Hi Slopers, it's Gary with another macro-view of the rally in markets and human spirits. The following is a brief excerpt from my newsletter this past weekend, NFTRH61. There is a reason that bears encounter agonizing periods of market melt-up and as we all know, that reason is inflationary monetary policies designed to pump all manner of assets at the expense of paper promises (USD) printed at will.
Now, with that obligatory gold bug moment is out of the way, let me explain… In a boom, most everything goes up in dollar terms and usually in terms of gold as well. This is what has happened in our mini-boomlet that I call Hope '09. In actuality, the entirety of this farce has simply been a consolidation by gold after its ratios rose unsustainably along with the USD last year. Now look at the lower panels of the second chart below.
It is my opinion that Hope '09 will last approximately as long as it takes gold to finish its consolidation in silver terms and join the rise being shown in ratio to the stock market, oil, copper, foreign currency, and many other assets. Anyway, here is the excerpt:
from the November 29th edition of Notes
From the Rabbit Hole (NFTRH61)
The junk bond etf HYG is a good indicator of the mood of speculators and their confidence in policy makers’ ability to keep the inflation going because the fundamentals of the companies represented here boils down to the fact that money is created out of thin air (inflationary debt creation) and targeted toward keeping enterprises destined to fail, that should fail, alive. This is part of the wasteland where money goes for very unproductive means, other than to enrich speculators taking in interest income while playing a game of musical chairs with the public trust.
The lower panels show that damage has been done to HYG’s ratio to safer 7-10 treasury bonds (IEF) and higher quality corporate debt (LQD). These breakdowns, if they follow through, are expected indicators to the next round of credit problems that would attendanother deflationary impulse.
Of course, it is the ratio of the historical honest monetary anchor, gold to various assets that would be the ultimate gauge of speculators’ urge to continue gaming the system or perhaps cash out of the game.
The gold-silver ratio (GSR) continues to be the stubborn holdout to gold’s otherwise good looking bottom-making stance as measured against a whole host of other positively correlated assets. The short-term uptrend continues but the intermediate downtrend line has not yet been broken.
Gold continues to do impressive work against the stock market, oil and copper in establishing fledgling up trends after fanning through the various bottoming processes. The NFTRH stance remains that, as with the explosion of fear that was Armageddon ’08, gold’s upside explosion in ratio to these things was unsustainable. The entirety of Hope ’09 has seen a downward consolidation of these ratios in anticipation of the next upward leg. This will happen along with the next credit contraction and deflation impulse.