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
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.
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
Intra-Market Divergences Galore
US big cap stocks have rallied to new highs in recent months, but just as in the rally from the low of the February 2018 mini-panic to the September/October 2018 peak, sizable divergences between different indexes have emerged in the process. New highs in the big cap indexes (DJIA, SPX, NDX) are once again not confirmed by small caps (RUT), the broad market (NYA) and a number of sub-sectors (such as the DJTA which is included in the chart below; according to Dow Theory, the DJTA must confirm moves in the DJIA to validate its trend).
From the top: weekly charts of DJIA, SPX, NDX, RUT, NYA and DJTA. The recent new highs in the three large cap indexes have not been confirmed by small caps and the broad market. Note also the sizable RSI/price divergence in the DJIA (which is mirrored by SPX and NDX) – this is a sign of faltering momentum that is often seen ahead of trend changes.
Maurice Jackson Interviews Rick Rule
Rick Rule is a renowned investor in junior resource stocks. He is currently working for Sprott USA. Recently Maurice Jackson of Proven and Probable sat down with him for an extensive interview which you can watch below.
Rick Rule, legendary resource stock investor
Traders and Analysts Caught Wrong-Footed
Over the past week gold and gold stocks have been on a tear. It is probably fair to say that most market participants were surprised by this development. Although sentiment on gold was not extremely bearish and several observers expected a bounce, to our knowledge no-one expected this:
Gold stocks (HUI Index) and gold, daily. As noted in the annotation above, a Wells Fargo gold analyst turned bearish at the worst possible moment – exactly one day before gold took off like a scalded cat. We mention this mainly because it demonstrates that markets often defy widespread expectations.
May Gone in June…
Yes, now that June is here, it is indeed the end of May. Theresa May, to be precise, the henceforth former British Prime Minister. After delivering her unparalleled masterclass in “how to completely botch Brexit”, British cartoonists are giving her a well-deserved send-off, which we are documenting below.
But first, in case you don’t know anything about Ms. May’s heroic “Brexit”-related efforts, here is an explanation of how she tried to finagle the best possible deal out of the Juncker Empire (instead of just waving good-bye and leaving). A visit at a Burger Kind is used to great effect to illustrate the situation:
Theresa May’s “Brexit” in a nutshell, by Alistair Williams
Money Supply Growth Continues to Decelerate
Here is a brief update of recent developments in US true money supply growth as well as the trend in the ratio of industrial production of capital goods versus consumer goods (we use the latter as a proxy for the effects of credit expansion on the economy’s production structure). First, a chart of the y/y growth rate of the broad US money supply TMS-2 vs. y/y growth in industrial & commercial loans extended by US banks.
At the end of April, growth in US TMS-2 (black line) stood at a measly 2% y/y, which is well below the threshold traditionally required to maintain bubble conditions. The red line depicts y/y growth in C&I loans – and the recent slowdown may be significant.
The New Annual Gold Report from Incrementum is Here
We are happy to report that the new In Gold We Trust Report for 2019 has been released today (the download link can be found at the end of this post). Ronnie Stoeferle and Mark Valek of Incrementum and numerous guest authors once again bring you what has become the reference work for anyone interested in the gold market.
Gold in the Age of Eroding Trust
A chart from the introduction to the 2019 IGWT report: trust in governments is eroding all over the world from what were already extremely low levels. The same applies to the realms of the media and science. Many people are (rightly, we believe) concerned that these once well-respected spheres can no longer be trusted to be neutral. In many cases they have become extremely politicized and are pushing agendas that are opposed by a growing number of people.
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)
