From yesterday’s ETF update:
“TIP-TLT continues to indicate that the Treasury market perceives no inflation issues whatsoever. Indeed, the whole world is worried about anything other than inflation right now. Precisely the reason we should be on watch for a coming counter-trend bounce at least.”
It appears that the precious metals and commodities are getting the inflation bid, or the ‘inflation bounce’ (which we have been expecting) bid. Commodities had been in free fall and deeply over sold and the PM’s were in a ‘bottom retest’ mode. It looks like a rally is on as the heaviest part of tax loss season winds down this week.
In stocks, we noted that the S&P 500 (SPY) was as over sold as at the October bottom, bears take note. Well, the post-FOMC relief/euphoria put an (!) on that.
Yesterday the Fed basically reworded something to make it seem like they incremented just a teeny bit tougher on rate hike timing, but in reality it was the same old statement with plenty of wiggle room and a Federal Reserve pretending to be in control; pretending to have actual decisions to make.
What we should do is watch the data, because the data will drive the Fed, which they themselves admit. The point is that the Fed created the current climate with policy, the bulk of which has run 6 years this month. Until the economy proves it can achieve escape velocity and go it organic, the Fed is in a box and I have to believe they – or some of them – know it.
The strong economic data has shelved QE3 and brought rate hike talk to the fore, but the rubber has not met the road despite so many ‘as good as it gets’ economic signals. Any drop off in those signals would paint them as buffoons, just as they were viewed through 2011. The Semiconductor Equipment Book-to-Bill report should be out within days. That is the type of stuff we’ll watch, very forward looking and very canary in a coal mine(ish).
Meanwhile, we have identified situations to watch for with respect to Tax Loss / Santa / January Effect season. The gold sector seems to want to participate but I am going to ask you to consider not going full frontal Gold Bug just yet; not while the entire global asset spectrum is partying. For the gold sector, which would be my personally favored macro theme, a real investment climate would come when recognition hits that the Fed has lost control.
So as of 7:04 US ET on Thursday morning it looks like a well rounded asset party could get going (the less favored view is that this is just a massive, event driven head fake) after getting deeply over sold (commodities), sold down to a bottom re-test (precious metals) and plain old over sold within an uptrend (stocks). Let’s take it for what it is, refine its nature going forward and watch the data.
