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The above for the US market and northern hemisphere, as we will go into Autumn and will have no acquired immunity here in AUS/NZ, our story might be different...
The New Bull Market
- Thread starter ducati916
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Just looking at gold:
So Mr Rederob's chart:
My chart:
In the short term interest rates are to rise. 10yr is currently 0.95%. My model puts it at 1.30% currently. That is a 35 basis pt. move to the upside. That is pretty major. If that occurs, unless inflation of the PPI variety ratchets up even more, giving a negative real return, gold is set to fall.
I don't think the Fed. become involved before 2%, if then.
My position is market neutral. I turn a profit either way, so I'm really unconcerned which way it moves, as long as it moves. My call however is for gold & gold miners to trade lower into 2021.
jog on
duc
So Mr Rederob's chart:
My chart:
In the short term interest rates are to rise. 10yr is currently 0.95%. My model puts it at 1.30% currently. That is a 35 basis pt. move to the upside. That is pretty major. If that occurs, unless inflation of the PPI variety ratchets up even more, giving a negative real return, gold is set to fall.
I don't think the Fed. become involved before 2%, if then.
My position is market neutral. I turn a profit either way, so I'm really unconcerned which way it moves, as long as it moves. My call however is for gold & gold miners to trade lower into 2021.
jog on
duc
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Some 2021 forecasts:
jog on
duc
jog on
duc
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So do markets recover into the late day or resume their sell-off?
My guess, resume their sell-off. VIX is elevated (no surprise there) but of more concern was the divergence posted a couple of days back. Divergences are a nasty signal. The sell-off in TSLA may have been the catalyst, but there is something a bit nastier lurking under the hood. Markets in general seemed to move to risk off:
Reinforcing the inflation meme (down the road):
This was (obviously) a huge disinflationary force, which is now topped out? We would also need for real inflation to take hold a falling dollar and rising pressure for higher wages (a real 70's thing when Unions had more power).
Meanwhile:
While I think VIX goes higher (stocks lower) the correction will be short and sharp.
Mr flippe-floppe-flye:
jog on
duc
My guess, resume their sell-off. VIX is elevated (no surprise there) but of more concern was the divergence posted a couple of days back. Divergences are a nasty signal. The sell-off in TSLA may have been the catalyst, but there is something a bit nastier lurking under the hood. Markets in general seemed to move to risk off:
Reinforcing the inflation meme (down the road):
This was (obviously) a huge disinflationary force, which is now topped out? We would also need for real inflation to take hold a falling dollar and rising pressure for higher wages (a real 70's thing when Unions had more power).
Meanwhile:
While I think VIX goes higher (stocks lower) the correction will be short and sharp.
Mr flippe-floppe-flye:
jog on
duc
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Markets all over the place:
In stocks, Tech. is strong again, everything else meh.
Bond yields lower. Run to safety?
Commodities generally lower. No run to gold however.
A run to crypto?
Here lies the dichotomy twixt the 'economy' and the market:
But the markets can access:
The various sectors:
Banks have some positive news:
Vol. is up. The trend lines (past) are all over the place, so any prediction or anticipation of where they are going is just a best guess: The best guess is higher. Could be nothing more than holding in a Christmas week with so much potential news is just not that attractive.
The decider for me is the Bond vol. When Bonds get volatile I get a bit nervous as they often lead stocks. Now this is not anything more (if it even eventuates) than a dip. Yesterday we saw that there are plenty of dip buyers out there and they will continue even if we get further weakness, unless it breaks badly.
Most likely, this is mostly a repositioning (dollar/bonds/commodities) over developments in Europe. If the vaccine is not effective on the new strains of virus, things could accelerate. If it is effective, then probably things will return largely to trend.
We are therefore sitting at an inflection point news wise and the market is simply reflecting on the current uncertainty. As the insiders get the news first, we'll see the market start to reposition. We will always be behind the initial curve but ahead of the wave as news is released to the general public.
Mr flippe-floppe-flye has discovered a 'new' something (LIDAR). I have not come across these latest whatever's so can't help there.
jog on
duc
In stocks, Tech. is strong again, everything else meh.
Bond yields lower. Run to safety?
Commodities generally lower. No run to gold however.
A run to crypto?
Here lies the dichotomy twixt the 'economy' and the market:
But the markets can access:
The various sectors:
Banks have some positive news:
Vol. is up. The trend lines (past) are all over the place, so any prediction or anticipation of where they are going is just a best guess: The best guess is higher. Could be nothing more than holding in a Christmas week with so much potential news is just not that attractive.
The decider for me is the Bond vol. When Bonds get volatile I get a bit nervous as they often lead stocks. Now this is not anything more (if it even eventuates) than a dip. Yesterday we saw that there are plenty of dip buyers out there and they will continue even if we get further weakness, unless it breaks badly.
Most likely, this is mostly a repositioning (dollar/bonds/commodities) over developments in Europe. If the vaccine is not effective on the new strains of virus, things could accelerate. If it is effective, then probably things will return largely to trend.
We are therefore sitting at an inflection point news wise and the market is simply reflecting on the current uncertainty. As the insiders get the news first, we'll see the market start to reposition. We will always be behind the initial curve but ahead of the wave as news is released to the general public.
Mr flippe-floppe-flye has discovered a 'new' something (LIDAR). I have not come across these latest whatever's so can't help there.
jog on
duc
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Yesterday saw my worst trading day for my systems and i lost 20pc of my profit since july outch...one system reverted to bear,another got out of bull..but did not go bear..ahhh the beauty of systems.
LIDAR..in my world, this is the use of laser and image technology to discover /map the 3d environnement as used in self driven cars, robots and ai driven/automated mining equipments..any link?never saw the term used in finance
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First up Oil
Demand for transportation fuels (gasoline, distillates, and jet fuel) was down 11% during the Thanksgiving holiday compared to the holiday week a year earlier.
- Jet fuel, however, was down by nearly half, or a decline of about 0.9 mb/d.
- There were about 107,000 flights during the week of Thanksgiving, down about 45% from 2019 levels.
Market Movers
• ConocoPhillips (NYSE: COP) announced a significant oil discovery in the Norwegian Sea.
• Diamondback Energy (NASDAQ: FANG) announced a double deal to buy two rivals for a combined $3.2 billion. It will purchase QEP Resources (NYSE: QEP) and also Guidon Operating LLC. Enverus analyst said it is “a realization among small producers how difficult it is to deliver on returns expectations.”
• Royal Dutch Shell (NYSE: RDS.A) sold a 26.25% stake in Queensland Curtis LNG for $2.5 billion.
Tuesday December 22, 2020
Oil sentiment turned negative as near-term problems with demand have finally moved to the front burner after weeks of increasingly bullish sentiment. Dozens of countries cut off travel to the UK over fears of a coronavirus mutation. Lockdowns have also grown tighter in multiple places in December. “The nightmare before Christmas scenario has set in, with a combination of the ‘mutant virus’ compounded by Brexit angst,” said Stephen Innes, chief market strategist at Axi.
Goldman sees $65 oil. Despite the current challenges, Goldman is bullish on oil, expecting Brent to average $65 a barrel next year.
Congress’ Covid stimulus includes energy provisions. The $900 Covid-19 stimulus, combined with the omnibus spending bill, contained an array of energy-related provisions. The bill authorized $35 billion on a variety of renewable technologies over the next five years, and it extended tax credits. The U.S. Chamber of Commerce called it the most significant energy bill since 2007. The legislation also included a phase out of hydrofluorocarbons (HFCs), a highly potent greenhouse gas found in refrigerants. With little fanfare, the U.S. legislated the most significant action on climate change in years.
Russia backs another 500,000 bpd increase. Despite renewed fears about oil demand due to the new coronavirus strain, the leader of the non-OPEC group in the OPEC+ pact, Russia, is still in favor of another 500,000 bpd increase in the alliance’s oil production from February.
Trans Mountain Expansion work temporarily halted. The long-distance Trans Mountain Expansion pipeline project, which would add a twin line to carry oil from Alberta to Canada’s Pacific Coast, has run into some trouble in recent weeks. Several safety mishaps, including the death of a worker, have forced the company to suspend work for the rest of the year.
Contractor at Line 3 construction dies. Enbridge (NYSE: ENB) confirmed that a contractor working on Line 3 construction in Minnesota died in an accident on Friday.
Cushing inventories declining. Oil inventories at the Cushing hub declined to around 60 million barrels recently, heading towards normal levels.
Shell announced a $4.5 billion write-down. Royal Dutch Shell (NYSE: RDS.A) signaled that it would report its third consecutive loss in the fourth quarter, and that it would take a $4.5 billion write-down, much of which was related to its Appomattox project in the Gulf of Mexico.
Northeast states unveil cap-and-invest for cars. Northeast and mid-Atlantic states unveiled the Transportation & Climate Initiative, a coalition of states that cap emissions on the transportation sector and use the proceeds to invest in a variety of programs. The program is modeled after the Regional Greenhouse Gas Initiative (RGGI), which has been in place for years and caps emissions on major polluters. However, several states said they wouldn’t sign on for now.
Norwegian court opens up Arctic to more drilling. Norway’s top court dismissed a lawsuit from climate activists to halt Arctic oil exploration.
Saudi Arabia keeps oil flowing. The massive 5-mb/d East-West pipeline that carries Saudi oil to the Red Sea has been undergoing repairs since an attack in 2019. But oil continues to flow through a backup pipeline system. S&P Global Platts takes a look at Saudi oil infrastructure.
U.S. shale’s horrible year; pain is not over. U.S. shale will start 2021 producing about 7.5 mb/d, down 20% from the start of 2020. As demand begins to recover, OPEC+ will add supply back onto the market, raising questions about how much room there is for shale to recover. IHS Markit estimates that shale capex will total $54 billion in 2021, down by half compared to 2019, and up only slightly from 2020 levels. Also, some analysts say production could fall by another 1 mb/d next year.
Russia’s oil minister warns Biden. Joe Biden’s presidency will hopefully not interfere with OPEC+ actions taken to rebalance oil markets, Russian Deputy Prime Minister and former Energy Minister Alexander Novak said this week. “We can see that the new U.S. administration is making statements contradictory to the country’s policy from the last four years,” Novak said. “We hope that the changes to the policy of the U.S. administration will not have an impact on the joint actions, which, first of all, are designed to play a positive role for the global economy and energy markets.”
Iran woos Russian oil companies. Iran has stated its interest in attracting investments from Russian oil companies to help develop its oilfields, Russia’s TASS news agency said on Monday.
Next up: Santa Claus
Demand for transportation fuels (gasoline, distillates, and jet fuel) was down 11% during the Thanksgiving holiday compared to the holiday week a year earlier.
- Jet fuel, however, was down by nearly half, or a decline of about 0.9 mb/d.
- There were about 107,000 flights during the week of Thanksgiving, down about 45% from 2019 levels.
Market Movers
• ConocoPhillips (NYSE: COP) announced a significant oil discovery in the Norwegian Sea.
• Diamondback Energy (NASDAQ: FANG) announced a double deal to buy two rivals for a combined $3.2 billion. It will purchase QEP Resources (NYSE: QEP) and also Guidon Operating LLC. Enverus analyst said it is “a realization among small producers how difficult it is to deliver on returns expectations.”
• Royal Dutch Shell (NYSE: RDS.A) sold a 26.25% stake in Queensland Curtis LNG for $2.5 billion.
Tuesday December 22, 2020
Oil sentiment turned negative as near-term problems with demand have finally moved to the front burner after weeks of increasingly bullish sentiment. Dozens of countries cut off travel to the UK over fears of a coronavirus mutation. Lockdowns have also grown tighter in multiple places in December. “The nightmare before Christmas scenario has set in, with a combination of the ‘mutant virus’ compounded by Brexit angst,” said Stephen Innes, chief market strategist at Axi.
Goldman sees $65 oil. Despite the current challenges, Goldman is bullish on oil, expecting Brent to average $65 a barrel next year.
Congress’ Covid stimulus includes energy provisions. The $900 Covid-19 stimulus, combined with the omnibus spending bill, contained an array of energy-related provisions. The bill authorized $35 billion on a variety of renewable technologies over the next five years, and it extended tax credits. The U.S. Chamber of Commerce called it the most significant energy bill since 2007. The legislation also included a phase out of hydrofluorocarbons (HFCs), a highly potent greenhouse gas found in refrigerants. With little fanfare, the U.S. legislated the most significant action on climate change in years.
Russia backs another 500,000 bpd increase. Despite renewed fears about oil demand due to the new coronavirus strain, the leader of the non-OPEC group in the OPEC+ pact, Russia, is still in favor of another 500,000 bpd increase in the alliance’s oil production from February.
Trans Mountain Expansion work temporarily halted. The long-distance Trans Mountain Expansion pipeline project, which would add a twin line to carry oil from Alberta to Canada’s Pacific Coast, has run into some trouble in recent weeks. Several safety mishaps, including the death of a worker, have forced the company to suspend work for the rest of the year.
Contractor at Line 3 construction dies. Enbridge (NYSE: ENB) confirmed that a contractor working on Line 3 construction in Minnesota died in an accident on Friday.
Cushing inventories declining. Oil inventories at the Cushing hub declined to around 60 million barrels recently, heading towards normal levels.
Shell announced a $4.5 billion write-down. Royal Dutch Shell (NYSE: RDS.A) signaled that it would report its third consecutive loss in the fourth quarter, and that it would take a $4.5 billion write-down, much of which was related to its Appomattox project in the Gulf of Mexico.
Northeast states unveil cap-and-invest for cars. Northeast and mid-Atlantic states unveiled the Transportation & Climate Initiative, a coalition of states that cap emissions on the transportation sector and use the proceeds to invest in a variety of programs. The program is modeled after the Regional Greenhouse Gas Initiative (RGGI), which has been in place for years and caps emissions on major polluters. However, several states said they wouldn’t sign on for now.
Norwegian court opens up Arctic to more drilling. Norway’s top court dismissed a lawsuit from climate activists to halt Arctic oil exploration.
Saudi Arabia keeps oil flowing. The massive 5-mb/d East-West pipeline that carries Saudi oil to the Red Sea has been undergoing repairs since an attack in 2019. But oil continues to flow through a backup pipeline system. S&P Global Platts takes a look at Saudi oil infrastructure.
U.S. shale’s horrible year; pain is not over. U.S. shale will start 2021 producing about 7.5 mb/d, down 20% from the start of 2020. As demand begins to recover, OPEC+ will add supply back onto the market, raising questions about how much room there is for shale to recover. IHS Markit estimates that shale capex will total $54 billion in 2021, down by half compared to 2019, and up only slightly from 2020 levels. Also, some analysts say production could fall by another 1 mb/d next year.
Russia’s oil minister warns Biden. Joe Biden’s presidency will hopefully not interfere with OPEC+ actions taken to rebalance oil markets, Russian Deputy Prime Minister and former Energy Minister Alexander Novak said this week. “We can see that the new U.S. administration is making statements contradictory to the country’s policy from the last four years,” Novak said. “We hope that the changes to the policy of the U.S. administration will not have an impact on the joint actions, which, first of all, are designed to play a positive role for the global economy and energy markets.”
Iran woos Russian oil companies. Iran has stated its interest in attracting investments from Russian oil companies to help develop its oilfields, Russia’s TASS news agency said on Monday.
Next up: Santa Claus
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So once we get through the Santa Claus rally (assuming he turns up) we'll head into the Presidential cycle. So we had C19 and a market crash. In 2003 we had President Bush's 1'st term at the culmination of the Tech. Wreck.
In 2009 we had President Obama's 1'st term at the end of the housing/banking crisis.
This is what happened in the various markets:
Stock market higher. Dollar traded lower. Commodities traded higher. Bonds fluctuated but went pretty much nowhere. Of note, when the dollar paused, commodities carried on higher. Eventually the stock market paused (went sideways).
Here we had a rising stock market (the Presidential effect) a market tantrum, that resulted in lower yields, higher commodities, but a dollar doing its own thing.
On that basis: (a) low interest rates are important, (b) the dollar is less so, it will do its own thing and (c) commodities rising to a point (difficult to say what that point exactly is) is also fine.
The Santa rally should launch the market nicely into 2021.
jog on
duc
In 2009 we had President Obama's 1'st term at the end of the housing/banking crisis.
This is what happened in the various markets:
Stock market higher. Dollar traded lower. Commodities traded higher. Bonds fluctuated but went pretty much nowhere. Of note, when the dollar paused, commodities carried on higher. Eventually the stock market paused (went sideways).
Here we had a rising stock market (the Presidential effect) a market tantrum, that resulted in lower yields, higher commodities, but a dollar doing its own thing.
On that basis: (a) low interest rates are important, (b) the dollar is less so, it will do its own thing and (c) commodities rising to a point (difficult to say what that point exactly is) is also fine.
The Santa rally should launch the market nicely into 2021.
jog on
duc
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Everyone positioned for the Santa rally?
Historically:
The current market:
Commodities and yields higher. The inflation trade. Cryptos, kinda all over the place. BTC remains the leader.
Sectors:
Some interesting ETFs:
I didn't realise there was a crypto ETF:
Now I just need to figure out a strategy to trade this.
From Mr flippe-floppe-flye:
So gold. I'm much more interested in gold again and will have a follow up post to this one on gold.
So Merry Xmas
jog on
duc
Historically:
The current market:
Commodities and yields higher. The inflation trade. Cryptos, kinda all over the place. BTC remains the leader.
Sectors:
Some interesting ETFs:
I didn't realise there was a crypto ETF:
Now I just need to figure out a strategy to trade this.
From Mr flippe-floppe-flye:
So gold. I'm much more interested in gold again and will have a follow up post to this one on gold.
So Merry Xmas
jog on
duc
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So this chart has been analysed as bullish for gold:
Bull market? Maybe, maybe not. Any other evidence to support the claim?
The other PMs including Gold:
Only palladium is also in a bull market and I'm guessing that's more to do with TSLA and batteries than straight out PM investing. The lack of confirmation from (particularly silver) the other PMs is always a point of concern. The bull case rests on the expansion of fiat money, which it is agreed is out of control. However, against that we have rising rates. Only if the real return is negative (as it was in the 1970's) will gold enter a true bull phase. If the Fed. caps rates at say 2% and inflation does rise above that (PPI not CPI) then gold goes bull.
Currently:
Gold itself suggests lower prices or extended sideways and the miners, lower. The miners give the appearance of slowly rolling over after failing to breach that overhead resistance.
Miners index:
Moving in the wrong direction currently. The miners fluctuate more than the commodity itself however.
Interest rates trending higher. Bad news for gold, unless, inflation really gets going.
It's trying, but we'll have to see how that pans out.
jog on
duc
Bull market? Maybe, maybe not. Any other evidence to support the claim?
The other PMs including Gold:
Only palladium is also in a bull market and I'm guessing that's more to do with TSLA and batteries than straight out PM investing. The lack of confirmation from (particularly silver) the other PMs is always a point of concern. The bull case rests on the expansion of fiat money, which it is agreed is out of control. However, against that we have rising rates. Only if the real return is negative (as it was in the 1970's) will gold enter a true bull phase. If the Fed. caps rates at say 2% and inflation does rise above that (PPI not CPI) then gold goes bull.
Currently:
Gold itself suggests lower prices or extended sideways and the miners, lower. The miners give the appearance of slowly rolling over after failing to breach that overhead resistance.
Miners index:
Moving in the wrong direction currently. The miners fluctuate more than the commodity itself however.
Interest rates trending higher. Bad news for gold, unless, inflation really gets going.
It's trying, but we'll have to see how that pans out.
jog on
duc
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Nice find these crypto currency trusts, the numerous times i looked for BTC ETF s, i never got any result inc a few months ago when i just bought BTC directly.
So maybe need to do a bit of investigation before jumping in.
On the other end, it says BTC in the name and is listed so that could be enough..?
Have all a great Christmas break.
So maybe need to do a bit of investigation before jumping in.
On the other end, it says BTC in the name and is listed so that could be enough..?
Have all a great Christmas break.
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To trade cryptos:
ETHE correlates with Gold (currently). I used the x3 leverage Gold ETF because the ETHE is so much more volatile. As you can see the correlation (just from an eyeball) is pretty good.
Therefore you can create a market neutral strategy using the x3 short Gold ETF as against ETHE. There is of course an obvious risk: Gold and Crypto generally or specifically un-correlate. That would be a problem.
Other than that, this pair would work really well.
On the chart you'd have to be looking long ETHE having just reached its all time high and breaking out of that area of consolidation, which would also mean higher gold. The thing is, gold just does not look that bullish to me currently. Therefore the correlation might be set to break or reset already.
Two straight currency ETFs, US dollar and Japanese Yen as a diversification away from pure stocks. Now these do not have the vol. of a crypto, but you can improve that with a x4 leverage ETF, which unfortunately I cannot access. The best I can do is a x2 leverage in the Yen. Dollar is just x1 and would be far too boring.
So the Yen looks really interesting. Of course the correlation is 100% and will remain 100% (you would expect although 'never' just does not apply to markets with negative oil this year) which removes one area of risk.
Yen looks to be in a trading range, which means when it eventually breaks out, the move will likely be substantial. Definitely looking higher atm. Anyway, that is irrelevant with a market neutral position.
So I'll be adding a Yen position after Christmas is over based purely on the extra leverage available.
Some market data to end the year:
So bulls still hold sway on Wall St. and for the start of the Santa rally to year end. Some $250B coming to market next week for the Fed. to snap up.
IPOs this past week....meh.
Other sentiment indices, cooling slightly. Obviously don't believe in Santa Claus.
Margin debt. This is an interesting metric to follow as almost by definition, market tops correlate with highs in margin debt. As can be seen, leverage is increasing in the market, which is not really a great thing. It rather suggests some vol. ahead.
The insiders unloading on Tech. ZM, POS.
From house flippe-floppe-flye:
jog on
duc
ETHE correlates with Gold (currently). I used the x3 leverage Gold ETF because the ETHE is so much more volatile. As you can see the correlation (just from an eyeball) is pretty good.
Therefore you can create a market neutral strategy using the x3 short Gold ETF as against ETHE. There is of course an obvious risk: Gold and Crypto generally or specifically un-correlate. That would be a problem.
Other than that, this pair would work really well.
On the chart you'd have to be looking long ETHE having just reached its all time high and breaking out of that area of consolidation, which would also mean higher gold. The thing is, gold just does not look that bullish to me currently. Therefore the correlation might be set to break or reset already.
Two straight currency ETFs, US dollar and Japanese Yen as a diversification away from pure stocks. Now these do not have the vol. of a crypto, but you can improve that with a x4 leverage ETF, which unfortunately I cannot access. The best I can do is a x2 leverage in the Yen. Dollar is just x1 and would be far too boring.
So the Yen looks really interesting. Of course the correlation is 100% and will remain 100% (you would expect although 'never' just does not apply to markets with negative oil this year) which removes one area of risk.
Yen looks to be in a trading range, which means when it eventually breaks out, the move will likely be substantial. Definitely looking higher atm. Anyway, that is irrelevant with a market neutral position.
So I'll be adding a Yen position after Christmas is over based purely on the extra leverage available.
Some market data to end the year:
So bulls still hold sway on Wall St. and for the start of the Santa rally to year end. Some $250B coming to market next week for the Fed. to snap up.
IPOs this past week....meh.
Other sentiment indices, cooling slightly. Obviously don't believe in Santa Claus.
Margin debt. This is an interesting metric to follow as almost by definition, market tops correlate with highs in margin debt. As can be seen, leverage is increasing in the market, which is not really a great thing. It rather suggests some vol. ahead.
The insiders unloading on Tech. ZM, POS.
From house flippe-floppe-flye:
jog on
duc
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Inflation and the Market. So I have a number of charts concerning inflation. First a definition: an increase in the money supply, including credit, that causes a loss in purchasing power of the money.
So:
First up PPI data. Topped out at 208. Measuring from 1990 at 120 to 2020 and 198 (current figure +/-) = 1.68% compounded.
Same 1990 start point at 140 to 2020 at 270 = 2.2% compounded.
So that gives us 2.2% - 1.68% = +0.52% compounded. That is the spread that the market (S&P 500) companies earn and why on aggregate their stock prices go up. Add to that their other major costs, employees and you have essentially the COG line in the Income Statement.
As investors (traders) we are buying that spread: ie. increased earnings growth exemplified through that compounded spread between PPI and CPI.
Below we have the consumer, who is losing purchasing power as the dollar falls relentlessly in the face of 'inflation'.
However, the market is only interested in the profitability of companies that can stay ahead through leveraging the spread between costs of production and selling products to the consumer.
The PPI used to be caught largely by commodity prices and cost of labour. This is less true today, where obviously intellectual capital and its costs can have a far larger impact on a company selling software etc, than in production of an automobile.
Labour costs:
If we take the same 1990 starting point as +/- 80 and 2020 as 115 then we have a 1.2% compounded growth in wages, which falls far below our CPI figure of 2.2%.
When you look at the 1970-1980 data, you can see how we had 'inflation' of a type that hurt the market. Wages went 7.7% compounded in that time period. Commodities went 9.5% compounded while CPI went 7.1%. There was a loss of the spread for companies, hence they became less profitable on aggregate.
Today, wage earners have no pricing power. Unions are largely meek and ineffective, high unemployment provides easy replacement in most cases, highly skilled positions being the exception and increasing use of technology all combine to keep rising wage costs low.
The markets are booming on stimulus because stimulus creates CPI inflation and to a lesser extent PPI inflation, so the positive spread remains, while purchasing power continually erodes. Hence, owning stocks (and real assets) is the way to ride the curve and preserve purchasing power.
Gold & Silver:
If you are contemplating owning the physical or the mining company:
You want the physical.
Gold or Silver?
In a true PPI inflation, silver. Look at the 1940-1950, 1970-1980 data, the 1990-2010 data. However, the 1920-1940 data, which includes the Great Depression is interesting. Gold far outperformed Silver in that time period, which, is analogous to our current time period which is more about a monetary event (a true deflation = implosion of debt) than a commodity inflation. The last scenario is a hyper-inflation, being the total collapse of the fiat currency, which in many ways is analogous to debt implosion. A debt implosion would drive the Fed. to monetise to such a degree that it would create the hyper-inflation that Schiff et al. warn against.
Gold/Silver v Crypto currencies.
The jury is out on this one. There simply isn't the history. However, would you prefer to own gold/silver coins, sitting in your home safe or BTC in your electronic wallet located somewhere on the 'net'? Myself, easy choice.
The doom portfolio: (a) land that can grow food/support livestock, (b) water/electricity supply independent of suppliers, (c) guns to defend, (d) some gold/silver to use as money for stuff required, (d) some form of sustainable transport.
Absent armageddon, holding great wads of cash, outside of daily needs, is not a great idea. It definitely should be somewhere earning a return that outpaces that CPI 2.2% compounded inflation rate, which isn't that high a hurdle. The issue is how much to allocate to non-armageddon assets v armageddon assets. One has happened consistently year-in-year-out, the other might never happen in our lifetime.
jog on
duc
So:
First up PPI data. Topped out at 208. Measuring from 1990 at 120 to 2020 and 198 (current figure +/-) = 1.68% compounded.
Same 1990 start point at 140 to 2020 at 270 = 2.2% compounded.
So that gives us 2.2% - 1.68% = +0.52% compounded. That is the spread that the market (S&P 500) companies earn and why on aggregate their stock prices go up. Add to that their other major costs, employees and you have essentially the COG line in the Income Statement.
As investors (traders) we are buying that spread: ie. increased earnings growth exemplified through that compounded spread between PPI and CPI.
Below we have the consumer, who is losing purchasing power as the dollar falls relentlessly in the face of 'inflation'.
However, the market is only interested in the profitability of companies that can stay ahead through leveraging the spread between costs of production and selling products to the consumer.
The PPI used to be caught largely by commodity prices and cost of labour. This is less true today, where obviously intellectual capital and its costs can have a far larger impact on a company selling software etc, than in production of an automobile.
Labour costs:
If we take the same 1990 starting point as +/- 80 and 2020 as 115 then we have a 1.2% compounded growth in wages, which falls far below our CPI figure of 2.2%.
When you look at the 1970-1980 data, you can see how we had 'inflation' of a type that hurt the market. Wages went 7.7% compounded in that time period. Commodities went 9.5% compounded while CPI went 7.1%. There was a loss of the spread for companies, hence they became less profitable on aggregate.
Today, wage earners have no pricing power. Unions are largely meek and ineffective, high unemployment provides easy replacement in most cases, highly skilled positions being the exception and increasing use of technology all combine to keep rising wage costs low.
The markets are booming on stimulus because stimulus creates CPI inflation and to a lesser extent PPI inflation, so the positive spread remains, while purchasing power continually erodes. Hence, owning stocks (and real assets) is the way to ride the curve and preserve purchasing power.
Gold & Silver:
If you are contemplating owning the physical or the mining company:
You want the physical.
Gold or Silver?
In a true PPI inflation, silver. Look at the 1940-1950, 1970-1980 data, the 1990-2010 data. However, the 1920-1940 data, which includes the Great Depression is interesting. Gold far outperformed Silver in that time period, which, is analogous to our current time period which is more about a monetary event (a true deflation = implosion of debt) than a commodity inflation. The last scenario is a hyper-inflation, being the total collapse of the fiat currency, which in many ways is analogous to debt implosion. A debt implosion would drive the Fed. to monetise to such a degree that it would create the hyper-inflation that Schiff et al. warn against.
Gold/Silver v Crypto currencies.
The jury is out on this one. There simply isn't the history. However, would you prefer to own gold/silver coins, sitting in your home safe or BTC in your electronic wallet located somewhere on the 'net'? Myself, easy choice.
The doom portfolio: (a) land that can grow food/support livestock, (b) water/electricity supply independent of suppliers, (c) guns to defend, (d) some gold/silver to use as money for stuff required, (d) some form of sustainable transport.
Absent armageddon, holding great wads of cash, outside of daily needs, is not a great idea. It definitely should be somewhere earning a return that outpaces that CPI 2.2% compounded inflation rate, which isn't that high a hurdle. The issue is how much to allocate to non-armageddon assets v armageddon assets. One has happened consistently year-in-year-out, the other might never happen in our lifetime.
jog on
duc
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Great post:
Missing legend on graph
But you gave the answer.so physical it will be.
Like the doom portfolio, going there..not kidding:
My view is, for someone getting out of the workforce, you need to set aside some doom portfolio, but as you pointed, this is an insurance which we can hope never to use so you will not end up in a line of a salvos soup.
the drawback is that it also means these assets will prevent you doing a killing and having a jet and a mansion merx etc..but also paying far less taxes if you remain in Oz NZ.
So a balanced mix if you can
Nearly an ideological choice
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Just continuing the real macro view for a moment:
Something that has driven prima facie the political spectrum, but with pretty much zero effect. Those with money seek to control or at the very least, align with and thereby control or influence power. This of course is not capitalism but corporatism, which is a version of socialism.
How (much) further can that horse run?
Well according to a Kondratiev analysis, we're already on our way down.
A chart from Dalio, essentially agrees with the above analysis. Arguing that the banking crisis, which was massively deflationary on top of already disinflationary forces (technology, off-shoring of labour, demographic shifts) pushed us over the edge into a cyclical transition point. C19 is an interesting interruption. The reason is that C19 is likely (especially in the shorter time frame) inflationary. Supply chains disrupted. Politicians cognizant of issues re. the trend to off-shoring has had in supplying the basics. The initial crushing of demand (energy) leading to potential structural issues in the longer term supply: and this holds true for a number of commodities, I see uranium is entering supply based issues.
So inflation requires a number of variables to fall just right: (a) an increase in the total money supply, (b) a shortage of labour, (c) a supply shock in commodities (usually energy), (d) a default or significant devaluation, (e) slowing of technological innovation and for a hyper-inflation a (f) Sovereignty crisis.
Well the money supply has gone through the roof. We may see reverse-shoring and an end to the forces of globalisation. Demographics are definitely on the move. C19 will potentially create a supply shock across a number of commodities re. supply through a shortage of capital investment through the last 10yrs and a drawdown of inventory. I'll just use Dr Copper as an example:
We know shale oil has been devastated from the trade war launched by the Arabs.
Therefore, if we start to see commodity price rises (PPI inflation) which hurts non-technological components of the S&P500, does the Fed. allow rates to rise? How far? Corporate debt is through the roof and will push into liquidation huge swathes of the market. Real Estate debt. Rising mortgage rates world wide? Wholesale liquidation of zombie companies are massively inflationary once you get past the deflationary aspect of debt default, again a supply chain issue. Therefore, I think the Fed. comes in to control the yield curve somewhere around the 3% mark, which, is low enough that the other global forces combined can drive a PPI style inflation.
IP:
Thin edge of the wedge? Looking at the current IPO market and what has come to market recently, are these types of technology likely to be disinflationary in a significant way, in the same manner as that which has preceded?
Therefore, in time, I think C19 will be seen as a uniquely an inflationary event, despite the effect that GDP has been crushed short-term. Therefore, moving into 2021, inflationary forces which have previously resulted simply in an asset price inflation, will creep into the supply chains creating a PPI based inflation, which could have quite negative effects on stock and bond markets depending on whether the Fed. moves to a yield curve control as it did in the 1940's.
Monetary policy, unless you move into NIRP, is stuck at ZIRP and the only stimulus that can be forthcoming are Fiscal policy deficits even greater than we currently have. For that, the Fed. must move to yield curve control, which is inflationary and is essentially a devaluation.
In short, most, if not all of the disinflationary forces that have been predominant, are now reversing, increasing the probability that we could see a 1970s style inflation moving into 2021 and beyond.
jog on
duc
Something that has driven prima facie the political spectrum, but with pretty much zero effect. Those with money seek to control or at the very least, align with and thereby control or influence power. This of course is not capitalism but corporatism, which is a version of socialism.
How (much) further can that horse run?
Well according to a Kondratiev analysis, we're already on our way down.
A chart from Dalio, essentially agrees with the above analysis. Arguing that the banking crisis, which was massively deflationary on top of already disinflationary forces (technology, off-shoring of labour, demographic shifts) pushed us over the edge into a cyclical transition point. C19 is an interesting interruption. The reason is that C19 is likely (especially in the shorter time frame) inflationary. Supply chains disrupted. Politicians cognizant of issues re. the trend to off-shoring has had in supplying the basics. The initial crushing of demand (energy) leading to potential structural issues in the longer term supply: and this holds true for a number of commodities, I see uranium is entering supply based issues.
So inflation requires a number of variables to fall just right: (a) an increase in the total money supply, (b) a shortage of labour, (c) a supply shock in commodities (usually energy), (d) a default or significant devaluation, (e) slowing of technological innovation and for a hyper-inflation a (f) Sovereignty crisis.
Well the money supply has gone through the roof. We may see reverse-shoring and an end to the forces of globalisation. Demographics are definitely on the move. C19 will potentially create a supply shock across a number of commodities re. supply through a shortage of capital investment through the last 10yrs and a drawdown of inventory. I'll just use Dr Copper as an example:
We know shale oil has been devastated from the trade war launched by the Arabs.
Therefore, if we start to see commodity price rises (PPI inflation) which hurts non-technological components of the S&P500, does the Fed. allow rates to rise? How far? Corporate debt is through the roof and will push into liquidation huge swathes of the market. Real Estate debt. Rising mortgage rates world wide? Wholesale liquidation of zombie companies are massively inflationary once you get past the deflationary aspect of debt default, again a supply chain issue. Therefore, I think the Fed. comes in to control the yield curve somewhere around the 3% mark, which, is low enough that the other global forces combined can drive a PPI style inflation.
IP:
Thin edge of the wedge? Looking at the current IPO market and what has come to market recently, are these types of technology likely to be disinflationary in a significant way, in the same manner as that which has preceded?
Therefore, in time, I think C19 will be seen as a uniquely an inflationary event, despite the effect that GDP has been crushed short-term. Therefore, moving into 2021, inflationary forces which have previously resulted simply in an asset price inflation, will creep into the supply chains creating a PPI based inflation, which could have quite negative effects on stock and bond markets depending on whether the Fed. moves to a yield curve control as it did in the 1940's.
Monetary policy, unless you move into NIRP, is stuck at ZIRP and the only stimulus that can be forthcoming are Fiscal policy deficits even greater than we currently have. For that, the Fed. must move to yield curve control, which is inflationary and is essentially a devaluation.
In short, most, if not all of the disinflationary forces that have been predominant, are now reversing, increasing the probability that we could see a 1970s style inflation moving into 2021 and beyond.
jog on
duc
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The late 1940s is probably the closest market to the current market.
Looking at debt and deficits caused by WWII
We can see that the structural debt/deficit levels most closely resemble todays levels. It took 20 years from 1950 through 1969 to create the inflationary storm that consumed the 1970s. That is because of the starting point (valuation) of the market at the end of 1948
The market (technically) was well off of its lows, but earnings driven by inflationary forces were set to expand significantly.
Our current market, valuation wise:
Will likely mean that the returns in an inflation that incorporates commodity based inflation will have less tolerance to this due to a higher valuation than a lower valued market. Which simply (could/should) mean that if inflation turns up, rather than 20 years to create an issue, we might have 5 years (or less) before valuations tumble.
jog on
duc
Looking at debt and deficits caused by WWII
We can see that the structural debt/deficit levels most closely resemble todays levels. It took 20 years from 1950 through 1969 to create the inflationary storm that consumed the 1970s. That is because of the starting point (valuation) of the market at the end of 1948
The market (technically) was well off of its lows, but earnings driven by inflationary forces were set to expand significantly.
Our current market, valuation wise:
Will likely mean that the returns in an inflation that incorporates commodity based inflation will have less tolerance to this due to a higher valuation than a lower valued market. Which simply (could/should) mean that if inflation turns up, rather than 20 years to create an issue, we might have 5 years (or less) before valuations tumble.
jog on
duc
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A headline and some data:
So the stimulus package...go/no go?
I guess we'll find out Monday what the market makes of that.
Meanwhile gold is in outflow mode from ETFs:
Foreigners dumping Treasuries, which drives interest rates higher.
Which (in part) is why the Fed. balance sheet looks the way it does.
And BTC:
What if.
The vol. is off the chart. The 1-way trade is impressive. If there was something that you could short it with, I'd be in the game. When it's long or nothing, that is just too risky.
jog on
duc
So the stimulus package...go/no go?
I guess we'll find out Monday what the market makes of that.
Meanwhile gold is in outflow mode from ETFs:
Foreigners dumping Treasuries, which drives interest rates higher.
Which (in part) is why the Fed. balance sheet looks the way it does.
And BTC:
What if.
The vol. is off the chart. The 1-way trade is impressive. If there was something that you could short it with, I'd be in the game. When it's long or nothing, that is just too risky.
jog on
duc
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The btc rise is incredible, i bought some (bits) just last month at $22k AUD per BTC and sold a little bit yesterday night above $36k AUD a BTC.
Enough to pay back my purchase cost of last month and still keep more BTC in my wallet.the BTC rise is as impressive vs AUD as it is vs USD.
I do own..not enough...
Enough to pay back my purchase cost of last month and still keep more BTC in my wallet.the BTC rise is as impressive vs AUD as it is vs USD.
I do own..not enough...
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Monsieur Frog;
The BTC phenomenon is the South Sea speculation, John Laws' America's speculation and the Dutch Tulip speculation rolled into one. I look at it and wonder whether I am really dumb for missing it or others are really dumb for buying into it and I'm looking at it from an investment perspective rather than a pure speculation. As a speculative instrument, it is beyond compare, the vol. is huge. If there were (as I said) a way to short it, I would have been playing this space ages ago. A purely directional bet, with the level of vol. displayed, is simply too high risk for me.
As an investment, I simply don't buy it. I may well in time be proven incorrect. The intangibility of it, simply lends itself to manipulation/theft/collapse/etc.
Returning to the inflation meme:
Lots of bullishness in the net.
An analysis grid:
So if you are bullish, you will sit on the right hand side of the grid. You then will need to decide: bullish inflationary or bullish disinflationary?
A growth indicator, based on economic activity, which is really an expression of the economic data; has turned positive.
Below are a blend of commodity prices, interest rates and bond prices.
Last, but not least, the velocity of money is ticking higher.
Historically, this illustrates very clearly the enormous inflationary pressures coming out of the 1949 period, all the way through to the 1980 period and with some dips, into the 2008 crisis, where we went into free-fall.
This is where all of those macro-economic factors now potentially come into play: the drawdown in inventories, the collapse of CAPEX spending by many producers, the receding of globalisation and ongoing disruption of supply chains, a huge build up in cash holdings by the peasants, courtesy of handouts etc with likely more to come and potential US dollar weakness/default due to the running of tremendous Fiscal deficits, monetised by the Fed. Add into that a (potentially) significant infra-structure build, like the Great Society of the early 1950-1960 period (and even higher deficits) and all the pieces are on the table for an inflationary run.
jog on
duc
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Santa rally starting well:
Stocks up.
Bonds down or yields up:
Commodities higher, except NG.
Crypto: disengaging from PMs?
Vol. is trending lower, all is well currently in stock index land.
Inflation expectations rising:
So I have been talking about inflation for a few posts. I have one last post on inflation today. Needless to say, the Bond yields convey the Bond market's concerns. The disconnect twixt PMs and cryptos is more concerning.
Which leaves Mr flippe-floppe-flye
So a list of 'crypto' plays for any interested.
jog on
duc
Stocks up.
Bonds down or yields up:
Commodities higher, except NG.
Crypto: disengaging from PMs?
Vol. is trending lower, all is well currently in stock index land.
Inflation expectations rising:
So I have been talking about inflation for a few posts. I have one last post on inflation today. Needless to say, the Bond yields convey the Bond market's concerns. The disconnect twixt PMs and cryptos is more concerning.
Which leaves Mr flippe-floppe-flye
So a list of 'crypto' plays for any interested.
jog on
duc
