Merger Mania and the Kings of Debt

Another Early Warning Siren Goes Off

Our friend Jonathan Tepper of research house Variant Perception (check out their blog to see some of their excellent work) recently pointed out to us that the volume of mergers and acquisitions has increased rather noticeably lately. Some color on this was provided in an article published by Reuters in late May, “Global M&A hits record $2 trillion in the year to date”, which inter alia contained the following chart illustrating the situation. This snapshot was taken shortly after a particularly busy “Merger Monday” in May, which saw $28 billion in takeover announcements:

Getting frisky: captains of industry and private equity funds evidently feel supremely confident again and have embarked on a major shopping spree. This mainly goes to show that no-one ever learns a thing in financial markets (presumably this goes for “learning from history” generally, but the remarkable thing in this case are the small time intervals between the markets teaching lessons and the subsequent collective forgetting exercise). The people responsible for all this breathless activity get paid more than at any other time in history, both in nominal and real terms – and one of their major characteristics is apparently that they have the attention span of gnats.

Almost needless to say, this is a nigh perfect medium to long term contrary indicator. When stocks are actually cheap, most of our corporate chieftains behave like deer in the headlights, i.e., they basically freeze and do nothing. The backdrop  they prefer to see before they feel compelled to really swing into action full-speed-ahead with maximum recklessness is “one of the most overvalued markets in history”. Only then do they feel truly safe.

Luckily for the rest of us this bizarre herding behavior provides us with quite a useful signal. Currently its message is “get out of Dodge while the getting is good”.

Since the chart above was put together, a flurry of additional deals was either consummated or announced. Leaving aside the interesting psychological aspects of this recurring urge to merge at the highest possible prices, there are other reasons to be wary of such large-scale outbreaks of takeoveritis. One of them is debt.

The New Kings of Debt

As the WSJ informs us in a recent article on mega-mergers involving old media companies, AT&T and Comcast will be left with some USD 350 billion in combined debt on their books once their respective deals are finalized, making them the most indebted companies on the planet. AT&T is buying Time Warner – which feels fatally reminiscent of the Time Warner/AOL merger – while Comcast is trying to buy most of 21st Century Fox (Disney is still in the ring as well, as it wants to get back the currently quite valuable Marvel movie properties held by Fox).

Meet the issuers of the largest corporate debt piles known to man. AT&T and Comcast are about to become the undisputed kings of the hill. It seems exceedingly likely to …read more

The Fed’s “Inflation Target” is Impoverishing American Workers

Redefined Terms and Absurd Targets

At one time, the Federal Reserve’s sole mandate was to maintain stable prices and to “fight inflation.”  To the Fed, the financial press, and most everyone else “inflation” means rising prices instead of its original and true definition as an increase in the money supply.  Rising prices are a consequence – a very painful consequence – of money printing.

Fed Chair Jerome Powell apparently does not see the pernicious effects of inflation (at least he seems to be looking around… [PT])

Photo credit: Andrew Harrer / Bloomberg

Naturally, the Fed and all other central bankers prefer the definition of inflation as a rise in prices which insidiously hides the fact that they, being the issuers of currency, are the real culprit for increased prices.

Be that as it may, the common understanding of inflation as rising prices has always been seen as pernicious and destructive to an economy and living standards.  In the perverted world of modern economics, however, the idea of inflation as an intrinsic evil has been turned on its head and monetary authorities the world over now have “inflation targets” which they hope to attain.

America’s central bank is right in line with this lunacy. According to the Fed’s “May minutes”, it wants

“[A] temporary period of inflation modestly above 2 percent [which] would be consistent with the Committee’s symmetric inflation objective.”*

Translated into understandable verbiage, the Fed wants everyone to pay at least 2% higher prices p.a. for the goods they buy.

Yes, by some crazed thinking US monetary officials believe that consumers paying higher prices is somehow good for economic activity and standards of living!  Of course, anyone with a modicum of sense can see that this is absurd and that those who espouse such policy should be laughed at and summarily locked up in an asylum!  Yet, this is now standard policy, not just with the Fed, but with the ECU and other central banks.

US true broad money supply TMS-2 since 1986. The domestic US money supply has increased by a stunning USD 7.85 trillion since 2008, or more than 150%. This was the by far largest ten-year surge in the US money supply of the entire post WW2 era. Naturally, there have been enormous effects on prices, they have just not shown up in CPI yet. This is in the nature of the process: new money always enters the economy at discrete points and propagates from there. One can certainly see the effects on asset prices, from stocks to real estate (the bubble in RE prices has in the meantime also been resurrected in its entirety). When and to what extent CPI statistics will be affected is not preordained. Experience shows that this tends to happen with a considerable lag. Note also: while money does clearly have a purchasing power that is diminished by money printing,  the “general level of prices” is actually a fiction. It cannot be “measured” or “calculated”, as that would require a constant with which …read more

Cryptocurrency Technicals – Navigating the Bear Market

 

A Purely Technical Market

Long time readers may recall that we regard Bitcoin and other liquid big cap cryptocurrencies as secondary media of exchange from a monetary theory perspective for the time being. The wave of speculative demand that has propelled them to astonishing heights was triggered by market participants realizing that they have the potential to become money. The process of achieving more widespread adoption of these currencies as a means of payment and establishing appropriate (and potentially more stable) exchange rates relative to state-managed fiat currencies is still underway.

A snapshot of cryptocurrency market caps as of June 12 – they made local lows two trading days later. After the small rebound since then, market caps are now slightly higher than those shown on this map, but it is still roughly in the right ballpark. Note: XRP has the third highest market cap, but we do not regard it as a true “cryptocurrency”. It is not a decentralized currency at all, it is a token under control of the company that issued it (it can be traded though and for a while there was a big burst of speculative demand for it, oddly enough mainly from South Korea). Bitcoin Cash (BCH) is the most important fork from the original BTC blockchain and in our opinion the better Bitcoin. It has a much larger block size, avoiding the scaling problems BTC encountered late last year (which were associated with long waiting times for transactions and soaring fees). BTC still enjoys a first mover advantage and trades at a far higher level as a result. There is no logical reason why it should, but that is a topic for another occasion.

At present the above mentioned process is still at a very early stage, hence speculative trading remains the dominant activity. Other use cases continue to be developed at a fairly rapid clip and an entire new economic sector surrounding blockchain technology and cryptocurrencies has emerged (currencies remain the major application for blockchain technology for now, but many other possibilities are explored). If and until the next stage is reached, cryptocurrencies are primarily one thing though: exciting trading sardines.

It is particularly difficult to determine by what yardsticks to evaluate virtual currencies. Similar to gold, they have no P/E ratio, so to speak (gold at least has a lease rate though). Some people argue that one should compare the market cap of BTC to that of the outstanding supply of US dollars to arrive at a long term target for the exchange rate. We don’t believe it is that simple – and whether such comparisons make even a modicum of sense depends on the still uncertain prospect of BTC indeed becoming a general medium of exchange one day.

Moreover, as we noted above with respect to the BCH fork, there is e.g. no good reason why BCH should trade at a large discount to BTC (it would actually seem to make more sense if it were the other way around). There is no …read more

Lift-Off Not (Yet) – Precious Metals Supply and Demand

 

Wrong-Way Event

Last week we said something that turned out to be prescient:

This is not an environment for a Lift Off Event.

An unfortunate technical mishap interrupted the latest moon-flight of the gold rocket. Fear not true believers, a few positive tracks were left behind. [PT]

The price of gold didn’t move much Mon-Thu last week, though the price of silver did seem to be blasting off. Then on Friday, it reversed hard. We will provide a forensic look at the intraday action on Friday, and our usual picture of the gold and silver fundamentals. But first, here is the chart of the prices of gold and silver.

Gold and silver priced in USD, as of the end of last week

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio (see here for an explanation of bid and offer prices for the ratio). It fell most of this week, recovering to unchanged by market close on Friday.

Gold-silver ratio, bid and offer

Here is the gold graph showing gold basis, co-basis and the price of the dollar in terms of gold price.

Gold basis, co-basis and the USD priced in milligrams of gold

On Friday, there was a big rise in the dollar (i.e. drop in the price of gold). And a sizable increase in the scarcity of the metal to the market (i.e., the co-basis). Nothing unusual about this.

The Monetary Metals Gold Fundamental Price fell another $16 this week to $1,335. The fundamental has now completed its round trip, first up out of the range it’s held since Q2 2017, and now back into that range.

Now let’s look at silver.

Silver basis, co-basis and the USD priced in grams of silver

The price of silver was up all this week, until Friday. The drop on Friday more than reversed the move from Mon-Thu. And not surprisingly, the scarcity of silver fell in those four days, and rose sharply on Friday.

The Monetary Metals Silver Fundamental Price rose 38 cents to $17.13, right back to where it was the previous week.

A Closer Look at Market Innards

Friday was a big day in the market. Let us look at the price and basis action. First, here is the gold price overlaid with the August basis.

Gold price action late last week vs. August basis

In the wee hours of the morning (this is London time), the basis begins around 1.2%. By 2:00 PM, it is down to about 0.93%. This is a drop of 25 bps. In other words, 21% of the total basis was sucked out during the move.

When basis falls, this means the price of futures is declining relative to spot. When it happens during a price drop, then we conclude that the selling was stronger in the futures than …read more

Gold Divergences Emerge

 

Bad Hair Day Produces Positive Divergences

On Friday the ongoing trade dispute between the US and China was apparently escalated by a notch to the next level, at least verbally. The Trump administration announced a list of tariffs that are supposed to come into force in three week’s time and China clicked back by announcing retaliatory action. In effect, the US government said: take that China, we will now really hurt our own consumers!  – and China’s mandarins replied: just you wait, we can hurt our consumers just as badly!

Left: the US administration releases details of its upcoming domestic consumer mistreatment measures; Right: China immediately shoots back with an image of the infamous ankle crusher which it plans to unleash on its own population in retaliation.

It’s all very sensible – after all, who needs trade? It is well known that mountain caves cut off from all contact with the outside world are the richest places on earth… no, wait. Anyway, ostensibly commodity futures traders took the news as a reason to sell. We don’t really believe it, since they were presented with the same “reason” an estimated umpteen times already and didn’t sell on those previous occasions. Nevertheless, commodities were sold – and the real reason is probably that global growth is turning down quite fast, with leading indicators outside the US recently entering contraction territory.

Gold sold off in sympathy, presumably because precious metals with a significant industrial demand component such as silver and the platinum group metals were hit quite hard. It doesn’t really make a lot of sense, but it should be noted that the relationship between gold and commodities is characterized by ambiguities. They often trend in the same direction – particularly when the USD is weakening –  but the economic conditions (or the state of economic confidence) that is bearish for commodities is actually bullish for gold and vice versa. It is ironic that gold has withstood a bearish fundamental backdrop for quite some time and is now actually selling off on developments that would normally be considered bullish rather than bearish.

Whatever the reasons for the selling, we prefer watching for technical clues, since  we can never know with certainty which underlying fundamental drivers will be assigned the greatest weight by market participants. The gold market continues to look intriguing on that basis – this seems a good time to pay attention and prepare for a potential trend change. The reason is that a number of potentially positive divergences are beginning to show up (while the highs earlier this year were marked by bearish divergences).

The chart above compares the gold price in USD to the HUI Index and gold priced in euro. The red dotted lines indicate the large bearish divergences put in after the seasonal rally beginning in December, the blue dotted lines indicate the bullish divergences which have emerged recently.

Obviously, divergences can always be erased – but the larger they are, the less likely that becomes. “Large” refers both to their …read more

Chasing the Wind

 

Futility with Purpose

Plebeians generally ignore the tact of their economic central planners.  They care more that their meatloaf is hot and their suds are cold, than about any plans being hatched in the capital city.  Nonetheless, the central planners know an angry mob, with torches and pitchforks, are only a few empty bellies away.  Hence, they must always stay on point.

Watch for those pitchfork bearers – they can get real nasty and then heads often roll quite literally. [PT]

One of the central aims of central planners is to achieve effective public exhortation.  While they pursue futility, in practice.  They must do so with focus and purpose.

For example, economic reports with impressive tables and charts, including pie graphs, are important to maintaining the requisite public perception.  Central planners know that financial scientism must always be employed as early and often as possible.

Statistics, with per annum projections, particularly those that show increasing exports and decreasing imports, are critical to maintaining the proper narrative.  The USA’s embarrassing deficit in the balance of international payments will certainly diminish if it is sketched accordingly in an “official” report… right?

Yet the planners always disregard the simple observation that an economy is composed of countless, and variable, inputs.  How is a new discovery or technology, and its effect on investment and labor, to be anticipated and forecast?  How are the actions of 7 billion individuals to be modeled and displayed on a tidy diagram?

Good old Friedrich A. Hayek  – depicted above – once coined the term “scientism” to describe the futile attempts of assorted social engineers and their academic advisors to express human action in the form of barren mathematical equations and statistics. Lettuce look at something one of his followers, the late Professor Austin L. Hughes, wrote in an article published in the autumn 2012 issue of “The New Atlantis” journal: “The fundamental problem raised by the identification of “good science” with “institutional science” is that it assumes the practitioners of science to be inherently exempt, at least in the long term, from the corrupting influences that affect all other human practices and institutions. Ladyman, Ross, and Spurrett explicitly state that most human institutions, including “governments, political parties, churches, firms, NGOs, ethnic associations, families … are hardly epistemically reliable at all.” However, “our grounding assumption is that the specific institutional processes of science have inductively established peculiar epistemic reliability.” This assumption is at best naïve and at worst dangerous. If any human institution is held to be exempt from the petty, self-serving, and corrupting motivations that plague us all, the result will almost inevitably be the creation of a priestly caste demanding adulation and required to answer to no-one but itself.” [PT]

Amid the Madness

This week Federal Reserve Chairman Jay Powell delivered the latest installment of the Fed’s public exhortation.  The occasion was the Federal Open Market Committee (FOMC) meeting statement and press conference.  Before we get to Powell’s remarks, however, some context is in order…

Nearly a decade ago, when Lehman Brothers …read more

Retail Capitulation – Precious Metals Supply and Demand

Small Crowds, Shrinking Premiums

The prices of gold and silver rose five bucks and 37 cents respectively last week. Is this the blast off to da moon for the silver rocket of halcyon days, in other words 2010-2011?

Various gold bars. Coin and bar premiums have been shrinking steadily (as have coin sales of the US Mint by the way), a sign that retail investors have lost interest in gold. There are even more signs of this actually, and this loss of interest stands in stark contrast to the firm gold price. Of course, retail investors have generally very little influence on the gold price anyway – they only serve as a contrary indicator. [PT]

We will look at the basis signals in a bit. But for now, we want to comment on the absolutely moribund state of the retail market. Coin and bar premiums are near or at long-term lows. That means buyers are not necessarily buying new product from the mints, but rather there is plenty of “used” product floating around the market from other retail customers who are selling.

Every dealer we talk to acknowledges volume is down too. So not only is there less revenue, but the margin on that revenue is smaller. I am here in San Antonio for the International Precious Metals Institute conference, and though it is my first time attendees keep saying it is a smaller crowd.

This is not an environment for a Lift Off Event. It is not bullish, except in the way that before the bull market often must come capitulation. This smells like retail capitulation.

Here are two charts shown in a recent Tom McClellan market report. They also illustrate “retail capitulation”, or rather “disinterest”, which from a contrarian perspective is even better in our experience. The chart to the left shows that Google searches on “buy gold” have recently declined to an 11-year low; the chart to the right shows the 2-week percentage change in gold held in the open-ended bullion ETFs GLD and IAU. Whether these ETFs create new share baskets and buy gold, or dissolve existing share baskets and sell gold depends on whether or they trade at a premium or a discount to NAV. Authorized participants then engage in arbitrage deals. When the ETFs accumulate gold it is a sign of strong buying interest pushing them to premiums to NAV in intraday trading – which then is arbitraged away by the creation of new share baskets. What makes this chart especially interesting in our opinion is the strong and recently growing divergence between the gold price in the action in the ETFs, with the former holding up quite well in the face of retail disinterest. This too is a bullish contrarian signal. [PT]

Fundamental Developments

Below is the only true picture of the gold and silver fundamentals. But first, here is the chart of the prices of gold and silver.

Gold and silver priced in USD

Next, this is a graph …read more

America Goes Full Imbecile

Credit has a wicked way

of magnifying a person’s defects.  Even the most cautious man, with unlimited credit, can make mistakes that in retrospect seem absurd.  But an average man, with unlimited credit, is preeminently disposed to going full imbecile.

Let us not forget about this important skill…  [PT]

Several weeks ago we came across a woeful tale of Mike Meru.  Somehow, this special fellow, while of apparent sound mine and worthy intent, racked up over $1 million dollars in student loan debt – all to become an orthodontist.

Surely, with several good text books, and a disciplined self-study program, Meru could have learned everything there was to possibly know about adjusting malpositioned teeth for roughly $200 bucks.  Instead, with the full backing of Uncle Sam’s loan program, he went full imbecile.

Yet Meru isn’t alone.  According to the Department of Education, there are 101 people in the U.S. who are a million dollars or more in federal student loan debt.  What’s more, there are 2.5 million people who owe at least $100,000.  What could they have possibly learned that could be so doggone valuable?

Did they discover how to turn nickels into dimes?  Did they solve the geometry of a four-sided triangle?  Did they learn the secrets of the universe?  Did they get an insider’s peek at something more than what happens under the sun?

Delusions of Grandeur

Only at rare moments are people capable of understanding the full implications of the catastrophes of their making.  These rare moments, often just before dawn, are the precise instants when they gain full clarity to the hopeless fact that they have gone full imbecile.  That every decision they have ever made has led them to this exact place – where they find themselves to be completely and utterly screwed.

Nations, like the people who compose them, have also demonstrated that they are unqualified to responsibly function in a world of unlimited credit. Here in The United States of Debt, federal debt has exceeded $21 trillion, corporate debt has topped $6 trillion [ed note: this is only the amount of non-financial corporate debt issued  in the form of bonds – the actual total is around $20 trillion (PT)], and total household debt has reached a record high of over $13 trillion. In other words, the country, as a whole, has gone full imbecile.

Behold the world’s greatest Ponzi scheme in all its splendor – US federal, corporate and household debt (see also our editor note above regarding the size of outstanding corporate debt). [PT]

These debt figures represent the early lightning of the oncoming storm.  These same debt figures are currently ignored by practically everyone.  The nation’s leaders, in particular, are ignoring them. After an 80 year run of near uninterrupted prosperity, who wants to think the unthinkable?

People would rather be flattered with delusions of grandeur than have cold buckets of ice watery truth dumped on their head.  They want to believe that they are exceptional and that everyone – especially them – can live at the expense …read more

Credit Spreads: Polly is Twitching Again – in Europe

Junk Bond Spread Breakout

The famous dead parrot is coming back to life… in an unexpected place. With its QE operations, which included inter alia corporate bonds, the ECB has managed to suppress credit spreads in Europe to truly ludicrous levels. From there, the effect propagated through arbitrage to other developed markets. And yes, this does “support the economy” – mainly by triggering an avalanche of capital malinvestment and creating the associated boom conditions, while “investors” (we use the term loosely) pile into ridiculously overvalued bonds that will eventually saddle them with eye-watering losses.

The famous dead parrot

Readers may recall previous discussions of credit spreads in these pages –  on a whim we likened the demise of creditor suspicion to the dead Norwegian Blue in the Monty Python sketch. Credit is considered “suspicion asleep”, and the debate in the sketch revolves around whether the bird is merely sleeping or actually dead. Given what has occurred in credit spreads over the past two years, it is not too far-fetched to state that creditor suspicion appears to be dead rather than just asleep.

But we knew it would do the zombie thing and wake up again one day. We refer you to The Coming Resurrection of Polly and An Update on Polly for some background information. In the former we discussed inter alia how credit spreads have behaved in the past in the final stages of a boom and showed numerous charts illustrating what we believed to be quite important points; something traders and investors needed to file under “things to keep a close eye on”.

The points were a) the end comes very suddenly (and hence “unexpectedly”) every time and b) from a technical perspective, all it took on past occasions was a breakout in spreads above the nearest lateral resistance level. A small, barely noticeable breakout, followed by a successful retest – and suddenly spreads would take off into the blue yonder.

This is precisely what has just happened in euro-land, i.e., the global center of spread manipulation by a central planning agency. Behold a classic chart picture:

BofA/Merrill Lynch euro area high yield index spread (option-adjusted refers to the to the incorporation of early call options by issuers, which allow them to redeem bonds ahead of schedule). This is a picture-perfect breakout in junk bond spreads. Based on the  technical picture, this market is now a screaming short (n.b.: prices move inversely to yields).

Proceed with Caution Anyway

If you are pondering whether you should mortgage the farm, pimp grandma and sell your offspring into slavery to bolster your shorting wherewithal, hold your horses for a moment. As always there are caveats, despite the admittedly enticing technical imagery (coupled with the knowledge that corporate debt has been an accident waiting to happen for quite some time). We do see a potential opportunity here, but one should proceed with caution. Here is why.

Consider that the driving force behind the breakout was a political event, namely the recent …read more

Industrial Commodities vs. Gold – Precious Metals Supply and Demand

Oil is Different

Last week, we showed a graph of rising open interest in crude oil futures. From this, we inferred — incorrectly as it turns out — that the basis must be rising. Why else, we asked, would market makers carry more and more oil?

Crude oil acts differently from gold – and so do all other industrial commodities. What makes them different is that the supply of industrial commodities held in storage as a rule suffices to satisfy industrial demand only for a few months at most. By contrast, gold inventories are in theory large enough to satisfy fabrication and industrial demand for 70 years (“in theory” because this is under the assumption that there is no monetary or investment demand for gold). This is in fact one of the reasons why gold is the money commodity. [PT]

Photo credit: Getty Images

We are grateful to Peter Tenebrarum at Acting Man and Steve Saville at The Speculative Investor for setting us straight. According to their data, oil has been in backwardation for many months. The rising open interest position is due to, among other players, increased hedging by producers.

The gold market is unique, in that all of the gold produced over thousands of years is still in human hands. All of that metal is potential supply, at the right price and under the right conditions. And virtually all of the supply to the market today is existing gold stocks. Mine production is very small compared to total stocks.

In our oil assessment, we implicitly accepted this unique gold market condition as being true for oil. We assumed that new contracts are carry trades made by market makers.

However it is obvious that, as the price rises, oil producers ramp up production. And this creates a need to hedge. They sell their production forward. What is true for gold isn’t true for oil.

Gold vs. the CRB since 1980. Although this chart doesn’t show it, there is a very long term tendency for the gold price to rise against industrial commodity prices (often interrupted by wild fluctuations in the short to medium term). It is a trend that has been in place for thousands of years. [PT]

Speculators were buying futures, figuring to profit from a rising price as they saw the backwardation (they were right until May 22). Thus there were two sides adding to their position sizes.

That is a bit of an oversimplification, but we will leave it to others who study the oil market to provide full analysis. Anyways, before we get back to our regular scheduled programming, gold and silver, we said something last week that we stand behind:

One, the long-term trend is still falling interest rates.

Two, commodity prices correlate (and are caused by) interest rates. Rising rates causes rising prices, and falling rates causes falling prices for reasons I spell out in my Theory of Interest and Prices.

The prices of gold and silver, measured in the inflationary and unstable …read more

Who’s That Ringing the Korean Bell of Friendship?

 

Friends and Enemies

Do citizens of the United States trust their government will do what’s right?  It depends who you ask. By and large, the esteem the American populace holds its government in is likely a small fraction of what it was roughly 65 years ago.  That was when Lieutenant General William Kelly Harrison Jr. signed the Korean Armistice Agreement.  Certainly, in days gone by representatives of other nations held the U.S. government in higher regard.

The most austere signing ceremony ever: Lieut. Gen. William K. Harrison, Jr. (seated left), and Korean People’s Army and Chinese People’s Volunteers delegate Gen. Nam Il (seated right) sign the Korean War armistice agreement at P’anmunjŏm, Korea, July 27, 1953. No-one seems really happy – presumably, no-one was. [PT]

Several weeks ago, President Donald Trump decided to pull the U.S. out of the Iran nuclear deal and reimpose sanctions on Iran. This action, and its implications for various European companies with business interests in Iran, stuck like a chicken bone in the craw of European Council President Donald Tusk.  “With friends like that who needs enemies,” tweeted Tusk.

Indeed, President Trump is an erratic fellow.  He’s a master table-pounder.  He goes about his business with passion and the appearance of purpose.  His emotions run hot.  Yet, he has ice in his veins.

Moreover, his strategy for making America great again is unclear.  One day he starts a trade war.  The next day he lends a helping hand to Chinese telecom company ZTE. If you recall, ZTE’s the company that was busted for illegally exporting U.S. technology to Iran and North Korea in violation of trade sanctions.  Are Trump’s actions all part of his art of the deal?  Or are they the ambiguities of a lunatic?

Tusk meets the “Trump threat” to search for a lost contact lens in Brussels. [PT]

Photo credit: AP

Whatever they may be, Trump better have his act together.  In less than a fortnight, he’ll begin negotiating what may be the most important deal of his life – sparking up a new bromance with North Korean leader Kim Jong-un. What follows is a scratch for clarity…

The Korean Bell of Friendship

Angel’s Gate Park sits high upon the bluffs at the southern tip of the Palos Verdes Peninsula, in the San Pedro district of Los Angeles. Winds gusts off the Pacific Ocean from three directions, explode up the face of the sea cliffs, and wildly swirl about the park’s crest.

Sweeping views of the mega Port of Los Angeles / Port of Long Beach shipping complex fill the eastern scenic scape.  To the west, sits the posh homes of Rancho Palos Verdes, and Trump National Golf Course.  Periodically, the 18th hole slides into the sea.

Catalina Island rises from the waters like a mountain berg to the south.  Peering over the bluff, past Point Fermin Lighthouse, the vertical expanse of the island appears to be just a short swim away.  Lastly, to the north are the seedy streets of San Pedro; the former stomping grounds of the …read more

“Sell in May” Chart Update – The Impressive Market Weakness in the Summer Half-Year All Over the World

The Details Plotted

In the last issue of Seasonal Insights I showed you the statistics associated with the popular truism “sell in May and go away” in the countries with the eleven largest stock markets. The comparison divided the calendar year into a summer half-year from May to October and a winter half-year from November to April. In all eleven countries, the winter half-year outperformed the summer half-year. As announced on that occasion, here are the details for all countries that were reviewed.

October meeting after not selling in May

The Half-Year Patterns of Eleven Selected Countries

Below are the respective price patterns in the form of charts. These show the chained stock market performance in all eleven countries during the summer months in red, during the winter months in green as well as the full year returns (=actual performance of the index) in blue.

Note: the charts are linearly scaled, as a result of which the performance patterns of the summer and winter half-year periods visually don’t appear to add up to the full year performance.

Canada: Summer Half-Year vs. Winter Half-Year

The winter half-year even beats the full year!

China: Summer Half-Year vs. Winter Half-Year

Prices rise almost as strongly in the winter months as over the full year

France: Summer Half-Year vs. Winter Half-Year

The winter half-year beats the full year significantly!

Germany: Summer Half-Year vs. Winter Half-Year

Once again the winter half-year clearly beats even the year as a whole

Japan: Summer Half-Year vs. Winter Half-Year

If one employs the “sell in May” strategy, even Japan is in a long term bull market

Korea: Summer Half-Year vs. Winter Half-Year

During the winter prices rise almost as much as over the year as a whole

Taiwan: Summer Half-Year vs. Winter Half-Year

In Taiwan the summer half-year is deeply in the red

United Kingdom: Summer Half-Year vs. Winter Half-Year

It suffices to be invested during the winter months

US: Summer Half-Year vs. Winter Half-Year

The winter half-year beats the summer half-year, but not the full year

As you can see, only two of the eleven largest stock markets in the world are actually posting notable gains in the summer half-year: Hong Kong and India.

In all other markets it was sensible and profitable to sell in early May – as in these other countries the markets either posted losses or gains of less than one percent in the summer months. Investing in these markets during the summer was barely worth it, after all, by employing the “sell in May” strategy one is also exposed to less risk because one is only invested half of the time.

Detailed Results by Country

The following table once again shows the half-year results of the eleven countries in detail. Half-year periods in which it was profitable to be invested on a risk-adjusted basis are highlighted …read more