- Is The Wall Street Journal reading David Stockman?
- The market feels “distorted and unnatural” because it IS distorted and unnatural
- How the first presidential debate could “blindside” the market
- GPUs: What they are, why they’re growing and the drivers of intense demand
- A 5 travel alert mashed up with the War on Cash
- How to solve shortages, Venezuelan version… Transformers toys as lethal weapons… Sammy Hagar, gold bug?… and more!
Your editor experienced a strange déjà vu scanning the front page of this morning’s Wall Street Journal… and not because the first sips of coffee were yet to kick in.
“The past 30 days have been the least volatile of any 30-day period in more than two decades,” says the story. “Only five days during the most recent stretch saw the S&P 500 move by more than 0.5% in either direction.”
It’s not only actual or “realized” volatility that’s low. So is “implied” volatility, as measured by the VIX index — sometimes known as the market’s “fear gauge,” based on the action in S&P 500 index options. That’s the black line on the chart in the Journal story.
The article points out that super-low volatility preceded the big market sell-off in 2011 that coincided with U.S. Treasuries losing their AAA rating… and, before that, the earliest signs of the financial crisis in the late winter of 2007.
Now?
“Everything feels distorted and unnatural,” Citigroup credit strategy chief Matt King told the paper. “You know the source of that is the central banks, but equally, there’s nothing to stop them carrying on.”
Ah, yes. With every market hiccup, central banks swing into action. The summer complacency speaks to a confidence that they’ll always ride to the rescue.
“The danger,” the story concludes, “is not so much complacency about markets, but complacency about central banks. The lesson of the past seven years is that policymakers will step in every time disaster strikes. But investors tempted to rely on the central banks should note that disasters did still strike, and markets had big falls before help arrived.”
Gee, that seems really familiar? Where did I see that before? Only in more blunt language?
Oh, yes…
“Volatility is about to be awakened from its summer slumber in dramatic fashion,” wrote David Stockman to his Bubble Finance Trader subscribers six days ago.
“These potential shocks include:
- “The upcoming Fed meetings in September and later this year
- “A rollicking presidential campaign fraught with more explosive potential than any other in modern history
- “Increasingly dramatic warning signs that global deflation is intensifying
- “A recessionary slump hitting the domestic economy
- “A growing recognition by the fast money traders that the stock market is absurdly overvalued and that the time to reverse direction to the short side is fast approaching.”
The S&P 500 is up 19% from its lows six months ago. The VIX, meanwhile, is down 62% from its highs six months ago.
A week ago today, the VIX didn’t move — at all — for more than an hour. “The Wall Street casino had become so complacent and fearless,” says David, “that you needed a motion detector to identify signs of life.
“In our judgment, that marked the inflection point for this cycle.”
And the potential for market shocks is accentuated by this year’s, uhh, peculiar presidential campaign. David knows well, not least because of his time as an aide to Ronald Reagan — before and after his 1980 election.
“On Sept. 26, Trump and Hillary will have their first presidential debate,” David reminds us. “The results of this debate could blindside the market because at the moment, Hillary Clinton is considered to be a shoo-in.
“I beg to differ and have some personal experience with respect to what might be an October surprise.
“Back in 1980, I was actually Ronald Reagan’s sparring partner in his Jimmy Carter debate rehearsals. I saw what can happen when a candidate finally gets the pulse of the country and scores big in the presidential debates.
“Reagan did that and came from way behind to win. There is no telling what Donald Trump will do, but at this stage of the game, there is absolutely no reason to think that the market has it right and that Hillary has it in the bag.”
Even if Hillary does have it in the bag, election years have a way of upending a complacent market’s assumptions.
David tells us in every election cycle he’s witnessed during his long career in Washington and on Wall Street — going back to his first campaign for Congress 40 years ago — he’s seen how certain insiders exploit that election cycle for fast gains. “It’s a strategy that’s worked for the past 10 elections,” he says — “in steady and volatile times, in Republican landslides and Democrat sweeps.”
In 2012, this strategy delivered gains of 124–247%. And that’s just one example. This time out, with so much potential for market shocks, he sees the potential for gains of 510%.
In less than 72 hours, David will host a live online event from his home in Aspen — revealing this strategy to retail investors for the first time.
It won’t cost you a thing to watch, and you can submit questions to David during the event. It starts Thursday at 7:00 p.m. EDT. All we ask is that you sign up in advance, so our computer folks can set aside enough server capacity to accommodate everyone. Check out David’s invitation and drop us your email address at this link.
Back to that “eerie quiet”: It’s once again permeating the stock market today.
The S&P is up just a third of a percent, at 2,190… which is equal to the record close of eight days ago.
Other asset classes are likewise calm — the 10-year Treasury yield at 1.55%, gold at $1,338 and the dollar index at 95.5. Once again, if it’s excitement you’re looking for, it’s in crude — up 1.3% at last check and back above $48.
The economic numbers of the day are a mixed bag. The “flash PMI” — an early read on nationwide manufacturing for August — rang in far weaker than expected. But existing home sales came in way stronger than expected. So much for the “expert consensus.”
Moore’s law is right on schedule in the development of graphics processing units, or GPUs, for computers and other electronic devices.
As you might already know, Moore’s law — named after Intel co-founder Gordon Moore — says that computer processing capability doubles every two years, with the cost falling by half.
Using 1999 as a starting point, that implies GPU power should grow roughly 500 times by next year.
Ray Blanco of our tech team tells us a leading maker of GPUs is right on schedule. Its first GPUs introduced in 1999 had 23 million transistors. The latest model is packed with 12 billion. And they’re running at much faster speeds.
“These high-performing chips are proving to be revolutionary,” says Ray. Gamers are leading the way in acquiring these latest and greatest GPUs, but “the same architecture being used in gaming GPUs is also very useful in high-performance computing and artificial intelligence applications. That business is booming, too. Furthermore, the company is increasing exposure to car infotainment and autonomous driving systems.”
And then there’s virtual reality, which we keep coming back to. “VR is a trend nowhere near maturity, and it is going to drive demand for more powerful, higher-margin graphics processors.”
It’s one of those rare trends likely to prove immune to market shocks… and why Ray is so eager to introduce you to the investment possibilities.
Jim Rickards flew into our Baltimore headquarters this morning from Seattle, but not without a hiccup thanks to the War on Cash…
It’s not just the government and the banks that are hostile to cash. “More and more, businesses are refusing to take your cash,” Jim wrote his Strategic Intelligence subscribers yesterday. “They hate handling it, and it’s expensive to transport, store and insure.”
Case in point: A fast-casual restaurant chain called Sweetgreen. At nearly all of its locations on both coasts, only cards or smartphone payments are accepted.
At the risk of repeating ourselves, Jim reminds us of a cashless society’s dangers: “It forces you into a digital system where your money can be hit with negative interest rates, service fees, account freezes, bail-in charges and other forms of theft. When pigs are going to be slaughtered, they are first herded into pens for the convenience of the slaughterhouse. When savers are going to be slaughtered, they are herded into digital accounts from which there is no escape.
“There is still shelter in physical gold, silver, land and other hard assets.”
At least we’re not Venezuela, where the government has solved the problem of bread lines… by banning them.
We’re compelled to update our periodic chronicle of socialism’s 21st-century poster child today with word that Venezuela’s National Superintendency of Fair Prices…
[We’ll give you a moment to reflect that an agency with such a name exists]
… has begun fining bakeries that allow lines to stretch out the front door. According to the head of this agency, one William Contreras, the lines can’t possibly have anything to do with shortages brought about by more than 15 years of dunderheaded economic policy. No, it’s a “strategy of generating anxiety” on the part of people who object to the rule of President Nicolás Maduro. Of course…
Checking in with the Troubled Currencies Project maintained by Johns Hopkins econ professor Steve Hanke, we see the real-world inflation rate in Venezuela keeps slowing; it’s down to “only” 49% now. Maybe that’s what happens when an economy is reduced to barter and subsistence…
“I had to chuckle at your report about selling model guns at the Moscow airport,” a reader writes after yesterday’s episode.
“Many years ago, must be at least 25, we had our hand baggage searched at security at Heathrow, because the alert security guard had spotted what he/she thought was a gun in our carry-on.
“Turned out it was one of my son’s Transformers, which he packed in its shape as a gun. It had to be put in the charge of the pilot and was returned to us when we arrived back in Toronto. Ain’t travelling an adventure!”
“Since 2009,” writes one of our true longtimers, “I’ve loved the 6.3-Min. Forecast (average time it takes me to read) for its mix of investment news, current events and historic references.
“Friday’s issue started with a Metallica reference, followed immediately by the $86.66 earnings-per-share comment.
“I always knew you guys must have great taste in music, and this reminded me of an album I discovered a few months back — Paper Money by Montrose (1974). Aside from being a rock ’n’ roll masterpiece, the lyrics for ‘Paper Money’ were ahead of their time (‘Take away all my silver/ Take away all my gold/ And hand me a stack of paper/ Paper money don’t hold’).
“I was born in the late ’70s and am ashamed to admit I didn’t discover this gem until last week. I feel it’s your obligation as publishers of this great newsletter to share this as a piece of monetary and musical history (… and it seems Sammy Hagar may be more aware than the typical rock ’n’ roll stereotype would suggest)!
“P.S. Even though we just finished beating the five-minute duration horse to death for the umpteenth time, I couldn’t resist stoking the fire.
“P.P.S. Keep up the great work!”
The 5: Interesting… It’s new to us…
The timing is also interesting, coming three years after Nixon closed the gold window. And its release in October 1974 was only weeks before it was once again legal to own gold bullion in the United States.
By the way, did you catch the subtle Dream Theater reference off the top of today’s episode?
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Reminder: The first presidential debate is Monday, Sept. 26. Before that date, much of Wall Street’s and Washington’s “smart money” will pile into an investment strategy that’s generated gains of 150% or better in the run-up to a presidential election.
David Stockman will reveal this technique in less than 72 hours — during a live online briefing Thursday night at 7:00 p.m. EDT. You can watch FREE, as long as you send us your email address to let us know you’re attending. Details and signup are right here.
