While FANG (Facebook, Amazon, Netflix, Google) has become ubiquitous among the retail investing public still 'trading stocks', now it is time to meet NOSH (Nike, O'Reilly, Starbucks, Home Depot). The reason is simple -without these 8 stocks, the S&P 500 would be down year-to-date..."solid foundation" for the next leg in the bull market? Or teetering inverted pyramid scheme?
Finally, we couldn't help but notice that this list of 8 stocks is basically all the names that Jim Cramer is jamming down retail investors' throats (and thus hedge fund momo chasers) as the only stocks "that work." Such 'weak' hands do not bode well if this whole ponzi scheme turns down once again.
Chart: Goldman Sachs
MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - Nov. 8th, 2015 - Nov 14th, 2015
RISK REVERSAL - WOULD BE MARKED BY: Slowing Momentum, Weakening Earnings, Falling Estimates
RISK REVERSAL - WOULD BE MARKED BY: Slowing Momentum, Weakening Earnings, Falling Estimates
GLOBAL RISK SIGNALS
JAPAN - DEBT DEFLATION
EU BANKING CRISIS
Strong $ = Implosion in “Risk On” Assets
Brazil’s stock market (blue line),
Commodities in general (red line) and
Oil (green line).
An inverted US Dollar chart (so when the US Dollar rallies, the chart falls),
The US Dollar rally, combined with the ECB’s policies and the Fed’s hint at raising rates in December, is at risk of blowing up a $9 trillion carry trade.
When the Fed cut interest rates to zero in 2008, it flooded the system with US Dollars. The US Dollar is the reserve currency of the world. NO matter what country you’re in (with few exceptions) you can borrow in US Dollars.
And if you can borrow in US Dollars at 0.25%... and put that money into anything yielding more… you could make a killing.
A hedge fund in Hong Kong could borrow $100 million, pay just $250,000 in interest and plow that money into Brazilian Reals which yielded 11%... locking in a $9.75 million return.
This was the strictly financial side of things. On the economics side, Governments both sovereign and local borrowed in US Dollars around the globe to fund various infrastructure and municipal projects.
Simply put, the US Government was practically giving money away and the world took notice, borrowing Dollars at a record pace. Today, the global carry trade (meaning money borrowed in US Dollars and invested in other assets) stands at over $9 TRILLION (larger than the economy of France and Brazil combined).
This worked while the US Dollar was holding steady. But in the summer of last year (2014), the US Dollar began to breakout of a multi-year wedge pattern:
Why does this matter?
Because the minute the US Dollar began to rally aggressively, the global US Dollar carry trade began to blow up. It is not coincidental that oil commodities, and emerging market stocks took a dive almost immediately after this process began.
The below chart shows an inverted US Dollar chart (so when the US Dollar rallies, the chart falls), Brazil’s stock market (blue line), Commodities in general (red line) and Oil (green line). As you can see, as soon as the US Dollar began to rally, it triggered an implosion in “risk on” assets.
This process is not over, not by a long shot. As anyone who invested during the Peso crisis or Asian crisis can tell you, when carry trades blow up, the volatility can be EXTREME.
Indeed, the US Dollar as broken out of a MASSIVE falling wedge pattern that predicts a multi-year bull market.
The market drop in August triggered by China devaluing the Yuan (another victim of the US Dollar bull market) was just the start. Once the US Dollar rally really begins picking up steam, we could very well see a crash.
MACRO News Items of Importance - This Week
GLOBAL MACRO REPORTS & ANALYSIS
US ECONOMIC REPORTS & ANALYSIS
CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES
TECHNICALS & MARKET ANALYTICS
COMMODITY CORNER - AGRI-COMPLEX
THESIS - Mondays Posts on Financial Repression & Posts on Thursday as Key Updates Occur
THE CORE TENETS OF THE AUSTRIAN SCHOOL OF ECONOMICS
FRA Co-Founder, Gordon T. Long interviewed Robert Blumen, noted follower of the Austrian School of Economics, on the Core Tenets of the Austrian School and the Key Elements for investing in an Era of Financial Repression.
1. All economic understanding must be based on individual action 2. Subjective valuation drives prices 3. Marginal utility 4. Entrepreneurship 5. Time preference as the basis of interest and profit 6. The role of capital in production 7. Savings is required to create capital 8. Price Theory: – prices determine costs, not the other way around 9. Money as an evolutionary solution the problem of barter 10. Precious metals as an evolutionary solution to the choice of the best money 11. The purchasing power of money as a price that balances money supply and money demand 12. Non-neutrality of money (Cantillon effects) 13. The importance of money prices 14. Money is a good, and like any good, money does not have constant purchasing power. Stable money does not mean stable prices. 15. Mises’ “critique of intervention”: one thing leads to another 16. The “impossibility” of socialism (central planning) 17. Macro-Economics must be founded on micro economics 18. Macro-economics is based on Say’s law. 19. The rejection of the Keynesian revolution in macro. 20. Money and money substitutes (bank deposits, bank notes). 21. Banking with 100% gold reserves 22. Fractional reserve banking. The Austrian critique of fractional reserve banking 23. Central banking. The Austrian critique of central banking.
24. Austrian business cycle theory – the theory of unsustainable booms drive by fractional reserve banking and central banking.
a. Inflation is not just rising prices, it distorts production as well. b. Distortions are unsustainable c. The “crack up bust” as one possible ending to the unsustainable boom
a. Deflation has been demonized by the Keynesians. b. Natural slow deflation is the result of increasing production. c. Deflation is the correction process from inflation. d. Deflation is not a mouse trap that the economy gets stuck in and cannot escape.
26. An Austrian understanding of recessions and depressions through Say’s Law, entrepreneurship, and market price theory
KEY ELEMENTS IN AN ERA OF FINANCIAL REPRESSION
1. Entrepreneurs create wealth by employing scarce resources in production within the context of the price system.
This requires real markets with real prices.
2. Central planning can not replace market prices.
3. Central bankers have it backwards. Counter-cyclical policies create the business cycle.
4. Interest is not a number you can set to anything you like for “policy” reasons. It is a price and it cannot be zero.
5. Attempting to keep interest rates at zero creates unsustainable distortions in the productive part of the economy.
6. Something that is unsustainable must stop - at some point.
7. In the end there are two choices – market prices or destruction of the monetary system
8. Investors think in terms of money, but money itself is unstable.
9. The path from fake prices to real prices will be difficult.
Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.
THE CONTENT OF ALL MATERIALS: SLIDE PRESENTATION AND THEIR ACCOMPANYING RECORDED AUDIO DISCUSSIONS, VIDEO PRESENTATIONS, NARRATED SLIDE PRESENTATIONS AND WEBZINES (hereinafter "The Media") ARE INTENDED FOR EDUCATIONAL PURPOSES ONLY.
THERE IS RISK OF LOSS IN TRADING AND INVESTING OF ANY KIND. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
Gordon emperically recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, he encourages you confirm the facts on your own before making important investment commitments.
Information herein was obtained from sources which Mr. Long believes reliable, but he does not guarantee its accuracy. None of the information, advertisements, website links, or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities.
Please note that Mr. Long may already have invested or may from time to time invest in securities that are discussed or otherwise covered on this website. Mr. Long does not intend to disclose the extent of any current holdings or future transactions with respect to any particular security. You should consider this possibility before investing in any security based upon statements and information contained in any report, post, comment or recommendation you receive from him.
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