PM Daily Market Commentary - 3/8/2018

davefairtex
By davefairtex on Fri, Mar 9, 2018 - 5:39am

Gold dropped -3.80 [-0.29%] to 1322.50 on moderate volume, while silver was unchanged at 16.50 on moderate volume also.  The buck ended up higher on the day, up +0.62%, which tells us that gold and silver actually did fairly well just to stay relatively even.

What caused the big currency move? Well first, there was an ECB meeting today, and the usual line-by-line parsing of the statement revealed that the ECB had removed language saying it would increase QE if things got worse. So the conclusion was, QE either stays the same, or goes away, and this probably caused the Euro to rally. Draghi found this reaction to be disagreeable, so he minimized the change during his press conference, and (probabbly much to his delight) the Euro sold off. In speaking about risks going forward, Draghi also suggested that “protectionism” could also threaten growth. Presumably he meant the New and Disagreeable US Protectionism announced by Trump, rather than the Reasonable EU Protectionism regime already in place.

Later in the day, Trump walked back parts of the Trump Tariff plan, giving “our allies” the option of getting exemptions for national security reasons. Canada and Mexico were exempted, for now, in an apparent bid to influence the NAFTA renegotiation currently in progress.  This helped the dollar move higher as well.

Gold sold off early in Asia, and more or less chopped sideways for the remainder of the day.  Somewhat surprisingly, gold entirely ignored the gyrations of the currencies.  Gold's candle print was a neutral-looking short black candle, which caused the forecaster to drop -0.10 to -0.15. Volume wasn't particularly high; it looks as though yesterday's selling pressure had mostly abated, at least for gold anyway.

COMEX GC open interest fell -7,980 contracts today. Finally, some cash-register ringing by the commercials.

Rate rise chances (March 2018) rose to 89%.

Silver largely chopped sideways too, also ignoring all the fuss in the currency markets.  Silver was unchanged, resulting in a doji candle, which was a bearish continuation.  Silver's forecaster agreed, dropping -0.13 to -0.17. From my viewpoint, silver held up pretty well, especially given the big drop in its cousin, copper, as well as that large dollar rally.  Looking at the chart, it seems clear silver is now just as the lower end of its 6-week/50-cent trading range.

COMEX SI open interest rose 1,330 contracts today.

The gold/silver ratio fell -0.21 to 80.15. That's bullish.

Miners managed to rally with GDX up +0.37% on extremely light volume, while GDXJ moved up +0.32% on moderately light volume. Forecaster wasn't impressed, dropping -0.16 to -0.12, which is a sell signal for XAU. I interpret this to mean that today's move was just some relatively weak dip-buying after yesterday's larger sell-off. Probably lower prices tomorrow.

In the chart below, you can see a fairly steep descending triangle pattern.  It doesn't look very promising.  XAU needs to break above that downtrend line before it can even start to look bullish again.

Today, the GDXJ:GDX ratio fell, while the GDX:$GOLD ratio rose. That's slightly bullish.

Platinum fell -0.01%, palladium climbed +0.84%, and copper plunged -1.77%. Copper's big drop resulted in a sell signal and a new low. If the copper downtrend continues - and copper is in a downtrend now in both the weekly and monthly timeframes too - that is a signal of weakness for the global economy.

The buck rose +0.55 [+0.62%] to 89.79. Candle print for the buck was a swing low, which had a 47% chance of being a reversal. Forecaster fell -0.03 to -0.10; it moves slowly, and will need some more convincing.  The buck is now back above its 9 MA.

Looking at the Euro chart, I see a pattern of lower highs and lower lows over the last 6 weeks. This suggests that in spite of the recent set of rallies, the Euro has entered a longer term downtrend. The buck hasn't done as well as that might imply; it still needs a close above 90.29 to confirm that double bottom.

Crude fell, dropping -1.01 [-1.65%] to 60.29, following through off yesterday's sell signal. Forecaster continued falling, down -0.34 to -0.41, which is a more emphatic downtrend. Volume was heavy. Although there was some buying at 60, I'm not sure it will hold given the selling pressure we saw today.

SPX moved up +12.17 [+0.45%] to 2738.97. Trading range was fairly narrow today, resulting in a short white candle/bullish continuation. Forecaster moved up +0.10 to +0.05, which is a mild buy signal for SPX. Sector map showed that consumer staples led (XLP:+0.91%) along with utilities (XLU:+0.74%) while energy trailed (XLE:-0.03%). That's not a very bullish configuration.

VIX fell -1.22 to 16.54.

TLT rose +0.58%; money flowing into the buck appeared to go into bonds. TY also moved higher, up +0.17%, although it remains in a downtrend.

JNK climbed +0.08%; forecaster moved higher, up +0.09 to -0.08. JNK still looks ill to me, especially given the continuing move higher in equities.

CRB fell -0.40%, with 4 of 5 sectors falling today. Energy led (-1.39%) the sector down again today. CRB seems to be struggling a fair amount right now.

It looks like the Trouble with Tariffs will be limited - certainly equities appear to have shrugged it off, at least for now.  Dragi avoided another Euro rally, and while gold wasn't happy about the currency moves, it didn't drop all that much.  Gold in Euros remains in a downtrend, but it did fairly well today.

Dropping copper prices are starting to become a bit of a concern - along with palladium, these are industrial metals that are tied to economic activity, and when they fall in price, it is usually a sign of economic weakness.  Along with a rise in credit card charge-offs, weakness in JNK prices, rising BAA rates, they are hinting that perhaps not all is well.  Oil is echoing this mood too.

For now, risk assets are still moving higher - with equities being preferred, possibly because of all those buybacks.  So far the 10 year has remained below the 3% line-o-death.  Will it continue?

And there's that Italian political situation which could get interesting any day.

Nonfarm Payrolls report is out tomorrow at 8:30 am. It usually drives prices around quite a bit.  I have a new model I've come up with that tries to predict full time employment, and it is predicting bad news.  I'm really curious to see if it turns out to be correct.  If it is wrong - a certain model will get tossed right into the fire!  :)

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7 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5584
total bank credit

Below is the "net change w/w" in the total outstanding bank credit for all commercial banks in the US.  When the black line drops below 0, that means a decline in the amount of credit vs the previous week.

TOTBKCR is the most frequently updated bank credit timeseries, and has a 2 week reporting delay.  Note: I ran TOTBKCR through a 4-point MA, since otherwise it is ridiculously choppy.

Reminder: bank credit is a decent-sized chunk of the US credit impulse.  It is "private money printing."  The rest involves bonds, both corporate and governmental.

This supports Mish's claim that inflation is in the rear view mirror.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5827
What's not in there?
davefairtex wrote:

Below is the "net change w/w" in the total outstanding bank credit for all commercial banks in the US.  When the black line drops below 0, that means a decline in the amount of credit vs the previous week.

TOTBKCR is the most frequently updated bank credit timeseries, and has a 2 week reporting delay.  Note: I ran TOTBKCR through a 4-point MA, since otherwise it is ridiculously choppy.

Reminder: bank credit is a decent-sized chunk of the US credit impulse.  It is "private money printing."  The rest involves bonds, both corporate and governmental.

This supports Mish's claim that inflation is in the rear view mirror.

 

I'm wondering what's not in there?  I assume revolving credit (credit cards, mainly) is not in there?

And not corporate debt such as the recent CVS bond auction, that would show up in total credit market debt which, thankfully, is another super-useful data series the Fed has stopped reporting on along with M3.

What about auto loans?  Or non-bank mortgage lending?  Are those in there?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5584
TOTBKCR

Here's the table from FRED on TOTBKCR.  Short answer: "total credit, all commercial banks."  It does seem to be everything on the bank balance sheet.

https://fred.stlouisfed.org/release/tables?rid=22&eid=4828&snid=4839

My guess is, securitized loans aren't included if they aren't owned by banks, but I'm not 100% sure on that.

Some other series which includes securitized loans (but isn't weekly):

  • NONREVSL "Total Nonrevolving Credit Owned and Securitized, Outstanding"
  • REVOLSL "Total Revolving Credit Owned and Securitized, Outstanding"
  • TOTALSL "Total Consumer Credit Owned and Securitized, Outstanding"
  • SLOAS "Student Loans Owned and Securitized, Outstanding"
  • MVLOAS "Motor Vehicle Loans Owned and Securitized, Outstanding"

 

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 155
Significant?

Dave, this chart had spiked down below 0 on previous occasions without significant repercussions, so don't you think you might be reading too much into this spike down?
Cheers, E

Nate's picture
Nate
Status: Platinum Member (Offline)
Joined: May 6 2009
Posts: 601
Armstrong on retirement accounts

QUESTION: Dear Mr. Armstrong: Many times you were warning about CalPERS. What is your scope on 401k via employers, RothIRA, Simple IRA, and SEP that investing in at Vanguard or Fidelity? Should we continue to contribute? Will these types of retirement plans be in peril as CalPERS ? Can our government get involved in these plans? Thank you very much for your expertise and service.

Best Regards

TN

ANSWER: Actually, the way a liquidator would view the task would be – if the funds were deployed into an asset (Vanguard or similar fund) then it is the “clients/accounts money” and not the institution! Therefore, the investment would hold better regulatory standing than if the funds were deployed rather than simply sitting in cash held by CALPER’s!

Additionally, a major fund such as Vanguard or Fidelity would defend their business in court if a state dared to try to seize it. The likelihood of that type of action being successful is somewhere BELOW -1%. The only way a Vanguard or Fidelity would be at risk is should the FEDERAL government go after it – not a state. Again, the likelihood of that is not very high and I would put that at a 15% chance. This type of action would be the move most likely taken by a Democrat under the pretense that they are going after the evil rich (of which they exclude themselves). But keep in mind, Democrats boast but behind the curtain, they are loading the trunks of their cars with as much loot as they too can carry off. That type of action would be in a major economic crisis that would threaten their political standing.

The bottom-line is that a private fund is FAR SAFER than a state-run fund. CalPERS is clearly in trouble because of Quantitative Easing & lowering interest rate to absurdly low levels. However, it is also partly in trouble because the politicians told it to invest in ENVIRONMENTALLY friendly ventures. So the “political” agenda overruled the economic purpose of actually making money.

Politicians should NEVER control investment decisions – N E V E R ! ! ! ! ! ! ! ! ! ! !

https://www.armstrongeconomics.com/world-news/pension-crisis/state-run-funds-v-private-no-contest/

 

Nate's picture
Nate
Status: Platinum Member (Offline)
Joined: May 6 2009
Posts: 601
CAF podcast

Financial expert and investment advisor Catherine Austin Fitts contends the Federal Government allows pension funds to be robbed. Fitts explains, “Our pension funds have real money.  Those pension funds basically finance the government and what the government is doing.  So, they buy Treasury securities, and then the government turns around and gives that money to the black budget firms.  It goes down the rabbit hole, and, meantime, what we get back in our pensions is an IOU from the government, which now we owe ourselves.  We are giving up real money, and what we are getting is an IOU from ourselves back.  If you step back and look at it at the highest level, it is a huge money laundering scheme.”

And if you think because you don’t have a pension that this problem does not apply to you, then think again. Fitts says, “The liability that can come back and bite you is enormous.  This is going to roll back and bite you one way or another as a taxpayer, whether federal, state or local.  The other thing is if your parents show up at your door with their pension funds cut and say, ‘Hey, can we live with you?  What are you going to say?  No, you can’t come in?’  You are talking about something that can cut incomes all over your network of friends and family and that will also affect you.  So, this is going to affect you one way or another.”

On President Donald Trump, Fitts says he’s not going away. Fitts points out, “Clearly, purges are happening, and this looks like a major purge is on the way.  We don’t know what it means yet.  I will say this, it seems to me Trump’s position is stronger  . . . and one of the reasons it’s strengthening is if you look at the promises he’s made, he’s doing quite an extraordinary job given the difficulties on delivering on many of those promises.  The challenge is the way he talks and the way he communicates is not presidential. . . . The question in the 2018 election is how’s he going to do?  You need Republicans to pull together. . . . Now that he’s engineered the tax reform and the repatriation of cash, the economy should be relatively strong in the military and corporate sectors. . . . But you still have the middle class getting squeezed.”

In closing, Fitts, who was an Assistant Secretary of Housing in the Bush (41) Administration, says, “The reason why we did the pension fund study is because if we are going to stop the corruption, you have to stop our money being used to finance the corruption. So, you and I have to make sure our money is not financing the thing that’s killing us, and that’s what’s going on.

https://usawatchdog.com/federal-government-is-a-money-laundering-operati...

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5584
CAF: pensions, military, supply lines

Her pension perspective is really interesting, not something I've heard anywhere else - suggesting that 5 trillion to rescue pensions is small change compared to what it cost to rescue the banks during the last crisis.  But this pension issue will get worse after the next crash, as will the pension rescue cost.  And - a lot of these (public-sector) pensions were bribes offered by politicians in exchange for political support from public sector workers.  Paid for by the taxpayers, of course.

I also agree with her viewpoint on who got Trump elected: the military.  And that's who he surrounds himself with.  And how the military seems to have diverged from the intelligence services on this.  NSA/CIA/FBI alums are rabidly anti-Trump (Mueller has had to expand his investigation to Qatar in his quest to stage a coup), but the military seems to be completely behind him.

Also - "shortening the supply lines" makes a great deal of sense "in the coming times."  Reversing the globalism back to America - while the world is still in a relative state of peace and we can adjust on a non-emergency timescale - makes long term sense in the coming multi-polar world when we can see resource shortages on the horizon, as well as dislocations from climate change.  That feels like a military grand strategy plan - versus an overthrow-governments spy-on-everyone jail-people-for-lying plan that the other branches seem to be into.  Politicians certainly aren't planning for such things - someone certainly should be.

I also agree with her on the need for Trump to start acting like a President and not like a reality TV star, and how that hurts US credibility overseas.

I read a recent article on how basic medical gear has been outsourced to the point where random, common things are now being rationed in hospitals because of supply chain issues.  This, in a time of relative calm.

https://www.wired.com/story/medicines-long-thin-supply-chain/

It is just another reminder to have a supply of the stuff you need on hand, just in case.

 

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