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.
“The real issue is that the Fed has expanded its tool kit so dramatically…” –Andrew Huszar
In line with our theme of outlandish and immoral (in my opinion) Fed policy a former Fed official calls QE a backdoor bailout of Wall Street, which anyone with two functioning brain cells knows to be the case. The Andrew Huszar Op/Ed (Wall Street Journal) Confessions of a Quantitative Easer is I suppose old news, but it illustrates what we have been hammering on for so long now; that Fed policy is serving to pump the stock market and pump up the wallets of asset owners.
QE gets about 10 times the notoriety of ZIRP, but I’ll still maintain that it is this evil tool in the Fed’s ‘tool kit’ that is the main and continuing blight on the system as it not only rewards asset owners and speculators, but punishes those least able to speculate due to limited funds.
Please review this chart again and behold the rigged market. Anyone arguing that the bull market in US stocks is normal is being intellectually dishonest. Yet like agent Mulder I want to believe in the healthy bull story*, but I have to believe the data that has drawn the lines on the chart above.
Many people would consider a drop in the S&P 500 to the 1550-1600 area to be a bad thing. But if the bull is real, and if a secular bull market truly has been created out of manipulation of the T bond market (QE’s bond buying and ZIRP’s 0% rates) then a pullback to test that zone would be normal, would it not? It would feel bad but in reality a successful test of the big breakout would launch the grand new bull. SPX has to drop down to test support sooner or later, doesn’t it?
Well no, it doesn’t because the other side of the coin in the post’s title is ‘When Good is Bad’, meaning that an upside blow off in markets – if that is what is fomenting – would be very bad, as in ‘Silver 2011′ bad, for the stock market with a successful test of support unlikely. That is because a manic blow off would be a terminal event.
We have talked about what is negative for the US stock market. From the signal in the banks vs. S&P 500 to a young uptrend in long-term T bonds vs. the S&P 500. Here is the 2011-2014 market leading BKX-SPX in breakdown mode.
Throw in a bearish divergence in the Equity Put/Call ratio, an elevated Gold-Silver ratio right at resistance and Junk bond vs. Treasury/Investment Grade and the signs of a bearish market are not only there, they have manifested in some pretty good downside in the growth and momentum areas.
But aside from the Dow and Tranny already noted, there are other things that bears should pay attention to, starting as we often do with the Semiconductor index.
Zero Interest Rate Policy (ZIRP) was instigated by a credit induced collapse of the US financial system and perpetuated in December of 2008 by desperate financial policy makers as a fix to problems they created in the first place.
In reality, it is simply an epic distortion of normal economic signals that cleaned up the mess created by previous policy distortions (like the commercial credit bubble of the Greenspan era) by systematically (5+ years and running) main lining new distortions into the system.
So in addition to this picture, which could one day hang in a monetary museum with the title ‘Grandma and Her Savings Account Bail Out Wealthy Asset Owners’, let’s take a walk down memory lane and marvel at some other pictures created by this policy…