The Stock Market

     

 

 

The Ugly End of Globalization

Sometime in the fall of 2018 a lowly gofer at the New York Stock Exchange was sweating  bullets.  He had made an honest mistake.  One that could forever tag him a buffoon.

 

Art Cashin the living hat-stand, going through a succession of DJIA milestone hats. He promised was going to crack a smile for the Dow 27,000 hat photo, alas, it was not to be. [PT]

 

Read the rest of this entry »

     

 

 

The Seeds of the Next Bust Are Closer to Sprouting

The price of gold was up this week, by $10 and that of silver by ¢6. Something is brewing in the fundamentals that we haven’t seen since… last year. We will show a picture of this, below.

There are many problems with assuming a rising stock market means a growing economy. We’ve written many times about the much-greater growth of debt, i.e., borrowing to consume, which adds to GDP.

 

S&P 500 Index, monthly – the huge rally since 2009 was accompanied by the weakest economic recovery of the post-WW2 era. Evidently, the stock market does not necessarily reflect economic growth. Very often numerous other factors prove to be far more important drivers of stock prices. A pertinent example is Venezuela’s soaring stock market, which is up by 88,500% in the past year alone (this is not a typo). Meanwhile, the country’s economy is contracting since 2014, with the slump accelerating to a stunning -16.5% y/y in both 2017 and 2018. The S&P 500 Index is an island of sanity by comparison, at least superficially (the ceteris are of course not paribus). [PT]

 

Read the rest of this entry »

     

 

 

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.

 

Read the rest of this entry »

     

 

 

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]

 

Read the rest of this entry »

     

 

 

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.

  Read the rest of this entry »

     

 

 

Introductory Remarks by PT

We have discussed the proprietary Incrementum Inflation Indicator in these pages on previous occasions, but want to quickly summarize its salient features again. It is a purely market-based indicator, this is to say, its calculation is based exclusively on market prices and price ratios derived from market prices.

However, contrary to most measures of inflation expectations, the Incrementum Inflation Signal is not primarily focused on yield differentials, such as is e.g. the case with 5-year breakeven inflation rates.

 

The 5-year breakeven inflation rate is derived from the differential between 5-year treasury note yields and 5-year TIPS yields. Interestingly, it has recently begun to tick up as well after declining sharply for several months.

 

Read the rest of this entry »

     

 

 

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).

 

Read the rest of this entry »

     

 

 

… Something Wicked this Way Comes

Last week the price of gold went up $18, and that of silver 6 cents. Looking at the ongoing stock market drop, someone asked us if this is “it”. So far in Q4, the stock market (S&P 500) has now lost more points than in any quarter during the great financial crisis (though so far less as a percentage). Is this it, will gold hit $10,000?

 

S&P 500 Index, daily – an unseemly slipping on the banana peel. [PT]

 

Read the rest of this entry »

     

 

 

Offering Peace and Joy

Heading into the final weekend before Christmas we’ll take a brief hiatus from the economy and markets. We do so, however, with intent and purpose. Our principal objective is to offer peace and joy as you go about your merry way.

 

Unfortunately, Santa isn’t coming this year. Right after losing his behind in cryptos, he went all in with everything he had left on FANG stocks, margined up to his eyebrows. He trusted his well-worn ability to deliver the traditional “Santa Claus rally”, but was waylaid by the dollar-dissolving vampire bat Ptenochirus Iagori Powelli  hiding in a snowdrift. He needs some time off to forget. [PT]

 

Read the rest of this entry »

     

 

 

The Seasonal Trend Inversion Continues

By now it has been pretty well telegraphed that the Fed will likely announce that it is going to end its “automatic 25 bps rate hike every quarter” policy and replace it with some sort of “incoming data dependent” version. Normally one would expect this to constitute a “buy the news” event, especially in view of the recent sharp decline in the stock market. However, there are still a few problems with this idea –  the chart below illustrates one of them.

 

The eerie, almost perfect inversion of the usual seasonal mid-term election pattern continues unabated – and even though we have pointed this out for quite some time, we are also a bit surprised by how persistent this phenomenon has been.

 

Read the rest of this entry »

     

 

 

The Santa Claus Rally –  A Well-Known Recurring Phenomenon

every year a certain stock market phenomenon is said to recur, anticipated with excitement by investors: the so-called Santa Claus rally. It is held that stock prices typically rise quite frequently and particularly strongly just before the turn of the year.

I want to show you the Santa Claus rally using the Dow Jones Industrial Average (DJIA) as an example. The DJIA has a very long history and is therefore particularly useful for conducting a long-term analysis.

 

Santa Claus, usually known as a reliable purveyor of presents, occasionally steps on something. When he does, it can be fatal. That said, December crashes are historically so rare, one needs only one finger to count them. When the NYSE reopened in December of 1914 after having been closed for several months following the outbreak of WW1, it did so with a~40% gap down – however, the market quickly recovered as war-time inflation began to boost prices. By early 1916 the market was trading at new highs. [PT]

 

Read the rest of this entry »

     

 

 

Mud Volcanoes

There are numerous explanations for just what in the heck is going on with the economy.  Some are good.  Many are bad.  Today we’ll do our part to bring clarity to disorder…

 

Two data series it is worth paying attention to at the moment: the unemployment rate (U3) and initial claims. As the chart at the top shows, when the former makes a low it is time to worry about the economy. Low points in the U3 UE rate slightly lead the beginning of recessions. Claims on the other hand are near coincident indicators of the stock market, this is to say, lows in initial claims tend to happen within a time period of four to six weeks surrounding major stock market peaks (in most cases they lead slightly, but small lags have occasionally occurred as well). Note: neither indicator confirms an imminent turning point as of yet – initial claims would e.g. have to rise to around 300k in order to do so. The same is true of other major recession indicators, their most recent readings do not yet confirm that the business cycle is about to turn down. However, there is a lot of circumstantial evidence that indicates such a downturn may soon be confirmed, including recent market moves (i.e., deteriorating stock prices and rising credit spreads). [PT]

 

Read the rest of this entry »

Most read in the last 20 days:

  • A Surprise Move in Gold
      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...
  • May Away
      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...
  • US Money Supply Growth and the Production Structure – Signs of an Aging Boom
      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...
  • Elizabeth Warren’s Plan to Bamboozle American Voters
      A Plan for Everything! The run-up to the presidential primaries offers a funhouse reflection of American life.  Presidential hopefuls, hacks, and has-beens turn to focus groups to discover what they think the American electorate wants. Then they distill it down to hollow bumper stickers. After that, they pump their fists and reflect it back with mindless repetition.   A plea for clemency from Mr. 1/1024th crow. [PT]   Change We Can Believe In.  Feel the...
  • The Ugly End of Globalization
      The Ugly End of Globalization Sometime in the fall of 2018 a lowly gofer at the New York Stock Exchange was sweating  bullets.  He had made an honest mistake.  One that could forever tag him a buffoon.   Art Cashin the living hat-stand, going through a succession of DJIA milestone hats. He promised was going to crack a smile for the Dow 27,000 hat photo, alas, it was not to be. [PT]   After trading sideways for most of the spring, the Dow Jones Industrial...
  • Gold vs. Silver - Precious Metals Supply and Demand
      Is Silver Still Useful as a Monetary Metal? The price of gold jumped a whole twenty bucks last week. We imagine that the marginal gold bug is relieved to be rid of his gold, in this opportunity afforded by the highest price since early April. OK, all kidding aside, the price of silver went up a penny.     The gold-silver ratio keeps hitting new highs recently (this is actually a long-term trend, frequently interrupted by strong rallies of silver against gold). Is silver...
  • Fed Chair Powell’s Plan to Pickle the Economy
      A Loose Relationship The Dow Jones Industrial Average made another concerted run at the elusive 27,000 milestone over the last several weeks.  But, as of this writing, the index has stalled out short of this psychosomatic barrier.  By our estimation, this is for the best.   Since early 2018 the DJIA has gone nowhere, albeit in interesting ways... [PT]   While not always apparent, the stock market generally maintains a loose connection to the underlying...
  • The Italian Job - Precious Metals Supply and Demand
      Lira Comeback? The price of gold jumped 35 bucks last week, and that of silver 48 cents. The dollar is now down to 23 milligrams of gold. Keith is on the road this week, so we will just comment on one thing. If Italy is serious about moving back to the lira, that will make the euro less sound (to say nothing of the lira). That will drive people mostly to the dollar, but also to gold.   Italian deputy prime minister Matteo Salvini (as the leader of the Lega party he is...
  • Paul Tudor Jones Likes Gold
      Gold is Paul Tudor Jones' Favorite Trade Over the Coming 12-24 Months In a recent Bloomberg interview, legendary trader and hedge fund manager Paul Tudor Jones was asked what areas of the markets currently offer the best opportunities in his opinion. His reply: “As a macro trader I think the best trade is going to be gold”. The relevant excerpt from the interview can be viewed below (in case the embedded video doesn't work for you, here is a link to the video on...
  • Bitcoin: What is the Best Day of the Week to Buy?
      Shifting Patterns In the last issue of Seasonal Insights I have discussed Bitcoin’s seasonal pattern in the course of a year. In this issue I will show an analysis of the returns of bitcoin on individual days of the week.   Bitcoin, daily – since bottoming in early December, BTC has advanced quite a bit. It remains an excellent trading sardine. [PT]   It seems to me that Bitcoin is particularly interesting for this type of study: it exhibits spectacular price...
  • Silver Remains a Monetary Metal - Precious Metals Supply and Demand
      Silver Price Driven by Reservation Demand The price of gold went up a buck last week, but the price of silver dropped back 13 cents. And the gold-silver ratio marches further upwards. Keith spoke at a conference this week, about how to analyze the fundamentals of supply and demand in gold and silver. He talked about the basis of course.   Silver coins – silver prices are partly influenced by an industrial demand component, but the fact that they move most of the time with...

Support Acting Man

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!