Posts Tagged ‘de-leveraging’

IS GOLD GETTING OVERBOUGHT?

IS GOLD GETTING OVERBOUGHT?

Courtesy of The Pragmatic Capitalist 

In a recent piece Nomura Group highlighted some of the more interesting gold ratios with the implication that gold is bumping up against some high historically levels:

gold overbought IS GOLD GETTING OVERBOUGHT?

 

Personally, I still believe the “irrational” move in gold is very much alive and will likely find support on any significant weakness.  Gold is likely to remain the “go to” asset for investors looking for a hedge to the fear and uncertainty of the current environment.  The Euro is being viewed as a faulty fiat currency (incorrectly I believe) and the US dollar is believed to be in long-term disarray due to the actions of the Fed.  As long as the de-leveraging cycle persists and the sovereign debt woes continue we are likely to continue to see strong demand for gold.

Source: Nomura Group


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CONSUMER CREDIT CONTINUES TO CONTRACT

CONSUMER CREDIT CONTINUES TO CONTRACT

Courtesy of The Pragmatic Capitalist 

Consumer credit contracted $3.6B in July.  In short, the year over year rate is improving, but the bottom line is that consumer credit continues to contract as the de-leveraging continues at the household level (via Econoday):

“Consumer credit outstanding in June contracted $1.3 billion-but at least it was at a slower pace than in recent months. Credit in May fell $5.3 billion while April dropped a particularly severe $14.9 billion. Simply, the consumer sector is showing weak demand for loans combined with tight bank lending and heavy charge offs by banks.”

CC CONSUMER CREDIT CONTINUES TO CONTRACT


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THE DETERIORATING MACRO PICTURE

THE DETERIORATING MACRO PICTURE

Courtesy of The Pragmatic Capitalist 

a statue of a man levering a rock with a stick

Over the course of the last 18 months I’ve been adhering to a macro view that can best be summed up as follows:

1) The explosion in private sector debt (excessive housing borrowing, excessive corporate debt, etc) levels would reveal the private sector as unable to sustain positive economic growth, de-leveraging and deflation would ensue.

2) Government intervention would help moderately boost aggregate demand, improve bank balance sheets, improve sentiment, boost asset prices but fail to result in sustained economic recovery as private sector balance sheet recession persists.

3)  Extremely depressed estimates and corporate cost cutting would improve margins and generate a moderate earnings rebound, but would come under pressure in 2010 as margin expansion failed to continue at the 2009 rate.

4)  The end of government intervention in H2 2010 will reveal severe strains in housing and will reveal the private sector as still very weak and unable to sustain economic growth on its own.

The rebound in assets was surprisingly strong and the ability of corporations to sustain bottom line growth has been truly impressive – far better than I expected.  However, I am growing increasingly concerned that the market has priced in overly optimistic earnings sustainability – in other words, estimates and expectations have overshot to the upside.

What we’ve seen over the last few years is not terribly complex in my opinion.  The housing boom created what was in essence a massively leveraged household sector.  The problems were compounded by the leveraging in the financial sector, however, this was merely a symptom of the real underlying problem and not the cause of the financial crisis (despite what Mr. Bernanke continues to say and do to fix the economy).

As the consumer balance sheet imploded the economy imploded with it.  This shocked aggregate demand like we haven’t seen in nearly a century. This resulted in collapsing corporate revenues.  The decrease in corporate revenues, due to this decline in aggregate demand, resulted in massive cost cutting and defensive posturing by corporations.  This exacerbated the problems as job losses further weakened the consumer balance sheet position.  Consumers, like, corporations, got defensive and began cutting expenses and paying down liabilities.  Sentiment collapsed and we all know what unfolded in 2008.

The government responded by largely targeting the banking sector based on the belief that fixing the banks would fix Main…
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Fed Z1: Blah

Fed Z1: Blah

Courtesy of Karl Denninger at The Market Ticker 

Well, there’s nothing here that indicates any sort of real change.  Let’s start with the grand-daddy chart:

The arrow is approximately where the outstanding credit in the system began to decline.  Note that the slope of each sub-component hasn’t done much in terms of change in this last report.

Has there been ANY improvement?  Let’s zoom in:

debt

Well, not really.

Households and non-profits contracted their outstanding credit by $60 billion in non-mortgage instruments and a sizable $99 billion in mortgages.  Non-financial business credit expanded very slightly (about $30 billion in the quarter) as did state and local governments ($25 billion.)  Interestingly enough it appears that farm credit decreased while non-farm increased – I will do some more digging in that area, as it may be a leading indicator of distress in the farm space – particularly family farms.  The Federal Government increased its debt by a net $361.5 billion (!) while financial instrument credit decreased awhopping $638.5 billion.  Rounding out the numbers is the rest of the world (exposure in the US), which was up a modest $28.6 billion, continuing a trend that has run since the end of 2008.

All-in all, nothing to see here.  Anyone who claims that "activity in credit is increasing" has to explain how, when consumers and non-financial businesses continue to de-lever and financial instruments are literally being shunned like a leper colony - the contraction this quarter ran at a seventeen percent annualized rate while the actual annual rate of change over the last 12 months is only 13.5%.  In other words, the deleveraging is accelerating, not stabilizing, among financial instruments.

As for the "de-levering" of the consumer, that’s still to come.  Outstanding credit has contracted a mere 2.7% since this mess began with credit peaking in the second quarter of 2008, or about 1.5% annualized.  Mortgages have delevered only 3.7% from the top in the first quarter of 08 in total, or about 1.9% annualized.

The short form here folks is that all the "prop jobs" have been intended to do one thing and one thing only - protect the banks from having to recognize their bad loans.

To believe that consumers and non-profits could have only de-levered at a rate of less than 2% annualized including all the bad mortgage debt that is out there, and is now "recovering", is not only ludicrous but is utterly unsupported by the data, which is not showing the alleged "growth."

What has…
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SHOULD YOU SHORT THE TREASURY MARKET?

SHOULD YOU SHORT THE TREASURY MARKET?

Courtesy of The Pragmatic Capitalist 

Good thoughts on the credit markets from this week’s episode of Wealth Track.  Nassim Taleb has described treasuries as a “no brainer” short position.  Marc Faber refers to treasuries as junk bonds.  Bond experts David Darst and Robert Kessler provide their outlooks for obtaining yield in a de-leveraging world:

Source: Wealth Track 


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Phil's Favorites

This Time It's Different: Maybe? ...John Street Capital Joins Me On Panic With Friends

 

This Time It’s Different: Maybe? …John Street Capital Joins Me On Panic With Friends

Courtesy of Howard Lindzon

(Originally posted on July 10, 2020)

This made me laugh yesterday…

In the shoulda, coulda, woulda department today…a $500,000 investment in the Amazon IPO would be worth $1 billion today if you held it.

Onwards&helli...



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Biotech/COVID-19

How deadly is COVID-19? A biostatistician explores the question

 

How deadly is COVID-19? A biostatistician explores the question

The number of confirmed and probable deaths from COVID-19 in New York City was 23,247 as of July 10, which is more than eight times the number who died in the 9/11 attack. Angela Weiss / AFP via Getty Images

Courtesy of Ron Fricker, Virginia Tech

The latest statistics, as of July 10, show COVID-19-related deaths in U.S. are just under 1,000 per day nationally, which is down from a peak averag...



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Zero Hedge

Taleb: Tail-Risk Hedges Are Now A Necessity

Courtesy of ZeroHedge View original post here.

Authored by Michelle Jones via ValueWalk.com,

Tail risk hedges are designed to only pay off when the markets suddenly plunge, so many investors don’t have the stomach to carry them. However, one expert on tail risk funds advises investors not to be in the market right now if they aren’t using a tail hedge.

No V-shaped recov...

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Digital Currencies

Chainlink Crypto Surges To A New All-Time High - Here's Why...

Courtesy of ZeroHedge View original post here.

Authored by Joseph Young via CoinTelegraph.com,

Surging volume, price discovery, and new partnerships pushed Chainlink price to a new all-time high at $8.48...

image courtesy of CoinTelegraph

...

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The Technical Traders

Gold & Silver Measured Moves

Courtesy of Technical Traders

The next few weeks are certain to attract much attention to precious metals.  Hardly anyone can argue that Gold has not experienced an incredible upside price rally over the last 12+ months.  Recently, Gold closed above $1800 for the first time since 2011.  Our researchers believe the next target is $1935.  Keep reading to learn why we believe this is the next major price target for Gold.

Gold Weekly Price Analysis

Over the past 18+ months, Gold continues to develop price patterns that seem to be replicating going forward.  This pattern consists of an advance in price followed by consolidation/rotation in price to set up a new momentum base.  The example of this price advance ...



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ValueWalk

How Banks Can Mitigate Credit Losses

By David Donovan. Originally published at ValueWalk.

Without question, the economic impact caused by COVID-19 has rocked companies and consumers across the globe. Big companies are drawing heavily on credit lines. Mom and pop shops are struggling to stay afloat, despite the government funding small business loans to the tune of $659 billion, of which $130 billion is still unclaimed. Companies are now trying to figure out how they can proactively address high risk borrowers to avoid massive defaults that will inevitably putting banks in an even stickier predicament.

Q2 2020 hedge fund letters, conferences and more

With more than 40% of the econo...



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Kimble Charting Solutions

Commodity Index Price Reversal Raises Hope for "Double Bottom"

Courtesy of Chris Kimble

It’s been a rough decade for commodities… but there may be light at the end of the tunnel.

As you can see in today’s chart, the Equal Weight Commodity Index made new decade lows this spring at (1).

In general, this is bearish. BUT, prices reversed higher with a little attitude. Precious metals has been strong and crude oil is well off its lows.

This has given life to a potential double bottom pattern, as this year’s lows came in and around the 2009 financial crisis lows.

Is it possible that Commodities have created a long-term double bottom at (1)? Poss...



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Chart School

Dow 2020 Crash Watch - Update

Courtesy of Read the Ticker

Like 1929 the markets have bounced. This time it is on the back of the FED $6.5T money printing.

Previous Post: Dow 2020 Crash Watch 

But can the FED blow $6T every time the market rolls down to test support.

Yes, maybe before the US 2020 elections the FED will do 'what it takes'. But post elections not so much, the year 2021 is a long way from the next election (presidential or congress) and defense of the markets may not be so supportive at $6T or $10T per market smash. The FED may hesitate, and that will be window for stocks to break lower.

The 36 month simple moving a...

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Lee's Free Thinking

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

 

These Charts Show COVID 19 Is Spreading in the US and Will Kill the Economy

Courtesy of  

The COVID 19 pandemic is, predictably, worsening again in much of the US. Only the Northeast, and to a lesser extent some Midwestern states, have been consistently improving. And that trend could also reverse as those states fully reopen.

The problem in the US seems to be widespread public resistance to recommended practices of social distancing and mask wearing. In countries where these practices have been practi...



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Members' Corner

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

 

Coronavirus, 'Plandemic' and the seven traits of conspiratorial thinking

No matter the details of the plot, conspiracy theories follow common patterns of thought. Ranta Images/iStock/Getty Images Plus

Courtesy of John Cook, George Mason University; Sander van der Linden, University of Cambridge; Stephan Lewandowsky...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Promotions

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Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

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Mike will show off the TradeExchange's new platform which you can try for free.  

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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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