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Tuesday, 30 August 2022

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Sunday, 21 August 2022

Silver 2023 looks bright - Update

Silver does well when the economy is starting a recovery phase. Big shorts have to cover forcing the silver price higher.

Previous Post: Silver 2023 looks bright

The silver game changed at the bottom of the 2008 GFC crisis, US Debt to GDP exploded, making the investing component of silver as important as the industrial side of silver.

During all the silver bottoms of 2009, 2013, 2016 and 2020 the US PMI sinks and then recovers followed by a US dollar sell off.

2009 - GFC, FED and PBOC saved the world.
2013 - QE on and off.
2016 - China slow down, Nov US Elections, Trump tax cuts.
2020 - COVID crash, Fed pump.

The silver recovery in 2013 was scuttled by the strong US dollar as the Fed removed QE before other central banks in Europe and Asia. This means the silver long trade off the bottom of PMI lows has a 75% success rate.

Today the silver trade is reset. Now PMIs are falling, the dollar is strong and silver is pulling back. Rinse and repeat.

US Economic data is falling hard. Housing sentiment and PMIs are crashing. The FED has hiked short term interest rates in quick time in a all out effort to lower the US inflation figure of 9.1%. To push so hard one way suggest the swing back the other way will be an opportunity to invest.

Chart 1 - Silver, US PMIs, US Dollar, US Debt to GDP%

Silver

Keep an eye on silver and gold.

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Sunday, 14 August 2022

Markets during pandemics 1918 vs 2020

It seems the market moves of inflation, debt and interest rates and very similar during once in 100 yrs pandemics.

1918 - 1920: Swine Flu Pandemic Market review
1) The shock forces the Dow to sells off (black).
2) Different news of multiple flu waves and effects sends stocks up and down.
3) Government creates debt to help resolve the crisis (light green shade).
4) Supply shortages send CPI (blue) to record heights while new money supply from new debt is present.
5) As the pandemic subsides the Fed hikes the fund rate to crush inflation (red) [Monetary Tightness].
6) Due to the over aggressive hiking of funds rate, inflation collapses very quickly.
7) The inflation collapse forces the Fed to pivot and cut rates in very quick time [Monetary easing].
8) Gold rallies on deflation (fast falling CPI) and easy monetary conditions.

During 1918 - 1920 period the economy was not as dependent on oil as it is today and the oil price remain flat during this pandemic. Also the US dollar was not the world reserve currency, the British pound was at this time.

1918

It seems history repeats in the same manner.

2020 - 2022: COVID Pandemic Market review
1) The shock forces the Dow to sells off (black).
2) Different news of multiple COVID waves and effects sends stocks up and down.
3) Government creates debt to help resolve the crisis (light green shade).
4) Supply shortages send CPI (blue) to record heights while new money supply from new debt is present.
5) As the pandemic subsides the Fed hikes the fund rate to crush inflation (red) [Monetary Tightness].

Currently 2022 August this is were we are, in the FED tightening phase.

This time oil is a large part of the world economy and the US dollar is the worlds reserve currency. The methods used to calculate US CPI in 1918 and 2020 are also very different. Plus computer trading algos tend to push markets around more so than 1920's.

Inflation excluding food and energy may collapse very quickly, however the elevated price of oil may hold up headline inflation (CPI) for a few months. But do not underestimate the deflationary damage COVID has done to the demand side of the debt heavy US economy, as this may force the FED to cut rates very quickly (monetary easing) which will likely see gold rally. The last two times the Fed (2009, 2019) cut the funds rate gold moved higher, the faster the rate cut the faster the gold rally.

Keep an eye on gold over the next 6 months.

2022

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Tuesday, 2 August 2022

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Wednesday, 27 July 2022

Silver 2023 looks bright

Investing in silver will raise your stress levels, it looks like the stress release will be in 2023.

The trade of silver vs paper fiat currency.

The whales accumulate silver during a down swing to ensure a lower cost average entry price.

Down swings in metals occur when fiat paper money strengthens.

Paper money strengthens when the interest rate is rising.
Up swings in metals occur when fiat paper money weakens.
Paper money weakens when the interest rate is falling.

Lets review an example of the above at work (ref Chart 1).

Black Numbers
During the (1) and (2) down swings there was high volume (accumulation) while short term interest rates move higher (green US 1 yr interest rate). These down swinging waves can be called accumulation because there was no break down in price. Therefore price was manipulated lower to achieve a cheaper cost average of price entry. The higher volumes during (1) and (2) has to be professional buying, as retail trade can not do this. Both (1) and (2) are tactical lower lows, and is not a price break down, yes you can call this a bear trap.

Now during (3) and (4) short term interest rates peak and begin to roll over. These swings are on good volume and are the last chance for the professionals to accumulate in size before the retail traders work out silver is turning bullish. Professional traders work with new lows, retail traders work with higher lows, hence they are late to the turn.

When the professional traders encounter bullish news they allowed price to rip higher as fast as possible, to simply frustrate retail traders trying to enter with size. Hence the retail trader is late to enter and the conditions to enter in size is frustrated by professional moving price too quickly (gaps, pull backs, spikes).

Purple Numbers
(1) and (2) are repeating the black (1) and (2) swings. Forming a bear trap (well so far). Short term interest rates trends are the same, moving higher and peaking.

As we roll into 2023 growth and deflation concerns will pressure short term interest rates lower, allowing (3) and (4) to build. At the first sign of bullish news the professionals will allow price to rip higher before the retail trader can jump on board with any size. Once again the retail traders profit chances are limited by the professional.

Rinse and repeat.

Chart 1

silver

Chart 2 - When the fiat currency (US Dollar) interest rates fall the metals do well.

silver

Chart 3 - A inflation crash is near. Falling inflation is less pressure on interest rates. More so when growth falls as well. Watch the US PMI's in the next 3 months.

Silver

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Friday, 15 July 2022

The stocks crash window is now open

It will get worse only if the FED or Treasury druids do something very dumb!

Historically July, August and September are the worst months for stocks, Oct is in 4th place.

Two dumb plays which could make things worse.

Yellen has been encouraging the US dollar higher to $110 DXY to fight inflation (oil) and is also trying to hurt Russia. The last time Yellen did this with some success was in 2014/15 while the US debt levels where under 100% of GDP and the strong dollar did not hurt stocks, bonds or tax receipts. Now this is not the case, a strong dollar is hurting US and debt to GDP is over 120%. If would be very dumb to continue the strong dollar policy. The latest news is that Yellen is overseas organising currency swaps for US dollars.

The FED is intending to decrease their balance sheet by $95BN a month (starting Sept 2022). The Move index measures the risk in the US treasury market and the current risk is now higher than the COVID March 2020 crash. The FED's number one job is to ensure the US Treasury market is operational, and the Move index says it will be very dumb to add more supply to the debt markets. The FED hiking interest rates is a show for the uniformed, the US 1 yr and 2 yr are already over 3% so who cares about the FED Fund rate. Watch for FED comments on their balance sheet reduction plans or reversal of them in the next few weeks.

The next 3 months could be the lows in the risk on markets. Well maybe, ha!

Yes we know: could be, would be, should be.
But the FED and treasury can do some very dumb stuff!

This blog likes Larry MacDonald of the BearTrapsReport comments here.

Chart 1 - Here are two examples when the central planning druids did dumb things. Both resulted in market crashes which latter required more QE and debt to climb out of.

DOW

Chart 2 - Market tightening (strong dollar represents a shortage of dollars for world transactions) may be a cycle reversal or at least a pause is near.

USD

Chart 3 - When the US dollar supply increases (from a lower US dollar) anti US dollar trades do well.

Gold

Chart 4 - Copper (and oil) will show the way.

Copper

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Tuesday, 5 July 2022

Money supply crash will force a sharp FED reaction

The FED money supply pump and dump will have to be followed by another pump if they want to avoid a depression.

In the chart 1 below, M2 money (blue line) shows the COVID pump and dump by the FED. Yes this is the FED's mess, a panic reaction to COVID, and now a panic reaction to the inflation the FED created.

True Money Supply (TMS, red line) is M2 less time constraint money (money in time lock deposits), so this is ready cash to spend in 24 hours and a much better forecaster of the economy in 12 or 18 months time.

Money supply also suffers from purchasing power effects (inflation), so M2 and TMS have been adjusted for inflation in the chart below.

When ever the red line (TMS) sinks below the zero line a recession has followed in the months ahead, then what are we going to get in 2022/23 after the sharp crash of TMS (red line)?

In 1994/95 the TMS fell below the zero line, yet no recession followed, this was due to the very low oil price at the time. Therefore when the red line falls below the zero while oil has been high a recession is highly likely to follow in the months ahead (subject to the FED timed reaction with monetary policy).

The Chicago financial conditions index has not yet sunk to the lower gray line (@@CHCR), so no recession yet. The FED made this mess, and the FED can fix this mess. But they will be late, so we shall have a few quarters of terrible growth. A transfer of wealth to the informed will be made in the coming tough economic quarters. Let you be the informed!

Chart 1

TMS