PM End of Week Market Commentary - 9/7/2018

davefairtex
By davefairtex on Sun, Sep 9, 2018 - 12:03am

On Friday, gold fell -3.59 [-0.30%] to 1203.57 on heavy volume, while silver rose +0.04 [+0.25%] to 14.21 on moderately heavy volume. The buck climbed +0.36%, a fairly strong move; the metals did fairly well in the face of the strong move by the buck.

The weekly metals sector map is bearish once again this week; silver led gold down, and the miners led the metals down also, with silver miners doing worst of all. There is a faint bit of positive news, however; gold/Euros actually rallied, and moved back above its 9 MA. This tells us there is a bit of buying across the pond. Meanwhile, those miners are down almost 30% over the last 52 weeks; silver is off 22%, while gold is down 11%.

One interesting behavior on Friday; while Trump indicated there could be another $267 billion in tariffs in the offing, the metals managed to avoid collapse. While copper and friends did decline, it didn't lead to the wholesale collapse that one might expect from such a threat.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold/Euro $GOLD:$XEU 0.22% -7.76% falling falling falling falling ema9 on 2018-09-07 2018-09-07
Palladium $PALL -0.28% 1.51% rising rising falling rising ma50 on 2018-08-24 2018-09-07
Gold $GOLD -0.42% -11.24% falling falling falling falling ema9 on 2018-09-04 2018-09-07
Platinum $PLAT -0.72% -23.36% falling falling falling falling ema9 on 2018-09-07 2018-09-07
Copper $COPPER -1.79% -16.97% falling falling falling falling ema9 on 2018-08-30 2018-09-07
Silver $SILVER -2.47% -21.87% falling falling falling falling ema9 on 2018-08-30 2018-09-07
Junior Miners GDXJ -2.86% -28.74% falling falling falling falling ema9 on 2018-08-30 2018-09-07
Senior Miners GDX -3.61% -29.85% falling falling falling falling ema9 on 2018-08-30 2018-09-07
Silver Miners SIL -4.46% -35.12% falling falling falling falling ema9 on 2018-08-30 2018-09-07

Gold fell -4.92 [-0.41%] this week; it was a fairly narrow trading range, with the weekly candle a short black/spinning top coming in as neutral. Daily forecaster did issue a buy signal on Thursday, but the weekly forecaster dropped -0.13 to -0.19, which suggests the downtrend remains in place, and gold remains below all 3 MA lines. Gold remains in a downtrend in both weekly and monthly timeframes.

The September rate-increase chances rose to 100%.

COMEX GC open interest rose +4,422 contracts this week.

COT report shows the commercial net position rose +15k, placing the commercials in a net long position in gold for the first time since 2001, mostly due to short-covering (-11.6k) but also from long-buying (+3.2k). Managed money net fell -7k, most of which was long-selling (-4.3k) but also new shorts (+2.6k). Managed money net is not quite at record lows, but it is close.

Silver fell -0.36 [-2.47%], with all of the damage happening on Tuesday, when silver made a dramatic new low to 14.03. Silver chopped sideways for the remainder of the week. While the weekly long black candle looks bearish, daily forecaster has jumped up very close to a buy signal, ending the week at just -0.03. Weekly forecaster also jumped higher, up +0.24 to -0.09, and monthly forecaster is also looking more positive, +0.30 to -0.10. Although the charts look bearish, what with the new low and all, forecasters are hinting at – maybe – a reversal in the next week or two.

COMEX SI open interest fell -1,895 contracts this month.

COT report shows commercial net rose +13k this week, a huge move that blasts the commercials convincingly into net long territory – more history being made this week. Commercials covered a massive 19.3k shorts, but also sold 6.1k longs. These were very large changes. Managed money net fell 13k, with 8.3k from new shorts, and 4.9k from longs that were sold. Managed money short position set a new record this week also.

So what happened on the big move down on Tuesday? My read: commercials covered like crazy, ringing the cash register down at 14.03, while managed money loaded up short, and liquidated long.  When I saw the COT report on Friday, I added to my long silver positions after market close. FWIW.

Miners were hit hard this week, with most of the damage happening on Tuesday. XAU made a new low on Friday, but managed to come back to neutral by end of day. The long white candle on Friday was bullish (45% reversal). Daily forecaster jumped +0.21 to -0.51, which is still a strong downtrend. XAU is in a downtrend in all 3 timeframes.

In spite of all that, GDXJ forecaster issued a buy signal on Friday, and there were a group of bullish candles for GDX and GDXJ which ranged from between 35-46% bullish. We are also seeing some strong bullish divergences on the RSI for XAU, GDX, and especially GDXJ. This tells us that downside momentum has really slowed to a crawl. This behavior happens – sometimes – before reversals.

GDX:$GOLD fell -3.22%, while the GDXJ:GDX ratio rose +0.78%. That's somewhat bearish.

USD

The buck rose +0.23 [+0.24%], trying hard to rally but only partially succeeding. The buck did manage to end the week above all 3 moving averages, and remains in an uptrend in both the daily and monthly timeframes, but on the weekly, it sure appears as though the upside momentum has stopped and the buck is heading lower.

USD/TRY fell -0.17 to 6.40, helped by hints of an impending rate increase from the Turkish central bank, as well as comments by Merkel that Germany had a “strategic interest in sound economic development in Turkey.” Merkel isn't kidding. If Germany has a problem with Syrian migration today, just imagine what kind of migration occurs if Turkey turns into a failed state. Merkel: “please don't blow up, Turkey. Europe can't afford it.”

US Equities/SPX

SPX fell -29.84 [-1.03%] to 2871.68. SPX fell every day this week, printing a swing high, with the forecaster issuing a sell signal on Tuesday. SPX ended the week below its 9 MA. Still, the move down was slow and seemingly quite restrained, and SPX did a lot better than other markets around the world.

The sector map shows tech and telecom leading down, while utilities and staples did best. Its generally bearish when these two sectors do well. Tech falling most is never a good sign either.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Utilities XLU 1.18% -1.81% rising rising falling rising ema9 on 2018-09-04 2018-09-07
Cons Staples XLP 1.10% -1.79% rising rising falling rising ema9 on 2018-09-05 2018-09-07
Defense ITA 0.97% 24.69% rising rising rising rising ema9 on 2018-08-31 2018-09-07
Industrials XLI 0.64% 14.04% rising rising rising rising ema9 on 2018-09-05 2018-09-07
Financials XLF 0.00% 18.63% rising rising rising rising ema9 on 2018-09-06 2018-09-07
Homebuilders XHB -0.05% 4.41% falling rising falling rising ema9 on 2018-09-07 2018-09-07
Healthcare XLV -0.25% 12.63% rising rising rising rising ema9 on 2018-09-05 2018-09-07
Materials XLB -0.49% 7.18% falling rising rising rising ema9 on 2018-08-31 2018-09-07
REIT RWR -1.16% 2.01% falling rising rising rising ema9 on 2018-09-07 2018-09-07
Cons Discretionary XLY -1.17% 29.17% rising rising rising rising ema9 on 2018-09-05 2018-09-07
Energy XLE -2.20% 11.85% falling falling rising falling ema9 on 2018-08-31 2018-09-07
Telecom XTL -2.28% 9.96% falling rising rising rising ema9 on 2018-09-04 2018-09-07
Technology XLK -2.67% 25.76% falling rising rising rising ema9 on 2018-09-05 2018-09-07
Gold Miners GDX -3.61% -29.85% falling falling falling falling ema9 on 2018-08-30 2018-09-07

Globally, the US was the the strongest equity market in the world this week, with emerging Asia having the largest problem.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
United States VTI -0.99% 17.38% falling rising rising rising ema9 on 2018-09-05 2018-09-07
Latin America ILF -1.49% -16.61% falling rising falling rising ema9 on 2018-08-30 2018-09-07
Europe IEV -2.69% -5.02% falling falling falling rising ema9 on 2018-08-31 2018-09-07
Developed Asia VPL -3.22% -0.35% falling falling falling falling ema9 on 2018-09-04 2018-09-07
Eurozone EZU -3.25% -6.01% falling falling falling rising ema9 on 2018-08-31 2018-09-07
Emerging Asia GMF -3.69% -3.82% falling falling falling rising ema9 on 2018-08-30 2018-09-07

VIX rose +2.02 to 14.88.

Gold in Other Currencies

Gold fell in most currencies – except the Euro, and the INR.

Rates & Commodities

TLT fell hard, losing -1.54% on the week, making a new low on Friday. TY also did quite poorly, dropping -0.50%, printing a variety of bearish-looking candles on Friday. TY is in a downtrend in both daily and weekly timeframes. The 10-year yield rose +8.9 bp to 2.94%. That's a pretty big move.

JNK fell -0.67% on the week, with most of the damage happening on Tuesday. I'm not sure what happened on Tuesday – it was a pretty large drop. JNK's cousin, HYB, cratered on Friday.

What was the big Friday move about in HYB? Well, HYB owns TSLA bonds, which have been doing poorly after Elon Musk appeared on a comedy show Thursday, sipping whiskey and puffing on a joint. A trader friend of mine and I had a discussion about that – I pointed out pot was legal now, and he shook his head and said that it wasn't about legality, it was about the judgement of the already-loose-lipped Musk; what sorts of things might he say while on a live show, under the influence? We all have our glass of wine, but few of us choose to go on the air while doing so, and probably not when we are the head of a 46 billion dollar company – and certainly not after the “pedo” comments, and the “going private” comment, and the “emotional” Times interview. Musk is totally out of control right now, and the bondholders are saying quite clearly, “we prefer that our CEO NOT smoke pot on comedy shows.” [FD: I'm short TSLA; heck, I think he should do this a couple times a week.]  https://oilprice.com/Latest-Energy-News/World-News/Baked-Musk-Hints-At-New-Tesla-Smart-Home-Product.html

But I digress.

Crude fell -1.87 [-2.69%] to 67.60. Crude made a new high on Tuesday that didn't hold, and then sold off for most of the rest of the week. Friday saw a new low to 66.86, but enough buyers appeared to drag prices back up to even by end of day. Thursday's EIA report looked ok (crude: -4.3m, gasoline: 1.8m, distillates: 3.1m), although the gasoline build was unexpected, but the market wasn't happy with the results, selling off hard after the release. Crude weekly issued a sell signal this week, as did the daily, while the monthly remains in an uptrend.  Its hard to know where crude goes from here.

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -9.72 tons, with 745 tons in inventory.

* ETF Discount to NAV:

 PHYS 9.63 -1.39% to NAV [increase]
 PSLV 5.12 -3.89% to NAV [decrease]
 CEF 11.59 -4.14% to NAV [increase]

* Bullion Vault gold (https://www.bul lionvault.com/gold_market.do#!/orderboard) shows a $10 discount for gold and maybe a 20c premium for silver.

* Big bars premiums were: gold [1kg] 0.85% and silver [1000oz] 3.52%.

Grey Swans & Geopolitics

  • Ebola: total cases 129, with 86 deaths. The number of new cases ticked higher. One area of concern is the million-person city of Beni, where 8 new cases have been found this past week. Some families are hiding sick people, and refusing to be vaccinated, complicating the process. I'm guessing trust in government is pretty low in these areas. http://www.who.int/csr/don/7-september-2018-ebola-drc/en/

  • Turkey: The Turkish 10-year yield plunged -188 bp to 18.82% this week, after the central bank hinted that it would raise rates to combat a recent 17.9% inflation reading (and a 32% jump in producer prices). Meeting is next Thursday. Failure to raise rates “sufficiently” will lead to a panic move right back out of the debt. A large rate increase may save the currency, but will end up tanking the economy.

  • German Government/Migration: a fascinating poll reveals a strong east/west split in Germany on the migration issue. In former west Germany, 53% believe that the government takes the people's concerns about migration seriously, while in the east, only 33% of people believe this. Another question: “should AfD be subject to formal surveillance by Germany's intelligence services”: 65% said yes, with that number jumping to 81% for members of the Greens party. https://www.dw.com/en/after-chemnitz-poll-shows-east-west-split-on-migration/a-45389402

  • Italy – Migration: migrant boat arrivals are down 66% vs last year for the month of August. Salvini's campaign appears to be working.

  • China – Tariffs: comment period is over, but tariffs on the $200 billion in Chinese products have not yet been implemented. Still, Trump is threatening to intensify the trade war, placing tariffs on essentially all Chinese imports. "To a certain extent it's going to be up to China. And I hate to say this, but behind that is another $267bn ready to go on short notice if I want.”

  • China – Debt: no news this week.

  • Yield Curve Inversion: the 1-10 spread narrowed 2.4 bp to 38 bp.

  • US Congressional Elections, 2018. The generic ballot shows Democrats 48.3% [+8.4%] vs Republicans 39.9%. Democrat win → impeachment attempt. https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • North Korea: KJU declared this week that he was scheduling the de-nuking of the Korean peninsula by the end of Trump's term in 2020. Is this just flattery, as some suggest? Is Trump “owned” by Kim? Or is dialog with North Korea a good idea 66 years after the end of the Korean conflict? While some have worried, the North and South Korea have scheduled their 3rd summit for September.

  • Mueller Investigation: Papadopolous was sentenced to 14 days in jail for lying to the FBI. Below you can find the sentencing memo his defense attorney wrote to try and get him probation; it provides some interesting background as to what happened to him. It is also a good reminder that, when the FBI invites you downtown for what seems like an interview about someone else, you might consider bringing along an attorney. You will always be outclassed by them in such an “interview”; they do this every day, while you go through it once or twice in your lifetime.  A man in the street vs. a professional boxer only ever has one outcome. https://www.documentcloud.org/documents/4807546-Papadopoulos-defense-sentencing-memo.html

Summary

The comment period for the $200 billion tariff plan is over but the trigger has yet to be pulled, Trump is hinting at even more to come, a former Trump campaign advisor was sent to jail for 14 days for lying to the FBI, Turkey's central bank hinted at a rate increase, the buck edged higher, while silver and the miners plunged to a new multi-year low.

Big bar gold premiums remain low, silver's premium is slowly moving higher, and ETF discounts increased somewhat. There is no shortage of gold at these prices – at least according to my numbers anyway. Silver seems to have slightly larger than normal premiums.

The gold COT report shows yet another record low in the managed money net position, while commercials continue to cover their gold shorts. Silver is now also showing record positions, with commercials moving even higher into net long territory.

While the metals rebound two weeks ago was clearly a headfake, the new lower-low this week in silver and the miners didn't look all that bad. A second low, not too far below the previous low, can be the sign of a rebound in progress. That's what the “bullish divergence” in the RSI is all about – signs of slowing downside momentum that can precede a reversal.

Of course, if the failure of the previous low had led to an even-larger move down, that would tell us we can expect more lows ahead. But that's not what happened.  The cratering that happened a few weeks ago was followed by a relatively gentle breakdown.  That's a positive sign.

Some caveats apply. Trump has yet to actually pull the trigger on the tariffs on $200 billion in Chinese goods; when he does this, that could conceivably blow copper and the other metals to new lows. If you wanted to play it safe, you'd wait for the "tariff" shoe to drop before jumping in.

However the commercials have already positioned themselves for a reversal in both gold and silver – in fact, they are historically well-positioned for such a rally, and the short-covering by the commercials this week especially in silver was very strong.  Of course, they need to amass large positions in order to move the needle at their firms, and so they must move with the speed of a supertanker to avoid wanging prices around while they accumulate.  As a result, they need weeks to position themselves properly.  That's why they cover during capitulation; they need big volume in order to make their move.

You can see in the chart below that the commercials have never been net long silver since the COT series started back in 1986.  Commercial net broke into positive territory last week, and the 13k move this week was shockingly large.  The move was all about short-covering.  This is about as bullish a signal as the COT puts out. Bullion banks are ringing the cash register, madly, down here at silver = 14.

And did I mention the gold/silver ratio at 84.64?  That's also a historic indicator for the metals - at least over the past 20 years anyway.

Once Trump fires off those tariffs, we will know for sure if the low is in.  If copper & silver don't sell off on that news, it will be time to buy with both hands.

Weekly trends (in order of strength):

Uptrend: SPX, Gold/Euros, platinum. BAA corporates, 10-year treasury, Gold/Euros, USD.

Downtrend: copper, miners, USD, 10-year treasury, bitcoin, silver, crude.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

 

13 Comments

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 57
falling knives

When I saw the COT report on Friday, I added to my long silver positions after market close. FWIW.

Added even, well, that makes you a braver man than I! Although I'm sure you have stops in place to minimize your risk.

Any reason you don't buy into Radomski's take that the rising gold to silver ratio is bearish, and is heading up to 100:

The implications are very bearish, especially that silver’s 2015 bottom is not far away and the gold to silver ratio is on the rise (the real long-term resistance is at about 100, not 80-85). This means that if gold is to move much lower shortly, then silver is very likely to slide below the 2015 lows. To be clear, we expect the same for gold, but we think that in the case of silver, the decline will be even bigger and more profound.

I recently found another analyst, Taylor Dart, who enjoys telling it as it is to PM bugs in the comments, which is quite fun to read. I also found it very sobering as I realised I'm also prone to the gamblers/egoists tendency of trying to catch the exact bottom this time round:

Both silver and gold are in bear markets and while bounces are possible, they will likely get sold into if they're sharp rallies higher as the bears control the largest time-frames.I'm staying away for the time being. I didn't catch the exact bottom in 2015 for gold miners or gold, but I only had to sit tight for 2 weeks before the metal started its massive rally and the miners doubled within 8 months. Catching the exact low is a fool's game in my opinion, it makes much more sense to miss the low but play the probabilities.

...

Gamblers like thrills and obsess about being right, I like probabilities and have no problem being wrong 5 times out of 10. I just want to make sure that those 5 times out of 10 I'm right, I'm catching a nice trend. That's what probabilities do for you.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5653
bounces

Yes, if I were better disciplined, I'd wait for the bounce.  I was definitely sucked in by that COT report.  19k shorts covered was literally the most shorts I'd ever seen covered in one week for silver, and coming as it did right after the capitulation, and with the bullish divergence in the RSI...it just felt like the odds were on my side for some reason.

Note: math tells me it is only the 3rd largest short covering COT report out of 1512 weeks in history for silver..  The others came on 2017-05-05 (21k) and 2004-12-17 (22k).

I really do think that when the tariff thing gets fixed, silver will - probably - just scream higher.  And I also think these bankers have the inside scoop on what's going on, and they are positioning themselves for the move ahead of time.  And when it finally moves higher...I think managed money will get their faces ripped off.  As in, a series of $1 days, or more.

And I'm guessing it will happen in the futures markets overnight.

That's part of why I'm looking for clues ahead of time.  The setup for a short squeeze is very strong.

 

Nate's picture
Nate
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Joined: May 5 2009
Posts: 604
Armstrong - Financial Sense

Martin Armstrong: We are Witnessing the Global Collapse of Socialism

Contrary to those continually predicting a stock market bubble and crash over the past 8-9 years, well-known market forecaster Martin Armstrong has been telling listeners that systemic problems overseas would continue to drive capital into the US, ultimately pushing the Dow and the S&P 500 to much higher levels.

Famous for his long track record of accurate calls, Armstrong predicted on our show in years past that Trump would likely win against Hillary Clinton, that the US dollar would strengthen, and that the Dow could possibly swell to 40,000 before hitting a final peak.

None of this was based on political considerations but, as he explained on our podcast recently, was tied to the forecasts of his machine-learning computer model, Socrates, developed over the past 40 years.

We caught up with Martin again to get an update on his outlook, including his belief that we are witnessing the global collapse of socialism, which is actually helping to drive US markets higher. Here's what he told subscribers on whether his 40,000 Dow target is still on track...

Why Most Predictions Fail

Many base their forecasts and predictions on a US-centric analysis, Armstrong stated, but fail to see the bigger picture.

One of the first rules of understanding the markets—whether you are looking at stocks, bonds, real estate, currencies, precious metals, or others—is that they are heavily influenced by global capital flows that judge value on a relative, not absolute, basis.

For example, constant predictions of a collapse in US stock market, US economy, and US dollar fail to understand that conditions in other countries are actually much worse, Armstrong explained.

Because of this very fact, capital continues to concentrate into—and not away—from the US in times of crisis. It won't always be this way but, for now, this relationship still holds.

Collapse of Socialism

One of the biggest predictions Armstrong has been making for years is that we are witnessing the collapse of socialism on a global scale, particularly in Europe, which, though counter-intuitive to most, is actually serving to boost the US stock market.

Ultimately, entitlements and pension promises are falling apart, Armstrong, an avid historian, stated (see Pension Crisis on the Horizon for more info on this). Politicians, who don’t really understand how markets function, have promised short-term gains for political purposes at the expense of long-term sustainability.

“All the socialist agendas are collapsing. All of these ideas have been nothing but a Ponzi scheme. … (Politicians) don't understand how these things happen. … They put out all these wonderful programs, but there's no money to back it.”

What Will Drive the Dow to 40,000?

We’re facing a crisis of government, Armstrong stated, and, at some point, we’ll face a crisis of confidence.

Right now, the amount of money in government bonds and debt is distributed at a ten-to-one ratio against equities, Armstrong noted, and capital flows are increasingly moving into stocks and the corporate bond market for higher returns (see OMFIF’s David Marsh: Global Public Investors Moving Further Into Risky Instruments).

The United States is the only game in town, said Armstrong. There is ultimately no safe place for large investors to park money to ensure a return of principle, Armstrong stated, other than the dollar and US-related assets. As a result, a massive amount of capital is flowing into the US right now.

 

https://www.financialsense.com/fs-staff/martin-armstrong-we-are-witnessing-global-collapse-socialism

 

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 57
deficit socialism

Not so sure socialism is collapsing. Sure, here in Europe electorates are increasingly less welcoming of ayslum seekers and especially economic migrants. But if you define socialism as politicians who, "put out all these wonderful programs, but there's no money to back it", then unfortunately it's alive and well in Europe.

As soon as the budget deficit get's close to zero (or even reduces) then politicians start calling for more spending, no big change there. In fact, as Trumps tax cuts are deficit financed, that makes him a socialist too on Armstrong's definition. Thankfully for Trump his governments debts are in the worlds reserve currency, with the capital flows that attracts.

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5653
socialism collapse

phusg-

Yeah, I agree all the socialism programs everywhere are still in place.

Armstrong is talking over the next 10-15 years.  Demographics ensure that "socialism" won't work longer term - which Armstrong defines broadly as pensions and social security systems.

https://www.armstrongeconomics.com/international-news/germany/germany-pensions-system-crisis/

 

barrynilsen's picture
barrynilsen
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Joined: Sep 28 2012
Posts: 8
If ratio Gov Bonds:Stocks is 10:1 then what's the ratio:PMs ?

"Right now, the amount of money in government bonds and debt is distributed at a ten-to-one ratio against equities, Armstrong noted, and capital flows are increasingly moving into stocks and the corporate bond market for higher returns"

So if over-priced Gov bonds are driving capital into equities higher because of the 10:1 ratio, what's the corresponding ratio of equities (or gov bonds):PMs?

I don't know why Armstrong seems to evade this. Its my entire motive for owning PMs -> most everything else seems relatively overpriced. I think I heard Rubino say something like it would only take 3% of investable assets to shift to PMs to send them to the moon.

I respect a lot of Armstrong's analysis, but not his delivery. I greatly prefer other's interpretation of Martin compared to my own attempts.

Why isn't M.A. more bullish on PMs like us gold bug fools?

cmartenson's picture
cmartenson
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Joined: Jun 7 2007
Posts: 5918
I have the a similar question
barrynilsen wrote:

"Right now, the amount of money in government bonds and debt is distributed at a ten-to-one ratio against equities, Armstrong noted, and capital flows are increasingly moving into stocks and the corporate bond market for higher returns" So if over-priced Gov bonds are driving capital into equities higher because of the 10:1 ratio, what's the corresponding ratio of equities (or gov bonds):PMs? I don't know why Armstrong seems to evade this. Its my entire motive for owning PMs -> most everything else seems relatively overpriced. I think I heard Rubino say something like it would only take 3% of investable assets to shift to PMs to send them to the moon. I respect a lot of Armstrong's analysis, but not his delivery. I greatly prefer other's interpretation of Martin compared to my own attempts. Why isn't M.A. more bullish on PMs like us gold bug fools?

My similar question revolves around the idea that you cannot measure "the amount" (or stock) of money in debt vs. equities.

The amount on the debt side is known.  It is fixed.  You can put a very precise dollar term on it.

The same cannot be done for equities.  There might be a trillion dollars in Apple equity looked at by the market cap, but if everyone suddenly decided to sell APPL we'd discover that there's actually $0 in APPL equity.  No buyers = no value.

How much is "in equities?"  Beats me; that's a moving target based on the supply-demand equation balance for equities at any given moment.  

So I literally have no idea what Armstrong is referring to here unless it's a new short-hand way of talking about money flows (not stocks) towards one class of investments vs another.

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5653
money in equities

The market value of the bond market is also a fiction.  If you decided to sell all your bonds, and you owned the market in bonds (say, you were the ECB), you'd soon find that even though at expiration you would be due 100 cents on the dollar, your bonds would not be priced at par.  They may well drop to 0 also, just like that apple stock.  Same is true if the BOJ decided it was going to sell all its JGBs.

At current prices, both the bond and the stock market have a given value.  I'd say it was just as valid for stocks as it is for bonds, because both prices depend entirely on supply & demand.

What's more the "value" of the bond market changes as rates change too.  If long rates jumped 5%, the prices of all those long-dated treasury bonds would get crushed.  It wouldn't matter they were going to pay off at 100c on the dollar,  because the change in the interest payment stream dwarfs the final payoff.

barrynilsen's picture
barrynilsen
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Joined: Sep 28 2012
Posts: 8
So back to my question

Okay for arguments sake, let's take the bloated market cap of all government bonds, and then the similarly bloated market cap of equities.  What are those in round numbers? 

Is that where M.A. gets his 10:1 ratio?  And what are those values in round numbers vs the ounces of PMs available for investment?

I suppose you could throw in a value for private investment real estate appraised values.  What about commodities?  I just don't think fine art seems anywhere on the scale but Rickards lists it as an alternative.  I guess to be thorough, you'd have to look at all these classes across the world and avoid U.S.-centric analysis per M.A.

What I'm trying to understand is the Volume/Scale of the main worldwide investable asset classes relative to PMs and exit door widths between such classes when it comes time to change investments>  hide.  I get bored of most of the Gold Bug theories.  This seems like an objective way to look at potential capital flows which is sort of M.A.'s whole approach.  

I'm a small business owner working long hours, forgive my apparent laziness for not digging up all this on my own.  Not sure where I would start besides asking you folks.

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Uncletommy
Status: Platinum Member (Offline)
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Posts: 620
Why I like land!

Much ado about nothing? (from Investopedia):

Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/or installment of principal has remained 'past due' for a specified period of time. In simple terms, an asset is tagged as non performing when it ceases to generate income for the lender.

An obligation or expecttion not met is usually referred to as a debt. As my virgin, jilted, great aunt used to bemoan, "promises, promises"!

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cmartenson
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Posts: 5918
Not how I see it...
davefairtex wrote:

The market value of the bond market is also a fiction.  If you decided to sell all your bonds, and you owned the market in bonds (say, you were the ECB), you'd soon find that even though at expiration you would be due 100 cents on the dollar, your bonds would not be priced at par.  They may well drop to 0 also, just like that apple stock.  Same is true if the BOJ decided it was going to sell all its JGBs.

At current prices, both the bond and the stock market have a given value.  I'd say it was just as valid for stocks as it is for bonds, because both prices depend entirely on supply & demand.

What's more the "value" of the bond market changes as rates change too.  If long rates jumped 5%, the prices of all those long-dated treasury bonds would get crushed.  It wouldn't matter they were going to pay off at 100c on the dollar,  because the change in the interest payment stream dwarfs the final payoff.

The value of the bond market is not calculated with the interest stream...it's simply the aggregate of the par value.

Bonds always have a par value.  Stocks don't.

Bonds are also a senior claim on an underlying asset (uness specifically subordinated, which is not usually the case).  Stocks are always a junior claim (unless the company has no other senior liabilities, which is not usually the case).

I really do not see how they can be compared based on current market cap.  Different beasts entirely on that basis.

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davefairtex
Status: Diamond Member (Online)
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Posts: 5653
par value

The return you get from your 30 year bond depends far more on the income from the coupon (and the re-invested interest income) than it does from the return of capital.  Thus, the "current value" of that bond may well be quite close to 0, if rates scream higher on a low-coupon long-duration bond.

Let's run this thought experiment.

Buy a 30 year bond at issue.  It has a coupon of 5%.  Then let's say 30 year rates jump to 20%.

What is your bond worth?  Par value?  No.  It isn't worth par value any more, because "par value" has built into it the link between the current coupon and the market coupon, and when the rate screams higher, nobody will pay par value for your crappy 5% 30-year bond.  Not until 28 years elapse.

Real world case: what's the "value" of one of those Argentine 100 year bonds they issued a few years back?  Do we think it is selling at par?  Almost certainly, it isn't.

So what's the size of the aggregate Argentine sovereign bond market?  I'm contending it has dropped, as money has fled Argentine debt, shrinking the effective size of the Argentine debt market.  Those 100-year bonds can probably be had for less than 10 cents.

Bonds are only worth what you can get for them.  That aggregate is the "size of the bond market".  Not the par value. Same is true for equities.  The aggregate market is worth what you can get for it.

Self-referential, but true.

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Wantingtoretire
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Posts: 13
Martin Armstrong and Predictions

I have paid to follow Armstrong for a while now. He comments a lot on history and current situations of markets around the world. That, I like very much. The US is not an island and is influenced very much by what goes on globally. The financial crisis was a global crisis, not an American crisis. America was simply one of the players. Transfer of investment money to the US has been happening for years now as it has become evident that other markets are riskier than the US. Rising US interest rates are starting to cause real trouble for countries that cannot afford to pay on loans.

If confidence in the US falls (further), it is not clear what will happen next.

Armstrong is definitely not a fan of Socialism based on reading many of his writings. The way Socialism is defined for the Financial Sense article is not Socialism. If we are concerned with pensions and benefits then the US is going to suffer as well as other countries. Many countries are a mix of Capitalism and Socialism.

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