Inflation "Dead" After Three Days' Selling?
First, I looked at the chart of the TIPS (TIP), which are the iShares Lehman Treasury Inflation Protected Securities, a $4+ billion ETF. The table below tells you much of what you need to know.
click to enlarge
The TIPS chart of trading on the NYSE shows that the price ($98.24) is down -3.16% since the peak Dec 1 and 4 ($101.45-$101.48). But the RSI-7 is also just a blip north of 30 (32.9 actually) on the Daily data. RSI-7 for the Weekly is just 35.2 and it is just 32.7 on the Monthly as the second chart shows. In fact, the RSI peaked in 2Q06, which was the kick-off to Election Season. Now the election results are known, and the market is getting back to basics.
This chart shows the 3-month TIP performance compared to oils (XLE) and (XOM) and golds (UXG) and (NEM). As you can see, Dec 1 was a peak for the TIPS and the oils and the golds. After a decline of six weeks, there was a modest recovery. Then in the past three days, there has been a sell-off again.
So, as a result of three days’ selling, there is now talk that “inflation is dead.” Actually, what I think happened here is that there was an “inspired” termination of the cycle peak in May 2006, with Fed/Treasury intervention (as I discussed at the time). Then in October there was a cycle bottom (when I was pointing out the attractiveness of the golds/silvers), followed by a bullish move until Dec 1.
What is happening now is that the market is testing the bottom (not a top) for the inflation beneficiary groups (as RSI is showing me). The yada yada coming from Secretary Paulson and the yada yada to come from the FOMC meeting this week is a prelude to the Fed maintaining high rates (and possibly setting us up to increase them because other central banks are doing the same, like BoE, or about to do the same).
The bond market has been getting whacked in the past few weeks as market yields are rising. The yield on the 2-year and 30-year Treasury issues are now close to 5.0% and the 10-year yield is close to 4.9%. I suggest that anywhere from say 15 to 35 basis points higher on U.S. Treasury yields in the market may serve to start a sell-off of equities and switch to bonds.
So the capital markets are at a critical point here (ergo the yada yada from Washington). My thinking is that the RSI values for the TIPS, golds and oils are near a cycle bottom.
I continue to think Gold Fields (GFI) is good value under $16. Because of what happened after the Nov 29 adjusted 3Q number, which was very low and which was followed by much lower oil and gold prices, I’d wait before buying GFI until Friday’s Q4 GDP data is out to see how low the Deflator goes. The consensus is +1.5%, but there are estimates as low as +0.5% up to a high of +2.0%.
The lower the number, the bigger will likely be the sell-off of the TIPS, golds and oils. But after the sell-off that will also likely be the cycle bottom I’d be looking to enter purchases. If the GDP Deflator is as high or higher than consensus, I’d be a buyer right away.
You see, I'm not a believer that corn prices or wage rates or health insurance or (many other costs) are likely to fall. I also don't think the U.S. Administration/government is going to stop the current spending pace.
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This article has 6 comments:
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CrossProfit
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567 Comments
My Website
Jan 31 02:27 AMThe only reason the Fed would raise rates is to fight inflation. Higher rates are bad for the economy and the financing of the huge Federal deficit. If the Fed is saying that it now is beginning to see signs that inflation is under control, this means that it will be looking for the first opportunity to lower rates without upsetting the balance and unleashing new inflation pressures.
Lower rates do not mean an increase in liquidity. These are two separate issues. An increase in liquidity would mean higher stock prices reflecting the inflationary input. Lower rates bode well for the markets. The way we see it is either way, the market wins. At least that is the picture for the first half of 2007.
Instead of increasing M3, the Fed is getting ready to issue more bonds to cover the current deficit. The increase in yield reflects the supply / demand situation. We don’t want to turn this comment into an article; the gist of it is that the holders of U.S. national debt realize that they must continue using their excess Dollars to buy American debt; otherwise the Fed must resort to printing more Dollars which in turn reduces their value and doesn’t do anyone any good.
We respectfully disagree with the general idea of your article. In our opinion the Fed is simply letting the markets know the direction of interest rates in two to four months from now.
Watch how no one bellyaches at the next Fed auction.
CrossProfit (IL)
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Nova Law
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60 Comments
Jan 31 10:30 AMToday's case in point:
On June 2, 2006, Cara triumphantly predicted a .50 basis point rise in the US Fed Funds rate in August (when in reality there was no change), and that the Dow Jones Industrial Average was going to close 2006 at 8800 (it closed at 12,463, a whopping 3600 points higher than Cara's prediction).
Normally when I would read a prediction so far off from reality, I would take it with a grain of salt. However, Cara really did make these stupid predictions. You can see it here, assuming her doesn't subsequently remove it altogether:
www.billcara.com/archi...
If you combine this with yesterday's spreading of the false Crystallex report on BillCara.com (supposedly by one of his "contributors&quo... investors have every reason to discount anything published by this gentleman. If you look at the actual data, as opposed to Mr. Cara's constant spin, I think you will come to agree with my opinion that he has no track record of accuracy, accountability, or disclosure.
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Nova Law
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60 Comments
Jan 31 04:16 PMAfter yesterday's embarrassing circulation of a fraudulent Dow Jones article pumping Crystallex, today BillCara.com broadcasts innuendo suggesting the coming indictment of President George W. Bush:
www.billcara.com/archi...
Cara's source - "truthout.org,&qu... a blog roundly often criticzed by mainstream journalism institutions as publishing lies, damn lies, and just plain fabications. Along the lines of Cara's suggestion that Bush may be under criminal charges, in 2006 Truthout.org trumpeted a story which recounted White House advisor Karl Rove to be already under indictment. The Columbia Journalism Review, perhaps the most-respected academic publication covering journalism, published an expose of Cara's favored website under the title:
"Jason Leopold Caught Sourceless Again"
www.cjrdaily.org/polit...
The point is less a political or journalistic one than it is a financial one. Cara accounts for movements in the markets being attributable to "reportage" of "facts" from sources which have been conclusively discredited. And we're to take this seriously? Tin foil hat stuff out of Cara - yet again.
Perhaps tomorrow Bill will treat to the "news" of the discovery of Kryptonite at Area 51, and a hot stock tip as to how Crystallex is going to get the permit to mine it.
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Emerald_Dragon_2012
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2 Comments
Feb 07 09:53 AMbtw, the POTUS is indicted, per the case lead by Hilton, something about the 911 families vs. the prez and his staff. and if he's not indicted/impeached for lying to his constituents about the fabrications for the justifications for the war in Iraq, he should be.
and you know, i think many people were fooled by that crytal myth
news.morningstar.com/n...;pgid=qtqnNews2
why else would its share price jump. and you're creditting Bill with the stock tip? AMAZING!
are you a hack? are you a Daisy 12 operative? just curious.
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Nova Law
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60 Comments
Feb 07 11:35 AMCara has a superficially entertaining style, but if you look closely at the substance, there's no "there" there. He also has an enormous ego, and a habit of demonizing everybody who doesn't share his opinions.
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Emerald_Dragon_2012
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2 Comments
Feb 07 04:38 PMbut as for truthout.org vs MSM, that's a different area of knowledge. you're getting into Newt-esque, Rove-ian dirty tricks where the truth is lies and lies are the truth, artists vs politicians, and remembering the 5th of November. you only give bill credence when you marginalize sources that bear more truth than Faux news.
Peace.