Faber News Flow

Stocks closed the gap I mentioned on Thursday (the red rectangle), they are now consolidating before their next move.     What If There Was No Money? Breadth which leads stocks, suggests it will be a move higher, probably to the 2,800-3,000 range on the S&P 500 (blue rectangle).   After that comes the BIG drop…. Not because the US is in trouble necessarily, but because China is in REALLY BIG trouble. At the end of the day, the US economy might hold up, but there is no way China can implode without hurting US stocks in a significant way. Copper and China's stock market tell us that reality is much lower than most expect.  

Automobile sales in India are crashing at the steepest pace since December 2000 , an auto industry body told   Reuters   on Tuesday. The Society of Indian Automobile Manufacturers (SIAM) said domestic passenger vehicle sales in July plunged 30.9% to 200,790. It's the ninth consecutive month of declines and the steepest drop in 18 years. India has been a significant manufacturing hub for carmakers until 2017, with annual sales of passenger vehicles growing by 33% over the past five years. The downturn in the automobile industry is a significant obstacle for Prime Minister Narendra Modi's government because autos account for 50% of India's manufacturing output. Automobile companies, directly and indirectly, employ more than 35 million people. "If this industry goes down, then everything gets hurt.  Manufacturing, jobs, and revenue to the government," Vishnu Mathur, director general, SIAM, told Reuters on Tuesday, adding that car and motorcycle manufacturers have alr...

When it comes to investing in safe assets such as US Treasuries, the decision process is relatively simple: one buys coupon securities (with a maturity over 1 year), on specific expectations of inflation (or deflation) and receiving current income in the form of a cash coupon (assuming there is one). When it comes to T-Bills the decision is simpler: it's all about liquidity preference - does one keep cash equivalents in the form of US Dollars, whether paper or electronic, or does one purchase Bills, with a maturity from 4- to 52-weeks. If investors are mostly happy to exchange money for Bills, it is generally said that liquidity in the financial system is ample; if however investors are unwilling to part with their "cash" in order to fund the US Treasury (as a reminder, in a time of chronic budget deficits, Uncle Sam has to issue debt to fund its operations), then there is a liquidity shortage. We bring this up because last week we warned that as the Treasury scrambles to...

The Federal Reserve, responding to concerns about the economy and the stock market, and perhaps to criticisms by President Trump, recently changed course on interest rates by cutting its "benchmark" rate from 2.25 percent to two percent.   President Trump responded to the cut in already historically-low rates by attacking the Fed for not committing to future rate cuts. The Fed's action is an example of a popular definition of insanity:  doing the same action over and over again and expecting different results.  After the 2008 market meltdown, the Fed launched an unprecedented policy of near-zero interest rates and "quantitative easing." Both failed to produce real economic growth. The latest rate cut is unlikely to increase growth or avert a major economic crisis. It is not a coincidence that the Fed's rate cut came along with Congress passing a two-year budget deal that increases our already 22 trillion dollars national debt and suspends the debt ceiling.  ...

Update 2 : In a stunning move, Argentina's MERVAL stock index was cut in half today, crashing 48% in USD terms on the day. Source: Bloomberg As Bloomberg reports,  this is the second-biggest one-day rout on any of the 94 stock exchanges tracked by Bloomberg going back to 1950. Source: Bloomberg "The market is starting to price in default,"  said Edwin Gutierrez, the London-based head of emerging-market sovereign debt at Aberdeen Asset Management. "The market is unwilling to give Fernandez the benefit of the doubt." *  *  * Update 1 :  With Argentina's capital markets sliding into the abyss on what we have dubbed  Macri Massacre Monday,  on the day the country's President unexpectedly lost a primary vote by a landslide unleashing political chaos and uncertainty, Goldman has effectively thrown in the towel and tells clients that " going forward investors may want to center their attention on any hints about the broad contours of the economic agenda of...

We have recently written several essays about the fallacious concept of Gross Domestic Product. Among GDP's several fatal flaws, it goes up when capital is converted to consumer goods, when seed corn is served at the feast. So we proposed—and originally dismissed—the idea of a   national balance sheet . It's easy (conceptually) to add up all the assets and the liabilities. But the problem is that the falling interest rate pushes up asset prices. Even if one booked assets at their original acquisition prices, that does not solve the problem as assets often change hands and then would be marked higher. Rising Net Present Value In a recent meeting with a reader, we'll call him Ludwig, he suggested one possible way to compensate for the problem of chronically-rising asset prices. It goes back to an idea first proposed by Professor Antal Fekete (under whom Keith studied). Keith began writing about it in 2010, and developing it further over many articles. The net present value of...