Chart Update

     

 

 

The Cracks in the Economy’s Foundation Become Bigger

Last week the Bureau of Economic Analysis has updated its gross output data for US industries until the end of Q4 2015. Unfortunately these data are only available with a considerable lag, but they used to be published only once every few years in the past, so the current situation represents a significant improvement.

 

decay-3Decay…

Photo credit: bargewanderlust

 

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Buy Low, Sell High?

It is an old truism and everybody has surely heard it more than once. If you want to make money in the stock market, you’re supposed to buy low and sell high. Simple, right?

 

mad_professor-600x399Successful stock market investing in two simple steps

Photo via slideshare.net

 

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Big Moves in Markets No-One is Paying Attention to

A lot of attention has been on equities and precious metals in the past week but the biggest movers right now are the softs [e.g. commodities like grains, oils, sugar, etc.).

 

wheat_field-1000x523We actually are in Kansas now, Dorothy!

Photo via agriculture.ks.gov

 

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Dismal Earnings, Extreme Valuations

The current earnings season hasn’t been very good so far. Companies continue to “beat expectations” of course, but this is just a silly game. The stock market’s valuation is already between the highest and third highest in history depending on how it is measured.

 

NYSE

Photo credit: Kjetil Ree

 

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Business under Pressure

A recent post by Mish points to the fact that many of the business-related data that have been released in recent months continue to point to growing weakness in many parts of the business sector. We show a few charts illustrating the situation below:

 

1-Total Business SalesA long term chart of total business sales. The recent decline seems congruent with a recession, but many other indicators are not yet confirming a recession – click to enlarge.

 

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No Correction Yet

Late last week the HUI Index broke out to new highs for the move, and so did the XAU (albeit barely, so it did not really confirm the HUI’s breakout as of Friday). Given that gold itself has not yet broken out to a new high for the move, it would normally be expected to do so, as Jordan Roy-Byrne argues here.

 

bogota-culture-museo-del-oro-1a.jpgPhoto via Museo del Oro / Bogota

 

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The Yen Breaks Out

A few days ago we discussed the yen’s trend change and what appeared at the time to be an imminent breakout. This breakout has now actually occurred, and looks quite convincing to us.

 

yen unchained

 

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The War on Cash is on!

If you are used to making visits to your bank to make your credit card payments, you may find this no longer an option in the future. Some banks are no longer accepting (or limiting their acceptance) of cash deposits. The war on cash forges on. Paper money, which is indeed more or less worthless, is slowly being taken out of circulation and being replaced by digital currency.

 

Burning_Money

Photo credit: Stephen Krow

 

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Up and Down

Gold went down (as the muggles would measure it, in dollars). It dropped almost 40 bucks. Silver fell almost 60 cents. Since silver fell proportionally farther than gold, the gold-silver ratio went up.

Why do we keep reiterating that gold goes nowhere, that it’s the dollar which mostly goes down over long periods of time and sometimes up as in 2011-2015? Why do we insist that the dollar be measured in gold, and that gold cannot be measured in dollars the way a steel meter stick cannot be measured in rubber bands?

Some ideas that are impossible to understand using the dollar paradigm. For example, gold is in the process of withdrawing its bid on the dollar. This will have devastating consequences, which the word “reset” does not begin suggest. If the dollar is money, then this assertion — gold bids on the dollar — is incomprehensible. However, if gold is money then that makes the dollar just the irredeemable scrip issued by the Fed in order to finance its purchase of Treasury bonds. Who would be eager to trade his money to buy such scrip?

 

gia-vang-hom-nay-ngay-17-2-2016-3Photo via goudmunten.com

 

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Surprising Strength

Similar to many others, we have been waiting for some sort of correction in gold and gold stocks, but obviously, not much has happened in this respect so far. We have written quite a lot about gold and gold stocks between August 2015 and February 2016, because we felt a good opportunity was at hand – a short term trading opportunity at the very least, but one with the potential to become more than that.

 

Sotuh Deep gold mineInside the fully mechanized South Deep gold mine in South Africa. Maybe it’s worth to keep digging for more after all?

Photo credit: Themba Hadebe / AP Photo

 

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Still Slowing Down

Year-end distortions have begun to slowly come out of the data, and while broad true US money supply growth remains fairly brisk, it has begun to slow again relative to January’s y/y growth rate, to 7.8% from 8.32%.

 

Many dollars in the format of a gift box

 

So far it remains in the sideways channel (indicated by the blue lines below) between approx. 7.4% and 8.6%, in which it has meandered since mid 2013. We believe the next break “below the shelf” is likely to be a significant event.

 

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A Useful Leading Indicator?

We often see charts comparing the S&P 500 to the growth in the Federal Reserve’s balance sheet, or more specifically, to assets held by the Fed. There is undeniably a close correlation between the two, but it has struck us as not very useful as a “timing device”, or an early warning device if you will.

Recently we have come across a video of a presentation by Bob Murphy, in which he uses a slightly different comparison that might prove more useful in this respect. Instead of merely looking at Fed assets, he uses the total monetary base. Here is a chart comparing the monetary base to the S&P 500 Index since 2009:

 

1-Monetary Base vs SPXThe monetary base (red line) vs. the S&P 500 (blue line) – as can be seen, sometimes one or the other series leads, but in recent years the monetary base has been a leading indicator. It probably lagged the market in 2010/11 due to the fact that traders at the time bought stocks in anticipation of more monetary pumping – whereas nowadays the market appears to be reacting with a slight lag to changes in base money – click to enlarge.

 

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