Aggregate Index Theory, Gold’s Direction

The Dow Futures, when I checked earlier, were up a fraction of a point. It reminded me I should at least mention one aspect of our ChartPack work over on our www.peoplenomics.com subscriber side.

You see, whether you are a big whale of an investor, or just a little small-fry with nothing other than a small pension plan investment to manage, there is much to be learned from watching the market at least once per week. Generally, the time to do that is on Friday and hour or two ahead of the market close.

The reason?

There is a lot of “hot money” sloshing around the world, but a non-trivial amount goes “off the table” over weekends. I mean, logical when you think about it; who wants to be in a position for two-days when there is nothing you can do about your position. Imagine the havoc in the markets if (and these are not predictions, only illustrations) if Hillary took a great fall, or Donald Trump did something out of character, or that Russian fleet happens to run out of fuel off North Africa and turned toward other than their expected destination at Tartus in Syria. Or, imagine they started launch cruise missiles to speed along the Syrian conflict….

That’s some of the painfully learned logic of my personal trading approach. Oh, sure, you can buy the Dow, but that’s only 30 stocks and if you’re with the Presidential Working Group on Markets and you’re working stable markets until the election, the Dow is a pretty thin place to be. Buying bushel-baskets of options (long or short, depending on desired results) can move the Dow.

But take a broader index like the S&P 500. Moving that broad a slice of financial assets becomes non-trivial.

So as we head into the last day of trading for the week, ahead of our Peoplenomics analysis which wraps up a lot of numbers into a model to arrive as a simple Long, Cash or short decision, I’d just point out that the S&P 500 closed yesterday at 2,133.04.

This matters because you can click over to Yahoo Finance here, nudge the Historical Data tab, and see that last Friday’s close on the S&P shows 2.141.16.

Even if the Futures (*which we check from FinViz here) are showing +3.50 (at least earlier), that still suggests that major breaking news aside, the close today ought to be around 2,136.50. And that, on a broad basis, is how the markets have rolled this week.

Now, if you’re an investor who is serious about making a little dough, you can take this to all kinds and analytical detail, but the process is pretty simple.

Oh, and also best applied after 1:30 PM Central time because around there the European money comes off the table as those markets shut down ahead of ours. It is then – through the opening Sunday evening of the Asian markets again – that we have a weekly pause as investors pick out belly-button lint and try to figure where the herd is going next week.

If you have telephone transfer control over your pension plan allocations, you can go through this exercise weekly as well. But when it comes to one typical choices like a Treasury (or bond) choice, you need to pick the right data to look at. I’d suggest the CBOE 10-Year Treasury Note (symbol ^TNX) and go through the same exercise.

The 10-year had climbed to 1.843 Thursday which is up from last Friday’s 1.74. The rates are going up!

From these two items we can infer that the odds makers believe on the Bond side that either Hillary will win and with her will come additional inflation, or that the Fed could pull off a November surprise and raise rates as the FOMC meets next week. Either way, bond yields are going up, which means bondholder assets are going down. So if I were managing a pension account of my own, I’d probably be in money-markets/cash with the account until we get a sense of things after the election.

THIS IS NOT FINANCIAL ADVICE, just a discussion of how to set about making informed decision. It’s your future, so play it carefully. But you may wish to remember Ure’ saying: “He who sells and runs away, has some cash another day.”

We hate not having a pretty solid sense of what’s coming although sometimes in markets, just like casinos when the luck isn’t running, the safest place for your money is in cash or money-markets. You might miss the first part of the next big move, but the search for that is what we chase after over at Peoplenomics.com.

Gold & Silver Directional Theory

The same thing works here, too. Take the SPDR Gold Shares (GLD) and look at the Thursday close (121.01) and where it was a week ago (*120.83).

From this, we might infer that physical assets aren’t all dead yet. And to convince ourselves, we click over to the iShares Silver Trust (SLV) and see it was 16.73 yesterday and 16.65 a week ago.

This will drift around, but from this we can also compare the gold increase for the week (0.1389%) versus the increase in silver (0.4894%) and make the conclusion that silver (*using our proxy trading vehicles as comparative pricing tools, not going to the physical data at Kitco.com) is showing a bit more comparative strength.

From this we can infer that rate-sensitive assets are worried about future inflation. And judging by how the Federal Reserve has been orchestrating the huge increases in M1 (the cash and short term deposits in Money Supply data), we assume the markets are “dumb” at all.

At some level, they tell us the future. And that future is simply this: As soon as the election is over, we look for rates to rise (if it doesn’t happen next week). When it does, there is a huge amount of back pressure to blast inflation much more than a single 1% rise, although I think it was Goldman figured out (or one of their analysts did) that a 1% rise in bonds would result in $1-trillion in bond losses, which would leave money nowhere else to hide except in equities (stocks) which are somewhat adjusted to inflation through their pricing.

Put another way: Could be that the reason stocks are going up, and not the groceries (at least so much) is simply because stock prices may be forecasting a great big bump in inflation.

At first, that will look like a stock bubble. But then it will look like an imploding economy if it
“runs away” with people’s purchasing power.

We have no reason to expect otherwise.

This discussion continues in the Peoplenomics.com ChartPack tomorrow if you’re interested. (Hint: Subscribe, damn it!)

Press Releases du Jour

Being sick of politics, as I’m sure you are by now, we turn to financial news items with GDP from the Bureau of Economic Analysis out first:

“Real gross domestic product increased at an annual rate of 2.9 percent in the third quarter of 2016 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.4 percent.

The Bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see “Source Data for the Advance Estimate” on page 3). The “second” estimate for the third quarter, based on more complete data, will be released on November 29, 2016.”

If you are looking for “the number” it may be found in the tables over here and it shows an annual run-rate of GDP for Q3 at $18.6512=Trillion. ($18,651,200,000,000)

Just for giggles, the Federal Debt to the Penny this morning is $19,795,497,461,281.62.

Dividing GDP run rate into Debt to the Penny we infer that America owes 6.1352% more than we make in a year.

Happy Greece time is coming which may explains hard assets firming, you think?

Then there is the Employment Cost Index from the Department of Labor:

“Compensation costs for civilian workers increased 0.6 percent, seasonally adjusted, for the 3-month period ending in September 2016, the U.S. Bureau of Labor Statistics reported today. Wages and salaries (which make up about 70 percent of compensation costs) increased 0.5 percent, and benefits (which make up the remaining 30 percent of compensation) increased 0.7 percent.“

Now we turn on the Truth Detector as we continue with this part:

“Private Industry Workers

Compensation costs for private industry workers increased 2.3 percent over the year, higher than the ,September 2015 increase of 1.9 percent.”

I didn’t go digging for government worker pay increases, but the Private Sector Employment Cost doesn’t all come in as wages, it’s the whole package of labor costs.

I didn’t go digging for government worker pay increases, but the Private Sector Employment Cost doesn’t all come in as wages, it’s the whole package of labor costs. Your paycheck may vary.

A Lot.

By the way, after this came out Futures showed the Dow up 40 – so this is very much data in the “expected” zone.

Trick of politics for one more week is “no surprises.”

OK, More Sickening Political Crap

Even the Washington (Amazon) Post is admitting the Hillary Clinton lead is shrinking. Like the New York Times, the WaPo has been very Clinton friendly. Continuation bias, anyone?

Meantime, an artificial intelligence program is predicting Trump will win. Details about MogAI here.

I promised a shorter column this morning so I’d better just call it….