Negative Mortgage Rates
Posted on Sunday, August 11th, 2019
The 10 year US Treasury is reaching all time lows while Copper is performing poorly and that, historically, signals lower growth worldwide. As for stocks, remember what we had to say about Apple last week.
Apple’s net income is exactly the same as it was 4 years ago, yet due to their extensive buyback, Apple’s earnings per share have vaulted from $9.22 to $11.51 all due to having less stock outstanding (corporate buyback of stock). The only growth in Cupertino is coming from financial engineering and now Apple has spent half its cash hoard.
Apple has been seeing slowing growth for over 4 years and so has corporate America. Gold is rushing higher and will continue to do so as long as the amount of negative yielding debt around the world is increasing. One of the big arguments against gold for years is that it yields nothing and costs money to store. That argument falls flat as more and more debt around the world falls into one bearing negative interest rates. There is now a Danish bank offering negative mortgages! You get paid to borrow money from them. How do they make money? Volume? Is there a Bubble in the debt markets? One would think so.
We saw a market that wanted to go higher leading into the Fed meeting but we were wary as Transports and small caps had yet to convincingly break out higher. We held fire and were right to do so. The small caps and transports now have failed break outs in light of the spreading trade war. Failed breakouts tend to have swift significant moves in the opposite direction. We saw a little of that last week. For now the S&P 500 should still be considered range bound between 2550-3000 with the 200 Day Moving Average looming as critical support at 2793.
While global risks appear to be increasing investors have pushed stocks in the US to sky high valuations as investors have seemed reluctant to fight the Fed and their lowering of interest rates. The Fed is fighting against a slowdown and trying to prevent a recession. Should they even try and prevent a recession? Recessions are cleansing. In recession bad companies go out of business and make way for new companies while capital is allocated efficiently. They should let the recession happen or find themselves without the necessary firepower to fight it. Knowing they will try and do something rather than nothing we feel that means QE is coming back.
The big issue right now is that we see the nature of government borrowing adding to liquidity pressures around the globe for US Dollars. The end of the calendar year brings liquidity issues in a normal year. We could be setting up for one whopper of a final sprint to the end of 2019. Professional investors are going to try and batten down the hatches (sell stocks to take down risk) in order to preserve the very fine year they are having performance wise but are anxious as the Fed may restart QE in the face of year end liquidity pressures. That would send stocks higher. Would the Fed do that with stocks at all time highs or will they let stocks falter first? We think that they should wait but don’t think they will. August, September and October are not the best months for the market historically. We continue to position defensively. We are favoring solid dividend paying stocks that have higher momentum and we have been buying gold while avoiding banks like the plague. Gold has had a good run and so have bonds. Caution should be paid there.
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.