{"id":39409,"date":"2016-07-14T10:49:40","date_gmt":"2016-07-14T14:49:40","guid":{"rendered":"http:\/\/www.ino.com\/blog\/?p=39409"},"modified":"2016-07-14T10:49:40","modified_gmt":"2016-07-14T14:49:40","slug":"wonderland","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2016\/07\/wonderland\/","title":{"rendered":"Wonderland"},"content":{"rendered":"

By: Gary Tanashian of Biiwii.com<\/a><\/strong><\/p>\n

<\/p>\n

\u201cIf I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn\u2019t. And contrary wise, what is, it wouldn\u2019t be. And what it wouldn\u2019t be, it would. You see?\u201d<\/em> \u2013Alice in Wonderland<\/strong><\/p>\n

Silver out performs gold as both rise with Treasury bonds, which are in turn rising with stocks, as Junk bonds hit new recovery highs while USD remains firm as inflation expectations are out of the picture. This is highly atypical, maybe even unprecedented.<\/p>\n

Some, deeply dug into their particular disciplines and biases, might say it is dysfunctional, as this backdrop simply does not make sense using conventional methods of analysis. Why again did I name this service Notes From the Rabbit Hole<\/a><\/strong>?<\/p>\n

When the S&P 500 was robo rising month after month, year after year as it did from 2011 to 2015, you did not need the market report with the funny name because all was linear and as it should be. The same actually, could be said for gold. It was linear and as it should be in its relentless downtrend. Casino patrons simply ride the trends!<\/p>\n

But today things are making sense simply because we don\u2019t have a need to make<\/em> them make sense as linear thinkers would do; we go with the indicators and charts.<\/p>\n

As I watch the macro burp up all kinds of paradoxes and inconsistencies, I can\u2019t help thinking back to the day that the \u2018Hero\u2019 announced Operation Twist, which in turn got me announcing \u201cthey are painting the macro\u201d<\/em>. When Ben Bernanke took the bold step into the great unknown of extreme and unconventional policy I felt the markets had been disconnected from commonly accepted wisdom maybe not for good, but for as long as the system and its current modes of operation are in effect.<\/p>\n

To review, Operation Twist forced changes upon the macro because it \u201csanitized\u201d<\/em> (the Fed\u2019s actual word for it) inflation expectations right out of the picture. The mechanics of this sanitization were the Fed selling short-term Treasury bonds (putting upward pressure on short-term yields) while simultaneously buying long-term Treasury bonds (putting downward pressure on long-term yields). The yield curve was changed from out of control (up) to in<\/em> control (and down trending). From the Calculated Risk blog<\/a>.<\/p>\n

September 21, 2011<\/em><\/strong>: \u201cOperation Twist\u201d announced<\/a>. \u201cThe Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less.\u201d<\/em><\/p>\n

Commodities (led by silver) blew off in early 2011 amid gold bugs\u2019 and inflationists\u2019 mantras like \u2018Helicopter Ben is causing hyperinflation!!!\u2019<\/em>, and gold blew off later, into the time frame of Op\/Twist\u2019s announcement as the world knee jerked into the metal during the acute phase of the Euro Crisis. Talk about dysfunction.<\/p>\n

Well, he showed \u2018em but good that he was not \u201cHelicopter Ben\u201d<\/em> but rather, the bringer of a deflationary phase that has lasted until this day (judging by \u2018inflation expectations\u2019, which remain slammed to the mat).<\/p>\n

Bernanke, the \u201chero\u201d actually gave his own country something better; while much of the rest of the world had to deal with deflation, the US, a largely consumer driven economy, leveraged its strong currency to \u201cservice itself\u201d<\/em>, as I have often written after Payrolls reports showing Healthcare Services, Leisure & Hospitality Services and Professional Services, etc. leading the employment picture.<\/p>\n

We began the counter-cyclical Macrocosm<\/a><\/strong> theme a year ago but using the Greenspan era blueprint, we can watch to see if it to morphs to \u2018inflationary growth\u2019.<\/p>\n

But might inflation actually get out of control this time? Might deflation reemerge with a vengeance and liquidate the system? Or might disparate market signals simply coexist on occasion (like now) due to dysfunction by policy?<\/p>\n

The point I am trying to make is that while I probably get a little aggressive in critiquing lazy, linear thinkers (especially in the gold bug camp) predicting the end of the world all the time, I keep a tin foil hat in my office as well. When I wrote about Bernanke \u201cpainting the macro\u201d<\/em> with Op\/Twist and posted those Outer Limits \u201csit quietly and we will control all that you see and hear\u201d<\/em> posts, it was firmly affixed and blocking the government\u2019s mind control and scanning activities.\":-)\"<\/p>\n

The macro has been painted by US policy and increasingly and aggressively now, by global policy. Bonds, the instruments that used to be gauges of economies, valuations and inflation are little more than tools, manipulated at will by US and global policy makers. So the tin hat is on, but please put the lie to this statement if you can.<\/p>\n

So why is silver out performing gold, yet Uncle Buck is holding steady? Why is risk \u2018off\u2019 gold rising along with the most risk \u2018on\u2019 asset on the planet, Junk bonds (see an interesting clue in the Macro Indicators segment below)? We are in uncharted waters and open minds are what\u2019re needed. With the world huddling in post-Brexit deflation mode, we should just continue to follow the indicators and the charts while realizing that in due time, the macro fundamentals will emerge. Even though the stimulus is dysfunctional, some semblance of normal<\/em> trends will emerge just as they did post Op\/Twist.<\/p>\n

But if the current situation is a close out to the 2011-2015 \u2018Twist\u2019 period, when dysfunction morphed to commonly accepted economics, what\u2019s to say that we will not resolve to a new sort of dysfunction; an unexpected<\/em> dysfunction?<\/p>\n

This chart was created years ago to illustrate what I thought was in progress, which was a \u201cclose out\u201d of fear and hysteria as marked by the gap up in gold vs. SPX in January of 2008. That gap (actually two of them) was the first step to the acute phase of the US financial crisis, which was ultimately the trigger for the unprecedentedly unconventional policy that followed and remains in effect today.<\/p>\n

\"au.spx\"<\/a><\/p>\n

While I originally expected that the new phase (as indicated by Gold-SPX) would involved a deflationary counter-cycle, recent data points (including the Semi Equipment sector) indicate the opposite condition may yet emerge. Again, the indicators will tell.<\/p>\n

NFTRH 403 then put its thinking cap on top of its tin foil hat and logically and methodically covered precious metals, stocks and stock markets, commodities, currencies and most importantly of all, the key market indicators.\u00a0 The result is that our preferred themes remained intact, not because I want them to be intact, but because work said so.<\/p>\n

Subscribe to NFTRH Premium<\/a> for your 25-35 page weekly report, interim updates and NFTRH+ chart and trade ideas or the free eLetter<\/a> for an introduction to our work. Or simply keep up to date with plenty of public content at NFTRH.com<\/a> and Biiwii.com<\/a>. Also, you can follow via Twitter @BiiwiiNFTRH<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

By: Gary Tanashian of Biiwii.com \u201cIf I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn\u2019t. And contrary wise, what is, it wouldn\u2019t be. And what it wouldn\u2019t be, it would. You see?\u201d \u2013Alice in Wonderland Silver out performs gold as […]<\/p>\n","protected":false},"author":41,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[1247,1840,4273,5519,5641,5092,4785,4449,6319,5442],"class_list":["post-39409","post","type-post","status-publish","format-standard","hentry","category-general","tag-ben-bernanke","tag-biiwiicom","tag-gary-tanashian","tag-gold-forexxauusdo","tag-helicopter-ben","tag-nftrh","tag-notes-from-the-rabbit-hole","tag-operation-twist","tag-sp-500-cmesp500","tag-the-federal-reserve"],"yoast_head":"\nWonderland - INO.com Trader's Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2016\/07\/wonderland\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Wonderland - INO.com Trader's Blog\" \/>\n<meta property=\"og:description\" content=\"By: Gary Tanashian of Biiwii.com \u201cIf I had a world of my own, everything would be nonsense. 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