Here is some feedback a republished post of mine (Market Summary; Saturday Morning Cartoons) got at a leading gold website from a reader.
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.
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.”
‘Jobs’ came in at 248,000 vs. estimates of 220,000 and unemployment rate to 5.9%. Clicking the graphic yields the MarketWatch article.
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?
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.
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.
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.