Despite the opening segment’s title and the UK Subs classic below, it’s not a tin foil hat piece. Really.
(e) = external link
The King of EM Doug Noland 6.15.13
Gold CoT Data Show Bottoming Condition Tom McClellan 6.15.13
Inflation is Instantaneous Bob Hoye 6.15.13 pdf
Classic Michael Ashton 6.15.13
Stanley Druckenmiller on Investing in the New Normal Zero Hedge 6.15.13 (e)
Connecting the Dots Market Anthropology 6.15.13 (e)
Financial Market Articles & News Biiwii.com/EWI 6.15.13
With all this talk of Hindenburg Omens, market crashes and QE taper, you just knew that ‘jobs’ would come in okay. US Generates 175,000 Jobs in May.
Gold immediately gets hammered on the ‘news’, which really should not be news. ‘Jobs’ is on a little trend and came in just about right.
The problem for gold is and has been the massive world wide obsession with US QE policy. Greenspan is in the media talking about how the Fed should begin tapering now.
I happen to agree. Taper the damned thing already; job well done Ben! Now you can let the banks ‘carry’ the load the rest of the way. It’s a real and sustainable economy and stock bull market after all, isn’t it? Sarcasm aside and strong potential for a summer correction aside, the makings of a bullish (and inflationary) phase are in place. The banks (‘carry’ beneficiaries) may even be an investment target sooner rather than later.
Gold is going to have to go it on its own, less the QE hype, which has obviously not helped the monetary metal/value retainer thus far. Gold is just a currency alternative in a world full of screwed up currencies.
Yet the USD is relatively strong (and still unbroken despite yesterday’s hard drop to support). As for the gold stock sector, I am constructive there but the pumpers of this sector’s tires have got to understand that QE and the obsession with inflation are hurtful, not helpful in the big picture. Economic contraction is the counter cyclical gold sector’s key. Right now, policy makers are not letting the contraction take hold. A void between ‘QE taper’ and when the would-be ‘carry’ scenario comes about might be the time for the gold sector’s fundamentals to actually get a boost.
Today’s okay ‘jobs’ report puts a short-term cap on things in the precious metals but it is due to be a long, hot summer. One ‘jobs’ report does not change anything really. The economy is tepid at best despite the systematic bond purchases. The stock market is due for relief and the precious metals, which have become nicely inverse, are getting hit.
The Fed needs to taper and many inflation boosters seem to think they will not dare do so. I have doubts about that. I think they will if the ‘carry trade’ scenario is at all near being on base. Interesting stuff.
 A long time reader notes that I was heavily on the ‘QE and gold relationship and that what I wrote above is not consistent with that. i.e., I am trying to look smart or have it both ways. But the reality is that the money supply broke up and out and yet gold got clobbered. The dynamic changed and so did the analysis, which was proved wrong. The analysis is not bigger than the market. The market is bigger than the analysis and indeed directs it. If readers want a booster of one ideology or another, said readers should look elsewhere.
(e) = external link
Deflation Isn’t an Export; Crazy Talk is Michael Ashton 6.4.13
Out on a Limb James Howard Kunstler 6.4.13
Sell the Dollar? Case for Hard Currencies Axel Merk 6.4.13
Explaining the Gold Bull Market Steve Saville 6.4.13 (pdf)
Annual Report 2012 Federal Reserve Bank of St. Louis 6.4.13 (e)
Wounded Heart Bill Gross 6.4.13 (e)
Gameplan for a Completely Corrupted Market Cody Willard 6.4.13 (e)
Japan’s Easy Money Tsunami David Howden 6.4.13 (e)
March Housing Numbers B.I.G. 6.4.13 (e)
As I was charting long-term Treasury yields in NFTRH 241, I ran a chart of the ratio between the banks and the S&P 500 and what do you know? The ratio had broken out to the upside right along with long-term interest rates. ‘Hmmm…’ said I, ‘maybe this is relevant to the analysis.’
Excerpted from NFTRH 241:
“The Bank Index ratio to the S&P 500 (BKX-SPX) is breaking out to the upside in defiance of a bear case in stocks. The BKX has modestly led the SPX since 2011. We have noted that this is a necessary bullish factor for the financialized economy, which is quite different from a real or organic economy.
Remember the ‘carry trade’ of the Greenspan era? That would be the same carry trade that helped bloat the banking sector, putting its big, fat too big to fail hands in just about every cookie jar in America.
The banks love rising long-term yields because they basically receive free money from the Federal Reserve as the first users of newly created funds on the short end, which is being held down by ZIRP. They then roll these funds into loan products, mark them up per long-term yields and voila, instant profits courtesy of a ‘borrow short, lend long’ gimmick.
Let’s see how this develops, but we should note that Bernanke has not created anything new under the sun. The great carry trade of last decade was just another unnatural systemic stress that led to the 2008 resolution.
Do you suppose that Fed officials are ready to let the banks do the heavy lifting, now with the incentive (carry) to get the funds ‘out there’ to the public? This condition came hand in hand with an inflation problem last decade and now that everybody seems to know there is no inflation, would not a new phase of rising inflation expectations go well right about now?”
Talk of QE tapering may not only not mean the end of any prospects for inflation, but may actually be part of the kickoff to a new phase of increasing inflation expectations as the banks may now have incentive to get the newly printed money ‘out there’. The banks have been liquified through ZIRP and the prospect of a profitable ‘carry trade’ dynamic becoming engaged going forward should be factored into investors’ outlooks across a broad spectrum of assets and markets.
With precious metals and commodities so far down in the dumps and a certain NYU rock star economics professor out front talking down gold and talking up a dis-inflationary backdrop, might we not at least consider the contrarian possibilities of an inflationary phase to come?
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I did something uncharacteristic yesterday and did not let the bullish hype party upset me or make me think of covering my short position against the S&P 500. In fact, at the high of the day I saw the small caps flying around up there testing the highs so I took a position against the RUT as well.
I often think about equals, opposites and mirrors. I also think about trap doors, sling shots and other conditions that can take effect after herds have been assembled sufficiently to change a trend.
Now, maybe I am on the wrong side today. When I was managing a bottom (that seemed to take forever to materialize) 1 year ago I was made to question myself about every other day. I remember bullish ‘bottoming’ patterns from which the bottom would fall out. This year I had a bearish pattern (red arc above) that failed into a new upside explosion. It’s a mirror of last May.
Anyway, a new pattern was created with an objective of 990 on the RUT. √
The news is as good as it gets out there, global policy makers are revered in what seems like a sick, neurotic and frankly disgusting lurch toward total subservience and submission. I am not buying it. I could be very wrong seeking a bearish turn of events, but I still would not buy a market like this, which is fueled by some seriously emotional money (friends in town asked me about my thoughts on Jim Cramer and observed “the market’s looking pretty good, is it okay now?” 4+ years into a cyclical bull market, no less); the same money that sold in 2009 and sold again last May.
Politicians and Policy makers have seemingly created an environment where risk should be embraced and missed opportunities can be recaptured all in one big gulp. Emphasis on the word seemingly.
This one rolls the various data into one big ball of wax.
Per the St. Louis Fed: “The leading index for each state predicts the six-month growth rate of the state’s coincident index. In addition to the coincident index, the models include other variables that lead the economy: state-level housing permits (1 to 4 units), state initial unemployment insurance claims, delivery times from the Institute for Supply Management (ISM) manufacturing survey, and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury bill.”