Chart Update
Degrees of Urgency
Monday was Veterans Day, a bank holiday in the US. The prices of gold and silver dropped $23 and $0.61 respectively. “But isn’t gold supposed to go up when…?”
Warren Buffet and Aragorn discuss what to do with the gold. Aragorn wants it, because he knows that even if it’s not today, “that day” will come. [PT]
The Mighty Gartman
Investment newsletter writer Dennis Gartman (a.k.a. “the Commodities King”) has been a target of ridicule at Zerohedge for a long time. His pompous style of writing and his uncanny ability to frequently make perfectly mistimed short term market calls have made him an easy target.* It would be quite ironic if a so far quite good recommendation he made last week were to turn into the call of a lifetime (see ZH: “Gartman: ‘We Are Officially Recommending Shorting This Rally'”).
A little collage devoted to the Commodity King. It is easy to see how he ended up being made fun of. Actually, by now he has garnered a quite sizable fan community at Zerohedge and other web sites that report on his frequently ill-timed flip-flops (often announced with great conviction). However, a major call on the stock market he recently made seems to have been perfectly timed.
The Last to Go
Terry Goodkind wrote an epic fantasy series. The first book in the series is entitled Wizard’s First Rule. We recommend the book highly, if you’re into that sort of thing.
An image from the title page of Terry Goodkind’s best-selling fantasy epic “Wizard’s First Rule”. We’d be at bit wary of standing around on that stone-slab bridge to be honest. [PT]
Just a Little Avalanche or an Implosion?
A few years ago, we briefly discussed the dynamics of sand piles in these pages, which are a special field of study in mathematics and physics (mathematically inclined readers can take a look at two papers on the subject here:”Driving Sandpiles to Criticality and Beyond “ (PDF) and ‘Games on Line Graphs and Sand Piles “(PDF) – unfortunately two other studies that used to be available have in the meantime disappeared from the inter-tubes).
Waiting to crumble: a giant sand dune in the Namib desert.
While Not Saving The Planet, Let Us At Least Have A Good Time
The price of gold went up seven bucks, and that of silver rose eight pennies.
For many people, the attraction to gold and silver began with a desire to protect themselves from the monetary train wreck of 2008. That often grew into a sense that gold is the solution to that problem.
The post 2008 GFC monetary train wreck: US true broad money supply is expanded by more than 153% in a mere decade, as the Fed takes over “money creation duties” from a banking system reluctant to expand credit further. [PT]
Smug Central Planners
Looking back at the past decade, it would be easy to conclude that central planners have good reason to be smug. After all, the Earth is still turning. The “GFC” did not sink us, instead we were promptly gifted the biggest bubble of all time – in everything, to boot. We like to refer to it as the GBEB (“Great Bernanke Echo Bubble”) in order to make sure its chief architect is not forgotten.
Naturally, we were premature in calling for the pompes funèbres and the grave diggers in order to inter the GBEB in late March, but the revival in US markets was a muted one and the funeral rites certainly continued in numerous emerging markets.
Image credit: Sharon Hatley
Aiming for Knowledge and Better Decision-Making
The price of yellow metal went up nine bucks last week. And the price of silver three rose cents, which is back to where it was two weeks earlier. We need to rant, and promise to tie it back to the prices of the metals. We have written these past several weeks about the fact that the franc has been rendered useless. Owning a franc does nothing for you, other than to trade to the next person at hopefully a higher price.
When the money of the realm becomes literally useless as money – the charts and data example above shows excerpts of what happened in Germany from WW1 to the hyperinflation blow-out of 1923. In the end, one simply could no longer use the Reichsmark as a medium of exchange. [PT]
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.
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.
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.
Most read in the last 20 days:
Pushing Past the Breaking Point
Schemes and Shams Man’s willful determination to resist the natural order are in vain. Still, he pushes onward, always grasping for the big breakthrough. The allure of something for nothing is too enticing to pass up. From the “displays of disbelief, revealing touching old-fashioned notions” file... [PT] Systems of elaborate folly have been erected with the most impossible of promises. That prosperity can be attained without labor. That benefits...
The Myth of Capitalism - A Book by Jonathan Tepper
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Three Cheers for James Riley!
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Crumbling Piles of Sand
Just a Little Avalanche or an Implosion? A few years ago, we briefly discussed the dynamics of sand piles in these pages, which are a special field of study in mathematics and physics (mathematically inclined readers can take a look at two papers on the subject here:”Driving Sandpiles to Criticality and Beyond “ (PDF) and 'Games on Line Graphs and Sand Piles “(PDF) – unfortunately two other studies that used to be available have in the meantime disappeared from the...
When Fake Money Becomes Scarce
Remaining Focused A rousing display of diversions this week assured the American populace was looking every which way but right under its collective nose. Midterm elections. White House spats with purveyors of fake news. The forced resignation of Attorney General Sessions... Old drug warrior (otherwise recused) on his way home to Alabama... Sideshows like these, and many more, offered near limitless opportunities to focus on matters of insignificance. Why...
Fun and Profit - Precious Metals Supply and Demand
While Not Saving The Planet, Let Us At Least Have A Good Time The price of gold went up seven bucks, and that of silver rose eight pennies. For many people, the attraction to gold and silver began with a desire to protect themselves from the monetary train wreck of 2008. That often grew into a sense that gold is the solution to that problem. The post 2008 GFC monetary train wreck: US true broad money supply is expanded by more than 153% in a mere decade, as the Fed takes...
Wizard’s First Rule – Precious Metals Supply and Demand
The Last to Go Terry Goodkind wrote an epic fantasy series. The first book in the series is entitled Wizard’s First Rule. We recommend the book highly, if you’re into that sort of thing. An image from the title page of Terry Goodkind's best-selling fantasy epic “Wizard's First Rule”. We'd be at bit wary of standing around on that stone-slab bridge to be honest. [PT] However, for purposes of this essay, the important part is the rule...
US Stock Market - Re-Coupling with a Panic Cycle?
The Mighty Gartman Investment newsletter writer Dennis Gartman (a.k.a. “the Commodities King”) has been a target of ridicule at Zerohedge for a long time. His pompous style of writing and his uncanny ability to frequently make perfectly mistimed short term market calls have made him an easy target.* It would be quite ironic if a so far quite good recommendation he made last week were to turn into the call of a lifetime (see ZH: “Gartman: 'We Are Officially Recommending Shorting...
Roger Barris for Congress!
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It's Not That Day Just Yet - Precious Metals Supply and Demand
Degrees of Urgency Monday was Veterans Day, a bank holiday in the US. The prices of gold and silver dropped $23 and $0.61 respectively. “But isn’t gold supposed to go up when...?” Warren Buffet and Aragorn discuss what to do with the gold. Aragorn wants it, because he knows that even if it's not today, “that day” will come. [PT] Why? Because everyone else will bid it up. Why? Because they expect someone else to bid it up. Why? Warren Buffet is...
Revisiting the Halloween Effect
From Crash Danger to End-of-the-Year Ramp [Ed note by PT: we are unfortunately a week late in posting this issue of SI, which didn't reach us in time due to a technical problem. We decided to post it belatedly anyway: for one thing, the effect under discussion is normally in effect until the end of the year; for another, the statistical validity of this information goes beyond the current year, as it is a recurring phenomenon. Lastly we would note that we have a strong...
Austrian Theory and Investment
Realtime Charts
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