There are many more details and indicators that inform well balanced ongoing analysis, but the three scenarios below are the general options before us. Excerpted from this week's edition of Notes From the Rabbit Hole, NFTRH 342:

1. Inflation signals do change their trend, long-term yields continue upward, the [yield] curve continues upward, oil continues upward, copper breaks massive resistance at $3/lb., stock markets remain aloft but under perform and silver out performs gold in a new 'inflation bull' as the promotions for everything from REE to Uranium to 'Peak Oil' would be back on. We could make money in that environment; in commodities, precious metals and stocks (with a global view).

2. Inflation signals fail, long-term yields drop again, the curve continues upward, stocks get hammered, commodities resume their bear market and gold eventually grinds out an outperformance, much like it did on the 2014 up leg of the Gold-CRB chart below. We should preserve capital in that environment while positioning for the next bull market in the gold stock sector.

3. Inflation signals fail, long-term yields remain stable or decline but the yield curve resumes its decline as short-term yields firm up vs. long-term yields. This would return Goldilocks to the picture. Stocks would like this scenario and precious metals and commodities would not. This would be an extension of what has gone on post-2011. We might not like or agree with it, but we would have to respect it.

It was somewhat surprising (to me at least) that more damage was not done to economies and financial markets as gold vs. commodities launched upward and changed a macro signal last year. It is not surprising however, that a stable backdrop has settled into the investment world as gold corrects that impulsive looking up leg. If you look closely, you might interpret this to be an A-B-C correction of a still active technical signal (green arrow at the beginning of 2015).

Larger Image

The 3 items above could also be called 1) change toward inflation (the chart above would continue to drop), 2) change toward economic contraction and possible deflation (the chart above would resume its upward trend) and 3) no change, as you were; move along, nothing to see here.

I continue to favor option 2, which is and has been our big picture thesis. Further, the chart above is still on that signal and recently yield spreads have held firm. But it's a grind for sure. Only those with clear perspective will arrive at the pivots to readily apparent changes intact and prepared.

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