NFTRH+; “the Gold/Silver ratio is driving this bus”

A subscriber asked me in a Twitter private message (which you are more than welcome to use if you are a tweeter and would ever like to ping me about something) about what role I think China’s debt-choked Evergrande may have in the Gold/Silver ratio’s rise. My quick response…

It sure has a role in it. It’s [the instigation of the GSR] a collective thing and could be representing everything from China to the US stealth bear phase to a more violent and obvious bear phase oncoming. I am going to stick with the ‘inflation interrupted’ stance for now. But in the short-term, the GSR is driving this bus.

GSR is driving the bus and the US dollar – as would be expected of the reserve currency when liquidity becomes an issue – is along for the ride.

Reference the scary chart of the Silver/Gold ratio (a reflection of the bullish GSR) included in #673…

Nothing is ever certain in the markets but here are a couple of facts. The macro pressures that preceded the 2020 market crash are in place again today from this perspective. Regardless of what caused the liquidity panic then vs. what could cause one now, it is liquidity problems that would again derail the inflated stock market if the Silver/Gold ratio is foretelling something.

…and see Uncle Buck making a move toward the previous high.

I don’t tend to use too many cartoons (outside of Clark, with whom I crack myself up and the Fed/Vampire motif) in NFTRH content, including updates. But here is where we’d consider the ‘2 Horsemen of the Apocalypse’ imagery often included in public articles about the combo of the senior currency and that market liquidity forward indicator.

The GSR has been reflecting something (from the anticipated ‘summer cool down’, to a more intense interruption of the inflation trades, to a more virulent and destructive deflationary event, to the less favored but heretofore in play, Goldilocks, who may well get kicked out of the macro house this week, conveniently right after I’d given her more consideration).

Bottom Line

The macro is now finally in motion. SPX is set to crack its SMA 50 robo-trend marker as the Dow has already done. NDX is set to test its SMA 50. From this motion should come direction which, after all, is the only thing I for one have been seeking over the last weeks and months since the summer cool down engaged. With sentiment already having taken a micro-blip style hit let’s keep open minds. A bigger sentiment event could be the clean out we’d want to see in order to lean into the macro.

Meanwhile, based on indicators like the GSR I am short Materials (XLB) and Retail (RETL) along with the Euro as levered a USD ‘long’ play. Also long Treasury bonds via IEF (and ‘cash equiv.’ SHY). These are the items that should theoretically provide balance to long positions in a highly cashed up portfolio. But I am not near going whole hog bearish. Not by a long shot.

This process of macro change could takes weeks and in my opinion the areas to watch are in this order… Gold/Silver/Miners > Semiconductor (esp. Equipment) > big Tech > Broader markets.

The lever to the Fed putting away any last thoughts about donning its hawk suit would be Treasury yields under pressure along with inflation expectations. Also, a solid correction in stocks would not hurt either.

Let’s see how things unfold and try to keep a rational dialogue about it going. We’ll get there.