This morning, we got more happy news from the Bureau of Labor Statistics. The talking heads announced the results of the Establishment Survey: 161,000 jobs added in October. Did that sound good? You have to look under the hood, dear reader. Consider these facts from the same report.
As I have been saying for months, the financial crash to come will begin in the $90 Trillion world bond market, not in stocks. You should understand, dear reader, that the really crazy risks and the insanely huge profits have been in debt, not equities.
The Fed Funds Futures are the best market indicator for measuring the expectations of a change in Fed monetary policy. Right now, this indicator says that the market expectation of a Fed rate hike in December is 70%.
Last month, I wrote about the problems at Deutsche Bank (DB) as the stock slumped and markets worried that this could be a European Lehman event given DB’s huge derivatives position and its critical role as counter-party in the EU banking system. See my post of September 28, 2016. But the world did not end immediately and the market went back to sleep. DB’s stock rose and that was the end of it, right? NOT.
QE is, of course, the policy of central banks buying assets with newly created money. But where the money ends up makes a big difference.
For the past two months, yields on U.S. Treasuries have been pushing higher. Why? Well dear reader, the economic establishment has jumped in to explain: the U.S. economy is strengthening and the Fed is going to raise rates. Facts be damned.
In my opinion, the situation is mixed but with a positive bias. The over-extended Large Speculators on COMEX continue to liquidate their positions, exactly what we need to see before the market turns up.
Sell side analysts argue it is not. They use measures like future operating earnings per share, a measure that has two major flaws. First, it is based on next analyst estimates of future earnings which are always way too optimistic. The estimates are then slashed as they come closer, but never mind, it’s on to the next estimate of a brighter, better future. Second, operating earnings are not like GAAP earnings which look at actual performance and include the bad stuff…write-downs, discontinued operations…all those so-called ‘one-time’ events that seem to come around every year.
In a nut shell, the metal looks like the correction needs more time while the gold stocks are saying they may be done.
As readers know, I have been waiting for a correction in gold since May. Finally, here it is. You should be thinking of buying, dear reader, not selling. For those who missed the chance to load up in February at lower levels, as I recommended at the time, this is your chance to get aboard. Maybe not quite yet but it’s close. The 200 day moving average tends to mark the bottom in gold bull market corrections and that number is just under $1260.