Amigos 1 & 2 Arrive, #3 Is Still Out There

The 3 Amigos were a blogger’s way of not boring himself to death while fleshing out important macro indicators month after month.

Amigo #1 (SPX/Gold ratio) got home and dropped from target. What’s more, it has taken back the ratio’s equivalent of the entire Trump rally and that is an eventuality we are very open to on nominal SPX as well.

The gaps are interesting and among several possibilities for 2019 we could see fear, loathing and a fill of the lower gap (a greed gap of sorts) prior to a filling of the upper gap, which could blow out the stock bull in manic fashion one day. Relax, it’s just one of several possible roadmaps. For now, we simply state that SPX/Gold reached a very viable target and dutifully dropped with the market stress.

Yield

Amigo #2 (30yr Treasury yield AKA the Continuum) got the bond bears on the wrong side of the boat and kept them there for a couple of months before the big reversal (back below the monthly EMA 100) that came along with the risk ‘off’ rush amid Q4 2018’s market stress. Continue reading "Amigos 1 & 2 Arrive, #3 Is Still Out There"

The Fed's New Dual Mandate

As most of us probably know by now, the Federal Reserve operates under a “dual” mandate from Congress to “promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” (Leave it to the federal government to give a “dual” mandate three goals. But I digress).

Since the Fed effectively gets its mandate from Congress, it stands to reason that Congress can also change the mandate if it wants. Forthwith, I am humbly suggesting that it do just that. Namely, the word “moderate” should be replaced by the words “zero percent,” while the Fed will be given a new directive to ensure that stock prices rise by at least 8% a year. Given this new command, the “stable prices” mandate may have to go, but I’m sure reasonable people can agree that’s a small price to pay (no pun intended) for a guarantee against any investor losing money.

I’m confident that this is one thing that President Trump, who says he’s a “low-interest person,” and the Democrats in Congress, who need lots of wealthy people to support their socialist agenda, can wholeheartedly embrace. I’m sure Fed chair Jerome Powell and his successors will be happy, too, since it will forever protect them from any political criticism. Continue reading "The Fed's New Dual Mandate"

"Harbinger Of Doom": Amigo 3 In Play, But Real Doom Awaits

“The Harbinger of Doom”? Of course, we (well, the media) are talking about the yield curve AKA Amigo #3 of our 3 happy-go-lucky riders of the macro. I have annoyed you repeatedly with this imagery in order to show that three important macro factors needed to finish riding before a situation turns decidedly negative.

Amigo 1: SPX (or stocks in general)/Gold Ratio

Amigo 2: 30 Year Treasury Yield

Amigo 3: Yield Curve

In honor of Amigo 3’s arrival to prime time let’s have a good old fashioned Amigos update (going in reverse order) and see if we can annoy a few more people along the way.

yield curve

Yield Curve

Clicking the headline yields a Bloomberg article all about various yield curves and all the doomed news  you can use, including a hyperactive interview with an expert bringing us all up to speed on the situation. Continue reading ""Harbinger Of Doom": Amigo 3 In Play, But Real Doom Awaits"

A Post-Powell View Of USD, S&P 500 And Gold

The Fed blinked. This was not news to Macro Tourist Kevin Muir or readers of Biiwii.com, which is very pleased to publish his work.

Fed Finally Blinks

Amid a weakening global economy, gathering signs of weakening in the US economy and a dump in inflation expectations, Jerome Powell implied that the Fed may be going on hold for a while after a December rate hike.

This graph from SG Cross Asset Research/Equity Quant by way of Kevin Muir’s article attempts to show that the accumulated rate hike tightening and “shadow” tightening as a result of QE suspension has now met or exceeded the levels that preceded the last two economic recessions.

Jerome Powell

Add in very high profile haranguing by Donald Trump, the above-noted drop in inflation expectations and economic weakening (that began with our Semi sector signals nearly a year ago) and it sure is not surprising that the Fed may take its foot off the break for a while, and possibly a long while.

So what is expected of our two main themes, the cyclical and risk ‘on’ stock market and the counter-cyclical and risk ‘off’ gold and the miners, which leverage gold’s counter-cyclical utility? Let’s check in after this week’s events. Continue reading "A Post-Powell View Of USD, S&P 500 And Gold"

Is The Housing Market About To Turn Positive?

One of the anomalies of the current economic rebound compared to past recoveries is the virtual absence of the housing market in the upturn. Not only has the housing industry – and its symbiotic partner, the mortgage market – failed to lead or even participate in the recovery, as it usually does, it’s been a laggard most of the way.

The main reason, of course, is the huge change in perception among young Americans about the attractiveness of home ownership. Most of them grew up during the housing boom of the early 2000s and the subsequent bust following the financial crisis – indeed, the housing bust was the root cause of the crisis – so homeownership for many of them has mostly negative connotations, as opposed to a symbol of the American Dream.

Then there’s the burden of student loan debt, which has made homeownership unaffordable for many, so it’s not hard to see why the U.S. homeownership rate has dropped to 64.3% most recently, down from the peak of 69.2% at the end of 2004.

Making matters even worse is the relative lack of homes for sale, which has created a huge supply-and-demand imbalance pushing prices in most areas of the country higher. The reason for the lack of supply is threefold: Older homeowners don’t want to give up the 3.5% mortgage they’ve refinanced into over the past several years. And many of them still can’t sell their homes at the price they want because the value is still below where it was 10 years ago. They’re also reluctant to sell their homes only to have to find a new home at an inflated price. Continue reading "Is The Housing Market About To Turn Positive?"