I have decided to do NFTRH 696 in increments, as events unfold. In the first increment I want to note that USD and the Gold/Silver ratio are not confirming bearish as war rages and FOMC lurks (March 16).
US stocks have been bouncing – in what could be a perceived flight to quality – as the balance of world markets (ex-US) drops heavily.
Germany, for example. Frankly, DAX is at a clear shelf of support and this will be important in determining the severity of the correction. If it shears through that support area there will be big trouble. If it holds, it will have been a buying opportunity of some kind.
Here is what is happening with the 2 riders of liquidity destruction, the US dollar and the Gold/Silver ratio. USD is taking in the the risk ‘off’ money.
While the Gold/Silver ratio, which would accompany USD in any real liquidity crisis, is not playing to that script.
This is not to say that things are not bearish or will not become more so. But the failure of gold to out-perform silver is supportive of the renewed inflation trades, at least. This has been instigated by the triple whammy of the Fed’s misjudgement about how much inflationary policy it could pump into the economy back in 2020, the pandemic’s supply chain disruptions and most recently, Putin’s attack on Ukraine, which is exacerbating the problem of commodity supply in many cases.
Bottom Line of this initial NFTRH 696 edition
While I am going to default to risk management, especially in broad stocks, there is one signal indicating that markets are not at a liquidity crisis stage, at least not for commodities and certain market areas that have gotten bid during the initial stages of war-making.
Looking out a little further, the concern is how a still-hawkish Fed would affect the markets if the inflation stuff continues to get out of hand in the form of certain commodities going impulsive up and a renewal of rising inflation expectations (which had broken to the upside again before taking a hit yesterday). The Fed will not willingly allow inflation to keep going, because such a thing would end the Fed’s regime of inflationary macro management in place for decades. It uses the threat of deflation as a tool to inflate.