Slope Of Hope with Tim Knight

The Butcher's Bill

Deflation or Just a Point on the Continuum?

Excerpted from the January 15 edition of Notes From the Rabbit Hole, NFTRH170

From Bloomberg on Friday [13th]: “Stocks fell, trimming a weekly gain, while the euro and commodities slid after reports that several European nations will have credit ratings cut by Standard & Poor’s. U.S. Treasuries rose…”

This is the news of one failing major currency benefiting the exchange rate of another, along with the Treasury bonds it denominates. Deflation is not global hot money hysterically running from one intrinsically worthless currency to another any more than the 2005-2008 “death of the US dollar cult” represented hyperinflation.

Good Morning, Slopers

I'm going to make this really quick; indeed, I'm not going to be very active today since all eyes are on the FOMC and I'm getting myself ready.

I entered the day long SPY and short 79 items. I got the hell out of SPY at a nice profit and have added a few more shorts. I am a pure bear again.

I am still only 50% committed, thanks to Bernanke-fear, but my short on FXE is my current favorite. I think the Euro is going to finally give us a sustainable trend on which to trade.

Good luck today. It's going to be a wild ride.

Is This Mike On?

Those anticipating a huge move based on the FOMC announcement are probably disappointed so far. Last time the Fed announced, there were fireworks.

This time, well - - nothing. You can't see any move. Zippo. Zilch. Ziggy.

The Revolution Will Not Be Televised (by Gary Tanashian)

Edit 10/23/11 @ 6:09 AM:  The very first feedback I received on this post was from an intelligent and thoughtful reader who notes that "I don't see you talking at all" in response to my "what the eff are we talking about here?" at the end.  The mailer writes that it is all about conversing, asking questions and challenging the status quo and asks a question of his own about what I was hoping to find, the promised land?  He saw me pointing a finger and poking fun.

So here is my answer:  I wanted to find some of history.  I wanted to find something different.  I wanted to find someone talking about money printing and inflationary disenfranchisement.  That is what the whole Fed shtick was about in the video (I admit the helicopters that flew over the Fed had me thinking about making tin foil hat jokes and got me unfocused).  I did not want to find Kumbaya and bongos.  I suppose I wanted to find something more focused on a message of the '99%' being so many of us stuck in the middle of a triad of the Democrat machinery, the Republican machinery and the Corporate machinery.  With a side of Federal Reserve thrown in for good measure.

More Thoughts on OWS (by Gary Tanashian)

Chris Hedges has stirred up a mini epiphany in the blogosphere, especially considering the endless war-making that is employed in the name of corporate gain.  I am always against war, whether it is apparently 'justified' or not.  I hate war.  I supposed that sometimes it is necessary, but only to a tiny fraction of the scale to which it is systematically carried out.

A couple more articles for your consideration can be found here http://www.biiwii.com/analysis.htm.  The first, 'Going Apeshit' by James Howard Kunstler, shows the situation in cartoon-like fashion (a huge compliment, btw) as only Kunstler can.  He also shines a light on President Obama's superficial attempt to align himself with OWS for political gain.

Inflation on Demand & Along the 'Continuum'

Global markets are in the midst of a predictable relief rally to the technical bear market that recently became actualized off of various topping patterns that were in force for most of 2011.  It is important to note that this is coming off of a similarly predictable whiff of a deflation scare, as US and European debt 'imbalances' (a polite way to put it) spooked the public out of asset markets and into US Treasury bonds, among other 'safe' havens.

Ben Bernanke, the current US Fed Chief, is a deflation scholar after all.  He is the man for the job and if he was hesitant to do his job, as was the case last spring amid the 'austerity movement' and a red-lined long term T bond yield, he can be less so now.  The 'bad cops' (Fisher, Plosser, Bullard, etc.) at the Fed have been marginalized for the time being with people like Robert Reich and Paul Krugman, along with their decidedly less financially austere views, are back in the public consciousness.

Inviting the Vampire

Nosferatu's Shadow

Dear SOH, I love October and Halloween, don't you?  ;-)

This article in no way pretends to be real, actionable analysis like that which appears in Notes From the Rabbit Hole (NFTRH) each week.  Rather, it is just a metaphorical riff on a big picture macro economic theme that is currently in play.

Setting the clock back to January of 2011, we find long term Treasury bond yields hitting a critical high along the 'continuum' and finally beginning to signal an end to the inflation hysteria - born of the previous Fed sponsored QE campaign - as illustrated on the blog in May.  At that time, it was noted that the Wizard (metaphor temporarily switched to 'Vampire' for today's article) was powerless to work his magic against an oncoming economic contraction in the face of inflamed inflation expectations (long term yields at a 'do or die' breakout point parameter) and a then rising 'austerity' movement in the US.

Well, you see in the picture above (source info) that times are much different, a mere 6 months later.  Indeed, austerity has been cast to the scrap heap as the usual macro-managers come out of the woodwork, one after another, and invite the Vampire back into our homes.  You know the legend is that the Vampire must be invited in, don't you?  There is nothing like decelerating global macro-economic fundamentals and caving asset markets when it comes to inviting the Vampire to do his work.

Why are we using the Vampire as the metaphor for the US Fed (and I might add, its counterparts the developed world over)?  Because they are now being called upon... invited to provide more policy - in the name of asset price inflation - that is ultimately destructive to would-be normal, healthy economies that thrive on productivity and investment of capital toward these things of productivity and value.

In short, more inflationary policy creates more macro debt burden, provides potential asset price inflation and a growing overhang from which many economies will fail to recover (insert here the macro subplot in Greece and the PIIGS in general, which are just a tip of an awfully big iceberg) as inflationary policy sucks the life out of a real economy over time and cycles.

So we have come full cycle.  The updated chart of the 'continuum' is in a picture, an invitation.  The most recent red arrow indicated a time when the Vampire was reviled and politically scorned.

The 'continuum' AKA secular trend in 30 yr yields

Now we have a different atmosphere - expected by this writer and indicated by the chart above so many months ago - with deflation and systemic collapse at the forefront of the collective financial and economic mindset.  Austerity?  Please, give me a break.  The Vampire has already received his invitation, but having been scorned so soundly earlier this year, he sits back and lets the call become louder by the week.

The balance of current NFTRH analysis holds that he may await a final capitulation to be sure that the invitation is near unanimous.  

http://www.biiwii.blogspot.com
http://www.biiwii.com

Fidelity Confirms, The Fed Is Done (by Goatmug)

MAINSTREAM GIANT GETS PESSIMISTIC

Here is an article from the Telegraph this morning that highlights comments from mainstream investment giant Fidelity who just be came my new favorite fund company because they actually have someone on staff that will speak the truth to the public.  I can only imagine what is really being said at all of these investment shops, but I'm sure they are now smart enough not to state their true feelings about market environments, stocks, and other things in email like our old friend Henry Blodgett.

Telegraph Article by Dominic Rossi of Fidelity (CIO of European Equities at Fidelity) -

"Markets have reacted badly to the Fed's policy statement and European sovereign debt issues continue to rumble on.

At times like these, it can be difficult for investors to know what to do.

We should expect news over the next few weeks to deteriorate further. As we go into the earnings season shortly, there will be more missed forecasts and guidance from companies will be uncertain and gloomy. For investors, valuations will come in to play at some stage. Yields will be well covered because balance sheets are strong.

It is clear now that the Fed cannot bail equity markets out any more and any interest rate cuts by the ECB may not have much of an impact on markets. The solution on the fiscal front will be either Greek default or Germany accepting that it has to fund debt restructuring and so reduce the quantity of debt in Greece. This will be a prototype for other European countries.

At times like these, investors should remember the strong get stronger. We will see M&A pick up in Europe. There is little capital around and so the threat for companies from new competition is disappearing.

Markets will have to consolidate so that oligopolies or duopolies are created and the remaining companies have strong cash flow and don’t have to rely on the debt markets. This is a carbon copy of what happened in emerging markets 15 years ago. Equity will shrink as well-financed companies grow by acquiring others and buy back their own equity. In time, this will stabilise equities. "

No argument here.  We seem to have a little stabilization today with a few rumors that the G20 would ensure stability and that everything would be just fine.  Hopefully we get some more confidence here and we move up to my targets that I outlined yesterday in CLOSED FOREVER. 

Let's go back to my chart on GLD.  If you desire to look back at the August 31st post where I suggested that $162.50 on GLD would be the target for a retest. http://goatmug.blogspot.com/2011/08/charts-to-watch.html.  I've updated that same chart with the recent day's action and you'll see that we are right there.  Personally, I am willing to take a shot here and go long, but those with bearish leanings might press their bets and hold out for a possible $153 to either cover or begin buying. 

I've been an advocate of physical gold for some time and one of my SOH mentors, Market Sniper, has conditioned me to know that drops in gold are opportunities for purchases as the final result of this fiat scheme will highly benefit the shiny stuff.  I've called my gold guy and he sounds very depressed and I am adding a few ounces today.  Those physical positions get bought and never see the light of day, so as much as I trade around GLD and SLV know that I really have two different perspectives regarding timing and purchases, plus selling physical gold and silver is a total hassle so it tends to stay in the portfolio forever.

 

(Wow!  That TA stuff works!)

 As of 9:45 CST gold is getting smacked around and SLV is getting smashed.  I am buying GLD here with a short term target of $170.  My stop will be $160.

Be Careful cause the weekend will be full of emergency meetings for the financial heavy hitters as they attempt to save the world (again.).

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

The Permanent Waiting Game

Well, it's unusual for me to wait so long to put a post together, but I've been digesting and processing the antics from yesterday. I have a few general thoughts:

+ The bear market that should be in full-force, cleansing the system, is being held hostage;

+ As long as it is held hostage, rises will be grinding and excruciating, and drops will be extraordinarily fast and largely unpredictable (in other words, if you aren't in place with your positions, you're not going to profit much);

+ The market seems transfixed that Autumn 2011 will simply be a sequel of Autumn 2010, thanks to Bernanke. That is, the kick-off to a substantial, sustained rally.