Tag Archives: economy

Economic Snapshot

Excerpted from this week’s Notes From the Rabbit Hole, NFTRH 314:

Note; the post also appears at nftrh.com, which is 90+% ready for prime time!

Our view has been that a stronger US dollar would eventually start to eat away at corporate results, especially in the manufacturing sector and at US based companies with a global customer base. The decline in revenues thus far is something to be watched because where revenues go, earnings eventually follow.

[edit: the segment previous to this one reviewed a contrast between strong earnings and sagging revenues with companies that have reported earnings thus far]

An article by Doug Short published at Business Insider on Friday illustrates how the Economic Cycle Research Institute (ECRI) called for a recession in 2011 and was promptly made to eat that call first by Operation Twist and then by balls out QE3. All the while as ZIRP has quietly whirred along in the background for 6 years.

ECRI’s weekly Leading Index is flashing warnings again…

ecri

…while the St. Louis Fed’s Leading Index (incl. ISM data, Treasury spreads and State level housing permits and unemployment data) continues to slog around its 30 year average after the big recovery out of 2009.

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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.

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US Dollar is Extreme

Excerpted from this week’s NFTRH 311 (10.5.14)…

Using Tom McCellan’s article discussing a “blow off” move in the US dollar and its very bearish net short position by commercial traders as a starting point, I would like to talk about the USD and gold and how they each fit in to the global macro backdrop.  We could add silver into the mix as well because its failure in relation to gold (ref. the gold-silver ratio’s breakout last week) is the other horseman (joining Uncle Buck) that would indicate a changing macro.  Here’s the McClellan piece:

Commercials Betting on Big Dollar Downturn

First I would question the term “blow off” when talking about the USD.  Markets that have come off of long term basing patterns and broken above resistance with plenty of overhead resistance still to come have not blown off.  A blow off is Nasdaq 2000, Uranium 2007, Crude Oil 2008, Silver 2011, etc.

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The New Mediocre Neutral

Guest Post by Doug Noland

For a couple hours on Thursday things were beginning to look dicey.

Bloomberg’s Tom Keene: “The ‘new mediocre,’ the new mediocrity that is out there. Color that for us. How is that different from Dr. El-Erian’s or Mr. Gross’s ‘new neutral’? What’s the distinction of your ‘new mediocre’?

IMF managing director Christine Lagarde: “The ‘new mediocre’ has three components… One is it still has the legacies of the crisis: high indebtedness both sovereign and corporate and household sometimes. It has high unemployment in many corners of the world. Those are the legacies. Then we are facing serious clouds on the horizon, and we have a lot of uncertainty. So if you combine the legacies, the clouds and the uncertainty, we have this horizon of the ‘new mediocre’ where we are revising potential growth.

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‘Jobs’ Better Than Expected

‘Jobs’ came in at 248,000 vs. estimates of 220,000 and unemployment rate to 5.9%.  Clicking the graphic yields the MarketWatch article.

jobs

The stock market is dutifully rising to test some breakdowns, as we noted to be likely in an update for subscribers yesterday.  A key to what the market does at those test levels will be in how the market interprets the data’s effect on policy making which, as we well know, has been causal and supportive of the bull market every step of the way.

Theoretically, in a normal market we have reached escape velocity, where the economy’s fundamentals alone can carry the day.  Notice I wrote ‘normal’?  Is this a normal market?

sp500

The Fed is looking mighty suspect holding ZIRP for going on 6 years now.  Then again, as long as there are no signs of inflation they have an implied free license to keep on keepin’ on.  Interesting to say the least.

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GSR & US Dollar

So our thesis has been that a concurrent rise of USD and the Gold-Silver ratio (GSR) would not be a good thing for markets.  Stick it in the blender and mix with several other indicators (we have not even mentioned weak junk bonds and junk to quality credit spreads, at least not publicly) and you have ‘so far, so good’ on a coming bear case.

To review, a rising GSR means that speculative liquidity is coming out of the markets, as in risk ‘OFF’.  The rise in USD is a fundamental consideration that would hit manufacturing first.  Here again, I tell you that the biiwii guy, a former manufacturing person, was the first to project coming US manufacturing strength for NFTRH subscribers.  Just to counter a few wise guys who would finger point and yell ‘perma bear!’  Today’s firm bulls were all hiding under rocks as Congress did the Fiscal Cliff Kabuki Dance at the time.

To put things in non-technical terms, I think some shit’s happenin’ out there folks.  We’ll see.

gsr.uup

Market Ratio Messages

Using monthly charts I want to update more big picture views of where we stand in the financial markets.  This is just a brief summary [edit; okay it's not so brief.  In fact it had to be ended abruptly or else it would have just kept on rambling] and not meant as in depth analysis with finite conclusions.

I was listening to Martin Armstrong talk about his ‘economic confidence’ model and realized that the way he views gold is similar to the way I do (and very dis-similar to the way inflationists and ‘death of the dollar’ promoters do).  I don’t love the way he writes, and I usually avoid these weird interview sites, but checked it out (linked at 321Gold) anyway and found him enjoyable to listen to.

Anyway, this prompted another big picture look at gold vs. the S&P 500 and as with the shorter-term views, the picture is not pretty.

au.spx

Well, it is pretty if you have patience and no need to promote gold as a casino play.  Gold will be ready when gold is ready and that will not be until confidence in policy making and by extension the stock market, starts to unwind.

Gold vs. SPX has meandered out of a long Falling Wedge (blue dotted) with 2008’s Fear Gap still lower.  On the big picture the risk vs. reward is with gold over the stock market.  But it is a funny thing about big pictures; they move real sloooow.  A fill of that gap may not feel so good to anyone vested in an immediate conclusion to gold’s bear market vs. SPX.

Moving on, let’s look at some ratios of components of the stock market…

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The “Escape Velocity” Myth

Guest Post by Steve Saville

Making sense by replacing “despite” with “because of”

In February of 2009 we wrote that if the story unfolded as we expected then a lot of future economic commentary would begin with the word “despite”, but that in most cases the commentary would be a lot closer to the truth if “despite” were replaced with “because of”. Our 2009 assessment remains applicable in that most commentators still don’t get it and still say “despite” when they should be saying “because of”. For example:

1) Here’s the way it is often put: “The US economy’s recovery following the 2007-2009 recession has been much weaker than average DESPITE the most aggressive monetary stimulus in US history”. Here’s the way it should be put: “The US economy’s recovery following the 2007-2009 recession has been much weaker than average BECAUSE OF the most aggressive monetary stimulus in US history”.

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PALL-Gold vs. CCI-Gold

A good question would be which is more valid as a leading economic indicator, Palladium vs. Gold or broad Commodities vs. Gold?

PALL-Gold continues to indicate economic strength as positively correlated Palladium has just made a new high vs. Gold.  This chart along with information I got on the Semiconductor equipment sector pointed to a coming up cycle well over a year ago.

pall.gold

CCI-Gold is in a more precarious position.  These indicators do not always correlate well but have eventually come in line with each other for important economic up and down cycles.  Today PALL-Gold is flying high while CCI-Gold rolls over.

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