This is another sign that the macro growth spurt that coincided with ongoing government welfare directed toward the biggest banks (in the form of ZIRP and privileged first mover knowledge of coming Treasury yield policy moves) is setting up to fail. And when a Ponzied up construct fails, it can fail miserably.

As compared to last summer’s momentum and the high-risk atmosphere it fomented, it is time now to be a gold bull and though the technicals remain unclear in the near term, a gold stock bull as well. Being a bull does not yet mean being ‘all in’ and gung ho committed. It just means for me personally, that I do not need to feel a little dirty being a gold bull as was the case last summer when you just knew the dumbest [money] on the planet were long gold right along with the rest of us who are committed to its big picture secular bull for all the reasons carried forward this last decade or so.

When those reasons change, so too will the orientation. But all we see now is a racket in Treasury bonds being played out to keep up an appearance of a sound economic backdrop with little inflationary concern as the Fed buys the long-term T bond market and sells the short-term one. This promotes the illusion that bond vigilantes are driving prudent policy on the short end with rising rates (Fed states intention of selling these bonds) and inflation concerns are contained on the long end (Fed commits to buying these bonds).

It’s manipulation and I do not wear any kind of metallic hat when I write that. It is what it is and what the Fed itself has stated it would do; manipulate of the Treasury market.

How shallow. And yet asset management robots seem to buy it hook, line and sinker.  “Don’t fight the Fed” is their automatic reply. Well here at NFTRH we are going to use that mantra, because I don’t intend to fight the Fed. I intend to have the analysis remain in line with the Fed. The analysis states that the rigging of yields is a temporary thing designed to get everybody over to the right side of the boat before the next inflationary operation. We are now seeing signs that it is time to begin preparing for what comes next.

This is the current plan on what may be coming next:

• Markets continue downward to a degree sufficient to put pressure on the Fed to ease (i.e. inflate, monetize in a supposedly ‘sanitized’ manner, debase the currency, flat out QE… what’s the buzz phrase du jour?) in this election year. We note that this may not require too much downside market pressure since inflationary signals are already so well contained due to all the sanitizing done on yield curves to date.

• During the process, gold out performs all the positively correlated stuff (rising RPG) like stock markets and commodities. This could entail gold declining less than the other things, so do not focus solely on the nominal price. The process of a rising RPG feeds the bottom line fundamentals of at least decently run gold mining operations. This is because their product is outperforming cost drivers like energy commodities, as well as the stock market, which makes gold stocks more palatable to the investing public.

• In this election year it would probably be unwise to start to think ‘Armageddon 08’ because with sentiment so well contained in precious metals and commodities, and inflation fears so well muted (again, masterful job working the yield curve by Ben and Co.) the play would be to pull out an epic inflationary macro ‘kick save’ (it is the NHL playoffs after all – let’s go RANGERS!) that could eventually drive markets back up to at least test the March highs.

• The ‘inflation hounds’, i.e. the gold stocks should be watched closely. We precious metals players are at Ground Zero to what lies ahead, so if all goes well, NFTRH will not only be positioned properly in that sector, but also have a signal to cast out into commodities, emerging and even developed markets before the general stock bulls momo their way in.

• This is just a sketch! If you have been with NFTRH for a while you know that I operate to sketches or plans, and that the only reasonable tack for long-term success is to be open to the possibility of being wrong and having to adjust.  There are no real all-seers or gurus. We want to proceed in a lower profile manner, investigating the markets every step of the way to stay on the right side of things.

• But I think I am right with the plan (1-4) above.  :-)

Gary Tanashian

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

-- Posted Wednesday, 25 April 2012 | Digg This Article