Gary Tanashian's  Instablog

(Note: I sometimes am not able to post here in a timely manner. You can always bookmark my regular blog, where posts are put first.)

The gold-silver ratio is not buying it, yet. Shorts went scurrying to cover into the close but silver has thus far failed to confirm by outperforming gold.



NFTRH identified the short term support level noted by the green line and as long as it holds, there is hope for bears. Well, the ones who are market neutral like myself anyway. Anyone net short had to rush for the exits today, just as the bullshit coming out of G-20 intended.

(Note: I sometimes am not able to post here in a timely manner. You can always bookmark my regular blog, where posts are put first.)

Recall this post from last Thursday and the baby inverted H&S? Well, G-20 pumped it up to target. Also, check out the chart at left of Chinese etf FXI. Is this exhaustion or will this time be different?



Don't get me wrong, I have no intention of playing hero. But the parameters are stretched but not yet broken.

(Note: I sometimes am not able to post here in a timely manner. You can always bookmark my regular blog, where posts are put first.)

Oh my this is not going to end well.



A late stage system comes to its ending stages with the most myopic bureaucrats at the controls, blindly feeding the system with what their forebears have done before them. Inviting, or rather compelling an inflation problem of epic proportions to manifest.

I understand that most people don't really know what these clowns are up to and don't really care as long as we get our hoped-for recovery. But not enough people ask 'at what cost?'. They are the unquestioning masses that will buy stocks from the financial services industry that is at this moment enabling their re-entry into the markets. They will think they are doing okay, while anyone aware of the dow-gold ratio just cleans up in real gains.

But in an unraveling system, are there any real winners? Are there?

So, regardless of how well I may personally do in this environment I am going to just say this sucks, and leave it at that.

Have a great day. Casino patrons the world over sure are.

NFTRH58 was just mailed to subscribers and uploaded to the archive. It was a laborious piece of work that considers the intermediate term from several different angles. It was difficult to write but leaves me with a feeling that I am ultimately honing in on the right track for what is to unfold.



Meanwhile, today we continue our 'NFTRH 1 Year Ago' theme of putting the letter's actual real world analysis where its mouth is... and was:

Deflation or Inflation? (Excerpted from NFTRH7, dated 11/8/08)

I would like to call your attention to an email exchange I once had with Rick Ackerman regarding a provocative article written by Rick on the subject that is now foremost in the financial and economic community’s consciousness. Talk of deflation is everywhere now, but in this little corner of the internet it was going on 3-1/2 years ago: [copy of email exchange - link now broken - between Rick Ackerman and myself].

The reason I dug this up is that all too often, subjects like inflation and deflation are batted around and discussed in abstract, almost cartoon-like fashion. Inflation and deflation are buzz words in a system that creates money out of thin air in ever less successful attempts to stimulate economic growth and prosperity. It is also relevant now because if I am known for something other than a generally negative attitude toward the Ponzinomic edifice that so many have taken for granted as a financial system, it is my current bullishness on the gold miners, a sector that most people would not associate positively with deflation.

This is my most direct point from the Ackerman exchange and indeed its premise is being tested today: “In my view, the inflation game is played against the deflationary impulse or need to correct. It is the Fed and other forces pushing on a string, and one day they will find the string simply goes limp and all the inflated chickens will then come home to roost.”

Cluck cluck… they reside at the national doorstep. Having been lectured recently about deflation by a gentleman commenting on a recent article and having noticed legions of ‘deflationists’ appear on the scene after the market began eating credit for breakfast, lunch and dinner, I think it is time to at least look into the subject a little more closely now that the lonely few, led by Robert Prechter , have gotten reinforcements en mass.

Don’t get me wrong, people concerned about deflation are some of the smartest I know of; thoughtful people who understand the components of what an unsound economy is built on. The great post-9/11, post-recession inflation bull market in commodities and to a lesser extent, stocks, was actually the result of successful inflation policy from the preceding crisis. The actual inflation occurred during the depths of the economic downturn early in the decade. The effects of the inflation were apparent for years after, with the punctuation taking the form of oil at $147 a barrel back in those relatively carefree days of summer, 2008.

Things are indeed more dicey this time around and global central banks are pushing on that string as hard as they can. The deflation argument holds that their attempts will fail as the gaping maw of many $Trillions in liabilities just yawns wider with each attempt and says ‘gimme more’. The inflation argument however – at least the proper inflation argument - holds that it is the act of money creation that will lead to higher prices one day and the associated rising inflation fears that will crest into the next cycle.

But first of course, there is the current and very brutal cycle to deal with. Which is why we watch things like what deflationists call ‘the velocity of money’ in an attempt to gauge how well our official would-be inflators are doing. This week our often watched M2 and MZM have each hitched down a notch. On the other side of the mixed bag, the 1 and 3 month LIBOR rates have plummeted to new depths implying that somebody gave a big official cattle prod to the banks to ‘get it in gear’. All we can do is to keep watching these and other indicators closely in trying to determine whether policy is successful (success defined as a new inflation cycle).

No matter whether or not official policy ultimately proves ‘successful’, the global economy is likely to experience a prolonged downturn as authorities feed the beast at one end and then deal with the – how can I put this… by-product at the other. At the moment systems are breaking down and inflation effects, if policy makers are ‘successful’, will likely have to wait quite a while before taking root.

This is why I find it troubling as a gold stock trader/investor when this asset class moves in tandem with the widely touted ‘resources’ trade and even the stock market. Raging inflation bulls want you to protect yourself from a coming inflation but do not discriminate between the monetary (currency, bonds and sometimes gold) and the economically positively correlated (commodities, stock markets and sometimes gold).

As blog readers know, throughout the most recent inflation bull cycle, I awaited the contraction, which would be the time the gold miners become distinguished as a unique asset class. The title of this article should actually be Deflation AND Inflation because that is what we currently have; deflationary destruction of credit/liquidity and global authorities pushing on that string. We were never going to get active inflation policy until a well rooted deflation impulse took hold. It is here, it is monetary and gold is outperforming, which is all the gold miner investment stance needs.

Here is a most important long term sign post, the long bond and its EMA 100.

Against the backdrop of the long bond's uninterrupted rise from the 1980's, Alan Greenspan was able to portray himself as the great Maestro, always at the ready with inflationary policy when the market and economy needed it most. This is what I have viewed as a wellspring, compliments of Paul Volcker's tough inflation-fighting policy of the late 1970's and early 1980's. This policy sprung a new bull market in paper stock and bond certificates as confidence was restored in a secular way.

Greenspan used this sound policy as a lever with which to self-aggrandize and inject moral hazard into a global economy ever more dependent on debt and leverage to keep itself afloat. The new bureaucrats in charge, Bernanke, Geithner and Summers, have taken Greenspan's play book and run with it.

But they will run as far as the long bond says they will run.

It turned out that Q4, 2008 was merely an opportunity to push the mother of all panic buttons and introduce inflation policy into the system like never before. This was a lay up as Larry Summers implored the public to buy treasuries right into an inflationary impulse that has been nearly equal to last year's deflationary one. This trade has been like taking candy from a baby.

And the game of hide the cheese will continue to frustrate both the 'inflationists' and 'deflationists' at important turning points, as long as the secular trend remains intact. I am of the opinion that there will never be outright deflation as long as the public maintains its...... I can't call it confidence... as long as the public maintains its penchant for thinking in conventional terms.

Because as the public does so, it makes no effort to stop the ongoing and official gaming the long bond, which sees policy makers ramp the money supply every time treasuries rise strongly, giving them license if not imperative, to do so.

The game will end if and when the EMA 100, the secular backbone of the trend, is broken. Then we are in uncharted inflationary waters. I am looking for another test of the 100 as per the daily chart of 30 year yields shown in this post. At that point, I will have to say the risk is substantial for the inflationists as another deflationary liquidation is probable. From this event would come future inflationary policies in a continuation of the wash, rinse, repeat cycle.

Either that or the game ends and a new era begins. That would be the era of hyperinflation. We should be hoping the current trend in the long bond holds.

Now, this is just a script drawn up in a fit of chart geek fancy, but why should I become irritated with this pig? It is simply doing what it is supposed to do if the H&S top scenario will come to be.

A baby inverted H&S-like object has formed with an upside target of 1090, and this must be factored. Although I would prefer that the bump terminate at the noted 62% Fib retrace, which coincides with a nice cluster of lateral resistance.



Again, new highs mean the pig man lives on, and I guess I'll get pissed off at that. But it is hard to be too upset when your gold stocks keep your portfolios at new highs and the market is only doing what the charts said it might.

This is the most patient I have ever been in holding bearish positions against floating hope. Maybe it will even pay off one day if we can begin rounding into a right shoulder next week.