Interest doesn’t compound, problems do
August 6, 2020
–The Treasury refunding announcement caused a small pullback in bond prices along with modest curve steepening, but overall action was quiet. Ten year yield rose nearly 3 to 54.1. Once again, the ten year tip made a new ‘real’ low yield of negative 107.7 and is -109 this morning. Gold and silver continue to respond with new highs. The gold/silver ratio hit 124 this year, a record high. Since then silver has outperformed and the ratio is now around 74. When the precious metals made their previous highs in 2011 (silver > $48/oz), the silver gold ratio was just below 32. The 61.8 retrace from 2011 low of 32 to this year’s high of 124 is 67, and the 50% is 78. What does that mean? Probably not worth looking for relative outperformance from here…go ahead and buy both!
–Payrolls report tomorrow and Jobless Claims today, but yesterday’s large miss on ADP with a huge positive revision for the previous month barely caused a ripple.
–Amusing tweet from Morgan Housel yesterday: “Teach your kids about compounding: put your money in a savings account and watch it double every 19,876 years.” Funny, but not so funny to older folks looking for interest income who are now forced out the risk curve to silver. A ZH article quoted an analyst on AAPL…”enterprise value up 90% over past 2 yrs despite no net income growth. 100% driven by multiple expansion… driven by Fed policy. When the FF rate was 2.4% in 2019, AAPL had PE of 15x, Today AAPL PE is 32x.” Of course, with FF now 10 bps one could say, “Why that makes AAPL cheap!” A piece in BBG says super expensive apartments in Manhattan are going begging, citing a listing at $22k/mo. The urban experience for the well-to-do has lost allure as crime rises, not only pressuring rents, but tax collections as well. Illinois Gov Pritzker is warning of “extraordinarily painful” cuts in services if Washington doesn’t provide pension pandemic relief to states (after decades of promising greater pensions in exchange for votes). Congress and the admin are not budging on the payment extension to households yet, but a good pullback in stocks will allow everyone to regain a bit of focus.
