Excerpted from the November 29th edition of Notes From the Rabbit Hole (NFTRH61)

The junk bond etf HYG is a good indicator of the mood of speculators and their confidence in policy makers' ability to keep the inflation going because the fundamentals of the companies represented here boils down to the fact that money is created out of thin air (inflationary debt creation) and targeted toward keeping enterprises destined to fail, that should fail, alive. This is part of the wasteland where money goes for very unproductive means, other than to enrich speculators taking in interest income while playing a game of musical chairs with the public trust.

The lower panels show that damage has been done to HYG's ratio to safer 7-10 treasury bonds (IEF) and higher quality corporate debt (LQD). These breakdowns, if they follow through, are expected indicators to the next round of credit problems that would attend another deflationary impulse.

Of course, it is the ratio of the historical honest monetary anchor, gold to various assets that would be the ultimate gauge of speculators' urge to continue gaming the system or perhaps cash out of the game.

The gold-silver ratio (GSR) continues to be the stubborn holdout to gold's otherwise good looking bottom-making stance as measured against a whole host of other positively correlated assets. The short-term uptrend continues but the intermediate downtrend line has not yet been broken.

Gold continues to do impressive work against the stock market, oil and copper in establishing fledgling up trends after fanning through the various bottoming processes. The NFTRH stance remains that, as with the explosion of fear that was Armageddon '08, gold's upside explosion in ratio to these things was unsustainable. The entirety of Hope '09 has seen a downward consolidation of these ratios in anticipation of the next upward leg. This will happen along with the next credit contraction and deflation impulse.