![\"bkx\"](\"http:\/\/biiwii.com\/wordpress\/wp-content\/uploads\/2014\/04\/bkx.png\")
<\/a><\/p>\nNFTRH<\/a> has followed the BKX-SPX (leadership) ratio every step of the way during the current leg of the cyclical stock bull market.\u00a0Most recently we noted that BKX-SPX failed to make higher highs on two occasions.\u00a0This put the ratio \u2013 and by extension the stock market \u2013 on alert as we watched for a lower low.\u00a0 Ladies and gentlemen, let me introduce you to a lower low.<\/p>\n BKX-SPX ratio (daily chart), from NFTRH 284<\/p>\n<\/div>\n A bull rally is a series of higher highs and higher lows.\u00a0The bull phase in leadership by the banks over the S&P 500 is now over.\u00a0Okay great, we have expected this to happen.\u00a0But it is the implications and conclusions that can be drawn from a failing BKX-SPX ratio that is important.\u00a0Without conclusions after all, a ratio indicator is just a neat little tool making all sorts of noise about nothing.\u00a0Here are some implications.<\/p>\n Interest Rates<\/strong><\/p>\n With the Utilities sector still rallying strongly (Utes like a low interest rate environment), with the bottoming patterns NFTRH has been noting in 10 and 30 year Treasury bonds and now with the prime beneficiaries (of Fed policy) noticeably under performing the S&P 500 we can begin to firm up conclusions about T bonds and interest rates. We have been noting potential bottoming patterns on the bonds for several weeks\u2026<\/p>\n 30 & 10 year T bonds, weekly chart from NFTRH 284<\/p>\n<\/div>\n \u2026and been targeting 3.2% or so on 30 year yields for months now, ever since the 'Continuum' stopped right where we thought it would at its decades-old limiter, the 100 month exponential moving average (amid all kinds of rising rates hysteria I might add).<\/p>\n Conclusion:<\/strong>\u00a0 Interest rates are dropping toward our 3.2% target.\u00a0I am personally long Treasury bonds of several durations.\u00a0Aside from T bonds as an asset, they are a risk 'ON\/OFF' indicator.\u00a0If yields continue to decline, it would not be bullish for the stock market or other markets positively correlated to the economy.\u00a0It could be bullish for gold if short term yields decline faster than long term yields.\u00a0If long term yields decline faster, it would not be bullish for gold either.<\/p>\n BKX-SPX Ratio & Gold<\/strong><\/p>\n The shaded area highlights the most recent phase of inverse correlation where gold acted first as a refuge as confidence in the financial system dropped during the Euro crisis (in a 'double bottom' echo to 2009) and then was kicked to the curb as players collected themselves and started to regain confidence at the end of 2011.<\/p>\n BKX-SPX is a confidence indicator after all.\u00a0It had been dropping since 2006 and finally resolved in a final bottom in March of 2009.\u00a0Since the bottom in 2011 the banks have been tepidly out performing the S&P 500 despite continuing Zero Interest Rate Policy (ZIRP), which is obviously beneficial (and aimed at) these first users of newly created money.<\/p>\n With a phase of sentiment reversal (toward confidence in policy making and US markets and hatred of safe havens and risk \u2018OFF\u2019 assets) nearing completion, it would appear that gold's time in the desert is nearly done.<\/p>\n With ZIRP now nearly 5.5 years old, the Fed has been in financial and economic benefactor mode and yet the conduit to a revived economy in a system built on lending (and a willingness to extend and take on credit), AKA the banks, may be losing leadership over the stock market.<\/p>\n Conclusion:<\/strong>\u00a0If the breakdown in BKX-SPX continues, expect gold to find a bottom within the next several weeks or few months.\u00a0NFTRH continues to manage the process from a shorter term perspective.<\/p>\n US Economy & Inflation<\/strong><\/p>\n Of course, \"it's the economy, stupid\".<\/p>\n All of the inflation that has been promoted since 2008's liquidation of the previous inflation (Greenspan's) has been in service to reviving the economy, just as Greenspan's commercial credit bubble was.\u00a0What has actually happened, despite some recent improvements in the economy (as foreshadowed by the Semiconductor 'up' cycle well over a year ago) and business lending, is that ZIRP and various permutations of QE have barely kept things lukewarm.<\/p>\n This has been a bubble in official or governmental credit and the Fed balance sheet vs. the previous commercial credit bubble.\u00a0On this cycle the 'pigs' are living up to their unofficial name as they appear to have learned the lessons of 2003-2007 and have mostly fed at the trough of beneficial policy, but undertaken far less risk than official entities have.<\/p>\n Conclusion:<\/strong>\u00a0 Risk has merely shifted from commercial lenders to the public by way of its ever expanding Treasury debt, which is being used to fund both the economy and the inflationary operation now under way.<\/p>\n Sure, the much publicized QE 'taper' is under way, but as we have noted all along, that operation should be incentivizing the banks to get even more in the game due to the implied profit motive of a 'borrow at ZERO, lend long at higher yields' carry trade.\u00a0Yet BKX-SPX under performs.<\/p>\n What happens if BKX-SPX really does break down despite all the cards beings stacked in favor of the banks?\u00a0One result would be a massive loss of the confidence that has so systematically been rebuilt by policy over the last few years.<\/p>\n Tired of paint-by-numbers analysis?\u00a0Ready to do a little work?\u00a0Subscribe to NFTRH<\/a>.\u00a0You will not be disappointed.<\/p>\n Biiwii.com<\/a> | Notes From the Rabbit Hole<\/a> | Free eLetter<\/a> | Twitter<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Along with the highly publicized loss of leadership from big tech, the US stock market is now in danger of losing another, and possibly more important leader, the piggies or banking sector. While the weekly chart of BKX has not yet broken down, it is very close to doing so after sporting a negative RSI […]<\/p>\n","protected":false},"author":35,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[1840,4273,5442,6035,5324],"class_list":["post-26970","post","type-post","status-publish","format-standard","hentry","category-general","tag-biiwiicom","tag-gary-tanashian","tag-the-federal-reserve","tag-the-relative-strength-index-rsi","tag-zero-interest-rate-policy-zirp"],"yoast_head":"\n<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n<\/a><\/p>\n