August Markets Outlook: Buckle Up

Submitted by Nick Colas of DataTrek Research

We will confess to some real trepidation as we say goodbye to July and hello to August. So much so that we’re pulling forward our usual month-ahead review to get several topics in front of you.

Here’s the problem: August has shifted from its traditional period of rest and relaxation to one where US equity market volatility tends to peak for the year.

h/t @Sunchartist

Consider the following data points, all post-2010:

  • In 2011, the CBOE VIX Index peaked for the year on August 8th, with a close at 48.0.
  • In 2015, the VIX peaked for the year on August 24th, at 40.7.
  • In 2017, the VIX peaked for the year on August 10th, at 16.0.

The closing high in the VIX for 2018-to-date was 37.3 on February 5th, the result of a meltdown in a volatility-related inverse VIX ETF. Even with today’s Facebook-driven tech wreck, the VIX is only at 12.1. Any pop in that measure that exceeds the February highs would be a real shock. Also worth noting: February has only seen an annual high on the VIX once since 1990, in 2016 (at 28.1). read more

Trump Declares State Of Emergency As “Apocalyptic” Wildfire Devastates Northern California

President Trump has declared a state of emergency in California after deadly wildfires have ripped through over 102,028 acres across the state this week, according to the governor’s Office of Emergency Services. 

According to the White House, Trump has authorized FEMA (the Federal Emergency Management Agency) to assist California firefighters who are battling tinder-fueled infernos thanks to nearly half-a-decade of drought. 

The worst of the blazes has devastated Shasta County, as the Carr Fire has claimed the lives of two first responders, forced thousands to evacuate and burned 48,312 acres – around half the total affected area across the state. The fire was 5% contained as of Friday night according to officials, while Fire Inspector Jeremy Stoke was killed along with a bulldozer operator as they battled the blaze. read more

Housing Market Headed For “Broadest Slowdown In Years”

For those who have been focusing on corporate earnings, the stock market and the global economy, a more ominous – if under-reported – flashpoint has emerged in recent days after some scary housing market numbers were published over the past week, or as Robert Shiller told Bloomberg, “This could be the very beginning of a turning point.” 

The housing market is showing signs of a downward slide after existing-home sales were down in June, sales hit their slowest pace in eight months, and mortgage rates are on the rise, causing usually restive buyers to stay patiently on the the sidelines.  read more

All The Makings Of A Major Economic Fiasco

Authored by EconomicPrism’s MN Gordon, annotated by Acting-Man’s Pater Tenebrarum,

Mud Wrestling: Trump vs. Xi

About 6,940 miles west of Washington DC, and at roughly the same latitude, sits Beijing.  Within China’s massive capital city, sits the country’s paramount leader, Xi Jinping.  According to Forbes, Xi is currently the most powerful and influential person in the world.

Papa Xi, the new emperor of China. [PT]

Xi, no doubt, is one savvy fellow.  He always knows the right things to say.  He offers the citizens of his nation the “Chinese Dream.”  They consume it like boysenberry funnel cakes at the county fair. read more

A Record Number Of Companies Are Beating Estimates: Why It’s Not Enough

Two weeks into earnings season, and with 53% of the companies in the S&P 500 having reported actual for Q2 2018, it’s shaping up as a blockbuster quarter: in terms of earnings, 83% of companies have reported EPS earnings that are above estimates, and if that number carries through the end of earnings season it would be the highest percentage of beats since FactSet began tracking this metric in Q3 2008.

In aggregate, according to Factset, companies are reporting earnings that are 2.5% above the estimates (which however is fractionally below the five-year average). On the revenue side, more companies (73%) are reporting actual sales above estimates compared to the five-year average, while the average beat is 0.9% above estimates. read more

The FAANG-nary In The Coal Mine

Authored by Adam Taggart via PeakProsperity.com,

The long-awaited breakdown in sentiment is finally here…

Two weeks ago, I issued a report to Peak Prosperity’s premium subscribers, warning of an imminent downwards re-pricing of the FAANG stocks. I even made a rare recommendation for taking an active short position against them (one now up 18%).

That report proved quite timely. Over the past 10 days:

Netflix (NFLX) is down 10% after issuing disappointing subscriber growth and Q3 guidance read more

Rep. Gaetz Files FEC Complaint Against Twitter Over Shadow Bans

Rep. Matt Gaetz (R-FL) has filed a complaint with the Federal Election Commission (FEC) against Twitter after he discovered that his account was being shadowbanned – the practice of excluding or reducing the visibility of one’s tweets from normal circulation on the platform.

Gaetz’s decision comes after several weeks of conservative users proving that they’ve been subject to “Quality Filter Discrimination” (QFD) shadowbans, as well as a “glitch” reported by VICE that excluded user’s names from auto-populating search results. read more

Valuing Gold In A World Awash With Dollars

Authored by Alasdair Macleod via GoldMoney.com,

In this article I point to the pressures on the Fed to moderate monetary policy, but that will only affect the timing of the next cyclical credit crisis. That is going to happen anyway, triggered by the Fed or even a foreign central bank. In the very short term, a tendency to moderate monetary policy might allow the gold price to recover from its recent battering.

Unlike the last credit crisis when the dollar rose sharply in a general panic for safety, on the next crisis, the dollar is likely to fall substantially. The reason is that foreign ownership of dollar investments (typically in US Treasuries) appears greatly overextended, and an additional $4 trillion of liquidity is in the wrong (non-US) hands. This is likely to be unloaded during a general credit crisis, driving the dollar lower. read more

“An Unparalleled Economic & Political Crisis”: Brexit Optimism Collapses As Ministers Fear “Historic Catastrophe”

“I have near zero optimism because I think it is going to be very messy,” warned one UK minister, speaking to Bloomberg on condition of anonymity. The prospects of getting an agreement are slim, the minister said. “If we crash out without a deal, it’s going to be a historic catastrophe.”

And he is not alone as the latest YouGov polls show 69% of Brits believe Brexit is going badly and the largest finger of blame for Brexit going badly is being pointed at the government. Two thirds (68%) of those who think Brexit is currently going badly say that it is the government’s fault. This includes three quarters who voted Remain (77%) and 58% of Leave voters. read more

Sweden Will Remain Sweden In Name Only

Via GEFIRA,

For some time now the Gefira Team has been keeping track of the demographic processes that are taking place in Europe, especially in its Western part. 

This time Gefira published a report on Sweden, a well-developed, typical Western state, member of the European Union. The report includes independent calculations, using dedicated demographic software Cerberus 2.0. The report is based on the input that is taken from the official bureaus of statistics.

The Gefira findings based on the official data provided by Statistics Sweden SCB reveal what follows: read more