NEWSLETTER ~ Oct 21 2016

'Real' Negative

Oct. 21, 2016 

by: Market Anthropology

Recently gold has led pivots in equities by ~ 4 weeks, which (if recent history continues) points to a sharp decline in stocks headed into November. To show the relative congruence of the pattern, we broke them both out below with gold's series set 4 weeks ahead of the S&P 500 on the chart below.  Of course there are no absolutes in markets, only odds.   The message is to be cautious regarding stocks in November.  

Longer term, we suspect the primary difference is that as gold has been trading out of a cyclical low late last year, equities have been distributing across a broad top. This dynamic is expressed below by the same study - just weighted through performance, which saw gold marginally under perform the S&P 500 headed into the end of 2015 and consistently outperform equities this year on the way out. From our perspective, this largely has been driven by the shift lower in real yields late last year that dis proportionally benefits assets like gold, with the next chapter largely dependent on how the Fed will handle what we suspect will be rising inflation data and how the market will receive their response with an economic expansion already quite long in the tooth. Hint, hint - difficult times ahead in many respects.

With beginning signs that US inflation data set to potentially sharply over the coming months - greatly supported by favorable comparisons to last year's oil price decline, real yields are poised to challenge their respective lows from 2011. This week, we received the September CPI report that matched headline, but slightly missed core inflation expectations on a month-over-month basis. That said, distilling the data through real yields, maturities on the long end - as expressed by the 10-year real yield, are on the precipice of joining the intermediate and short end in going negative.

In other words - not exactly a rosy outlook for those Johnny-come-lately safe haven Treasury "investors" who helped push long-term yields to historic lows this year, despite US inflation data that appeared to have turned the corner in the back half of 2015. Moreover, should real yields push even further negative - which they very well could (i.e. see late 1940's and 1970's), the swath of Treasury investors adversely impacted by negative real returns would swell appreciably.

On the flip side of the coin is gold, which at times carries a strong inverse correlation with real yields and exhibits sharply positive returns in a negative real yield market environment.  Then the opportunity cost of holding a non-interest bearing asset like gold becomes highly attractive when underlying market psychology is often affected by a broader loss of confidence in monetary policy and/or creditors' future returns. 

(end of article)

Gold, Interest Rates, & Inflation and Deflation 

By Bill Downey (www.GoldTrends.net)

It's not quite as simple as the above article suggests.

First off there is an inflationary crowd and there's a deflationary crowd out there.  

The inflationary crowd and their expectations for gold had their bubble burst from 1980 to 1999 as they witnessed gold drop from 850 to 250 during a time which the money supply and the cost of living continued to rise in dramatic fashion.  Finally in 1999 and 2001, gold bottomed near 250 and gold finally caught a bid after 911 when governments and central bankers put into high gear a global reflationary policy to avoid a global recession/depression.   

To resolve the conflict between both the inflationary and deflationary crowd,  let's put this in perspective.   

The inflation that has been witnessed since 1980 has NOT BEEN A COMMODITY BASED INFLATIONARY PERIOD.  It has been caused by Government taxation, regulation (& cost associated) Gov't services, excise, and sheer size of employees and paper tape as far and deep from earth to the moon.  So yes, the cost of living continues to rise.   But as you can see below,  the price of commodities (along with gold) moved lower from 1980 to 1999 and quite frankly didn't bottom until 2001.  After 911 central bankers (with global government approval) attempted on more time to REFLATE THE GLOBE in a massive coordinated money printing orgy unseen in human history.  And commodities and gold and real estate (and everything else) exploded higher into 2008.   And then the bottom fell out and since then we have been in a massive deflationary spiral so acute that the commodity low of late 2015 actually touched prices going back to 1976. 

This is what the deflationist crowd is focused on.  Had it not been for QE into infinity and now a 5000 year low in interest rates, the globe would have been swept out in a deflationary collapse not seen since Rome fell and brought forth the Dark Ages.  Yes folks, the Roman empire ended in a deflationary collapse resulting from the same thing we are going thru now.  

And yes,  Government was responsible then and they are responsible now because the central bankers are just the ones supplying the heroin if you will (debt and fiat) allowed by governments.

This is the reason that gold is not already at $5000 dollars per ounce.  We are in a deflationary commodity collapse.  Every single dollar being sucked out by global governments is ALL MONEY THAT NO LONGER IS ENTERING THE ECONOMY AND THAT IS CAUSING A MASSIVE DEFLATIONARY EVENT at a time when trillions are owed in debt.

In simple terms,  there is less and less money available to be spent and baby boomers are retiring at the rate of 10,000 people per day.  

Hopefully I have shed some light on the fundamental situation that is going on globally. 

Summary

Debt is so prevalent that it has become almost impossible to reflate.  The outcome of this will be a global debt default and collapse of our system of things.  And it is getting close.   

Once interest rates begin their rise it will signal the collapse will enter the waterfall portion of the cycle and it is then that gold is going to explode higher because RATES are going to explode higher.  Not because of growth, but because of FEAR.

We saw a demo of that when the US dollar went off the gold standard and the price of energy (oil) exploded higher.  Contrary to what you have been brainwashed in believing....that higher interest rates are bad for gold is not true when rates rise due to FEAR and not GROWTH. 

And that is what is coming straight ahead.   The chart below of the gold bull market of the 70's speaks for itself.  Once confidence in the system is lost, Gold and Interest Rates join hands due to FEAR and NOT GROWTH.  

Once rates begin to rise gold might drop some more initially,  but it will be a fake out and gold will give us one final opportunity to buy low.

Here's what to look for that will signal the collapse;

Here's what to look for in gold;

Be alert, keep your eyes on the long term trend in the Gold and Interest Rate market.  They will signal when the waterfall event really gets going.

And folks, the real battle for what's going on was and still is ENERGY.   The chances of avoiding war during 2017-2018 are not good.  The challenge for world dominance is coming to a head at the same time.  

History suggests that Solomon was given not only the greatest wealth by God, but also the greatest wisdom.  When asked about the future of the world and its condition, he replied, 

"There is nothing new that happens that hasn't happened.  There is nothing new under the Sun."   

The stage is being set.  Be prepared.