Dialing back to January of 2013, I am looking for clues about the coming phase for the economy, mostly as an input into whether or not I can think about turning bullish on gold again (here we remind you again of gold’s best investment case, which is counter not pro cyclical).
The answer, from a contact in the Semiconductor sector (AMAT, LRCX, MKSI, etc.) food chain was that the Semi equipment companies, which we called “canaries on the [economic] coal mine”, were ramping up and thus NFTRH’s view became bullish for the economy, at least short-term.
When this information was combined with the following chart of the Palladium-Gold ratio, which had proven a good economic backdrop indicator, the case for a firm economic phase was even stronger. Then followed a string of strong ISM data, a stabilizing ‘jobs’ picture and voila, here we are in Bull Party Central with trend followers everywhere looking good and touting to cement their reputations. But I digress…
Here is the monthly view of PALL-Gold showing that the economy may not be done yet, although the break above resistance (now support) is still very tentative…
Guest Post by Steve Saville
When the central bank pumps money into the economy and suppresses interest rates it creates incentives to speculate and invest in ways that would not otherwise be viable. At a superficial level the central bank’s strategy will often seem valid, because the increased speculating and investing prompted by the monetary stimulus will temporarily boost economic activity and could lead to lower unemployment. The problem is that the diversion of resources into projects and other investments that are only justified by the stream of new money and artificially low interest rates will destroy wealth at the same time as it is boosting activity. In effect, the central bank’s efforts cause the economy to feast on its seed corn, temporarily creating full bellies while setting the stage for severe hunger in the future.
Just a friendly reminder from your friends here at biiwii.com that we are in an economic contraction, not an expansion when viewing the big picture. Indeed, it is this site that has highlighted the little post-2012 expansion more vigorously than any other bearish leaning entity that I have seen, and earlier than most bullish entities I might add.
That was because of the Semiconductor Equipment ramp up → Palladium-Gold ratio → ISM upturn → Jobs upturn continuum we have been on. But that is a positive cycle within a much larger cycle that is very negative. Here’s the updated view of counter cyclical gold vs. cyclical commodities, which may be starting its next up turn.
If I am right to be using this road map then I am also right in thinking that lots of people are going to find out one day what a bill of goods they bought when they (finally) bought this cyclical recovery sold to them by conventional analysis from the conventional financial services and media complexes.
Those promoting the bad GDP data should listen to Wells Fargo CEO John Stumpf who, like this cranky little spot in the financial media here at biiwii, thinks the US economy is “stronger than people think”.
Wells Fargo CEO: The US economy will surprise you
All you have to do is open your eyes and look at corporate profits and manufacturing, to name but two major pillars. Jobs is another, even considering the constant debates about the quality of said jobs.
None of this has anything to do of course with the origins of the strong economy, which we saw coming with the Semiconductor (equipment) Canaries making a racket in the coal mine 1.5 years ago.
I have posted charts until I am blue in the face in an effort to make sure people reading this site know two things…
- The economy is strong and the S&P 500′s price has (had) been in line with corporate profits and conventional analysis metrics and…
- It is unsustainable, because there has been a massive bubble in monetary policy and that bubble is not going to simply be rolled back in an orderly fashion.
So the bears can just Stumpf it.
The bull apologists and Fed sycophants can just stuff it too.
Guest Post by Michael Ashton
The Employment number these days is sometimes less interesting than the response of the markets to the number over the ensuing few days. That may or may not be the case here. Thursday’s Employment report was stronger than expected, although right in line with the sorts of numbers we have had, and should expect to have, in the middle of an expansion.
THE EMPLOYMENT SITUATION -- APRIL 2014
Total nonfarm payroll employment rose by 288,000, and the unemployment rate fell by 0.4 percentage point to 6.3 percent in April, the U.S. Bureau of Labor Statistics reported today. Employment gains were widespread, led by job growth in professional and business services, retail trade, food services and drinking places, and construction.
Full report @ BLS
Guest Post by Steve Saville
The boom/bust cycle is caused by fractional reserve banking. Rather than eliminate this practice, that is, rather than prevent the commercial banks from creating money out of thin air, central banks were established to ‘backstop’ the commercial banks. This paved the way for longer booms and more severe busts. Gold tends to do relatively well during the busts and relatively poorly during the booms.
What better day than today’s predictable hard bounce to present the other side? If you believe the bounce and want to be a happy bull, just step along from this post. If you don’t mind considering other opinions or are like me in thinking 2014 stands a better than even chance of being the year that the current cycle ends, check out EWI’s 24 page report by clicking one of the graphics below.
We have come to a point in this cycle where we are supposed to feel ashamed for having bearish views or opinions. Prechter’s wrong again after all. The thing is, even a bull could use some alternate opinions. I am not talking about a market crash. Please. I am talking about a macro view. That should be someone’s basis for operation. I have my views and they have not changed since early last decade because the things I had negative views about have not only not changed, they have intensified and shifted (commercial credit replaced by official credit). But there is still a debit waiting out there.
We who hold a negative big picture macro view were stupid until the 2008 liquidation made us geniuses. Now we are stupid again and trend followers are smart. Wash, rinse, repeat. EWI is an affiliate and I make a commission on sign ups to their services. So consider this a promo. Also consider that EWI was founded by someone who was an influence of mine. So it’s not just a pitch. We’ve only recently gotten with the idea of partially funding all the free information here with ads, like most blogs have routinely done all along. Consider this an ad that I wholeheartedly recommend. And the darned thing is free for crying out loud.
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.
 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.
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.
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.
Quietly February’s ISM came in stronger at a PMI of 53.2%.
PMI courtesy of ISM
Breaking down the details new orders are notable, although inventories are backing up a little. Also of note, last month’s strongly rising prices have remained persistent at 60.