Home » Posts tagged 'northman trader'

Tag Archives: northman trader

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Straight Talk

Straight Talk

We live through very unique times, not only because of the shock of the coronavirus that recently hit the world unexpectedly, but also because of large complex structural issues that have been building for decades.

A popular mantra says the stock market is not the economy and the economy is not the stock market referring to the often seen disconnect between market prices and events taking place in the economy. The most recent example has been Wall Street rallying with each disastrous jobs report hitting the news wires. Even this last Friday markets rallied again unperturbed by the latest unemployment report showing the most severe collapse in employment in our recent history. Depression like figures, yet the Nasdaq is green on the year, the S&P 500 largely off the lows with many again predicting new highs to come. Why? Because of unprecedented liquidity flooding markets as a result of monetary intervention making the disconnect between Wall Street and Main Street even wider. We can pretend the stock market is not the economy, but there is no stock market without an economy yet we are witnessing an unprecedented disconnect between the two that has been building for years.

Can this disconnect be sustained? Are investors too optimistic about the current rally? What are the implications going forward?

These are complex issues everyone is confronted with and there are no easy answers. What an intellectually challenging and energizing time to be alive!

I am grabbling with these issues as much as you are, we all are. And for that reason the idea for an ongoing webinar arose, to find a format to discuss these issues in more depth and make the debate more accessible and personal.

…click on the above link to read the rest of the article…

Broken System

Broken System

The Fed poisons everything, and I mean everything. From markets, the economy, and I will even go as far as politics. Sounds far fetched? Let me make my case below. But as much as the Fed poisons everything this crisis here again reveals a larger issue: The system is completely broken, it can’t sustain itself without the Fed’s ever more monumental interventions. These interventions are absolutely necessary or the system collapses under its own broken facade. And this conflict, a Fed poisoning the economy’s growth prospects on the one hand, and its needed presence and actions to keep the broken system afloat on the other, has the economy and society on a mission to circle a perpetual drain.

So how does the Fed poison everything?

Let’s start with the Fed actual process of working towards its stated mission: Full employment and price stability.

How does it do that? Well, for the last 20 years mainly by extremely low interest rates and balance sheet expansion sprinkled with an enormous amount of jawboning. The principle effect: Asset price inflation.

It’s not a side effect, it’s the true mission. The Fed has been managing the economy via asset prices even though Jay Powell again insisted on saying the Fed is not targeting asset prices.

This is a lie. And I can prove it with one chart. Cumulative $NYAD, the flow into stocks versus M1 money supply:

It was not until the Fed flooded markets with cheap money creating the housing bubble that the $NYAD equation changed dramatically, and it was not until the GFC that the Fed went full hog wild on M1 money supply that $NYAD went full vertical alongside of M1. TINA! There is no alternative. Forcing money into equities to manage the economy with a rising stock market.

…click on the above link to read the rest of the article…

Takeover

Takeover

We can’t print ourselves out of this crisis again, but that isn’t stopping the Federal Reserve from trying. Thursday’s intervention program, the latest in a string of panic moves to keep the financial system afloat, constitutes a complete takeover attempt of the market ecosphere, only the buying of stocks directly is last missing piece of eventual complete central bank control of equity markets. But seizing control of the bond market is the nearest equivalent step.

Not only that, the Fed is buying junk corporate debt propping up companies that should be let to fail as Chamath Palihapitiya pointed out poignantly this week. But not this Fed, no, with its actions it is again setting up the economy for yet another slower growth recovery, financed by even more debt.

QE doesn’t produce growth, that is the established track record:

Nobody wants to talk about the consequences to come following this crisis, but that doesn’t mean the consequences won’t be a real and present reality.

No, the Fed, while trying to save the world, is once again engaged in vastly distorting asset prices from the fundamental reality of the economy. It is in essence again laying the foundation for the next bubble, while the bursting of this bubble has yet to be fully priced in.

Even the Wall Street Editorial Board has made it perfectly clear what this is all about:


The @WSJ Editorial Board tells you what the new price distortion is all about: Save Wall Street and the top 1% and hope for trickle down economics later:https://www.wsj.com/articles/the-feds-main-street-mistake-11586474912 …

View image on Twitter

Asset price inflation to save markets in the hopes of trickle down growth to come.

Absurd.

The message the Fed is again is sending is to invite reckless behavior on the side of investors, the same reckless, TINA, fueled behavior that got us the bubble blow-off top in February.

…click on the above link to read the rest of the article…

Nobody Knows Anything

Nobody Knows Anything

The more I read and observe the clearer the message: Nobody knows anything. And by that I mean nobody truly knows how any of this will turn out and I think this point needs to be driven home more clearly.

Tons of projections of this, that and the other. Just stop. I happen to think there are times to simply step back and not make grand predictions. For us that’s ok because we focus primarily on market technicals and that’s an ever evolving picture that offers us pivot points to decide when and where to get engaged in.

But on the macro? Give me a break. Nobody knows anything. Everybody is just guessing.

Exhibit A: GDP forecast for Q2:

Ok great. How’s that helping anyone in trying to value companies, cash flow, revenues, earnings? It doesn’t. -9% is a completely different planet than -40% and so is everything in between.

How does one qualify central bank and stimulus intervention? It changes every single day. Today the Fed cranked out an international repo program. Global central banks unite I guess. Also today Donald Trump tweeted about a $2 trillion infrastructure program. Who knows if it will happen. The Fed already increased its balance sheet by $1.3 trillion since the same time last year and may well be heading toward $9  or $10 trillion balance sheet position within a year. Last week they added $600B, basically all of QE2 in a week.

These are insane numbers thrown around, all on top of the $2.2 trillion stimulus package just passed. What’s the deficit going to be? I guess it depends on whether GDP drops by 40% or 9%.

Give me a break. How do you make any forecasts that have a predictive meaning whatsoever in this environment? Other than a lucky guess, the answer is nobody. Why? Because nobody knows anything.

…click on the above link to read the rest of the article…

Answers

Answers

The year is 2020. A new virus is spreading across the planet like a wildfire. More lethal than the flu, highly contagious with no cure. Stocks markets collapse, global economies are shutting down with billions of people quarantined to their homes and millions losing their jobs overnight. What do you do? What DO you do?

While it sounds like the script of a bad disaster movie, it is nevertheless the world we suddenly find ourselves in. If you’d outlined this script to anyone just a couple of months ago nobody would’ve believed you.

But here we are and everyone has to adapt and get on with it.

Everyone searches for answers. Is it a short term thing and a big recovery is just around the corner with the help of unprecedented monetary and fiscal stimulus, or will the monetary and structural consequences be so severe that a larger recession, depression even, is inevitable?

The Big Battle is unfolding right in front of us.

Markets, following the biggest crash off of all time highs since 1929, also just managed the sharpest rally since 1933. A bear market rally similar to many seen during the 2008 crisis?

Or a V shaped bottom similar to December 2018?

A retest of the lows for a “W” bottom, or the beginnings of a much more sinister stair step descent to new lows? Lots of questions, but few answers amid evolving data points that do not offer clarity where the current shock will settle.

Fact is the long term monetary and fiscal consequences of the current interventions will reverberate for years to come. Fact is also the global recession that was already at risk of playing out in 2019, but was delayed by aggressive global central bank action, but has now come to fruition anyways. Sparked by a trigger that has rendered all these policy actions of the past year ineffective and meaningless.

…click on the above link to read the rest of the article…

2020 Crash

2020 Crash

Complacency came before the fall. All of 2019 market participants ignored the non existent earnings growth. Too strong was the now pavlovian reflex to chase easy central bank money. Too trusting in central banks to again produce a reflation scenario that would make all the troubles go away.

Everything was ignored and markets and stocks were relentless chased higher into some of the highest market valuations ever. Even the coronavirus was ignored. A dip to buy in January they said. AAPL warning? Let’s ignore it and buy AAPL to new all time highs again.

Nothing mattered until it did.

Then markets crashed last week. Perhaps not in percentage terms, but in terms of vertical velocity to the downside it was unmatched in history. The fastest 15% correction off of all time highs ever and by far.

Worse, months of buyers of stocks and markets at high valuations suddenly found themselves trapped as the bottom fell out inside of a few days:

$NYSE, the broader index dropping below the January 2018 highs and closing below the summer 2019 lows now showing an index that has gone nowhere in 2 years and the recent highs being a complete mirage.

The big message: It was not different this time. Bears were right. Full stop.

$DJIA fell all the way to the June 2019 low taking out 9 months of buying:

Don’t anybody tell me everybody sold the top. No, lots of buyers are trapped at much higher prices and are now again dependent on central banks coming to the rescue.

…click on the above link to read the rest of the article…

The Turn?

The Turn?

Did markets just hit a key wall and are ready for a much overdue turn? That’s the question we want to explore from a technical perspective following the sudden reversal action on Thursday and Friday as action at a key technical juncture may suggest a shift in character.

Let me make perhaps a bit of a controversial statement: It’s not the coronavirus that’s the biggest threat to the global economy, it’s the potential of a massive market selloff that would shake confidence at a critical juncture in the business cycle while the reflation trade everybody was positioning for looks increasingly fragile.

Yes, the virus, hopefully ultimately temporary, clearly has a short term effect, but rather the broader risk is the excess created by ultra-loose monetary policies that has pushed investors recklessly into asset prices at high valuations while leaving central bankers short of ammunition to deal with a real crisis. There was no real crisis last year, a slowdown yes, but central bankers weren’t even willing to risk that, instead they went all in on the slowdown. It is this lack of backbone and co-dependency on markets that has left the world with less stimulus options for when they may be really needed. Reckless.

I repeat what I’ve said before: I hope the coronavirus is not the trigger that gets associated with an eventual end to this bull market. For one, it’s the worst reason as people are dying from it, and second, it would be paraded as an excuse for the proponents of cheap money and debt spending to not learn their lesson again. They’ll just blame the virus and not the monetary monstrosity that has been created and then proceed to do it all over again, or even more so than before.

…click on the above link to read the rest of the article…

1937

1937

We’ve talked about the year 2000 comparison (Party like it’s 1999). In 2020 markets went onto a similar structural tear just having rammed relentlessly higher. In 2000 markets famously topped in March following the Fed’s Y2K inspired liquidity injections in 1999 as markets had vastly disconnected from fundamental reality. Now that the truth is out we also know that markets are now vastly disconnected from fundamentals.

And the 2000 comparisons still hold water on a number of measures, price to sales, price to ebitda, market cap to GDP and of course relative weightings in favor of the few as the rally continues to narrow.

The top 2 stocks now have gone complete vertical especially as it relates to their weighting in the S&P:

This chart from Carter Worth on Fast Money last night and even he pointed out how in the lead up to the 2000 top there was some back and forth, but not here, just completely uninterrupted vertical.

One of the 2 stocks being Microsoft, a stock that now has nearly doubled since 2019 with a market cap expansion of over $700 billion for a total market cap of over $1.4 trillion. Historic.

And add the top 4 and their market caps you get this same vertical picture:

Everything screams reversion and correction, but nothing. The market just keeps going up and they keep buying the big cap tech stocks. Risk free. Or so it seems.

And given the large weightings of these few stocks $NDX just keeps ramping up vertically as well, also far outside the monthly Bollinger band:

…click on the above link to read the rest of the article…

Truth

Truth

Every once in a while the truth shines through and we got a few doses of it today. Recently critics who suggested that the Fed’s QE policies artificially elevate asset prices were dismissed as QE conspiracists, but the truth is that central bank policies are directly responsible for the asset price levitations since early 2019 and well before then of course as well.

Loose money policies by central banks are goosing up asset prices. I’ve said it for a long time, others have as well despite constant pushback by apologists and deniers: No, no, asset prices are a reflection of a growing economy and earnings or so we were told.

All of this was revealed to be hogwash last year when asset prices soared to new record highs on flat to negative earnings growth and this farce continues to this day as the coronavirus is the new trigger for reductions in growth estimates yet asset prices continue to ascent to record highs following the Fed’s record liquidity injections:

But now the truth is officially out and can no longer be denied.

Here’s new ECB president Largard stating it plainly:


Kudos to @Lagarde for stating the obvious:

“European Central Bank President Christine Lagarde said her institution’s loose monetary policy is hitting savers and stoking asset prices”https://www.bloomberg.com/news/articles/2020-02-11/lagarde-says-ecb-low-rate-side-effects-puts-onus-on-governments?sref=q1j4E2z1 …

Lagarde Says ECB Policy Side Effects Put Onus on Governments

European Central Bank President Christine Lagarde said her institution’s loose monetary policy is hitting savers and stoking asset prices, as she called on governments to do more to boost the economy.bloomberg.com


But it’s not only Lagarde.

Even President Trump implicitly lays it all out as he’s apparently watching every tick on the $DJIA:

…click on the above link to read the rest of the article…

The Prophet

The Prophet

Oh how I miss George Carlin. Yes he was mainly known as a stand up comedian, but he was more than that, much more. He was a social critic, he challenged that status quo, he dared to go where society wasn’t prepared to go: Look at ourselves critically. He did it with biting humor, masterful oration and a directness digging into core truths that were not only uncomfortable at times, but needed to be heard and said.

His voice has fallen silent as he passed away a few years ago and I’m sorry to say: We don’t have anyone like George today. I didn’t agree with everything George said and I don’t need to, nor does anybody else, but his talent was to make us think and to view the world with a different perspective and yes he was a prophet.

He saw long ago where this was all heading. The political charades and manufactured dramas that are sold to the public as choice, the illusion of choice as the agendas have long been in play.

“What do they want?” he asked. “More for themselves and less for everybody else.”

He spoke of the owners of this country, the owners that control everything, the media, what to believe what to think, and the great business and lobbying interests that spend billions of dollars lobbying for ever more benefits for themselves.

And lobby they do:

And boy did they succeed. Under the mantle of populism and draining the swamp they got themselves the biggest tax cuts in corporate history, a historic killing:

Wall Street celebrated and celebrates to this day.

Wealth inequality skyrocketing for years and now trillion dollar deficits as far as the eye can see and debt through the roof:

…click on the above link to read the rest of the article…

State of Denial

State of Denial

Once again investors are made to believe that nothing matters. Only 2 trading days after Friday’s sell off $NDX made new all time history highs. Only 3 days after Friday’s sell-off $SPX made a new all time closing high. Only 4 days after Friday’s sell off $DJIA, $SPX and $NDX make new all time human history highs in premarket. Fours day, four up gaps, all unfilled at the time of this writing. The market of the overnight gap ups.

Why? Because the economic impact of the coronavirus is over or contained? Of course not, it’s far from any of that. Shutdowns persist, warnings of individual companies are mounting i.e. $TSLA, tumbling a day after the technical warning issued,  global economic growth estimates are coming down and with them invariably take downs in earnings estimates.

What do markets do? Make new all time highs, back on the multiple expansion game from 2019 when no slowdown in earnings mattered as the liquidity injections from our central bank overlords overrode everything.

This week the PBOC injected liquidity, the Fed kept flushing repo liquidity into the system, and of course a continued buying of treasure bills.

And so markets continue on their path of never pricing in any bad news and continue to disconnect farther and farther from the underlying size of the global economy no matter the ongoing data:

Baltic Dry Index:

But there are no bubbles central bankers tell us. Don’t insult our intelligence I say. Especially since they perfectly well know that policies and words are closely followed by markets and are market impacting:


Lagarde: Traditionally, as central bankers we have been more comfortable speaking to experts and markets than to the general public. Markets closely follow what we do and what we say, and surveys and studies find that we are well understood by them.


What if

What if

What if bears were right all along? What if it’s not different this time?

What if this Fed liquidity inspired rally produced precisely the kind of exuberant final thrust we often see at the end of business cycles? After all, people were really bullish in 2007, people were really bullish in 2000, both final rallies inspired by easy Fed liquidity. In 2000, the Y2k bug, in 2007 giving us the subprime mortgage crisis.

What if this latest rally has produced exactly the same conditions we’ve seen during prior tops?

Be clear: I’m not calling for a top here, that’s a fool’s errand. After all so far all we’ve seen is a minor pullback off of very overbought conditions. Heck, tech hasn’t even begun to correct yet.

But yields keep dropping like a brick, as does the Baltic Dry index, small caps, transports, the banking sector never confirmed new highs, equal weight indicators suggest a major negative divergence inside a market that appears entirely held up by tech, and perhaps by only 5-10 highly valued stocks that are massively technically extended and control more market cap in a few stocks than ever before. At the same time we have a market more extended above underlying GDP than ever and now suddenly a potential trigger nobody saw coming: The coronavirus.

Look, the track record on viruses and diseases over the past 20 years has been clear: Any market impact is temporary and/or minimal at best. Look at SARS in 2003, $SPX rallied over 20% in 2003. But the backdrop was different. The US just came out of a recession and markets had bottomed in 2002. Markets in 2003 were at the beginning of a new business cycle.

This cycle here is old, and one could argue was merely saved again by a Fed going into full easing mode in 2019.

…click on the above link to read the rest of the article…

Hubris

Hubris

One day this bull market will end and the age of the central banking enabled debt bubble will be exposed for the hubris that it is and all the sins of “potential side effects” that central bankers warn about but never do anything about will come back to haunt all of us. It’ll be the age of the great unwind. Nobody will tell us in the moment when it peaks and I suspect it will not start with a bang, rather a whimper, but only end with a bang.

And this great unwind will not last a month or a year, but many years as all the excesses will have to work themselves through the system and all the systematic buy programs will turn into systematic sell programs that will be just as relentless on the way down as they were on the way up.

They very notion of the permanent can kicking we are witnessing now will reveal itself to have been a fantasy. People forget that 2019 and into 2020 came about because of systemic failure of epic proportions. The single one time central bankers tried to tighten blew up in their faces. And the Fed’s forced re-expansion of their balance sheet has now bestowed this blow-off top that has pushed asset prices the farthest distance above the underlying size of the economy that we’ve ever seen. A perversion of the financial system that has created wealth for the few not seen since the 1920s.

I can’t know when this process begins. Nobody can. For all I know it begins today. Or it could be months from now. The price action will tell us. Economically, technically, structurally it’s all set up for it.

…click on the above link to read the rest of the article…

He Knows

He Knows

Last week we found out that Dallas Fed president Kaplan knows that the Fed is creating excess and imbalances in stocks. Yes, bloating the Fed’s balance sheet by over $400B  in four months has a massive impact on stock markets. And billions of repo liquidity unleashed each day can be seen impacting the daily action as well (see: Repo Lightning).

So what’s Jerome Powell have to say about all this? Silence. Not a word. Of course he doesn’t have to because the crack reporters never confront him on the issue in his post Fed meeting press conferences. Bubble away accountability free. Why bother asking the hard questions? That may just get you disinvited from the next press conference. Too strong of an assessment? I let you be the judge, but why are the hard questions not asked when it matters?

But actually we don’t need to wait for the answer from a press conference. Why? Because we already know the answer and the answer is: He knows.

Powell knows exactly the behavior he’s instilling in investors, the artificial levitation of asset prices and the disconnects and dangers that is poses.

All one has to do is dig in the Fed minutes from October 2012. Pages 192-194. It’s all there:

“I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet and purchases through the first quarter of 2014. I admit that is a much stronger reaction than I anticipated, and I am uncomfortable with it for a couple of reasons.
First, the question, why stop at $4 trillion? The market in most cases will cheer us for doing more. It will never be enough for the market. Our models will always tell us that we are helping the economy, and I will probably always feel that those benefits are overestimated. 

…click on the above link to read the rest of the article…

Mind the Gap

Mind the Gap

Amid all the ferocious market rallying there’s a gap building and nobody seems to notice, and nobody seems to care. I say: Mind the gap.

The banking index, much like the rest of the market, has been rallying furiously ever since the Fed began expanding its balance sheet on an accelerated pace since October. $BKX jumped on the liquidity train and broke above its previously well contained 2018-2019 range, except it didn’t make new all time highs yet.

A chart I’ve been highlighting again in my latest weekend update keeps highlighting a glaring gap:

What was a comfortable relationship between the 10 year ($TNX) and the banking index ($BKX) broke down in early 2019 and remains broken to this day.

Despite both yields and the banking index improving in recent months the gap remains and signals something profoundly afoot:

The yield gap remains with $TNX contained in a rising channel not confirming a resurgence of economic growth and strength the larger markets appears to want to price in.

But note something else here. While the main indices, $DJIA, $SPX and $NDX went on to make new all time highs here in early 2020, the $BKX did not. It never made new highs versus 2018 and so far it hasn’t made new highs versus 2019.

Incidentally the same story applies to small caps with heavy exposure to financials:

So it’s not just $BKX dragging its heels.

How big is the gap in performance? It’s quite dramatic actually.

What if I told you $BKX has gone nowhere during the past month while $NDX has tagged on another 7%+ in performance?

…click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase