TradeSmith Daily

August 2020

Why is the U.S. Housing Market So Strong?

August 20, 2020John Banks

The U.S. housing market is bizarrely strong right now. But why? Before attempting to answer, we’ll look at some data. On Aug. 17, the U.S. National Association of Home Builders (NAHB) reported home buyer foot-traffic at all-time highs. Based on the NAHB/Wells Fargo Housing Market Index, or HMI for short, homebuilder confidence levels are also at all-time highs, matching a December 1998 peak that represents the highest point in the 35-year data series. Then, too, we know houses are being

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The Market is Bidding Up Winner-Take-All Cash Flow Streams

August 21, 2020John Banks

The market is bidding up pandemic-proof cash flow streams. When you look at stock price behavior through this lens, the picture makes more sense. This further implies the stock market is not reflecting economic recovery, or a “return to normal,” but rather the stark realities of a post-pandemic landscape. To put it another way: In a world where consumer behavior has radically shifted because of the pandemic, a great many companies will be net losers, but a handful of companies

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Long-term Rates Can’t Rise Too Much — If they Did, the US Government Would Go Broke

August 24, 2020John Banks

The yield on the U.S. Treasury 10-year note, as of this writing, is 65 basis points. This means that, for every $10,000 worth of 10-year notes purchased at recent prices, you get $65 in annual interest payments. That is an incredibly low yield, not far from the all-time low for interest rates — with “all time” covering 5,000 years of financial history. (There is interest rate data for ancient Mesopotamia circa 3,000 BC.) That 65 basis-point yield is also low

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Money is a Social Protocol, Built on a Network, Enabled by Technology

August 25, 2020John Banks

Money is a social protocol, built on a network, with technology enabling the network. This goes for all forms of money, even gold. It also applies to all pre-metallic forms of money, and all manner of monetary objects that have existed through the ages. The concept of money as a networked social protocol is inherently a strange thing. This helps explain why so many people have such a hard time understanding money, in terms of what it really is and

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Rushing a Vaccine to Market is a Terrible Idea

August 27, 2020John Banks

On the COVID-19 front, there is hope that the United States can rush a vaccine to market. Mark Meadows, the White House Chief of staff, expressed this view to the press on Aug. 23, saying the Food and Drug Administration (FDA) and National Institutes of Health (NIH) need to “feel the heat” on vaccine timing. “If they don’t see the light, they need to feel the heat, because the American people are suffering,” Meadows added. Other officials have expressed similar

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Where Does Inflation Come From?

August 28, 2020John Banks

A reader asks a great question about inflation. Here it is, slightly edited for clarity: Your article, Money is a Social Protocol, Built on a Network, Enabled by Technology, is one of my favorites. It describes the actual essence of money, and instead of employing empty phrases like, “Money is a medium of exchange,” which is true, but is obvious and not instructive. Rather, your article discusses what money actually is to real people in real social networks in the

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September 2020

The Meaning of Tesla

September 2, 2020John Banks

Tesla (TSLA) is a stock for the ages. But not in the way some would want. Our hunch is that, 30 years from now, Tesla will be remembered like the South Sea Company, if not something worse (think Enron). In Tesla, we are witnessing one of the greatest single-stock bubbles of all time, against a backdrop of speculative global frenzy. It is far from just Tesla, of course. Whole sections of the market are going straight up, thanks to what

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Publicly Held Debt-to-GDP Made Headlines This Week, But Another Chart Matters More

September 3, 2020John Banks

The U.S. national debt made headlines this week, with federal debt held by the public expected to be worth more than 100% of gross domestic product (GDP) next year. This hasn’t happened since the mid-1940s, in the aftermath of World War II. According to new analysis from the nonpartisan Congressional Budget Office (CBO), the total amount of U.S. federal debt held by the public will amount to 98% of gross domestic product (GDP) for the 2020 fiscal year, and exceed

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