No matter the debates over inflation vs. deflation, increasing employment vs. sound monetary policy or systemic health vs. fragility (and whatever else is flying around in Jackson Hole this week), the CPI marches onward and upward. That is the system and it is predicated on creating enough money out of thin air while inflation signals are (somehow) held at bay.
The Straw Man* in this argument lives in the idea that inflation is not always destructive, that inflation can be used for good and honed, massaged and targeted just right to achieve positive ends to defeat the curse of deflation that is surely just around the next corner. Currently, the Straw Man is supported by the reality of the moment, which includes long-term Treasury yields remaining in their long-term secular down trend.
Indeed, right here at this very site was displayed much doubt about the promotion having to do with the “Great Rotation” out of bonds and into stocks (i.e. that the yield would break the red dotted EMA 100 this time). We noted it right at that last red arrow on the Continuum© below. Now, with commodity indexes right at critical support and precious metals not far from their own, the time is now if a match is going to be put to that dry old Straw Man and silver is going to out perform gold, inflation expectations barometers (TIPS vs. unprotected T bonds) are going to turn up and the Continuum is going to find support.
Outside of the sound practice that is physical gold ownership in a time of monetary gamesmanship, the precious metals sector is all about speculation, at least according to 9 out of 10 chart jockeys and momentum junkies micro managing every short-term twist and turn.
Indeed, NFTRH manages gold, silver and the gold stocks on down to the short-term views as well, but that is only because the long-term views have stated that this is a time to be paying attention. Do we pay attention because we have waited so long to promote our orthodoxy and finally be right as gold bugs? No. We pay attention when a chart tells us to pay attention.
While we manage the shorter-term views (both macro fundamental and technical) rigorously in the weekly report and interim updates, here I’d like to dial out to the big monthly picture with 3 large (click to expand as needed) charts of HUI, Gold and Silver to see their stories, which are the reasons we are managing shorter-term views.
HUI Gold Bugs Index
First HUI monthly reviews the warnings to the analysis from 2012 and 2013. They were very clear and should have kept people out of much of harm’s way with respect to gold stock speculation.
Sorry, I could not resist the title. Gary Shilling, an economist whose name I have heard over the years, has quite a body of work often revolving around Fed policy, GDP and deflation. The reason I looked into Mr. Shilling is an email from an NFTRH subscriber linking his thoughts on a coming boom…
The Boom is Coming, and Sooner Than You Think (July 18, 2014)
Okay, an economist and Bloomberg columnist thinks this is a boom (actually it is; we are after all in the age of Inflation onDemand © and a Boom/Bust cycle; currently in a cyclical boom concentrated in stocks). Let’s see what he thinks…
[ed: Excerpted from NFTRH 301's opening segment. Those looking for paint by numbers directions and casino game instructions (talking to readers at a certain site that may or may not re-publish this article) feel free to just skip the article. You will not get what you are looking for. The balance of NFTRH 301 did the nuts and bolts technical work on the relevant US and global markets, precious metals, currencies, etc.]
[edit 2] Based on reader feedback from another site, it appears I do not understand inflation, nor that gold’s purchasing power is superior to that of the USD over the long term. What I take from this is that if you post anything positive (like USD’s ‘price’ potential) about the buck and/or negative (like gold’s price vulnerabilities) about gold certain handbook carrying people in the gold ‘community’ are going to lash out first, and read/consider second. In other words SSDD.
Take a look around the gold bull landscape and tell me how many of them are featuring a chart like this, showing the US dollar in a bullish short-term stance (to go with the weekly bullish stance we have noted for so long in the ‘Currencies’ segment).
This is not to say that the US dollar has real value. How can it when it is hopelessly dragged down by a national debt-for-growth obsession. But as with gold, value is one thing and price is quite another. It is just that one (USD) receives a price bid due to a ‘nowhere else to hide’ sort of mentality by the majority when asset market liquidity becomes constrained and the other (Gold) receives a more solid value bid, over time.
We have not checked in on this motley crew at the public site in a long time (NFTRH keeps a running tab each week). Here are the monthly views of the basket cases we call major currencies.
Uncle Buck and his reserve status were leveraged to the hilt by “The Hero” and now his successor is trying to gently talk the Fed out of its policy stance over time. In other words, tightening is going to come one way or another and Janet Yellen is trying to go the orderly route. When this process becomes disorderly, the USD is likely to benefit from the liquidations elsewhere in the asset world.
Technically, USD is in a long basing pattern. There are those who think it is basing before a renewed decline, reading a Symmetrical Triangle (continuation) pattern into poor old Unc. I think the odds are it is bottoming over the post-2008 years when inflation – try as they might to have promoted it – simply has not taken root *. Leaning bullish, watch support and resistance.
The following is an excerpt from NFTRH 298’s 38 pages of hard hitting, no b/s market analysis, which also included extensive work on the precious metals along with commodities, currencies, global markets and market sentiment.
NFTRH subscriber (7.6.14): “You should publish pages 15 and 16 of this weeks report. I would like to share it. It is a great summary of the current situation.” Pages 15 & 16 take it through the Dow chart below. I decided to go with the whole segment on US stocks.
Stock Markets – US
Happy Independence Day America! Your markets are bullish… and over bought, over loved and running on increasing momentum.
The graph tells a story of the end of the Greenspan era’s commercial credit inflation, which was resolved in 2008, and the beginning of the Bernanke era and official credit inflation, which is ongoing.
As the silver CoT report data systematically, almost robotically degraded into the September 2012 top (despite the seemingly bullish coming of QE3) NFTRH used to ask week after week “Who are those guys?” doing its best Butch Cassidy while evaluating the gathering short interest.
Below is the CoT graph from NFTRH 203 dated September 9, 2012. Week after week ‘those guys’ were ganging up on silver and we all know what soon happened; a harsh bear market down leg for the precious metals.
This article at Hard Assets Investor talks about Jeff Gunlach’s bullish gold call for 2014 and uses Dylan Grice’s 2012 call as an example of how the end of the world (i.e. gold’s safe haven value) can be put on hold indefinitely.
Is Jeff Gundlach’s Bullish Gold Call Too Early?
So is Gundlach wrong today? Grice wasn’t necessarily wrong in 2012. What he called “the largest credit inflation in financial history, a credit hyperinflation” has instead rolled on…taking asset prices higher and crushing interest rates. But it hasn’t, as yet, hit the value of money itself.
Nor will it hit the value of money, especially the US dollar, until all confidence is lost in the system. We are about a million miles away from that condition right now (see second chart below). Confidence will be lost first in the assets that are benefiting from the inflation – like stocks, so strategically at the heart of the wealth effect that policy makers are trying to stimulate – and then in policy makers themselves. Then we’d have a big bull market in gold for all to see.
We have been talking about how there had been no bubble in US stocks and how the economy is doing just fine. We have also been talking about how the bubble is in policy and that the economy and stock bull market have been created – yes, like Frankenstein’s monster once again – out of this policy bubble.
Enter economist Joseph LaVorgna of Deutche Bank… Fed needs to start raising rates, top forecaster says.
Will wonders never cease? As you may know, I read the financial MSM to get a feel for what the casual market participant is reading, what the majority is being told is the truth. Usually it is some combo of self-promoters and agenda (sometimes political) driven bulls and bears.
The following is one of a wide range of analytical topics covered in NFTRH 293’s 35 pages this week, much of which is straight ahead technical analysis. But the T Bond market is usually central to an overall macro view at any given time. This segment is not meant to provide actionable direction (other than perhaps to prepare for a potential rise in T bonds yields), it is meant to dig into the mechanics beneath the financial markets in an effort to have people consider that there is much more going on with markets than simple nominal TA or conventional fundamental analysis (PE ratios, growth metrics, reported economic data, etc.) can account for.
US Treasury Bonds
10 & 30yr yields have declined to support as NFTRH projected
Yields on long-term Treasuries have continued to decline in line with our view that was contrary the ‘Great Rotation’ (out of bonds) hype. The [30-year] especially is now close to support and the next play seems like it could be rising yields and declining T bonds.
Our long-term ‘Continuum’ chart; yields approach support
The 30-year ‘Continuum’ view above makes the simple case that players had to be put offside believing in the ‘Great Rotation’ at 4% yields. The nearly half-year decline since then has now satisfied the chart as yields have come to our 3.1% to 3.2% target range, where there is support.
Well, Loretta Mester looks a little hawkish anyway.
She also looks a little like…
To which I’d refer back to my first public article ever written back in the quaint days of Alan Greenspan’s trail blazing foray into financial market experimentation. FrankenMarket Lives. Pardon the Hyperinflation reference. It was the first thing I ever wrote! Young(er) and more naive.
Anyway, it all comes back around and makes sense if you give it enough time.
Read A New Hawk at the Fed? and decide for yourself.