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Fed Doves Take Flight

Posted on by The INO.com Team

A ‘wild card’ segment has been added to NFTRH reports because I wanted the freedom to go out of bounds in any direction, beyond our usual areas of disciplined coverage. Last week it was a look at the Semiconductor sector.

This week it is Fed policy with a side trip down memory lane, trying once again to illustrate why today is not at all like the ZIRP era and why the post-2015 re-connect between the Fed Funds rate and the stock market does not bode well for stocks, assuming the Fed really is going soft.

Excerpted from tomorrow’s edition of Notes From the Rabbit Hole, which will also include loads of actionable analysis along with the more theoretical stuff below…

Fed Doves Take Flight (But We Are Not in Kansas Anymore)

Wise guys trading Fed Funds futures see no more rate hikes in 2019, and a few even imagine a rate cut before year-end. Here are the projections for the next 3 meetings, showing an overwhelming view that the Fed will hold the current 225-250 target rate.  Continue reading "Fed Doves Take Flight" →

Semiconductor Sector - Watch The Early Bird In 2019

Posted on by The INO.com Team

As in January of 2013 (ahead of an economic up cycle) and Q4 2017-Q1 2018 (ahead of an economic ripple that began in 2018) the Semiconductor sector and in particular its Semi Equipment sub-sector are front and center in forming our analysis about coming events. Excerpted from the January 20th edition of Notes From the Rabbit Hole, NFTRH 535…

Semiconductor Sector – Watch the Early Bird in 2019

This one is special for me. I started my work life many moons ago as a participant with the Semi sector [circa 1983-1993], painfully learning first hand how violent the cyclical turns can be. Dialing ahead a couple decades, in January of 2013 NFTRH began a narrative that saw the then up-turning Semi Equipment bookings (this data is unfortunately no longer published) lead the sector, general manufacturing and eventually the whole raft of components that make up the economy into a cyclical upturn.

The prime Semi Equipment names we follow are Applied Materials (AMAT) and Lam Research (LRCX). Well over a year ago we used their failing leadership to the broad Semi sector as a leading indicator on the economy, and things finally came to a head in October 2018. We made note of how industry advocates have been lobbying hard for the Trump Administration to re-think its trade tariffs as relates to Semiconductors.

My question has been over the last year and still is… ‘is the Semi Equipment downturn a real cycle or just a cyclical interruption?’ Reference… Continue reading "Semiconductor Sector - Watch The Early Bird In 2019" →

Amigos 1 & 2 Arrive, #3 Is Still Out There

Posted on by The INO.com Team

The 3 Amigos were a blogger’s way of not boring himself to death while fleshing out important macro indicators month after month.

Amigo #1 (SPX/Gold ratio) got home and dropped from target. What’s more, it has taken back the ratio’s equivalent of the entire Trump rally and that is an eventuality we are very open to on nominal SPX as well.

The gaps are interesting and among several possibilities for 2019 we could see fear, loathing and a fill of the lower gap (a greed gap of sorts) prior to a filling of the upper gap, which could blow out the stock bull in manic fashion one day. Relax, it’s just one of several possible roadmaps. For now, we simply state that SPX/Gold reached a very viable target and dutifully dropped with the market stress.

Yield

Amigo #2 (30yr Treasury yield AKA the Continuum) got the bond bears on the wrong side of the boat and kept them there for a couple of months before the big reversal (back below the monthly EMA 100) that came along with the risk ‘off’ rush amid Q4 2018’s market stress. Continue reading "Amigos 1 & 2 Arrive, #3 Is Still Out There" →

The Men Who Stare At Charts

Posted on by The INO.com Team

gold/silver ratioI was going to look around to see if I could find a media article out there (complete with a TA trying to sound really important) that would be appropriate to be made fun of in our little Men Who Stare at Charts series. But then I decided to create my own chart, stare at it a little, post it and talk about it (hopefully not too self-importantly).

Introducing an all too busy long-term (monthly) view of the Gold/Silver ratio, along with some key nominal markets.

The Continuum in the lower panel symbolizes the deflationary backbone that has been in place for decades. I maintain that this is a firm marker against which the Fed inflates money supplies, manipulates bonds and by extension manipulates inflation signals. We have been on a theme that like Jerome Powell or hate him, he knows exactly what he is doing because to do otherwise (promote ongoing bubbles on top of bubbles) would, in essence, end the Fed’s racket, as symbolized by a real breakout in long-term yields. Continue reading "The Men Who Stare At Charts" →

Cyclical Assets Vs. Gold

Posted on by The INO.com Team

In January of 2018, we noted a cyclical leader (Semiconductor Fab Equipment) in trouble: Semi Canary Still Chirping, But He’s Gonna Croak in 2018.

We also ran a series of articles featuring the happy-go-lucky 3 Amigos (of the macro) in order to gauge a point when larger herds of investors would become aware of cyclical issues facing the global (including the US) economy. Each Amigo (SPX/Gold Ratio, Long-term Treasury yields, and a flattening Yield Curve) would ride with the good times but signal an end to those good times when reaching destination (Amigos 1 & 2 got home but #3, the Yield Curve is still out there). Here is the latest Amigos status update from October: SPX/Gold, 30yr Yields & Yield Curve.

Today I would like to stick with a cyclical macro view, but do so through a lens filtered by the ultimate counter-cyclical asset, gold. As market participants, we are lost if we do not have road maps. That is why we (NFTRH) gauged Semi Equipment vs. Semi (and Tech), the unified messages of the macro Amigo indicators and many other breadth and cyclical indicators along the way to safely guide us to Q4 2018, which has been a challenge for many, but business as usual for those of us who were prepared.

But gold, which all too often gets tied up in an ‘inflation protection’ pitch by commodity bulls, is one of the best signalers of a counter-cyclical backdrop as its best characteristic is that of value retention and capital preservation. Gold, being outside the constellation of risk ‘on’ assets does not pay any income, does not leverage good economic times and does not inherently involve risk because it is a marker of stable value. Hence its underperformance during cyclical good times (leverage and all) and its outperformance during troubled counter-cyclical times.

So let’s take an updated look at gold vs. various cyclical items Continue reading "Cyclical Assets Vs. Gold" →