"No warning can save people determined to grow suddently rich" - Lord Overstone

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Irrational Survival

With one tiny omission to their script - the Fed shot the gorilla in the room, broke the dollar's back and gave credence to our summation that participants this year had reflected a composite character with all the brains and emotions of 2004 - and the heart of 1995. Seems fitting, considering this beast rests at the foot of the Fed, which for all intents and purposes has nurtured the creature with a creators irrational love and proctors occasional stern hand. In either case, we've enjoyed the show and look forward to the next scene - which as we alluded to has a decisively more inflationary tone. Irrational Exuberance Part II? Could be... but perhaps the truth lies much closer to actually - Irrational Survival.

10-Year Yield Daily Chart 2004 versus 2013
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USDX Weekly Chart 2007-2013 versus 1990-1996
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SPX Daily Chart 1995 versus 2013
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SPX Monthly Chart
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Although the performance this year has kept up with the last Meridian upside break, unlike 1995's Madoff-esque smoothness, this year's volatility profile has been remarkably close to 2004 - thanks in large part to the Fed's taper-tantrums.

VIX Daily Chart 2004 versus 2013
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Like 2004, emerging markets were hit swift and deep when the Fed first motioned it was considering pivoting away from peak accommodative monetary policies. Now that the goalposts have been moved even further apart, inflation expectations - as well as those markets disproportionally hit during the first half of the year - have reflexively surged.

Emerging Markets Daily Chart 2004 versus 2013
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A similar dynamic also developed in the precious metals market, which from our perspective also remains one of the brighter spots for outperformance going into 2014.

Gold Daily Chart 2004 versus 2013
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As we occasionally do from time to time, we fitted the current tape to the comparatives next pivot based on shifts in its momentum profile.

Gold Daily Chart 2 2004 versus 2013
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XAU Gold and Silver Index Daily Chart 2004 versus 2013
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Outstanding of (although buttressed by) our 2004 comparatives in the precious metals sector, we have viewed the most recent bear market as a successful retest of the 2008 crisis lows in gold, silver and their respective miners. This concept and relevance with the banks was explained in more detail (Here & Here & Here) in our previous notes.

Needless to say, the anxieties and reluctance expressed in the sector - reflects a brittle participant whose respective confidences have been eroded and reduced by a large and volatile range. We expect Donald Rumsfeld might have summed it up, "A retest of a retest - is certainly uncertainty to a higher power."

GDX 2012-2013 versus BKX 2010-2013 daily Chart
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GDX 2011-2013 versus BKX 2010-2011 daily Chart
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Silver 2010-2013 versus Gold 2006-2009 Daily Chart
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Gold Daily Chart 2010-2013 versus 2007-2009
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Silver 2010-2013 versus Copper 2006-2010 Daily Chart
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BKX 2008-2009 versus GDX 2012-2013 Daily Chart
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Convergence with silver and the Aussie paid in spades yesterday.

Silver versus Australian Dollar Daily Chart
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Exuberancia irracional? No - la supervivencia irrational.

IBEX 2003-2004 versus 2012-2013 Daily Chart
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* All stock chart data originally sourced and courtesy of www.stockcharts.com
* Subsequent overlays and renderings completed by Market Anthropology


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