Open Letter to Warren Buffett

By Dickson Buchanan Jr.

Dear Mr. Buffet,

Let me start by saying that I am a great admirer of yours. What you and Charlie Munger have accomplished at Berkshire Hathaway is truly extraordinary.

Today though, I want to talk to you about a very specific four letter word – gold.

You’ve not been shy with your opinion about gold over the years. Your 2011 letter to shareholders seems to offer the best summary of your thoughts. Towards the end of this letter, pages 17-19, you place investments into three major categories;

  1. Currency denominated investments (USD money market funds, bonds, bank deposits etc.)
  2. Unproductive assets, purchased out of fear or a “herd” mentality
  3. Productive assets such as businesses, farms, or real estate – your favorite

You put gold into the second category. You said:
Continue reading Open Letter to Warren Buffett

Tin – No Longer a Boring Metal!?!

By Rob Bruggeman

Tin is a boring metal.  It is used predominantly for solder (yawn!), and for applying a thin, corrosion resistant layer on metal (a.k.a. tin-plating) (double yawn!).  Or, so at least I thought.

Recently, Rio Tinto Ventures hired MIT to study which metals would be most impacted by new technologies such as autonomous and electric vehicles, renewable energy, energy storage, and advanced computing and IT.  Never in my wildest dreams would I have expected tin to come out at the top of that list, edging out lithium and cobalt.

We’ve all heard lots of hype about lithium, cobalt, nickel, and even vanadium being the hot metals associated with electric vehicles and batteries.  Lithium has lost some of its luster due to Tesla’s struggles as well as potential that SQM could flood the lithium market.  I still like cobalt due to the supply concentration from the DRC, a hellhole of a country that, ironically, has amazing mineral endowment.  But, this is the first time I’ve seen or heard anything about tin possibly becoming a hot metal.
Continue reading Tin – No Longer a Boring Metal!?!

March “Core” Producer Price Index Up 2.7% YoY, Highest Since November ’11

By Anthony B. Sanders

The Producer Price Index is out for March and its feeling hot, hot, hot. “Core” PPI Final Demand is up to 2.7%, the highest since November 2011.

This guarantees a rate hike from The Fed’s Open Market Committee (FOMC).

PPI Final Demand less food and energy YoY is noteworthy since it is the highest since November 2011, shortly before Core PCE YoY hit 2%, the Fed’s target inflation rate.

ppicore1

If we just look at PPI Final Demand, we see it is growing at 3% YoY and at the same rate as early 2012 when Core PCE YoY growth last exceeded 2%.

Continue reading March “Core” Producer Price Index Up 2.7% YoY, Highest Since November ’11

Fibonacci Reveals the Stock Market’s Next Big Move

By Elliott Wave International

Scientists speculate that Elliott waves are the stock market’s “critical structure”

The stock market’s recent triple-digit swings might have many investors wondering if the path of prices is completely random.

But, as random as prices may appear, EWI’s analysts can assure you that a recognizable Elliott wave pattern is unfolding. In other words, we’ve been here before, and we have a good idea of how it’s going to turn out.

No, the stock market is not random. In fact, Elliott waves are the clearest when volatility is the wildest! You see, volatility is driven by investors’ emotions, and Elliott wave price patterns in market charts are nothing more than a reflection of this investor psychology.

What’s more: investor psychology unfolds in those recognizable and repetitive patterns that I just mentioned, whether on an intraday basis, day-to-day or across longer time frames.

Even independent scientists say so.

Consider this 1996 quotation from “Stock Market Crashes, Precursors and Replicas” in France’s Journal of Physics:

We speculate that the ‘Elliott waves’ . . . could be a signature of an underlying critical structure of the stock market.

EWI founder Robert Prechter put it this way:

Scientific discoveries have established that pattern formation is a fundamental characteristic of complex systems, which include financial markets. Some such systems undergo “punctuated growth,” [or] building fractally into similar patterns of increasing size.

Nature is full of fractals.

Consider branching fractals such as blood vessels or trees: A small tree branch looks like an approximate replica of a big branch, and the big branch looks similar in form to the entire tree.

Now consider that most of nature’s fractals are governed by the Fibonacci sequence. It begins with 0 and 1, and each subsequent number is the sum of the previous two:0,1, 1, 2,3,5,8,13,21,34,55 and so on. The Fibonacci sequence also governs the number of waves that form in the movement of aggregate stock prices.

Take a look at this figure from the Wall Street classic book, Elliott Wave Principle:

Continue reading Fibonacci Reveals the Stock Market’s Next Big Move

Guess What? The Saudis Have ‘An Ambition’ For $80 Oil

By Heisenberg

I’m not sure if you were reading the Syria headlines as bullish for crude or not, and I’m not sure if you’re in the camp who thinks there should be a “Bolton premium” in oil prices to reflect the very real possibility that Trump’s decision to replace H.R. McMaster with one of the most notorious foreign policy hawks in modern U.S. history likely raises the risk of more intervention in the Mideast no matter what Trump says at rallies about pulling out “very soon”, but if you were looking for a reason to be bullish on oil, here’s one:

  • SAUDI ARABIA IS SAID TO SIGNAL AMBITION FOR $80 OIL PRICE

This is obviously aimed at getting the best possible valuation for Aramco ahead of the IPO (or at least you’d think that has something to do with it) and it’s probably also tied to folks trying to figure out how to finance some of MbS’s ambitious plans.

Here’s the reaction:

Oil

Oil was already on the rise after Xi’s speech buoyed risk assets overnight.

Continue reading Guess What? The Saudis Have ‘An Ambition’ For $80 Oil

Jerome Is The New Janet

By David Stockman

Tie, Trousers And Same Old Keynesian Jabberwocky

The election of 2016 was supposed to be the most disruptive break with the status quo in modern history, if ever. On the single most important decision of his tenure, however, the Donald has lined-up check-by-jowl with Barry and Dubya, too.

That is to say, Trump’s new Fed chairman, Jerome Powell, amounts to Janet Yellen in trousers and tie. In fact, you can make it a three-part composite by adding Bernanke with a full head of hair and Greenspan sans the mumble.

The overarching point here is that the great problems plaguing American society—scarcity of good jobs, punk GDP growth, faltering productivity, raging wealth mal-distribution, massive indebtedness, egregious speculative bubbles, fiscally incontinent government—-are overwhelmingly caused by our rogue central bank. They are the fetid fruits of massive and sustained financial repression and falsification of the most import prices in all of capitalism—–the prices of money, debt, equities and other financial assets.

Moreover, the worst of it is that the Fed is overwhelmingly the province of an unelected politburo that rules by the lights of its own Keynesian groupthink and by the hypnotic power of its Big Lie. So powerful is the latter that American democracy has meekly seconded vast, open-ended power to dominate the financial markets, and therefore the warp and woof of the nation’s $19 trillion economy, to a tiny priesthood possessing neither of the usual instruments of rule.

Continue reading Jerome Is The New Janet

Genesungshysterie

By Jeffrey Snider

Early in the morning on October 7, 2016, during Asian trading the British pound experienced a flash crash. Driven down 6.1% in a matter of two minutes, it left the rest of the markets stunned. The usual whispers of a “fat finger” abounded, as did the recognition of how unabated computer traded sell orders were quickly offered and executed.

Just a week prior, however, the German 10-year bund yield had plunged to a record -21 bps in “yield.” Mainstream commentary that at every turn gives each central bank the benefit of the doubt has never been able to come to terms with actual bond market NIRP. On the same day, Germany’s federal 2-year would price at -72 bps in “yield.” It left the bund curve at the important 2s10s for a compressed 51 bps.

The bund curve being negative that far out plus flat on top meant everything bad about perceived global liquidity. No way declared the media, not with the Fed’s balance sheet expansion undertaken years before and the ECB’s then having been expanded. If the pound flash crashed, then it must be Brexit or some other unrelated idiosyncratic factor that wouldn’t amount to much.

Continue reading Genesungshysterie

Melt-Up Media Morons

By Tim Knight

Since the BTFD crowd and “it’s still a bull market” imbeciles were after me today, I thought this would be appropriate…………..

As we move deeper into the year 2018, and as the market slips lower, I am increasingly confident that the gargantuan bull market that started on March 6 2009 ended on January 26 2018. We all know that no one rings a bell at the top………but I think we’re all starting to hear the ringing anyway.

With that in mind, I decided to take a look backward at the kind of chatter that was going on in mainstream financial media when the market was peaking. What became quickly clear was two “legendary” voices – – Bill Miller and Jeremy Grantham – – took center stage and encouraged people to throw all their money into an equity market that had already gone up over 300%.

Let’s start with the first “legend” – – Bill Miller – – who in January 2018 (that is, the month the market reached its highest peak in human history) notified planet Earth that the market was going to “melt up” by 30%.

billmiller

Below is the chap making this prediction. I dunno, but it seem to me the only thing reliably melting up is his consumption of hamburger sliders. But let’s not get sidetracked.

Continue reading Melt-Up Media Morons

Milking the Savers

By Keith Weiner

Do you want to lend your hard-earned money to the US government? In exchange for the high, high interest rate of 2.8%? It’s a most generous deal, even though the Federal Reserve is committed to dollar devaluation at the rate of 2% per annum. So you are getting 0.8% per year, assuming that the Fed hits its goal. In exchange for lending to a profligate and counterfeit borrower—the government has neither the means nor intent to repay.

No, you don’t? This sounds like a bad deal? Well, tough.

It sucks, but if you need to hold a cash balance, your other choices suck more. Instead of lending to the government, you could deposit the cash in a bank. There’s only one problem. The bank will lend to the government. After taking out the costs of compliance, this rate is 2% according to the St Louis Fed.

This is actually up from 0.13% over the last three years, in our current bout of risinginterestrate-itis. Enjoy this high rate while you can.

In any case, the bank adds risk. On top of all of the risks you incur by lending to the government, you take the risk of bank insolvency too. The government does provide deposit insurance—but this is the same government whose risk you are trying to avoid by not buying its bonds.

Finally, you could hold paper cash, $20 bills. Ignoring the risk of theft, there is still a problem with this. You are lending to the Fed. The Fed issues dollars, which are its liability, to fund its purchase of Treasury bonds. The dollar is backed by government bonds.

To have a dollar is not to own a thing. It is a credit relationship. Someone else owes you. If you own the dollar bill, the Fed owes you.

Continue reading Milking the Savers

When Will Volatility Finally Spread?

By Kevin Muir

Everyone loves to talk about VIX. I guess it’s because VIX is relatively easy to trade, and even more importantly, during the 2008 Great Financial Crisis, long positions were monstrous winners.

Hedge fund managers made their careers with that move. It was an amazing opportunity to make money.

During the summer of 2008, the VIX was flopping around between 15 and 25. But then September hit. In an unprecedented development, the VIX rallied from 25 to 90 in less than three months. This was supposed to never happen. The index was implying a level of volatility for stocks that had never been seen in the history of financial markets.

Continue reading When Will Volatility Finally Spread?

US Stock Market – A Scenario Presents Itself

By NFTRH

Well, a speculated upon ‘M’ rally may or may not be starting today, but NFTRH 494 fleshed out this scenario on the way to completing a comprehensive report across all major markets. I know I am the guy with the confusing indicators that make some peoples’ eyes glaze over, but I am also the guy guiding myself and NFTRH readers with more conventional and accessible (at least I think it’s accessible) charting every step of the way as well.

I bought back a sizeable chunk of QQQ this morning after taking profit on it last week, in large part due to the analysis in #494.

A Scenario Presents Itself

Last week due to the overdone news (media blitz) about the decline of big Tech we allowed for a rally. NDX went down on Monday, made a big rally and then got Trumped on Friday. The same pretty much goes for the rest of the market. I would rather not have the Trade War stimulant in the mix when trying to manage a potential bear phase, but that’s what we’ve got. The volatility, as expected, is intense.

Referring to 2015 we see that SPX aborted that analog several weeks ago as it resumed dropping. VIX resumed its rise unlike in 2015. That 2015 return to complacency fueled the 2nd decline of the larger ‘W’. In the context of similar time periods, the current SPX situation is doing the opposite to 2015, as it has dropped to test the lows amid rising volatility instead of bouncing to test the highs amid declining volatility.

When VIX rebounded into the 25-30 range in early 2016 the 2nd low of the ‘W’ was put in and the correction ended. VIX hit 25 last week and dropped back to 21.49.

Continue reading US Stock Market – A Scenario Presents Itself

U.S. Dollar: Why it Pays to Use the Elliott Wave Model

By Elliott Wave International

The signs that could’ve helped you nail two junctures in the greenback’s trend

The legendary football coach Vince Lombardi believed that a winning team is built on mastering the game’s basics — so much so that at the start of the season he would “remind” veteran players, “Gentlemen, this is a football.”

Lombardi would even take them out to the field, discuss the boundaries and remind the players that the goal is to get the football into the end zone.

This relentless review of the basics paid off. His team, the Green Bay Packers, won five championships, including the first Super Bowl.

It also pays to master the basics of Elliott wave analysis.

The basic Elliott wave pattern for financial markets is five waves in the direction of the main trend with corrections, i.e., moves against the trend, unfolding in three waves.

So, in an uptrend, prices would rise in five waves and fall in three waves. In a downtrend, prices would fall in fives and rise in three waves.

With that in mind, let’s review how our U.S. Short Term Update editor made this bearish call on the U.S. Dollar Index last November.

Continue reading U.S. Dollar: Why it Pays to Use the Elliott Wave Model