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Gary Tanashian is proprietor of Actionable, hype-free technical, macro economic and sentiment analysis is provided in the premium newsletter Notes From the Rabbit Hole ( Complimentary analysis and commentary is available at the 'Biiwii Blog'... More
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  • Roubini, Deflation, Inflation & Gold

    Below is an excerpt from this weekend's newsletter.  I personally interpret Nouriel Roubini and what he represents as a signpost I will need in the future when the time comes to position for change once again in the inflation/deflation game of cat and mouse:

    Roubini:  “I don’t believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment peeking above 10 percent in all the advanced economies. So there’s no inflation, and there’s not going to be for the time being.

    The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon.”

    I found the above quote in an interview titled Big Crash Coming with professor Nouriel Roubini here at something called Index Universe.  The link is to page 2, where the gold segment is, but I recommend reading the entire interview.  It is fairly brief.

    On gold specifically I have to disagree with the good professor, just as I do with Prechter and I don’t know how many other deflationists out there.  That is of course because Roubini comes at the subject from the standpoint of ‘price’ as opposed to value.  In my opinion, there is too much focus on the prices of assets, what gluts of capacity and slack demand will do to prices and hence, price inflation or the lack thereof in Roubini’s view.

    “So there’s no inflation.”  There is inflation.  Over the last year plus there has been a ton of it and it has been aimed at keeping prices up.  And it has succeeded thus far in its task.  But inflation is not rising prices.  Inflation is what is promoted in the face of declining asset prices.

    I will stick by my stance that holds the deflationary pressure Roubini sees is the lever by which future inflationary policy will be pulled into existence.  Okay, I have been polite thus far.  What I actually think is that analysis like Roubini’s above, ends up being a tool for policy makers.  Whether knowingly or unwittingly, prominent economic talking heads (and the media that dote on every word) are important to the cause for business as usual by policy makers.

    From last week’s NFTRH55:  “If the current system is to survive, these guys [policy makers] need an event and they need is soon.  That is what I thought I saw on the faces and heard in the voices of Tim [Geithner] and Larry [Summers] last week.”

    Roubini’s oncoming crash would be the event.  The event’s fallout would be the lever.  The lever would be pulled and a new round of inflationary policy is all but a given since the public, hysterical and frightened by the event, will support it wholeheartedly.  In other words, confidence, induced by fear though it is (again), would remain intact in our leaders’ ability and willingness to come to the rescue with more ‘policy’.

    We here at NFTRH will wish to take risk management steps leading up to the event, and then capitalize on the inflationary results.  Simple, isn’t it?  Well yes, simple in a twisted kind of way.  This is how people are systematically disenfranchised, over cycles and over decades, through misperceptions about inflation and deflation.

    Meanwhile, per NFTRH55 last week, money supply graphs from the Fed show money supply having leveled off.  This is the first step to what may one day evolve into deflationist hubris, again.  That will be about the time gold has once again separated itself from the asset pack as a unique holder of liquidity and long-term value.  It will rise relative to everything even if it declines temporarily in nominal US dollar terms.  That would be yet another buying opportunity that the deflationists will miss the boat on.

    But we get ahead of ourselves, as this is all just theory for the future.  At the moment we have the inflationists, commodity bulls, peak oil believers, stock touts and their respective hubris to deal with.
    Oct 27 3:53 PM | Link | Comment!
  • Hell to Pay - NFTRH 'Wrap Up'
    Here is a short excerpt from NFTRH56, dated October 25, 2009. This is the 'Wrap Up' section that concludes the analysis portion of each NFTRH.

    We come toward the end of another report that cannot tell you exactly when things are going to change, even as I remain confident that the dynamics of change are falling into place.

    The USD remains at the center of the show as a nation (and literally a world of assets) depend on its continued devaluation to keep the party going. My playbook generally calls for the deflationists to once again get a chance to claim the high ground, from which they will once again lecture the great unwashed masses of ‘greedy’ inflationists.

    At that time, deflationist hubris in full swing, NFTRH will look to revert back to its more comfortable (than the current holding pattern) mode of buying misperceptions and fear, in the form of quality gold mining and exploration enterprises, hopefully being burped up yet again by scorned inflation traders.

    As for the USD [weekly] chart, we have a would-be bullish falling wedge down to support and we have some serious ‘Banana Republic’ / ‘death of the dollar’ stuff going around in the media. The set up is there for change. The set up is there for the less committed of the commodity and stock bulls to be washed away.

    But on the bigger picture, there is also a set up taking shape that shows the USD having lost critical long-term support in the 78-80 range. This level will need to be watched closely during any dollar rally that may spring here in the coming weeks. If that level holds as resistance, the next leg down could well happen in the global race to the bottom in currencies, led by Uncle Buck. But if an enraged USD ever surmounts that level and holds, there is going to be hell to pay to the deflationists before any thoughts of recovery.
    Oct 27 3:49 PM | Link | Comment!
  • NFTRH 1 Year Ago (NFTRH5 10/25/08)
    Today we continue with our series of blasts from the past, handily available now that NFTRH has celebrated its 1 year birthday. I do this to subtly remind readers of how important perspective is in navigating the markets. Also, to show newer subscribers how I operate. I think that one theme in #56 will be NFTRH's risk profile, which has been elevated for an uncomfortably long time now. Or, more specifically how people may wish to play off of me as I arrive early to the party, just as I did below in the mirror image of today's hope environment.

    Epic (NFTRH5 excerpt dated Oct. 25th, 2008)

    Throughout Greenspan’s inflation bull market (RIP 2003-2007) I was very bearish, fully aware of the impending credit and derivatives disaster that the Maestro claims not to have seen coming. Long time readers know my writing included a comparison of the entire USA to the former poster child for corporate criminal excess, Enron (Amron: ).

    But the theme was one of playing the cards dealt and despite my bearish bias, the cards being dealt by Greenspan showed ‘bull’ (I mean that in the literal as well as figurative sense). Inflating the money supply at the first sign of systemic problems was his modus operandi and he was celebrated as the great and wise overseer of the long but ultimately doomed party in paper goods. The operating theme from the outset (defined here as the beginning of my public life) has been one of inflation policy that begets the appearance of a sound economy and sound markets but in reality, is anything but. Enter Armageddon ’08.

    It is ironic that while I was bearish from 2003 to 2007 I made healthy profits each year as a trader, roughly doubling the broad bull market’s gains each year. This is because I was not fundamentally attached, even to the gold stocks much of the time (due to their rising costs and status as an underperforming sector in the latter half of the ‘inflation bull’). More ironic however is that now, in the midst of a crisis I knew was coming I have endured severe paper losses as an investor (in accounts I allow to be exposed to risk).

    The most recent target for HUI is 150 and it came within .27 of that on Friday before turning up and leading gold higher. But this could simply be a pause to build a bit of hope before the next dunk. As I will show later in this report, the broad market is in danger of new lows (into capitulation) which could suck the precious metals stocks down yet again. But with each hard down I become more bullish. As an investor. I realize that ‘investor’ can be another way of saying ‘bag holder’, but that is not the feeling I have right now. I hold this precious bag tightly because nobody else wants it and the nuggets in there are literally being given away, so I continue to pick up these discarded nuggets with each decline.

    The title of this opening segment of NFTRH is ‘Epic’, and that is what I expect the gains to be in the gold sector over the next 1-3 years. With producing miners finally achieving the coveted ‘value’ label and junior and exploration gold stocks selling in some cases below cash on hand with properties being looked at by the market as liabilities (in that they need to be funded), folks, you know what we have here don’t you? Mania. Downside bearish mania (along with margin and redemption related forced selling).

    There is a good chance that this is the play that people wait a lifetime for, but after the fact will bemoan their inaction due to fear. But the public and its policy leaders who all kept their heads buried deep in the sand during the cyclical bull market have now done the predictable 180, worshipping fear much as they worshipped greed just a short while ago in what now seems like a different life. Mania is mania and it works both ways. Smart people will fade mania.

    I suppose it is up to the people who rightly saw this mess as over valued and/or a disaster in waiting to move in and pick up the pieces. John Hussman and Warren Buffett are doing so as is Jeremy Grantham I believe the gold sector holds the best and nearest term potential gains, but real contrarian and value investors are now becoming interested in many markets. For those with patience, this stance could indeed be epic.

    Without further delay, on to macroeconomics and technical analysis that support the bullish view of gold stocks and, now that we are well into the gold bug killer correction, the metal itself, along with a look at commodities and the stock market…
    Oct 23 11:43 AM | Link | Comment!
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