Incrementum Advisory Board Meeting of 31 July 2019
At the end of July the Advisory Board of the Incrementum Fund held its quarterly meeting (a full transcript is available for download at the end of this post). The board was joined by special guest Simon Mikhailovich, a financial market veteran who inter alia co-founded the Toqueville Bullion Reserve. The title of the transcript and this post was inspired by his remarks.
Special guest Simon Mikhailovich
An Era of Low Time Preference
Last week the price of gold moved up another $16, and the price of silver was up $0.14.
10-year treasury note yield since 1999 – it is almost back at the multi-decade low of 2016. The only other time in history when US treasury yields were this low was in 1944-1945, when the Fed was actively suppressing yields in order to provide cheap financing for the war effort. One year later (from mid 1946 to mid 1947) the CPI jumped to more than 17% per year. By 1951 it had reached 21%. At that point the Fed and the US Treasury finally agreed that the Fed should stop pegging long term treasury yields – which promptly proceeded to rise relentlessly for the next three decades. [PT]
Not Adding Up
One of the more disagreeable discrepancies of American life in the 21st century is the world according to Washington’s economic bureaus and the world as it actually is. In short, things don’t add up. What’s more, the propaganda is so far off the mark, it is downright insulting.
Coming down from the mountain with the latest data tablet… [PT]
Bad Hair Days Are Back
We recently discussed the many divergences between major US indexes, which led us to expect that a downturn in the stock market was close (see The Calm Before the Storm for details). Here is an update of the comparison chart we showed at the time:
The divergences between various indexes seem to be resolving as expected.
A Noteworthy Sentiment Change
Bitcoin and other cryptocurrencies have declined quite sharply in recent days. Here is an overnight snapshot of the daily chart:
Bitcoin corrects again…
Things To Keep An Eye On
Below is an overview of important US interest rates and yield curve spreads. In view of the sharp increase in stock market volatility, yields on government debt have continued to decline in a hurry. However, the flat to inverted yield curve has not yet begun to steep – which usually happens shortly before recessions and the associated bear markets begin.
2-year note yield, 3-month t-bill yield, 10-year note yield, 10-year/2-year yield spread, 10-year/3-month yield spread. As indicated in the chart annotation, the signal that normally indicates that a boom has definitely ended is a reversal in these spreads from inversion to rapid steepening. This has yet to happen.
A Myriad of Reasons to Buy Gold – But Small Holders are Selling
Big moves occurred in the prices of the metals last week, with that of gold up $57 and silver $0.77. We have now reached a price of gold (if not silver) not seen since 2013, when it was on the way down. What is causing this sudden spike in price and renewed interest in gold?
A well-known depiction of investor emotions over a complete market cycle. Interestingly, it appears as though many retail gold holders who held on to their gold through the 2011-2015 bear market are now selling, just as the market has reached what is normally considered to be the “hope” stage. Ironically, this is actually good news from a contrarian perspective. [PT]
Anti-Vigilantes
We dimly remember when Japanese government debt traded at a negative yield to maturity for the very first time. This happened at some point in the late 1990s or early 2000ds in secondary market trading (it was probably a shorter maturity than the 10-year JGB) and was considered quite a curiosity. If memory serves, it happened on just one brief occasion and it was widely held at the time that the absurd situation of a bond buyer accepting a certain loss if the bonds were held to maturity was an outlier, never to be seen again. And this is what the world of bonds looks like today:
Sovereign debt with negative yields to maturity rises to a new record high of $15 trillion
Suspicious Phrases
There are certain phrases – like “trust me” or “I got this” – that should immediately provoke one’s suspicion. When your slippery contractor tells you, “trust me, your kitchen renovation will be done before Christmas,” you should be wary. There is no way it will be done before late spring.
USD-CNH (offshore yuan) exchange rate – the support/resistance level at 7 finally breaks amid escalating trade war rhetoric. [PT]
A Record Amount of Bonds with Negative Yields to Maturity
Last week the price of gold went up $22, while the price of silver dropped ¢17. The big news last week was that the yield on all German government bond maturities is now negative. They are also all negative in Switzerland. And in Denmark, all maturities out to 20 years are negative. Interest rates are dropping rapidly in the US as well.
More than $14 trillion in bonds now trade at negative yields to maturity – with more than 25% of all “investment grade” bonds afflicted with this policy-induced malady. This is essentially ensuring accelerated capital consumption. As you can probably guess, prosperity is not going to increase as a result. [PT]
A Global Pattern
You are no doubt aware of the saying “sell in May and go away”. It is one of the best-known and oldest stock market truisms.
Mark Twain’s famous saying about stock market speculation (the other one was “There are two times in a man’s life when he should not speculate – when he cannot afford it, and when he can”). From a seasonal perspective he was definitely right about September and October. [PT]
Do You Hear a Bell Ringing?
The sun shines brightest across the North American continent as we enter summer’s dog days. Cold sweet lemonade is the refreshment of choice at ballparks and swimming holes alike. Many people drink it after cutting the grass, or whenever else a respite from the heat and some thirst quenching satisfaction is needed.
Regardless of whether companies were able to “beat estimates” (which as often happens, were revised lower just before the reporting season started), their actual Q2 results didn’t look very encouraging so far. The manufacturing sector in particular looks a bit frayed around the edges as the saying goes. [PT]
Most read in the last 20 days:
Sovereign Bonds – Stretched to the Limit
Anti-Vigilantes We dimly remember when Japanese government debt traded at a negative yield to maturity for the very first time. This happened at some point in the late 1990s or early 2000ds in secondary market trading (it was probably a shorter maturity than the 10-year JGB) and was considered quite a curiosity. If memory serves, it happened on just one brief occasion and it was widely held at the time that the absurd situation of a bond buyer accepting a certain loss if the bonds were...
Writing on the Wall
Not Adding Up One of the more disagreeable discrepancies of American life in the 21st century is the world according to Washington’s economic bureaus and the world as it actually is. In short, things don’t add up. What’s more, the propaganda is so far off the mark, it is downright insulting. Coming down from the mountain with the latest data tablet... [PT] The Bureau of Labor Statistics (BLS) reports an unemployment rate of just 3.7 percent. The BLS also...
Global Stock Markets: Danger Lies Directly Ahead
A Global Pattern You are no doubt aware of the saying “sell in May and go away”. It is one of the best-known and oldest stock market truisms. Mark Twain's famous saying about stock market speculation (the other one was “There are two times in a man's life when he should not speculate – when he cannot afford it, and when he can”). From a seasonal perspective he was definitely right about September and October. [PT] The saying is in fact justified...
Bond Yields in the Netherworld - Precious Metals Supply and Demand
A Record Amount of Bonds with Negative Yields to Maturity Last week the price of gold went up $22, while the price of silver dropped ¢17. The big news last week was that the yield on all German government bond maturities is now negative. They are also all negative in Switzerland. And in Denmark, all maturities out to 20 years are negative. Interest rates are dropping rapidly in the US as well. More than $14 trillion in bonds now trade at negative yields to maturity –...
Rising Stock Market Volatility – Another Warning Sign
Bad Hair Days Are Back We recently discussed the many divergences between major US indexes, which led us to expect that a downturn in the stock market was close (see The Calm Before the Storm for details). Here is an update of the comparison chart we showed at the time: The divergences between various indexes seem to be resolving as expected. The next chart shows analogous divergences between the S&P 500 Index and two major foreign stock markets: US...
Retail Holders Sell Their Gold - Precious Metals Supply and Demand
A Myriad of Reasons to Buy Gold – But Small Holders are Selling Big moves occurred in the prices of the metals last week, with that of gold up $57 and silver $0.77. We have now reached a price of gold (if not silver) not seen since 2013, when it was on the way down. What is causing this sudden spike in price and renewed interest in gold? A well-known depiction of investor emotions over a complete market cycle. Interestingly, it appears as though many retail gold holders...
Bitcoin – From Greed to Fear
A Noteworthy Sentiment Change Bitcoin and other cryptocurrencies have declined quite sharply in recent days. Here is an overnight snapshot of the daily chart: Bitcoin corrects again... It is difficult to gauge sentiment on BTC objectively, but there is a service that tries to do just that. According to its greed & fear barometer, the recent decline seems to have triggered quite a bit of apprehension: The BTC sentiment measure of alternative.me has...
Getting to a Special State of Ugly
Suspicious Phrases There are certain phrases – like “trust me” or “I got this” – that should immediately provoke one’s suspicion. When your slippery contractor tells you, “trust me, your kitchen renovation will be done before Christmas,” you should be wary. There is no way it will be done before late spring. USD-CNH (offshore yuan) exchange rate – the support/resistance level at 7 finally breaks amid escalating trade war rhetoric. [PT] Or...
Interest Rate Watch and Bond Market Curiosities
Things To Keep An Eye On Below is an overview of important US interest rates and yield curve spreads. In view of the sharp increase in stock market volatility, yields on government debt have continued to decline in a hurry. However, the flat to inverted yield curve has not yet begun to steep – which usually happens shortly before recessions and the associated bear markets begin. 2-year note yield, 3-month t-bill yield, 10-year note yield, 10-year/2-year yield spread,...
Tumbling Interest Rates - Precious Metals Supply and Demand
An Era of Low Time Preference Last week the price of gold moved up another $16, and the price of silver was up $0.14. 10-year treasury note yield since 1999 – it is almost back at the multi-decade low of 2016. The only other time in history when US treasury yields were this low was in 1944-1945, when the Fed was actively suppressing yields in order to provide cheap financing for the war effort. One year later (from mid 1946 to mid 1947) the CPI jumped to more than 17%...
A Bubble in Complacency - Incrementum Advisory Board Discussion
Incrementum Advisory Board Meeting of 31 July 2019 At the end of July the Advisory Board of the Incrementum Fund held its quarterly meeting (a full transcript is available for download at the end of this post). The board was joined by special guest Simon Mikhailovich, a financial market veteran who inter alia co-founded the Toqueville Bullion Reserve. The title of the transcript and this post was inspired by his remarks. Special guest Simon Mikhailovich We...
Austrian Theory and Investment
Realtime Charts
Gold in USD:
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
Gold in EUR:
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_euoz_2.gif)
Silver in USD:
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/silver/t24_ag_en_usoz_2.gif)
Platinum in USD:
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/platinum/t24_pt_en_usoz_2.gif)
USD - Index:
![[Most Recent USD from www.kitco.com]](http://www.weblinks247.com/indexes/idx24_usd_en_2.gif)
