Tag Archives: economy

April/May/June Dynamic?

Guest Post by Doug Noland

[admin note]  And just like that, comments are turned off again.  There was a format issue messing with the look of the site that I could not get around.

[edit]  Still not thrilled about Doug’s focus on Ukraine, but that’s what the internet is, readily accessible ideas and opinions.  If you agree with them all, including mine, something’s wrong.  Noland taught me a lot over a decade ago. 

Putin takes Crimea, China devalues and Yellen has a shaky debut.

Last week I posited that “Ukraine and China pose clear and present dangers to global financial markets.” At least for the week, Russian troops stayed put on their side of the Russia/Ukraine border. And while the West ratcheted up sanctions against Russia, at this point leaders on both sides of this crisis appear keen to avoid actions with real economic impact. At the same time, Putin’s chilling speech Monday supported my view of a darkening geopolitical backdrop – a potential inflection point of historical significance.

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Gold’s Grinding Message

Precious metals boosters will see gold’s nominal price break upward and probably get excited.  They will marshal the troops for what could one day turn out to be a full fledged tout, as if the 40% decline of the last 2.5 years had never happened.

gold

But it is gold’s ratios to positively correlated assets that tells the interesting story.  Vs. Crude Oil, the story could be shaping up to be a positive one for the gold mining industry, which is counter cyclical and obviously energy and fuel intensive.

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Palladium Gold Ratio Still Declining

This ratio is not a friend to the economy nor the financial markets when it is in decline.  We have been following the Palladium Gold Ratio for over a year in NFTRH, first to gauge the coming of an economic bounce (check) and now the coming of its end (potentially in process).

Here is a daily chart showing some bearish signals, but the weekly chart and moving average cross overs is what we watch in NFTRH for the real signals, along with lots and lots of other really geeky macro charts.

pall.gld

Palladium = Positively correlated to the economy relative to gold.

Semiconductor Index at Critical Resistance

1+ years ago… that was when we became alerted to the positive projections in the Semiconductor equipment sector, which meant that Semiconductor companies were ramping new inventory builds.  This had positive implications for manufacturing as a whole since the Semi’s are a canary in the coal mine.

Today the canary is at critical long term resistance.  That is all; no grand statements about what it is going to do or not do.  But we can say that if resistance holds a bear case on the markets and the economy will probably gain an ally.  If it breaks out, the measurements are noted.

sox

Gold vs Commodities, Big Picture

I found this chart while rummaging through old NFTRH charts looking for a monthly view of the Semiconductor Index (I’ll find it or create a new one and post shortly) that projected the current level as important resistance… or a seemingly ridiculous upside target would be loaded.

Monthly Gold-CCI shows that with a higher low still intact, we continue on in a macro phase of chronic global economic contraction (against which our heroes have worked their inflationary magic).

au.cci

Gold-CCI ratio monthly, from NFTRH 254

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Economic Myths

Guest Post by Steve Saville

Our original intention was to explain where we agreed and disagreed with the article by Cullen Roche at “Pragmatic Capitalism” (is there any other kind of capitalism?) titled “The Biggest Myths in Economics“. Instead, while we are still going to refer extensively to the Roche article we will do so within the context of our own list of economics myths. We would have preferred to have kept our list to ten items, but it was a challenge just to restrict it to twelve. Unfortunately, our list is by no means comprehensive.

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US Fed: Proudly Promoting Old Bad Habits

Leaving aside for a moment the compulsion for market participants to remain ‘risk ON’ that is an underlying effect of Fed policy of the last 2 years, what other effects may have been promoted by the latest inflationary operations?

Well, personal consumption is trending up.  Yey, it’s 1999 (or 2007) again!

personal.consumption

Courtesy yCharts

Unfortunately, personal savings is trending the other way as ZIRP has put a bull’s eye on the dreaded domestic enemy known as the saver.  Why, saving seems to have been deemed un-American and in the face of ZIRP, it’s a losing bet too… as long as the asset bubble is maintained that is.

personal.savings

Courtesy yCharts

Hey, despite a re-shoring of manufacturing that is in progress (and a good thing), we remain a heavily consumer based economy.  They are consuming and they will continue to consume until they puke, which in less crude terms means until the next asset market liquidation.

Officials have spent the last couple of years looking like heroes (boom).  We are likely in the process of pivoting toward the other end of the spectrum.  That would be the inevitable bust stage.  We will not consume our way to prosperity especially by manipulating debt.