A Comprehensive Discussion of the Economy and Financial Markets

The Incrementum Fund’s advisory board has held its quarterly meeting on January 10, and the transcript has just become available. Readers can download the transcript via the link below this post.

 

 

Unfortunately two board members (Dr. Frank Shostak and Rahim Taghizadegan) were unable to attend this time. We hope that you will nevertheless find the board’s discussion of a wide range of topics relevant to today’s financial markets interesting.

 

1-Gold vs commoditiesGold rises to an all time high against commodities – a strong sign that economic confidence is waning – click to enlarge.

 

We would especially point to the debate surrounding central bank credibility (or the “confidence bubble” as Mark Valek refers to it), which we believe is probably the most important subject investors need to confront these days. As we have recently mentioned, Jim Rickards has as always made a number of very interesting remarks on the finer points of Fed policy.

He inter alia pointed out that the Fed’s flexibility tends to be hampered in election years, as it doesn’t want to be seen as influencing the election outcome. This could be especially relevant this year (a similarity to the years 2000 and 2007/8, we might add), as it happens just as the economy and the markets appear to be at a crossroads.

 

2-DXYUS dollar index, daily – the board’s consensus was that the dollar would no longer make much headway against major currencies, as the Fed was likely to soften its stance. So far this seems to be the case – not even the ECB and the BoJ were able to put pressure on their currencies beyond a single trading day – click to enlarge.

 

Recent moves in the gold price and the fact that a number of other markets have also begun to act in a manner that seems no longer consistent with what the planners would presumably like to happen, certainly appear to indicate that the irrational faith of market participants in the “central bank put” is slowly but surely crumbling.

 

3-SPX vs. CommoditiesThe growing gap between stocks and commodities – this is a divergence crying out for mean reversion – click to enlarge.

 

Inevitably the “inflation vs. deflation” debate was revisited as well. Deflationary pressures are currently enormous. On the credit side, low-rated debt is in crisis conditions, while commodity prices are going down and consumer price increases remain well below the arbitrary “targets” set by central banks. This provokes the usual reactions by the central planners, which in turn is apt to build up ever greater tension in the markets (especially as it becomes increasingly obvious to all that their methods are not working).

 

4-breakeven inflationUS 5-year breakeven inflation rates have been under pressure for years and have been plumbing new lows for the move in 2015 – click to enlarge.

 

How long will this trend continue? Ironically, after the Fed’s rate hike, the US yield curve has flattened even further. This greatly undermines the “everything is awesome” narrative and indicates that the promised series of rate hikes is highly unlikely to happen.

 

5-yield curveThe US yield curve has continued to flatten following the Fed’s rate hike – click to enlarge.

 

6-junk bond yieldsA “stealth” credit crisis has been underway for some time – these days it is no longer as stealthy as it used to be – click to enlarge.

 

As always, all kinds of markets were discussed and one unavoidable topic was crude oil – is there anything on the horizon that could reverse its trend? There is nothing obvious, but at some point the market will have discounted every eventuality. Global demand is actually at a record high, and with producers pumping all out because they need the money, there is no longer any spare capacity. This creates a set-up in which surprises are possible.

 

7-March CrudeWTI crude – a relentless downtrend – click to enlarge.

 

As of January 10 when the meeting took place, the board’s consensus in terms of trade allocations consisted essentially of a bullish bias on gold and US treasuries and a bearish bias on stocks – in line with the members’ views on the economy and the expected reactions of central banks to economic developments.

In the short time since then things have actually played out that way, but these trends are all still young. Readers should keep in mind that when it comes to trading ideas, opinions can frequently and quickly change, depending on developments. We would however say that the essential elements on which these deliberations were based remain definitely in place at this time.

 

8-Incrementum Inflation signalThe proprietary Incrementum inflation/deflation signal vs. inflation-sensitive assets – click to enlarge.

 

Download Link:

Q1 Incrementum Advisory Board Meeting Transcript (pdf)

 

Addendum:

Please note that the transcript is dated “2015” – this is a typo, it should of course be 2016.

 

Charts by: StockCharts, St. Louis Federal Reserve Research, Incrementum AG

 

 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • TMS-2 fast versionA Date Which Will Live in Infamy
      President Nixon’s Decision to Abandon the Gold Standard Franklin Delano Roosevelt called the Japanese “surprise” attack on the U.S. occupied territory of Hawaii and its naval base Pearl Harbor, “A Date Which Will Live in Infamy.”  Similar words should be used for President Nixon’s draconian decision 45 years ago this month that removed America from the last vestiges of the gold standard.   Nixon points out where numerous evil speculators were suspected to be...
  • Perfect-InvestmentInsanity, Oddities and Dark Clouds in Credit-Land
      Insanity Rules Bond markets are certainly displaying a lot of enthusiasm at the moment – and it doesn't matter which bonds one looks at, as the famous “hunt for yield” continues to obliterate interest returns across the board like a steamroller. Corporate and government debt have been soaring for years, but investor appetite for such debt has evidently grown even more.   The perfect investment for modern times: interest-free risk! Illuustration by Howard...
  • Factories, new vs oldUS Economy – Something is not Right
      Another Strong Payrolls Report – is it Meaningful? This morning the punters in the casino were cheered up by yet another strong payrolls report, the second in a row. Leaving aside the fact that it will be revised out of all recognition when all is said and done, does it actually mean the economy is strong?   Quo vadis, economy? Image credit: Paul Raphaelson   As we usually point out at this juncture: apart from the problem that US labor force participation has...
  • CorporateMediacontrolTrump's Tax Plan, Clinton Corruption and Mainstream Media Propaganda
      Fake Money, Fake Capital OUZILLY, France – Little change in the markets on Monday. We are in the middle of vacation season. Who wants to think too much about the stock market? Not us! Yesterday, Republican presidential candidate Donald Trump promised to reform the U.S. tax system.   This should actually even appeal to supporters of Bernie Sanders: the lowest income groups will be completely exempt from income and capital gains taxes under Trump's plan. We expect to hear...
  • mania1The Great Stock Market Swindle
      Short Circuited Feedback Loops Finding and filling gaps in the market is one avenue for entrepreneurial success.  Obviously, the first to tap into an unmet consumer demand can unlock massive profits.  But unless there’s some comparative advantage, competition will quickly commoditize the market and profit margins will decline to just above breakeven.   Example of a “commoditized” market – hard-drive storage costs per GB. This is actually the essence of economic...
  • Mark Carney starts work as Bank of England governor in Dave Simonds cartoonBank of England QE and the Imaginary “Brexit Shock”
      Mark Carney, Wrecking Ball For reasons we cannot even begin to fathom, Mark Carney is considered a “superstar” among central bankers. Presumably this was one of the reasons why the British government helped him to execute a well-timed exit from the Bank of Canada by hiring him to head the Bank of England (well-timed because he disappeared from Canada with its bubble economy seemingly still intact, leaving his successor to take the blame).   This is how Mark Carney is seen by...
  • old friendsAn Old Friend Returns
      A Rare Apparition An old friend suddenly showed up out of the blue yesterday and I’m not talking about a contributor who had washed out and, after years of ‘working for the man’, decided to return for another whack at beating the market. Instead I am delighted to report that I am looking at a bona fide confirmed VIX sell signal which we haven’t seen for ages here.   Hello, old friend. Professor X and Magneto staring each other down in the plastic...
  • tortoiseThe Fabian Society and the Gradual Rise of Statist Socialism
      The “Third Way”   “Stealth, intrigue, subversion, and the deception of never calling socialism by its right name” – George Bernard Shaw   An emblem of the Fabian Society: a wolf in sheep's clothing   The Brexit referendum has revealed the existence of a deep polarization in British politics. Apart from the public faces of the opposing campaigns, there were however also undisclosed parties with a vested interest which few people have heard about. And...
  • web-puzzled-man-scratching-head-retro-everett-collection-shutterstock_91956314News from TINA Land
      Distortions and Crazy Ideas We have come across a few articles recently that discuss some of the strategies investors are using or contemplating to use as a result of the market distortions caused by current central bank policies. Readers have no doubt noticed that numerous inter-market correlations seem to have been suspended lately, and that many things are happening that superficially seem to make little sense (e.g. falling junk bond yields while defaults are surging; the yen rising...
  • storming the storeRetail Snails
      Second Half Recovery Dented by “Resurgent Consumer” We normally don't comment in real time on individual economic data releases. Generally we believe it makes more sense to occasionally look at a bigger picture overview, once at least some of the inevitable revisions have been made. The update we posted last week (“US Economy, Something is Not Right”) is an example.   Eager consumers storming a store Photo credit: Daniel Acker / Bloomberg   We'll make an...
  • The CongressThe Fed’s “Waterloo” Moment
      Corrupt and Unsustainable James has been a big help. Trying to get him to sleep at night, we have been telling him fantastic and unbelievable bedtime stories – full of grotesque monsters... evil maniacs... and events that couldn’t possibly be true (catch up here and here).   He turned his head until his gaze came to rest on the barred windows of the main building. Finally, he spoke; as far as I was aware these were the first words he had uttered in more than five years....
  • Zimbabwe_$100_trillion_2009_ObverseGood Money and Bad Money
      Confidence Gets a Boost OUZILLY, France – Last week’s U.S. jobs report came in better than expected. Stocks rose to new records. As we laid out recently, a better jobs picture should lead the Fed to raise rates. This should cause canny investors to dump stocks.   Canny investors at work (an old, but good one...) Cartoon via Pension Pulse   But the stock market paid no attention. It follows logic of its own. Headlines told us that last Friday’s report “boosted...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

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]

 

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

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com