But “We Owe it to Ourselves” Report, 28 May 2018

By Keith Weiner

[biiwii comment: Gold and silver supply/demand report 2nd segment]

Have you ever heard someone say this? It falls into the category of, it’s so perverse, so wrong, and so wrong-headed that there has got to be a constituency out there somewhere, to assert this!

First, let’s head off at the pass the objection that the majority of US government debt is held by foreigners. As of March this year, the US Treasury estimates that $6.3 trillion worth of Treasury bills and bonds are owned by foreign holders. This is not even close to the majority of it.

It’s also not the point. The nature of debt is what it is, whether the creditor is the People’s Bank of China or Uncle Ernie who puts 10% of his salary into US Savings Bonds.

The constituency of wrongness is headed by Paul Krugman. He is willing to go beyond the debate of domestic vs. foreign creditors, and defend global collectivism as such. He wrote an article with a headline that is sheer irony. In Nobody Understands Debt he says, “…the world economy as a whole owes money to itself.”

Producing and Consuming

We don’t have much to say to Professor Krugman, other than collectivism is the resort of scoundrels. It is a cynical ploy to distract attention from individual action. When you drill down, you see that some people are productive and others are not. Some people produce more than they consume, saving the difference. Others consume more than they produce.

As an aside, the collectivism is not typically so naked. More often, we are just offered an aggregate statistic without explanation of why it is measured in aggregate. For example, GDP is taken as a given. The idea of “economy as a whole” is implicit in the concept of GDP. But suppose a fat man is eating two steak dinners in a restaurant. A starving man looks through the window longingly. Would you say it’s two men and two steaks, therefore one steak per capita, and therefore all is well?

Continue reading But “We Owe it to Ourselves” Report, 28 May 2018

Chart Of The Week: US PE10 Valuation Ex-GFC

By Callum Thomas

This week it’s the PE10 and the impact of the financial crisis.  Specifically what we’re looking at is how the PE10 or CAPE (Cyclically Adjusted Price to Earnings) ratio would look like if you excluded the impact of the crash in earnings during the financial crisis.  The bottom line is that the PE10 would be about 4 points lower.  That would make for a PE10 reading that would look more around average instead of expensive.

The chart comes from a recent report on the PE10, and the eventual roll-out of this distortion (as well as some work on expected future returns).  On that note, it’s also worth considering the roll-out of this effect, which by my numbers will be almost fully complete by late next year.

The report I mentioned also shows that if you substitute in consensus earnings over the next few years into the calculations as well, you could end up with a significantly cheaper looking PE10 valuation.  Of course that makes a number of simplifying assumptions (e.g. price stays the same), but it goes to show some of the key forces set to impact this valuation ratio in the coming months and years.

Finally, it’s worth mentioning in passing, that if you run the same analysis globally for Emerging Markets and DM Ex-US valuations you do see a similar effect, but it’s not nearly as dramatic as the chart above.

So it’s an interesting effect overall and it serves as a reminder that it’s worth understanding the mechanics and what goes in to a particular valuation metric, and the value of exploring the underlying data.  In my view it’s also a nod to the value of using multiple indicators to build up a more holistic picture.

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European End Game

By Kevin Muir

We all know the famous Getty line about “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” Today the numbers Getty used seem a little quaint, but we understand the sentiment.

I doubt that when Getty uttered this line more than half a century ago he ever imagined it would apply to countries, yet here we are.

Too many pundits believe Germany holds all the aces in the European power dynamic. After all, they are the creditor nation with all the wealth. They should be able to dictate the terms of the European Union and instill their fiscal and monetary dominance on the rest of the EU nations.

Yet we have long passed the point where Germany can walk away from this union. Let’s forget the political implications of an EU collapse (which are considerable and provide a great degree of inertia for the EU remaining together), and instead focus on the fiscal implications.

Continue reading European End Game

Memorialize That

By James Howard Kunstler

War for the USA these days is a weird, inconclusive enterprise. Our objectives are poorly discerned, hardly even articulated anymore, just a pattern of going through the motions as destructively as possible with no end in sight. How many Americans can state what our mission in Afghanistan is after seventeen years of blundering around its bare mountains and valleys? What exactly has been the point of our exercises in Syria? To get rid of Bashar al-Assad, the wonks might say. Really? And replace him with what? With the ragtag ISIS maniacs we’ve been shoveling arms and money to?

What goes on in the Baghdad Green Zone these days with Operation Inherent Resolve still underway? How come four US Special Forces soldiers were killed in Niger in 2017? Do you know what they were doing there? How many Americans can even say where Niger is on a map? How much better is life in Somalia these days with American soldiers on-the-scene? What was the net effect of our effort to liberate Libya in 2011 (Operation Freedom Falcon)? What factions are US military advisors training in Ukraine? And what for? Defense Secretary James Mattis says, “We’re working with them on reform of their military.” Hmmm…. So they can be more like us?

Continue reading Memorialize That

Why It’s Different This Time

By Steve Saville

One of the financial world’s most dangerous expressions is “this time is different”, because the expression is often used during investment bubbles as part of a rationalisation for extremely high market valuations. Such rationalisations involve citing a special set of present-day conditions that supposedly transforms a very high valuation by historical standards into a reasonable one. However, sometimes it actually is different in the sense that all long-term trends eventually end. Sometimes, what initially looks like another in a long line of price moves that run counter to an old secular trend turns out to be the start of a new secular trend in the opposite direction. We continue to believe that the current upward move in interest rates is different, in that it is part of a new secular advance as opposed to a reaction within an on-going secular decline. Here are two of the reasons:

The first and lesser important of the reasons is the price action, one aspect of which is the performance of the US 10-year T-Note yield. With reference to the following chart, note that:

a) The 2016 low for the 10-year yield was almost the same as the 2012 low, creating what appears to be a long-term double bottom or base.

b) The 10-year yield has broken above the top of a well-defined 30-year channel.

c) By moving decisively above 3.0% last week the 10-year yield did something it had not done since the start of its secular decline in the early-1980s: make a higher-high on a long-term basis.

Continue reading Why It’s Different This Time

How Seasonality The Week Of Memorial Day Has Changed Over The Years

By Rob Hanna

Happy Memorial Day! The week of Memorial Day has shown some interesting seasonal tendencies over the years. But it has faltered greatly the last few. The chart below is one I have shown in the past, and have now updated. It examines SPX performance from the Friday before Memorial Day to the Friday after it.

2018-05-28

There was no substantial edge apparent throughout the 70s, but starting in 1983 through 2009 there was a bullish tendency. The last 8 years this week has mostly struggled.  That said, Thursday continues to look seasonally strong, and I will update that study later this week.

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What to Expect at a Critical Market Point: End of a Wave 2 Rally

By Elliott Wave International

“Most investors are convinced that the bull market never went away.”

The great game of Wall Street — where huge amounts of money are at stake every trading day.

Many speculators play this game by watching for events outside of the stock market that they believe will “trigger” the next big move in prices.

However, the real driver of all those green up arrows and red down arrows is nothing more or less than investor psychology. This famous Kal’s cartoon sums it up perfectly:

sellcartoonwithcopyright

First investor: “I’ve got a stock here that could really excel.”

Second investor: “Really excel?”

Fourth investor: “Sell?” — and the crowd goes, “Sell, sell, sell!”

First investor again: “This is madness! I can’t take it any more, good bye!”

Second investor: “Good bye?”

Third investor: “Buy?” — and the crowd goes: “Buy, buy buy!”

As random and unpredictable as this cartoon makes it look, EWI’s research reveals that investor psychology actually goes through similar phases during every market cycle. So, if you know the current psychological phase of the market, you can make a high-confidence prediction about the next phase.

Continue reading What to Expect at a Critical Market Point: End of a Wave 2 Rally

Fishy Business

By James Howard Kunstler

Picking up a trope conceived months back, the melodrama of US governance is looking more and more like Herman Melville’s Moby Dick, with the FBI as the doomed ship Pequod, with R. Mueller as Captain Ahab and D.J. Trump as the white whale. In the classic book, of course, the wounded whale finally sends the ship to the bottom, crew and all (but one), and swims away to the freedom of the deep blue sea.

Forgive the barrage of movie metaphor, but there’s quite a bit of the 1944 classic Gaslight in here too — and sure, I’m not the first to notice. In that film, the wicked Charles Boyer manipulates his wife, played by Ingrid Bergman, into thinking she’s lost her marbles, in order to cover up his own crimes. That’s how I feel when I turn to The New York Times every morning — for instance, today’s edition, with the front-page story Trump Proxies Drop by Briefings on Use of F.B.I. Informant (which headline was actually changed on the landing page to Trump’s Lawyer and Chief of Staff Appear at Briefings on F.B.I.’s Russia Informant).

Continue reading Fishy Business

The Only Charts Investors Need This Memorial Day Weekend (video)

By Chris Ciovacco

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Sentiment Snapshot: Bonds and Reflation

By Callum Thomas

This week I took a long hard look at the survey results and a series of other charts, because they all seemed to be challenging my medium term views and biases.  Not only that, they seem to be flying in the face of a range of crowded and consensus trades.  In short, the bond selloff is being called into question, and if you have questions on bonds, then you’re probably going to end up with questions on the whole reflation trade…

This series of articles looks at the results from the weekly surveys I run on Twitter which ask respondents to differentiate bullish vs bearish views on bonds and equities for fundamental vs technical rationale. I also add some of my other charts and indicators to round out the picture.

The key takeaways from the weekly sentiment snapshot are:

-Equity investors are reassessing the fundamentals outlook.

-Bond investors seem to be already well ahead of them on that front.

-Bond survey trends point to a counter-trend move in bond yields, and the macro momentum seems to line up.

-Questions on bonds may lead to questions on the reflation trade.

1. Equity Fundamentals vs Technicals:  Starting as usual with a look at the weekly survey results for equity “fundamentals” vs “technicals” sentiment (the survey asks respondents whether they are bullish or bearish for primarily fundamental vs technical rationale), technical net-bulls dropped slightly, but it was the drop in fundamental net-bulls that caught my attention this week.  You could say that based on the latest results investors are starting to reassess the fundamentals outlook.  As I noted in the latest weekly S&P500 #ChartStorm, the fundamentals (at least earnings) have been looking pretty decent, but the outlook is by no means baked in.

Continue reading Sentiment Snapshot: Bonds and Reflation

nftrh.com & biiwii.com Updated Privacy Policy & ToS

By Biiwii

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Gold, US Stocks and Bonds

By NFTRH

I’ll try to keep things simple with this recap of the 3 of the 5 major food groups (leaving aside commodities and currencies) for investors. No confusing you today with too many inter-market ratios, overly technical language or cute metaphors like the 3 Amigos (although it is notable that Amigo #2 is stopping exactly as we’d forecast, as you’ll see in the Bonds segment below).

So let’s take a technical look at larger picture of the 3 groups using weekly charts for gold and SPX and a monthly for 30yr bond yields, along with some thoughts. We’ll reserve the shorter-term technical management for subscriber updates and weekly NFTRH reports.

Gold

For the sake of your financial well being, continue to tune out inflation, trade wars, shooting wars, Ebola, China demand and Indian wedding season as reasons to be bullish the relic, it’s wilder little brother, silver and the miners. Continue to tune in to gold’s standing vs. stocks and other risk ‘on’ assets along with investor confidence, the economy, interest rate dynamics (including the yield curve) and to an extent, the state of your local currency.

Continue reading Gold, US Stocks and Bonds