re["More like Slider has caught up with Lee Adler, who has
documented that the Fed hasn't expanded the monetary base
for ~18 months. BTW, I agree with Slider on most of his
recent analysis. He didn't agree with LA earlier this year,
as my post indicated."]
{edit: don't know how this got posted twice?
this is the final post)
Pogo,
I didn't think this was really that difficult to understand,
but apparently it is, primarily because people only hear,
and remember, what they want to.
You are 100% correct that in December I disagreed with
John Hussmans assessment that liquidity was not being
added to the system.
I thought it was, and so did the gold and currency markets,
and I was proven correct (more on that later).
Hussman's article was focused on the Fed repos. And as we've
seen over the last few months, the Fed can inflate, and add
liquidity in many different ways.
Bernanke to his credit, has created some new tools, and dusted
off a few old ones. To be fair to Hussman, he was speaking
more directly to repos, and my view as a trader was, and is,
much broader.
It's an endless debate on what metric to use to measure
money supply... M1, M2, reconstructed M3, MZM, or some of
the new hybrid models that have been created.
I have no desire to revisit that debate again. People will use
what they want to use. To judge whether the Fed is inflating,
adding liquidity, or pursuing a competitive devaluation policy
on the dollar, or trying to prop it up... I never use any one
measure by, and of itself.
We have a few proprietary models that we use always in
conjunction with currencies, gold, and a few other metrics.
I've pounded the table here on this thread many times on my
major point concerning the debate over inflation/deflation.
That point was this...
We've saw pundits making the deflation argument, while the
trading "profits" in gold, metals, and energy, have all been
made on an inflation trade.
Last year I pounded the table endlessly on the Fed's
duplicity of talking "strong dollar" while in reality,
following a "competitive devaluation" policy.
Message 24123978
Message 24009107
Message 24036367
At the time of these argument, gold was up strongly against
all major currencies.. the US Dollar, the Euro, Japanese Yen,
and the Swiss Franc.
Here's a chart I posted back then, you can see how strongly
gold was performing against the major currencies, and how weak
the US dollar was.
As you can see, last December gold was up:
+28% vs. the US Dollar
+20% vs. the Euro
+14% vs. the Japanese Yen
+14% vs. the Swiss Franc
Fwiw, if the Fed was really tightening, and withdrawing
liquidity, that couldn't have happened.
For traders, on a scale of 1 to 100, with 1 being the
best and most accurate indicator, and 100 being the
worst, here's how I would view the following as
"stand alone" data.
1. Currency markets
2. Bond markets
3. Equity markets
4. Commodity markets
(for the sake of brevity, I won't list #'s 5-49, or 51-99(vbg)
50. Fed money supply charts
100. Analysis from economists, on any of the above.
Everyone wants to box the inflation/deflation debate
into an either/or assessment, and that's ridiculous.
We have both.
Prices have exploded in hard assets, and imploded in
financial assets, and housing.
And obviously, global central banks have been on an
inflation binge like drunken soldiers.
But....
That was then, this is now.
I don't care about longterm charts or trends,
when making a trading U-turn.
I care about short term charts, and trends.
If the Fed makes a sudden U-Turn, why in the hell would
you want to look at longterm charts, or trends.
Hence, the M3 chart I posted.
What's changed? What's caused the Fed to put on
the brakes in March? And why has gold vs. currencies
changed?
First, the parabolic spike from January to March in
commodities got the Fed's attention.
And in March, it started getting more creative in adding
liquidity to keep financial markets functioning, but yet
not ramping up the printing presses, or dropping money
from helicopters to do it.
Once again, you can see that in this M2 chart below. The
Fed was ramping money supply from last December through
March of this year, and then it put the brakes on.
And what are the markets telling us about "liquidity" and
"money supply" creation now?
(forget what I have to say, forget Hussman, use the ultimate arbiter - the markets).
Quite a different story than the same chart back in December,
now isn't it?
Instead of gold being up, it's down. And instead of being up
from between +14% to +28% against the major currencies, it's
down.
And regarding last December:
Fwiw, here were my targets from last December on this
"inflation" trade:
Message 24009107
$1,000 gold, and HUI 520.
The high close on gold was #1002.60, and HUI 519.68.
Not bad for gubernment work, and nary a pom pom needed.
So tell me now who's right, who's wrong, and who's
"catching up" with who?
S.O.T.B.
PS: Who's Lee Adler? |
