Ever since beginning the ‘Macrosom’ theme in July (and updating it here), NFTRH has been managing macro changes that would positively affect the gold sector, and quite possibly have a negative effect on broad stock markets. Early on in the precious metals bear market we noted they were ‘in the mirror’ and opposite the stock market, which on the post-2011 cycle has been the beneficiary of the Fed’s inflation, instilling confidence in their policies by conventional market participants (after all, the right assets were going up on this cycle). In August, it appeared that the first real thrust in the direction of our macro theme kicked in as the stock market cracked.
The mechanism of this confidence racket, which allowed the promotion of inflation right through QE 3, has been a global deflationary force muting inflation signals and providing the US with a Goldilocks benefit as the US dollar strengthened. To this day the economy continues to ‘service itself’. Manufacturing and exports weakened under the regime of the strong USD, but those strong dollars bought a lot of services (which make up the vast majority of the economy) and consumer-related commodities.
Against this backdrop, investor confidence had been on display every time the market reacted in line with a Central Banker’s speech or action. In 2016 the market still seems to be taking them halfway seriously, but there are cracks in the foundation as global policy makers enact negative interest rate policy (NIRP) and the US Fed, for the first time, actually admitted it could be open to it as well.
Speaking of which, in February Janet Yellen actually made the case for continued rate hikes and stated that NIRP is a possibility for the US… within a 2 day period! That kind of waffling is definitely not what the market is looking for in its Interest Rate Manipulator in Chief. Confidence took another hit.
This post was published at GoldSeek on Sunday, 27 March 2016.
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