Melt-up, Up, and Away

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by Michael J. Ballanger, The AU Report:

While the moniker for this missive is “Gold and Gold Miners,” I just sit back in absolute AWE as the global equity investors (otherwise known as “Stock jockeys”) have decided that “cash is TRASH!” and despite a massive “miss” in the employment numbers this morning, within seconds of the release, the spin doctors manning the equity trading desks deemed that number “bullish” because it is less inflationary and may cause the Fed to “pause.” So dollar-yen rallies, the USD index has a minor pop, gold sells off, and stocks come out of the gate up another 0.25% with all of the bubblicious bravado of a high school quarterback getting his first win.

The chart of the S&P shown below is a classic illustration of what occurs when global central banks open up the monetary spigots and flood the world financial markets with unchallenged credit and liability-free liquidity. It is this “inflationary spiral” that enhances “the replacement value of equities” and sends literally everything skyward. Since the two biggest collateral risks to the banks are real estate and stock buyback loans, it is no surprise that this tsunami of phony, counterfeit currency of all colors indiscriminate of flag has not only mitigated those risks but also floated the underlying collateral into the ozone layer. Don’t forget that even Ben Bernanke admitted that no one could predict the outcome of all of that “quantitative easing” that saved JPM and Goldman and Citi and BofA from disappearing from the face of the earth and now we are seeing what currency debasement exercises are truly all about. Record highs EVERYWHERE (except gold and silver) as monetary inflation sows its price inflation seeds.


My buddy David Chapman was the first to predict this final-stage blow-off top or “melt-up” and is quick to remind me that RSI has stayed in the 70s for the S&P and NASDAQ for many, many weeks before succumbing to profit-taking and that if this truly is a new bull move for gold, the HUI [Amex Gold BUGS Index] (and the Gold and Gold Miner ETFs) can too stay elevated above 70 for quite awhile. I can’t recall the period of time when the RSI resided in or neared 70 for more than a few weeks before correcting but the S&P chart illustrates overbought conditions starting in the typically weak October period with RSI breaking above 70 six times by year-end. That, my friends, was too much liquidity chasing too few stocks—and it isn’t the “too few stocks” that should be deemed the scapegoat.

David Tepper came out this morning with the “stocks are as cheap today as they were in 2016” mantra, citing “extraordinarily low interest rates” and “low inflation” as the reasons for this call but as I hurled a half-eaten Western sandwich at the monitor sending Fido and the missus running for the sanctuary of locked powder rooms and subterranean foxholes, the sounds of exploding coffee mugs and shattering ceramic plates reverberating throughout the halls, I was immediately screaming back at him that he should “come down off that cloud of reefer smoke” and recognize that low yields are a function of one thing and one thing alone—government intervention. The “low inflation” meme is a function of manufactured CPI and PPI numbers not even remotely close to reality. However, stocks are now gunning for Dow 26,000 so my emotive protests and vitriolic outbursts are useless and a waste of time and breath. I am NOT playing in the Wall Street cesspool and there is NOTHING that will deter me.

Another headline that caught me off guard tonight was the ZeroHedge article stating that incoming Fed Chairman Jerome Powell has admitted that “The Fed Has A Short Volatility Position” and it can be accessed here. This incredible admission basically throws down the gauntlet and says “Do we manipulate markets? Of COURSE we do or stocks would CRASH!” Read the part in the article where he says that Fed behavior is “encouraging risk-taking” and then let’s have a debate over why market forecasters (including technical analysts) stand zero chance in calling a top to this current fiasco. Not one CNBC commentator could ever offer anything of value other than predicting when the Fed was going to cease and desist in tampering with what should be free market economics. Earnings, cash flow, price-to-book, price-to-sales, dividends—wrap them all up and throw them into the waste bin of stock market analysis whose traditional tools have gone the way of the buggy whip, the corset, and the trusted Hollywood executive.

I thought to myself that the very second that Powell allowed that statement to be entered into the FOMC minutes, it was the final thumb-nosing of the die-hard free market advocates like me. The blatancy of that admission is due now to be followed up with a comment like “Why on earth would anyone not want to own stocks?” And Donald Trumps tweeting that “Dow 30,000 is next” really sounds like the passions of a true swamp-drainer, doesn’t it? Lastly, to read all of this and maintain that gold and silver are NOT interfered with by the 33 Liberty Street robots is to maintain that the world is flat and Trump still has all his hair.

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