After the open, Keystone's indicator now shows an economy mired in Deflation. The CRB (Commodities Index) continues to drop. Taking a look at the numbers;
CRB/10-Year Price = 288.16/99.781 = 2.89
Over 4 = Inflation
Between 3 and 4 = Neutral; inflationists and deflationists fight it out
Between 2.90 and 3.00 = Disinflation
Under 2.90 = Deflation
The U.S. 10-year Treasury yield drops under 1.80% printing 1.77%. Chairman Bernanke will announce QE3 when the CRB prints in the range of 250 to 280-ish. The CRB is now printing 288 and falling. The oil price is tumbling lower, copper collapsing, the global recovery is stalling or has stalled. The China triple R cut on the weekend did nothing to bounce markets; they need to provide a bazooka with an actual rate cut. The real market turmoil and nervousness now begins since Keystone's indicator is under 2.9.
How have you determined that "Bernanke will announce QE3 when the CRB prints in the range of 250 to 280-ish"? By the way, the Fed meeting in June would be good timing for QE3 to be announced.
ReplyDeleteUntil the money printing resumes, do you think we have a pretty clear path to the downside in the markets for shorting now?
Hi KS. THank you for all your work and sharing it with us. I have a similar question. How long would it take for CRB print in the range that FED announce QE3? Do you expect a month, 2 weeks? I bought Gold coins as investment in prior years, I was wondering if I should sell those now ( although I am a bit late) and buy later before QE3. Do you have any suggestions?
ReplyDeleteHello Paul and Serenay, Keystone targets the QE3 announcement according to the commodities index CRB 250-280 level since that is when QE1 occurred in March 2009 and when QE2 occurred in August 2010. Both times the markets were at a failure point which would lock in extended deflationary times like the Great Depression and Japan-that currentlyremains in a deflationary funk almost two decades later. Thus, lower CRB indicates global growth is in the tank, deflationary behavior and big trouble, so Bernanke will step in since they know nothing else except how to print money.
ReplyDeleteAs far as market decisions, you will have to make your own decisions. It appears that markets should drift lower as the commodities drift lower. If SPX breaks 1337 that would be a key signal that lots of trouble lays ahead for markets. On gold and silver, like all trading, it depends on time frames. It is hard to imagine anyone going wrong in simply sitting on the PM's for a few years. The hyperinflation should hit in the years ahead, perhaps when the 18-year bear cycle ends in 2014-2018, when we come shooting out of this into hyperinflation, gold, silver, etc..., as well as ths stock market should all fly higher, but overall purchasing power will decrease. So it all depends how long you are willing to hold. In the nearer, short and intermediate time, gold and silver will probably drift lower in concert with commodities.
It sounds like you don't think we should get very aggressive with shorting the stock market (yet?). I got burned many times trying to short heavily when the market started to crash as money printing occurred shortly thereafter. I don't want to get burned again.
DeleteThe money printing has been overt (quantitative easing 1 and 2) and covert (e.g. LTRO initially and the Fed's unaudited loans and purchases). The Fed and other central banks have obviously abandoned any pretense of solvency and credibility in favor of short-term fixes.