Category Archives: Deflation/Inflation

Blow Off in Progress, But ‘Launch Phase’ Confirmed

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On March 4 we reviewed the technical reasons why the gold sector was launching as opposed to blowing off. This, after articles began appearing calling the rise to that point a doomed parabolic blow off using daily charts. Those calling it a blow off were confused; silver in spring 2011 was a blow off in the terminal sense. But when a parabolic move comes off a bottom, it is an impulsive thrust to change the trend, possibly ending the bear market.

We have long noted that gold is the first mover to a new inflationary phase, as the previous deflationary backdrop gets played out. That is exactly what happened, even though the silver miners have made stunning strides in leading the exciting up move in silver that is currently in process. Silver, in taking over leadership from gold would confirm an inflationary phase. Gold is monetary and silver is an industrial commodity with monetary aspects as well; i.e. it is more positively correlated to inflated economies making the silver-gold ratio a sensitive indicator to inflation.

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At the Gateway to a New Phase

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[edit] I got the shivers when I read TK’s post about Gartman being still “bearish of stocks” as it seems to lend credibility to the bullish scenario.

The market, despite weakening corporate profits and several other headwinds, has decided it liked what it heard from the Inflator in Chief yesterday as it has scored the game Janet Yellen 2, Hawks in Drag 1 and US dollar 0. Is it a final score? I am not sure how our hawkish transvestites can be taken seriously now.

But with a market running on the black boxes of a million quants, large and small, who knows what will happen the next time some clown decides to eat a microphone and dispense dissonance into a situation that Yellen seems very clear on; as my late friend Jonathan Auerbach once famously said (it was famous to me anyway) as we prepared for the post-2008 inflation phase, “it’s inflation all the way baby!”

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Macro Changes and Future Inflation Problems

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macrocosmEver since beginning the ‘Macrosom‘ theme in July (and updating it here), NFTRH has been managing macro changes that would positively affect the gold sector, and quite possibly have a negative effect on broad stock markets. Early on in the precious metals bear market we noted they were “in the mirror” and opposite the stock market, which on the post-2011 cycle has been the beneficiary of the Fed’s inflation, instilling confidence in their policies by conventional market participants (after all, the right assets were going up on this cycle). In August, it appeared that the first real thrust in the direction of our macro theme kicked in as the stock market cracked.

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The Clown Show Has Come and Gone

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The opening segment from this week’s edition of Notes From the Rabbit Hole has a little fun with the post-FOMC market situation. Unfortunately, there is all too much reality in this clowning around. From NFTRH 387:

Our main theme has been that the ironclad post-2011 confidence in the Federal Reserve among conventional market participants would slowly but surely start to fade because macro parlor tricks, so vigorously employed by the Bernanke Fed, were only tricks or in some cases (Operation Twist) borderline magic, after all.

clowncar

At biiwii.com (still unsure if or in what capacity the site may reappear) we used to have fun with clown car videos, as the various Fed members piled out honking horns, doing somersaults and shouting incomprehensible phrases and announcements.

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Growth or Inflation?

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The Federal Reserve states that its goal is to promote employment and economic growth while regulating inflation. As if it is as simple as pulling levers, tweaking a few knobs and dialing up just the right amount of inflation per unit of economic growth. The hubris and ego involved here is incredible.

For the last several years global macro dynamics had allowed the Fed to operate in a highly inflationary manner, while inflation’s effects discretely festered in areas of the ‘services’ economy (like healthcare, regulatory entities, real estate, leisure and hospitality and certain food items). It became clear to me that despite commodities driving down the raw costs of doing business, inflation’s effects had embedded in the services economy when my trash hauler informed of a rate increase due to regulations in the services chain, despite the crash in fuel costs. That is just one little example. Larger examples infect the entire economy.

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We Have Run Out of Customers (by Bob Kudla)

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Let me explain:

The concept is beyond supply and demand, at some point the price gets to a point where there is not enough buyers at any price that makes sense to produce or serve, and for the world this has now become a structural problem, and will turn deflation into a depression.  Capital owners are resisting lowering their rate of return at a slower rate than consumers ability to purchase their goods and services.

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