Category Archives: Notable Posts

Previous articles and posts of interest.

Goldzilla

godzilla“History shows again and again how nature points out the folly of man”  –Blue Oyster Cult, Godzilla

I would have written off the gold sector long ago in its ongoing bear market had I thought for one moment that gold’s utility as insurance against the acts of monetary madmen/women in high places had been compromised in any way.  On the contrary, the monetary metal is simply having its price marked down in a bear market while its value, especially given its current price and all that has gone on in the financial system over the last 3 years remains just fine.

Indeed gold, an element dug out of the ground for centuries, once as money and now as a marker to sound money systems will one day be shown to be a calm oasis from the fallout to global monetary shenanigans currently ongoing.  At least it would be an oasis to those who have valued it as such.  It is going to feel like a giant dinosaur (minus the kitsch value) ripping through a city built on paper to the multitudes who have taken the bait on the current too big to fail global inflationary operations.  They will fail.  Timing is the only question.

Despite what many are compelled to believe by aggressive (read: maniacal) global policy making that has turned down to up, right to left and symmetrical to asymmetrical, gold is and has been a lump of monetary value just sitting there, waiting out a phase where monetary policy is working seemingly as intended, to impoverish the working and saving classes and further enrich the asset ownership and investment classes.

I have gone hard on the gold “community” for a few years now because I watched in real time as the dark clouds gathered against the honest money relic and those bullish upon it.  The narrative never changed for many of the most high profile gold “community” leaders and spokespeople, and in the modern financial markets that simply will not do.  In the past, even during the previous bull market, I have likened being a gold investor to being at war.  You are at monetary war in support of ideals and a sense of what is right vs. entities that manipulate and control markets toward desired outcomes.

And do you know what?  They have won every damned battle since 2011.

The most brilliant move made by the US Fed in targeting gold (either directly or as part of the fallout) was Operation Twist, which came on the heels of gold’s flirtation with the $2000/ounce level.  Op/Twist very simply was designed to “sanitize” (the Fed’s word, not mine) inflation signals by selling short-term T bonds while buying long-term T bonds.  It was brilliant, evil and awe-inspiring all at once; genius.  Simply manage paper and digital entries in the bond market so that a long relied upon macro signal (the relationship between short and long-term Treasury yields) will at once show a financial system under diminishing stress (yield curve decline) and a lack of inflationary expectations.

So the US Federal Reserve had the balls to literally paint the macro by turning the out of control 10yr-2yr yield curve (an important gold fundamental) down, sanitize inflation (a less important but sometimes very relevant gold fundamental) and best of all, keep on inflating… and inflating… and inflating… with ongoing ZIRP and QE3 as the global macro pull of deflation put Goldilocks on US markets 24/7 and 365.

Gold bugs would have none of this and why should they?  The average gold bug (the real people, not the pitch men and promoters) is driven by this thing we call honesty and a sense of morality.  To anyone with half a brain and not incentivized to look the other way (like probably 90% of the financial services industry), these macro parlor tricks are ephemeral and will not only not succeed, but one day be looked back upon as a scourge upon future generations.

The problem is that gold is so simple (as a monetary anchor) that eggheads feel a need to make it complex (the old ‘baffle ‘em with b/s’) and those with agendas feel a need to pile on, for example, schooling us over and over again in the media about how gold is a poor “inflation hedge”, when that is not its only utility; not by a long shot.

The post-2011 period has been a veritable Wonderland of possibilities for the printers of paper, enterers of keyboard digits and those who follow their breadcrumbs.

Further, the leadership of the gold “community” have been shown to be little more than dogma spewing robots firmly set in their ideology when maybe what was needed was a more even handed approach that could have helped legions of gold devotees avoid some very unpleasant interim situations before Goldzilla finally rises up and wrecks the cities around the globe made of paper and digits.

The gold sector is rallying as we expected it would from the 2008 lows and a capitulation of at least moderate degree but has not proven much, technically.  Similarly, the fundamentals are not yet fully baked for the sector (ref.  yield curves, gold vs. stock markets, gold vs. certain commodities, intact public confidence in policy making, etc.).  These things will change either sooner or later, but for years now imposing our will upon the market has not worked.  Sit back, relax and let Goldzilla do his thing.

I write the above in the style I used to write as a ‘for free’ public writer (as opposed to the more technical stuff I need to see to now with NFTRH) to hopefully add a level of perspective to the conversation going forward.  The macro is going to change.  It always does.

Gold Sector Review

Below is a summary of some of the aspects we follow in NFTRH to gauge a future investment stance on the gold sector.  It is much more complex than simply hearing dogma that seems to make sense and then holding on for dear life…

Inflation

The hype is dying.  10 years of inflation hysterics have gone down the drain even as global policy makers pull out inflationary bazookas and use them at the slightest hint of economic trouble.  The BoJ’s recent action was just the latest and most striking in its timing.  Global markets were bouncing within correction mode and the Yen had just pinged a key resistance level.  The BoJ then blew the Yen up with policy designed to at once reward risk takers and asset holders and mercilessly punish the Japanese people, renowned for the ethic of saving.

But the global inflation is dying despite these periodic bazooka blasts.  The US Fed as much as admits it wants inflation.  More accurately, it will do anything to stave off the next deflationary impulse because when that takes hold it is going to unwind the system, and they know it.  Why on earth do you think noted Hawk James Bullard was trotted out the moment the stock market took a routine correction in October?  Here Jim, get out there and eat that mic and calm them down.

Gold is not about inflation and in this cycle it, as a squarely risk ‘OFF’ asset, is about the opposite, the deflationary unwinding of the inflated excesses which now are no longer clustered in commodities and global markets, but in US stocks and the balance sheets of certain corporations set up to benefit.

In a dis-inflationary environment, which is the preferable one for the gold stock sector, the pain comes first and the rewards for those left standing come second.  We have not exited the pain phase for gold bugs and most people still think ‘no inflation, bad for gold’ when they should be thinking ‘no inflation… that means eventual deflationary impulse… bad for the economy and stock markets and one day, from the ashes good for the gold sector when and only when gold out performs other assets positively correlated to the economy’.

tip.tlt

Goldilocks has been in play in the US as the global dis-inflationary pull has dropped the TIP-TLT ‘inflationary expectations’ gauge lower.  At some point Goldlilocks will morph to something less benign for the economy and for stock bulls.  But it has not yet.

Macro Fundamentals

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Gold Bug Psychology Must be Neutered

The precious metals bear market, beginning with silver’s blow out in early 2011 and the general top in the commodity and ‘inflation trade’ along with gold’s lesser blow out later that summer amidst Euro crisis hysterics, has been all about psychology.  Well, every bear or bull market is about psychology, but the intensity of this dynamic has been something to behold in the gold sector over these last few years.

Psych 101

In early 2011 long-term interest rates were rising in response to inflationary pressures, ‘Bond King’ Bill Gross famously shorted the long bond, virtual mobs with pitchforks were storming the Fed’s castle calling for Ben Bernanke’s head and silver went to $50 an ounce, with calls for $100, $200, etc.  All psychology my friends.

While on the subject of the long bond, our ‘Continuum’ chart shows that players did not learn 2011’s contrarian lesson with respect to yields as they took Wall Street’s ‘Great Rotation’ hype hook, line and sinker in 2013.  What did the 30 year yield then do?  Why, it hit our long-term limiter (monthly EMA 100, red dotted line) and has dropped ever since.

tyx

Pigs on the Wing & Sheep

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Even the MSM Sees the Inequality by Policy

After one of my cynical posts finger pointing at a Fed talking head (in this case Janet Yellen) and answering her absolutely flawed rationalizations for the masses line by line, a financial blogger informed me this morning that the theme is picked up by the New York Times with an article written by former M&A banker William Cohan.

How Quantitative Easing  Contributed to the Nation’s Inequality Problem  –NY Times

This is good.  The MSM is highlighting something very real and in my opinion, quite evil (there, I said it).  But let’s clean up NYT’s theme a little bit too, just as we did Yellen’s outrageous remarks.

Quantitative easing adds to the problem of income inequality by making the rich richer and the poor poorer. By intentionally driving down interest rates to low levels, it allows people who can get access to cheap money on a regular basis to benefit in extraordinary ways.

QE, at least theoretically and on a surface level in a debt-based economy/society helps the little guy because he is borrowing on the long end and QE buys up his distressed MBA and provides him loans at lower long-term interest rates.  It is in ZIRP (zero Fed Funds) that he gets screwed because while the banks get a ‘can’t lose’ profit motive, peoples’ ability and inclination to save are all but destroyed, or better yet effectively outlawed by policy.

The rest of the article goes on to illustrate just how rigged this game is and how we have changed nothing in the 1.4 decades since Alan Greenspan kick started the Age of ‘Inflation onDemand’©, where every problem has a financial solution and the rich get massively richer and the majority get screwed… every step of the way.

Negative Feedback

Here is some feedback a republished post of mine (Market Summary; Saturday Morning Cartoons) got at a leading gold website from a reader.

“The other support has been the very real economic recovery in the US…”

This is so completely wrong, its scary.

Anyone who makes this claim has absolutely no credibility, and no one should listen to them, and definitely don’t base any investment decisions on their advice or analysis.

The reader cherry picked something positive I wrote about the US economy and left out mitigating information that was right in the same segment…

Deflationary and economic growth troubles across the globe are blamed for the recent strength in the US dollar and to a degree that holds merit.  The other support has been the very real economic recovery in the US (beginning with the Semiconductor sector, which NFTRH 312 looked into in depth last weekend) born of very unreal (i.e. unnatural and unsustainable) policy inputs (ref. the chart in this post showing the S&P 500 tended all the way by supportive policy).

Naturally, it stands to reason that if dollar compromising policy is promoted to keep assets aloft, then a strong dollar is unwelcome because not only would it begin to eat away at exporting sectors like manufacturing, but it would also make assets less expensive.  But that should be a good thing, no?  Declining prices in things like oil, food and services?  Not on the one-way street that is our current system of Inflation onDemand.

By the way, I received an email yesterday from a biiwii reader who has grown tired of the gold websites and “the same old arguments”.  He also notes his boots on the ground information that is very similar to mine with respect to the booming Semiconductor industry.  I am in Massachusetts and he is in California.  These are the hotbeds of the Semiconductor equipment sector.

He notes that his scrap metal vendor (hey, those guys are right there in real time in the manufacturing cycle) “has never seen the kind of rapid growth that he is seeing now” and that rents, traffic and commercial property are booming and that the scrap vendor’s customers (major Semi and machining companies) advise him to keep the bins coming for the next 4 years.  He also notes that this is exactly the kind of talk he heard in 2006, as the last cycle began the process of topping out.

But my point with this post is not to cry over some negative feedback.  It is to sort of shake my head publicly about how some people refuse to open their eyes while digging in to a failed view point no matter how long its failure persists.

I understand that this commenter could be from a depressed region not seeing the boom as opposed to putting his fingers in his ears and going “la la la la la…” every time someone puts forth contrary information to his world view, but here are some facts…

  1. We noted in real time that the Semiconductor equipment industry was ramping up nearly 2 years ago and that its implication would be coming strength in US manufacturing.
  2. A long streak of uninterrupted manufacturing strength followed.
  3. Improvement in employment data followed that.
  4. Every step of the way we have noted that the economy is strong, the stock market was not over valued (until recently) and that it was all built on unsustainable fundamentals (i.e. policy inputs)

I mean, right there in the very same paragraph that the commenter cherry picked was the mitigating discussion about lack of sustainability.  I truly believe that something about human nature makes many people wholly unequipped to deal with financial markets in a rational manner.

Yellen Greatly Concerned About Inequality

So am I and so are most decent people.  So bravo Janet, you are a decent person.  You are greatly concerned about inequality in this richest nation on earth.

Yellen says she’s ‘greatly’ concerned by rising inequality

Now let’s work the details…

“It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority,” Yellen said in a speech to a conference on inequality sponsored by the Boston Fed.

It is also no secret that manipulating short-term interest rates toward zero kills regular peoples’ ability to save.  It creates and furthers a wealthy investor class directly at the expense of the public, who have traditionally been savers.

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“It’s Inflation All the Way, Baby!”

The title’s quote is one of many eminently quotable messages I had the pleasure of receiving over a few years of contact with a late, great and a very interesting man* named Jonathan Auerbach, who headed a unique specialty (emerging and frontier markets) brokerage in NYC called Auerbach Grayson.

kabukiJon was an honest and ethical man.  He was also a gold bug (in that descriptor’s highest form) who innately understood the Kabuki Dance that has been ongoing by monetary authorities since the ‘Age of Inflation onDemand‘ (what guest poster Bruno de Landevoisin calls the Monetized New Millenium) started its most intense and bald faced phase in 2000.

Yesterday the minutes were released from the last (FOMC) meeting of official interest rate manipulators and surprise surprise, they are found to be hand wringing about the strong dollar.  A strong dollar is going to take direct aim at US manufacturing among other exporting businesses, after all.

“Over the intermeeting period, the foreign exchange value of the dollar had appreciated, particularly against the euro, the yen, and the pound sterling. Some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector.”

And the money line…

“At the same time, a couple of participants pointed out that the appreciation of the dollar might also tend to slow the gradual increase in inflation toward the FOMC’s 2 percent goal.”

In an inflated construct (cue the chart for what seems like the 1000th time), there is no way out other than inflation “all the way”.

sp500

So while we twittle our charts and manage markets in the here and now as if we are conventional market participants, we (well I, anyway) are anything but that.  What I do is have some fun along the way with graphical representations of the falseness that is the underpinning of the Age of Inflation onDemand; and the humor too.  Every time the Fed rolls over on making real and sound policy and/or speaks out of both sides of its mouth the reaction is either comical or sad, depending on how you look at it.  I choose both, it’s comical and sad…

outerlimits

“There is nothing wrong with your television set. Do not attempt to adjust the picture. We are controlling transmission. If we wish to make it louder, we will bring up the volume. If we wish to make it softer, we will tune it to a whisper. We will control the horizontal. We will control the vertical. We can roll the image, make it flutter. We can change the focus to a soft blur or sharpen it to crystal clarity. For the next hour, sit quietly and we will control all that you see and hear. We repeat: there is nothing wrong with your television set. You are about to participate in a great adventure…”

Nothing has changed since 2000, when Alan Greenspan began this most adventurous experiment in inflation.  What we have had are boom and bust cycles.  The current cycle has simply emboldened the worst kind of trend followers and touts in an ‘In Greenspan err, Bernanke, err… Yellen we trust!’ continuum of greed and ignorance.  Today, the worst of us hold sway in promoting fantasies that newer and more gullible arrivals on the financial scene will pay for one day.

The FOMC minutes released yesterday prove that they are trying to inflate, they want inflation and that in this “monetized new millennium” it is asset appreciation above all else; especially above the saving that a chronically strong dollar would promote among the population.  Saving after all, is necessary for real and sustainable economic cycles.

aliceThat is not what we have going here.  What we have here is a one-way ticket to the Outer Limits or Wonderland or (pick a popular culture reference)…

* Among other things, Jon was pals with New York Dolls guitarist Johnny Thunders, attended a Mets game with Iggy Pop, was involved in the 1960’s NYC film and arts scene and even advised President Clinton on economic issues.  “Did he take your advice?” asked I.  “Ha ha ha… no” said Jon.  Like I said… interesting.  He was also NFTRH’s very first subscriber, a fact that to this day keeps me trying to live up to his standards.

The Macro View and the Stock Market

Excerpted from the September 21 edition of NFTRH, #309, which went on to do extensive technical and macro work across all the key markets…

Last week we noted that Uncle Buck would be front and center in the analysis, not because the strength in the (anti-market) currency was not expected (it was), but because our big picture theme of an ongoing economic contraction had remained intact (ref: gold vs. commodities ratio) over the long-term.

It is important here to remember that NFTRH would only be on its big picture macro themes as long as indictors implied they are still viable.  I will be damned if I will let us follow a Pied Piper off an ideological cliff, no matter what readers (including me) might want to hear.  We must dedicate to know what is happening, not what our hopes, dreams, egos, etc. think or worse, hope will happen.

gsr.usd.mo

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Deflationary Straw Man

straw.manNo 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.

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HUI, Gold & Silver; Fun With Monthly Charts

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

hui

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.

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Is Gary Shilling?

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…

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