May You Live in Interesting Times
Currency markets, debt markets, stock markets and sentiment indicators all point to now, as in today - yield curve closed UNinverted yesterday for the first time in a year and has turned up from a bottom that looks similar to the one in 2000, an interesting year I think we would all agree - being an interesting time. As markets and trends tend to do, it appears the grand experiment in money creation (with resulting rising asset prices) has created a rock solid mythology that global Central Banks are in "inflate or die" mode and will remain so. This will keep most people on the asset (stocks & commodities) side of the boat. The USD and Yen are largely forgotten. But the charts loudly beg the question "What's the risk? What's the reward?" with respect to positioning from this point forward.
We have "gone bearish" the broad stock market, become focused on the USD & Yen and hold positions in both to partially deflect short term turbulence in our gold stock holdings. Speaking of gold stocks, we have been trading around a core and have been pleased to pick up favored gems as they are regurgitated by those making no differentiation between plays on liquidity and plays on contraction. The Yen Carry Trade is over bought as is the "USD is toast" trade. The chart of HUI shows potential ultimate lows in the near term (off of mini potential H&S noted on chart), but not shown is a long term chart with major support in the 250-270 area to keep in mind in the event that times become very interesting. We have stated that "cash is a position" and that for many, that may well be the place to be. For our purposes however, as stated we will hold our core gold miners and add the mayhem because charts usually don't lie, they just take a while to come to fruition. And the charts say that things are lining up for a contraction (at least before the next inflation fueled expansion) and the one asset class that benefits first and foremost in this environment is the gold stocks, as their product either rises or drops significantly less than their cost inputs.
There is of course more to the story than what is presented in this report. On the blog, indicators such as the gold-silver ratio, the VIX and Vixen and put/call ratio are followed routinely. They presently paint a picture of a crowded sunny side of the boat. Over on the shady port side we see turbulence on the horizon.