NFTRH 309; 1st Draft

The first draft is me on Saturday fighting my way through piles of macro stuff, charts and personal observations, opinions and conclusions.  A review on Sunday morning let’s me sit back, try to figure out where I may be confusing people, sounding like a pompous ass or who knows what else is not in the best interest of the work?  It let’s me make the report presentable.  Anyway, here’s one whacky macro chart from #309.

I love these crazy ones with different colors and mark ups.  Note how the 6’s are the only numbers that are the same color on the correlation of the gold-silver ratio (GSR) and the S&P 500.  It’s something we noted months ago, but it could be relevant going forward now that the USD is getting in correlation with the GSR.

gsr.spx

Gold & Silver CoT Reports

Yup, improved a gain.  A lot of good it did precious metals bulls today, but we can bet that the goons covered shorts again today (data are only through Tuesday) and I would assume speculators continued to puke.  Got to play the game folks, in the casino at least.  This has nothing what so ever to do with real physical gold.  Note the open interest on silver; that is in line with the power of today’s thumpage.  A coming low in these metals should be very interesting.  Click the graphics to de-minify them.

gc

SI

HUI Weekly Updated

Here’s the weekly HUI chart grappling with the key parameters we noted yeseterday.  Frankly, I don’t care which way it breaks * because I have been practicing what I have been preaching, which is patience, discipline and positioning for strength.

hui

* Well I do care insofar as some good people have gotten hurt by following some not so good peoples’ faulty analysis, but you get the point.

Ugly CPI

Guest Post by Michael Ashton

[biiwii edit:  Inflation protected vs. unprotected T bonds and declining yield curves have been indicative, no?]

Here is a summary of my post-CPI tweets. You can follow me @inflation_guy or (if you’re already following me on Twitter or seeing this elsewhere) subscribe to direct email of my free articles here.

  • Complete shocker of a CPI figure. Core at +0.01%, barely needed any rounding to get to 0.0. Y/y falls to 1.73%. Awful.
  • Zero chance the Fed does anything today, anyway. The doves just need to point to one number and they win.
  • Stocks ought to LOVE this.
  • Core services dropped to 2.5% y/y from 2.6% and core goods to -0.4% from -0.3%.
  • Accelerating major groups: Food/bev. That’s all. 14.9% of basket. Everything else decelerating.
  • I just don’t see, anecdotally, a sudden change in the pricing dynamics in the economy. That’s why this is shocking to me.
  • Primary rents to 3.18% from 3.28%. Owners’ Equiv to 2.68% from 2.72%. Both in contravention of every indicator of market tightness.
  • Apparel goes to 0.0% from +0.3% y/y. That’s where you can see a dollar effect, since apparel is mostly manufactured outside US.
  • Airline fares -2.7% versus -0.2% y/y last month and +4.7% three months ago. It’s only 0.74% of the basket but big moves like that add up.
  • Medical care: 2.09% versus 2.61% y/y. Now THAT is where the surprise comes in. Plunge in ‘hospital and related services.’ to 3.8% vs 5.5%.
  • …we (and everyone else!) expect medical care to bounce back from the sequester-inspired break last year. I still think it will.
  • core inflation ex-housing at 0.91% y/y, lowest since August 2004. Yes, one decade.
  • core inflation ex-housing is now closer to deflation than during the deflation scare. In late 2010 it got to 1.08% y/y.
  • Needless to say our inflation-angst indicator remains at really really low levels.
  • Interestingly, the proportion of CPI subindices w y/y changes more than 2 std dev >0 (measuring broad deflation risk) still high at 38%.
  • To sum up. Awful CPI nbr. Housing dip is temporary & will continue to keep core from declining much. Suspect a lot of this is one-off.
  • …but I thought the same thing last month.
  • Neil Diamond said some days are diamonds, some days are stones. If you run an inflation-focused investment mgr, this is a stone day.
  • Interestingly, Median CPI was unchanged at 2.2% this month. I’d thought it fell too much last month so this makes sense.

I am still breathing heavily after this truly shocking number. This sort of inflation figure, outside of a crisis or post-crisis recovery, is essentially unprecedented. Lower prints happened once in 2010, once in 2008, three times in 2003, and once in 1999. But otherwise, basically not since the 1960s.

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HUI: Mr. Green & Mr. Red

I want to show you the weekly chart of HUI that NFTRH has been using along with monthly and daily charts for much of the last year.  The dailies controlled the short-term and kept us aware (and out of harm’s way) that a breakdown was very possible, even likely, during the Ukraine noise over the summer.  The monthly gives other parameters that you can see if you click the Big Pic HUI, Au & Ag link above.

The weekly however, has guided NFTRH subscribers with Mr. Green and Mr. Red, otherwise known as the green uptrend channel and red downtrend channel.  Mr. Red scored a blow to Mr. Green’s gut when the sector rightfully dropped as the Ukraine hype wore off *, leaving it with little more than its incomplete (at best) fundamentals.  Now it is Mr. Green’s turn.  He needs to defend himself by defending the 205 to 210 zone.

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FOMC & ZIRP; What They Do, Not What They Say

The reason we took QE tapering seriously was that it made sense at a certain point of economic recovery for the Fed to start backing out of the market pumping business of printing money to fund T bond and MBS purchases.  With traction gained in the economy, my thought was that now it might be time for rising  interest rates out along the curve to incentivize banks to do the heavy lifting, as ZIRP on the Fed Funds level pinned T Bill yields to the mat.

It was the old ‘borrow free and mark it up for a slam dunk carry trade’ routine.  In short, the people bailed out the banks and now the banks can lend back to the people and make even more money doing it.  Nice racket, with the Fed at your back.

So it seemed there was a valid scenario in play whereby the Fed could make good on the rumors of a coming QE taper and as it turned out, they did just that.  They initiated and are now carrying through to the closing phases of the ‘taper’, with markets and the economy doing just fine after all that doomsday hype in the second half of last year.  To boot, 10 year T bond yields have actually declined by about a 1/2% in 2014 despite the Fed tapering out of the bond buying business.

tnx

10 year yields are down in 2014, but may be sneaking out the downtrend

So in 2013 some Fed members ruminated in the media (they Jawboned) a coming taper of QE and sure enough on it came.  Today, the market is left to decide whether or not they are serious about raising the Fed Funds rate sometime in 2015.  The dot plot has them guiding us to 3.75% out in 2017.

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A Stroll Through Market History on FOMC Day

We take the Way Back machine to a time of normalcy and plenty, in the 50’s when the stock market did okay but savers were paid (through T Bill yields) to do the most prudent thing people in a natural economy can do… save.  Ever since 1980 the theme has been for the nation to eat its seed corn, with asset owners getting increasingly more portly in the process and savers nudged ever further out to the margin.  The S&P 500 has sure got no complaints these days.  It’s in lockstep with policy.

sp500.1

The 10 year view shows savers have been erased from the picture.  ‘Screw them’ is the implication as the brave new world of finance follows one rule,  ‘asset appreciation or bust!’  In service to asset appreciation has been the duel input of ZIRP (zero rate policy) and a rising money supply, much of which we’d presume was instigated by QE’s money printing and Treasury and MBS asset purchases.  S&P 500?  Still not complaining.

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A “Hidden” Bear Market is Brewing

Guest Post by Chris Hunter

Will market historians look back on the $21 billion IPO of Alibaba – the biggest US IPO in history – as signaling the top of the five-year rally for the S&P 500?

Only time will tell…

But we note with interest that almost half of Nasdaq stocks (47%) are down 20% from their peak over the last 12 months (the official definition of a bear market).

And 40% of Russell 2000 small-cap stocks are in bear market territory.

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