Three weeks ago Keystone's indicator signals Deflation. Things have not changed; the economy remains mired in Deflation. The CRB (Commodities Index) continues to drop and languish at levels around 270. Taking a look at the numbers;
CRB/10-Year Price = 269.29/101.234 = 2.66
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 is at 1.60%. Chairman Bernanke announced QE 1 and QE2 as the country became mired in deflation with Keystone's indicator in the 2.5-2.6 range. Here we are again. Therefore, QE3 can be expected at any time. The FOMC rate decision and meeting is 6/20/12 so that may provide Bernanke the opportunity to announce the new money pumping move.
The CRB under 270 is another signal that deflation is ruling the roost now and that Bernanke should move with quantitative easing at any time. The move will likely be a coordinated global QE with the ECB announcing LTRO3 at the same time. China cut interest rates a few days ago perhaps kicking off the global intervention. New QE will catapult commodities and equities markets higher for another crack cocaine rally. As a previous missive described, the quantitative easing moves are losing steam; QE1 lasted 13 months, QE2 lasted 8 months, LTRO1 and 2 lasted 5 months. Keystone projects QE3 to create a three month rally.
Note Added 6/15/12 at 5:00 AM EST: Excellent timing for the above missive. Yesterday, 6/14/12, at 3 PM EST, global bankers announced plans for a global monetary easing intervention if the Greek elections go badly on Sunday. U.S. equity markets catapulted higher on the talk that more crack cocaine is coming.
Ks,
ReplyDeleteWill gold, silver and miners move higher when CRB is flat or going lower?
Or the CRB doesn't matter for PM prices?
thanks.
Hello Anon, the CRB commodities index is useful in identifying deflationary forces. When the CRB drops, it signals that the demand for commodities, coal, copper, aluminum, iron ore, etc..., is falling and global recession/depression is on tap. But once the QE3 intervention occurs, commodities will catapult higher including gold, silver, etc..., as the dollar will weaken. As commodiites catapult on the QE, the CRB will catpalult higher as well. UYM, or any materials play, is one way to take advantage of the QE rally.
ReplyDeleteInterestingly, the announcement of global coordination coming at 3 PM 6/14/12 which catapulted the broad markets higher did not bump gold up as would be expected. Extreme caution is warranted with gold and silver since they may not get as much of a bump this time for QE3, but, a trader can only take things one day at a time.