Pre-FOMC Bounce

Okay admit it, who got the jitters and shorted bullion (or anything else) this morning?  My SLV calls just went green for the first time [edit; and I took the green, very modest though it was].  Looks like an asset party spanning across markets (as Uncle Buck gets heavy) to me.

Problem is, we have some interest rate manipulators in high places making an announcement tomorrow and a market full of casino enthusiasts trying to figure out which button to push in response.

I’d have preferred a thick and pervasive negativity heading into that statement, but whatever.  It may make sense to flatten out a bit or hedge into the statement.  I will not even be in front of a screen at 2:00 tomorrow.

gld.slv

CNBC on Gold

As Fed Looms, is Gold’s $1200 Support Vulnerable?

What kind of FOMC week would it be without some gold obsession in the headlines of the mainstream media?

Gold may drop to $1,200 an ounce, possibly breaching the key support level, thanks to a resurgent U.S. dollar and higher Treasury yields on expectations that the U.S. Federal Reserve could signal tighter policy this week, CNBC’s latest survey of strategists, analysts and traders shows.

Says who?

“In the shorter term I believe gold tests $1,200, trades as low as $1,190 or so, after which the bargain-hunters will come in and move the price back to the $1,240 to $1,250 level,” said Anthony Grisanti, President of GRZ Energy in a September 15 commentary. “Geopolitical has been quiet and all major economies are easing one way or another. And that makes the Greenback the strongest buck on the block. My bias for gold is lower.”

Oh, says Anthony Grisanti.  Okay.  Well even just mentioning “geopolitical” disqualifies Mr. Grisanti because it has nothing to do with gold.  But for the sake of argument, gold has already lost support per this alternate chart I am using due to stockcharts.com being on the fritz this morning.

gold

See that low at a nice, crisp 1240?  That was a loss of support.  Before that gold dumped out of a Symmetrical Triangle, targeting below 1200.  I am flying naked here without stockcharts.com, but I don’t recall any notable support at 1200.  The strategist wouldn’t be talking about ’round number’ support just to fill some headlines on FOMC week, would he?

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King Dollar and the Peripheries

Guest Post by Doug Noland

Things are turning interesting again.

An interesting week saw the Brazilian real get hammered for 4.2%, as Brazil’s stocks sank 6.2%. Venezuela Credit default swap (CDS) prices surged 158 bps to 1,464 bps (lagging Argentina at 1,840!). Turkish stocks were hit for 5.3%, in what Bloomberg called the emerging-market stocks’ “steepest decline in 15 months.” Commodities currencies were also pummeled. The Australian dollar dropped 3.6%, the South African rand 3.0%, the New Zealand dollar 2.1% and the Canadian dollar 1.9%. The Goldman Sachs Commodities Index was hit for 2.4%, trading this week to the lowest level since the tumultuous summer of 2012. Brent crude fell to a two-year low, wheat to a 50-week low and gold to an eight-month low. Spanish yields jumped 30bps, with Italian yields up 20 bps and France’s 17 bps. U.S. junk bond CDS jumped 21 bps this week. In the face of unsettled global risk markets, 10-year Treasury yields jumped 15 bps this week.

Market and macro analysis remains extraordinarily challenging. The U.S. economy shows momentum and financial conditions remain ultra-loose. Wall Street strategists are universally bullish. A recent survey (Investors Intelligence) had the smallest reading of bears since 1987. Sentiment is buoyed by the view that it will be years before the Fed raises rates to the point where they would weigh on risk asset prices.

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Meteorologists and Defenseless Receivers

Guest Post by Michael Ashton

The stock market really seemed to “want” to get to 2000 on the S&P. I hope it was worth it. Now as real yields seem to be moving higher once again (see chart below, source Bloomberg) – in direct contravention, it should be noted, of the usual seasonal trend which anticipates bond rallies in September and October – and the Fed is essentially fully ‘tapered’, market valuations are again going to be a topic of conversation as we head into Q4 just a few weeks from now.

realyields

To use an American football analogy, the stock market right now is in an extended position like a wide receiver reaching for a high pass, but with no rules in place to prevent the hitting of a defenseless receiver. This kind of stretch is what can get a player laid up for a while.

Now, it has been this way for a long time. And, like many other value investors, I have been wary of valuations for a long time. I want to make a distinction, though, between certain value investors and others. There are some who believe that the more a market gets overvalued, the more dramatic the ensuing fall must be. These folks get more and more animated and exercised the longer that the market crash doesn’t happened. I think that they have a point – a market which is 100% overvalued is in more perilous position than one which is a mere 50% overvalued. But we really must keep in mind the limits of our knowledge about the market. That is, while we can say the market is x% overvalued with respect to the Shiller PE or whatever our favorite metric is, and we can say that it is becoming more overextended than it previously was, we do not know where true fair value lies.

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Financial Dirigisme Trumps Sovereignty

Guest Post by Bruno de Landevoisin

Ten times a year, once a month except in August and October, a select group of well dressed men arrives in Basel, Switzerland. Carrying elegant overnight bags and stylish brief cases, they discreetly check into the Euler Hotel, across from the railroad station.

They come to this quiet city from places as disparate as Tokyo, Paris, Brasilia, London, and Washington, D.C., for the regular meeting of the most exclusive, secretive, and powerful supranational club in the world.  The BIS. Also known as; The Bank for International Settlements, Banques des Reglement Internationaux, Bank Fuer Internationalen Zahlungsausgleich.

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Yield Curve, etc.

The tiny little bounce continues as the curve rises again today, with all maturities declining.  A little risk off’y here.

10.5.2

10, 5 & 2 year yields from Bloomberg

May as well throw in a couple other indicators while we’re at it.  TIP vs. TLT indicates that a little counter trend support could be setting for a bounce in precious metals, commodities, etc.  Depending on what USD does with its over bought status.  Junk bonds are weak but still showing a bullish hint vs. Treasury (and Investment Grade) bonds.

tip.tlt

A Closer Look at the USD

Excerpted from NFTRH 308’s opening segment…

A Closer Look at the US Dollar

Using the standard weekly currency chart we followed along for months as the Euro found resistance at the long-term downtrend line as expected, the commodity currencies long ago lost major support and non-confirmed the commodity complex and the US dollar moved from a hold of critical support, to a trend line breakout, to its current impulsive and over bought status.  It is time now for a closer look at Uncle Buck since this reserve currency is key to so many asset markets the world over.

As the charts below show, USD is over bought on both daily and weekly time frames.  But the monthly is interesting because its big picture view is that of a basing/bottoming pattern, and it is bullish.  That is a long-term director, so regardless of what happens in the short-term, a process of unwinding the hyper-inflationist ‘Dollar Collapse’ cult is ongoing.  Signs point to disinflation toward deflation.

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Scotland vs Quebec: United We Stand or Divided We Fall

Guest (OT) Post by Jakob Richardson

As a Canadian of English birth I have been watching the Scottish independence vote with a confusing mixture of amusement and disgust. Many people don’t even know that what the United Kingdom faces now is identical to what Canada faced about twenty years ago. And so as a battle hardened veteran of unity I bring my experience to this almost identical showdown of “nationhood.” A lot similarities exist between the two regions trying to separate, eh? Both have a disgusting traditional dish – Quebec has poutine (French fries, cheese curds and gravy if you must know) and Scotland has haggis (pig entrails stuffed into a stocking). Both have flags with the same color scheme, blue and white. Additionally, both regions have unleashed on the world absolute embarrassments of performing “artists” with Quebec being responsible for Celine Dion and Scotland for Susan Boyle. As well, both areas have enjoyed living under the yoke of English colonialism. Yes, sad historical events mark both Quebec and Scotland’s relationship with the evil empire over the centuries, but from this I’d like to think something special has developed. Much like a bullying older sibling growing up England has matured and the truth about the origins of our relationship has been acknowledged. In other words, the union has evolved just as most relationships often do.

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