Standing Ready to Lease Gold

By Keith Weiner

We will take another break from capital destruction, to treat a topic which has come up this week. On March 11, we said:

“…central bankers do not think about gold.

Granted, they once did. In the 1960’s, there was the now-infamous London Gold Pool to keep the price of gold at $35. This is endlessly cited as evidence of current central bank price suppression, without bothering to mention that until 1971 the official US policy was to maintain the dollar to gold exchange rate of $35 to the ounce. …

But today? We see no sign that central bankers care about the price of gold.”

This turned out to be very controversial. Some conspiracy theorists cited Deputy Secretary of State Thomas O. Enders in 1974. The State Department records the minutes of a meeting with Secretary of State Henry Kissinger. Here is an excerpt:

“Henry Wallich, the international affairs man, this morning indicated he would probably adopt the traditional position that we should be for phasing gold out of the international monetary system…”

Changing the Dollar

This meeting can only be understood in context. So let’s review three key changes to the dollar that led up to it. The dollar had long been redeemable in gold. However, in 1933 President Roosevelt was desperate to stop the run on the banks (and to push interest rates down). He ended gold redeemability to Americans in 1933 (and criminalized the possession of gold).

When the soon-to-be-victorious Allied Powers met in 1944 at Bretton Woods, they agreed to an insane postwar monetary system, in which the national currencies would be pegged to the US dollar which would be redeemable in gold at a fixed exchange rate. This system contained the seeds of its own destruction as Robert Triffin said in the 1960’s. However, the Allied economies were in ruins (not to mention the Axis)—so who was in a position to say no?

Continue reading Standing Ready to Lease Gold

Sentiment Snapshot: Bonds Bounded

By Callum Thomas

In markets it’s important to be mindful of both the tides and the waves, and the latest weekly sentiment survey on Twitter provides some food for though on that statement in regards to the bond market.  While equity “fundamentals” sentiment has been holding up well, bond market fundamentals sentiment has started to show some disagreement. And when we look at our composite measure of treasuries sentiment or speculative futures positioning across the curve, it appears the waves may change, even if the tide is still going out on bonds.

Specifically, when sentiment becomes stretched like this it raises the odds of a short-term reversal.  It’s these short term moves that I refer to as waves.  Yet it’s important to keep perspective on the medium term outlook, and the multiple breakouts in government bond yields (not to mention the changing tides in monetary policy and solid growth/inflation outlook globally) mean that the medium term bias is still to expect higher yields.  So while the short term waves may be coming in, the tide is still going out on the global government bond market.

The main points and conclusions for investors are:

Continue reading Sentiment Snapshot: Bonds Bounded

Video: Fine Line Between Winning and Losing

By Chris Ciovacco

Have you ever looked back after the market gains 20% and said to yourself how did I not capture more of that move?

Did you look back after the 2000-2002 or 2007-2009 bear market and ask yourself how did I let myself lose that much money?

This week’s video explains why those horrible experiences are so common in the stock market and covers methods to minimize the odds of repeating past investing missteps.

VIDEO CORRECTION: At the 13:31 mark, the summary table for CASE B should be 56% and 44% as shown here.

Operations Dicksave

By Tim Knight

You are probably as concerned as I am about John McAfee‘s junk. Mr. McAfee, once a respected businessman in my beloved Silicon Valley, saw his $100 million fortune dwindle to a tiny fraction of that following the financial crisis. Since then, he seems to have staked the rebuilding of his fortune on the soaring value of cryptocurrencies.

Famously, he has pledged to – – and I am not making this up – – eat his own dick if $BTC isn’t at least a million dollars per coin by the end of 2020. Not just eat it privately, like most of us would, but on “national television” (whatever THAT means). The end of 2020 seems like a million years from now (particularly if you’re waiting for the next Presidential election), but it’s only about a thousand days away.

I thought I’d actually calculate what bitcoin would need to do in order for John McAfee’s wanger to be saved (which I’m sure is large and lovely, even for a 72 year old man). Well, I’ve got the value for you: about half a percent a day, every day, without fail, for the next 1000 days.

That may seem a modest goal. After all, this is Bitcoin we’re talking about here. But keep in mind this is based on gains every single day, without interruption. And, if recent history is any guide, it isn’t exactly blazing its way to dick glory lately (I’ve put an arrow at the point where McAfee made his pledge; not surprisingly, it seemed unstoppable at the time).


Continue reading Operations Dicksave

Weekly S&P 500 #ChartStorm

By Callum Thomas

Those that follow my personal account on Twitter will be familiar with my weekly S&P 500 #ChartStorm in which I pick out 10 charts on the S&P 500 to tweet. Typically I’ll pick a couple of themes and hammer them home with the charts, but sometimes it’s just a selection of charts that will add to your perspective and help inform your own view – whether its bearish, bullish, or something else!

The purpose of this note is to add some extra context beyond the 140 characters of Twitter. It’s worth noting that the aim of the #ChartStorm isn’t necessarily to arrive at a certain view but to highlight charts and themes worth paying attention to.

So here’s the another S&P 500 #ChartStorm write-up!

1. S&P500 Seasonality: First up is a look at how the S&P500 is tracking against its historical average seasonal pattern. On this one I would look more at where the seasonal tendency lies in the coming months than where the market has been tracking as such, and the key takeaway there is that from a seasonal standpoint there is some upside bias in the next couple of months, followed by the “sell in May” doldrums.  For a few reasons I think this ties in well with some of the other dynamics such as valuation, monetary policy, and earnings cycles. So watch out for that seasonal soft patch further out.

Bottom line: The market is in the middle of a positive seasonal patch.

   Continue reading Weekly S&P 500 #ChartStorm

When Bullish Opex Weeks Fail To Play Out

By Rob Hanna

I discussed last weekend that monthly option expiration (opex) week is typically a bullish week, especially during the months of March, April, October, and December. Obviously, the bullish tendency did not play out this past week. So does this mean the bullish tendency may be delayed a week? Or is the market not doing what it is “supposed” to a sign that it is likely to continue lower? Or neither? I constructed some studies to find out. This 1st one looks at instances like we are currently experiencing where typically bullish opex weeks fail to deliver.


The numbers here all point towards an upside edge. The edge improves as we look out from 1 to 5 days. But how does this differ from performance following instances that saw the bullish opex week tendency play out? For comparison, I flipped that requirement and have shared those results below.

Continue reading When Bullish Opex Weeks Fail To Play Out

Nobody Thinks it Would Happen Again

By Doug Noland

WSJ: “Ten Years After the Bear Stearns Bailout, Nobody Thinks It Would Happen Again.”

Myriad changes to the financial structure have seemingly safeguarded the financial system from another 2008-style crisis. The big Wall Street financial institutions are these days better capitalized than a decade ago. There are “living wills,” along with various regulatory constraints that have limited the most egregious lending and leveraging mistakes that brought down Bear Stearns, Lehman and others. There are central bank swap lines and such, the type of financial structures that breed optimism.

March 17, 2008 – Financial Times (Gillian Tett): “In recent years, bankers have succumbed to the idea that the credit world was all about numbers and complex computer models. These days, however, this assumption looks ever more of a falsehood. For as anyone with a classical education knows, credit takes its root from the Latin word credere (“to trust”) And as the current credit turmoil now mutates into ever-more virulent forms, it is faith – or, rather, the lack of it – that has turned a subprime squall into a what is arguably the worst financial ­crisis in seven decades. Make no mistake: what we are witnessing right now is not just a collapse of faith in one single institution (namely Bear Stearns) or even an asset class (those dodgy subprime mortgage bonds). Instead, it stems from a loss of trust in the whole style of modern finance, with all its complex slicing and dicing of risk into ever-more opaque forms. And this trend is not just damaging the credibility of banks, but the aura of omnipotence that has enveloped institutions such as the US Federal Reserve in recent years.”

Continue reading Nobody Thinks it Would Happen Again

Nudge at Neptune

By Michael Ashton

Okay, I get it. Your stockbroker is telling you not to worry about inflation: it’s really low, core inflation hasn’t been above 3% for two decades…and, anyway, the Fed is really trying to push it higher, he says, so if it goes up then that’s good too. Besides, some inflation isn’t necessarily bad for equities since many companies can raise end product prices faster than they have to adjust wages they pay their workers.[1] So why worry about something we haven’t seen in a while and isn’t necessarily that bad? Buy more FANG, baby!

Keep in mind that there is a very good chance that your stockbroker, if he or she is under 55 years old, has never seen an investing environment with inflation. Also keep in mind that the stories and scenes of wild excess on Wall Street don’t come from periods when equities are in a bear market. I’m just saying that there’s a reason to be at least mildly skeptical of your broker’s advice to own “100 minus your age” in stocks when you’re young, which morphs into advice to “owning more stocks since you’re likely to have a long retirement” when you get a bit older.

Many financial professionals are better-compensated, explicitly or implicitly, when stocks are going up. This means that even many of the honest ones, who have their clients’ best interests at heart, can’t help but enjoy it when the stock market rallies. Conversations with clients are easier when their accounts are going up in size every day and they feel flush. There’s a reason these folks didn’t go into selling life insurance. Selling life insurance is really hard – you have to talk every day to people and remind them that they’re going to die. I’d hate to be an insurance salesman.

Continue reading Nudge at Neptune

How Much Should You Expect Your House to Appreciate?

By Charlie Bilello

You just bought a house. If you’re like most Americans, it will soon become the largest component of your net worth, and only increase as a percentage over time. Naturally, you would like to see it go up. But by how much?

Predicting future home prices is a difficult a game, made complicated by the myriad of factors influencing the housing market, including: the supply/demand for housing, affordability, inflation, economic/wage growth, availability of credit, mortgage rates, unemployment, demographics, location, etc., etc.

If a homeowner can’t predict such things, what can they reasonably expect in terms of appreciation over time?

A good starting point is the rate of inflation (CPI), which national home prices have tracked relatively closely over long periods of time.

Data Sources for all charts/tables herein: S&P/Case Shiller, BLS

From 1891 through 1996, national home prices only exceeded inflation by 15% on a cumulative basis, and few considered housing “an investment.”

Continue reading How Much Should You Expect Your House to Appreciate?

Dollar Strength Is Hiding In Plain Sight

By Heisenberg

And One Strategist Says It’s Here To Stay

Overnight, the yen rose against all its G10 peers because Donald Trump has lost his mind completely and is now firing everyone in sight.

On Thursday evening, the Washington Post reported that a “very stable genius” called “Dennison” is now planning on ridding himself of national security adviser H.R. McMaster who, according to some accounts, once called Trump an “idiot” with “the intelligence of a kindergartner” at a dinner with Oracle CEO Safra Catz.

This kind of thing usually gets reflected in risk appetite one way or another and right now USDJPY is even more of a natural expression than it would be anyway thanks to a variety of factors not the least of which is that the ongoing land scandal has everyone on edge about Aso and ultimately Abe, which in turn raises questions about the future of Abenomics. Here’s USDJPY overnight:


Continue reading Dollar Strength Is Hiding In Plain Sight