Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20
China Recovered in Q2. Will the Red Dragon Sink Gold? - 23rd Jul 20
UK Covid19 MOT 6 Month Extensions Still Working Late July 2020? - 23rd Jul 20
How Did the Takeaway Apps Stocks Perform During the Lockdown? - 23rd Jul 20
US Stock Market Stalls Near A Double Peak - 23rd Jul 20
Parking at Lands End Car Park Cornwall - UK Holidays 2020 - 23rd Jul 20
Translating the Gold Index Signal into Gold Target - 23rd Jul 20
Weakness in commodity prices suggests a slowing economy - 23rd Jul 20
This Stock Market Stinks - But Not Why You May Think - 22nd Jul 20
Protracted G7 Economic Contraction – or Multiyear Global Depression - 22nd Jul 20
Gold and Oil: Be Aware of the "Spike" - 22nd Jul 20
US Online Casino Demographics: Who Plays Online For Money? - 22nd Jul 20
Machine Intelligence Quantum AI Stocks Mega-Trend Forecast 2020 to 2035! - 21st Jul 20
How to benefit from the big US Infrastructure push - 21st Jul 20
Gold and gold mining stocks are entering a strong seasonal phase - 21st Jul 20
Silver Eyes Key Breakout Levels as Inflation Heats Up - 21st Jul 20
Gold During Coronavirus Recession and Beyond - 21st Jul 20
US Election 2020: ‘A Major Bear Market of Political Decency’ - 21st Jul 20
Summertime Sizzle for Gold and Silver - 21st Jul 20
Overclockers UK Custom Built PC Review - Delivery and Unboxing (3) - 21st Jul 20
Will Coronavirus Vaccines Become a Bridge to Nowhere? - 20th Jul 20
Stock Market Time for Caution?  - 20th Jul 20
ClickTrades Review - The Importance of Dynamic Analysis and Educational Tools in Online Trading - 20th Jul 20
US Housing Market Collapse Second Phase Pending - 20th Jul 20
Capitalising on the AI Mega-trend - 20th Jul 20
Getting Started with Machine Learning - 20th Jul 20
Why Moores Law is NOT Dead! - 20th Jul 20
Help the Economy by Going Outside - 19th Jul 20
Stock Market Fantasy Finance: Follow the Money - 19th Jul 20
Did the Stock Market Bubble Just Pop? - 19th Jul 20
Quick Souring of the S&P 500 Stock Market Mood - 19th Jul 20
The Six-Year Jobs Recession - 19th Jul 20
Silver Demand Exploding! - 18th Jul 20
Tesco Scraps Covid Safe One Way Arrow Supermarket Shopping System - 18th Jul 20
The Rise of Online Pawnbroking - 17th Jul 20
Gold Rallies Together With U.S. Covid-19 Cases - 17th Jul 20
Gold & Silver Measured Moves - 17th Jul 20
The Bizarre Mathematics Of How Negative Interest Rates Create Stratospheric Profits - 17th Jul 20
From a Stocks Bull Market Far, Far Away, Virus Doomsday Scenerio! - 16th Jul 20
Fiscal Cliffs and the Self-destructing Treasury - 16th Jul 20
Dow Stock Market Crash Watch - Update - 16th Jul 20
Gold & Silver Gaining on US Dollar Weakness - 16th Jul 20
How to Find the Best Stocks to Invest In - 16th Jul 20
Overclockers UK Custom Build PC Review - 2. System Build Changes Communications - 16th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

U.S. Bond Markets Deflation Whispers

Interest-Rates / Deflation Jan 29, 2011 - 12:55 PM GMT

By: Brian_Bloom

Interest-Rates

Best Financial Markets Analysis ArticleIn an inflationary environment, the longer dated yields should be in a bull trend relative to the shorter dated yields – because the time value of money rises in periods of inflation. Conversely, when there is deflation then money in the future is worth less than cash in the hand.  Therefore the ratio should fall if deflation is being anticipated.


All charts below are courtesy of stockcharts.com

Explanation:

In Point and Figure Charts the “x” column represents rising prices and the “o” column represents falling prices. (In the analysis below yields on treasury instruments are charted as if they were the price of money).

With a 3% X 3 box removal scale – a scale chosen to eliminate trading noise -  moves of 3% within an established bull trend are recorded as an “x”.  Counter trend moves are marked with an “o” only once a cumulative “reversal” of 3 boxes is experienced. This 9% counter trend move is then regarded as a trend change and will be regarded for charting purposes as an established bear trend.  “Time” is not a consideration in this method of charting although dates may be included as reference points.

So, for example, on a spectrum of 1-100 and assuming the price starts of at 100

  • Assuming an established bull trend, a rise of 3 will be recorded by one “x”
  • If prices fall by a minimum of 3 X 3  = 9  then that fall of 9 will be recorded by a falling column of three “o” ‘s and, going forward, the established trend will be regarded as bearish
  • If prices fall by a further 3% then an additional o is inserted.
  • If prices rise by (say) 6 or 7 then nothing is recorded because we need a minimum of 9% move (3 % X 3) for a trend change.

The following four Point and Figure charts (3% X 3 box reversal) are:

  • 30 year yield divided by 10 year yield ($tyx:$tnx)
  • 10 year yield divided by 7 year yield ($tnx:$ust7y)
  • 7year yield divided by 5 year yield ($ust7y:$fvx)
  • 10 year yield divided by five year yield ($tnx:$fvx)

Note the subtleties:

The first three are still in bull trends (indicating inflation anticipated) but the zeros are close to their rising trend lines (indicating that the fear of inflation is receding and the fear of deflation is building)

The last one (#4)  has actually broken down and is now in a falling trend  (below a falling red line) – indicating that deflation is being anticipated.

The above speaks of two different types of trends. For example, a rising column of x’s which are recorded below a falling red trend line can be regarded as a technical reaction within a prevailing bear trend.

Chart 1:

Chart 2:

Chart 3:


Chart 4:

Finally, to get a relative picture of thirty year yields divided by five year yields, have a look at the chart below. Note the fact that the dominant trend line is the descending red one even though the most recently entered column  is a column of x’s.

Chart 5:

Conclusion

It’s subtle, but the bond markets are “whispering” that deflation may be a more likely outcome than inflation.

This whisper is quietly being confirmed  by the chart below of the ratio of the gold shares ($xau) divided by the gold price, but the scale of this chart is too short. We need to wait for the 3% X 3 box reversal chart of the $XAU:$GOLD ratio to give a sell signal to conclude that the gold price can be anticipated to fall significantly. That will happen if the ratio falls below 13.97:

Chart 6a:

Chart 6b:

Overall Conclusion

The whispers are soft – like the first zephyr breezes that precede the coming storm.

To get some perspective, have a look at the Point and Figure Chart of the gold price itself:

Chart 7:

Today’s bounce was insufficient to be regarded as a trend change to justify entry of x’s.

Support is at $1290 an ounce. A fall below that level will represent a short term breakdown.

Analyst Comment

Will the gold price break below $1290?

That’s a difficult question to answer, but the “traders” seem to think it’s possible – which is why the ratio of the $xau divided by the gold price is being reflected as a column of o’s edging  below its falling red trend line. However, those who are committed to gold are not yet of the same view – as validated by the dominance of the rising blue trend line on the 3% X 3 box reversal – above which the falling column of o’s is still intact.

….. and then (from a fundamental perspective) there are the Republicans in Congress who are wanting to cut the budgeted expenditure by over $2 trillion – which will have a significantly deflationary impact.

Will they follow through with this action?

Watch the charts.  If they are used like a doctor watches temperature and blood pressure, then they are able to give clues as to the overall health of the markets.  Right now, the signs are that the patient’s fever may be breaking. The fever that arguably gave rise to the patient’s hysteria which, in turn, is arguably what ultimately caused the sharp upward reaction within the Primary Bear Market,  may be abating. If/when the fever breaks, rational thought will once again prevail.

And, if sanity returns in a rush, then we can expect a train smash in the financial markets when people start to ask themselves “what the hell was I thinking!?”

Look at it in this light:

If you believe that in an environment where:

  • unemployment and underemployment together are approaching 20%; and
  •  where the interest burden on US public debt is approaching $700 billion (half the projected budget deficit), and
  • where the Baltic Dry Index has fallen from a peak of 11,709 on May 19th 2008 and which now stands at 1,186 (90% off its peak)

that pumping liquidity into the market will “fix” the economy ….

then I’ve got this slightly ageing bridge in Brooklyn that I can let you have at a bargain basement price. It will very likely become a collector’s item one day and, because it’s a tangible asset, it will almost certainly retain its value in an inflationary environment.

Dear reader, not even if Ben Bernanke was as bright as Albert Einstein , Isaac Newton and Stephen Hawking all rolled into one, could he succeed in making a silk purse out of a sow’s ear. 

So what should we be doing about all this?

Via the storyline of The Last Finesse, the reader is taken through the logic of why structural changes in the way we manage society are needed and a strong (and pragmatic) recommendation is made as to what (arguably) the most important of those changes should be.

If you are interested in acquiring a copy (the 40+ chapter manuscript is targeted for completion in April 2011) please email me with contact details and specify if you have a preference for a hard copy or an e-book. 

Finally, a word of caution: Even if the gold price falls, the targeted destination for its price move (based on charting theory) will still be above its long term rising trend line. Gold is not for trading. It is an asset which acts as an insurance policy against inflationary times and which retains its value in deflationary times. Personally, I don’t believe that gold will ever again be regarded as money. But that’s another story …

By Brian Bloom

www.beyondneanderthal.com

Once in a while a book comes along that ‘nails’ the issues of our times. Brian Bloom has demonstrated an uncanny ability to predict world events, sometimes even before they are on the media radar. First he predicted the world financial crisis and its timing, then the increasing controversies regarding the causes of climate change. Next will be a dawning understanding that humanity must embrace radically new thought paradigms with regard to energy, or face extinction.

Via the medium of its lighthearted and entertaining storyline, Beyond Neanderthal highlights the common links between Christianity, Judaism, Islam, Hinduism and Taoism and draws attention to an alternative energy source known to the Ancients. How was this common knowledge lost? Have ego and testosterone befuddled our thought processes? The Muslim population is now approaching 1.6 billion across the planet. The clash of civilizations between Judeo-Christians and Muslims is heightening. Is there a peaceful way to diffuse this situation or will ego and testosterone get in the way of that too? Beyond Neanderthal makes the case for a possible way forward on both the energy and the clash of civilizations fronts.

Copies of Beyond Neanderthal may be ordered via www.beyondneanderthal.com or from Amazon

Copyright © 2011 Brian Bloom - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Brian Bloom Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

g kaiser
30 Jan 11, 00:52
deflation, correction (U.S. Bond Markets Deflation Whispers)

In an inflationary environment, the longer dated yields should be in a bull trend relative to the shorter dated yields – because the time value of money rises in periods of inflation. Conversely, when there is deflation then money in the future is worth less than cash in the hand.

Sorry if I misunderstand, but in deflationary periods, monetary values rise. Thus cash in hand, is worth less today than it would be tomorrow. That is why people will, everything else being the same, defer purchases in expectation of lower prices down the road.

I have great respect for your writing, but this is wrong.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules