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Summary omitted this week as NFTRH 795 goes conversational on a weekend when an unexpected commitment popped up.

“No Landing” (until after the election?)

Last week while considering the contrary indications arrayed against the stock market we noted that not only are the economic “soft landing” touts in play, but they are actually now joined by ultra bullish “no landing” views. And do you know what? They are right. Last week in the Summary segment we noted:

And to boot we’ve got the FOMC meeting this week. Oh how fun. If you love noise.

Well, the noise came in the form of a January payrolls report with a knockout headline number of +353,000. Set aside for a moment that most of the employment growth was in services areas that are not economically productive and consider the headline:

Good Ship Lollipop Sails On, Never Again To Be Cast Upon The Rocks Of An Economic Down Cycle

I am aware that the market report you are reading right now is a professional/business service. And I think it has value. But it is in the back end of the economy. It is a service you can subscribe to in order to make and preserve capital over time. But that capital is not created here. It is managed here.

Education and Health services are hard wired into the system. Especially Healthcare. They are privileges of a wealthy society (and one running Trillions in deficits apparently). We did have a bump in manufacturing (productive). Good. On the other hand, I have noticed that Government hiring (non-productive) has been more persistently positive over a longer period of time than in past cycles.

On that note, and wearing my political tin foil hat I think ‘hmmm, very dynamic, scary (in its two primary candidates) and socially contentious election upcoming as Goldilocks persists (longer than originally expected)’.

In recent months we have considered the possibility that the next bear market could be pushed well out into 2024 as opposed to the end of the seasonal play, which is upcoming by mid-February (based on history). I suppose it comes down to whether or not you believe that government actually has the power to remotely control the economy. I happen to believe they do in any given time frame measured in months or even a year or more. I believe they do not over the long-term. Reckoning always comes sooner or later.

Semiconductor CHIPS Act

While it is a sure bet that the administration is playing Wizard of Oz behind the curtain of the manipulatable aspects of the Good Ship’s services industries and of course government hiring activities, there is one nuclear option that has yet to be launched.

As I was researching Semiconductor companies I decided to brush up on Intel’s situation (I have not given up on that company) after it got bombed on earnings. The CEO discussed the CHIPS act, which would be beneficial to a host of US based Semiconductor manufactures and Equipment makers (e.g. AMAT, LRCX, KLAC, etc.). In particular it was noted that the timing of disbursement of tens of billions of dollars is in question as the administration sits on its haunches and delays the process.

Is it my tin foil hat inspired imagination or is it a reality that the admin may be keeping that sure to be bullish atom bomb in its back pocket for the right time to detonate it?

With other areas being pumped currently and the late stage bull market doing as we’ve expected in bulling to all-time highs, might not the strategy be something like “hold… hold… HOLD… wait for it… DEPLOY!” at a key moment as the election draws nearer? Yes, in my opinion, it might.

Aside from the usual services pump job in a late stage economy we have the Semiconductor initiative and while we are at it, what may manifest out of the Green initiatives that the admin has made its bones on? The EV industry has been going through rough times of late. Perhaps an additional package of some kind earmarked for clean energy could be #2 of a hard 1-2 punch.

The above is not the product of in depth research into government activities and initiatives. The last thing I want to do is immerse myself in the toxic political realm. But it is the product of general logic. The speculation above could provide some of the ‘WHY’ to the still bullish market picture. We have talked a lot about patience and in order to correctly diagnose this situation, remain unharmed by it and maybe even capitalize on it, patience is the main tool. That and its frequent partner, perspective.

We are not fighting a battle. That can be done by perma-bears and perma-bugs. We can simply hold our nose, ignore the stink of it all, and be ready. The worm is going to turn. But now we have some concrete considerations about why the “no landing” camp may be right… until after the election.

That said, the ultimate contrarian turn may come much sooner, government or no government. The elements are already in place, after all.

US Stock Market

While the SOX > NDX > SPX leadership chain got dinged last week, it remains firmly bullish. You could fight this (from the bearish side) and win, but in my opinion that would not be likely. Not until these trends break down.

This is my new favorite chart, even though it does not advise about all the gaps below, to one day be filled. It is my favorite chart for this moment because it advises about the “new bull market” that the media began touting the minute SPX joined its fellows at all-time highs.

The US stock market situation is as we’ve noted for over a year now; bullish and at increasing risk. You can short it and get lucky or you can short it and get incinerated. You can sit it out and collect 5% on your cash or you can play it all-in, making a killing and then maybe (or maybe not) avoid getting incinerated when it tops and fails. What I’ll continue to do is play it, under-perform it as long as it remains bullish, collect interest on cash and be ready for when the macro turns.

Gold Stocks

On the flip side of that macro turn will be the gold mining sector. With the indexes above at new highs and implied confidence in our policy bubble blowing heroes the time is not yet right, and it won’t be right until… it is right. Patience. Meanwhile, the miners took a hit on Friday’s jobs report, but not necessarily a terminal one.

There is still the nearby gap at 26.90 to consider. Another consideration is that a chart excluding dividends would show the gap already filled. Yet another consideration is the gap below 22. You would think that the current macro could drive GDX down that low. Gold stocks are utterly despised now and a final and terrible flush is a possibility. Finally, down volume has greatly exceeded up volume in 2024. If that is a bear flag (which almost broke down on Friday before recovering a bit in-day) the weight of that volume could induce a final capitulation of all that hatred for these stocks.

Meanwhile, the November gap fill and higher low scenario clings to life along with the possibility of a continued rally.

• BPGDM has pulled back enough to refresh the rally, if it is not on its way to another washout low.
• HUI/Gold ratio is testing its November low and trending down. Not a positive, but as with BPGDM, an oversold sentiment measure amid the hatred of gold stocks out there.

Gold Miners Are Counter-Cyclical

I have thus far proven wrong in the view that the miners can run with the broads. That is in part because the inflation trades have not run with the broads and the gold miners are perceived by a majority to be about inflation, to benefit from inflation, because gold supposedly benefits from inflation. This incorrect assumption by a majority has done no favors for the miners.

What has taken place for a majority of the time from H1, 2022, when the tardy Fed finally began hawking, is that the inflation trades (e.g. commodities, commodity/resources related equities, EM, etc.) have taken the brunt of the Fed hawk fear. So to repeat, confidence in the great and powerful Fed of Oz is implied to be intact by the very fact that the markets react predictably and in line with policymakers’ wishes.

Meanwhile, money seeks out that which it perceives to be relatively immune in a selective market. For example, a cyclical industry like Materials is under-performing Semi and Tech, while the broad market (SPX) continues to trend UP vs. a more defensive, risk ‘off’ sector like Healthcare. It’s the wrong macro for the miners.

So, no counter-cycle, no unique investment case for gold mining. Period. This view is unchanged since mid-2020 when the bear phase began after the miners led the broad recovery out of the counter-cyclical blip known as the COVID pandemic crash. Insofar as I personally have been constructive on a rally for the miners, it has been with this substantial caveat, and that barring a top and reversal in the happy, risk ‘on’ macro, the miners would be a sell at whatever high they would make on this rally (that isn’t, yet).

I realize there are obsessives out there telling you why the miners are undervalued, why they are a contrarian’s no-brainer, why this and why that. They are permanently ‘pro’ gold and gold stocks. Or at least permanently focused on them instead of other areas that are working, like Semiconductors for example. The ultimate leading sector.

Why is your letter writer currently focused on the miners?

Because the setup could be epic. I don’t want to be position-less in case the worm turns sooner, not later. These things have a way of coming out of the blue and I am no swami and my crystal ball is for ornamental purposes only. I will continue to try to hedge – for better and worse, as has been the case – if/as needed and keep some moderate positioning.

But my goal is to be equally at ease with a hard rally now that will be a ‘sell’ down the line, or a final tank job to kill the spirits of the last hangers on. It’s a tough trick, but with cash and positioning in other sectors that orientation has generally been working to this point.

I am personally, and NFTRH is functionally, oriented toward big macro turns and the rewards that can come about with a boat load of patience and the perspective that despite personal bias, the turn will only come in its due time and probably when it is least expected. We have indications in play, from the 30yr Treasury yield Continuum’s long-term trend break to historical implications of the 2yr yield’s divergence to the T-bill/Fed Funds rate to Yield Curves due to steepen, that a macro turn is not too distant in the future.

Meanwhile, it has not turned.

The Rest

This report started out conversational and not per the usual format. Let’s keep it that way, discuss the broad markets and finish up. An unexpected commitment popped up this weekend and time is of the essence.

With the big payrolls-instigated pop in the USD let’s consider its situation as it is a primary player, the would-be foil to the inflation trades (better termed the ‘anti-USD’ trades). The December high was 104.28. When originally projecting this USD bounce back in December, we noted it was the extreme upside tolerance, above which USD would technically swing to the view that long-term support already held (which it did in July) and the trend had changed from neutral with a negative bias, to positive.

Here and now, a takeout of that high would direct the TA to go intermediate-term (at least) bullish from the previous short-term bullish/bounce view. To say the least, it is an important juncture on the macro because the USD has acted as an important counterparty to US and global asset markets for years now.

Now, what that might mean to the broad markets is open to question. The main options are…

• Investment continues and intensifies its flow into the Goldilocks areas, like Tech and Growth while continuing to leave aside the more cyclical, inflation sensitive stuff. This would be the ultimate Goldilocks, where she pigs out on porridge while the mighty US dollar and the mighty US stock market strengthen (led by Semi/Tech) and the Good Ship Lollipop once again shows the world how it’s done (with the hegemony of the reserve currency). This outcome could see the Gold/Silver ratio (GSR, below) firm as well, but moderate, not impulsive to the upside.
• Investment rotates to favor the stuff normally associated with ‘inflation trades’. This would likely see a USD failure and a drop in the GSR. This is the scenario most impaired by the still intact confidence (obedience is more like it) in monetary authorities by the general public.
• USD bulls, but the GSR also gets unruly to the upside, and markets that EVERYONE NOW KNOWS are backed by an economic soft landing or even better, no landing at all, simply expire amid the ALL TIME HIGHS headlines and roll over. This would likely send the yield curve steepening under deflationary pressure and a market liquidity crisis.
• Another option is the 2001-2004 model, where USD declines but the GSR rises. But that counter-cyclical macro is not indicated with stocks not yet having topped.

Personally, I have to tell you that the macro feels rigged (we know, Captain Obvious!). I feel as though politics is in there overtly and covertly, trying to hold this market together through the election. Lunatic? Sure. But I get the feeling ins me bones. The macro risk indicators are perma-flashing a combination of high risk and extreme complacency.

That is a good and bullish combo while it is taking place. But it is also the combo that inevitably ends in some kind of heartbreak, if not disaster. Therefore, I’ll choose not to ‘invest’ anywhere yet. I’ll take what the market and the Fed give me (trades and interest bearing cash) and continue with that most boring of words, patience.

Global Stocks

With the big pop in the dollar, which would affect world markets generally, but some more so, individually, let’s note…

• Asia (ex-Japan), China (broad market & large caps alike), Africa are trending down, moderately (Asia) to severely. EM and FM, each with Asian influence, are grappling to maintain their neutral trends.
• German DAX has dinged a new all-time high. Here I should own the fact that I had been fully anticipating a double-top with a deeper rollover in 2023. What actually happened was a decent correction and new rally. Much like the US. Broader Europe is on a similar theme, but not yet at all-time highs.
• The UK 100 index has generally gone sideways, neutral. But a pattern is forming that could create a large base before new upside.
• Commodity/Resource economies Canada and Aussie have furthered the bullish TA noted last week. Canada Junior (TSX-V) is still on its counter-trend bounce theme. The long-term trend is down.
• Japan: bullish. India: bullish. Same as ever.
• A word on LatAm. I own the LatAm 40 (ILF) per an NFTRH+ update, including the TA. Looking at Brazil’s Bovespa, I see an unsightly pattern. If that breaks down it will probably pressure ILF and I’ll be done with it. LatAm is a market that would likely favor a weak dollar.

Commodities & Tin Foil

Along with the precious metals, commodities and anti-USD trades got clobbered because my tin foil hat says that payrolls are improbably strong, the mighty United States is in full NO LANDING mode and best of all, inflation is whipped because… jobs! Because… strong dollar! Because… Goldilocks! Now you know I do not concoct conspiracy theories, generally. But this week I am taking the liberty of conspiracy theorizing.

Assuming we are all wearing our tin foil hats, the question is can they shove this thing forward and through the election? I could imagine a mixed and complicated year this year, with inflationary and deflationary signals being manipulated and repressed by the administration (complete with a pom pom waving Janet Yellen) for as long as possible. Realistically, in this most bizarre and scary of US election campaigns, you’d expect the democrats to be doing all they can to ‘git er done’.

We have to factor politics into 2024 market views. More so than ever, not only because we have a man accused of multiple crimes (if he survives the court dates scheduled for March) vs. a man who used to be coherent.

I think what can happen is that they’ll either keep the dyke plugged and avoid the inflationary or deflationary outcome (they are opposite ends of the same inflationary monetary system) through the election, or they’ll fail and a contrarian setup can happen sooner. One way or the other it should happen…

• By way of a tanking US dollar and global inflation trades rebelling and bulling…
• A deflationary event first, that forces authorities to make drastic and inflationary monetary and fiscal policy decisions. After the liquidation would come the inflation. We saw that unfold in rapid motion in 2020.

Meanwhile, as long as the dollar remains strong, don’t expect commodities to out-perform or even keep up. As with much of the past couple of years, it’s all about the dollar, baby.

Finally

Folks, I have got to run. I hope the occasional wordy, conversational report works okay for you. Frankly, I enjoy this more than going through the robotic motions of an overly regimented report. But my tin hat tends to emerge at these times. That’s probably an acquired taste, at best. :-)

No Portfolio this week. For reference, it’s whatever it was last week plus whatever was logged in the Trade Log. Let’s make the most of this market now that noisy FOMC is likely on the shelf until March.

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