Exciting Visions of a Bright Future
Fund Managers, economists and politicians agree on the exciting future they see in the Third World. According to them, the engine of the world’s economic growth has moved from the West to what were once the poverty-stricken societies of the Third World. They feel mushy about the rapid increase in the size of the Middle Class in the Third World, and how poverty is becoming history.
GDP of India vs. UK in 2016 – crossing over.
A Chirp from the Deep Level Mines
Back in late 2015 and early 2016, we wrote about a leading indicator for gold stocks, namely the sub-sector of marginal – and hence highly leveraged to the gold price – South African gold stocks. Our example du jour at the time was Harmony Gold (HMY) (see “Marginal Producer Takes Off” and “The Canary in the Gold Mine” for the details).
Mining engineer equipped with bio-sensor
Photo credit: Hulton Archive
You Actually Can Eat Gold, But Its Nutritional Value is Dubious
“You can’t eat gold.” The enemies of gold often unleash this little zinger, as if it dismisses the idea of owning gold and indeed the whole gold standard. It is a fact, you cannot eat gold. However, it dismisses nothing.
Over-the-top garnish: Gold leaf-laced donut (reportedly costs $100), gold-laced cakes, sushi roll with gold leaf (according to Japanese lore, eating it is supposed to bring luck), gold-cake eater in Dubai. Nutritional value of the gold leaf is zero, but at least it isn’t toxic. So yes, one can eat gold, but it won’t relieve hunger pangs. We would like to point out here that absolutely no-one is trying to eat bank note-laced cakes. [PT]
A Quick Look at a few Technical Yardsticks and Comparisons
We went through numerous charts and data over the weekend to provide a snapshot of where market currently stands. This is in context with our idea that sudden downturns in the form of mini-crashes are likely to happen with very little advance warning, mainly due to market structure issues (the vast increase in systematic trading strategies) and the unique post “QE” environment.
Bad hair can be dangerous! Shock-haired Pete and his bro Suck-a-thumb have been traditionally used to get children in Germany and eventually across all of Europe to behave by traumatizing them with some of the most frightening horror stories ever thought up. Everybody in Europe knows these characters, and everybody was scared out of his wits by these stories as a child.
Life After ZIRP
Roughly three years ago, after traversing between Los Angeles and San Francisco via the expansive San Joaquin Valley, we penned the article, Salting the Economy to Death. At the time, the monetary order was approach peak ZIRP.
Our boy ZIRP has passed away. Mr. 2.2% effective has taken his place in the meantime. [PT]
A Well-Established Tradition
Seemingly out of the blue, equities suffered a few bad hair days recently. As regular readers know, we have long argued that one should expect corrections in the form of mini-crashes to strike with very little advance warning, due to issues related to market structure and the unique post “QE” environment. Credit spreads are traditionally a fairly reliable early warning indicator for stocks and the economy (and incidentally for gold as well). Here is a chart of US high yield spreads – currently they indicate that nothing is amiss:
As this chart shows, credit spreads do as a rule warn of impending problems for the stock market, the economy or both. Not every surge in spreads is followed by a bear market or a recession, but some sort of market upheaval is usually in the cards. Since the stock market normally peaks before the economy weakens sufficiently for a recession to be declared, the warnings prior to market tops are often subtle – usually all one gets is a confirmed breakout over initial resistance levels, at which time yields will still be quite low. At the moment credit spreads suggest that nothing untoward is expected to occur for as far as the eye can see (a.k.a. the near future). Will something intrude on that enviable and stress-free combination of Nirvana, Goldilocks and the Land of Cockaigne, where everything seems possible, especially good things? Will Santa Claus remain a permanent fixture of the junk bond and stock markets, handing out gifts to all those prepared to spice up their portfolios with bonds bereft of covenants and light in yield, triple-digit P/E stocks, or even CUBE stocks (=completely unburdened by ‘E’)? Perhaps Fisher’s permanent plateau has materialized 90 years later than originally envisaged, but we don’t think so.
A Piece of Paper Alone Cannot Secure Liberty
The idea of a constitution and/or written legislation to secure individual rights so beloved by conservatives and among many libertarians has proven to be a myth. The US Constitution and all those that have been written and ratified in its wake throughout the world have done little to protect individual liberties or keep a check on State largesse.
Sound money vs. a piece of paper – which is the better guarantor of liberty? [PT]
Federal Reserve Credit Contracts Further
We last wrote in July about the beginning contraction in outstanding Fed credit, repatriation inflows, reverse repos, and commercial and industrial lending growth, and how the interplay between these drivers has affected the growth rate of the true broad US money supply TMS-2 (the details can be seen here: “The Liquidity Drain Becomes Serious” and “A Scramble for Capital”).
The Fed has clearly changed course under Jerome Powell – for now, anyway.
Running From “Risk-Free” to Not So Risk-Free Debt
The price of gold blipped $13 last week, while the price of silver was unchanged. Speaking of interest rates and central planning by central banks, we note that in mid-2016, a correction (counter-trend move to the main trend) began in 10-year bond yields.
10-year treasury note yield vs. 10-year German Bund yield over the past decade [PT]
A Month with a Bad Reputation
A certain degree of nervousness tends to suffuse global financial markets when the month of October approaches. The memories of sharp slumps that happened in this month in the past – often wiping out the profits of an entire year in a single day – are apt to induce fear. However, if one disregards outliers such as 1987 or 2008, October generally delivers an acceptable performance.
The road to October… not much happens at first – until it does. [PT]
Orchestrated Larceny
The government continues its approach towards full meltdown. The stock market does too. But when it comes down to it, these are mere distractions from the bigger breakdown that is bearing down upon us.
Prosperity imbalance illustrated. The hoi-polloi may be getting restless. [PT]
A Surprise Rout in the Bond Market
At the time of writing, the stock market is recovering from a fairly steep (by recent standards) intraday sell-off. We have no idea where it will close, but we would argue that even a recovery into the close won’t alter the status of today’s action – it is a typical warning shot. Here is what makes the sell-off unique:
30 year bond and 10-year note yields have broken out from a lengthy consolidation pattern. This has actually surprised us, as we felt that the large speculative net short position in bonds and notes was prone to trigger a short covering rally. Alas, the opposite has happened.
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Is the Canary in the Gold Mine Coming to Life Again?
A Chirp from the Deep Level Mines Back in late 2015 and early 2016, we wrote about a leading indicator for gold stocks, namely the sub-sector of marginal - and hence highly leveraged to the gold price - South African gold stocks. Our example du jour at the time was Harmony Gold (HMY) (see “Marginal Producer Takes Off” and “The Canary in the Gold Mine” for the details). Mining engineer equipped with bio-sensor Photo credit: Hulton Archive As we write these...
Oil Mania Redux
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Fed Credit and the US Money Supply – The Liquidity Drain Accelerates
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The Gold Standard: Protector of Individual Liberty and Economic Prosperity
A Piece of Paper Alone Cannot Secure Liberty The idea of a constitution and/or written legislation to secure individual rights so beloved by conservatives and among many libertarians has proven to be a myth. The US Constitution and all those that have been written and ratified in its wake throughout the world have done little to protect individual liberties or keep a check on State largesse. Sound money vs. a piece of paper – which is the better guarantor of liberty?...
Fed President Kashkari Hears Voices – Are They Lying?
Orchestrated Larceny The government continues its approach towards full meltdown. The stock market does too. But when it comes down to it, these are mere distractions from the bigger breakdown that is bearing down upon us. Prosperity imbalance illustrated. The hoi-polloi may be getting restless. [PT] Average working stiffs have little time or inclination to contemplate gibberish from the Fed. They are too worn out from running in place all day to make much...
Switzerland, Model of Freedom & Wealth Moving East – Interviews with Claudio Grass
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US Stocks and Bonds Get Clocked in Tandem
A Surprise Rout in the Bond Market At the time of writing, the stock market is recovering from a fairly steep (by recent standards) intraday sell-off. We have no idea where it will close, but we would argue that even a recovery into the close won't alter the status of today's action – it is a typical warning shot. Here is what makes the sell-off unique: 30 year bond and 10-year note yields have broken out from a lengthy consolidation pattern. This has actually surprised us, as...
Decapitation Strike - Elon Musk in the Crosshairs of the Bureaucracy
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Are Credit Spreads Still a Leading Indicator for the Stock Market?
A Well-Established Tradition Seemingly out of the blue, equities suffered a few bad hair days recently. As regular readers know, we have long argued that one should expect corrections in the form of mini-crashes to strike with very little advance warning, due to issues related to market structure and the unique post “QE” environment. Credit spreads are traditionally a fairly reliable early warning indicator for stocks and the economy (and incidentally for gold as well). Here is a...
Choking On the Salt of Debt
Life After ZIRP Roughly three years ago, after traversing between Los Angeles and San Francisco via the expansive San Joaquin Valley, we penned the article, Salting the Economy to Death. At the time, the monetary order was approach peak ZIRP. Our boy ZIRP has passed away. Mr. 2.2% effective has taken his place in the meantime. [PT] We found the absurdity of zero bound interest rates to have parallels to the absurdity of hundreds upon hundreds of miles of...
How Dangerous is the Month of October?
A Month with a Bad Reputation A certain degree of nervousness tends to suffuse global financial markets when the month of October approaches. The memories of sharp slumps that happened in this month in the past – often wiping out the profits of an entire year in a single day – are apt to induce fear. However, if one disregards outliers such as 1987 or 2008, October generally delivers an acceptable performance. The road to October... not much happens at first - until it...
Yield Curve Compression - Precious Metals Supply and Demand
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Austrian Theory and Investment
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