Below are two stunning charts showing consumers drowning in debt as electricity prices continue to skyrocket!
August 16 (King World News) – Art Cashin, Head of Floor Operations at UBS: After several days of the upside, the market appears to be morphing into a bit of a consolidation day. The Dow appears to be benefitting by upbeat reports from the likes of Home Depot and Wal-Mart. So, that is keeping a bid under the retailor blue chips. The S&P seems to be pausing as it was approaching its 200-day moving average. The Nasdaq sees a shade of profit-taking. Some of the players fear the pullback in yields may be ending and we will see how they go from there.
Let’s talk about the technicals.
As we go to press, the S&P continues to flirt with the 4300 level. So, traders will study that as we wait to see if they assault the 200-day moving average. Most traders will also watch the yield on the ten-year. If it pushes above 2.85%, will that put some pressure on the high caps?
For now, we will see if the consolidation phase continues.
Consumers Drowning In Debt
Holger Zschaepitz: To put things into perspective: Total US consumer credit card debt hit fresh ATH at $1.13 trillion “as consumers choose violence rather than cut back on spending in the face of inflation,” ‘Big Short’ investor Michael Burry posted on Twitter on Aug12.
Consumer Credit Card Debt Hits
All-Time High $1.13 Trillion
Bricks And Mortar
Peter Boockvar: While Home Depot had a better than expected top and bottom line as well as comps, I’m guessing that the reason why the stock is down is because the number of Customer Transactions fell 3% q/o/q, which offset the rise in the average ticket size. Also of note, while sales rose 6.5% y/o/y, merchandise inventories grew by 38%. Is some of this purposeful so as to avoid shortages in this new ‘just in case’ inventory management environment, or a lot is unwanted? We’ll hear on the call.
With Walmart, its apparent that things got better in July from the trends they were seeing in May and June and I’m sure lower gasoline prices helped but also, if I heard correctly, they told CNBC that they are seeing higher income people trading down and shopping there. Sales were up 8.4% y/o/y in the quarter while inventories rose by 25%…
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Yesterday Cass Freight reported its July data. Shipments rose .6% y/o/y after declining by 4.1% in June seasonally adjusted. They said “Freight demand has flattened out this year with inflation near 9% and significant substitution from goods back to services. Considering the extraordinary goods consumption during the pandemic, a reversal as services have reopened shouldn’t be much of a surprise.” Nothing we don’t already know. While inventory for some things have risen, the “inventory to sales ratios are still below historic norms, so this major tailwind for freight demand over the past 18 months is likely fading but has not turned to a headwind at this point.”
As for freight rates, the implied rate rose 28% y/o/y, down slightly from the pace seen in June. The moderation was due in part to lower fuel prices “but with looser truckload market conditions, further deceleration is very likely…With the tight/supply demand balance in US trucking markets easing considerably this year, industry rates are topping out and set to slow sharply in the months to come.”
Mystery Buyer Of US Treasuries – Cayman Islands Strikes Again
For the 5th month in the past 6, foreigners have been large buyers of US Treasury notes and bonds but the make up of the buyers has shifted. Foreigners bought $58.9b worth and year to date have purchased $356b of notes and bonds, on track for the biggest year since 2012. Now that the Fed is essentially a seller, and ramping that up in 2 weeks, banks are already loaded up, and China and Japan continue to trim their holdings, this level of buying is needed. But there is some mystery as to who’s doing the buying. For the last few months it came from the Cayman Islands. That could be hedge funds and/or insurance companies. In June, more than half of the net buying came from the UK but whose large banks could have been used by any international buyer to execute the transactions. China and Japan both reduced further their holdings of notes and bonds. For Japan though, they increased their holdings of bills while China let them mature.
Bottom line, this data point is not really followed much because when it’s reported its dated but is really important now with the Fed on the cusp of notably shrinking its balance sheet.
Crisis In Germany
In Germany, its August ZEW investor confidence index fell a touch to -55.3 from -53.8 but that is still the weakest since 2008. Current Conditions declined slightly too. ZEW said “The still high inflation rates and the expected additional costs for heating and energy lead to a decrease in profit expectations for the private consumption sector.” As for power prices in Germany, here’s a chart of the 1 yr forward per megawatt hour, up by 6% today and by 25% since last Monday. The ZEW is never market moving but that power chart is all we need to see in highlighting the challenges the Germany economy is facing.
German Electricity Prices Continue To Skyrocket!
In the UK, job adds were below expectations for the 3 months ended June. A net 160k were hired, about 100k less than expected but their unemployment rate held at 3.8%, one tenth off the lowest since the 1970’s. Wages did accelerate, up 4.7% y/o/y ex bonuses but that is still WAY below the rate of CPI. The more timely July jobless claims figure positively saw a drop of 10.6k. The BoE is facing the same stagflationary dilemma. The pound is down but the dollar is mostly up across the board while gilt yields are up too as are stocks.
With respect to the US dollar, the BoA fund manager survey out a few days ago saw the most crowded trade to be ‘long dollar.’ With the likelihood that the Fed slows the pace of its rate hikes to 50 bps and possibly by 25 bps thereafter at the same time other central banks keep hiking, the dollar has seen the end of its recent rally I believe.
Royalty Company’s Massive Growth
Rapidly Increasing Cash Flow
Ryan McIntyre: Maverix continues its steady performance in 2022 with solid cash flow. It also benefits from exposure to near-term growth and long-term gold optionality on future resource growth and development. Moreover, Eric, there is no additional cost from its existing 125 royalties and streams. And Maverix expects its cash flow to grow significantly in the coming years. A good example of increasing cash flow is our royalty with Orla Mining which recently announced it achieved commercial production at its Camino Rojo mine. Maverix has a 2% royalty, which is expected to add 6% to our current revenue base.
Massive Growth Story
But more exciting than that, Eric, is the fact that Maverix has royalties on a trio of notable gold projects expected to come online in the next few years. The first is the expansion that is underway at Karora Gold’s Beta Hunt mine in Australia that will add over 10% to revenue by 2024. The next is Agnico Eagle’s restart and potential expansion of its Hope Bay mine in Canada in 2025 that could see production increase at two to three times the original capacity. Agnico’s mine expansion will add 10% to our current revenue base. The third one is the 5% royalty we own on the Gemfield project in Nevada owned by Centerra Gold that is expected to add a staggering 20% to Maverix’s revenue starting in 2026.
Massive Upside Leverage
And, Eric, if people believe the metals are headed higher then Maverix will unquestionably benefit, as its 90% margins are inflation-protected and it has a significant and growing portfolio that will benefit from the higher prices…Maverix Metals, symbol MMX in Canada and the US.
ALSO JUST RELEASED: Very Bullish Sign For Gold & Silver, Plus More Signs Of Serious Economic Problems CLICK HERE.
ALSO JUST RELEASED: James Turk – Gold & Silver Pullback Not Surprising But Look At This Shocking Chart! CLICK HERE.
ALSO JUST RELEASED: Greyerz – This Global Collapse Will Be Like Nothing Seen Before Featuring Economic Disintegration, War & Riots CLICK HERE.
***To listen to Alasdair Macleod discuss the breakout in gold and much more CLICK HERE OR ON THE IMAGE BELOW.
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