On Politics
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.
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 debt takes flight – the post 2008 crisis trajectory is breath-taking, to say the least [PT]
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. [PT]
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
Extrapolating The Recent Past Can Be Hazardous To Your Wealth
“Those who cannot remember the past are condemned to repeat it,” remarked George Santayana over 100 years ago. These words, as strung together in this sequence, certainly sound good. But how to render them to actionable advice is less certain.
George Santayana – purveyor of eminently quotable wise words by the wagon-load, but what shall one do with them in practice? [PT]
Not the Brightest Tool in the Shed
Shane Anthony Mele stumbled off the straight and narrow path many years ago. One bad decision here. Another there. And he was neck deep in the smelly stuff.
These missteps compounded over the years and also magnified his natural shortcomings. Namely, that he’s a thief and – to be polite – a moron.
Over-educated he ain’t: Shane Anthony Mele, whose expressive mug was captured by a Florida police photographer first in pensive and then in defiant mode. A few days ago he inter alia stumbled over his exceedingly well-developed inability to properly evaluate collectors items. [PT]
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.
One Great Big Difference
On a beautiful midsummer day, roughly six months ago, two distinguished men, of distinguished stature, crossed paths under precarious circumstances. They are very much alike, these two distinguished men.
Let’s confuse him… [PT]
Almost Predictable
One of the more enticing things about financial markets is not that they’re predictable. Or that they’re not predictable. It’s that they’re almost predictable… or at least they seem they should be.
For a long time people believed – and from what we read and hear, many still do – that economic cycles move in easily predictable, regular time periods. All you had to do was create a chart of the up and down waves of your favorite cycle model and extrapolate it into the future, and presto, your prediction was ready to be sold. But it turns out it is not that simple. The chart above was published by the “Inflation Survival Letter” in the late 1970s and purported to show the future trend of the so-called Kondratiev Wave, a cycle invented by Soviet economist Nikolai Kondratiev (who was eventually deported to the GULAG and killed by the Stalin regime, after a fellow American economics professor denounced him to the communists in Moscow as a “counter-revolutionary”). Interestingly, their forecast of the trend in wholesale prices turned out to be correct, but everything else they predicted in this context was incorrect. According to the K-Wave theory, the year 2000 was supposed to have been the trough of a major economic depression, with extremely high unemployment, a plunging stock market and all the other symptoms associated with a giant bust. In reality, the year 2000 was the peak of a major boom, with unemployment almost reaching a record low and stock prices soaring to unprecedented valuations. There was a time when the seeming elegance and simplicity of models like Kondratiev’s had our attention as well. There are ways of rationalizing such models. For instance, one could argue that it takes a few generations to “forget the lessons of a depression” and end the risk aversion and penchant for saving it inculcates in the public. There are certainly kernels of truth in this, but the fact remains that the future is unknowable. Kondratiev e.g. didn’t know that the communist empire would crumble in 1990 and that half the world would join the hampered market economy of the nominally capitalist West. This was undoubtedly one of the factors helping to extend the economic boom well into the 1990s (precisely because it kept prices low, which in turn enabled central banks to implement loose monetary policies). [PT]
Unexpected Inflection Points
High inflection points in life, like high inflection points in the stock market, are both humbling and instructive. One moment you think you’ve got the world by the tail. The next moment the rug’s yanked right out from under you.
The yanked rug… [PT]
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.
The Recline and Flail of Western Civilization and Other 2019 Predictions
“I think it’s a tremendous opportunity to buy. Really a great opportunity to buy.” – President Donald Trump, Christmas Day 2018
Darts in a Blizzard
Today, as we prepare to close out the old, we offer a vast array of tidings. We bring words of doom and despair. We bring words of contemplation and reflection. And we also bring words of hope and sunshine.
Famous stock market investment adviser Field Marshal D. Trump [PT]
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
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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
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