Ah of course, the plunge in gold and silver had to be due to something.
Turns out the one subject I have been studiously ignoring above all others is revving up in the MSM this morning.
When you look at these events in a certain way, hilarity wells up within. At least it does with me. I mean, the predictability and sameness of it all is just funny. On and on though the various cycles and events we are supposed to get all worked up about. It’s just funny every time.
Junior uranium producer Uranium Energy Corporation (UEC) has been in the news (in a bad way) over the past few days due to ‘revelations’ contained in an article posted HERE. I put inverted commas around the word revelations in the preceding sentence because there is nothing in the article that should have surprised anyone who has been following the company. I don’t follow the company closely, but I was well aware of the information that seemingly shocked the stock market late last week.
This is odd, but not illogical, given the dynamics in play for the gold and silver CoT data and a possible counter-trend setup we have been watching for in the ‘inflation trade’.
Here is the CoT chart for silver that was used in NFTRH 348. Not so bad is it? The extreme was set at the first set of arrows, but Silver CoT has improved greatly over the last couple of weeks.
Silver would likely lead gold if a bounce in commodities and certain global markets were to take place. Meanwhile, the actual bullish stuff is elsewhere as the US stock market has re-found its momentum leaders and Europe declines to the upper end of its buy range.
A good report, as usual. That may sound smug but #348 is another report helped me personally because as usual I don’t go into these things so much trying to put what I think down on virtual paper. I go into them seeking answers or at least, clarity. Check.
A few indicators and what they think they can tell us today (with the usual disclaimer that no single day is to be considered exclusively in a vacuum).
Yield spreads are rising (10yr yield rising relative to 2yr) with nominal yields dropping and that combo is unfavorable to the markets.
Here’s the live view of the 30’s and 5’s. It’s going nowhere since the low in December but looks a little bottomy. There’s a new word for you chart geek sports fans… bottomy.
Is it any wonder the average gold bug (myself included) is driven half insane in this market? A trend would be nice but instead what we get are these spikes and whipsaws in the Silver-Gold ratio. Today’s specimen tested the lows and reversed. Stay tuned.
Of more importance to regular market and economic participants, the Palladium-Gold ratio continues southward.
Here’s the precarious weekly view (does not include today’s dump) as posted at NFTRH.com this morning. The funny thing is, I was wondering why PALL-Gold was dropping so hard on a big market up day the other day. Today I have no such wonderment.
TIP-TLT continues to hang around as a would-be guide to part 2 of an inflation trade bounce. So far, no go.
I am more convinced than ever that the FOMC is simply trying to scare a recovery into existence. The June update to the Fed’s models for central economic tendencies were, in a word, atrocious. The economy was marked down in almost every facet, and not by a little. The upper boundary on the central tendency for GDP was dropped by 0.7%, all the way to just 2% from 2.7% at the March update. That means, given the current thinking which somehow includes an economy strong enough to consider ending ZIRP (from an orthodox perspective), this year is going to be worse than last year.
Somehow out of all that word salad statement, we are to assume that the Fed is even more convinced that the economy has only gotten better if only because it got worse?
I will confess that I am not a “currencies guy”, although one of my early experiences with trading did involve currencies. I was stationed in West Germany (so-called then, before the fall of the Berlin Wall in 1989), and I lived “on the economy” instead of in Army housing. That meant that I had to procure Deutschemarks in order to pay my rent every month.
Well, the stock market certainly likes the compliant Fed. As noted over at NFTRH.com, the Biotechs have retaken the leadership mantle, or at least joined the Banks and Small Caps in a leadership role. Here’s the Russell 2000 boinking new highs.
Let’s look at some signs beneath the surface.
First off, the TIP-TLT inflation expectations gauge, looks okay. It would support an ‘inflation trade’.
But Silver vs. Gold is having issues, and as long as it does a green light indicator is not on for a commodities-based ‘inflation trade’.
Palladium-Gold continues to dump out and thus, taking this one indicator in a vacuum with the assumption that it would prove as useful in the future as it has in the past, it gets one step closer to a bearish macro signal.
The implications? Well, one would be party on Garth but remember to sell and take profits if a mania in stocks whips up in the coming months.
Below is a summary of my post-CPI tweets. ou can (and should!) follow me @inflation_guy or sign up for email updates to my occasional articles here. Investors with interests in this area be sure to stop by Enduring Investments.
Core CPI prints +0.145…just misses printing +0.2, which will make it seem weak. We will see the breakdown.
y/y core goes to 1.73% from 1.81%. A downtick there was very likely because we were dropping off +0.23%
This decreases odds of Sept Fed hike (I didn’t think likely anyway) but remember we have a couple more cpi prints so don’t exaggerate.
Core goods (-0.3% from -0.2%) and core services (2.4% from 2.5%) both declined. Again, some of that is base effects.
fwiw, next few months we drop off from core CPI: +0.137%, +0.098%, +0.052%, and +0.145%. So y/y core will be higher in a few months.
INteresting was housing declined to 1.9% from 2.2% y/y. But it was all Lodging away from home: 0.96% from 5.1% y/y!
Gotta tell you I am traveling now and that reminds you the difference between rate and level. Hotels are EXPENSIVE!
Owners’ Equiv Rent +2.79% from 2.77%. Primary Rents 3.47% unch. So the main housing action is still up. And should continue.
Remember the number we care about is actually Median CPI, a couple hours from now. That should stay 0.2 and around 2.2% y/y.
At root, this isn’t a very exciting CPI figure. It helps the doves, but that help will be short-lived. Internals didn’t move much tho.
The last remark sums it up. While the movement in Lodging Away from Home made it briefly look like there was some weakness in housing, I probably would have dismissed that anyway. There’s simply too much momentum in housing prices for there to be anything other than accelerating inflation in that sector. We have a long way to go, I think, before we have any topping in housing inflation.
But overall, this was a fairly boring figure. While the year-on-year core CPI print declined, that was due as I mentioned to base effects: dropping off a curiously strong number from last year. (That said, this month’s core CPI definitely calms things a bit after last month’s upward surprise). However, the next few base effect changes will push y/y core CPI higher. While today’s data will be welcomed by the doves, by the time of the September meeting the momentum in core inflation will be evident and median inflation is likely to be heading higher as well.
Note that I don’t think the Fed tightens in September even with a core CPI at 2% or above, but the bond market will get very scared about that between now and then. Could be some rough sledding for fixed income later in the summer. But not for now!
Hey, I know I always seem to need to give these things nicknames (Armageddon ’08, Fiscal Cliff Kabuki Dance, etc.). Maybe that is a reflection of how non-seriously I take modern finance on a fundamental level. What we have here are policy and media driven hysterias, both to the positive side and the negative, swaying an emotional collection of players to and fro. It is more of a game than a science or well heeled, buttoned down profession.
So currently, on an interim basis we are working the ‘Anti-USD inflation trade’ (a bounce in inflation expectations and associated ‘hard’ assets) and the Euro QE ‘Me Too!’ trade, with its template being the US QE that has worked to hyper boost (stock) asset prices.
It appears that the mealy mouthed Fed, still refusing to bail out any savers that are left (both of them), has kicked another leg out from under the US dollar, which had for some reason been discounting a Fed that would begin raising the Funds Rate by now like a normal entity in a normal post-crash bailout environment would have done upon achievement of its objectives.
‘But no, we just need to tweak a few more positive data points out of it or wait until we see the white’s of inflation’s eyes’ implies the Fed. Whatever, the dollar is down this morning and the anti-USD inflation trade should get a bounce in its step, in line with one of our main themes. If the May low is violated, Uncle Buck could take a pretty deep correction.