Notes From Underground

Just when the volatility sellers were heading to the beaches to bask in the glow of easy money comes the tweeter-in-chief to crush the complacency. The airwaves were full opiners who warned of a market that is fully valued.Gundlach and Dalio added their two cents for measure, espousing the need to hold GOLD as a hedge against geopolitical uncertainties. Again, it is not political uncertainty but the malfeasance of central banks that should be the concern of global investors. Deflation is the ingredient for central bank panic. As Peter Boockvar reminded his readers today: Gold is a monetary haven.

This was in contrast to the brilliant and insightful Howard Marks, who, in a 30-minute CNBC discussion claimed he doesn’t invest in GOLD because he doesn’t know how to price its intrinsic value. Well, unlike BITCOIN we can at least put a value to GOLD by invoking Ricardian or Marxian Labor Theory of Value. Regardless, this is not to be pedantic but practical. Gold, like any other asset, is worth what people deem to be willing to pay for it. And it has proven its importance by being deemed a store of value for thousands of years. Marks did say that the DOLLAR, the king of fiat currency, had its value in the full faith and support of the U.S. government. Whatever that entails. I certainly don’t claim to be a GOLD BUG but I am not a FIAT CURRENCY BUG either. Good trading and investing is finding value in many places and not being enamored with any asset for time immemorial.

Friday we will be watching for several keys:

1. The S&Ps will attempt to recreate an important TECHNICAL SIGNAL that we last saw June 9. It was the week in June when the Nasdaq 100 made all-time highs and closed below the previous week’s low. It was a major key reversal but the important signal provided only a few down days before the market reversed and actually made all-time highs six weeks later. If the S&P futures close below 2463.25 we will have created the same signal as the SPOOS have made ALL-TIME HIGHS this week. The pundits will preach that it is the uncertainty of North Korea setting a bearish tone but I will not accept that analysis. On March 10, 2003 when the Iraq War began all major global equity markets made their lows and then began a significant four-year rally. The equity markets have been floating on a sea of liquidity, which has pushed valuations to historically high levels. The lack of volatility following Donald Trump’s election has left the risk parity trades and volatility sellers in command of equity, bond and commodity markets. Has the ghost of Hyman Minsky arisen to remind us of the dangers of complacency?
2. Silver is flirting with its 200-day moving average as it had a week where it looked like its price was going to collapse. Gold has also had an interesting week as it bounced off support and found strength to take out a DUMMY LONG-TERM TREND LINE ON A WEEKLY CHART, roughly at $1276.00. If peace breaks out the GOLD will be tested and that 1276 level will be a good level to test the precious metal.
3. Friday, we get the  release of CPI and consensus is for a 0.2% rise in both headline and core CPI. Today’s PPI report showed weakness. As Rick Santelli noted in one of his reports, the bonds and 10-year notes have rallied above their highs of last Friday today when the unemployment report showed fairly robust jobs data. In the 10-YEAR note the HIGH was 126.14 and in the long bond the HIGH in play was 155.10 in the September futures. If the CPI number is hot the headline will cause a BREAK in the bonds and notes but be patient to see if BONDS get a bid due to reallocation of asset classes as investors sell long-held equity positions. Bottom line is that for DULL markets there is some underlying torrents which can rise to the fore.

Tags: 10-year Treasury futures, CPI, Gold, S&P, silver, volatility

This entry was posted on August 10, 2017 at 7:23 pm and is filed under Equity, Gold, Silver. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.