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.
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…
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”.
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.
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.
Just a little snippet of an ‘economy’ segment that turned into a naval gazing exercise, from a report that otherwise was all-in on hard analysis and frankly, in tune with current market events, which were well anticipated.
NFTRH 302 Excerpt: Economy
We know that Europe is fighting a growth problem, which people over there are calling deflation. China is hanging tough in the positive global environment and Japan seems fine, as last week its markets went up while its currency took a hit. But here in the US we are still showing ‘em how it’s done with respect to leveraging policy for economic stimulus.
Last week provided another stellar ISM report and there is no question that some of the stimulus has escaped the realm of the financial and gotten into the actual economy. They talk about Main Street still being on the outs, but the manufacturing sector is no longer Main Street, especially with the ongoing benefits of technology and automation.
Ssssshhhhh, while the hype and noise goes on in the broad markets about the big drop in stocks, we want to very quietly continue to follow macro indicators so that we do not get lost in any hysteria. Gold vs. CCI (commodity index) has broken out of a bullish Falling Wedge (by weekly chart) and is bull flagging with weekly RSI above 50. So far so good.
Now of course people are going to say that it is the Agriculturals that are weighing down the CCI and I agree. But the Ag’s went up hard at the beginning of the year to break CCI out of its long-term downtrend and now they, like every bubble or speculative momentum play, have popped. It’s a net neutral on the CCI, which in nominal terms has dropped exactly to where NFTRH has been targeting per this weekly chart since it topped out at resistance…
Sorry, I could not resist the title. Gary Shilling, an economist whose name I have heard over the years, has quite a body of work often revolving around Fed policy, GDP and deflation. The reason I looked into Mr. Shilling is an email from an NFTRH subscriber linking his thoughts on a coming boom…
The Boom is Coming, and Sooner Than You Think (July 18, 2014)
Okay, an economist and Bloomberg columnist thinks this is a boom (actually it is; we are after all in the age of Inflation onDemand © and a Boom/Bust cycle; currently in a cyclical boom concentrated in stocks). Let’s see what he thinks…
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.