The following is the opening segment of this week’s Notes From the Rabbit Hole, NFTRH 396. The report also covers, in detail, the technical status of US/Global stock markets, precious metals, commodities, currencies and even a few individual gold miners and a couple of new (non-gold related) NFTRH+ trade ideas.
In January of 2013 we noted that the “Canary’s Canary” chirped and signaled an economic up phase (such as it was) on the horizon. The Canary was the Semiconductor sector, which is cyclical and economically sensitive. The Canary’s Canary is the Semi Equipment sector, manned by the likes of Applied Materials and Lam Research.
While the entire U.S. population slumbers under the suffocating gas of Central Bank Printing the cracks from totally stealing an entire populations disposable income is coming home to roost on the the beautiful people’s companies. The FANG’s, plus the Noveau rich’s favorite food emporium is starting to collapse. It is these companies collapsing that will bring the visibility and fear required to shake the market, and free the bears. Why?
This is this generation’s Nifty Fifty, in the sense that it totally dominates the young people’s waking life (I know, I have a 15 year old), the California chattering and Chardonnay class, and the Investment Bankers seeing their Unicorns racing back to Atlantis, and with it billions in fees and investor’s fortunes.
It is important to distinguish the ‘back end’ from the ‘front end’ of the economy or else all you end up with hype emanating from the financial sphere every time an economic data release comes out. For example, I was critical of Martin Armstrong’s post, Is the recession Starting? in a rebuttal post, Armstrong 3+ Decades Late on Manufacturing because Marty’s post not only brought back some jaw droppingly old fashioned concepts about US manufacturing (JiT and automation replacing labor) but it focused only on the ‘front end’ of the economy, affirming the “ECM” in a short info-blurb.
While we caught the downturn in manufacturing ahead of time (July) and also have been on the sharp deceleration in Semiconductor bookings and billings (a two month trend now), these Canaries in the Economic Coal Mine are just front end clues. Meanwhile, as we have been noting for months in NFTRH, the back end, with a strong US dollar at its back, has been doing just fine.
As you may know, certain things get stuck in my craw from time to time because I came from industry, not from the abstract world of stock markets, finance and Keynesian economics. In short, I made stuff and sold stuff. The pressure was always there to get better, more efficient, more employee friendly, more modern. We did well in those regards, starting in the early 80’s.
Along comes a post by Martin Armstrong, the detailed merits of whom I will not debate because I don’t study him closely enough. Suffice it to say that I do not care for the cult-like following that seems to hold he and his computer, Socrates aloft in much the same way I did not care for the cult-like following (of “Comrades in Golden Arms”) that held aloft James Sinclair, by way of whom many people came to know Mr. Armstrong.
Indeed, too many smart people seem to put great weight on Martin Armstrong for the non-guru likes of me to criticize him in general. But I will go by what I read when the material is on a subject that I know about. US Manufacturing is a subject that I know about intimately; politics and associated biases are not. Yesterday, from Armstrong in response to another poor ISM release…
I see analysis out there discussing the Semiconductor sector as a whole as being under valued relative to other stock market sectors. This seems to be based on the fact that the SOX chart has not made nearly the catch up move that for example, the NDX has in its post 2000 recovery.
While charts can provide many helpful views to probabilities, they cannot get inside an industry and divine the importance of a sub-sector (Semi Equipment; AMAT, LRCX, etc.) within a sector as a whole. The equipment companies (which I am short) are the Canary’s Canary, with the Semi sector in general being an economic Canary in a Coal Mine.
When Nixon took us off the gold standard, it represented the high water mark for the Middle Class. Basically this is when the government and the banks lost all restrictions on money creation. Well we see the results. Deflation is good for the people, inflation for TPTB. Now you know why we have 2% inflation targets.
It is no secret that US credit markets have been increasingly stressed lately. Junk bonds are tanking and junk’s ratios to the relative quality of Investment Grade and Treasury have as well.