Seeking Alpha

Gary Tanashian's  Instablog

Gary Tanashian
Send Message
Gary Tanashian is proprietor of and 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... More
My company:'s Notes From the Rabbit Hole
My blog:
Notes From the Rabbit Hole
View Gary Tanashian's Instablogs on:
  • Zirp Era In Pictures

    Zero Interest Rate Policy (ZIRP) was instigated by a credit induced collapse of the US financial system and perpetuated in December of 2008 by desperate financial policy makers as a fix to problems they created in the first place.

    In reality, it is simply an epic distortion of normal economic signals that cleaned up the mess created by previous policy distortions (like the commercial credit bubble of the Greenspan era) by systematically (5+ years and running) main lining new distortions into the system.

    (click to enlarge)

    So in addition to this picture, which could one day hang in a monetary museum with the title 'Grandma and Her Savings Account Bail Out Wealthy Asset Owners', let's take a walk down memory lane and marvel at some other pictures created by this policy…

    (click to enlarge)

    The venerable S&P 500 is in the 6th year of a bull market. At some point over the last year or so the public finally became aware of the bull market in US stocks; 4+ years in.

    (click to enlarge)

    As the public came in, momentum came into the market for the first time, especially in big tech. Bears hold prospects for the little topping pattern way up there, but so far that is a drop in the bucket compared to the upside this market has seen.

    (click to enlarge)

    Of course, the object of policy making has been at least two-fold; bail out the big banks (the pigs at the trough), and create a stock bull market to increase household net worth on paper, through ownership of stocks. The BKX, while weak lately, quadrupled over the last 5 years.

    (click to enlarge)

    Gold at first did what it was supposed to do, acting as liquidity and leading asset markets out of the price destruction of the melted down prior credit bubble. Then a funny thing happened, Europe sprung a leak to compound global credit fears and gold experienced an upside blow off in 2011 as players the world over knee jerked into the honest money value retainer.

    (click to enlarge)

    That was of course after silver had sucked in every last commodity (and inflation) bull as the commodity echo bubble blew out in early 2011.

    (click to enlarge)

    So what was left? Why Google of course! A truly great company that was in a long and bullish consolidation as we noted at the time.

    (click to enlarge)

    But then some not-so-great companies got in on the act. It is no coincidence that major financial operators ran a promotion on 3D Systems in particular and 3D Printing (AKA 'additive manufacturing') in general just as the public got re-involved in the markets. There were plenty of other momentum sectors that blew off and have now tanked as these late investors got what they deserved, and what Wall Street served.

    (click to enlarge)

    Of course it is not just over valued and junk stocks that have been manically bulled, so too have junk bonds. Where in 2008, people had gone so risk off so as to be monetarily traumatized, in 2014 they have become so bullishly deranged that they will accept the debt of the least trustworthy entities for ever decreasing interest return.

    (click to enlarge)

    From MacroTrends comes this view of the monetary value asset as measured in base paper and digital money. By this measure, gold certainly was a bubble in 1980. Now? Not so much. What is in a bubble is peoples' willingness to accept an equal and opposite stance to the over bearish, over gloomy one of 5 years ago. Mission accomplished Federal Reserve; Everyone into the pool!

    (click to enlarge)

    Also from MacroTrends, we present a picture for the happy and bullish people who support current policy making and financial engineering in general. Mainstream economists and market strategists can trot out bushels of data that confirm the good job our policy makers have done in cleaning up 2008′s mess. Taken at face value, the above is a picture of increasing employment and decreasing debt. That is a good thing.

    But the current bubble is not in total 'total credit', is it? No, the current bubble is in policy making and official credit. There is ZIRP in black (chart via SlopeCharts), maintaining and sustaining the stock bull market even as stocks slip into and out of positive correlation to 10 year yields (green).

    We continue to consider that through not only the unprecedented duration of ZIRP but also various engineering of the yield curve and its nominal longer term components (QE and especially the inflation-sanitized Operation Twist) price signals in this market are, to use a highly technical term, really screwed up.

    So we are set adrift and Wall Street's strategists and associated media not only work up great touts like the Great Promotion Rotation into stocks and out of bonds (how's that working out in 2014?) and the above mentioned 'Additive Manufacturing' revolution (ha ha ha… you know I have a special spot for this one since I am from the US manufacturing sector), but they busily extrapolate more good times ahead while sweeping under the rug the truth many of the pictures above portray.

    What is that truth you ask? In 2014 we have come full circle to a fully opposite state from unsustainable over bearishness and gloom that was in force from Q4 2008 through Q1 2009. ZIRP has punished savers and prudent people every step of the way and rewarded asset owners over and over again.

    If the Fed is all powerful as so many have come to believe, Janet Yellen can continue to be coy about the Fed Funds rate as long as she wants. This would theoretically sustain the policy bubble indefinitely. But given the steroidal policy inputs to the financial markets ongoing for 5+ years, right minded people should be aware that distortions have a funny way of coming to the surface when least expected. Again, we are 180° from March, 2009. People have moved on from the doom and gloom. | Notes From the Rabbit Hole Premium | Free eLetter | Twitter

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 09 10:47 AM | Link | Comment!
  • Pigs No Longer Fly; What Are The Implications?

    Along with the highly publicized loss of leadership from big tech, the US stock market is now in danger of losing another, and possibly more important leader, the piggies or banking sector.

    While the weekly chart of BKX has not yet broken down, it is very close to doing so after sporting a negative RSI divergence for the better part of the last year. We should not jump the gun with bearish scenarios, but as always we want to be among those looking forward and ready, just like in 2007, which was the last time BKX-SPX began to roll over in earnest.

    (click to enlarge)

    NFTRH has followed the BKX-SPX (leadership) ratio every step of the way during the current leg of the cyclical stock bull market. Most recently we noted that BKX-SPX failed to make higher highs on two occasions. This put the ratio - and by extension the stock market - on alert as we watched for a lower low. Ladies and gentlemen, let me introduce you to a lower low.

    (click to enlarge)

    BKX-SPX ratio (daily chart), from NFTRH 284

    A bull rally is a series of higher highs and higher lows. The bull phase in leadership by the banks over the S&P 500 is now over. Okay great, we have expected this to happen. But it is the implications and conclusions that can be drawn from a failing BKX-SPX ratio that is important. Without conclusions after all, a ratio indicator is just a neat little tool making all sorts of noise about nothing. Here are some implications.

    Interest Rates

    With the Utilities sector still rallying strongly (Utes like a low interest rate environment), with the bottoming patterns NFTRH has been noting in 10 and 30 year Treasury bonds and now with the prime beneficiaries (of Fed policy) noticeably under performing the S&P 500 we can begin to firm up conclusions about T bonds and interest rates. We have been noting potential bottoming patterns on the bonds for several weeks…

    (click to enlarge)

    30 & 10 year T bonds, weekly chart from NFTRH 284

    …and been targeting 3.2% or so on 30 year yields for months now, ever since the 'Continuum' stopped right where we thought it would at its decades-old limiter, the 100 month exponential moving average (amid all kinds of rising rates hysteria I might add).

    (click to enlarge)

    Conclusion: Interest rates are dropping toward our 3.2% target. I am personally long Treasury bonds of several durations. Aside from T bonds as an asset, they are a risk 'ON/OFF' indicator. If yields continue to decline, it would not be bullish for the stock market or other markets positively correlated to the economy. It could be bullish for gold if short term yields decline faster than long term yields. If long term yields decline faster, it would not be bullish for gold either.

    BKX-SPX Ratio & Gold

    The shaded area highlights the most recent phase of inverse correlation where gold acted first as a refuge as confidence in the financial system dropped during the Euro crisis (in a 'double bottom' echo to 2009) and then was kicked to the curb as players collected themselves and started to regain confidence at the end of 2011.

    (click to enlarge)

    BKX-SPX is a confidence indicator after all. It had been dropping since 2006 and finally resolved in a final bottom in March of 2009. Since the bottom in 2011 the banks have been tepidly out performing the S&P 500 despite continuing Zero Interest Rate Policy (ZIRP), which is obviously beneficial (and aimed at) these first users of newly created money.

    With a phase of sentiment reversal (toward confidence in policy making and US markets and hatred of safe havens and risk 'OFF' assets) nearing completion, it would appear that gold's time in the desert is nearly done.

    With ZIRP now nearly 5.5 years old, the Fed has been in financial and economic benefactor mode and yet the conduit to a revived economy in a system built on lending (and a willingness to extend and take on credit), AKA the banks, may be losing leadership over the stock market.

    Conclusion: If the breakdown in BKX-SPX continues, expect gold to find a bottom within the next several weeks or few months. NFTRH continues to manage the process from a shorter term perspective.

    US Economy & Inflation

    Of course, "it's the economy, stupid".

    All of the inflation that has been promoted since 2008′s liquidation of the previous inflation (Greenspan's) has been in service to reviving the economy, just as Greenspan's commercial credit bubble was. What has actually happened, despite some recent improvements in the economy (as foreshadowed by the Semiconductor 'up' cycle well over a year ago) and business lending, is that ZIRP and various permutations of QE have barely kept things lukewarm.

    This has been a bubble in official or governmental credit and the Fed balance sheet vs. the previous commercial credit bubble. On this cycle the 'pigs' are living up to their unofficial name as they appear to have learned the lessons of 2003-2007 and have mostly fed at the trough of beneficial policy, but undertaken far less risk than official entities have.

    Conclusion: Risk has merely shifted from commercial lenders to the public by way of its ever expanding Treasury debt, which is being used to fund both the economy and the inflationary operation now under way.

    Sure, the much publicized QE 'taper' is under way, but as we have noted all along, that operation should be incentivizing the banks to get even more in the game due to the implied profit motive of a 'borrow at ZERO, lend long at higher yields' carry trade. Yet BKX-SPX under performs.

    What happens if BKX-SPX really does break down despite all the cards beings stacked in favor of the banks? One result would be a massive loss of the confidence that has so systematically been rebuilt by policy over the last few years.

    Tired of paint-by-numbers analysis? Ready to do a little work? Subscribe to NFTRH. You will not be disappointed. | Notes From the Rabbit Hole | Free eLetter | Twitter

    Apr 29 9:24 AM | Link | Comment!
  • Grizzly For Gold

    The headline below is grizzly because it is talking about PoG to $5000, it is grizzly because it is talking about renewed QE as the catalyst to launch the gold price and it is grizzly because it is Peter Schiff, he of the 100% incorrect stance in 2008; he of the 100% incorrect stance since 2011, he of the Euro Pacific gold and silver coin dealership. Click the graphic if you want to read the interview…


    Also, Ukraine is in the headlines screwing up the market again this morning. Gold and silver came to valid bottom points yesterday before reversal and it is debatable how much Ukraine hype played into it. Yet Kitco comes with the pap again with the crap about safe haven buying. This stuff must be tuned out by right-minded players…

    "New violence in Ukraine has helped to fuel the rally in gold. News reports Thursday said Ukrainian military forces have stopped one of their operations in the eastern part of the country due to fears of Russia sending in its army to eastern Ukraine. Several pro-Russia separatists were reported killed Wednesday as Ukraine's military tries to retake control of some eastern cities. Russian officials said they will conduct more military exercises near the Ukraine border. I expect to see this situation not de-escalate and may even escalate in the coming days. Such would continue to at least limit selling pressure in gold, if not see increased safe-haven purchases of the metal."

    Wow, the selling pressure in gold can be limited by the Ukraine tensions? I'll tell you what, if this is on the mark and gold would be sold now if not for Ukraine, then this will simply rebuild selling pressure that would be stronger than it would have been had this hype not gotten into the mix. But again, to me it is debatable how much this is playing in because the metals did come to valid and important support levels yesterday.

    Gold hit a support level (1270) that NFTRH has had plotted for weeks and silver hit a critical support juncture that we have followed by longer term charts. They will either hold these critical levels or they will not. If they do, silver especially could be epic over the coming 2 years. If they do not, it's gold bugs back to Palookaville.

    What ever happens, the headline above and other cartoonish stuff are not material other than as contrary indicators. Media stars are media stars for a reason; that's their job. They make headlines. But that's all they are, headlines.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: No positions mentioned.

    Apr 25 8:56 AM | Link | 1 Comment
Full index of posts »
Latest Followers


More »

Latest Comments

Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.