NFTRH; On cue

Treasury yields are dropping, commodities and reflation markets  are dropping and broad stocks are wavering (I don’t buy the burst to new highs in big Tech as sustainable, but more likely a signal of ending phases for this leg of the bull) and the inflation hysteria that peaked in the spring is now being addressed perfectly, with these mainstream financial media headlines telling the story.

If you click the graphic you can read the article telling you all the news that we already well anticipated.

As yet, it’s just the summer cool down we’ve been expecting. But I do want to keep the three options front and center:

  1. A resetting of expectations after the public became too concerned about the inflation the Fed has produced. If this option plays out fully, the inflation would regenerate later and the 30yr yield Continuum’s limiters would be hit in the 2.6% to 2.8% range.
  2. Goldilocks. Not too hot, not too cold as yields remain tame, the economy holds up fairly well, a strong USD draws money into the US and big Tech leads.
  3. Err, the other thing. The thing that is contrary to the expectations of most people, who are either still expecting inflation (although less aggressively so) or a stable economy without inflationary pressure. So, the other thing is the 2008 style deflationary liquidation and bear market (at worst) or a market correction and deflationary whiff/scare at least.

It is uncanny how the media have come around to broadcast for us what we have expected for months. There is the picture above and here it is.

Now, if this microcosm of disinflation becomes a Macrocosm (i.e. if the short-term trends gain traction and option #3 comes about) then our focus would go to gold and gold stocks, possibly to be bought while being taken down in a general rush to sell everything by casino patrons (esp. inflationist gold bugs). Since the sector has done a lot of good downside work for nearly a year now (building the Handle to gold’s Cup) I’d also be open minded about whether or not the miners necessarily need to correct substantially further.

If option #1 comes about the original plan is in play. Gold and the miners could lead out of the deflationary whiff and then once again become nothing special in favor of a world of inflationary speculations. Although the wild card here would be a likely morph from ‘good’ inflation to an economically negative stagflation, which I lean toward being a net positive for gold stocks.

Option #2 is in play at the moment with the machines rushing into Microsoft (I sold), Apple (I sold), Amazon (I hold) and other high profile giants as if that is defensive positioning. I don’t expect Goldilocks to win out longer-term, but nor did I expect it to do that in Q4 2012. History shows that the market had other ideas for the next 4 years.

Just a little brain dumping about our themes as laid out in NFTRH 662 to review the situation.