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NFTRH macro view is proceeding nicely

Excerpted from the September 7th edition of Notes From the Rabbit Hole, the bullet points below illustrate past phases that successfully guided us to the current day (emphasizing the importance of effective forward analysis). This was once forward analysis, after all. I think it can lend important historical perspective to one’s current market view as well. NFTRH 879 then got back about its business of said “forward analysis” because the near and longer-term future is going to be at once exciting, interesting and challenging.

[edit] It occurs to me that I did not begin the stroll down memory lane at the beginning. The actual beginning was my folly as an investor in 1999 or so, thinking that Tech infrastructure areas like Optical Networking and certain picks & shovels software advances like XML would shield me from the bubble, which I did have a vague idea would burst. It didn’t and it did. Also, my beginnings as a gold bug were around 2001 and my first purchase of heavy metallic insurance was in 2002. That worked a little better. ;-)

We Are On Plan

I look at markets in stages and phases. Not as a long-termer (stocks for the long run) or a short-termer (day trader, scalper, playah). I manage macro phases. I want to have a clear narrative about what the market is doing at any given time within any given months-long, or even years-long phase.

A little stroll down memory lane, up to the current day:

• 2003: The stock market bear was showing signs of ending with divergences and indications. I got the indications to stop being bearish. I didn’t want to have to do that, but it became obvious that the market had bullish ideas, compliments of Greenspan’s inflationary policies (as the credit bubble began to blow).
• 2007: Gold stock macro fundamentals had degraded so badly throughout the latter part of the inflation-induced credit bubble that being long the miners was tricky business, and TA was the only tool I used, because the sector was also in a bubble due to valuation per degrading fundamentals.
• 2008: NFTRH was born, right into the teeth of the Armageddon ’08 crash, on September 28th of that year, and we viewed the crash as justified due to the excesses built up from 2004-2008. We also noted that gold bugs were liquidating (it was an unwinding bubble, after all) amid skyrocketing macro and sector fundamentals as the stock market also crashed and gold’s ratios to commodities – and in particular, mining cost input crude oil – rammed upward.
• After buying gold stocks with both hands (I have the scars from catching those falling knives to prove it) in Q4, 2008 it became time to manage a new phase as the bear/crash phase ended. This later included commodities and stocks as it became clear that Bernanke was readying and then deploying the monetary fire hose. Inflation, baby.
• 2011: Of course, as we know, inflation, when it is manufactured to temporarily benefit economic appearances (and the stock market), is no good for gold or gold stocks. Boom! Bear market, beginning in 2011. We managed that bear market well beyond the technical beginning of the current bull market in 2016. That was because there was no bull market signal until a higher low (HUI) was made and confirmed in 2018. Then further confirmation came with 2020’s higher high.
• 2013: The first sentence in the paragraph above notes that the inflationary operations of the Fed (create the money, monetary) and government (spend the money, fiscally) did benefit the stock market. For example, in January of 2013, we were compelled to be bullish on the Semiconductor industry due to its then-ramping book-to-bull ratio (b2b no longer published). We projected a rebound in manufacturing, jobs and the economy based on the leading Semi sector’s internals.
• 2014: This was just before the US dollar began its massive rally in 2014. Precious metals and commodities went to Palookaville and the venerable US stock market was “king of the world!” (conjures the kid in Titanic). Literally, as the strong dollar impaired global stocks in relation to US stocks.
• 2020: Fast forward to Q1, 2020 when we ID’d the new inflationary operation as it was being birthed. My advice then was to stop being bearish because they were printing a new bull phase. Gold/miners led the way up and soon moderated, as the rest of the bull band started to play.
• 2021: Then came the post-H1, 2020 phase, where we interpreted that gold needed to consolidate (a Handle for its massive and bullish Cup pattern) and so did gold stocks, as the inflation problem started to grip in 2021. Gold and especially the miners declined as the inflationary operations of Fed and government in H1, 2020 birthed a cyclical inflation phase that at first appeared a success, but…
• 2022: Quickly morphed into a problem. Despite Yellen and “too late” Powell’s repeated “transitory inflation” bullshit, we knew that “too late” was indeed too late. In 2022 he finally began fighting the inflation the Fed was primary in creating. Gold continued to consolidate and HUI took another down leg in its painful, grinding bull market. Importantly, Treasury bond yields broke a decades-long downtrend as the “Continuum” (chart below) was broken, and this called us to attention to interpret its implications in the years to come.
• 2022: The stock market took what many called a bear market but we, due to bond market dynamics not consistent with bear markets, called it what it actually was, a correction.
• 2023: The stock market celebrated as bond market dynamics (yield curves flattening to inversion) were in “boom” mode. This was the beginning of the fade in macro inflation signals. Commodities dropped and then began a long consolidation that is in force to this day. But it was also at this time that the 2yr yield began to diverge from the Fed Funds proxy T-bill yield (chart below), an indication that preceded major bear markets in 2001 and 2008.
• It was also in 2023 that yield curves began to steepen, implying a future concern (an economic bust comes with a steepening and de-inversion, not an inversion that the media wrongly touted in 2022 and 2023).
• It was only when the curves (esp. the 10yr-2yr) began to steepen that we could begin anticipating changes. And it is no coincidence that the curve began steepening just after the 30yr Treasury yield Continuum broke its decades-long downtrend. Now add in the 2yr/T-bill divergence among other economic signals and you’ve got a bear case. These things fit together, play in concert.
• 2019: Backtracking again, gold had cracked the code (the 1378 “bull gateway” in 2019) and that was the year the gold miners began their next leg up to fully confirm a bull market (painful and volatile though it was). After the 2020 upward explosion the next and gruesome leg down in the then painful gold stock bull market began.
• 2022: The gold stock corrective leg from the 2020 high ended at another higher low, and the current bull phase began as a grind. But begin it did.
• 2024: We more confidently loaded the HUI target of 500 (+/-) and also more confidently projected a weakening economy, subject to Biden, Yellen, Powell and whoever else had a hand in the pre-election fiscal shenanigans that kept the economy in good enough condition for “expert” economists to believe it was real.
• Expert economists look at standard data. We, on the other hand, look at internal market indications. We anticipate. They tell you what is happening in real time. Not convenient for market management. Projections based on indications is needed. Not predictions, but probabilities.
• 2025: The macro indications from 2022 to the current day have been led us to be properly positioned for what is happening today. Per the charts below (as referenced above).

First off, with respect to much of what is written above, here is my second favorite, second most elegant picture of the last few years. We all know I am absolutely obsessed with the Continuum, don’t we? :-)

HUI sliced through the operating target, as the (+/-) is now +37. We have had a lot of words about strategy (trader/investor/hybrid), probabilities of correction and whatnot. But here let’s simply note an overbought sector in a real bull market, bulling for the right fundamental reasons.

“Continuum” chart, as referenced in the bullet points above:

2yr Treasury yield, 3mo T-bill yield and Fed Funds chart as referenced above (if the two charts above are my two favorites, this one must come in a very close 3rd):

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