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Tilting at Windmills

Excerpted from the June 3 edition of Notes From the Rabbit Hole , NFTRH190:


On June 20th the Federal Open Market Committee is going conclude a two-day meeting and release a summary of their view of the economy, most likely including an 'unwelcome' decline in inflation. That of course would signal a dreaded deflation, which are the windmill 'giants' to our Dear (monetary) Leader's Don Quixote...

"What giants?" asked Sancho Panza.

"Those you see over there," replied his master, "with their long arms. Some of them have arms well nightwo leagues in length."

"Take care, sir," cried Sancho. "Those over there are not giants but windmills. Those things that seem to be their arms are sails which, when they are whirled around by the wind, turn the millstone."

Lower prices that would result from deflation are considered evil and battle must be done against this evil. An uncomfortable decline in inflation simply will not do in a system dependent on ever-increasing asset prices. The rich (asset owners) must get richer, the poor must get poorer (and more dependent on central authorities) and the middle must be wiped out. That is the implied message in the age of Inflation on Demand.

So on June 20 (if not before), we will see if Friday's 'Jobs' induced counter-broad market explosion in the precious metals was the expected 'first mover' event to a coming inflationary policy panic. T Minus 17 days...

The setup is taking shape now. In 2005 I wrote an article called 'Inflation Hounds' with the idea that the gold stocks would be the first to sniff out any coming inflationary policy that would result from deflationary phases like the one we are in now.

I do not have mystical answers as to why the gold miners led the big construct down into today's deflationary fright fest, nor do I know why traders suddenly got 'smart' on Friday and bought with both hands in the face of the latest and most compelling deflationary signal, a paltry +69,000 'jobs' report. They were theoretically doing the right thing in buying the sector that depends on economic contraction and the counter cycle for its fundamental improvement. But how often do traders impulsively do the right thing?

Some people might claim that Friday was simply a massive short covering rally. But previously, a bad economic report and a tanking stock market would have seen traders pressing their gold stock shorts, not covering them. Now, I am sure there was a considerable element of short covering going on Friday, but it was likely in response to very real buying for very real reasons. The same fundamental reasons NFTRH has put forth since the precious metals corrective consolidation began out of last summer's top during Euro Crisis, phase 1.

I hope you will forgive those times when I get a little [frustrated] as a blogger with little tolerance for destructive information flying around that hurts real people trying to make real decisions in their real lives. When people seek to look smart by calling trends that are already fully mature (not to mention ready to reverse) or issuing 'instructions' to what they perceive as unthinking flocks of 'followers', I find it upsetting.

That is because I find the way the entire system is run and the way some people self promote within this system as if they have its ultimate answers... upsetting. There are no tried and true answers within a leveraged, late stage system that continually tries to cleanse itself but is denied at every (deflationary) turn.

$USB (30-Year US Treasury Bond Price (BOD)) INDX
Larger Image

The picture above is one of the troubadours at the Federal Reserve and US Treasury having escorted the huddled masses into the 'safety' of long-term Treasury debt. The Fed stated it was buying these bonds but it is likely that Joe Sixpack (or his pension/401k manager) has now taken over the heavy lifting. Asset markets are in free fall (conveniently, still above our 'best' targets), the T bond is maxed, the precious metals are leading and some people are even wondering why commodities are not participating if the gold stocks are sniffing out a new inflationary cycle.

In short, the mis-perceptions game is in full swing and our long-awaited opportunity is at hand. So let's get to some analysis...


NFTRH190 then goes on for 25 pages to illustrate why our preferred plan is now engaged and why opportunity for patient investors who have managed risk awaits. I invite you to review the service for yourself.

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