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Yves Lamoureux / The "Bond and Equities Guru"

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Yves Lamoureux / The "Bond and Equities Guru"

 

I thought I would start a thread on Yves Lamoureux in order to discuss some of his bold calls of late and the ideas motivating these calls. I first came across him via Yelnick who has dubbed him the "New Bond Guru" after correctly predicting, back in Oct. 2009, that the yield on the 30 year bond would fall to 2.5% (around the time Bill Gross expected them to rise to 5%). He's recently called the end of the bull market in bonds. His approach is largely "behavioural".

 

(Note: this could be absorbed into the hyperinflation thread as well).

 

 

Some of his recent calls:

 

- end of the bond bull market

- the spike in european (i.e., PIIGS) bond yields during the recent euro crisis resembles an impulsive wave 1

- china stocks are in the early stages of wave 3 (of wave 3) and could target 2007 highs

- dax to double in the next 10 years (i've also heard him say in the next 5 years)

- he expects a correction in 2013 that should provide an excellent opportunity for investors to rotate out of bonds and into stocks / provide an excellent opportunity to enter the bull market in equities

- he expects gold, but especially gold stocks to perform very well during this period.

 

 

Some articles:

 

19. November 2012 - Yves Sees the End of the Great Bond Bull Market - With a Risk of Hyperinflation

 

20. December 2012 - Hyperinflation Started on the 25 of July 2012!

 

24. January 2013 - Here Comes the Buying Opportunity of a Lifetime

 

 

 

Video:

 

18. January 2013 - Stocks to Double After Mild Pullback?

 

 

Screenshot2013-04-07at112828PM_zps38f2d1c0.png

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Thoughts? Comments?

 

 

I'm not quite sure what to make of Lamoureux, but I find his thesis intriguing.

 

 

Robert Prechter has always stressed that the precondition to any possible hyperinflation is the collapse in the bond market. However, as far as I'm aware, Prechter argues that a deflating bond bubble has a deflationary effect on the stock market and that only after the bond bubble has deflated could we see a hyperinflation. In contrast, Lamoureux seems to argue the exact opposite, basing his expectations on the anticipated flight of capital from the bond market.

 

If the bond bubble were to "burst", then a ) much of the perceived money invested in the bond market would simply "evaporate", but b ) given the size of the bond market relative to the equity market, it seems there might still be enough money to effectively "flood" the equity market. ?

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I should probably add (to avoid making him sound like a Peter Schiff 2.0) ... from Hyperinflation Started on the 25 of July 2012!

 

 

The principle we use long term is the mismatch of financing needs to savings. The central banks will be forced to fill this void but this will not prevent rates from rising. It will pressure housing in a second leg down. This resumption will in turn put pressure on the commercial banks as collateral values sink again. In our opinion, this is where we go hyperdrive as the rate of money creation is increased to sustain the illusion, to float what needs to be floated.

 

A pre-condition to hyperinflation is about having higher rates.

 

The US is showing the best money velocity and the best pick up in economic numbers. By our money measures, rates should have normalized higher already. Problems in Europe did prevent this from happening but no more as mean reversion can happen more quickly than anticipated. In a recent commentary to our subscribers we even went as far as underlining the possibility of a bond flash crash.

 

Investors will never sell on the first shock but they will on the second. The last 3 years had us frontrunning demand of bonds. We will be now frontrunning supply.

Enormous financing needs await us in the future. The lack of future savings assures us not only rising rates but rising real rates!

 

 

As such, I should probably rephrase: it is not simply about a 'capital flight' out of the bond market, rather, the first crack in the bond market (and sustained trend change thereafter) will act as a catalyst for hyper-money creation.

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My Equity-Crash Early Warning system has gone from "flashing yellow" to "flashing red" today

 

It is a Ratio of LQD-to-TLT (Liquid Corporate Bonds to Treasury Bonds)

 

Latest:

10179634.png

 

This suggests people want less risk - and so are going into the "safest" assets

 

The TLT-vs-LQD price relationship : Chart

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My Equity-Crash Early Warning system has gone from "flashing yellow" to "flashing red" today

 

. . .

 

This suggests people want less risk - and so are going into the "safest" assets

 

 

Good point. I guess the question going forward is if and how the correlation begins to change . . . and whether this hypothesis is even feasible. It certainly seems more intuitive that we would carry on the Japan 2.0 (ish) route, but that makes it all the more challenging to think about the alternative being proposed here. Lamoureux's hypothesis may very well end up being incorrect, however I think the difficulty is that it is premised on a change in what we mean by 'risk' and 'safe', and thinking through how such a change would manifest in the market.

 

Anyway, for the moment, as your chart suggests, the usual "risk-on/risk-off" dynamics would seem to be at play.

 

 

. . . to be continued

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My Equity-Crash Early Warning system has gone from "flashing yellow" to "flashing red" today

 

It is a Ratio of LQD-to-TLT (Liquid Corporate Bonds to Treasury Bonds)

 

Latest:

10179634.png

 

This suggests people want less risk - and so are going into the "safest" assets

 

The TLT-vs-LQD price relationship : Chart

 

 

. . . perhaps the relationship has already begun to change ?

 

While the LQD:TLT ratio remains highly correlated to the SPY, if we look at the weekly chart, a major divergence in trend emerges in 2011 and has persisted since!

 

lqd-tltvsspx_zps3a9919ec.png

 

Of course one could ask: who is discounting whom? Maybe stocks are due a major catch up on the downside? Or, maybe, it is a symptom of the climax of the bond bubble (that furthermore failed to take out the low in LQD:TLT set in 2008 = major divergence)?

 

Taking the other side of the argument and looking at this chart, it seems a drop in the LQD:TLT ratio no longer corresponds to the "deflationary" impact on equities it once did. Yes, a further drop in the LQD:TLT ratio still implies a drop in the SPY, but it seems there is a real possibility that the LQD:TLT ratio is in the process of forming an inverted head and shoulders, and instead about to embark on a major uptrend that would only serve to propel stocks even higher ?

 

 

A different look at this disconnect:

 

usbvsspy_zps27d42463.png

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The bounce yesterday brought it back from the Red light area

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The bounce yesterday brought it back from the Red light area

 

Any thoughts on the disconnect on the weekly picture ? What colour would your light turn should the LQD:TLT ratio approach 1.050 ?

 

Screenshot2013-04-09at85813PM_zps49865f6b.png

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Any thoughts on the disconnect on the weekly picture ? What colour would your light turn should the LQD:TLT ratio approach 1.050 ?

 

Screenshot2013-04-09at85813PM_zps49865f6b.png

 

It dropped too fast, and is now bouncing back to fill in the gap,

before heading lower - That's my present view.

 

IE: The bigger rollover will take a little longer - as it did with prior episodes - this is the common pattern.

See: June/July 2011

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Yves Lamoureux / The "New Bond Guru"

 

Some of his recent calls:

=====

- end of the bond bull market

- the spike in european (i.e., PIIGS) bond yields during the recent euro crisis resembles an impulsive wave 1

- china stocks are in the early stages of wave 3 (of wave 3) and could target 2007 highs

 

I could see that China call working out (too)

 

CN:000001 / Shanghai Composite Index (INDEX) ... update

 

45433083.gif

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Lamoureux: "We do not hold gold stocks since December and here is why http://t.co/zSGLXlJrL7"

 

 

from 22. Dec 2012

 

The Recent Gold Price Chaos May Be Explained By Lack Of Central Bank Synchronicity

 

According to Lamoureux, a lack of synchronicity in monetary easing has been the prime culprit behind gold’s poor performance. The Fed is not providing the totality of global liquidity by itself, and the failure of the ECB and BoJ to adequately encourage short-term liquidity explains why gold has been going nowhere.

 

Here’s Yves:

 

In terms of money supply, the U.S. is on a cruise while Japan has been running on a treadmill, and Europe just isn't hitting the gas pedal like it needs to.

 

In the past, central bank easing had been more coordinated and synchronized, which had allowed gold to reach its highs. Yves notes that similar contractions occurred in 1980, 1988, 1991, 2000, and 2008 which all negatively impacted gold.

 

Yves, also offered another reason why gold was particularly hard hit this week. Gold is considered a safe haven asset, and the rise in long term interest rates gives gold more competition. Investors can receive a higher rate of return on their fixed-income assets without worrying about the impact any volatility in the price of gold may have on their portfolios. Yves forecasts "more pain ahead, because rates are going higher."

 

I think he expects to see Gold dip down to $1450

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Lamoureux: "We do not hold gold stocks since December and here is why http://t.co/zSGLXlJrL7"

from 22. Dec 2012

The Recent Gold Price Chaos May Be Explained By Lack Of Central Bank Synchronicity

 

I think he expects to see Gold dip down to $1450

 

We are getting closer to his $1450, thanks to a Big GAP down to test last year's Low

 

(in edit):

The further drop through that old 800d MA support, may put GLD-$140 "on the table" now.

 

GLD ... update ... : Last-2-years

36125857.gif

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latest via Yelnick: Yves Calls Gold Spot On

 

name='Yves'][/b]

Our target of 1450 $ is on sight!

 

. . .

 

Gold is driven by the future perception of the US dollar. It is expected to go higher. Money managers have completely redeployed funds into the buck. They were substantially under invested at the start of the year.

 

We have a different view. We view the euro currency in a new bull market.

 

Gold bugs should stand up and listen ! You will get a weak US dollar in a coming future. The way you position yourself in light of events will be exciting.

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Target of $1450, is not far away now

 

t24_au_en_usoz_6.gif

 

Gold : $1,477

 

GLD: 143.95 -7.10 / - 4.70%

Volume: 53,998,378

 

Ratio: Gold / GLD : 10.3

So : $1450 / 10.3 = GLD: $140.77

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Target of $1450, is not far away now

 

$1450 gold √

 

However, considering the current "overshoot" on the downside, it is probably worth keeping in mind that Lamoureux exited gold in September 2010, missing out the parabolic rise into 2011. Nonetheless, he seems to be getting rather bullish on the sector going forward ?

 

Screenshot2013-04-16at42003PM_zps871d0abf.png

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My two HK Hedge Fund friends targeted two levels; $1340 and $1250.

Then: probably a sharp rally

 

So far, I think they have called it very well

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My two HK Hedge Fund friends targeted two levels; $1340 and $1250.

Then: probably a sharp rally

 

So far, I think they have called it very well

 

 

Screenshot2013-04-16at53859PM_zpsc940391b.png

 

$1340 proved to be a very prescient call! ... a sharp rally, and then what? Do you know how they view this violent correction in the bigger term? Although a bounce looks likely (especially given all the extremes: sentiment, deviation from long term averages etc.), it seems that it will take some time to repair the technical damage done . . . especially considering the dreaded "elephant formation" (j/k)

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on a more serious note, latest post from Yelnick: GOLDENFREUDE: Gold as the next bitcoin

 

Goldenfreude is the pleasure of seeing goldbugs lose their shirts. A lot of prosaic punditry trying to explain this, and getting it worng. Most of the immediate selling was out of Asia, and was caused by Abenomics, the shock and awe of massive QE by the Bank of Japan. Buyers of Japanese bonds may have been leveraging their purchases by using gold as collateral, and now are liquidating to cover as the Japanese bonds plunge. The proximate cause for the two-day rush to the doors is likely Friday's China GDP report, showing a slowdown. Commodities are also taking a bath.

 

This should not have been "unexpected", the common word used by mistaken punditry. We had

two large gold sell-offs during the Great Recession, both driven by expectations of massive central bank intervention:

 

1) July 2008, right before the Lehman debacle and following on the heels of a parabolic blow off top in oil

 

2) September 2011, as the Euro crisis hit and central banks intervened

 

You can see what the gold plunge is predicting: another bout of central bank intervention to keep the wheels from flying off the global ecopnomy. The first out of the blocks is the Bank of Japan's QE. The punditry expects the massive BOJ QE to respark inflation. Gold is signaling the opposite, of deflation.

 

Milton Friedman got the punditry thinking that inflation was due to the increase in base money (central bank money and reserves), but this is too simple:

 

1) The Quantity Theory of Money had inflation as based on quantity times velocity of money. Velocity has plummeted in the Great Recession to levels BELOW those of the Great Depression.

 

2) Modern Monetary Theory has popularized the view that the quantity of money is not based much on base money, but on bank lending, as bankscreate the quantity of money. Put another way, banks do NOT lend out of reserves; they lend out of opportunity and then scramble to find reserves if needed.

 

The striking increase of bank reserves, and QE, have done little to spur bank lending; the reserves sit in the vault so to speak. Instead, QE has spurred excessive speculation in assets, what Minsky called the Ponzi Finance stage. Asset bubbles rage back and forth across commodities (oil! corn! coal! Bitcoins!), debt and margin are used to juice returns, and as each bubble collapses the velocity of money shrinks and the speculators fall back.

 

Japan is now (as John Mauldin aptly puts it), a "bug in search of a windshield." Abenomics is leading to money washing back and forth across the globe, much as Hoover wrote in his memoirs about the sovereign debt crises of the 1930s. Is Cyprus the new CreditAnstalt? This is not how a real recovery begins, but how a false recovery ends.

 

. . . which makes me wonder just how mild the "mild" correction Lamoureux is anticipating will turn out to be.

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might be worth keeping an eye on Gold ETF tonnage . . .

 

 

 

Lamoureux on April 4.

 

2013-04-04_085452_zpsaa0807c2.png

 

vs

 

 

 

CHART: Gold price vs ETF tonnes shows crash was inevitable

 

There has been no shortage of explanations for the ferocity of gold's two-day retreat – from $1,560 at the open on Friday to a low of $1,329 late Monday.

 

These range from the more out-there arguments – it's a central bank conspiracy and/or Wall Street market manipulation – to the more mundane: technical breaches, margin calls and a stronger dollar.

 

But perhaps the crash in the gold price has a really simple explanation; and one that was signaled to investors way in advance.

 

As the chart shows gold-backed ETF outflows that started early in the new year really took off in February and just accelerated from there.

 

There was no way gold could hold up in the face of this rapid liquidation by gold's most ardent (former) supporters.

 

chart-gold-price-etf-gold-holdings-tonnes-2012-2013.jpg

Buying of gold ETFs – fondly referred to as the people's central bank – played a huge part in gold's 12-year bull run.

 

So perhaps it was a central bank conspiracy after all.

 

Just not the one you would've expected.

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Latest update: Yves is bullish on gold but does not see it as a major buy just yet . . . he likens the current action to people picking up nickels in front of a steam roller ... [apparently] sentiment is still too high!

 

http://youtu.be/Ocoas5ysEdw

 

 

Actually, regarding sentiment, Bob Hoye alluded to something similar (although with different macro-expectations from Lamoureux): "you have to get the inflation bugs out of gold before you can have the deflation bull market (in the real price of gold)".

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latest via Yelnick: http://yelnick.typep...-deflation.html

 

 

name='Yelnick']Japan's QE is Exporting Deflation[/b]

 

Japan's effort at super QE is likely to export its deflation to trading partners. John Mauldin has a long a analysis of this in his current newsletter. Our occasional guestblogger Yves comes to a similar conclusion. He wraps it into several conclusions:

 

Stocks: his bullish indicator has turned Yellow - time to take profits. It may shortly go into full sell mode. Neely has a similar view, that we may be in the final capitulation UP above S&P 1700 before a dramatic reversal.

 

Bonds: the effort to reflate the Japanese currency has caused damage to the confidence of Japanese bond investors due to a big pullback in bond prices. Ignore the bond vigilantes at your peril, Yves says! The vigilantes will work against the effort to reflate by dropping bond prices and negating monetary expansion. Instead, if this rolls into an even larger correction, it is deflationary.

 

Currency Wars: the drop in the Yen (30% so far) has a short term impact on Japanese profits due to increased sales (largely to China) but engenders a currency devaluation by trading partners. Already calls in Europe for a more expansion ECB approach. Profits in countries around Japan that also export to China - Korea, Hong Kong and Taiwan - are being hammered.

 

Deflation: The weakening of the Yen creates deflation in trading partners due to their relative currency strength, at least prior to a competitive devaluation.

 

US Dollar: In general it is thought to be going higher, in part due to the export of deflation by Japan combined with competitive devaluation by trading partners, and eventually Europe. Yves however thinks it is shortly to weaken, especially if the bond vigilantes thwart the super QE of Japan.

 

BOJ vs Bond vigilantes ?

 

Screenshot2013-05-20at51417PM_zpsed60e523.png

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Yep!

I am watching JGB's too - this could be the next big trouble spot,

since Japan's debt causes a total meltdown at higher JGB bond rates

 

 

Did I mention ... those pesky JGB's

 

BX:TMBMKJP-10YJapan / 10 Year Government Bond (TPSD) ... update

 

53934215.gif

 

JGBs slip as Japanese economy improves, stocks surge

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$84.50 looks to be a good call.

 

He must be Bullish on Gold too?

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