Category Archives: silver-rounds

Funtap/iStock via Getty ImagesBy Donn Goodman Welcome back, readers. We are glad you have joined us. We hope that you are enjoying these longer summer days accompanied by the recent positive weeks in the stock market. “The time has come for policy to adjust. The direction of travel is clear. My confidence has grown that inflation is on a sustainable path back to 2%.” These were the words that Jerome Powell used on Friday at the annual conference in Jackson Hole, Wyoming. (I don’t think any of us could realize just how important the Jackson Hole conference has become). The stock markets positively reacted Friday with a sigh of relief. There had been somewhat of a negative anticipatory feeling on Thursday as many pundits grew concerned the Federal Reserve might not become quite as “dovish” as those words above indicate. You will recall that two ½ years ago, the Federal Reserve embarked on an aggressive tightening policy to bring down inflation. The Federal Reserve hiked borrowing costs to crush pandemic-spurred inflation. Additionally, in 2021-2022, an acceleration in government spending and a curtailing of energy development exacerbated the situation, and inflation took a long time to start on a downward path. Higher interest rates over the past 24 months have crippled many sectors of the economy, including home buying and borrowing for small companies that rely on regional banks for business expansion. The calls for the Fed to lower rates began in earnest late last year and have been repeated throughout 2024. But the Fed stuck to their guns and proclaimed that their overnight rates would stay “higher for longer.” I guess us old timers in the market remember the 1970s all too well and how stubborn inflation can be to bring down. All of us as consumers (especially of rents and food) understand this recent cycle of inflation has been punishing. Many families in the US have a hard time being able to afford to put food on the table. Mish and I have consistently said that the Fed should keep rates higher and avoid being premature in lowering them, thus spurring on potentially sticky and lingering inflation. In the face of them lowering rates to avoid a hard landing, the possibility of elevated pockets of inflation remains. I have covered some of these points and more the past two weeks in this column. The Federal Reserve’s Job Just to rehash the Fed’s job here, they have a dual mandate to maintain price stability and to achieve maximum employment. Their view of whether interest rates should be increased or decreased is always dependent on the data. That said, there are now clear signs that the labor market is weakening, as it has recently risen to a 3-year high of 4.3% unemployment. Additionally, this past week, the BLS (Bureau of Labor Statistics) revised job growth for 2024 downward (sharply). Jobless claims also jumped, and suddenly, the labor market looks a bit weaker than expected. See chart below: BLS revisions. The preliminary revision showed 818k fewer jobs in the year through March than originally estimated. That brings the pace of job growth from 242k to 174k per month. This was enough to convince the “data-dependent” Fed that it was time to move and a September rate cut is all but assured. The only question will be if it is the typical “first cut” of 0.25% or will the Fed get more aggressive and go 0.50%? Much of the Fed’s perspective and “data dependency” will be based on several important indicators to make their inevitable determination. See the Fed’s input variables below: The stock and bond markets have been hanging on the anticipation that the Fed is ready to get more dovish and begin the lowering rate cycle. Odds that are in the futures markets currently show a reduction of 1.0% in the Fed Fund rates by year-end. Personally, with strong earnings, positive GDP and consumers’ still robust spending (see last week’s market outlook on retail spending), I wouldn’t take that bet. I would like to see 0.50-0.75% in a rate reduction. That would be a good start. Typically, the Fed is gradual in the first rate cuts. However, the markets, as noted above, are expecting an aggressive reduction in rates by year-end, signaling a harder landing than anticipated. See charts below. Fed vs. market. “Historically, the Fed has been relatively gradual in policy easing during soft landings, which contrasts with current market pricing.” The markets It was a good week for the stock and bond markets, as the S&P 500 had a new closing-week high (up 1.4% for the week, similar to the DJIA. The tech-heavy QQQ was the weakest of the 3, only up 1.0%). See chart below: The big winners this past week were small-cap stocks, as the IWM (Russell 2000) was up over 3.0% for the week. This is one of the areas of the market that will benefit most from a reduction in borrowing costs. See chart on the IWM from Friday below: Homebuilders had a positive week as investors plowed money into financial stocks with the caveat that borrowing will pick up and home mortgages will accelerate. Given the stock market’s impressive move thus far in 2024, brokerage firms also accelerated to new highs. See charts that follow: And a bit of sarcasm in the below chart as the S&P 500 sets up for a continued bullish move higher. See illustration below: A much more broad participation in the markets. The recent rally in the S&P 500 has been broad-based and not all about the Magnificent 7. In fact, the stock market’s price appreciation has seen many underperforming areas of the markets that are now “catching up”. See chart below to exemplify this: This recent broadening out of the stock market is a positive sign. The equal-weight S&P 500 (RSP) broke out to new highs this past week. See the summary and chart below: The S&P 500 (cap-weighted) remains only -0.6% below record highs. The equal-weight S&P 500 (RSP) is already there. This is evidence of a broad and healthy market. The Magnificent 7 (see note above) led the S&P 500 during the first leg of this bull market, but we’re finally seeing strength broaden out as the bull market matures. Breadth has been one of the biggest concerns throughout 2024, but participation has now dramatically improved. Yet, the markets are giving off some “mixed messages” as they wrestle with an economy that might enter a hard landing (recession) or, hopefully the Fed can thread the needle and orchestrate a soft landing going forward. See the mixed signal chart below: Mixed messages. Surging stocks suggest a soft landing, rising bonds and gold signal a hard landing, falling prices for economically sensitive oil and copper point to weak global growth, and a lower USD raises doubts about international investor confidence. Investor sentiment remains bullish. See below. Investor Intelligence. “50% bulls, 22% bears. Bull-bear spread rose for the first time in 4 weeks. Sentiment has been reset but optimism remains intact. That’s bull market behavior.” I now turn it over to Keith and his team and the Big View bullets that follow. As always, thank you for reading. Hopefully, you had a profitable week and enjoyed the positive market moves. Take care and good luck in your investments in the upcoming week ahead. Risk-On Markets were positive on the week led by the Russell 2000, which had a banner day on Friday. Both the S&P and the Dow had their highest weekly closes ever. (+) Volume patterns confirm the positive move across all the indices. (+) Value is leading growth on a long and shorter-term basis, though both are in bull phases, which is considered bullish. Growth stocks are still leading the S&P. (+) 13 of the 14 sectors we follow were up, led by home builders (XHB) which benefited from the prospect of the Fed lowering rates. Consumer discretionary outperformed consumer staples. (+) Looking more at the global macro perspective, Clean Energy (PBW) and the metals (DBB) led, gaining on the possibility of lower rates. (+) Risk gauge improved back into risk-on readings. (+) The McClellan Oscillator for both the S&P and NASDAQ is back in strong positive territory, confirming the broader market move up. The cumulative Advance/Decline line is hitting new highs. (+) 52-Week New High New Low ratios for both NYSE and NASDAQ 100 are flipping positive. (+) The color charts – which looks at the moving average of the percentage of stocks over key moving averages – have moved into bullish mode across the board. (+) Looking at the percentage of stocks over key moving averages, on a short-term basis, S&P and IWM are looking overbought, though they are improving over a medium-to-long term basis. (+) Five of the six modern family members closed in bullish phases led by Regional Banks (KRE) on Friday, up over 5%. Semis were up on the week but remain in a strong warning phase, potentially signaling a passing of the baton onto other industries or sectors. (+) Emerging markets confirmed their bull phase, while more established equities exploded and closed on new all-time highs. (+) Soft commodities (DBA) and copper (COPX) regained their bullish phases this week. (+) With the prospect of the Fed lowering rates, the dollar is under pressure and the euro has hit its highest levels in over a year and over its 200-week moving average for the first time since mid-2021. (+) The short-end of the yield curve rallied off of sentiment that the Fed would be cutting rates. Equities could roar if economic data holds up. (+) Neutral Market sentiment, as measured by VIXY, has reversed the huge spike as if the dramatic sell-off from early August never happened. The cash index VIX.X remains elevated from its extreme lows over the summer. (=) Gold closed on new weekly all-time highs and still looks very strong. (=) S&P and NASDAQ have unresolved bearish engulfing patterns from Thursday that need to resolve to the upside. (=) Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Continue reading →

Excerpt from this week’s: Technical Scoop: Dovish Culmination, Long Inversion, Differed Dollar

Source: www.stockcharts.com

Thanks to Jerome Powell and thoughts of an interest rate cut coming, gold prices held $2,500 after hitting a new all-time high at $2,570. On the week, gold rose 0.3%. This continues what we believe is a stealth rally in gold. The pattern that formed after that high in March 2024 still appears as a rising or ascending triangle. That’s bullish. This past week silver led with a gain of 3.4%. That was also quite positive. Besides Powell signaling interest rate cuts, gold has been having a banner year, thanks to strong central bank buying, strong demand particularly out of Asia (India and China), and safe haven status thanks to geopolitical risk with the wars in Russia/Ukraine, Israel/Hamas (and others), and a potentially divisive U.S. election.

Besides gold and silver, platinum gained 0.4%. However, palladium fell 0.1% while copper regained $4.20, up 1.5%. Copper rising and potentially leading again is also positive for gold. But it was Powell’s rate cut musings that helped spark gold’s rise on Friday, as well as a rise for other commodities, including oil and copper. $2,600 is now in sight. Support is seen down to $2,500, but below that we have further support at $2,400 and even better down to $2,325. Not that we expect to fall that far on any pullback. We continue to have what we see as a stealth rally for gold and if funds started shifting more into the precious metals market, including the gold stocks, it is such a small market that it would only take about a 1% shift out of the broader market. As to the gold stocks, the Gold Bugs Index (HUI) gained 2.4% while the TSX Gold Index (TGD) was up 0.8% this past week. Both saw fresh 52-week highs earlier in the week.

The message is simple. Buy gold and gold-related products. Gold is preferred as, unlike gold stocks, it has no liability.

Gold/US 30Y Bond Ratio, Gold/S&P 500 Ratio 1980–2024

Source: www.stockcharts.com

Does one hold gold, bonds, or stocks? The chart above depicts the Gold/US 30Y Bond Ratio and the Gold/S&P 500 Ratio. In the first instance, gold has clearly broken away in its favour. Hold gold over bonds. Note what appears to be a multi-year cup and handle pattern. The first target at 20.02 has been seen and exceeded, suggesting we could move to the next target up to 24.10. The Gold/S&P 500 Ratio is somewhat unclear. However, we note a long period forming what appears to be a rounding bottom. That pattern broke out in 2007 and culminated in the gold top in 2011. The current pattern is not dissimilar to what was seen from 1990 to 2006 before it broke out in favour of gold. That it hasn’t is testament to the strength of the U.S. stock market. Gold has kept pace, but neither have broken away from the other. The pattern, however, suggests it should break out in favour of gold. That gold is favoured over U.S. treasuries may be reflected in the action of central banks that have been unloading U.S. treasuries in favour of gold.

Source: www.stockcharts.com

One good thing about silver’s action this past week is that it finally appears to be taking leadership amongst the precious metals. We have often noted that a really good rally won’t get underway until silver takes the lead. This past week silver gained 3.4% to gold’s 0.3%. It was the second week in a row that silver has led. But before we get too excited, silver still lags gold in a number of areas. Gold has been making all-time highs, while silver is not even close. Gold has broken out to new highs but silver has not, despite recent gains. We first need to get over $31 to suggest new highs above the recent high of $32.75 and we need to get over $33 to suggest we could now be on our way to targets up to $39/$40. There is support now at $29, but below that we could then fall back to $27. Silver’s RSI is still only at 58.5, suggesting we have considerable room to move higher. While silver is responding to the same thing as gold, namely interest rate cuts and a falling US$ Index, silver also remains in deficit supply even as demand has been rising, thanks to green energy projects. What we also need to see is a pickup in volume for silver, not dissimilar to what we saw last April 2024 and to a lesser extent in May 2024.

Source: www.stockcharts.com

Gold stocks enjoyed an up week, but after hitting a high on Tuesday August 20 the stocks pulled back on what may have been profit-taking. On the week, the TSX Gold Index (TGD) was up 0.8% while the Gold Bugs Index (HUI) gained 2.4%. Anglo Gold (AU) is not a component of the TGD and it enjoyed a strong up week, giving the HUI the edge. Nonetheless, both indices did make fresh 52-week highs on Tuesday before pulling back. We did hit the top of what may be bull channel this past week. However, the breaking of what may have been a double top suggests to us that we are still poised to go higher. Potential targets are up to 404. The all-time high is 455 set back in 2011. At this point we are still over 20% away from that high. The HUI has a lot more work as its high was 639 in 2011 vs. 319 today. That leaves the HUI needing to gain 100% from current levels to reach that high. For the TGD, there is support at 365, but below that good support doesn’t come in until 340/342. Below that level the rally may be over. The index is still not overvalued here, nor is it overbought here with an RSI at 61.3. It still has considerable room to move higher.

Read the FULL report here: Technical Scoop: Dovish Culmination, Long Inversion, Differed Dollar

Disclaimer

David Chapman is not a registered advisory service and is not an exempt market dealer (EMD) nor a licensed financial advisor. He does not and cannot give individualised market advice. David Chapman has worked in the financial industry for over 40 years including large financial corporations, banks, and investment dealers.  The information in this newsletter is intended only for informational and educational purposes. It should not be construed as an offer, a solicitation of an offer or sale of any security.  Every effort is made to provide accurate and complete information. However, we cannot guarantee that there will be no errors. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the contents of this commentary and expressly disclaim liability for errors and omissions in the contents of this commentary.  David Chapman will always use his best efforts to ensure the accuracy and timeliness of all information. The reader assumes all risk when trading in securities and David Chapman advises consulting a licensed professional financial advisor or portfolio manager such as Enriched Investing Incorporated before proceeding with any trade or idea presented in this newsletter. David Chapman may own shares in companies mentioned in this newsletter. Before making an investment, prospective investors should review each security’s offering documents which summarize the objectives, fees, expenses and associated risks.  David Chapman shares his ideas and opinions for informational and educational purposes only and expects the reader to perform due diligence before considering a position in any security. That includes consulting with your own licensed professional financial advisor such as Enriched Investing Incorporated.   Performance is not guaranteed, values change frequently, and past performance may not be repeated. Continue reading →

NEW YORK (AP) — The Federal Reserve is poised to cut its benchmark interest rate next month from its 23-year high, with consequences for consumers when it comes to debt, savings, auto loans and mortgages. Right now, most experts envision three quarter-point Fed cuts — in September, November and December — though even steeper rate cuts are possible.“The time has come” for the Fed to reduce interest rates, Powell said Friday in his keynote speech at the Fed’s annual economic conference in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”Based on Powell’s remarks and recent economic data, the central bank is expected to cut its key rate by a quarter-point when it meets next month and to carry out additional rate cuts in the coming months.Here’s what consumers should know:What would the Fed’s rate cuts mean for savers?According to Greg McBride, chief credit analyst for Bankrate, savers should lock in attractive yields right now, before the expected rate cuts begin.”For those who might be looking at Certificates of Deposit or bonds — you want to jump on that now,” he said. “There is not a benefit to waiting because interest rates are going to be moving lower.”McBride stressed that anyone closer to retirement has a good opportunity to lock in CDs at the current relatively high rates.“If you do so, you’ll provide yourself a predictable flow of interest income at rates that should outpace inflation by a pretty healthy margin,” said McBride.How would the rate cuts affect credit card debt and other borrowing?“Your credit card bill is not going to plunge the day after the next Fed meeting,” cautions LendingTree chief credit analyst Matt Schulz. “Nobody should expect miracles.”That said, the declining benchmark rate will eventually mean better rates for borrowers, many of whom are facing some of the highest credit card interest rates in decades. The average interest rate is 23.18% for new offers and 21.51% for existing accounts, according to WalletHub’s August Credit Card Landscape Report.Still, “it’s really important for people to understand that rates probably aren’t going to fall that quickly,” Schulz said.He said it’s important to take steps such as seeking a 0% interest balance transfer or a low-interest personal loan. You can also call your credit card issuer to see if you can negotiate a better rate.”In the short term, those things will have a much bigger effect than falling interest rates,” Schulz said.How about mortgages?The Federal Reserve’s benchmark rate doesn’t directly set or correspond to mortgage rates, but it does have an influence, and the two “tend to move in the same direction,” said LendingTree senior economist Jacob Channel.In recent weeks, mortgage rates have already declined ahead of the Fed’s predicted cut, he pointed out.“It goes to show that even when the Fed isn’t doing anything and just holding steady, mortgage rates can still move,” Channel said.Melissa Cohn, the regional vice president of William Raveis Mortgage, echoed this, saying that the most important thing is what signal the Fed is sending to the market, rather than the rate change itself.“I’ve heard from a lot of people who locked in (their mortgage rate) over the course of the past 18 months, when rates were at their peak, already asking whether it’s time to refinance and what savings they could have,” she said. “I think that the outlook is good, and hopefully that spills into the real estate market, and we get more buyers in the market.”Channel said that the majority of Americans have mortgages at 5%, so rates may have to fall further than their current average of 6.46% before many people consider refinancing.And auto loans?“With auto loans, it’s good news that rates will be falling, but it doesn’t change the basic blocking and tackling of things, which is that it’s still really important to shop around and not just accept the rate that a car dealer would offer you at the dealership,” said Bankrate’s McBride. “It’s also really important to save what you can and be able to try to put as much down on that vehicle as you can.”McBride does predict that the beginning of rate cuts and the avoidance of a recession will lead to lower auto loan rates in 2024 — at least for borrowers with strong credit profiles. For those with lower credit profiles, double digit rates will likely persist for the remainder of the year.What’s going on with inflation and the job market?Last week, the government reported that consumer prices rose just 2.9% in July from a year ago, the smallest increase in over three years. Employment data, however, gives some economists pause. New data has showed hiring in July was much less than expected and the jobless rate has reached 4.3%, the highest in three years — one measure of a weakening economy. That said, robust retail sales have helped quell fears of a recession.The rate at which the Fed continues to cut rates after September will depend in part on what happens next with inflation and the job market, in the coming weeks and months.___The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism. Continue reading →

JimVallee/iStock via Getty ImagesBy James Knightley There are some strong comments coming through from Chair Powell at his Jackson Hole speech. We get the usual bits and pieces about inflation looking better, and the focus is now much more on jobs, but he is as categorical as he can be with the statement, “The time has come for policy to adjust. The direction of travel is clear”. This follows on from the minutes to the July FOMC meeting, released on Wednesday, that said, “the vast majority [of FOMC members] observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting”. There is no discussion of 25bp or 50bp at the September FOMC meeting – merely that “the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks”. Nonetheless, he does allude to the fact that they could cut rates a lot should conditions warrant it – “The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions.” There are currently around 33bp of cuts priced for the 18 September FOMC meeting and 100bp by year-end, with a further 125bp of cuts next year. That looks fair given the current situation. Between now and the 18 September decision, we have the core PCE deflator (30 August), which the market is confident on a 0.2% month-on-month print given the inputs from CPI and PPI. Then it is the jobs report on 6 September, and that is the critical one. Note, Powell today stated that “we don’t seek or welcome further cooling in labour market conditions”. If we get a sub-100k on payrolls and the unemployment rate ticking up to 4.4% or even 4.5% then 50bp looks more likely. If payrolls come in around the 150k mark and unemployment rate stays at 4.3% or dips to 4.2%, we can safely say it will be a 25bp. Then on 11 September, it is core CPI. 0.2% MoM or lower looks likely there – we are currently leaning in the direction of a possible 0.1% on the potential for the jump in July primary rents to reverse. Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user’s means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Original Post Continue reading →

Philadelphia Federal Reserve President Patrick Harker provided a strong endorsement to an interest rate cut on the way.
“I think it means this September we need to start a process of moving rates down,” Harker told CNBC.
Kansas City Fed President Jeffrey Schmid also spoke to CNBC, offering a less direct take on the future of policy, though he leaned toward a cut ahead.

Philadelphia Federal Reserve President Patrick Harker on Thursday provided a strong endorsement to an interest rate cut on the way September.
Speaking to CNBC from the Fed’s annual retreat in Jackson Hole, Wyoming, Harker gave the most direct statement yet from a central bank official that monetary policy easing is almost a certainty when officials meeting again in less than a month.

The position comes a day after minutes from the last Fed policy meeting gave a solid indication of a cut ahead, as officials gain more confidence in where inflation is headed and look to head off any potential weakness in the labor market.
“I think it means this September we need to start a process of moving rates down,” Harker told CNBC’s Steve Liesman during a “Squawk on the Street” interview. Harker said the Fed should ease “methodically and signal well in advance.”
With markets pricing in a 100% certainty of a quarter percentage point, or 25 basis point cut, and about a 1-in-4 chance of a 50 basis point reduction, Harker said it’s still a toss-up in his mind.
“Right now, I’m not in the camp of 25 or 50. I need to see a couple more weeks of data,” he said.
The Fed has held its benchmark overnight borrowing rate in a range between 5.25%-5.5% since July 2023 as it tackles a lingering inflation problem. Markets briefly rebelled after the July Fed meeting when officials signaled they still had not seen enough evidence to start bringing down rates.

However, since then policymakers have acknowledged that it soon will be appropriate to ease. Harker said policy will be made independently of political concerns as the presidential election looms in the background.
“I am very proud of being at the Fed, where we are proud technocrats,” he said. “That’s our job. Our job is to look at the data and respond appropriately. When I look at the data as a proud technocrat, it’s time to start bringing rates down.”
Harker does not get a vote this year on the rate-setting Federal Open Market Committee but still has input at meetings. Another nonvoter, Kansas City Fed President Jeffrey Schmid, also spoke to CNBC on Thursday, offering a less direct take on the future of policy. Still, he leaned toward a cut ahead.

Schmid noted the rising unemployment rate as a factor in where things are going. A severe supply-demand mismatch in the labor market had helped fuel the run in inflation, pushing wages up and driving inflation expectations. In recent months, though, jobs indicators have cooled and the unemployment rate has climbed slowly but steadily.
“Having the labor market cool some is helping, but there’s work to do,” Schmid said. “I really do believe you’ve got to start looking at it a little bit harder relative to where this 3.5% [unemployment] number was and where it is today in the low 4s.”
However, Schmid said he believes banks have held up well under the high-rate environment and said he does not believe monetary policy is “over-restrictive.”
Harker next votes in 2026, while Schmid will get a vote next year. Continue reading →

Guido MiethWhile equities continued to piece together an impressive weekly win streak that ended with slight losses across the major indexes on Tuesday, it is getting more and more clear that the U.S. economy is slowing. My current view is that the country will be in at least a shallow recession no later than the first half of 2025. With the market selling at 22 times forward earnings on the S&P 500 and at a price-to-sales ratio rarely if ever seen (among other valuation metrics like price-to-book showing the same extreme valuations), investors are clearly not positioned for this potential economic scenario. Price to sales ratio – S&P 500 (Multpl) So, today, we will take a look at five signals showing that key portions of the economy are clearly deteriorating. Unemployment Rate: Let’s start with an obvious sign of increasing economic duress, the rising unemployment rate. The U.S. unemployment rate has quickly (from a historical perspective) moved from 3.5% last July to 4.3% in the July 2024 BLS report. U.S. Monthly Unemployment Rate (Statista) This move has triggered the so-called Sahm Rule that has been violated prior to every recession since the 1950s. Investors will get another key data point on September 6th when the Bureau of Labor Statistics puts out the jobs report for August. I am personally hoping that Hurricane Beryl in July was one of the reasons only a paltry 114,000 positions (consensus was for 174,000) were created in July, and we see a rebound in August. The NY Fed reported earlier this week, however, that ‘the share of individuals who said they’re searching for a job in the past four weeks rose to 28.4%, the highest level since March 2014, and up from 19.4% in July 2023.’ GDP Growth Has Slowed Substantially: CBO/Capital Economics The federal government has run a fiscal deficit north of six percent of GDP both in FY2023 and, so far, in FY2024 ($1.52 trillion for the first ten months of the government’s fiscal year). With the debt to GDP ratio already at the highest levels in U.S. history, this is clearly unsustainable. Future administrations will either have to raise taxes and/or cut spending growth rates. The tax cuts legislated in 2017 are also set to expire in 2025. Higher taxes and/or lower levels of spending will be headwinds for the economy at that point. Atlanta Fed GDPNowAtlanta Fed GDPNow Keep your eye on how much the Government is spending, because that is the true tax.” – Milton Friedman It was one thing when all this taxpayer largess was driving significant economic growth, and GDP growth was north of four percent in the back half of 2023. However, that growth has slowed substantially here in 2024, with GDP growth of 1.4% in Q1 and an initial estimate of Q2 GDP of 2.8%. Currently, the Conference Board only sees 0.6% annualized GDP growth in Q3 and 1.0% in Q4. The Atlanta Fed’s GDPNow is calling for higher third quarter growth than the Conference Board, but that estimate was revised down sharply a few days ago. Leading Economic Indicators: On Monday, the U.S. Leading Economic Indicators or LEI were down for the 28th of the last 29 months. This is another historical indicator that has had a solid record of predicting coming recessions. The indicator has had a definite lag this time around. My guess is that is because of the trillions of dollars Congress has pumped into the economy with Covid stimulus programs and massive infrastructure spending packages. Conference Board This month’s negative LEI reading was primarily caused by ‘a sharp deterioration in new orders, persistently weak consumer expectations of business conditions, and softer building permits and hours worked in manufacturing drove the decline, together with the still-negative yield spread’ More Signs Of Consumer Distress: The lower and middle-income consumer has been under pressure all through 2024 which has been manifested in poor guidance in both the first and second quarters from the likes of Home Depot (HD), Starbucks (SBUX), Loews Corporation (LOW), McDonald’s Corporation (MCD), Macy’s (M), Nike (NKE) and myriad other well-known consumer focused names. However, recently, areas of strength in consumer spending are starting to show some cracks. E-Commerce sales in the second quarter were up only 1.3% on a quarter-over-quarter basis, following a 2.1% gain in the first quarter of this year. CNBC just posted a story on how demand for travel spending, which has been more than robust for over two years, seems to be ebbing. Federal Reserve Bank of St. Louis Finally, the lowest mortgage rates in more than a year aren’t helping the housing sector yet. Housing starts dropped 16% on a year-over-year basis in July. Existing home sales also had their poorest July since Redfin started tracking this metric in 2012. Housing Affordability is still near historical lows, outside the peak of the Housing Boom in 2006. The Yield Curve: The Treasury yield curve has been consistently inverted since the early summer of 2022. The last time the yield curve was inverted for this long of a duration ran into 1929. Let’s say that it did not end well for investors. In addition, the divergence between the two and ten-year Treasury yield hit their highest level since 1981, when the U.S. was in the middle of a brutal double deep recession, in July 2023. This is another historically reliable indicator of an upcoming recession, whose ‘lag’ has likely been extended significantly by the excess trillions of dollars thrown at the economy by the administration and Congress in recent years. However, the yield curve has started to significantly un-invert in recent months. After peaking at just under 110 basis points in the summer of 2023, the divergence between the two- and ten-year treasury is currently less than 20 bps. They will likely normalize completely before the end of the year as the Chairman Powell starts to cut the Fed Funds rate, which is expected to begin at the September FOMC meeting. The 10-Year and 30-Year Treasury yields have been normalized for some time now. Investors appear to be banking on rate cuts to re-energize the economy and further boost the markets. However, rate cuts are unlikely to be the panacea they are hoping for. A recent decline of more than one percent on the average 30-Year mortgage rate has done nothing to revitalize the housing sector to this point, after all. Forbes In addition, the start of cutting rates has notably happened in front of some historical bear markets, especially when the economy is decelerating, like it is now. The Fed started to cut rates from almost identical levels in September 2007, just months before the Great Financial Crisis of 2008/2009. Forbes The central bank also started to cut rates at the beginning of 2001, when the market was in the midst of the Internet Bust. The market did not bottom until late September 2022. From peak to trough, the NASDAQ lost over 80% of its value during this era. You simply can’t raise rates the most in recent history at the fastest pace in recent history on the most debt outstanding in history and not face consequences.” – ZeroHedge I have used the above quote from a ZeroHedge article earlier this month a few times in recent articles. I think it captures the complacency of the markets given the huge explosion of debt in recent years and investors’ hopes that we are going to get out of this predicament without paying the piper. I just don’t believe that is going to happen, especially with the economy clearly slowing. Prudent investors should position their portfolios accordingly. Continue reading →

PM ImagesThe U.S. dollar has been strong, partially driven by the high interest rate policy of the U.S. Federal Reserve (Fed) in recent years to get inflation under control. With the Fed poised to start lowering rates, some are speculating that the U.S. dollar may go through a period of depreciation. Who stands to benefit from such a regime change? Emerging market equities. Dollar Strength and U.S. Equity Dominance Coming out of the global financial crisis of 2008–2009, few equity markets kept up with the U.S. markets. Big companies—the “Magnificent 7,”1 in particular—delivered strong returns. It is difficult to find companies outside of the U.S. that are operating at the scale and heft of the trillion-dollar market capitalization giants in the U.S. Capital has flowed strongly into the U.S., chasing these returns and bidding the U.S. dollar higher, in general, over this period. In figure 1, we note the ratio of cumulative performance, looking at the MSCI USA Index (U.S. equities) and the MSCI Emerging Markets Index (EM equities) as we also plot a measure of the U.S. dollar against a basket of other currencies. Figure 1: Emerging Market Equities Underperformed U.S. Equities as the U.S. Dollar Appreciated Sources: MSCI, Board of Governors of the Federal Reserve System (U.S.), Nominal Broad U.S. Dollar Index [DTWEXBGS], retrieved from FRED, Federal Reserve Bank of St. Louis for the period 1/1/06–7/1/24. You cannot directly invest in an index. Past performance is not indicative of future results. If we dig into the two distinct periods, denoted from basically the end of August 2010 to the present for “Dollar Appreciating” and from the start of the time series to August 2010 for “Dollar Depreciating,” we see figure 2: The MSCI USA Index, on an annualized basis, significantly outperformed as the U.S. dollar appreciated. Also, we would note that the MSCI Emerging Markets Index return is measured in local terms, so it is not running into a currency headwind in these figures. On the other hand, while the dollar depreciated, the MSCI Emerging Markets Index, albeit for a shorter overall period, dramatically outperformed the MSCI USA Index. Some of us might have forgotten what it looks like to see emerging markets outperforming U.S. equities in a sustained way. Figure 2: Emerging Market vs. U.S. Equities in Periods of Dollar Appreciation and Depreciation Source: MSCI. “Dollar Appreciating” refers to the period 8/31/10–7/31/24. “Dollar Depreciating” refers to the period 12/31/05– 8/31/10. Past performance is not indicative of future results. There Are Many Flavors of Emerging Market Equities WisdomTree has a range of options for emerging market equities, a number of which have been around for longer than 10 years. The WisdomTree Emerging Markets Quality Dividend Growth Fund (DGRE) seeks to track the investment results of dividend-paying companies with growth characteristics in the emerging markets region. The WisdomTree Emerging Markets High Dividend Fund (DEM) seeks to track the total return performance, before fees, of the WisdomTree Emerging Markets High Dividend Index. The focus is on higher-yielding dividend payers within emerging markets. The WisdomTree Emerging Markets SmallCap Dividend Fund (DGS) seeks to track the total return performance, before fees, of the WisdomTree Emerging Markets SmallCap Dividend Index. The focus is on dividend-paying smaller market capitalization stocks within emerging markets. The most widely followed emerging market equity performance benchmark is the MSCI Emerging Markets Index. Recent Evolutions of Emerging Market Equity Performance If we look at DGRE, DEM and DGS relative to the MSCI Emerging Markets Index on a performance basis, we see different things over different periods: Those looking at the long term, periods like 5 years or 10 years, see that DGS has been the leader. Those looking at the most recent three years see the defensive nature of DEM has come to the fore. Those looking over the past year see DGRE taking the lead. Figure 3a: Average Annual Total Returns Sources: WisdomTree, MSCI. Fund data specifically from the Fund Comparison Tool in the PATH suite of tools, as of 6/30/24. Performance is historical and does not guarantee future results. Current performance may be lower or higher than quoted. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. WisdomTree shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Total returns are calculated using the daily 4:00 p.m. EST net asset value (NAV). Market price returns reflect the midpoint of the bid/ask spread as of the close of trading on the exchange where Fund shares are listed. Market price returns do not represent the returns you would receive if you traded shares at other times. Figure 3b: Different Periods Have Exhibited Different Performance Leadership in Emerging Market Equities Sources: WisdomTree, MSCI. Fund data specifically from the Fund Comparison Tool in the PATH suite of tools, for the period 7/31/14–7/31/24. Performance is historical and does not guarantee future results. Current performance may be lower or higher than quoted. Investment returns and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. WisdomTree shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Total returns are calculated using the daily 4:00 p.m. EST net asset value (NAV). Market price returns reflect the midpoint of the bid/ask spread as of the close of trading on the exchange where Fund shares are listed. Market price returns do not represent the returns you would receive if you traded shares at other times. Location, Location, Location… When people talk about real estate, all of us know the mantra—location, location, location. In emerging market equity investments, the same mantra applies. The world has been very excited about the stability of India, in that the country has elected the same leader through three elections. Even if no government is perfect, sometimes stability and the capability to actually implement policy over a longer time is more important than any one leader being perfect. Business and investment can follow as long as people know what is going on. As we look to figure 4: DGRE has roughly one-third of its assets in India’s equities. Taiwanese companies have a culture of paying dividends, and this market has been well-represented in DEM and DGS for many years. China is a polarizing topic across the U.S., particularly in an election year. In fact, people might even say it is not polarizing because it feels like it could be one’s patriotic duty to be “against China.” On a pure benchmark basis, China has the biggest equity market by market capitalization in emerging markets. Many strategies have significant exposure. DGRE has taken the opposite stance, offering investors a way to have a diversified approach but without any China exposure. While we don’t know if China will always underperform, we think the geopolitical conflicts and economic challenges motivate more options like DGRE for investing in emerging markets ex-China. Brazilian equities have historically been characterized by higher dividend yields, leading to more exposure in DEM. South Korea, on the other hand, does not tend to be a high-yielding dividend market, but it is at least looking at some Index providers like FTSE. It is a developed country,2 so there is a lot of equity market activity with some very interesting global companies to choose from. Figure 4: Location, Location, Location—the Country Exposures of DEM, DGRE and DGS Source: WisdomTree, specifically the PATH fund comparison tool, with data as of 6/30/24. Holdings subject to change. Earnings Growth or High Dividend Yields? One of the trade-offs that investors often have to make is as follows: One group of stocks has a low valuation, possibly seen through a very high dividend yield or a very low P/E ratio. There are some who see this and find it exciting, not needing to know too much more. There are others who tell us, yes, but…aren’t these companies “cheap for a reason”? This is a version of asking—what if this is a “value trap”? It is absolutely true that certain companies may be inexpensive on a valuation basis and getting even more inexpensive, potentially even going out of business. Another group of stocks may not have as low a valuation but may have stronger earnings growth metrics. Usually, companies with better earnings growth metrics never showcase the lowest valuation metrics because investors appreciate the growth in earnings and tend to bid the share price levels higher. Historically, DEM’s strategy of following the highest-yielding dividend payers has been more defensive in consistently finding the lowest valuations but also finding the lowest earnings growth. DGRE is meant to be a contrasting style of investment, finding companies with stronger earnings growth over time. DGS is a bit different, being more of a broad-market small-cap strategy exposed to hundreds of underlying stocks. Emerging market companies pay dividends very early in their respective life cycles. We see a version of this story playing out in figure 5. Figure 5: Where Is the Earnings Growth in EM? Source: WisdomTree, specifically the PATH fund comparison tool, with data as of 6/30/24. Past performance is not indicative of future results. Conclusion: Know Your Regional Exposures What are emerging markets? What are developed markets? The real answer these days is that it depends on who you ask. It is more important than ever to look under the hood and think about which countries might be poised to provide strong, pro-business conditions. 1 Apple, Amazon, Meta Platforms, Alphabet, Tesla, Microsoft and Nvidia. 2 Source: Christopher Woods, “Classifying South Korea as a Developed Market,” FTSE Russell, 1/13. https://research.ftserussell.com/products/downloads/FTSE_South_Korea_Whitepaper_Jan2013.pdf Christopher Gannatti, CFA, Global Head of Research Christopher Gannatti began at WisdomTree as a Research Analyst in December 2010, working directly with Jeremy Schwartz, CFA®, Director of Research. In January of 2014, he was promoted to Associate Director of Research where he was responsible to lead different groups of analysts and strategists within the broader Research team at WisdomTree. In February of 2018, Christopher was promoted to Head of Research, Europe, where he was based out of WisdomTree’s London office and was responsible for the full WisdomTree research effort within the European market, as well as supporting the UCITs platform globally. In November 2021, Christopher was promoted to Global Head of Research, now responsible for numerous communications on investment strategy globally, particularly in the thematic equity space. Christopher came to WisdomTree from Lord Abbett, where he worked for four and a half years as a Regional Consultant. He received his MBA in Quantitative Finance, Accounting, and Economics from NYU’s Stern School of Business in 2010, and he received his bachelor’s degree from Colgate University in Economics in 2006. Christopher is a holder of the Chartered Financial Analyst Designation. Original Post Continue reading →

(Bloomberg) — Bond yields fell as a big downward revision of US payrolls reinforced bets the Federal Reserve will cut rates in September.Most Read from BloombergTreasuries rose across the curve, with the move led by shorter maturities. Swap traders are pricing in about 100 basis points worth of easing in 2024. The implied rate on the contracts show traders expect a quarter-point cut next month — and a roughly 20% chance for a half-point reduction. Equities fluctuated.While the annual revision to US jobs growth isn’t something that would usually impact trading, it got attention this time around due to the recent concern the labor market is cooling too much amid elevated Fed rates.US job growth was probably far less robust in the year through March than previously reported. The number of workers on payrolls will likely be revised down by 818,000 for the 12 months through March — or around 68,000 less each month. It was the largest downward revision since 2009.“The main message from the revisions in my mind is reinforce just how ‘silly’ it is to let the next jobs number be the determinant in whether to go 25 or 50 in September,” said Neil Dutta at Renaissance Macro Research. “What this revision data imply is that whatever the next jobs number is going to be, it’s probably lower in reality.”Jamie Cox at Harris Financial Group says that “if you are in the rate cut in September camp, these data all but ‘seal the deal’ on what Fed needed to cut rates.”In the run-up to Jerome Powell’s Friday speech in Jackson Hole, traders will scour minutes from the latest Fed policy meeting on Wednesday. Any clues on the path ahead for rates will be in focus, as well as any guidance on when the Fed will complete its current course of quantitative tightening.Treasury 10-year yields declined three basis points to 3.78%. The S&P 500 hovered near 5,600. Target Corp. climbed 12% after ending a string of sales declines in the second quarter, citing improved discretionary spending. Macy’s Inc. slightly missed estimates for its quarterly revenue and lowered its outlook for sales during the rest of the year.Krishna Guha at Evercore says the big payroll revisions will reinforce the Fed’s assessment that the labor market has been softening under restrictive policy and that it will need to recalibrate rates in a timely manner to prevent this from extending further than desired.All this favors a relatively “low bar” for 50 basis-point rate cuts. The base case remains a string of 25 basis-point moves.“We are confident this will be the takeaway from Powell at Jackson Hole Friday,” Guha noted. “But in the interim, we suspect minutes from the July meeting may well feel ‘hawkish-stale.’ A lot has happened since then.”At Strategas, Don Rissmiller says the case for lower policy rates got stronger. The Fed will need to validate this rate cut cycle – which likely means multiple cuts, he noted, pointing to Powell’s speeech on Friday at Jackson Hole.To Jennifer McKeown at Capital Economics, central bankers are unlikely to offer much forward guidance at the Jackson Hole symposium, preferring to stress their “data dependence”.“Since most economies are expanding, inflation is easing back to target and financial markets have stabilized after the recession scare a few weeks ago, there is less pressure for them to steer markets than there has been around past events,” she noted. “But they risk keeping rates too high for too long.”With the Fed poised to cut interest rates from restrictive levels and still strong economic and earnings fundamentals, the the environment remains supportive for stocks, with still strong economic and earnings fundamentals, and a Fed poised to cut interest rates from restrictive levels, according to Solita Marcelli at UBS Global Wealth Management.“Our base-case year-end and June 2025 S&P 500 price targets remain 5,900 and 6,200, respectively.”Marcelli believes quality growth remains well placed to outperform. Firms with competitive advantages and exposure to structural drivers should be better positioned to grow and reinvest earnings consistently, she noted.“The volatility from the past month has settled, as macro fears subside, expectations were reset, and investors used the weakness as an opportunity to add to risk exposure,” said Mark Hackett at Nationwide. “The next catalyst for markets is Fed data, including the minutes from the FOMC meeting and the Jackson Hole speeches. This likely results in a wait-and-see approach until Friday.”Corporate Highlights:Ford Motor Co. is recalibrating its electrification strategy yet again, canceling plans for a fully electric sport utility vehicle in a shift that may cost the carmaker around $1.9 billion.Walmart Inc. raised about $3.6 billion by selling its stake in Chinese e-commerce firm JD.com Inc., winding down an eight-year partnership that appears to be paying diminishing returns amid a challenging landscape for Chinese tech giants.US coal producer Consol Energy Inc. agreed to merge with Arch Resources Inc. in a $2.3 billion deal as the transition to greener fuels threatens the industry’s long-term outlook.Brookfield Asset Management is asking banks to line up about €9.5 billion ($10.6 billion) of debt for its potential take-private deal for Spanish pharmaceutical producer Grifols SA, according to people with knowledge of the matter.Key events this week:Eurozone HCOB PMI, consumer confidence, ThursdayECB publishes account of July rate decision, ThursdayUS initial jobless claims, existing home sales, S&P Global PMI, ThursdayJapan CPI, FridayBOJ’s Kazuo Ueda to attend special session at Japan’s parliament to discuss July hike, FridayUS new home sales, FridayJerome Powell speaks in Jackson Hole, FridaySome of the main moves in markets:StocksThe S&P 500 rose 0.1% as of 12:24 p.m. New York timeThe Nasdaq 100 rose 0.1%The Dow Jones Industrial Average was little changedThe MSCI World Index rose 0.2%CurrenciesThe Bloomberg Dollar Spot Index was little changedThe euro rose 0.1% to $1.1146The British pound rose 0.4% to $1.3081The Japanese yen rose 0.1% to 145.10 per dollarCryptocurrenciesBitcoin rose 0.5% to $59,592.77Ether rose 0.5% to $2,602.99BondsThe yield on 10-year Treasuries declined three basis points to 3.78%Germany’s 10-year yield declined two basis points to 2.19%Britain’s 10-year yield declined two basis points to 3.89%CommoditiesWest Texas Intermediate crude fell 1.3% to $72.24 a barrelSpot gold fell 0.4% to $2,504.93 an ounceThis story was produced with the assistance of Bloomberg Automation.Most Read from Bloomberg Businessweek©2024 Bloomberg L.P. 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The purpose of this update is to bring to your attention that silver is on the verge of commencing a massive unprecedented bull market which will “officially” kick off with it breaking above the key $30 level, which is important for reasons that will soon become apparent when we consider the charts and this could happen very soon. Gold’s massive unprecedented bull market has already begun and where gold leads, silver will follow.

The reasons for silver’s bull market will be the same as for gold and are well set out by Doug Casey with the link to his recent article Gold’s Next Explosive Move, which is included in the parallel Gold Market update, repeated here for convenience. See also Surging Silver Demand Depleting Global Inventories. In the Gold Market update we deduced that, taking inflation over the years into consideration, gold has essentially been stuck in a giant trading range since its 2011 peak, that it only succeeded in breaking out of in the Spring of this year, with this trading range being comprised of an equally gigantic Cup & Handle continuation (consolidation) pattern.

The big difference here between silver and gold is that, while gold has already broken out and is forging ahead, silver has so far only managed a “preliminary” breakout that was followed by a reaction back into the pattern, but with gold striding ahead this is not a situation that can be expected to last much longer and it is already starting higher. WHAT THIS MEANS IS THAT SILVER AND ALL THINGS SILVER ARE A TERRIFIC BARGAIN HERE WITH THESE SORTS OF PRICES NOT EXPECTED TO LAST MUCH LONGER, AND MAY NEVER BE SEEN AGAIN. That the giant Cup & Handle base shown on our long-term chart for silver going back to 2000 is valid is made clear by two important technical factors. One is the strong volume on the rally to form the right side of the Cup in 2020 (and on the attempted breakout this Spring) which is a sign that the pattern is genuine and the other is the strong On-balance Volume line which has been marching steadily higher. Thus the reaction back into the pattern of the past couple of months is seen as presenting the perfect “buy spot” for silver and all things silver ahead of a genuine breakout leading to a vigorous bull market especially given the serious escalation of military conflict in different theaters around the world that we are now right on the verge of.

Zooming in now via a 7-year chart, which shows the right side of the Cup and the subsequent “Handle” in much more detail, we can see that the Handle has been comprised of a Head-and-Shoulders continuation pattern with the price staging a clear breakout from it in April, in sympathy with gold’s advance, and this breakout has been followed by a normal reaction back to a classic “buy spot” at support at the upper boundary of the H&S pattern and although it is starting to advance again, we are clearly in a very good buying area here with silver still oversold on its MACD. After the price broke out in April it drove through the key $30 level, but due to overhead resistance – recall that silver got as high as $50 in 2011 – and due to it having become overbought, it reacted back below it again. However, this was not in any way a negative development as it was simply a normal post-breakout reaction back to test support, and the foray of about $30 drained off some overhanging supply thus clearing the way for the next upleg to make more progress.

Lastly, on its 6-month chart, we can see how silver is perfectly positioned for renewed advance following a normal correction back to support in the vicinity of its rising 200-day moving average. We don’t often attempt to employ Elliott Wave Theory because it can be complicated and tricky and has a tendency to work very well in retrospect but on this occasion, we see that silver has exhibited a near-perfect 5 waves up in the direction of the primary trend followed by a 3-wave correction which are believed to be waves 1 and 2 of a larger order uptrend. If so then big wave 3 is imminent which is likely to be substantial.

End of update. Continue reading →