Money Supply Growth Continues to Falter
Ostensibly the stock market has rallied because the Fed promised to maintain an easy monetary policy. To be sure, interest rate hikes have been put on hold for the time being and the balance sheet contraction (a.k.a.“quantitative tightening”) will be terminated much earlier than originally envisaged. And yet, the year-on-year growth rate of the true broad money supply keeps declining noticeably.
The year-on-year growth rates of US TMS-2 (broad true money supply) and the narrow money aggregate M1. Y/y growth of TMS-2 has declined to a new 12-year low as of March 2019. For some background on the calculation of TMS-2 see Michael Pollaro’s excellent summary at Forbes.
Investors are Oblivious to the Market’s Downside Potential
This is a brief update on a number of sentiment/positioning indicators we have frequently discussed in these pages in the past. In this missive our focus is exclusively on indicators that are of medium to long-term relevance to prospective stock market returns. Such indicators are not really useful for the purpose of market timing – instead they are telling us something about the likely duration and severity of the bust that will follow on the heels of the current market mania. The first chart is an update of the current situation in RYDEX funds. Despite their small size, these funds have always represented a quite accurate microcosm of general market sentiment.
A RYDEX overview: RYDEX money market fund assets have recently declined to new all time lows; the pure non-leveraged bull-bear fund ratio is back above 29 (i.e., bull funds assets are more then 29 times larger than bear fund assets). At the top of the tech mania in early March 2000, this ratio peaked at roughly 17. Lastly, the amount of assets in RYDEX bear funds demonstrates that bears remain extremely discouraged. It is fair to say that at this stage almost no-one expects that the market could suffer a serious slump.
Boom Times Compared
It has become abundantly clear by now that the late 2018 swoon was not yet the beginning of the end of the stock market bubble – at least not right away. While money supply growth continues to decelerate, the technical underpinnings of the rally from the late December low were actually quite strong – in particular, new highs in the cumulative NYSE A/D line indicate that it was broad-based.
Cumulative NYSE A/D line vs. SPX – normally the A/D line tends to deteriorate before the market peaks, as the advance narrows and fewer and fewer stocks participate in the rally. This did in fact happen shortly before the early October top.
Maurice Jackson of Proven and Probable Interviews Jayant Bhandari
Maurice Jackson of Proven & Probable has just conducted another interview with Jayant Bhandari, who is known to long-time readers as a frequent guest author on this site.
Jayant Bhandari
The new IGWT report for 2019 will be published at the end of May…
…and for the first time a Mandarin version will be released as well.
Gold compared to other financial assets – from the IGWT chart book
Europe at an Important Juncture
European economic fundamentals have deteriorated rather noticeably over the past year – essentially ever since the German DAX Index topped out in January 2018. Now, European stock markets have reached an important juncture from a technical perspective. Consider the charts of the Euro-Stoxx 50 Index and the DAX shown below:
The Euro-Stoxx 50 Index already peaked in early November 2017, the DAX followed suit in January 2018 – such divergent peaks are a hallmark of major turning points. The recent rally has pushed European stocks back up to trendline resistance and they are now severely overbought.
Special Guest Trey Reik and Board Member Jim Rickards Discuss Fed Policy
On occasion of its Q1 meeting in late January, the Incrementum Advisory Board was joined by special guest Trey Reik, the lead portfolio manager of the Sprott Institutional Gold & Precious Metal Strategy at Sprott USA since 2015 [ed note: as always, a PDF of the complete transcript can be downloaded further below].
Trey Reik of Sprott USA.
A Recurring Pattern
When the gold price recently spiked up to approach the resistance area even Aunt Hilda, Freddy the town drunk, and his blind dog know about by now, a recurring pattern played out. The move toward resistance fanned excitement among gold bugs (which was conspicuously lacking previously). This proved immediately self-defeating – prices pulled back right away, as they have done almost every time when the slightest bit of enthusiasm emerged in the sector in recent years.
There is a well-known resistance area in gold priced in USD between roughly $1360 and $1380. It has become the proverbial watched pot.
Pater Temporarily Keels Over
Regular readers have no doubt noticed that the blog has fallen silent for around three weeks and may be wondering what has happened. In a nutshell, we were hospitalized. After a lengthy time period during which our health gradually but steadily deteriorated (we have complained about this previously), we finally keeled over. Thereupon we were forced to entrust the ruin that houses our mind to an experienced team of doctors (depicted below).
A great many diagnostic and treatment alternatives were tried, including experimental ones. The fact that we remain among the quick is a strong hint that something must have helped.
Drain, drain, drain…
“Master!”, cried the punters,
“we urgently need rain!
We can no longer bear
this unprecedented pain!”
“I’m sorry my dear children,
you beg for rain in vain.
It is I who is in charge now
and mine’s the put-less reign.
The bubble dragon shall be slain,
by me, the bubble bane.
That rustling sound? That’s me…
as I drain and drain and drain.”
[ed note: cue evil laughter with lots of giant cave reverb]
– a public service message by the Fed chieftain, rendered in rhyme by yours truly
Money from thin air going back whence it came from – circling the drain of a ‘no reinvestment’ black hole strategically placed in its way by the dollar-sucking vampire bat Ptenochirus Iagori Powelli.
Has a Bear Market in Stocks Begun?
The stock market correction into late December was of approximately the same size as the mid 2015/early 2016 twin downturns, so this is not an idle question. Moreover, many bears seem quite confident lately from an anecdotal perspective, which may invite a continuation of the recent upward correction. That said, there is not much confirmation of said confidence in data that can be quantified.
Our proposed bearish wave count for the S&P 500 Index, which could easily be completely wrong, so take with a big grain of salt. Let us just note here that this chart looks bearish regardless of the wave labels. The latter are mainly meant to serve as an orientation aid (i.e., if something very different from the expected fractal shape develops, we would know that this interpretation is wrong; on the other hand, if the expected shape does develop, we could be reasonably confident of where short term turning points are likely to occur and would have further confirmation that a large scale bear market has begun).
A Year of Turmoil
Dear Readers,
The team at Acting Man wishes you and your loved ones a Merry Christmas / Happy Holidays and all the best for the new year!
Hopefully our missives helped you navigate the treacherous waters of the financial markets this year. As our low posting frequency attests to, we unfortunately continued to be incapacitated by our poor health. Nevertheless, we did our best to chronicle the growing cracks in the bubble edifice.
Evidently the Bad Santa got hold of the markets this year.
Most read in the last 20 days:
As the Madness Turns
A Growing Gap The first quarter of 2019 is over and done. But before we say good riddance. Some reflection is in order. To this we offer two discrete metrics. Gross domestic product and government debt. US nominal GDP vs total federal debt (in millions of USD) – government debt has exceeded total economic output for the first time in Q4 2012 and since then its relative growth trajectory has increased – and it seems the gap is set to widen further....
Bitcoin Jumps as Ordered - Precious Metals Supply and Demand
Digital Asset Rush The only part of our April Fools article yesterday that was not said with tongue firmly planted in cheek was the gold and silver price action (though framed it in the common dollar-centric parlance, being April Fools): “Gold went down $21, while silver dropped about 1/3 of a dollar. Not quite a heavy metal brick in free fall, but close enough.” Bitcoin, hourly – a sudden yen for BTC breaks out among the punters. [PT] It also...
A Trip Down Memory Lane – 1928-1929 vs. 2018-2019
Boom Times Compared It has become abundantly clear by now that the late 2018 swoon was not yet the beginning of the end of the stock market bubble – at least not right away. While money supply growth continues to decelerate, the technical underpinnings of the rally from the late December low were actually quite strong – in particular, new highs in the cumulative NYSE A/D line indicate that it was broad-based. Cumulative NYSE A/D line vs. SPX – normally the A/D line...
Debt Growth and Capital Consumption - Precious Metals Supply and Demand
A Worrisome Trend If you read gold analysis much, you will come across two ideas. One, inflation so-called (rising consumer prices) is not only running much higher than the official statistic, but is about to really start skyrocketing. Two, buy gold because gold will hedge it. That is, the price of gold will go up as fast, or faster, than the price of gold. CPI monthly since 1914, annualized rate of change. In recent years CPI was relatively tame despite a vast increase in the...
Unsolicited Advice to Fed Chair Powell
Unsolicited Advice to Fed Chair Powell American businesses over the past decade have taken a most unsettling turn. According to research from the Securities Industry and Financial Markets Association, as of November 2018, non-financial corporate debt has grown to more than $9.1 trillion [ed note: this number refers to securitized debt and business loans, other corporate liabilities would add an additional $11 trillion for a total of $20.5 trillion]. US non-financial corporate...
Long Term Stock Market Sentiment Remains as Lopsided as Ever
Investors are Oblivious to the Market's Downside Potential This is a brief update on a number of sentiment/positioning indicators we have frequently discussed in these pages in the past. In this missive our focus is exclusively on indicators that are of medium to long-term relevance to prospective stock market returns. Such indicators are not really useful for the purpose of market timing - instead they are telling us something about the likely duration and severity of the bust that...
The Liquidity Drought Gets Worse
Money Supply Growth Continues to Falter Ostensibly the stock market has rallied because the Fed promised to maintain an easy monetary policy. To be sure, interest rate hikes have been put on hold for the time being and the balance sheet contraction (a.k.a.“quantitative tightening”) will be terminated much earlier than originally envisaged. And yet, the year-on-year growth rate of the true broad money supply keeps declining noticeably. The year-on-year growth rates of...
The Effect of Earnings Season on Seasonal Price Patterns
Earnings Lottery Shareholders are are probably asking themselves every quarter how the earnings of companies in their portfolios will turn out. Whether they will beat or miss analyst expectations often seems akin to a lottery. The beatings will continue until morale improves... [PT] However, what is not akin to a lottery are the seasonal trends of corporate earnings and stock prices. Thus breweries will usually report stronger quarterly earnings after the...
The Gold-Silver Ratio Continues to Rise - Precious Metals Supply and Demand
Is Silver Hard of Hearing? The price of gold inched down, but the price of silver footed down (if we may be permitted a little humor that may not make sense to metric system people). For the gold-silver ratio to be this high, it means one of two things. It could be that speculators are avoiding the monetary metals and metal stackers are depressed. Or that something is going on in the economy, to drive demand for the metals in different directions. As a rule the gold silver...
What Were They Thinking?
Learning From Other People's Mistakes is Cheaper One benefit of hindsight is that it imparts a cheap superiority over the past blunders of others. We certainly make more mistakes than we’d care to admit. Why not look down our nose and acquire some lessons learned from the mistakes of others? Bitcoin, weekly. The late 2017 peak is completely obvious in hindsight... [PT] A simple record of the collective delusions from the past can be quickly garnered from...
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)
