Multi-Market Status: Precious Metals, Commodities, US & Global Stocks

By NFTRH

A general review of the current status across different asset markets. This is not comprehensive, forward-looking analysis as per NFTRH, but it is an up to the minute summary (as of Friday afternoon).

Precious Metals

Gold, silver and Gold Stock indexes/ETFs made what I had thought were bear flags yesterday, but today painted them as short-term ‘W’ bottom patterns, in silver and the miners anyway.

This chart of gold (courtesy of Barchart.com) shows a flag breakdown, whipsaw and new closing high for the short-term move. As we’ve noted for weeks now, the Commitments of Traders (CoT) is in a contrary bullish alignment with large Specs all but wrung out of the market (they were fleeced again; don’t believe hype about their increased shorting being some sort of conspiracy). All in all, not bad for the relic. The bounce lives on.

Continue reading Multi-Market Status: Precious Metals, Commodities, US & Global Stocks

Extreme Positioning in Stocks vs. Bonds

By Callum Thomas

As I was updating my various charts and models, something weird caught my eye.  This peculiar chart shows speculative futures positioning in equities (aggregated across all US index futures) and bonds (US 10 year treasury futures)… and most notably, the spread between them.  With bond traders the most crowded short in recent history, the spread between bonds vs equities positioning is at an extreme.

So what?  Let’s break it down: if traders are short bonds they expect yields to rise (which usually happens as a result of higher growth and inflation outcomes), and if traders are long equities they expect stocks to go up (which similarly hangs on a supportive growth backdrop).  So basically what we’ve got here is traders doubling down on a view that growth and inflation heats up even further from here.  They may be right.  But if they’re wrong, there will be a lot of scrambling to cover positions (aka the long awaited return of market volatility).  So if you’re looking for latent pressure building up in the markets, you’ve found it in this chart.

 

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Midsummer Walkabout

By Tim Knight

I actually like it when we get past June 20. Knowing that each day has less sun is like a gift to me. I can’t say why. It just feels like a sense of relief.

Let’s look at some ETFs together. It would make a better narrative for me to order these differently, but I’m going to be lazy and leave them alphabetical.

First is commodities, which I think will roll over beneath the red horizontal I’ve drawn. Crude oil, in particular, I believe will drag this lower.

The diamonds remain in a long-term and intermediate-term uptrend. Short-term, it’s starting to gently turn lower, but as you can see from the moving averages, it’s going to take a LOT of damage to break this bull run.

Continue reading Midsummer Walkabout

Gold Bugs vs. Stock Market Bulls

By Charlie Bilello

Which is the better investment: Gold or Stocks?

It’s a battle as old as markets.

Gold Bugs and Stock Market Bulls are equally fervent about their investment of choice, often with complete disdain for the other side.

The story (since the gold standard was completely abandoned in 1971) goes something like this…

1972-1980

Gold Return: +1256%

S&P 500 Return: +97%

Narrative: Gold is the best investment in the world, and will continue to be so forever. There is hyperinflation in the U.S. and a secular stagnation in real growth. The only way to protect yourself is with Gold. And by the way: no one should own stocks.

 

Data sources for all charts/tables herein: Stockcharts.com, Bloomberg.

Continue reading Gold Bugs vs. Stock Market Bulls

The Next 7 Years

By Charlie Bilello

What returns are you expecting from stocks and bonds over the next 7 years?

This is a question that GMO (one of the largest and most respected asset managers) attempts to answer on a quarterly basis.

Their most recent forecast was downright depressing: -2.2% per year from large cap U.S. stocks and +1.9% per year from U.S. bonds. If correct, it would mean a 60/40 portfolio of U.S. stocks and bonds would generate a return of -0.6% per year over the next 7 years.

By comparison, GMO is expecting +3% per year from cash, implying that there is little to be gained today from taking risk.

Source: GMO.com. Note: Nominal Total Return derived from GMO’s real return and adding their inflation assumption of 2.2% per year.

Continue reading The Next 7 Years

Inflation Trade, in Progress Since Gold Kicked it Off in Q1 2016

By NFTRH

I am sure you remember the lead up to Q1 2016. The US economy and stock market were transitioning from a Goldilocks environment and narrowly avoiding a bear market while the rest of the world was still battling deflation. Precious metals and commodities were in the dumper and try though US and global central banks might, they seemed to fail to woo the inflation genie out of its bottle at every turn.

Then came December of 2015 when gold and silver made bottoms followed by the gold miners in January of 2016. Then by the time February had come and gone the whole raft of other inflatables (commodities and stocks) had bottomed and begun to set sail.

As I listened to Mr. Powell speak about inflation yesterday my mind wandered back to Q1 2016 as I thought about the Fed trying to manage inflation at or around 2%. I also thought about how inflation tends to lift boats, not sink them. At least that is what it does in its earlier stages, in its manageable stages.

The balls out post-crisis inflation begun by Ben Bernanke was a massive market input and I suspect we have not yet seen its full effects – other than in US stock prices thus far. So dialing back to Q1 2016 let’s look at a few pictures, beginning with the Fed’s 10 year breakeven inflation rate, which bottomed… you guessed it, in Q1 2016. That means that ‘deflation expectations’ topped at that time.

Continue reading Inflation Trade, in Progress Since Gold Kicked it Off in Q1 2016

Investor Cash Allocations

By Callum Thomas

When I look at charts like this, sayings such as “cash is trash” or “there is no alternative” come to mind.  The chart uses data from the AAII survey and ICI mutual fund statistics to give two views on US investor portfolio allocations to cash.  The bottom line is cash allocations are at rock bottom.  Interestingly though, the AAII surveyed allocation has rebounded from the low-point in January this year.  Question is, how many Fed rate hikes will it take until cash looks attractive again?  …but then again, interest income isn’t always all that matters, when the core job of cash in a portfolio is typically to do the heavy lifting as a defensive asset for capital preservation purposes.  So contrarians: take note.

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A West Coast State of Mind

By James Howard Kunstler

Driving south on I-5 into Seattle, the Cascadia Subduction Zone came to mind, especially when the highway dipped into a gloomy tunnel beneath Seattle’s relatively new skyscraper district. This fault line runs along the Pacific coast from north of Vancouver down into California. The western “plates” move implacably east and downward under the North American plate, building up massive tectonic forces that can produce some of the most violent megathrust earthquakes on the planet.

The zone also accounts for a chain of volcanoes that tend to produce titanic explosions rather than eruptions of lava and ash as seen in the hula movies. The most recent expression of this tendency was Mt. St. Helens in 1980, an impressive cataclysm by the standards of our fine-tuned complex civilization, but a junior event of its type compared to, say, the blow-off of Mt. Mazama 7,500 years ago, which left Crater Lake for the tourists. A publicity-shy correspondent writes:

Continue reading A West Coast State of Mind

All Enemies, Foreign, Domestic, Real And Imagined: Full Week Ahead Preview

By Heisenberg

Through it all (i.e., despite trade uncertainty, Italy’s political drama and ongoing concerns about the sustainability of the domestic political situation as Trump remains at odds with the nation’s top law enforcement agencies and intelligence apparatus), U.S. equities managed to turn in their best May performance since the bull market began.

To be sure, that’s a largely meaningless statistic, but it’s worth mentioning I suppose and if nothing else, it makes for a fun chart and an easy lead-in to my traditional Sunday evening week ahead preview:

MaySPXReturns

Over the weekend, Trump seemed to be more agitated than usual with regard to the special counsel probe and while that drama has recently taken a backseat to more pressing concerns for markets, it’s important to remember that the headline risk around the investigation is still there – it’s just a matter of when the next shoe drops. For those who missed it, here’s a smattering of egregious “covfefe”:

Continue reading All Enemies, Foreign, Domestic, Real And Imagined: Full Week Ahead Preview

Wrapping Up an Eventful Week in Bonds and Stocks

By NFTRH

US Treasury Bonds/Yields

On May 20 we presented a case in NFTRH 500 that the bearish bond play (bullish yields) was done, at least temporarily, from a contrarian perspective.

About Those Bond Yields

That was written before I realized – thanks to an alert NFTRH subscriber – that Thursday, May 31 would be another Fed SOMA (or QT) day, as bonds are allowed to hit maturity.*

The day after this bond maturation yields again went up (bonds down) as the stock market shook off the media-manufactured fears that ostensibly started in Italy but actually were destined to crop up regardless in one place or another (there was a lot of trade war noise this week).

See this NFTRH Premium update, now unlocked to the public, as it was presented in-day and in real time to give perspective for subscribers (and myself) as the media were scaring the herds into risk ‘off’ behavior and the perceived safety of Treasury bonds.

Continue reading Wrapping Up an Eventful Week in Bonds and Stocks

Pink Tickets on QT Days

By Kevin Muir

I know I have told this story before, but it bears repeating. Way back in 2011 I was watching the S&P like a hawk. Trading each squiggle, I tried to understand what was driving the markets at every point. I focused on technical levels, monitored the news and spent way too long staring at the screens.

But on some days, the stock market would get mysteriously strong. It would usually occur mid-morning. Often stocks would sag near the open, look like they wanted to break lower, when all of a sudden – out of the blue – stocks would go bid. I couldn’t understand it. There was no “reason” why they should be rising. Yet they did.

It took me a while, but eventually, I figured it out.

Although it flies directly in the face of Dr. Malkiel’s Random Walk Down Wall Street, the days when the Fed expanded their balance sheet through bond purchases resulted in outsized stock market gains. These bond buys were conducted through Permanent-Open-Market-Operations (POMO) and the great thing about a transparent Federal Reserve is that they listed the schedule in advance, so it was easy to measure the relationship between POMO operations and stock market performance.

Continue reading Pink Tickets on QT Days