Gust Analysis by Bob Hoye
This ratio is not a friend to the economy nor the financial markets when it is in decline. We have been following the Palladium Gold Ratio for over a year in NFTRH, first to gauge the coming of an economic bounce (check) and now the coming of its end (potentially in process).
Here is a daily chart showing some bearish signals, but the weekly chart and moving average cross overs is what we watch in NFTRH for the real signals, along with lots and lots of other really geeky macro charts.
Palladium = Positively correlated to the economy relative to gold.
1+ years ago… that was when we became alerted to the positive projections in the Semiconductor equipment sector, which meant that Semiconductor companies were ramping new inventory builds. This had positive implications for manufacturing as a whole since the Semi’s are a canary in the coal mine.
Today the canary is at critical long term resistance. That is all; no grand statements about what it is going to do or not do. But we can say that if resistance holds a bear case on the markets and the economy will probably gain an ally. If it breaks out, the measurements are noted.
I found this chart while rummaging through old NFTRH charts looking for a monthly view of the Semiconductor Index (I’ll find it or create a new one and post shortly) that projected the current level as important resistance… or a seemingly ridiculous upside target would be loaded.
Monthly Gold-CCI shows that with a higher low still intact, we continue on in a macro phase of chronic global economic contraction (against which our heroes have worked their inflationary magic).
Guest Post by Steve Saville
Our original intention was to explain where we agreed and disagreed with the article by Cullen Roche at “Pragmatic Capitalism” (is there any other kind of capitalism?) titled “The Biggest Myths in Economics“. Instead, while we are still going to refer extensively to the Roche article we will do so within the context of our own list of economics myths. We would have preferred to have kept our list to ten items, but it was a challenge just to restrict it to twelve. Unfortunately, our list is by no means comprehensive.
Leaving aside for a moment the compulsion for market participants to remain ‘risk ON’ that is an underlying effect of Fed policy of the last 2 years, what other effects may have been promoted by the latest inflationary operations?
Well, personal consumption is trending up. Yey, it’s 1999 (or 2007) again!
Unfortunately, personal savings is trending the other way as ZIRP has put a bull’s eye on the dreaded domestic enemy known as the saver. Why, saving seems to have been deemed un-American and in the face of ZIRP, it’s a losing bet too… as long as the asset bubble is maintained that is.
Hey, despite a re-shoring of manufacturing that is in progress (and a good thing), we remain a heavily consumer based economy. They are consuming and they will continue to consume until they puke, which in less crude terms means until the next asset market liquidation.
Officials have spent the last couple of years looking like heroes (boom). We are likely in the process of pivoting toward the other end of the spectrum. That would be the inevitable bust stage. We will not consume our way to prosperity especially by manipulating debt.
This has been our theme for 2014, a macro pivot toward the chronic economic deceleration that has been in play really, since 2001 when the age of ‘Inflation onDemand’ began. The rest has been rolling booms and busts. We may be finishing up a boom oh, right about now.
So Industrial Production (-.3% vs. economist projections of +.2%) joins 2 Payrolls reports and one ISM manufacturing report in the dumper. Of course it has all been the fault of the cold weather according to this blurb:
“Industrial production dropped 0.3% in January, the Federal Reserve reported Friday, with the cold weather knocking manufacturing output by 0.8% and mining output by 0.9%, which more than offset the 4.1% surge in utilities output on heating demand.”
It wouldn’t have anything to do with a Fed compelled to exit QE bond buying by elevated interest rates and Goldilocks’ life blood dripping away slowly but surely. No, in bull land there is always a more cartoonish excuse.
Guest Post by Tom McClellan
February 14, 2014
The conventional stock market analysis world revolves around earnings. “Earnings drive the stock market,” they say. This myopic view is akin to the belief that carbon dioxide is the driving force behind the greenhouse effect (water vapor actually accounts for 90-95% of it, but you don’t hear that). People believe that earnings are everything because they have been told that it is so, and everyone thinks so, therefore it must be so. Circularity of logic and contradictory evidence do not seem to be significant impediments to the acceptance of this belief system.
The Palladium Gold Ratio is one indicator we used over a year ago to indicate 2013′s economic growth spurt. Ref. the most recent up arrow. While the ratio is looking wobbly, a new down signal would only begin with a drop below the lower of the two moving averages and be confirmed by an eventual cross of the moving averages.
The Payrolls data are a jumble of interpretations and misinterpretations. The ISM was however, an unmitigated negative. We’ll see if the likes of Pall-Gold and other indicators confirm in the coming months.
Guest Post by Steve Saville
1) The monetary backdrop continues to be very different in the US today than it was in earlier post-bubble periods. This is slowing the corrective process and introducing new price distortions that will have to be ‘resolved’ via another devastating economic bust. When will they ever learn?