Based on some feedback I think I should expand upon the earlier update.
If things seem a little jumpy or abrupt, that is because they are. I will always tell what I see, whether or not people are likely to agree with it and whether or not I know for sure what relevance or implication it has. That is, as long as I feel the information is at least moderately important to the macro picture I’ll integrate it and try to interpret it.
The startling thing to me is that just a month ago, the semi equipment sector was dead. Now it is revving up. A subscriber notes that the US could be having a little uptick due to tax planning at year end. He notes that it is just one piece of data flying in the face of other data, especially regional Fed indices. I assume he means Philly and NY Empire manufacturing.
Two points here…
- Semi is not the consumer feeling peppy and buying more this month. This is high cost capital equipment in the 100’s of thousands if not millions of dollars range a pop.
- The semi downturn probably led the Philly and Empire data. That is why I called it a canary in the coal mine. The equipment is usually ordered and upgraded before a new chip cycle.
I realize that others are frustrated by the moving target stance on the gold miners. Well again, I tell you that I have little doubt about gold and sleep well with it. But if readers want a service that is going to swallow the gold stock story without asking questions every step of the way, then this is not that service. It is what I do; I ask questions and I prepare to change at any turn. At the very least this lets us know that our assumptions are well vetted. Sort of like how I use Prechter; if I can take his intelligent counterpoints and factor them, I am strong.
No, this is not your father’s or your grandpa’s financial analysis. But then, grandpa didn’t have so meddlesome a group of global policy makers in play, 24/7. Things have changed my friends and time frames have to be compressed.
What I would add is that I am not telling anyone what to do because nobody, but nobody has a complete handle on this; not the most well-heeled Wall Street house and not the most out of the mainstream gold boosters. Well, on the big picture gold is fine. Better than fine; it is money.
But insofar as people want to know what is likely in the interim phases, my job is to interpret that for you as best as possible, even if it jerks the analysis around a bit. That was this morning’s update. I’d summarize it as follows…
- We have been looking for the answer to the question about whether Goldilocks (by definition a middle ground) is going to resolve deflationary or inflationary.
- I believe that the fledgling money supply bump, rising long-term yields and this news in a dynamic leading equipment sector are significant indicators of inflation, not deflation. In other words, it looks like the funny munny is taking root and getting out there. If this trend continues, it validates the view for an ultimately inflationary phase.
- This therefore means that the way to play this is to expect asset price increases in the things that are positively correlated to economies. This is no comment on how long the phase would last, but I am looking for firm evidence of an expansion phase, not just the lousy data that the government reports.
- The entire play was to see the yield on the 30 year bond go back up to the top line (100 month exponential moving average) of our ‘continuum’ chart. This would probably be about as good as anything in helping decide when things start falling apart again. Here I remind you to keep an eye on the housing index, as we have been doing the last few weeks. That could be a canary for the inflationary phase’s end as pressure is put upon the mortgage market by rising yields.
As for the gold stocks. If they perform well, I want them. If not, they are just stocks. I am sorry, but that is the truth. I think they can perform very well once the public starts thinking ‘rut roh, inflation!’ and as noted, that would be a ‘sell’ if oil, copper, stock market and the other stuff has also rallied strongly.
More to come, but I wanted to clear up a few things as I was a bit short on time this morning. My band got together and we had a nice jam this afternoon. Never done that on a Sunday before.