Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Yellen Comes Down The Chimney 

Stock-Markets / Financial Markets 2016 Jan 05, 2016 - 03:32 AM GMT

By: HRA_Advisory

Stock-Markets

You heard it from Janet Yellen.  “Economic expansions (and by extension bull markets) don’t die of old age.”  That’s true.   But they do die from excess, policy mistakes and Wall St Stoopid. 

Seven years of zero interest rates have created plenty of capital misallocation, mal-investment and yield chasing.  We’ve seen some minor debacles in the high yield space this month.  Nothing earth shattering but certainly disquieting. Big problems often start small and go unnoticed until the tsunami is on the horizon.  Keep an eye on bonds.  The credit market funds a large percentage of the buying underpinned the bull market.  We’ve got a problem if it stops.


So far at least, my call for the USD to show topping action around the first rate hike and for gold to put in some sort of bottom is correct.  It’s early days though.  The belief that the $US is going much higher is still almost universal.  I explain why I’m not sold on that idea below.  We should all hope I’m right.  If Wall St is correct and the USD index goes to 120 I can guarantee a recession in the US.  It definitely won’t be the “winner take all” play NY seems to envisage.  The gold price hasn’t moved yet but I think we’re set up for at least a tradable rally soon which should make for a brighter 2016.

 Enjoy your family and friends and let’s look forward to a 2016 resource market (gold anyway) that provides a few opportunities and not just lots of pain! 

Eric Coffin

They finally did it.   It’s amazing the amount of ink that has been and will be spilt (here too!) about something that seems so, well minor.  In fact, lots of that spilt ink was used to explain how unimportant a 25bps rate hike is in the grand scheme of things.  Except that it is important. Here’s why.

It’s not the one rate hike itself that matters obviously.  25bps is minor, especially when it’s tacked onto, well, nothing.  What’s important is that it marks a sea change from the world’s most important central bank shifting from being extremely accommodative to…  To what exactly?  Certainly not hawkish.  That would be a stretch.  But it is a change in direction to something less accommodative.  From “loosening” to “tightening” at least at a generic level. That’s important since a tightening trend is usually not the stock market’s friend at least in theory.

Yellen tried hard to stay on everyone’s “nice” list and did a pretty good job of it.  She made repeated references to being guided by inflation expectations.  While the dot plots supplied by FOMC members imply several rate hikes next year Wall St doesn’t buy it.  Few outside the Eccles building see the disinflation trend as “transitory” - another word that came up repeatedly in Yellen’s press conference. 

Yes, oil is a big factor and one of these days the oil price will start rising again.  I don’t know when but since we’re over a year into the price fall already calling it “transitory” is a bit disingenuous.  There should be a small inflation bump in early 2016 due to base effects—lower prices a year ago generating more stable looking CPI readings. But it won’t move much unless some prices actually start rising.

Disinflationary forces are tied to the stronger USD of course.  I seem to be the only one that thinks the US currency could be topping.  If the Fed doesn’t believe it either I don’t know what they are basing their rosy assumptions on. 

Ok, I do know.  The Fed is assuming growth will accelerate, presumably because the Fed raising rates convinces the masses that “it’s all good”.  Why else would the Fed raise rates?  A shockingly large number of Wall St analysts bought that story hook, line and sinker.  It’s a nice story and I hope it’s true but it doesn’t bear much relation to recent reality.

The US is arguably the strongest advanced economy but it’s hardly “strong” by longer term measures.  Growth is ticking along at two percent and change.  Not that impressive and, interestingly, the Fed lowered its estimates of growth going forward at the last meeting. Interesting but not too surprising since the FOMC has consistently overestimated future growth for this entire expansion.

Early this year when everyone else expected the Euro to drop to parity, or less, with the USD I called a € bottom because I believed the EU was on the winning side of a currency move.  The weak Euro helped exporters in the EU just as the strong USD hurt those in the US. 

I have no doubt Mario Draghi would love to see the Euro fall further. It may be harder to engineer than Wall St thinks however.  Current weakness has been a boon and economic metrics across the continent have been strengthening. 

Take a look at the chart below.  It compares ISM manufacturing new orders readings for the US, EU Japan and China.  There has been a distinct change of fortune over the past year or so. 
 
ISM readings have been trending lower in the US for some time, and even service numbers are weakening now.  Over the past few months similar readings have been strengthening in the EU and even in Japan.  And, no, this isn’t about oil.  The surging USD is taking its toll. 

China of course has worse problems, and some of the same causes. It may actually help the USD strengthen, for its own reasons.  The Chinese Yuan was pegged to the USD and dragged up in its wake.  Now that China has the SDR inclusion it craved it may feel less like keeping the peg.  The bottom chart on the next page shows the CNY/USD exchange rate for the past year.  As you can see, Beijing is letting the CNY weaken again and it’s now surpassed the August low. 

Keep in mind the CNY is still about 20% stronger than it was in 2009 so you can’t say they haven’t done their bit. China is well aware of the political ramifications of letting the Yuan weaken but its awful PMI numbers give them little choice.

When the Fed raised rates there was a strong upward surge in the USD Index but it quickly flattened out.  It has yet to test its high of early this year in the 102 range. It’s certainly too early to say that won’t happen but as I have noted before, nominal rate differentials are not the only driver. 

If the EU block shows continued improvement it will be much tougher for Draghi to sell the idea of a broader QE program to the hawks on the ECB board.  Likewise, if the Fed is actually right about core inflation picking up that will lower the real (inflation adjusted) interest rate and its real, not nominal, rates that drive yield seeking currency flows. The real rate differential between the US and the EU is much smaller than the nominal one.

So what does all this mean for the markets?  A tightening rate trend should and will be reflected across the credit spectrum. That’s normal and wouldn’t matter much if we were in the early or mid-stages of an expansion but I think we can all agree we’re in the late innings now.

I’ve commented before about my concerns about high yield and junk debt.  Those concerns increased since the last issue when three small mutual and hedge funds focused on risky credits restricted redemptions.  All the funds in question are small by Wall St standards.  This is not “Lehman 2.0” It’s not meaningless either, however much most of Wall St is downplaying it. 

Problems in the credit market always show first at the risky end of the spectrum.  That’s how it should be.  The question now is whether it spreads.  I wouldn't assume it doesn’t given the weakening margins and USD headwinds so many sectors are now facing.  Again, this is not just about oil. 



The chart above shows the spread between CCC and BB credits. It’s blown out way beyond the extremes during the 2011 Euro crisis.  This is not good and the problems may be spreading.

The chart below compares the level of share buybacks to the HY credit spread (inverted).  The inverse correlation isn’t perfect but buybacks do seem to follow the strength of the credit markets.  This makes sense as much of the monies used for buybacks and leveraged buyouts is sourced in the debt markets.  That matters.  A lot of the upside volume in the past 3-4 years is directly attributable to these two items.  If liquidity is drying up on the credit side we’ve lost one of the main underpinnings of the NY markets.

The major markets have been counting on a Santa Claus rally and Fed feel good to carry the day. The yearend rally is mainly about fund window dressing, not fundamentals, and is one of the most dependable seasonal moves.  That said, it hasn’t arrived yet.  If we don’t see a significant rally through yearend on the S&P traders should definitely get defensive.  I would consider a failed “Santa” rally a very bad sign.

It's been a long bear market for commodities. However, as any investment expert who has made their fortune from trading will tell you: this is the best time to buy. Lots of amazing companies are available at bargain prices, leaving lots of room for profit margins - but you have to pick right.

We've created the Metals Investor Forum events to connect smart money investors with companies that show tremendous potential. After the success and popularity of our summer conference, we decided to add a winter event. Start the New Year off the right way at the Metals Investor Forum on Saturday, January 23rd, 2016!

To register: www.metalsinvestorforum.com

NY has now put in a couple of lower lows, even with the Fed following the bullish script.  Junk bonds got a bounce after the “redemption scare” but it isn’t holding as this is written.  Most of the commentary I’m seeing is bullish but the average stock in NY is almost in a bear market.  The rally continues to narrow.  These are all negative signs. Hope for the best but prepare for the worst.  I think we have rough sailing ahead.

So far (yes, it’s only three days…) the USD is not holding its gains and gold is strengthening post-Fed as I had expected.  I’m about the only one who did expect that so I won’t be offended if you don’t find my belief alone convincing.  I’m sticking to that call however.  The strong dollar meme is universally accepted but also very crowded. If NY gets weak it will be a tougher trade to stay in.

The short gold trade is even more crowded.  Current COT positioning is the most bullish it has been in the past 15 years.  I’ll repeat that.  Gold positioning is the most bullish it’s been in 15 years.  The potential for a sizable short covering rally is very good.  If the USD meme changes on the back of that as I expect we may finally have the bottom we’ve waited for.  Most traders are still waiting to see a “trigger” for that move.  If the S&P really rolls over as I think it may soon, that could well be it. Gold could be the place to be again very soon.

Don’t forget to register for the next Metals Investor Forum which takes place on January 23rd in Vancouver.  The event features presentations by Brent Cook of Exploration Insights, Gwen Preston of Resource Maven and Yours Truly.  This catered event also includes presentations by a curated list of top companies chosen by the editors to tell you their stories and allow you to meet management one on one.   

The attendee list is kept to a level that allows for meaningful interaction. That means that this event fills up.  Do not wait until the last minute to get tickets for you and yours.

Click Here to Register for the next Metals Investor Forum

By Eric Coffin
http://www.hraadvisory.com

Eric Coffin, editor of HRA Advisories, recently sat down with President and CEO of Colorado Resources, Adam Travis, to discuss more about the company, its recent successes and why investors should stay tuned to this story. Click here to download Eric’s interview with Colorado Resources now!

We think there will be more discovery winners but it's still a "show me" market. HRA understands that which is why we are offering you a chance to try out HRA for three months for only $10.00!

    The HRA – Journal, HRA-Dispatch and HRA- Special Delivery are independent publications produced and distributed by Stockwork Consulting Ltd, which is committed to providing timely and factual analysis of junior mining, resource, and other venture capital companies.  Companies are chosen on the basis of a speculative potential for significant upside gains resulting from asset-based expansion.  These are generally high-risk securities, and opinions contained herein are time and market sensitive.  No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer, solicitation or recommendation to buy or sell any securities mentioned.  While we believe all sources of information to be factual and reliable we in no way represent or guarantee the accuracy thereof, nor of the statements made herein.  We do not receive or request compensation in any form in order to feature companies in these publications.  We may, or may not, own securities and/or options to acquire securities of the companies mentioned herein. This document is protected by the copyright laws of Canada and the U.S. and may not be reproduced in any form for other than for personal use without the prior written consent of the publisher.  This document may be quoted, in context, provided proper credit is given. 

    Published by Stockwork Consulting Ltd.
    Box 85909, Phoenix AZ , 85071 Toll Free 1-877-528-3958

    hra@publishers-mgmt.com   

    ©2016 Stockwork Consulting Ltd.  All Rights Reserved.

    HRA Advisory Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in