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Admin Notes

I’ve made the decision to revert to PDF reports as the default format, pending changes with the website that I am in no hurry to make or pending a possible work around I’d need to study further.

But since I personally had no real firm preference one way or the other (other than the relative ease of the blog post format), we’ll settle into a focus on the more formal PDF reports that can be downloaded and are preferred by some subscribers. The issue being that the posted format is preferred by others. So the solution for now is PDF reports can be expected more often and blog posted reports like this one, will be used when I feel tight on time or want to make points that I feel are better made by being more conversational, opinionated or direct.

Finally, I had envisioned this report to be made up of bullet points, but I feel like writing so let’s see how much I can get done with limited time. It’s probably not going to be to the level of a comprehensive report, but it’ll have a lot to say at an important time.

Fed Hawk Obsession Remains the Dominant Theme

Recall that back in Q1, 2020 the obsession was deflationary as the pandemic shut down economic operations the world over and completely halted and reversed a more muted inflationary phase that was developing in 2018-2019. That phase included Trump badgering the hawkish Powell to drop rates while the ‘Continuum’ was indicating increasing inflationary pressure by driving the 30yr yield upward to the former limiters.

We said at the time that there was no way the Fed was going to incinerate itself by inflating more when inflation measures like this were pushing the limits. They didn’t. Now the bond market is doing things they have not (yet) been able to control. While there are plenty of other measures they look at in deciding policy (including backward looking stuff like Friday’s ‘services’ laden jobs report) the 2022 impulse in long-term Treasury yields has got to be primary among them. If Powell was stern during the Trump bump, he’s downright steroidal now.

“Until something breaks” is the theme in the large and small media alike. Get this; something broke in 2020 so they blasted the money supply by various means. That inflationary operation did what it was supposed to do. It liquefied the economy and drove up financial assets. The Fed’s game of ‘Inflation onDemand’ has worked fabulously well for decades, systematically further enriching the rich and impairing the upper middle, middle and lower classes to varying degrees. But the game depends on letting the air out periodically. The Fed is trying to puncture a gaping hole in this inflation. IMO it’s verging on panic.

At its most insidious core, the methods of inflating used over these decades have reduced incentives to save. Bernanke ran Zero Interest Rate Policy (ZIRP) for 7 years, keeping it in force long after the 2008-2009 economic recession ended and the economy had started to become vibrant (ref. here when we called the Semi Equipment sector in Q1 of 2013 and the blessedly bullish years of ‘Goldilocks’ that followed). Then the 2020 yield crash signaled a deflationary resolution had our heroes at the Fed not stepped up and blighted the world with another policy panic.

It was free lunch for the wealthy, who merely sit and watch their owned assets go up. It was free lunch for us too, insofar as we gamed this macro magic show. But the bottom line is that the deflation-panicked Fed of 2020 is now the inflation-panicked Fed of 2022. As I’ve mentioned many times over the years, the Fed will not incinerate itself by inflation. The Fed is an AGENT of inflation but it can only create inflation when the market is signaling disinflation, which was the literal implication of the chart above before it finally busted the game wide open this year.

Again, there are probably lots of other macro pictures explaining why the Fed is on the hawk and not going to get off the hawk until things start to break. But the picture above has always been profound to me and now that it has done something it has not done through its decades of continuation, it is more profound… because we need to correctly define these implications. Not today or tomorrow necessarily, but eventually in order to be aligned with the new global macro it represents.

Right now the tack continues to be cash, baby, cash. It’s paying out and after November 2nd it will be paying out some more. Meanwhile, let’s again review Steve Saville’s TMS (true money supply) graph. The public was afraid of the pandemic and deflation as this graph was spiking (and the Continuum above was bottoming) but thanks to this and other forward indicators those who look ahead knew what was coming.

Today the money supply is tanking and those who look ahead logically are open to, if not fully expecting an interim failure of inflation. You know, the same inflation imagined as ‘cost-push’ in Friday’s jobs report. The same inflation that the tardy, backward looking Fed is still fighting.

Bottom Line

What we have shaping up is a complicated situation that sees inflation easing, while backward looking (YoY) indicators like ‘payrolls’ and CPI jolt the Fed hawk fear periodically. The markets are reacting to news and that is not the way for us to operate. We need to have a plan, and that plan requires this process to play out. You can click the graphic if you want to digest what the public is digesting.

Meanwhile, who’s driving the economy? All the laggard (but sticky) stuff that continues on indefinitely after the economy has lost some of its primary inputs like, obviously, Fed policy (now opposite to inflationary) and by extension an inflated stock market providing a public wealth effect (to varying degrees).

So the Good Ship Lollipop sails on as little more than a Ghost Ship, with economic drivers negative or muted while Americans buy ‘Professional and Business Services’ (but check out financial activities), Education and Health Services and if the brutal MA>CT>NYC>CT>MA traffic choked routes I encountered this weekend are reflective, America is still out there in force pushing their right to Leisure and Hospitality as far as they can push it. Leaf peepers out in force and a lot of RVs and towed mobile living units all over the highways.

As Relates to the Precious Metals

I’ve done a lot of in-week updating of charts for gold, silver and the miner indexes/ETFs. I think we’ve hammered it all home well enough as pertains to what to look for in order to have a real ‘buy’.

The situation above is a picture of the Fed being forced to do what it probably has not ever wanted to do willingly (impair asset markets and the economy). That pressure should eventually break the economic cycle that came part and parcel with inflation because it was literally printed during the 2020 inflationary operation.

Insofar as this Fed hawking breaks risk-on, cyclical asset markets it will eventually grind an economic counter-cycle into being. That’s the perceived only way to stop inflation (hey guys, how about next time NOT inflating and letting the market crash and resolve of its own accord?). But with reports like the ongoing CPI and Payrolls reports still flagging the Fed as the serial inflators that they are the Fed continues to hawk and the markets continue to act as they would under the terror of the hawking Fed.

Daddy Powell is not anywhere near trying to rescue markets with a future dove pivot. Meanwhile, the economic indicators that Main Street sees are still positive. I don’t know how far ahead the precious metals will look but to my eye this paints gold, silver and the miners as still in a vulnerable phase. Timing baby, timing.

Could it be as simple as the 30yr seasonal? It could. But not necessarily, given any given year’s potential to deviate. While I think that there is a decent chance that silver has bottomed at long-term support (18 +/-), the seasonal is negative into December, where it bottoms. It then rips higher in January.

Gold’s seasonal turns negative right about now, bottoms in December and then rips higher in December.

Depending on what the incoming inflation data do and just as importantly what the trend following algos and machines do in response to backward looking data, we may well see a seasonal bottom and sharp rally per the 30yr averages. “May well” is certainly not definitive and I am not going to be caught guessing at anything right now.

I’ll stick with the view that a final flush would be best because it would make a final clearing of the pipes and  cleaning out of the inflationists. Amid terror and price destruction we step up to buy. Wouldn’t that be nice? It would be nice because it could also include a clear ‘call’ for a bottom born of a massive sentiment event while fundamental scream higher.

Well, I have a few gold stock positions since we are in the process of turning the macro and HUI has dropped to a valid long-term support area. But the process could easily extend for months until recognition that the Fed has killed the inflation monster it was primary in creating, and that a counter-cyclical economy will be at hand. Now factor the average inflationist/goldbug and you see that when he is gone, when markets are flattened, when one unique sector might start to move first (as the gold mining product outperforms mining cost inputs and risk-on markets of all kinds) and realize it’s a moving target.

Bottom Line

The macro, as instigated by the hawking Fed, is doing what it needs to do to set up what could be a grand play in the gold mining sector. But folks, it’s a process and a process is complete when it is complete. Our options have been a) sector already bottomed, b) sector going to bottom, possibly with a final hard down, or c) sector going to break down and prove 2016-2020 to have been an A-B-C bear market correction upward as the Fed hawking against inflation goes on longer than the market might currently imagine. The other negative that could spur option ‘c’ is the dreaded ‘Goldilocks’ phase that attended markets the last time USD was impulsively strong (2014-2017). I don’t see anything but a slight probability of that happening considering the state of Treasury yields and inflation indicators to this point. More likely, when the inflated thing gives up, the other thing could resolve impulsively in the other direction; the deflationary one.

The parameters are that gold stocks bottomed at HUI 172, will bottom above 142 or 131 (to hold the series of higher lows and highs from 2016) or fail below 131. As a side note, even if the bull market breaks down I would not at all rule out a strong and tradable rally at such time that it does hit an oversold bottom.

It’s a US & Global Bear Market

Hence, the trends are our friends, just as they are in bull markets. The trends are down. Not being wired well to be an enthusiastic bear, I continue to focus on cash (94% at the moment) along with short positions here and there (currently short DBC at a developing loss due to political crude oil supply/demand manipulation).

Cash is paying income as the Fed is forced to act as if it cares about those whom it has so harshly antagonized, no assaulted for decades now. Those would be savers, who once upon a time in America used to prudently save and invest a portion with said savings as opposed to today’s debt-ginned, leveraged casino players.

The target for SPX is 3200 (+/-). It currently resides at 3639. Rather than aggressively play short, which I would surely mess up on more than a few occasions, I see the increasing payout from cash equivalents and am automatically refueled with patience. Of course, I cannot run this service forever advising ‘hold cash’ (duh), but for now that is the play (again, for me, as those who love shorting can do their thing) and it works well until the implications of turning macro funda like the Gold/SPX ratio play out to the awareness of the average casino patron.

Hoye’s Post-Bubble Contraction

I like Bob Hoye for his macro fundamental views, but do not track his timing or his wider market calls because I have found them to be wanting. For example, “post-bubble contraction” has been in play from Bob’s POV for years and years. Yet at the beginning of 2022 there the ‘everything bubble’ still was.

On this phase I give better odds of the Bob Squirrel finally finding his economic contraction nut. Why? Refer to the ‘Continuum’ chart near the top of the report. The reason this should be of concern to all of those who plan to operate going forward as they have over the last few decades (while using all the same assumptions of the past) is that the chart indicates that the Fed has lost an important tool in its market manipulating tool box. Regardless of whether or not there is a heavy pullback in yields from or around the 4% area, the big picture continuum has changed. That, in my opinion, means that the Fed’s ability to ward off oncoming busts with a simple flip of the inflation switch may be gone.

Could we finally have a real economic cycle? One that would need to clear of its own market-driven forces rather than a centralized agency full of academic eggheads schooled in Keynesian macro manipulation? Yes, I think it is very possible and if we finally go full frontal Hoye after many false alarms, the gold stock sector could actually put on more than just the ill fated mega rallies like it had in 2008-2010 and to a lesser degree 2018-2020.

If the Fed is having its manipulative power taken away or severely compromised by the market, the game sure could change. Open minds for an extended period (years probably) on this and other aspects of the markets.

Commodities: Oil is Frustrating

It’s frustrating because this chart (CRB/Gold ratio) turned down because crude oil turned up. Crude oil turned up because price manipulators made a decision to turn it up. I don’t give the Energy sector the (supply/demand) fundamental respect that some do because of these manipulators (and it’s not just OPEC; it’s OPEC this time but the west has its nose in there plenty where energy manipulation is concerned).

I hope to once again be on the Energy play (aside from currently held NatGas fund UNG) on a coming downturn as the ‘last inflated man standing’ fails again. But I’ll have to be open to it re-bulling as well, and if that bull were to be led by oil it would be a problem for gold mining operations. Hence, to see our plans come to fruition in any sort of convenient time frame I’d want to see the OPEC price prop manip fail before long.

Gold/CRB had been constructive to put in a bottom but it got hammered on Friday’s duel Fed hawk/OPEC manip routines.

Still, Gold/Copper on the other hand is signaling a counter-cycle. Crude oil will not, in my opinion, hold out forever. When the inflation fear turns to dis/deflation fear it’ll turn alright.


Let’s keep a close eye on the Gold/Silver ratio, which had taken a hit from the highs to barely maintain its daily chart uptrend. A rise here that attends a new rise in USD could put serious pressure on asset markets, including the precious metals. A breakdown in these two would offer relief, also including the precious metals as we’d expect silver to take some leadership.

We’ve used the 2 Horsemen of Apocalypse imagery to illustrate the destruction of the liquidity that the Fed created out of thin air in 2020. In essence, you could now say that the Fed is now summoning the 2 riders of liquidity destruction.


Bottom Line

It’s a process. Let’s let it play out.

Q4 is often an interesting time in markets. It’s a time of crashes, of bottoms, of recoveries and macro pivots. We are in process to change even as the majority continue to bitch and moan about what is in the rear view mirror. We are looking forward, collecting income and just as importantly, holding the means of purchasing power; cash increasing in value as assets decline in value.

Opportunity is out ahead.


Here is my Roth IRA (non-taxable, no contributions) sporting a 94% cash level. MAIFF (MAI.V), AEM, NEM and SSRM are the gold stock holdings. If the bottom proves to already be in I’d like to start adding to these and initiating others. But if it looks like final a downward flush is in play I may release all but MAI and play the income collection cash game as long as needed. It’s up to the markets and I am positioned in a way so as not to care what happens short or longer-term.

The other stuff is here for now. JBL had a chart and funda I liked. UNG has a chart I liked (that needs to hold right here at the SMA 200). DVAX is here because I have big things planned for it after the bear breaks. Basically I have the world on watch, long, short or both. But first I want to see the immediate process of Fed hawk mania play out and get a feel for when Fed hawk fear will be sticking out like a sore and contrary thumb.

Trading account holds DBC short and is busily building a loss due to crude oil. I am giving it just a bit of wiggle room with a thus far mild level of frustration.

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Notes From the Rabbit Hole (NFTRH) is a weekly market report in which we provide analysis on financial markets.  We make every effort to provide accurate and high quality content, but this analysis ultimately represents our opinions and these opinions are provided without warranty or guarantee of any kind.  In no event will or its owner, Gary Tanashian, be liable for any decision made or action taken by you based upon the information provided in NFTRH or at ToS available for review here.