'Sentiment Event' Rally Grinds On

Excerpted from this week's edition of Notes From the Rabbit Hole, the Opening Notes segment of NFTRH 602:

As we noted in March while it was happening the sentiment environment became terror-stricken. Not fearful. Not over-bearish. Not even a contrarian extreme. Market sentiment was marked by full-frontal terror as indicator after indicator (ref. Sentimentrader's historic readings week after week) got slammed to epic over-bearish proportions.

Into the breach sprang the Treasury (i.e. taxpayer) backed Federal Reserve to the rescue. As the employment numbers come in at the tragic readings that we all saw coming the bears are out there beating a drum (ah, Twitter) about why it is not right, why the Fed cannot print a bull market, why the stock market is going to make new lows and why you should avoid stocks! They have been saying this since the terror-stricken days of March and they are still saying it now.

And do you know what? The rising risk profile that we have been noting for weeks will likely paint them as being right before too long. Imagine all those 'man who predicted a new stock market crash now predicts... (blah blah blah)' headlines that we will be subjected to as the paint-by-numbers media look to feed easy answers to the public later in the year and into 2021. The bears will probably be right but here’s the thing, they have not been right for nearly 2 months now. Continue reading "'Sentiment Event' Rally Grinds On"

Gold Miners And Inflation

I think the case is closed, or it should be closed. But with firmly ingrained perceptions passed down from one generation of inflationist gold bugs to the next, you never know. Remember the old dismissive “gold is silver is copper is tin is oil is hogs” line from the 2003-2008 time frame? Probably not, but I remember it because it was me saying it against an army of inflationist commodity and resources bulls advising to buy gold, buy silver, buy oil… buy resources of all kinds to protect yourself from the evils of inflation!

As an interlude, here is a pleasant interaction I had with a reader (actually, the interaction was his in a comment to an article of mine, but you get the drift) during the 2016 gold sector launch that ultimately proved to be ill-fated by mid-year because… inflation.

I’m sick of internet d******s and the lying media and govt trying to tell me there’s no inflation! Inflation in the US is VERY HIGH. Its currently 8.3%, and has averaged 9.5% over the past 7 years.

Dude, the article was about why gold stocks do not benefit from inflation and why at that time the backdrop was positive (again, it degraded badly later in the year as inflation reared its head). Of course, there is inflation, all along the Continuum of deflationary macro signaling against which they routinely spray the stuff out of fire hoses, like now for example.

Without the secular decline in Treasury bond yields and complete abdication of the mythical Bond market Inflation Vigilantes, the decades-long inflationary regime would not be possible. Jerome Powell was unimaginably hawkish during the market correction of late 2018. The herd could not understand why, but we could. Inflation signals were getting out of hand as the yield spent a couple of months above the Continuum’s limiter (monthly EMA 100).

30 year bond yield

But sure enough, that got fixed as we suspected it would as the Continuum got hammered down since then into today’s deflationary doldrums. The Continuum has reloaded the inflation gun yet again as yields have tanked and bonds have bulled ever since. Continue reading "Gold Miners And Inflation"

Gold Miners Show The Way

[edit] It goes without saying that gold miners and the royalty companies that live off them will be shown to have been impaired like many other companies by the coming Q2 numbers due to shutdowns. An emailer questioned my view on this and it has been one of my personal caution points. Markets should be looking ahead, but during this euphoric sentiment release across broad markets maybe they’re overlooking some things. The other caution point is that a big bullish expression on the heels of the Fed announcement is also a setup for short-term disappointment. So with respect to the daily chart below, maybe Friday’s gap will fill after all. But as noted in the article below “the gold stocks lead and their fundamentals and value proposition will have improved by leaps and bounds as we exit the COVID-19 global lockdown”.

It’s a good Friday because I get to start my weekend work earlier. Many people temporarily have no weekends because they are huddled at home as one day bleeds into the next amid the global pandemic. Monday is Thursday is Saturday. Good Friday is Halloween is Festivus.

But when times are normal I have no weekends, working 7 days and most intensely on the weekends (with more freedom than the average worker on weekdays). When times are abnormal like now, I work hard on weekends but the more intense days are during the week. As one subscriber put it:

“What a wild ride lately… Thanks for busting your ass for us all lately. As always, you’re the only reason I can handle being in this game.”  -Tom A  3.25.20

That was in reference to the massive amount of in-week effort we (I write “we” because it takes effort to be an NFTRH subscriber because they are tasked to work, not just receive instructions from some clown dressed as a guru) put in to manage volatile markets with formal subscriber updates and in particular, more dynamic in-day updates (with charts as needed) at the Trade Log Notes page. I believe you must be at your best and most interactive when most needed, especially during a crisis, not sitting on autopilot hoping no one notices.

When you’ve got a tiger by the tail you may not know exactly how it is going to react but you sure as hell don’t let go! Continue reading "Gold Miners Show The Way"

Why Inflation?

The simple answer is that is what they are doing, inflating.

The slightly less simple answer is that they inflated in 2001 and it worked (for gold, silver, commodities and eventually stocks, roughly in that order). It also worked in 2008-2009 (for gold, silver, commodities and eventually stocks, roughly in that order).

The more complicated answer is that we are down a rabbit hole of debt and the hole appears bottomless. What’s a few more trillion on top of un-payable trillions? As long as confidence remains intact in our monetary and fiscal authorities – and COVID-19 or no COVID-19, stock mini-crash or not, confidence to my eye is intact, speaking of my country, anyway – they will inflate, and what’s more, they will be called upon to inflate.

Confidence may be failing in other parts of the world but the average American is behind this thing they don’t even really understand, known as the Fed. The average American expects the bailout checks from the fiscally reflating government too. Angst, of which there has been plenty lately, is much different from lack of confidence.

I can’t include here all the ways and means the Fed has (frankly, I don’t know about them all) to prop the system, but if you go to the St. Louis Fed website you will find a whole slew of Keynesian egghead stuff. They are on it! Continue reading "Why Inflation?"

The Yield Curve Steepens - Deflation To Inflation

This morning the 10/2yield curve is again steepening and that is the headliner and one of my two most important indicators (the 30-year yield Continuum being the other). But I thought I’d dust off a bunch of existing charts from my chart lists that tell their stories as indicated by the bond market to go along with said yield curve. But let’s begin with the headliner.

Is this just another bump as in 2016 (2nd chart) or is it a real steepener like 2007 (3rd chart)? After all that post-Op/Twist manipulated economic booming it is due, I can say that much.

yield curveyield curveyield curveyield curve

Everybody has the memo. Deflationary destruction it is! The yield curve (bottom) can steepen under either deflation or inflation. Right now it’s deflation hysteria… Continue reading "The Yield Curve Steepens - Deflation To Inflation"