TradeSmith Daily

July 2020

DENIAL: Deflation Exists Now, Inflation Arrives Later

July 22, 2020John Banks

In terms of a multi-year, big-picture forecast, there is a simple acronym to remember: DENIAL, as in, “DENIAL ain’t just a river in Egypt.” DENIAL stands for “Deflation Exists Now — Inflation Arrives Later.” Today the U.S. economy — and the global economy, too — are subjected to powerful and persistent forces of deflation. There is a combination of moderate deflationary forces that, when all put together, create a very strong force. The forces of deflation are so strong right

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How to Quickly Calculate Real Yields (Which Are Currently Negative)

July 21, 2020John Banks

In a June 1 TradeSmith Daily, we explained why, in a deflationary environment, the price of gold tends to go up. You can read that piece here. The short version is that, when things turn deflationary, the real yield on Treasuries turns negative. A negative real yield, meanwhile, is worse than a zero yield. If you are earning a negative amount, it is like going backward instead of forward. In these conditions, a yield of zero is better than a

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Copper is Heralding a Rise of FDR-Style Public Works Projects

July 20, 2020John Banks

Copper, like many other assets, has been on a tear lately. From the March 2020 lows through mid-July 2020, the copper price (as represented by Comex front-month copper futures) rose almost 50%. There is a widespread belief that rising copper prices are a signal for global growth. This makes sense historically because of copper’s natural role in the world. Copper has a nickname, “Dr. Copper,” because it is “the metal with a Ph.D. in economics.” The idea is that copper

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Bank Earnings Confirm What We Already Knew (About the U.S. Economy and Federal Reserve)

July 16, 2020John Banks

Earnings season is underway, and we heard from some of the largest U.S. banks this week. The reporting confirms what we already knew: There is no V-shaped recovery whatsoever, and the Federal Reserve is doing a lot for Wall Street (though not Main Street). Among the four banks we heard from — Goldman Sachs, JPMorgan Chase, Citigroup, and Wells Fargo — performance ranged from excellent to terrible, and the deciding factor was trading-desk activity. That is to say, if the

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Boom-Time Memories of a Bust Gone By

July 15, 2020John Banks

Try to guess the visionary entrepreneur we are thinking of based on the following clues: He is especially fond of the letter “X,” including it in things he has named. His net worth — at valuation in the tens of billions — put him on among the top 10 richest people on the planet. He once vowed to take the mantle of “world’s richest man.” He is a flamboyant showman who sells dreams — and has a global army of

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How Silicon Valley Engineered a Retail Trading Mania

July 13, 2020John Banks

2020 will be remembered for kicking off a global pandemic. But it will also be remembered for a market mania, driven to a surprising degree by bored sports gamblers, millennials taking a flyer with stimulus checks, and day-trading retail investors new to markets overall. We know the Federal Reserve provided psychological support (through an implied promise to support markets no matter what). And we know the U.S. government provided fiscal support, what one might call “helicopter money,” via the first

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Jim Rogers is Dead Wrong about Bitcoin

July 8, 2020John Banks

When it comes to Bitcoin, Jim Rogers is sorely misinformed. To be clear, Rogers deserves great respect as a macro investor. As a co-founder of the Quantum Fund along with George Soros, Rogers had one of the greatest performance runs of all time. In the 1990s, he wrote an incredible book called Investment Biker. The book chronicles a two-person trip around the world by motorcycle, with the trip doubling as an investment tour. In the book, Rogers decides whether or

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When a Bounce is Not a “V” (2020 versus 2009 and 1982)

July 6, 2020John Banks

On July 2, the June 2020 U.S. jobs report was released. Nonfarm payrolls jumped by 4.8 million, the largest monthly gain in U.S. history, when a gain of only 2.9 million jobs was expected. The outsized beat of economists’ expectations was seen as bullish for stocks, at least initially. A larger than expected decline in the unemployment rate, to 11.1%, was also seen as bullish. But there is a problem here, and it has to do with starting points. You

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