This post Will They Haul off Trump’s Statue, Too? appeared first on Daily Reckoning.
This week, we are talking about the perishable nature of gods.
The city fathers of our hometown of Baltimore have let it be known that it was time to toss out the old deities. Reports the Associated Press:
After violence erupted in Charlottesville, Virginia over the weekend in response to the city’s plan to remove a Robert E. Lee statue from a park there, Mayor Catherine Pugh has renewed efforts to remove similar Confederate imagery from Baltimore. [… ]
On Monday, Pugh released a statement saying that it is her intention to remove all of Baltimore’s Confederate-era monuments – Confederate Soldiers and Sailors Monument on Mount Royal Avenue, the Confederate Women’s Monument on West University Parkway, the Roger B. Taney Monument on Mount Vernon Place, and the Robert E. Lee and Thomas. J. “Stonewall” Jackson Monument in the Wyman Park Dell.
The statues came down this week.
All across the country, the old gods become devils. New, gluten-free gods take their places. The statue of Taney (pronounced Tawney) will be particularly missed.
Roger Taney, like your correspondent, comes from the western shore of the Chesapeake Bay.
Like your correspondent, he grew up among the tobacco leaves. Like your correspondent, his teachers advised his parents that he was someone whose future lay beyond the green fields. And like your correspondent, he left the rich farms and oyster beds, went to college, and studied law.
This is where the similarity ends.
Taney had a brilliant career; he took the high road to the top of the nation’s highest court. We never even took the bar exam…
The statue was less than a one-minute stroll from our office. Artfully done, it shows the Supreme Court jurist in his robes, bent forward in gloomy reflection.
The poor man had a lot to think about. Upon his shoulders fell the weight of contradictions over slavery.
America was supposed to be a free country. As chief justice of the Supreme Court, his main duty was to protect the freedom of its citizens against the power of the government. And yet a large part of the population was kept in chains, condoned and abetted by that very same government.
On a personal level, where he bent to his own bricks and tilled his own plants, he knew what to do. He freed his slaves and gave pensions to the older ones.
Taney said of slavery that it was “a blot on our national character.”
But the gods and myths misled him. In his chambers… wrestling with a complex legal issue by candlelight, the shadows confused him.
Before him was the plaintiff, Mr. Dred Scott, slave and lifelong resident of the United States of America, asking the highest court in the land to affirm that he had a right to life, liberty, and the pursuit of happiness… without being forced into a win-lose deal by his former slave master.
But instead of boring down to the bedrock of the issue, Taney let himself get distracted by the surface …read more
This post The Changing Face of History appeared first on Daily Reckoning.
Today we step away from our normal beat… turn from the daily press of events… and reflect upon the permanent things…
Or the impermanent things as the case may be.
Four Confederate statues were hauled out of Baltimore parks this Wednesday… in the small hours… under cover of darkness.
It might have attracted a crowd otherwise — as in Charlottesville.
And with potentially similar results.
One of the statues, not actually Confederate, squatted just one block from our HQ.
Executed in time-worn bronze, it depicted the stern countenance of Roger B. Taney.
Taney was the Supreme Court justice who authored the majority opinion in the infamous 1857 Dred Scott case.
The ruling denied blacks American citizenship.
Taney’s statue had adorned historic Mount Vernon Square since 1887.
As of this Wednesday… it adorns historic Mount Vernon Square no longer.
We do not know who or what will replace Mr. Taney’s glowering presence atop the lonesome pedestal… if anything.
We are curious about one point, however…
The last surviving ship from Pearl Harbor is permanently docked in Baltimore’s Inner Harbor.
That ship would be the Coast Guard cutter… Roger B. Taney.
She’s part of Baltimore’s Maritime Museum.
What becomes of her?
She bears Taney’s name after all.
Do they refit old USCGC-37 with a moniker more befitting these inclusive times?
Do they tow her out beyond the capes of the Chesapeake and bury Taney’s name in Davy Jones’ locker?
Or do they simply leave her be?
At all events…
What do you think of the growing movement to remove Confederate statues from the nation’s public spaces?
Historical vandalism… or an idea whose time has come?
Managing editor, The Daily Reckoning
The post The Changing Face of History appeared first on Daily Reckoning.
On this week’s episode of Forward Guidance, we’re joined by Alexander Green, the Chief Investment Strategist of The Oxford Club and Investment U. He’s also the Editor of The Oxford Communiqué, The Momentum Alert, The Insider Alert and The True Value Alert.
Alex is discussing the remarkable story of four blue-collar workers who became multibillionaires through the use of simple value investing techniques. He’s giving a special webinar chronicling their successes this Wednesday.
I start by asking Alex who these men are, and how he found them. Alex concedes that it was largely our research department who tracked them down. But he adds that the stories of these blue-collar billionaires mirror an experience he had early in his money management career.
During a minor slump in the performance of his company’s recommendations, Alex read a story in The Wall Street Journal about three men who were consistently beating the market – Warren Buffett, Peter Lynch and John Templeton.
He quickly discovered a commonality amongst these high-powered investors – they ignored conventional market-timing logic, and instead focused on identifying undervalued companies.
According to Alex, the four billionaires who will be profiled in Wednesday’s webinar did exactly the same thing. They all came from humble origins – none were exceptionally educated, and none had extensive backgrounds in finance. But they consistently beat the market with simple value investing techniques.
I then ask Alex whether these four men have any behaviors or characteristics in common – as we discussed in our last conversation about the average American millionaire.
He then reprises one of his points from the “luck vs. skill” podcast – successful people do not believe that economic success is just a matter of luck. They understand that smart choices and habits lead to success, and they change their behavior accordingly.
In the case of these four investors, that meant adhering to disciplined value investing techniques that outperformed the market.
One of these techniques is minimizing downside risk and maximizing margin of safety. Alex explains that it’s far less risky to buy a depressed company than one that is trading at hundreds of times its earnings.
Alex goes on to explain that value investing is a particularly prudent technique in a late-stage bull market like this one. He notes that growth stocks like Netflix (Nasdaq: NFLX) and Amazon (Nasdaq: AMZN) have beaten value stocks by large margins in recent years.
As a result, value stocks and funds have become even more undervalued than usual. This is setting the stage for a major rally in value stocks in the near future.
The 21-page update was published, uploaded to the members section and emailed out to subscribers late Saturday evening.
We discussed our short-term outlook for precious metals, short-term support targets for Gold and gold stocks as well as the junior miners we think our buys.
This post Making Sense of a Weird Market appeared first on Daily Reckoning.
There’s a stock market crash coming.
It’s been a wild period in the markets. Between earnings season, increased tensions with North Korea and CEOs abandoning Trump after the Confederate statue controversy, investor anxiety has been on the rise.
That came to a head earlier this week when more than 90% of the stocks in the S&P 500 ended deep in the red. The tech-centric Nasdaq Composite plunged more than 2%.
The market was heavily down again yesterday. And as I write these words this morning, the major indexes are down again.
Needless to say, the big tail wind that’s been driving the broad market higher has tapered off.
Does that mean that the S&P is set to plunge now? No — it could turn around and tick higher, actually. But it does mean that we don’t have as clear a picture of what’s going to happen next in the big index.
But to be clear, there are some very good reasons why Mr. Market might be due to roll over.
Some very smart people — including some of my colleagues at Agora Financial — think that you have reason to be worried about owning stocks right now.
So where do I stand on that?
One of my readers, named Al, cuts to the chase with the following question:
With all the Agora publications talking about a looming correction ahead — what’s your take on that and how should we play our positions to reduce risk, or will those positions be affected at all?
To start, let’s look at the first part of Al’s question — my take on all the correction and crash talk.
First off, we’re probably going to experience a stiff correction at some point in the not-so-distant future. It’s inevitable. But that’s not much of an insight.
And as to when it might happen — next week, next month, next year — your guess is as good as mine. Heck, it may have just started.
That’s not a cop-out answer.
It’s a way of thinking that could make you a more profitable trader than 99% of all other market participants. You see, it’s human nature to want to predict what’s going to happen next in the stock market.
There’s a reason why CNBC and all the other media outlets gather up all the stock market predictions from Wall Street strategists every year and rank how close they got to the final number at the end of the year. It makes for great TV. Easy ratings.
But don’t you think it’s kind of funny that CNBC never ranks those Wall Street talking heads by how much money they made their clients instead?
CNBC — and The Wall Street Journal, CNNMoney, etc. — are all fixated on who’s right. But they totally ignore the fact that there’s a difference between being right and making money.
And the way you make money in the markets is by identifying a consistently profitable system and then sticking to that that system — …read more
This post “Hindenburg” Spotted Over Wall Street appeared first on Daily Reckoning.
“This may well be one of the most important days in the future of the equity markets for a very long while.”
That was today’s early-morning warning of famous trader Dennis Gartman.
The Dow lost 274 points yesterday.
The S&P shed 38 of its own — percentagewise, even worse than the Dow.
The booming Nasdaq fared worse than both. The tech index lost 123 points on the day — nearly 2%.
The three indexes all opened lower this morning.
The S&P and Nasdaq have since clawed their way back for slight gains.
The Dow remains in red territory at writing.
And so the market skitters like a panicked colt… confused… uncertain of its bearings… uneasy of its own uneasiness.
Was yesterday’s swoon the “first foretaste of a bitter cup,” to take a leaf from Churchill … or a healthy shaking of the tree, just one more opportunity to buy the dip?
Today we go in search of answers…
But first, what exactly frightened the horses yesterday?
A terrorist attack in Barcelona claimed 14 or more souls. Scores were injured.
Rumors also swirled that Trump’s top economic lieutenant, Gary Cohn, might desert his post.
Cohn was evidently displeased with Trump’s reaction to the Charlottesville statue scandale.
Investors fear Cohn’s resignation would sink Trump’s economic agenda even deeper into the dingles of doubt — if that’s possible.
The White House insisted the rumors were false.
It was right.
Cohn stays put — for now at least.
But let us revisit our question…
Was yesterday the start of a correction or — worse — just a random journey into red?
Market analyst Eric Parnell says correction. But he submits his case with bombshell evidence…
He claims a correction has not only begun — but actually started a month ago:
In many respects, a correction in U.S. stocks has already been underway for nearly a month now.
“But hasn’t the market been powering higher?” you squeak in protest.
“And haven’t the major indexes have been notching record highs this past month?”
Yes. But Parnell argues that a camouflaging has taken place.
In reality, he says, a mere handful of stocks account for most of the gains.
These are the likes of Apple, Facebook, Amazon and Microsoft.
And since the S&P is weighted by market cap, for example, these overachievers have hauled the overall market higher.
That gives a false reading of market health:
While the headline benchmark that is so heavily driven by its selected handful of largest stocks continues to hold its ground, the same index on an equal weight basis has been down by as much as 2.6% in recent days…
Today, less than 50% of stocks in the headline benchmark are trading above their 50-day moving average. This reading reached as low as 40% in recent trading days.
Parnell adds that 85 stocks on the S&P are officially in bear territory — down more than 20% from recent highs.
Something rots in Denmark, it seems.
Enter now the “Hindenburg Omen”…
The Hindenburg Omen is a technical indicator tracking the number of stocks trading at 52-week highs relative to the …read more
The British Empire was the largest in history. At the end of World War II Britain had to start pulling out from its colonies. A major part of the reason was, ironically, the economic prosperity that had come through industrialization, massive improvements in transportation, and the advent of telecommunications, ethnic and religious respect, freedom of speech, and other liberties offered by the empire.
The colors represent the colonies of various nations in 1945, and the colonial borders of that time – click to enlarge.
After the departure of the British — as well as the French, German, Belgians, and other European colonizers — most of the newly “independent” countries suffered rapid decay in their institutions, stagnant economies, massive social strife, and a fall in standards of living. An age of anti-liberalism and tyranny descended on these former colonies. They rightly became known as third-world countries.
An armchair economist would have assumed that the economies of these former colonies, still very backward and at a very low base compared to Europe, would grow at a faster rate. Quite to the contrary, as time went on, their growth rates stayed lower than those of the West.
Socialism and the rise of dictators were typically blamed for this — at least among those on the political Right. This is not incorrect, but it is a merely proximate cause. Clarity might have been reached if people had contemplated the reason why Marxism and socialism grew like weeds in the newly independent countries.
Was There a Paradigm Shift in the 1980s?
According to conventional wisdom, the situation changed after the fall of the socialist ringleader, the USSR, in the late 1980s. Ex-colonized countries started to liberalize their economies and widely accepted democracy, leading to peace, the spread of education and equality, the establishment of liberal, independent institutions. Massive economic growth ensued and was sustained over the past three decades. The “third world” was soon renamed “emerging markets.”
Alas, this is a faulty narrative. Economic growth did pick up in these poor countries, and the rate of growth did markedly exceed that of the West, but the conventional narrative confuses correlation with causality. It tries to fit events to ideological preferences, which assume that we are all the same, that if Europeans could progress, so should everyone else, and that all that matters are correct incentives and appropriate institutions.
The beginning and end of the Soviet communist era in newspaper headlines. The overthrow of Kerensky’s interim government was the start of Bolshevik rule. To be precise, the Bolsheviks took over shortly thereafter, when they disbanded the constituent assembly in in early 1918 and subsequently gradually did the same to all non-Bolshevik Soviets that had been elected. A little more than seven decades later, the last Soviet Bolshevik leader resigned. It is worth noting that by splitting the Russian Federation from the Ukraine and Belorussia, Yeltsin effectively removed Gorbachev from power – the latter was suddenly president of a country that no longer existed and …read more
It’s always a bumpy ride for small cap stock investors… but it’s been worth it since the turn of the millennium. Small cap stocks have almost doubled the performance of the S&P 500.
Small caps in general have better opportunities to grow compared to large companies. And when you add a value component, returns really shoot to the moon.
Small cap value stocks are up 464% since 2000. They’ve more than tripled the S&P 500. That’s huge! And you can gain access to these returns.
There are many low-cost small cap value funds… but some are better than others. So I’ll list a couple of my favorites below.
But first, let’s take a closer look at small cap value stocks…
Small Cap Value Stocks
One powerful model that analysts use to value stocks is the Fama-French three-factor model. It incorporates market risk, value and market cap components.
The creators, Eugene Fama and Kenneth French, back-tested thousands of random stock portfolios. They found that the three factors explained 95% of a portfolio’s return compared to the market as a whole.
The research showed that small cap stocks outperform large cap stocks… and that value stocks generally have higher upside potential than growth stocks do.
The main downside for small cap value stocks is the short-term volatility. To capture the big returns, you have to weather the short-term swings.
But over the long term, small cap value stocks are outstanding investments. The chart above shows you proof of that. Yet few folks allocate a portion of their portfolio to them.
When optimizing your portfolio, you should first look at your long-term goals. This will help you determine if small cap value stocks are a good fit. The Oxford Wealth Pyramid gives you more insight into asset allocation.
If you determine small cap value stocks should play a part in your portfolio, the funds below are a good place to start…
Two Funds for Outsized (Long-Term) Returns
Vanguard Small Cap Value Index Fund (VISVX): Vanguard is known for its low-cost funds, and this one doesn’t disappoint. Its expense ratio comes in at 0.19%. That’s 85% lower than the average expense ratio of funds with similar holdings.
SPDR S&P 600 Small Cap Value ETF (NYSE: SLYV): This fund includes stocks with market caps between $400 million and $1.8 billion. The stocks also have strong value characteristics based on price-to-book value ratio, price-to-earnings ratio and price-to-sales. The expense ratio comes in at a low 0.15%.
Both of the funds above are a great way to invest in small cap value stocks. If you have a long-term investment horizon, you should consider adding them to your portfolio.
Thoughts on this article? Leave a comment below.
P.S. On Wednesday, Chief Investment Strategist Alexander Green is giving an exclusive presentation on how some of history’s most successful value investors made their fortunes. If you’re interested in the kind of long-term strategy outlined above, you should definitely sign up now. …read more
Milestones in the Pursuit of Insolvency
A new milestone on the American populaces’ collective pursuit of insolvency was reached this week. According to a report published on Tuesday by the Federal Reserve Bank of New York, total U.S. household debt jumped to a new record high of $12.84 trillion during the second quarter. This included an increase of $552 billion from a year ago.
US consumer debt is making new all time highs – while this post GFC surge is actually relatively tame, corporate and government debt have in the meantime exploded into the blue yonder. Nevertheless, this means consumers are also highly vulnerable to the coming crisis (which will look different from the last one, but will be perceived as just as, if not more devastating). [PT] – click to enlarge.
Moreover, this marked the second consecutive record high on a quarterly reported basis for U.S. household debt. Indeed, this is a momentous achievement. From our vantage point, it is significant for several reasons.
One, it shows U.S. household debt has returned to its upward trend which had previously gone uninterrupted from the close of World War II until the onset of the Financial Crisis in late 2008. Second, it demonstrates that, like the S&P 500, new all-time highs are being attained with the seeming precision of a quartz clock. Is this just a coincidence?
More than likely, it’s no coincidence at all. More than likely, the mass quantities of central bank liquidity that have been injected into the financial system over the last decade have provided the plentiful gushers of cheap credit that have pushed up both stock prices and household debt levels. But remember, the easy stock market gains can quickly recede while the increased debt must first drown the borrowers before it can be expunged.
To understand where the liquidity has come from, look no further than thetotal combined assetsof the Federal Reserve, European Central Bank, and the Bank of Japan. They were around $4 trillion a decade ago. Today, they’re over $13.8 trillion. And if you include the People’s Bank of China’s assets, combined major central bank assets jump to nearly $19 trillion.
Central bank balance sheet expansion: even though assets held by the Fed have remained stable since QE3 ended in 2014, the giant debt monetization programs pursued by the ECB and the BoJ have pushed the total up rapidly. Note that this is reflected in money supply growth in these currency areas as well – it is not just central bank balance sheets that have expanded. A major goal was to lower market interest rates, which does of course require more money being made available to the economy, even if it was done in unorthodox fashion in this case. From a theoretical standpoint it should be noted that the effect of direct central bank money supply expansion and the usual way of expanding the money supply by inflating commercial bank credit has made very little difference. The channels by which …read more
Three weeks ago we discussed how Gold needed to perform considering the US$ index was likely to bounce due to an oversold condition and extreme bearish sentiment.
We wrote: “Simply put, Gold will have to prove itself in real terms if it is going to hold its ground or breakout as the US$ begins a likely bounce.”
The US$ index has enjoyed only a slight rebound but Gold has maintained its 2017 US$ weakness induced gains because of its strong relative performance. Below we plot the daily line chart of Gold and a number of ratios: Gold against foreign currencies (Gold/FC), Gold against Equities and Gold against Bonds. Since the July low, Gold has showed good nominal and relative performance.
The key has been the strong rebound in Gold/FC and the breakout in Gold/Equities. Gold/FC has broken above two trendlines and is now testing its 200-day moving average. Meanwhile, Gold/Equities has broken above one trendline and has regained its 200-day moving average. It would be very bullish for Gold if Gold/FC pushed through its 200-day moving average while Gold/Equities pushed above trendline 2. Those moves would likely accompany a Gold breakout through $1300/oz but more importantly, they would put Gold in a position of trading above its 200-day moving average in nominal terms and against the major asset classes (stocks, bonds, currencies).
Although Gold failed to break above $1300/oz today (Friday), it remains in position to do so because of its renewed strength in real terms. As long as the US$ index does not rally hard, we expect Gold to break above $1300 and reach $1375. The gold stocks as a group have been lagging recently but in the event of a Gold breakout, we foresee significant upside potential as the group could play catch up. Consider learning more about our premium service including our favorite junior exploration companies.
Jordan Roy-Byrne CMT, MFTA
This post Don’t Forget About The Red Swan appeared first on Daily Reckoning.
[Urgent Note: The nation’s future and a massive debt ceiling hangs in the balance as Trump pushes beyond the Comey hearings. That’s why I’m on a mission to send my new book TRUMPED! A Nation on the Brink of Ruin… and How to Bring It Back to every American who responds, absolutely free. Click here for more details.]
Given the anti-Trump feeding frenzy, we continue to believe that a Swan is on its way bearing Orange. But if that’s not enough to dissuade the dip buyers, perhaps the impending arrival of the Red Swan will at least give them pause.
The chart below comprises a picture worth thousands of words. It puts the lie to the latest Wall Street belief that the global economy is accelerating and that surging corporate profits justify the market’s latest manic rip.
What is actually going on is a short-lived global credit/growth impulse emanating from China. Beijing panicked early last year and opened up the capital expenditure (CapEx) spigots at the state-owned enterprises (SOEs) out of fear that China’s great machine was heading for stall speed at exactly the wrong time.
The 19th national communist party Congress scheduled for late fall of 2017. This every five year event is the single most important happening in the Red Ponzi. This time the event is slated to be the coronation of Xi Jinping as the second coming of Mao.
Beijing was not about to risk an economy fizzling toward a flat line before the Congress. Yet that threat was clearly on the horizon as evident from the dark green line in the chart below which represents total fixed asset investment.
The latter is the spring-wheel of China’s booming economy, but it had dropped from 22% per annum growth rate when Mr. Xi took the helm in 2012 to 10% by early 2016.
There was an eruption as dramatized in the chart. CapEx growth suddenly more than doubled in the one-third of China’s economy that is already saturated in excess capacity. The state owned enterprises (SOE) in steel, aluminum, autos, shipbuilding, chemicals, building equipment and supplies, railway and highway construction etc boomed.
It was as if a switch had been flicked on by Mr. Xi himself, SOE CapEx soared back toward the 25% year-over-year rate by mid-2016, keeping total CapEx hugging the 10% growth line.
However, you cannot grow an economy indefinitely by building pyramids or any other kind of low-return/no return investment – even if the initial growth spurt lasts for years as China’s had.
Ultimately, the illusion of Keynesian spending gets exposed and the deadweight costs of malinvestments and excess capacity exact a heavy toll.
If the investment boom that was financed with reckless credit expansion is not enough, as was the case in China where debt grew from $1 trillion in 1995 to $35 trillion today, the morning-after toll is especially severe and disruptive. This used to be called a “depression.”
China’s propagated spurt in global trade and commodities was artificial and short-term. …read more
This post Oh, the Humanity! Another Selloff Rattles Investors appeared first on Daily Reckoning.
It was a dark day on Wall Street.
The Dow dropped 274 points. The S&P 500 slumped by more than 1.5%. The tech-heavy Nasdaq Composite lost almost 2%.
An ornery August trading month is finally showing its teeth. Investors who eagerly bought the dip after last week’s drop are stuck with losses. The bears have an opportunity to force stocks into a genuine pullback for the first time in more than a year. They might even get the help of a spooky indicator that’s sneaking back into the picture.
Oh, the humanity! I’m talking about the Hindenburg Omen.
Nazi imagery is all over the news this week thanks to the events in Charlottesville. Now it’s infected the markets. We’re seeing breathless mentions of the Hindenburg Omen all over the financial media. If we are to believe the warnings, the stock market is nothing more than a fiery zeppelin crash waiting to happen.
On top of the perfectly-named Hindenburg Omen, we are experiencing some actual market weakness and volatility creeping into the picture. Conditions are ripe for some new worries. The click-hungry financial media is cashing in.
The message is simple: Sell your stocks and take cover. This ship is about to blow!
If only investing was this simple…
In reality, the Hindenburg Omen is a tough nut to crack. If you’ve bothered to read any of the articles that cite the indicator, you’ve probably noticed that none of them explain what the hell the Hindenburg Omen measures. That’s because it’s incredibly complicated. Fully grasping the Hindenburg Omen requires more than a rudimentary understanding of simple technical analysis techniques.
I’m not even going to bother wasting my time trying to lay it all out for you. I can’t even come up with a simplified explanation beyond the fact that it’s bearish and it involves tallying NYSE advances plus declines and new highs vs. new lows. And that doesn’t even begin to get into the nuances of what’s required to trigger the indicator.
What I can tell you is that Hindenburg Omens are starting to come in waves. Multiple sources are reporting spotting a Hindenburg Omen on the S&P 500 during five out of the past six sessions.
“Such clusters typically lead to poor returns in subsequent days and the last time a similar trend emerged, in November 2007, stocks fell by 1.6% in the following week and 2.3% two weeks later, MarketWatch notes. “A year later, the S&P 500 was about 40% lower.”
Despite all the commotion, these signals don’t guarantee an imminent correction. In fact, the last time the market caught Hindenburg fever was August 2013. Going back over my market stats from four years ago, I noted 11 Hindenburg Omens materialized in from late July to mid-August 2013. But the S&P 500 finished the year up 30%.
If the Hindenburg Omen had a mundane name, it never would have caught on. Its track record for calling major tops isn’t consistent. Most people don’t even …read more