Is the Yen a Reliable Safe Haven?

By Charlie Bilello

After a perfect year in 2017 (S&P 500 up every single month), equity markets are struggling.

The S&P 500 just finished down 2 months in a row (February, March) for the first time since early 2016. Meanwhile, the Japanese Yen is rising, leading all major currencies against the Dollar in 2018. Are these facts related? Can investors count on the Yen acting as a safe haven during times of equity market stress? Let’s take a look…

Data Source for all charts/tables herein: (Philadelphia Yen Index, S&P 500 Price Returns)

With data on the Japanese Yen going back to 1977 (Philadelphia Yen Index):

Continue reading Is the Yen a Reliable Safe Haven?

The Skyrocket Phase

By Keith Weiner

Let’s tie two topics we have treated, one in exhaustive depth and the other in an ongoing series. They are bitcoin and capital consumption. By now, everyone knows that the price of bitcoin crashed. Barrels of electrons are being spilled discussing and debating why, and if/when the price will go back to what it ought to be ($1,000,000 we are told).

As an aside, in what other market is there a sense of entitlement of what the price ought to be, and a sense of anger at the only conceivable cause for why the price is not what it ought?

Bitcoin, Postmodern Money

Anyways, during the incredible run up in price, we wrote a series of articles, entitled Bitcoin, Postmodern Money. We were not focused on the price of the thing, other than to discuss the problems of unstable price, and even rising price. We did not say the price will come down, or when. We said a rising price makes it unusable as money.

In an online forum, some folks insisted that bitcoin is a store of value (in contrast to the dollar). We said that even if you don’t think it will crash, a skyrocket is not a store. Here is the graph through Friday.

Continue reading The Skyrocket Phase

Gold and Real Yields

By Callum Thomas

This week it’s gold and real yields. A really important thing happened with interest rates in November last year which should be front of mind for investors thinking about gold.  It is a reasonably well established understanding that gold prices trade inversely to real yields, and I’ll explain why shortly.  What happened in November last year was that a key measure of real yields moved from negative to positive. And that’s not positive for gold!

The chart in question comes from a recent report we wrote on the outlook for gold prices (and silver). Basically what you see is the 5-year real yield (US 5-Year Treasury Yield minus US 5-Year Inflation Swap… a pure market based measure of real yields), shown inverted against the gold price (because real yields tend to move inversely with gold prices).  A large bearish divergence has opened up on this chart, and if you took it literally gold prices could be headed below $1000.

Continue reading Gold and Real Yields

That’s the Breaks

By Tim Knight

The shift from bullish to bearish since January 26th has been delightfully insidious. [Monday’s] market action created some more progress for the bears, although the breaks of February 9th lows were not across the board. Indeed, looking at some of the big indexes, you can see that we’re getting to the point of “challenging” those important lows, but not yet piercing them:


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CBI To Remain At 0. No Edge Apparent Despite Potential 50-Day Low Close.

By Rob Hanna

The Quantifiable Edges Capitulative Breadth Indicator (CBI) is a tool I have spoken about quite a bit lately, since we have seen a few recent spikes in the CBI. In the Quantifiable Edges CBI Research Paper I published last month (download information here) I examined the CBI a multitude of ways. Below is an excerpt from a section of the paper where I looked at 50-day lows and different CBI levels.

By combining CBI readings with a market that is hitting new lows, the results are often even more interesting. Let’s consider some studies that examine how the market has performed after hitting new lows, and break down those returns by CBI readings. The first one looks at performance following 50-day low closes when the CBI is 0.


Continue reading CBI To Remain At 0. No Edge Apparent Despite Potential 50-Day Low Close.

Sentiment Snapshot: Of Two Minds

By Callum Thomas

The latest weekly survey of investor positioning and views on Twitter showed a slight rebound in overall net bullishness, but as with the action in the markets, it appears indecisiveness is a key theme. Indeed the equity investor surveys showed a continuation of the starkly different views on fundamentals vs technicals – presumably this represents investors holding on to the solid macro backdrop vs the confronting correction in prices.

But in the latest set of responses to the surveys one thing that really is starting to stick out to me is the change in views toward the bond market.  Indeed there has been a notable turnaround in the perception of bond investors on the fundamentals (in contrast to equity investors), and the movement in overall net-bullish sentiment for bonds looks to be highlighting a risk of a big rebound in bond yields.

Things to think about from this review of investor sentiment are:

-There remains a tension between fundamental vs technical driven sentiment.

-The other tension is the divergence between equity market fundamental sentiment and bond market fundamental sentiment, which has turned around.

-Indeed, the bond survey looks to be highlighting the risks of a more protracted reversal in yields.

-On equity sentiment the main takeaway seems to be that there is this indecisiveness where investors are still holding on to the positive macro/earnings outlook vs the noise/news and downside risks.

1. Fundamental vs Technical Sentiment: Not a huge change on the week, but there’s still a lot of information in this pair of charts.  Fundamentals sentiment remains stubbornly high, albeit it does look to be slowly rolling over.  Technicals sentiment on the other hand only managed a partial rebound – and as I mentioned at the start reflects what appears to be a sort of indecisiveness in the markets: on the one hand fundamentals look good, but on the other hand there’s a few things to worry about.

The S&P’s 200-DMA: Why It Ain’t No Maginot Line

By David Stockman

For the last five years the S&P 500 has been dancing up its ascending 200-day moving average (200-DMA), bouncing higher repeatedly whenever the dip-buyers did their thing. Only twice did the index actually break below this seeming Maginot Line: In August 2015, after the China stock crash, and in February 2016, when the shale patch/energy sector hit the wall.

As is evident below, since the frenzied peak of 2873 on January 26, the index has fallen hard twice—on February 8 (2581) and March 23 (2588). Self-evidently, both times the momo traders and robo-machines came roaring back with a stick-save which was smack upon the 200-DMA.

But here’s the thing. The blue line below ain’t no Maginot Line; it’s just the place where the Pavlovian dogs of Bubble Finance have “marked” the charts. And something is starting to smell.

Continue reading The S&P’s 200-DMA: Why It Ain’t No Maginot Line

Phone Call from a Bank Manipulator, Special Report 1 April

By Keith Weiner

This topic is so timely and so important, that we publish this special report in lieu of our normal weekly Supply and Demand Report.

After our recent article debunking manipulation, we got a phone call from a man whom we will call Jim Bailey (all names have been changed to protect the innocent and the guilty). Jim worked on the London gold desk at a major financial institution. He told us that a lot of what we said was spot on. However, he said in no uncertain terms that manipulation does occur. Here is Jim’s story, as related to us by phone on Friday.

It was seven years ago, today. Lord Horace Abernathy came into our office. I knew of Abernathy, of course, he was my boss’ boss’ boss. A power broker, his value to the bank was not so much in his managerial skills, but his connections in government. His seat in the House of Lords was invaluable.

He did not ask after the traders’ health, or make any other small talk. He is a Lord and traders are mere peasants. He just said, “Chancellor Osborne needs you to make silver go down.”

There was a long silence, as nearly a score of traders gaped at each other.

“Gold too, of course.”
Continue reading Phone Call from a Bank Manipulator, Special Report 1 April

Asia Rally Dies As China’s Tariffs On U.S. Imports Take Effect – All Eyes On Trump

By Heisenberg

April (and Q2) got off to a less than inspiring start on Monday as an early Asian rally shriveled up and died on the vine as the market tries to figure out how to digest myriad uncertainties around the burgeoning trade spat between Washington and Beijing.

China officially retaliated against U.S. steel and aluminum tariffs on Monday as previously announced moves against 128 imported goods went into effect. The  Commerce Ministry claims Washington did not respond to a a trade compensation consultation submitted on March 26 and so, “in view of the lack of agreement between the two sides, on March 29, China informed the WTO of the suspension of the concession list and decided to impose tariffs on certain products imported from the United States in order to balance the benefits of the US 232 measures against the Chinese,” a Ministry statement reads. Here’s the full statement from the Customs Tariff Commission:

Continue reading Asia Rally Dies As China’s Tariffs On U.S. Imports Take Effect – All Eyes On Trump

Credit Managers’ Index

By Callum Thomas

The NACM “Credit Managers’ Index” or CMI is the often forgotten indicator which, similar to its cousin the PMI (Purchasing Managers’ Index), tracks credit conditions based on a survey of credit managers.  Its definitely an indicator to keep an eye on because it can provide critical and timely insights on credit conditions as well as broader economic conditions.  It also comes out slightly earlier than the PMIs.

The March data showed a slight down-tick, with the headline combined manufacturing & services index off -0.9pts to 55.6 with the “unfavorable” index only off -0.3pts to 50.6 and the “favorable” index down -1.7pts to 63.2. The manufacturing CMI was down -1pt to 55.2 and the services CMI was down -0.7pts to 56.1. Clearly these are all fairly decent levels, albeit the tick down is something to watch if we get another tick down in April too.

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What Really Drives the Arms Index

By Tom McClellan

NYSE Arms Index
March 30, 2018

Earlier this month, the technical analysis community mourned the passing of Richard Arms, the creator of the eponymous Arms Index.  You can read an obituary by Jonathan Arter here.  I met him a few years ago and had corresponded with him, and I can tell you that he was not only a brilliant chartist, he was also a really nice guy.  He was happy to share his insights with others.

The Arms Index is sometimes referred to as “TRIN”, short for TRading INdex.  TRIN was the old Reuters screen code, and it is the symbol many quote systems use to this day.  But professional technical analysts like to give credit where it is due, and so we call it the Arms Index.

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Money Matters

By Steve Saville

[This blog post is an excerpt from a recent TSI commentary]

The year-over-year rate of growth in the US True Money Supply (TMS) was around 11.5% in October of 2016 (the month before the US Presidential election) and is now only 2.4%, which is near a 20-year low. Refer to the following monthly chart for details. In terms of effects on the financial markets and the economy, up until recently the US monetary inflation slowdown was largely offset by continuing rapid monetary inflation elsewhere, most notably in Europe. However, the tightening of US monetary conditions has started to have noticeable effects and these effects should become more pronounced as the year progresses.

The tightening of monetary conditions eventually will expose the mal-investments of the last several years, which, in turn, will result in a severe recession, but the most obvious effect to date is the increase in interest rates across the entire curve. The upward acceleration in interest rates over the past six months has more than one driver, but it probably wouldn’t have happened if money had remained as plentiful as it was two years ago.

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