NFTRH Update 8.2.13, Macro Review

Broad Market

The economy is growing and the inflation may finally be taking root.  Those are two messages that I think are coming out of this week.  If the economy was stagnating or decelerating, but inflation expectations were rising then a favorable environment for gold would be in place.  It is not, yet.

econdata
Economic data from MarketWatch

This morning’s ‘Jobs’ report will add more data to the mix and if it is robust, then another anti-gold signal would be in place.  So Jobs is important.  The 55% ISM yesterday was in line with the ‘boots on the ground’ feedback I received and noted last week.  This itself is a continuation of what we have been hearing since January, when the semiconductor fab equipment manufacturers started ramping up.

That’s the economic front.  As for the inflation side of the equation, this week we again noted the TIP-TLT ratio in a grinding bottom pattern (as opposed to 2008’s impulsive decline into deflation) and just yesterday its break upward.  Again, this can be viewed as an early sign that people may become concerned about inflation.

So what about the headline commodities?

wtic

Crude oil has a target of 110.  It turned up hard this week in line with positive economic data.  A double whammy against gold mining operations.

cu

Doctor Copper got back up into its broken channel.

These are things of positive economic correlation as is obviously, the stock market.  Speaking of which, China/Asia is still looking interesting.

fxi

If FXI gets through the red dotted line it would look more interesting still.  The TDF fund is what I hold in alignment with a potentially bullish Asia and if an ‘inflation trade’ begins to firm up I might look to other emerging areas again as well.  Also, items like the beaten down copper miners, etc.

Interest Rates & Taper

bkx.spx.tnx

Here are the facts… interest rates have been rising since early May.  The Fed has been entertaining the notion of tapering QE since sometime shortly thereafter.  Wasn’t it sometime in June that that ruckus started up?

Banks are leading the S&P 500 and that is for good reason; ZIRP pinned near 0 and rising rates out on the curve equal theoretical profits for the banks.  A subscriber sent me a piece that was published in Zero Hedge by a blog that makes its living talking about “Economic Collapse”.  The focus is on rising yields, derivative pressures and the resulting financial destruction that mix would bring about.

Well, I started writing in 2004 because of this same debt/derivatives problem.  The issue was nearly resolved in 2008’s liquidation but the great inflation (continuing to this day) out of that would-be destruction has painted many of us who would say “hey wait a cotton pickin’ minute, somethin’ just ain’t right!” as a bunch of has-beens (at best) and lunatics (at worst).

So the point is, they are inflating and they are succeeding… for now.  What’s more, the banks – the very pigs that ruined the economy in 2008 and hard wired derivatives and other risk vehicles into the system – may benefit.  If the economy keeps growing, commodities may also benefit.  But more and more it looks like the precious metals – now once again firmly opposed to the happy stuff, will not do so until signs emerge that the economic construct is coming apart.

Precious Metals

Folks, this is what is happening.  Sure, the economy has been created through inflation and I believe it will be a spectacular failure one day.  That is the stuff of the gold sector.  But this one sector still seems to me to have a hold on its supporters like none other.

I cannot stress strongly enough how we must continue to not be among the diehards, bottom callers or first mover heroes.  We must be measured, cold and calculating; especially where precious metals stocks are concerned.  HUI ended yesterday about at its parameter limit per Tuesday morning’s update.  The ‘Jobs’ report may be all that is standing in the way of the precious metals and another failure.  They are down handily in pre-market.  Bring on ‘Jobs’.

Technically, HUI banged the 240 parameter yesterday.  Gold is below the 1300 support in pre-market.

gold

Likewise, silver is trying to lose the preferred support zone in pre-market as well.

silver

There once was a time when silver would run with and lead bullish commodity phases but not so this time as it is painted with the ugly (precious metals) stick.  Maybe this makes sense since the economic recovery is all about money and policy makers’ ability to manipulate money into economic appearances.

Bottom Line

I for one have not changed my view in the slightest; you do not cook up healthy economies through inflationary monetary policy.  But another aspect of that view is that you do not fight what you see with your own eyes and what I see is that as of today, August 2, 2013, policy is winning and those fighting it (including your letter writer on this most recent foray into the precious metals) are losing.

Now on Monday, August 4 [ed. 5th], everything could be different.  That is the high velocity / high volatility environment that has been promoted by all the economic and financial stimulants that have been wired in through TARP, ZIRP, QE’s 1, 2 & 3, etc.

The turn in the precious metals – when it finally arrives, if it has not already – may come without technical warning.  For example, a chart twittler like myself could write you an update talking about an important support level gold just lost one day and wake up the next to see a $200 or $300 up spike in pre-market due to something having ‘broken’ in the system.

So please take it all for what it is worth.  Part of my job is to write updates like this telling you what I see and how I interpret it.  Calls to action are for other services to make.  Here we will continue to talk about gold and debt elimination.  These are two constants.  If I have gold and I wake up to a pre-market moonshot, great.  But more than that, I have an anchor outside the system and its rocking boat.

I used the DUST fund to protect positions last week but am not nearly adept enough to be going in and out with that thing.  So on the gold miner front, if today goes as pre-market would have us believe (subject to ‘Jobs’), I will have to do selling in an already modest (by many people’s standards) allocation.  If on the other hand things somehow remain intact and the miners confirm uptrends, a ‘buy the pullbacks’ regimen may finally be appropriate.

If a precious metals failure comes about the game starts over again…

  • Check to see what the bottom callers are doing; they may need to be utterly eliminated before a bottom comes.
  • Check to make sure I am not mentally whipsawing myself and my readers.  Really, when we take a step back, we are trying to gauge the coming of changes.  That is all we are trying to do.  The precious metals would be the thing of changes, not the status quo.  The story should remain consistent until or unless gold loses the ‘big picture economic contraction’ fundamental.  NFTRH will be on this job weekly.
  • Check on sentiment; we now know what happens when Gold Bug sentiment spikes from 0 to 7 in two weeks, as was noted in NFTRH 249.
  • Look to play the ‘inflation trade’ if/as the signals firm up.  Maybe the final push in the cyclical bull market will feature catch-up moves by laggards like commodities and Asia?
  • Keep an open mind to all possibilities noted above and some others that today’s update did not touch upon.  NFTRH surely will dredge some of these up in the weeks ahead.

We are not bigger than the market and we should proceed accordingly.  The market is bigger than we are, but we are like cockroaches.  We will still be there when the time is right.  We always are.  In the meantime, it is the ‘getting there’ that should be the focus, not following any particular ideology down the drain.

Since the inflation blow out and Euro crisis blow offs in 2011 it has been 2 years of ‘getting there’ where precious metals have been concerned.  Since I began publicly writing, it has been 9 years of ‘getting there’ (with an almost ‘got there’ in 2008) where systemic crisis is concerned.  Within that NFTRH is going to simply note what it sees and interprets and trust you to filter and question me when something seems unclear or just maybe, flat out wrong.

But potential adversaries are not just those on the other side of any given trade.  Those are just the obvious ones.  Some come as friends and ask you to give your life meaning and join their team.  They are the good guys and they have solutions for your fears.  But there are no friends or teams.  There is only you, your common sense and your b/s detector.

I have never seen such a noisy atmosphere with even the mainstream financial media day trading concepts, both rosy and doomy.

We have a big picture view that remains unchanged until it is violated.  Then there are smaller picture views that jerk around in the volatile macro situation.  Nobody has the ultimate answers as to how it all plays out.  That is why events should be managed in an ongoing way subject to definition, enhancement or maybe even revision.

I realize that this technical update got a little preachy.  But sometimes that happens.  Let’s see how ‘Jobs’ goes and take it from there.  See you Sunday with NFTRH’s 250th edition.  Wow.

***