Semiconductor Canaries: Chirp, Warble… Soon a Croak and Silence?


In light of earnings reactions in the Semiconductor Equipment sector, it’s time for an update of a theme we have had in play since November, 2017

The canary is no longer chirping in a healthy manner and the economy’s coal mine has a toxic gas leak. While the recent Lam Research (LRCX) earnings report was pretty good and there were positive aspects to that of Applied Materials (AMAT), these highly cyclical companies that have been at the front end of the entire economic cycle that had its beginnings in 2013 are showing signs of wear.

Business is still good but when you are talking about cyclical leaders, it is growth rate that matters. I have read article after article touting strong current business and future drivers that will change the typical Semiconductor cycle as next generation Fabs are needed for ever more dynamic specialty chips for higher-end devices.

Applied Materials Slides After Softer Q3 Forecasts on Weaker Smartphone Demand

“Smartphone sales have been below expectations, particularly for high-end models, and in response, both semiconductor and display suppliers have made adjustments to their capacity planning,” CEO Gary Dickerson told investors on a conference call. “With inventory rebalance that we’re seeing from smartphones, we’re going to see a sequential dip in the Q3. But from our guidance into Q4, you can see that it recovers nicely into Q4.”

Taking the pulse of the analyst community, from the large houses to the boutiques to the chattering blogosphere, the theme seems to be that a buying opportunity is developing for the likes of AMAT and LRCX, two excellent companies. If you take Applied CEO Gary Dickerson’s view at face value, a decline in these stocks would be exactly that, an opportunity.

But as someone from the real world (as opposed to the Armani wearing analyst community) I can tell you that these companies have no better visibility than you or I. How can they? The global macro economy is subject to many inputs and if future outcomes were that easy to read, we’d all be rich beyond our wildest dreams because we’d have already seen around every corner. The global economy, while healthy now is not immune to the business cycle.

So here is a corner to look around. In NFTRH we began using this chart in Q4 2017 after a major financial media outlet published an article touting these two companies as great values for great investment returns in 2018. Leadership by the Semi Equipment companies has flattened out.

Continue reading Semiconductor Canaries: Chirp, Warble… Soon a Croak and Silence?

The Charts to Watch in 2018 [Updated]

By Callum Thomas

At the start of the year I posted an article on The Charts to Watch in 2018. It covered some of the key charts and indicators from my 2017 End of Year Special Edition and at the time attracted a lot of interest.  So I thought it would be a good idea to do an almost halfway point update as an eventful 2018 has so far seemingly rushed by.

The format of this article is the same as the original, but I will leave in the exact comments on the charts (in italics and quote marks) for the sake of transparency.  Aside from updating the charts, I have added my updated views and what has changed or become more apparent since then.

But before we get into the charts, here’s a quote from the introduction of original post:

“I’ve said it before and I’ll say it again: 2018 is going to be harder and more complex for investors than 2017.  The cross currents of rising valuations across asset classes, maturing of the business cycle at a global level, and the turning of the tides in monetary policy could make 2018 a watershed year.”

Yep. Sure looks that way!

1. “No more spare capacity in DM. (Next step = Inflation)”
Nothing to add to this.  If anything investors should be paying even more attention to this chart.

Continue reading The Charts to Watch in 2018 [Updated]

Globally Synchronized Asynchronous Growth

By Jeffrey Snider

Industrial Production in the United States rose 3.5% year-over-year in April 2018, down slightly from a revised 3.7% rise in March. Since accelerating to 3.4% growth back in November 2017, US industry has failed to experience much beyond that clear hurricane-related boost. IP for prior months, particularly February and March 2018, were revised significantly lower.

Continue reading Globally Synchronized Asynchronous Growth

An India Canary?

By Jeffrey Snider

The sweeping tide of populist election victories has not been limited to just the US and Europe. There have been torrents in Asia, too. Though there is some disagreement whether he counts among them or not, India’s Narendra Modi swept to a historic electoral triumph in May 2014 sure sounding a lot like one, maybe even one of the first.

In it, Modi’s Bharatiya Janata party (BJP) totally unseated the Congress party that had held the government since 2004, and for 49 of the 67 years before then. As UK’s Guardian put it, “Experts say the political landscape of India has been transformed. The vote is the most decisive mandate for any Indian leader since the 1984 assassination of prime minister Indira Gandhi propelled her son Rajiv to office.”

Like European and American populists, this wasn’t supposed to happen. Modi’s campaign prior to the election was widely mocked (by all the “right” people, too). He appealed largely to a growing sense of unease, one that wasn’t shared by people doing well nor much acknowledged in official communications.

One of his more popular slogans, particularly toward the end of the campaign, was Bahut Hui Mehngai Ki Maar, Abki Baar Modi Sarkar. Critics panned the simple mindedness, often posting derogatory memes with Modi as the punchline (in one, the Joker asks Batman, “do you know where I got my scars?” to which the superhero replies, “Ab Ki Baar Modi Sarkar.”)

Roughly translated, the catchphrase was, “enough of inflation, it’s now time for Modi’s government.”

For much of the Great “Moderation” India’s currency was pretty stable. During the 2000’s up until the Great Financial (Dollar) Crisis, there was practically no volatility in it at all. During the panic, the rupee fell like so many others – ending the “devaluation” exactly on March 9, 2009.

Continue reading An India Canary?

Jolted! Job Openings Leap By 472,000 To All-Time High 6.55 Million

By Anthony B. Sanders

The monthly JOLTS report for March revealed an additional 472k job openings in the US economy. That brings that grand total of US job openings to 6.55 million.


The JOLTs measures the number of specific job  openings in an economy. Job vacancies generally include either newly created or unoccupied positions  (or those that are about to become vacant) where an employer is taking specific actions to fill these positions.

Continue reading Jolted! Job Openings Leap By 472,000 To All-Time High 6.55 Million

Problems Are Emerging

By Heisenberg

Well, first thing’s first.

Donald Trump sent 11 tweets by 3:00 p.m. ET, a truly impressive “covfefe” tally, that included this batshit ramble about Lisa Page and Peter Strzok:

Yes, “what a total mess.” And for Christ sake, will someone please teach him what a proper noun is or, more to the point, what a proper noun isn’t?

But this was the one that mattered:

Continue reading Problems Are Emerging

Bi-Weekly Economic Review: Oil, Interest Rates & Economic Growth

By Joseph Calhoun

The yield on the 10 year Treasury note briefly surpassed the supposedly important 3% barrier and then….nothing. So, maybe, contrary to all the commentary that placed such importance on that level, it was just another line on a chart and the bond bear market fear mongering told us a lot about the commentators and not a lot about the market or the economy. As I said last month, despite the recent run up in rates, the economic landscape hasn’t changed that much. Since the beginning of the year, nominal growth expectations have risen, with both inflation and real growth expectations up slightly. But taking a little longer view, those expectations are no different today than they were at the end of 2015 or the fall of 2013. Call it what you will – secular stagnation or the new normal – but it is still with us. And I see no evidence that the US economy is about to break out of the 1.5% to 2.5% growth range we’ve been in for most of that period since 2013.

The economic data since the last update was a little weaker and the markets reflect that with both nominal and real interest rates down ever so slightly. From the bigger picture perspective, if we are to break out to a new higher growth range, we’ll have to raise productivity and so far, as the most recent report showed, we aren’t. There is some anecdotal evidence that investment may rise – if you believe the companies talking about capex on their conference calls – but like Godot, the hard evidence continues to be a no show. If companies do indeed start investing more then maybe productivity will rise and we can break out of these doldrums for good. But right now it just isn’t happening.

Continue reading Bi-Weekly Economic Review: Oil, Interest Rates & Economic Growth

Pushing Against the Big Wave

By Kevin Muir

One of the greatest traders of all time, yet probably one of the least well known, once said, “win or lose, everybody gets what they want out of the market.” Easy for Ed Seykota to say as he sits on his deck overlooking Lake Tahoe sipping a nice California cab. Yet as I struggle to make sense of this great game we all love to play, I wonder if maybe Ed is correct. I know his comment might seem a little preachy, but the older I get, the more I realize that a trader’s biggest obstacles lie in the dark recesses of their thoughts, not in the day-to-day zigs and zags of the markets.

So I wonder. Not only do we all get what we want, but do we only see what we want to see?

The other day, one of the biggest bond bulls out there posted the following chart:

Continue reading Pushing Against the Big Wave

Old Roach Motel

By Doug Noland

One hundred and six months. The current expansion, having emerged in the aftermath of the collapse of the mortgage finance Bubble, is now the second-longest on record (lagging only the 120-month 1990’s Bubble period). The unemployment rate dropped to 3.9% last month, the lowest level since the 3.8% print in April 2000. Corporate earnings are at unprecedented levels and stock prices only somewhat below records. Home prices in most markets are at all-time highs. U.S. GDP is forecast to expand 2.8% this year, just below 2015’s (2.9%) 12-year high.

We should be leery of prolonged expansions. The longer a boom, the greater the opportunity for deep-rooted structural impairment. Back in 2013, I proposed the concept of “Government Finance Quasi-Capitalism.” This was updating previously updated Hyman Minsky analysis. Minsky’s “Stages of Development of Capitalist Finance” seems especially relevant these days:

Minsky: “In both Keynes and Schumpeter the in-place financial structure is a central determinant of the behaviour of a capitalist economy. But among the players in financial markets are entrepreneurial profit-seekers who innovate. As a result these markets evolve in response to profit opportunities which emerge as the productive apparatus changes. The evolutionary properties of market economies are evident in the changing structure of financial institutions as well as in the productive structure… To understand the short-term dynamics of business cycles and the longer-term evolution of economies it is necessary to understand the financing relations that rule, and how the profit-seeking activities of businessmen, bankers and portfolio managers lead to the evolution of financial structures.”

Continue reading Old Roach Motel

Making (of) a Statement

By Jeffrey Snider

I am decidedly in favor of going back to the way it was twenty-five years ago. These constant communications from the Federal Reserve, designed to increase transparency, have accomplished the opposite. Alan Greenspan was made famous for first being an accidental genius (no, it wasn’t massive offshore monetary growth that made the Great “Moderation”, it was 25 bps moves one way or the other in the federal funds rate!) but more so he achieved celebrity for fedspeak.

This latter term referred to the “maestro’s” keen ability to string together often nonsensical terms that were purposefully nonsensical but were reported upon by a dutifully obedient media as if it was all golden wisdom received directly from the mouth of King Solomon. Ironically, it was Greenspan who fought the hardest against conducting monetary policy out in the open; the more he resisted with obfuscation, the more it made him a TV star (if little else).

We don’t know for sure exactly when the central bank switched to a federal funds target. The FOMC did so in what were by comparison the Dark Ages. I don’t mean that in the respect that the Fed simply acted in complete secrecy and darkness; rather, policymakers realized that after the seventies the monetary system had evolved in such a way that they could no longer define let alone measure money (missing money). How do you conduct monetary policy without money?

Continue reading Making (of) a Statement

Citi Economic Surprise Index Fell Since December Rate Hike

By Anthony B. Sanders

Fed Holds Target Rate The Same

Well, The Fed gave their expected news: no rate hike at the May 2nd meeting and they proclaimed that inflation is just around the corner.


Bloomberg: The FOMC’s two-day meeting followed the release of data Monday that showed inflation measured by the central bank’s preferred gauge had hit its 2 percent target after being below that goal for almost every month since April 2012.

You mean that the core PCE deflator YoY wasn’t 2% in January through March 2017??

Continue reading Citi Economic Surprise Index Fell Since December Rate Hike