Today the 2 Horsemen rode newly brave bulls back out of town.
*  This is a 5 year relative view. Longer-term, the S&P 500 remains over valued per its historical corporate profits metrics.
Pretend with me that we are in Wonderland, where policy inputs can keep everything on the macro in control forever and allow conventional mainstream financial industry people to twittle their P/E ratios and growth metrics for individual stocks and sectors as if it is a normal recovery of a normal economy. In this scenario the S&P 500 is no longer over valued, at least by the corporate profits data compiled by this SlopeCharts graph.
It’s the same one we used to illustrate the over valuation that even a buttoned down Wall Street analyst could see (or should have seen) in the run up to the recent correction. Well, it’s fixed now. Again, we’re talking about what the financial services industry will want to promote to its clients, not the macro.
Here is the monthly chart of the Semiconductor index (SOX), updated. Still thinking about a bounce in the 540 o 550 range, but I think odds are it is going to the mid 400’s sooner rather than later.
The US dollar has been the anti market to so many items lately, with just one of them being the SPY in the lower panel of the chart.
Here is USD fund UUP making a hard reversal on volume on its daily chart.
Don’t they say that traders don’t care if the market goes up or down, just as long as it moves? Well, I find burning commissions pretty annoying, but I find this market very interesting. All shorts were covered at the first sign of the reversals because so many things were at support levels.
It’s the old dry kindling just needs a match sort of deal.
Today is the kind of day when you’d do well to tune out any cartoon characters ranting about any sort of manipulation. The simple fact is that the 2 Horsemen, the gold-silver ratio and the US dollar (GLD-SLV & UUP) are riding together today in opposition to most asset markets. Period.
Aside from some hilarious observations about Chinese Politburo members’ jet black hair helmeted mojo, Ben Hunt of Salient lays out an interesting view of policy making and the global macro. He ends with this bit on gold…
“As for my third point – the implications of monetary policy divergence on gold – I’m always reticent to write about gold because it incites such passion (and I don’t just mean the gold bug camp … poke pretty much any academically-trained economist and you will unleash a furious anti-gold tirade). To be clear, I believe that the meaning of gold today is NOT as a store of value but as an insurance policy against central banks losing control. With market faith in the Narrative of Central Bank Omnipotence at an asymptotic top, the price of that insurance policy – call it $1,200/oz – is as low as it’s going to go. And now with a schism in the High Church of Bernanke, monetary policy divergence, and growing pressures on the tectonic plates of exchange rates we have catalysts for both a generic and geographically specific central bank loss of control. Now I understand that gold means different things to different people, and to the degree that gold trades as a commodity or a dollar-denominated store of value it can trade cheaper as the dollar advances. I get that. But I don’t think that’s been the principal meaning of gold for the past 5+ years, and if you think as I do that this is the beginning of the end for the Golden Age of the Central Banker (or at least the end of the beginning), gold is pretty interesting here.”
Thanks to PJ for sending me this link.
So our thesis has been that a concurrent rise of USD and the Gold-Silver ratio (GSR) would not be a good thing for markets. Stick it in the blender and mix with several other indicators (we have not even mentioned weak junk bonds and junk to quality credit spreads, at least not publicly) and you have ‘so far, so good’ on a coming bear case.
To review, a rising GSR means that speculative liquidity is coming out of the markets, as in risk ‘OFF’. The rise in USD is a fundamental consideration that would hit manufacturing first. Here again, I tell you that the biiwii guy, a former manufacturing person, was the first to project coming US manufacturing strength for NFTRH subscribers. Just to counter a few wise guys who would finger point and yell ‘perma bear!’ Today’s firm bulls were all hiding under rocks as Congress did the Fiscal Cliff Kabuki Dance at the time.
To put things in non-technical terms, I think some shit’s happenin’ out there folks. We’ll see.