Incrementum Inflation Signal Update – A Reversal To “Rising Inflation”

 

Introductory Remarks by PT

We have discussed the proprietary Incrementum Inflation Indicator in these pages on previous occasions, but want to quickly summarize its salient features again. It is a purely market-based indicator, this is to say, its calculation is based exclusively on market prices and price ratios derived from market prices.

However, contrary to most measures of inflation expectations, the Incrementum Inflation Signal is not primarily focused on yield differentials, such as is e.g. the case with 5-year breakeven inflation rates.

The 5-year breakeven inflation rate is derived from the differential between 5-year treasury note yields and 5-year TIPS yields. Interestingly, it has recently begun to tick up as well after declining sharply for several months.

The Incrementum Inflation Indicator instead focuses on the prices of traditional inflation beneficiaries (several of them are mentioned below), many of which tend  to lead CPI by a considerable margin.

The indicator has recently switched from “falling” to “rising inflation”, which has important implications for investors. Below follows the official announcement of the shift by our friends Mark J. Valek and Ronald-Peter Stoeferle, the co-managers of the Incrementum fund family.

The Incrementum Inflation Signal Reverses – by Mark J. Valek and Ronald-Peter Stoeferle
Growing Concerns About Economic Growth

As of the beginning of January, our proprietary inflation indicator has switched from “FALLING INFLATION” to a full blown “RISING INFLATION” signal.

The reversal was triggered by the latest development in the gold/silver-ratio, which has weakened from 87 to currently 83. Moreover, gold mining stocks (HUI) broke out vs. the broad equity market (SPX) and gold itself also switched to a long signal. Only the broad commodity market (BCOM) still shows a somewhat lackluster performance, but seems to be in the process of building a base as well.

In our view, one can make a reasonable argument that gold is entering the next stage of its bull market. Miners seem to have put in quite a solid bottom, too. Our assumption was confirmed by the most recent surge in M&A activity (Randgold & Barrick, Newmont & Goldcorp).

We think the strong move in precious metals is the proverbial “canary in the coal mine” for a weaker USD environment, a rise in commodities and ultimately increasing price inflation.

As we have discussed in various publications, we still take the view that the Fed will eventually have to make a “monetary U-turn”. This will include falling interest rates, the end of QT and sooner or later another round of QE.

Quite recently growth concerns have increased globally. Central bankers are increasingly worried about faltering growth and it seems that a synchronized economic downturn might be on the horizon. In fact, the ECRI’s Weekly Leading Index is nearing decline rates that have foretold either recessions or, in the post 2008 world, incremental Fed/Central Bank liquidity injections.

ECRI Weekly Leading Index – Growth Rate (%). The WLI growth metric is quite useful as a leading economic indicator. For details on its construction see here. It currently sits at a 6-year low. [PT]

Running Out of …read more

Shifting Reasons to Buy Gold – Precious Metals Supply and Demand

 

Intermarket Correlation Dance

Monday was Martin Luther King Day in the US. The price of gold dropped six bucks last week. The price of silver fell 26 cents, a greater percentage.

The price of gold can sometimes correlate well with the price of stocks. For example, from April 2009 – July 2011. The price of gold went from $892 to $1,626, while in the same time period the S&P went from 841 to 1,289. The percentages are different — gold’s was 82% and the S&P’s 53% — but they moved together. And now, they seem to be inversely correlated.

In the short term, the gold-SPX correlation has clearly turned negative (in fact, a negative correlation is generally thought of as “normal”). Over the short to medium-term, the correlation is cyclical, but it is indeed negative over the long term. The forces driving the cyclical element of the short-term moves are an agglomeration of contingent circumstances, time leads and lags and perceptions. The latter include the choices of market participants regarding which of the macroeconomic gold price drivers to particularly focus on. [PT]

We often argue that the obvious explanation for price moves is wrong. But in this case, we think that gold is trading as the non-confidence asset. But let’s add some color to this.

No one vacillates back and forth on a daily basis, believing that the system will collapse alternatively with “everything is fine”. That’s not what these safe haven / risk on trades are about. For now, gold buyers are not buying Armageddon or even insurance against systemic collapse.

The vacillation comes from them trying to figure out if the Fed has effectively added a third mandate: a rising stock market. They’re wrong, the Fed hasn’t done any such thing. But so long as people believe in the mythical Greenspan put (or now, the Powell put), they will trade this way.

The Fed cares about credit, not stock prices. But in a near-zero interest rate world the price of stocks would be astronomical—but for concerns about credit. So the more the Fed can do to fix credit, the more stock prices can go up. And by fix, of course we mean enable profligate and zombie* borrowers to borrow more, at dirtier-cheaper rates. So long as the Fed is doing this, then speculators feel safe to buy more assets including stocks. And why shouldn’t they?

Anyway, people are still very much in a bubble frame of mind. When facing the prospect that the Fed cannot or will not keep pumping air into the stock market (as they picture it), they just turn to the next asset to bet on. In this case, gold.

If the price of gold rises enough, then many may conclude that “it’s on”, and gold could get a risk-on greed bet too. When they finally lose the bubble mentality, then they may buy gold much more than today. But, then, it won’t be for price gains. We will see that trend change long before the price action shows it.

Fundamental Developments

So …read more

Kicking Xi Jinping While He’s Down

 

One Great Big Difference

On a beautiful midsummer day, roughly six months ago, two distinguished men, of distinguished stature, crossed paths under precarious circumstances.  They are very much alike, these two distinguished men.

Let’s confuse him…  [PT]

Both are men of enormous ego.  Both are filled with ambitious delusions for the future.  Both are masters of persuasion.  Both offer a cause and conviction people can rally behind.

Both deliver frequent promises of greatness.  Both hold up historical allusions of eminence, and do so with confidence and flair.  Both claim destiny is on their side.

Does one read The Wall Street Journal?  Does one not?  We don’t know.

But we do know there’s one great big significant difference between these two men.  A difference far beyond either of their control.

One has an eye to the past, and a futile desire to return to greatness.  The other has an eye to the future, and a burning ambition to own it.  The difference, in other words, is that between descent and ascent.  And the intersection of this difference is a natural point of conflict.

As one star falls and one star rises, their two paths inevitably cross.  There’s no way around it.  Once the rendezvous has been made, there’s no turning back.

The First Day of the War

On July 6, 2018, if you recall, the first of President Trump’s trade tariffs with China took effect.  These included a 25 percent tariff on $34 billion of Chinese goods entering the United States.  Chinese President Xi Jinping quickly countered with retaliatory tariffs on U.S. soybeans and automobiles.

Billionaire investor Ray Dalio commemorated the exchange by tweeting:

“Today is the first day of the war with China.” 

Was Dalio exercising hyperbole?  Was he being starkly somber?  Perhaps he was merely recognizing that a trade war can lead to a fighting war… should Trump and Jinping push hard enough.

Lettuce hope this is not where this is going…  [PT]

Roughly a year ago, President Trump commented that, “trade wars are good, and easy to win.”  So far the trade war has been more bark than bite.  Several additional rounds of tariffs were imposed or threatened, following the first day of the war.

Then, over dinner at the G20 Buenos Aires summit, Trump and Jinping agreed to delay planned tariff increases for 90 days, from December 1, 2018. Presently, the 90 day negotiation period is halfway over.  Yet, as far as we can tell, little progress has been made in reaching a new trade agreement.

Moreover, should no resolution be reached by March 1, 2019, tariffs of 25 percent will be imposed on $200 billion of Chinese goods.

But what then?  Will more tariffs bring about a glorious triumph for Trump? Here at the Economic Prism we have some reservations.  Namely, that the desired result – some sort of economic victory – is unattainable.  That after damaging business and trade there will be no clear conclusion.

At the moment, however, Trump appears to have some leverage over Jinping.  Though this is more by dumb luck …read more

The Strongest Season for Silver Has Only Just Begun

Commodities as an Alternative

Our readers are presumably following commodity prices. Commodities often provide an alternative to investing in stocks – and they have clearly discernible seasonal characteristics. Thus heating oil tends to be cheaper in the summer than during the heating season in winter, and wheat is typically more expensive before the harvest then thereafter.

Silver: 1,000 ounce good delivery bars [PT]

Precious metals are also subject to seasonal trends.  Today I want to put silver under a magnifying glass on your behalf. Its price has lagged the gold price significantly – the gold-silver price ratio currently stands above 80, which is close to historic highs.

Are seasonal patterns currently suggesting a positive outlook for silver?

 

Silver: Shooting Star at the Beginning of the Year

The chart below illustrates the seasonal pattern of the silver price. Contrary to a standard chart, it does not depict prices over a specific time period, but rather the average price pattern of the past 15 years in the form of percentage returns generated in the course of a calendar year. The horizontal axis denotes the time of the year, the vertical axis shows the averaged price information indexed to 100. The seasonal chart makes it possible to discern seasonal patterns at a single glance.

 

Silver price in terms of the USD, seasonal pattern based on the past 15 years. Silver typically rallies until early April

As can be seen, there is one phase in silver that really stands out in the course of the year: its price typically rises rapidly at the beginning of the year. By contrast, in the remaining time of the year its price patterns are rather muted from a seasonal perspective. The upcoming seasonal rally phase which lasts until April 09 is highlighted on the chart.

In 11 of 15 Cases the Silver Price Rose Until Early April 

The seasonally positive time period between January 15 and April 09 brought about a silver rally in 11 of 15 cases. In the 11 winning years the average return in this phase amounted to 16.01 percent, while the average loss in the four losing years was 5.49 percent. An especially large gain of 42.34 percent was posted in 2011. The biggest loss was recorded in 2013; it amounted to a sizable 10.81 percent, which was nevertheless a significantly smaller move.

The bar chart below shows the return generated by the silver price during the seasonally positive time period in every year since 2004. Green bars denote years in which gains were achieved, red bars denote years in which a negative return was generated.

Silver, return in percent recorded between January 15 and April 09 in every year since 2004. The green bars are both more frequent and larger than the red bars, i.e., gains tended to significantly exceed losses in the seasonally strong phase. [PT]

One can see quite easily that silver is rising more often than falling during this phase, and that the rallies tend to be more pronounced than the …read more

The Chairman’s Curse – Precious Metals Supply and Demand

 

Something Odd is Happening

The price of gold went up two bucks, while that of silver fell ten pennies. Something’s odd about how the metals have traded. Back when the market thought that the Fed was tightening, the prices of gold and silver were rising. Silver is now about a buck higher than its Oct-Nov trading range.

A timeline of brief bubble trouble followed by bubble restoration via Hedgeye. It starts in early December (upper left corner) when Santa refuses to provide rising stock prices… Collective Wall Street yammering soon ensues and the socialist central planning agency at the center of our so-called market economy is begged to intervene… After consulting its crystal ball, it decides to make a “coo” sound in late December (lower right corner), and presto – everything is fixed! Oddly enough, gold seemed to like the less accommodative Mr. Powell better. This does actually make sense on one level, but one would normally expect gold to like the prospect of a retreat from a tightening cycle even better. We do have some ideas on that topic, which we plan to discuss in an upcoming Acting Man gold update. [PT]

But no sooner does Fed Chairman Powell say he is “listening” to the market — which is taken as a hint that he will stop tightening, if not ease a bit — than the prices of the metals stop rising.

Contracting money supply à rising prices of gold and silver.

Expanding money supply à softer prices.

That said, the fundamental prices of both metals — a calculation we make every day — has been rising since Nov 26. So far, the listening and talking of Powell has not pushed the fundamentals down.

Though it should be noted that the  fundamental gold price is just recovering to its range from 2017. And the silver fundamental silver price is almost back to prior levels. We will look at these graphs below.

Fundamental Developments – Fundamental Prices Firmer Again

But first, here is the chart of the prices of gold and silver.

Gold and silver priced in USD

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio (see here for an explanation of bid and offer prices for the ratio). It rose a bit this week.

Gold-silver ratio

Here is the gold graph showing gold basis, co-basis and the price of the dollar in terms of gold price.

Gold basis, co-basis and the USD priced in milligrams of gold

Keep in mind that this is the February contract, which is under selling pressure as it approaches expiry. Though the gold continuous basis rose a bit too. Here is the graph of the fundamental gold price for 1,400 days.

Fundamental gold price according to the Monetary Metals formula vs. market price (yellow line)

The Monetary Metals Gold Fundamental Price rose $23 to …read more

Washington’s Latest Match Made In Hell

 

Almost Predictable

One of the more enticing things about financial markets is not that they’re predictable.  Or that they’re not predictable.  It’s that they’re almost predictable… or at least they seem they should be.

For a long time people believed – and from what we read and hear, many still do – that economic cycles move in easily predictable, regular time periods. All you had to do was create a chart of the up and down waves of your favorite cycle model and extrapolate it into the future, and presto, your prediction was ready to be sold. But it turns out it is not that simple. The chart above was published by the “Inflation Survival Letter” in the late 1970s and purported to show the future trend of the so-called Kondratiev Wave, a cycle invented by Soviet economist Nikolai Kondratiev (who was eventually deported to the GULAG and killed by the Stalin regime, after a fellow American economics professor denounced him to the communists in Moscow as a “counter-revolutionary”). Interestingly, their forecast of the trend in wholesale prices turned out to be correct, but everything else they predicted in this context was incorrect. According to the K-Wave theory, the year 2000 was supposed to have been the trough of a major economic depression, with extremely high unemployment, a plunging stock market and all the other symptoms associated with a giant bust. In reality, the year 2000 was the peak of a major boom, with unemployment almost reaching a record low and stock prices soaring to unprecedented valuations. There was a time when the seeming elegance and simplicity of models like Kondratiev’s had our attention as well. There are ways of rationalizing such models. For instance, one could argue that it takes a few generations to “forget the lessons of a depression” and end the risk aversion and penchant for saving it inculcates in the public. There are certainly kernels of truth in this, but the fact remains that the future is unknowable. Kondratiev e.g. didn’t know that the communist empire would crumble in 1990 and that half the world would join the hampered market economy of the nominally capitalist West. This was undoubtedly one of the factors helping to extend the economic boom well into the 1990s (precisely because it kept prices low, which in turn enabled central banks to implement loose monetary policies). [PT]

The economy, like financial markets, ebb and flow in rhythmic cycles; though, they never quite repeat with perfection. A shortage of wheat one year should compel production and an abundant harvest the next year.  You can darn near count on it, so long as there’s not a late season frost, a mite infestation, or some other act of God that wipes out the crop yield.

Indeed, the economy is dynamic.  It expands.  It contracts.  But it does more than that.  For it is more biotic than abiotic. It changes. It evolves. It continuously reshapes and readjusts to the countless and ever changing inputs, innovations, and interactions of the people and resources …read more

The Real or Imagined Third Fed Mandate – Precious Metals Supply and Demand

Fundamental Developments – Silver Looking Frisky

The price of gold went up four bucks, and the price of silver rose 32 cents. Silver has been going up in gold terms since the middle of last week, when the gold-silver ratio peaked at just under 87. It closed this week at just under 82 (a lower ratio means silver is more valuable).

Silver: more valuable since last week, both in absolute and relative terms. Just avoid dropping it on your toes – it’s still just as heavy as it always was. [PT]

87 is quite an extreme level. So it’s natural for there to be a move back down. But is this move durable, and likely to continue? We will look at that when we discuss silver’s supply and demand charts. Let’s look at that picture. But, first, here is the chart of the prices of gold and silver.

Gold and silver priced in USD

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio (see here for an explanation of bid and offer prices for the ratio). It fell sharply again this week.

Gold-silver ratio

Here is the gold graph showing gold basis, co-basis and the price of the dollar in terms of gold price.

Gold basis, co-basis and the USD priced in milligrams of gold.

Keep in mind that this is the February contract, which is under selling pressure as it approaches expiry. The gold continuous basis is basically flat. So this week, no real price move and no real supply and demand move.

The Monetary Metals Gold Fundamental Price fell back $4 to $1,321, so no real fundamental move either.

Now let’s look at silver.

Silver basis, co-basis and the USD priced in grams of silver

As the price of silver rose over 2% this week, the co-basis basically held steady. There is some buying of metal here, and some speculation too. This is not exactly the picture of a feeding frenzy, with an outlook of silver-to-da-moon. But nor is it a sign of a speculative blip, with a prognosis of a crash.

The Monetary Metals Silver Fundamental Price rose 12 cents, to $15.91.

Is it too Late for Jawboning Alone?

This week, of course, the stock market went up. Does the incredible bull market roar back to life? We are not stock market prognosticators, but we don’t think so if the Fed stays the course. As we have written, the discount on future earnings is higher now and therefore the present value is lower. Also, the interest expense is up and this will crush marginal debtors.

The biggest up day in the stock occurred when Fed Chairman Jay Powell said the Fed is “listening to markets.” So stock market speculators believe that the Fed will change its policy, or at least mitigate its policy to …read more

The Downside of Mindless Investing

 

Unexpected Inflection Points

High inflection points in life, like high inflection points in the stock market, are both humbling and instructive.  One moment you think you’ve got the world by the tail.  The next moment the rug’s yanked right out from under you.

The yanked rug… [PT]

Where the stock market is concerned, several critical factors are revealed following a high inflection point.  These factors are not always obvious at first.  But they become apparent over time.  Most notably, it is revealed that the period leading up to the high inflection point was more suspect than previously understood.

The stock market, as represented by the S&P 500 Index, became a sort of money minting machine over the last decade.  Quarter after quarter, year after year, investors opened their brokerage statements to the delight of an inflating portfolio.  Investing was fun – and easy.

Without much interruption, investors got more out of the market than they put in. They also got more out of the market than the underlying economy warranted. The stock market delivered an illusion of prosperity that many investors mistook for the real thing.

Yes, the economy grew and corporate earnings increased.  However, thanks to debt based corporate buybacks propagated by the Fed’s cheap credit, rising share prices greatly outpaced earnings.  Stock valuations soared.  And stocks became more and more expensive.

The close of a near decade long bull market brings a new clarity and reflection upon the abundance of mistakes that built up over the agreeable upswing.  For example, the reassurance of ever increasing stock returns, over such a lengthy duration, taught a wide spectrum of investors a very dangerous lesson.  That one can get rich without using one’s brain.

When multiples expand into the blue yonder, it is easy to make a mint in the stock market (although almost no-one wanted to buy stocks at the 2009 lows as we recall). But you know what they say: easy come, easy go. [PT]

Chaos and Catastrophe

Over the past decade, investing was reduced to a thoughtless endeavor.  Why bother breaking down a corporate balance sheet when you can buy the market via a passive index fund?  Why sift through an extensive list of companies searching for value laden diamonds in the rough, when the whole rough performs like a diamond?

Indeed, for nearly a decade buying the market by investing in an index fund, or exchange traded fund (ETF), was a simple and successful strategy for building investment wealth.  A person who invested $100 in the S&P 500 about 10 years ago would have well over $300 today.  Not a bad return for blindly deploying investment capital into the market.

The succeeding decade, however, will likely be far different for investors than the past decade.  For one thing, decade long bull market runs are not the norm; they’re an aberration.  Over the next decade we expect a passive indexing strategy will encounter a series of problems that many index fund enthusiasts are unaware of.

In fact, John Bogle, founder of Vanguard, and …read more

Circling the Drain

 

Drain, drain, drain…

“Master!”, cried the punters,

“we urgently need rain!

We can no longer bear

this unprecedented pain!”

“I’m sorry my dear children,

you beg for rain in vain.

It is I who is in charge now

and mine’s the put-less reign.

The bubble dragon shall be slain,

by me, the bubble bane.

That rustling sound? That’s me…

as I drain and drain and drain.”

[ed note: cue evil laughter with lots of giant cave reverb]

– a public service message by the Fed chieftain, rendered in rhyme by yours truly

Money from thin air going back whence it came from – circling the drain of a ‘no reinvestment’ black hole strategically placed in its way by the dollar-sucking vampire bat Ptenochirus Iagori Powelli.

Our friend Michael Pollaro recently provided us with an update of outstanding Fed credit as of 26 December 2018. Overall, the numbers appear not yet all that dramatic, but the devil is in the details, or rather in the time frames one considers.

The pace of the year-on-year decrease in net Fed credit has eased a bit from the previous month, as the December 2017 figures made for an easier comparison – but that is bound to change again with the January data. If one looks at the q/q rate of change, it has accelerated rather significantly since turning negative for good in April of last year.

Below are the most recent money supply and bank lending data as a reminder that   “QT” indeed weighs on money supply growth rates. It was unavoidable that the slowdown in money supply growth would have an impact on asset prices and eventually on economic activity.

Note that in the short to medium term, the effects exerted by money supply growth rates are far more important than any of the president’s policy initiatives, whether they are positive (lower taxes, fewer regulations) or negative (erection of protectionist trade barriers). The effects of changes in money supply growth are also subject to a lag, but in this case the lag appears to be over.

Any effects seemingly triggered by “news flow” are usually only of the very short term knee-jerk variety, and they are often anyway the opposite of what one would normally expect – particularly in phases when news flow actually lags market action (see the recent case of disappointingly weak PMI and ISM data). The primary trend cannot be altered by these short term gyrations.

TMS-2 growth (y/y); 12-month moving average of TMS-2 growth; total US bank lending growth (y/y). Current growth rates are at levels last seen at the onset of the 2001 and 2008 busts.

TMS-2, total stock: between October and November, month-on-month growth has ceased entirely.

Instead of total Fed assets, we show a chart of securities held outright this time – which include the “QE” portfolio. The data in the chart are up to 02 January, so this is a slightly more up-to-date figure than the one shown in the table.

The Bear Market Hook

Has a Bear Market in Stocks Begun?

The stock market correction into late December was of approximately the same size as the mid 2015/early 2016 twin downturns, so this is not an idle question. Moreover, many bears seem quite confident lately from an anecdotal perspective, which may invite a continuation of the recent upward correction. That said, there is not much confirmation of said confidence in data that can be quantified.

Our proposed bearish wave count for the S&P 500 Index, which could easily be completely wrong, so take with a big grain of salt. Let us just note here that this chart looks bearish regardless of the wave labels. The latter are mainly meant to serve as an orientation aid (i.e., if something very different from the expected fractal shape develops, we would know that this interpretation is wrong; on the other hand, if the expected shape does develop, we could be reasonably confident of where short term turning points are likely to occur and would have further confirmation that a large scale bear market has begun).

Obviously, our personal impressions of anecdotal sentiment alone are a bit of a thin reed to hang a forecast on – and as noted, these observations are at least partly contradicted by hard data, such as e.g. put-call ratios:

CBOE equity put-call ratio and the CBOE total (equity and index combined) put-call ratio – in the third week of December, option punters finally showed some fear, even though the one-day peak in equity options remained below the early 2016 spike high. Remarkably though, traders are apparently still extremely eager to catch falling knives at the first hint of a turnaround, as the equity P/C ratio fell to its lowest one-day reading in almost 5 years just four trading days later!

Along similar lines, speculators in E-mini futures doubled their net long exposure in a mere two weeks to more than 350,000 contracts (large and small speculators combined) and Rydex bear assets remain 50% below the level they reached in early 2016 (which in turn was also quite low compared to historical readings). It is fair to say that the willingness to believe remains quite strong.

Even so, given that all of this happened so close to and around the holidays, it is hard to say how meaningful it is. It is easy to come up with arguments supporting a more positive short term scenario than that suggested by our wave count; for instance, the new highs/new lows percent index (NHNLP) for the SPX did finally decline well into oversold territory (it bounced back to the zero line immediately thereafter).

S&P 500 NH-NL-Percent Index: finally a drop into severely oversold territory, followed by a swift bounce back to the zero line. In the past, such drops have ended corrections – but that was during the bull market. In a bear market the goal posts are likely to shift. Unfortunately we cannot say what happened in past bear markets, …read more

Change is in the Air – Precious Metals Supply and Demand

Fundamental Developments: Physical Gold Scarcity Increases

Last week, the price of gold rose $25, and that of silver $0.60. Is it our turn? Is now when gold begins to go up? To outperform stocks?

Something has changed in the supply and demand picture. Let’s look at that picture. But, first, here is the chart of the prices of gold and silver.

Gold and silver priced in USD – the final week of the year was good to the precious metals. As an aside: January is the seasonally strongest month for silver. [PT]

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio (see here for an explanation of bid and offer prices for the ratio). It fell sharply this week.

Gold-silver ratio: note that declines in this ratio often go hand in hand with firmer prices for gold and silver mining stocks. The recent move in the ratio constitutes an initial technical breakdown, as the nearest level of lateral support has given way. [PT]

Here is the gold graph showing gold basis, co-basis and the price of the dollar in terms of gold price.

Gold basis, co-basis and the USD priced in milligrams of gold. It is fairly rare and encouraging to see the co-basis rise in the face of a rally in gold prices. [PT]

Notice the price of the dollar (i.e., the inverse of the price of gold, measured in dollars) moving opposite to the scarcity of gold (i.e., the co-basis).

Gold is becoming scarcer to the market, while its price is rising. This is not a move driven by leveraged speculators arbitraging their gold market to stock market expectations or Wall Street betting that gold will go up when stocks go down. Or at least not only that.

There is buying of metal here. The Monetary Metals Gold Fundamental Price rose another $18 to $1,325.

Now let’s look at silver.

Silver basis, co-basis and the USD priced in grams of silver. In this case the relative size of the price change and the change in the co-basis remains favorable. [PT]

In silver, we see a similar trend. We had a much bigger price change proportionally. And the co-basis dropped, but not a lot. There is buying of silver metal too.

And like in gold, the Monetary Metals Silver Fundamental Price rose 68 cents, to $15.79.

It makes sense, in our broken monetary system, that if people perceive the stock market as having topped many people may begin to turn to precious metals in the hope they may become the next bubble.

Others begin to heed the now out-of-fashion idea of having some money set aside, apart from their portfolio. If the Fed’s Great Bull Market falters, then maybe the Fed is not omnipotent and it makes sense to reduce risk?

Whatever the reasons, we think the stars may be aligning. Stay tuned!

Charts by …read more

The Recline and Flail of Western Civilization and Other 2019 Predictions

The Recline and Flail of Western Civilization and Other 2019 Predictions

“I think it’s a tremendous opportunity to buy.  Really a great opportunity to buy.” – President Donald Trump, Christmas Day 2018

Darts in a Blizzard

Today, as we prepare to close out the old, we offer a vast array of tidings.  We  bring words of doom and despair.  We bring words of contemplation and reflection.  And we also bring words of hope and sunshine.

Famous stock market investment adviser Field Marshal D. Trump [PT]

After all, the New Year’s nearly here.  What better time than now to turn over a new leaf?  New dreams, new directions, and new delusions, are all before us like a patch of ripe strawberries.  Today’s the day to make a double-fisted grab for all of them – and more.

Rest assured, 2019 will be the year that everything happens precisely as it should.  Some good.  Some bad.  Indeed, each day shall unfold before you in symbiotic disharmony.  You can count on it.

But what else?  What are the essential anticipations as we embark on a new voyage around the sun?  What about stocks, the 10-Year Treasury note, gold, and everything else?  Are we fated for complete societal breakdown?  Will this be the year the Fed put finally bites the dust?

Today we attempt to answer these questions – and many others – with meekness and modesty.  Predicting the future, like Fed monetary policy, is primarily guesswork.  But unlike the Fed, we acknowledge we’re merely throwing darts in a blizzard.

By all accounts, our methodology is as unscientific as prophecy via tarotology.  We shun common forecasting techniques for a conjectural approach.  First, we engage all matters of fact, fiction, fakery, and fraud.  Then, through induction, deduction, biased interpolation, gut check filtration, and metaphysical reduction, we arrive at precise, unequivocal answers.

But before we get to it, a brief disclaimer’s in order.  This proviso from Yogi Berra should do:

“It’s tough to make predictions, especially about the future.”

Two styles of forecasting: the all-knowing Zoltar, and the less certain Yogi Berra (here at bat), who  inter alia noted that “a lot can be observed by watching”  and “it ain’t over until it’s over” – both of which we find to be true. And don’t forget, when you come to a fork in the road, take it. [PT]

With that out of the way, we face our limitations with purpose and intent.  What follows, for fun and for free, are several simple guesses for the year ahead.

Stocks, Treasuries, and Gold in 2019
Stocks – A Major Meltdown

We recognize the stock market’s comprised of many stocks and that they don’t all move in tandem.  Certainly, it’s presumptuous of us to lump all stocks into the same prediction.  But today’s conjectures, by their very nature, are presumptuous.  Thus, stocks, for our purposes here, are the broad U.S. stock market – the S&P 500.

S&P 500 Index with a possible wave count. Note: this wave count suggests that the index is currently in the …read more