say, the blow-off of Mt. Mazama 7,500 years ago, which left Crater Lake for the tourists. A publicity-shy correspondent writes:

Continue reading A West Coast State of Mind

Goin’ Down! US Treasury 10Y-2Y Curve Flattest Since September 17, 2007

By Anthony B. Sanders

10Y Term Premium Remains Negative

Yes, between Italy’s political problems and trade turbulence, the US Treasury 10Y-2Y curve is goin’ down. In fact, it is the flattest since September 17, 2007.

102low

And the 10-year Treasury term premium remains negative.

termprem10y

I wonder why the US is so tentative about issuing covered bonds?

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Liquidity Preference Rising, Report 3 June 2018

By Keith Weiner

[biiwii comment: gold & silver supply/demand report follows]

Picture a scene in one of those action moves. Two guys are fighting for control over the steering wheel. The car is going 75mph, the road is narrow, and there is a drop over a cliff on one side. And there are lots of sharp curves.

Central Planning

This is a pretty good picture of the action at our central banks. Desperate men are fighting for who gets control of the monetary steering wheel, and for which rules to use to determine when to turn left and when to turn right. One side wants central planning with discretion and the other wants central planning with rules. Among the latter, a debate now rages whether to use inflation, GDP, or another measure.

For decades, the central banks have centrally planned our economy. Just as the guys fighting in the car don’t notice the abyss they keep not falling into, these central planners don’t notice the falling interest rate.

Perhaps it’s because they scoff at the actual rate at which actual lenders lend actual dollars to actual borrowers in the actual market. This, they dismiss as the mere nominal rate. But they calculate inflation, averaging apples and oranges, gasoline, and housing. Then they subtract inflation from nominal interest to get the real interest rate. That’s what they call this fictitious number, at which no one lends and no one borrows. Their real rate probably isn’t pathologically falling, the way the nominal rate is…

Wait, let’s look.

Continue reading Liquidity Preference Rising, Report 3 June 2018

All Enemies, Foreign, Domestic, Real And Imagined: Full Week Ahead Preview

By Heisenberg

Through it all (i.e., despite trade uncertainty, Italy’s political drama and ongoing concerns about the sustainability of the domestic political situation as Trump remains at odds with the nation’s top law enforcement agencies and intelligence apparatus), U.S. equities managed to turn in their best May performance since the bull market began.

To be sure, that’s a largely meaningless statistic, but it’s worth mentioning I suppose and if nothing else, it makes for a fun chart and an easy lead-in to my traditional Sunday evening week ahead preview:

MaySPXReturns

Over the weekend, Trump seemed to be more agitated than usual with regard to the special counsel probe and while that drama has recently taken a backseat to more pressing concerns for markets, it’s important to remember that the headline risk around the investigation is still there – it’s just a matter of when the next shoe drops. For those who missed it, here’s a smattering of egregious “covfefe”:

Continue reading All Enemies, Foreign, Domestic, Real And Imagined: Full Week Ahead Preview

Sentiment Snapshot: Vol Rising

By Callum Thomas

This week in the sentiment snapshot I take a look at volatility.  For context, in the sentiment snapshot series I look at some of the charts from the weekly survey on Twitter, which asks respondents to indicate whether they are bullish or bearish for primarily technical or fundamental rationale. On that note, the overall net-bullish sentiment has now made almost a full recovery so it leads us into a question of whether this is well-placed optimism… which leads into a series of charts on the VIX and volatility.

The key takeaways from the weekly sentiment snapshot are:

-Net bullish sentiment recovered to the strongest point since the correction began, with fundamentals sentiment reaching a new high.

-Sentiment has diverged from the VIX to the bullish side.

-Volatility is likely to stay higher from here, but with a positive fundamentals backdrop it may well be the more virtuous form of volatility.

1. Equity Sentiment – Fundamentals vs Technicals:  A new survey high was reached this week for “fundamentals” net-bullish equity sentiment. This along with a tickup in technicals sentiment has brought the overall net-bulls to an almost full recovery since the correction began (more about that in the next chart).  On the all important question of whether we see a new high in the S&P500 this year, it’s all going to come down to the fundamentals i.e. the earning/macro pulse, and that there is such optimism on the fundamentals is a positive sign in this respect.  Albeit my inner contrarian is saying ‘hmmm’…

Continue reading Sentiment Snapshot: Vol Rising

Precious Metals (NFTRH 502 Excerpt)

By NFTRH

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.

Precious Metals

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. 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)

Potpourri for $500, Alex

By Michael Ashton

When I don’t write as often, I have trouble re-starting. That’s because I’m not writing because I don’t have anything to say, but because I don’t have time to write. Ergo, when I do sit down to write, I have a bunch of ideas competing to be the first thing I write about. And that freezes me a bit.

So, I’m just going to shotgun out some unconnected thoughts in short bursts and we will see how it goes.


Wages! Today’s Employment Report included the nugget that private hourly earnings are up at a 2.8% rate over the last year (see chart, source Bloomberg). Some of this is probably due to the one-time bumps in pay that some corporates have given to their employees as a result of the tax cut, and so the people who believe there is no inflation and never will be any inflation will dismiss this.

On the other hand, I’ll tend to dismiss it as being less important because (a) wages follow prices, not the other way around, and (b) we already knew that wages were rising because the Atlanta Fed Wage Tracker, which controls for composition effects, is +3.3% over the last year and will probably bump higher again this month. But the rise in private wages to a 9-year high is just one more dovish argument biting the dust.

Continue reading Potpourri for $500, Alex

Sleep Walking Into the Next Crisis?

By Kevin Muir

Quick – the United States suddenly backtracks on half century of globalization and enters a trade war with almost all of its trading partners – do you buy or sell equities? And how about bonds?

Don’t mistake this question as me going full tinfoil-hat – I know we are far from a trade war – but it is an interesting exercise to contemplate.

I don’t have an answer how a trade war would affect financial markets. The reality is that “it depends”. I know, I know – the old joke about the one-handed economist is probably applicable here, but the financial repercussions from a trade war are not as obvious as they might seem at first.

Trade wars cause rising prices – no denying that point. But whether that causes stock and bond prices to rise or fall depends a lot on the reaction function of the central bank.

Continue reading Sleep Walking Into the Next Crisis?

Wrapping Up an Eventful Week in Bonds and Stocks

By NFTRH

US Treasury Bonds/Yields

On May 20 we presented a case in NFTRH 500 that the bearish bond play (bullish yields) was done, at least temporarily, from a contrarian perspective.

About Those Bond Yields

That was written before I realized – thanks to an alert NFTRH subscriber – that Thursday, May 31 would be another Fed SOMA (or QT) day, as bonds are allowed to hit maturity.*

The day after this bond maturation yields again went up (bonds down) as the stock market shook off the media-manufactured fears that ostensibly started in Italy but actually were destined to crop up regardless in one place or another (there was a lot of trade war noise this week).

See this NFTRH Premium update, now unlocked to the public, as it was presented in-day and in real time to give perspective for subscribers (and myself) as the media were scaring the herds into risk ‘off’ behavior and the perceived safety of Treasury bonds.

Continue reading Wrapping Up an Eventful Week in Bonds and Stocks

Is Anyone Really Surprised DB’s Problems Had Nothing To Do With The DoJ Fine?

By Jeffrey Snider

You need only go back a little less than two years for an example. In later 2016, Deutsche Bank was a huge problem everyone was discussing if only because they couldn’t avoid it. Despite “reflation” then gripping much of the world, the German institution stood out for all the wrong reasons.

Those were easily dismissed as nothing other than an impending fine for housing bubble era wrongdoing. The US Department of Justice was going to slam the bank with an enormous penalty and its potential size was supposedly the reason investors were getting nervous. Rumors were swirling that it could be more than $10 billion, perhaps $14 or $15 billion. At that level the bank’s capital stance would be severely threatened (and might trigger coco’s and such).

In January 2017, Deutsche settled for $7.2 billion. It would pay $3.1 billion in civil penalties (under FIRREA) while also covering $4.1 billion in “relief” to various affected parties (such as homeowners). A serious forfeit, but nowhere near as much as had been feared.

After falling below $13 per share (on the NYSE) in September 2016, DB’s stock rose as prospects for a reduced settlement gained in perception. By the time it was announced, the stock had recovered to more than $20. End of story?

Not quite. As I wrote in September 2016:

Continue reading Is Anyone Really Surprised DB’s Problems Had Nothing To Do With The DoJ Fine?

Inflation? Core PCE Deflator YoY Hits 2.0% For April…

By Anthony B. Sanders

…As Sears Closes Another 72 Stores

The inflation numbers are out for April and the numbers show that the Core Personal Consumption Expenditure Deflator remained the same as March at 2.0% YoY. Although increasing, “inflation” remains tepid since The Great Recession ended (mostly under the 2% Fed inflation target).

coreinfl

While inflation remains tepid, things are anything but “business as usual” at Sears.  Sears’ stock price never quite recovered from The Great Recession and, like many big box retailers, has been “Bezos’d”.

Continue reading Inflation? Core PCE Deflator YoY Hits 2.0% For April…

Notes on Heartache and Chaos

By James Howard Kunstler

I was interviewing a couple of homesteaders on an island north of Seattle at twilight last night when they noticed that the twelve-year-old family dog, name of Lacy, had not come home for dinner as ever and always at that hour. A search ensued and they soon found her dead in the meadow a hundred feet behind the house with two big puncture wounds in her body. Nobody had heard a gunshot. We’d just been talking inside and a nearby window was open. They suspect the dog met up with a black-tailed deer buck out there and was gored to death. We hadn’t heard a yelp, or anything. A week ago, an eagle got one of their geese, and some land-based monster got its companion just the other day.

Nature is what it is, of course, and it’s natural for human beings to think of its random operations as malevolent. That aspersion probably inclines us to think of ourselves as beings apart from nature (some of us, anyway). We at least recognize the tragic side of this condition we’re immersed in, and would wish that encounters between its denizens might end differently — like maybe that two sovereign creatures meeting up by sheer chance on a mild spring evening would exchange pleasantries, ask what each was up to, and go on their ways.

Continue reading Notes on Heartache and Chaos