NFTRH+; the inevitable band-aid brigade

Janet Yellen is sooth saying the markets about the bank sector meltdown going on. It is government, not the Fed that is applying the band aids, talking about bailouts and whatnot. You can click on this woman’s concerned, startled and confused looking face to access the article if you’d like.

The first paragraph of NFTRH 749:

Let’s get right to the sector that is primary in our forward view of the macro change that is developing (as if on cue, I might add). It’s exciting because the proper fundamentals for the gold mining industry are finally lining up. But there is one caveat; gold is rising nominally and in relation to other assets/markets as if in a microcosm to the Q4, 2008 mass market liquidations, but it is coming directly at the hands of alarming systemic risk headlines. Any calming words from government, Fed or the banking industry itself could prompt a negative reaction in the precious metals, which are benefiting amid the mayhem.

And so we have it today.

Let’s remember that the hawkish policy the Fed was forced to employ was the trigger to the recent systemic strife. Of course they were going to find ways to try to paper it over. But regardless of whether they plug this systemic leak or a new one pops up, the plan is and has been that hawkish policy is going to overshoot and probably not stop until something cracks for real. It could be the banking system or it could be something else out ahead, like the stock market simply finishing the bear market rally and dropping through key supports.

But today’s little flash of hope is the reason (along with the goons set to render a decision tomorrow) I remained moderate on precious metals holdings. I’ve wanted to clear FOMC and with the rats scurrying to fix what broke, optimism in the air today and FOMC tomorrow, it does not look great after gold and the miners flipped the bird at the system last week by rising strongly against the systemic strife.

That said, nothing has changed with the ongoing view. The Q4-Q1 rally grinds on and though today has a bit of an inflationary flavor to it (bond yields bouncing, commodity/resources bouncing, etc.) I’d continue to favor the disinflationary view as we have been once we clear the hype of this week.

This chart shows that it is no coincidence that Tech leadership to the broad market declined with inflation expectations rising (as illustrated here by the TLT/TIP ratio declining). If inflation expectations continue to fade but and unprotected Treasuries turn up vs. inflation protected Treasuries, Goldilocks can move forward.

QQQ/SPY ratio, tech vs. broad stock market

In the least favored scenario, if inflation regenerates here the Fed will hawk like nobody’s business and it’ll all probably come under pressure, including gold, silver and the miners.

Finally, another scenario is that inflation will start to fail badly, break Goldilocks and head straight toward deflation. If that happens it would be bearish for most things, even as Tech may lead for a while. It would be very fundamentally bullish for gold mining but the potential hazard would be an interim decline (with an ultimate positive of picking up quality miners on the cheap amid solid fundamentals). We have this view as a solid potential for when Goldilocks morphs to something less comfortable.

Okay, I am probably getting a little too talky, but I hope I’ve laid out some sensible points above.


This Post Has 2 Comments

  1. Dagny

    April tends to be a very bullish month, on average.

    1. Gary

      And now it’s got sentiment fuel. I wonder if a classic spring top will be attended by over-bullish sentiment.

Comments are closed.