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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Politics

Bipartisan infrastructure deal begins to address consequences of a warming planet: 3 essential reads

 

Bipartisan infrastructure deal begins to address consequences of a warming planet: 3 essential reads

A lot of coastal infrastructure wasn’t designed for the frequent flooding and crashing waves brought by rising seas. Jeffrey Greenberg/Universal Images Group via Getty Images

Courtesy of Bryan Keogh, The Conversation and Stacy Morford, The Conversation

...



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Phil's Favorites

It's almost as if the rally made sense

 

Image via Pixabay

It’s almost as if the rally made sense

Courtesy of 

Apple is the largest corporation on earth and, in the last quarter, their profits doubled versus the same quarter during the prior year. As my partner Barry likes to say, “Stop and think about it!”

Indeed, that’s f***ing bananas....



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Zero Hedge

Sydney Lockdown Extended For At Least A Month Stoking Fears Of "Double-Dip" Recession

Courtesy of ZeroHedge View original post here.

Sydney has been locked down for nearly a month now, and it looks like its residents and business owners will need to hold on for just a little bit longer, because the lockdown is being extended once again.

While restrictions have been eased in Melbourne and Adelaide - practically all of Australia's state capitals have been locked down to combat the delta variant, which has infected...only a few hundreds people across the entire country - authorities in New South Wales officially extended the lockdown in Greater Sydney for at le...



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Biotech/COVID-19

What is a breakthrough infection? 6 questions answered about catching COVID-19 after vaccination

 

What is a breakthrough infection? 6 questions answered about catching COVID-19 after vaccination

Vaccines don’t ward off every single infection but they do massively lower the risk. Education Images/Universal Images Group via Getty Images

Courtesy of Sanjay Mishra, Vanderbilt University

If you’ve been fully vaccinated against COVID-19, maybe you figured you no longer need to worry about contracting the coronavirus. But along with the rising number of new COVID-19 cases globally and growi...



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Digital Currencies

Is Amazon About To Start Accepting Crypto?

Courtesy of ZeroHedge

For the first time ever, Amazon has shown itself to be interested in crypto with a new major hire within its payments-focused team.

Posted on Thursday, the new role seeks an experienced product leader with expertise in blockchain, central bank digital currencies and cryptocurrencies to “develop the case for the capabilities which should be developed” and drive overall product vision.

The Payments Acceptance & Experience team is seeking an experienced product leader to develop Amazon’s Digital Currency and Blockchain strategy and product roadmap

The Amazon Payment Acceptance & Experie...



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Chart School

Investing with Channels - Review

Courtesy of Read the Ticker

The US has a lot of debt, to sell more units of the debt to non US buyers the FED and Treasury must get the unit price of the debt down.



This video assumes a 'risk on' bullish bias into the Nov 2022 US mid terms. The bias assumes a US dollar trending down from it current high price of $93 on the DXY.






 


 




Chart 1 - US Dollar Channels




 

Click for popup. Clear your browser cache if image is not showing.


 



...



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Promotions

Free Webinar Wednesday: July 7, 1:00 pm EST

 

Don't miss Phil's Webinar on July 7 at 1:00 pm EST. It's FREE and open to all who wish to join.

Click here: 

https://attendee.gotowebinar.com/register/6552545459443187211

Join us to learn Phil's trading tactics and strategies in real-time!

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Kimble Charting Solutions

Crude Oil Cleared For Blast Off On This Dual Breakout?

Courtesy of Chris Kimble

Is Crude Oil about to blast off and hit much higher prices? It might be worth being aware of what could be taking place this month in this important commodity!

Crude Oil has created lower highs over the past 13-years, since peaking back in 2008, along line (1).

It created a “Double Top at (2), then it proceeded to decline more than 60% in four months.

The countertrend rally in Crude Oil has it attempting to break above its 13-year falling resistance as well as its double top at (3).

A successful breakout at (3) would suggest Crude Oil is about to mo...



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ValueWalk

Managing Investments As A Charity Or Nonprofit

By Anna Peel. Originally published at ValueWalk.

Maintaining financial viability is a constant challenge for charities and nonprofit organizations.

Q4 2020 hedge fund letters, conferences and more

The past year has underscored that challenge. The pandemic has not just affected investment returns – it’s also had serious implications for charitable activities and the ability to fundraise. For some organizations, it’s even raised doubts about whether they can continue to operate.

Finding ways to generate long-term, sustainable returns for ...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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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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