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Gary Tanashian is proprietor of Actionable, hype-free technical, macro economic and sentiment analysis is provided in the premium market report 'Notes From the Rabbit Hole' ( Complimentary analysis and commentary is available at the public... More
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  • NFTRH 1 Year Ago - Armageddon '08 Concluding?
    I was bullish going into January last year when Armageddon '08 made a short return engagement, just to make sure everyone was thoroughly frightened to the bone. This of course set up the dynamic by which Huey and Duey in the previous two posts (1 & 2) now ply their bullish trade. But the time to be bullish was Q4 '08 / Q1 '09. The time to be a trend following tool is now.

    NFTRH6, dated November 1, 2008:

    Armageddon '08 Concluding?

    The major media has done its job. After burying its collective head in the sand for years as Wall Street perpetrated a moral hazard of epic proportions upon Main Street America and much of the rest of the world, the media have now scared the public so thoroughly with daily stories about debt, derivatives, evaporating liquidity and now, even deflation itself. The public, as usual eats it up and creates the counter-party for what comes next.

    I am growing as tired of posting macroeconomic charts as you may be of looking at them (my first love after all is technical analysis of stocks and markets), but they remain important as we look for the all important turning point from deflation overload to phase one of the reflation – with all the good and bad that it will bring.

    To review, my stance has been a simple progression: Deflation impulse (2002) begets inflationary policy, which brings on an inflation-fueled boom and the ‘global casino’ environment born of moral hazard and built upon misperceptions and greed. This is corrected but good with another, more severe deflation impulse, which begets reflation policy, which brings on another more severe inflation problem as we ride the cycles to von Mises’ Crack Up Boom and the law of diminishing returns.

    [LIBOR 1 mo. chart omitted]

    Libor has eased significantly. The 3 month Libor is similar. The chart is self-explanatory. Now let’s look at M2 and MZM courtesy of the St. Louis Fed.

    [M2 graph omitted]

    M2 has been in launch mode throughout the crisis, but its zero maturity cousin, MZM has failed to launch. Last week we noted a little hitch upward in MZM.

    [MZM graph omitted]

    This week the little hitch has grown bigger and has in fact risen to new highs. It is not an earth shattering move but it is now hinting that funny munny is beginning to dribble to where policy makers want it to go. The flat line that has encompassed all of 2008 can be looked at as a consolidation before heading higher (into uncharted inflationary waters).

    In a feat of historically curious timing, NFTRH was launched into the teeth of the worst deflation scare since the great depression. This was really a positive because I consider it a gift to have an opportunity to stick to my guns (fundamental beliefs) and either succeed or fail under the most trying of circumstances and while macro indicators are not conclusive that true structural deflation will be averted, they continue to head in that direction.

    The first six issues of NFTRH will be posted here (at such time as they become sufficiently dated) as samples so readers can review how the letter handled historically bad events. Dear subscribers, THANK YOU for sticking with NFTRH through this event, which may – MAY – be about to conclude. Later in today’s report and in anticipation of a more normalized environment, I am actually going to get back to charting and reviewing an individual stock. Going forward macro conditions will be analyzed in a more normal, albeit likely bearish, environment.
    Oct 30 8:31 AM | Link | Comment!
  • 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!
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