A Baker's Dozen of "Deflationary Bias" Charts

Fri, Oct 3, 2014 - 2:42am

We've asked a few times now, "what happened on September 1st"? It's time to revisit that question again today.

If you missed the previous two posts, you can find them here:



The basic premise is this:

Beginning in late August, the collective "market" finally began to anticipate to complete removal of overt Fed QE. (By the way, this was confirmed with the October POMO schedule, which shows QE3(∞) "ending" on October 28.) To understand how the "market" looks at this, think back to The Great Financial Crisis of 2008.

Back then, deflation was the big scare/risk. Asset prices were crashing globally and a global economy built upon debt and fractional reserve banking simply cannot survive in a hyper-deflation environment. Thus, QE1, QE2 and QE3(∞). Over the course of those money-printing programs, The Fed created nearly $3T in fresh cash, ostensibly to "help the economy".

Well that spigot will again be temporarily turned off in 26 days and the collective "market" finally began to anticipate just that back in late August. Without the constant dump of fresh greenback into the global banking system, we are right back to where we were in 2008. Namely, deflation.

If I'm right about this, what should we be seeing across the global financial markets? Mainly three, simple trends:

  • The U.S. dollar should be rallying as a prospective future of less dollar supply makes the supply of today's dollars more valuable.
  • The U.S. bond market should rally as a forecast for deflation makes even 30-year bonds at 3% look pretty attractive.
  • Every dollar-based "commodity", from the metals to crude to stocks should be falling as demand wains, liquidity reigns and the economy strains under deflationary pressure.
  • And what do we see? Let's start with the dollar. If we go back to mid-late August, what do we find?

    The US dollar as measured by the POSX:

    The euro and yen:

    OK, those charts seem to verify bullet point #1.

    How about the U.S. bond market? Are bond prices rallying, too? Well not at first and, while they were falling, they were the "missing link" in this equation. Ahhh, but look what happened two weeks ago! Bond prices suddenly reversed and prices began to rally...sharply. In fact, yields on the 10-year note and the 30-year Long Bond are now back to within a few basis points of the 2014 lows seen on August 28.

    So, whaddayaknow? The change in trend and rally from mid-September seems to be verifying bullet point #2!

    I guess that means we should now consider bullet point #3. Is nearly everything else falling? See for yourself:

    U.S. stocks as measured by the S&P 500 and Russell 2000:

    The most important "commodity" in the world at present, crude oil:

    And all five metals:

    Hmmm. Well those charts certainly seem to confirm bullet point #3.

    So, here's the point:

    IF I'M RIGHT ABOUT THIS, things are going to get even worse before they get better. Why? Because hardly anyone else is talking about it! By the time the world outside of Turdville finally figures out what's going on, the stock market will be crashing, crude will be near and the metals will be even lower, particularly silver.

    The point is this:

    As things begin to unravel in October and November, The Fed will be forced to act. Remember, their primary stated mission is prompt employment and inflation. Deflation is their number one enemy and they will do anything (and this includes QE4) to avoid it! After or slightly before this deflationary bias finally runs its course, all of the "dollar-based commodities" listed above will bounce, turn and rally back higher. Until then, however, we must expect continued pressure, even on gold. And if 80 gold gets taken out, there will even be spike downward as sell-stops get run below the current range, similar to the events of April 2013, though not quite as dramatic.

    In the end, this means you must be mentally prepared for what lies ahead. The next few weeks are going to be increasingly volatile and panic-filled, not just in the metals but across the board. Recognize it for what it is and realize that your stack of physical will be just as shiny and valuable with each passing day, regardless of the changing paper price. As I've been stating for weeks, at The End of The Great Keynesian Experiment, the paper price shenanigans/machinations of September 2014 will be long forgotten. You should continue to use this time wisely and prepare accordingly.


    About the Author

    turd [at] tfmetalsreport [dot] com ()


    Oct 2, 2014 - 11:46am

    Just a heads up

    I'll likely make this a public post later today or tomorrow.

    Oct 2, 2014 - 11:50am

    Public Post

    Shee I can't see myself on there, what about my reputation. LMAO

    Oct 2, 2014 - 11:50am


    the hell is Gideon Gono?

    We need some "wealth effect" up in here, can I get an Amen?

    Oct 2, 2014 - 11:55am



    TF...it is bad manners to steal the first comment...jk

    Oct 2, 2014 - 11:59am

    Well Hell

    If the metals are going down some more then I guess I'll buy some more. Mmmmm Yep that's what I'll do. Keep stacking

    Oct 2, 2014 - 11:59am
    Oct 2, 2014 - 12:14pm


    Tell it like it is Gideon!

    Oct 2, 2014 - 12:17pm

    They will need to have a reason to act

    Which probably means black swan , they need to blame the crashing markets on something . This is all scripted and carefully planned out , for all we know there are a handfull of people sitting in a room high fiveing and giggling like 12 year old school girls.

    Gamble gamble

    Texas Sandman
    Oct 2, 2014 - 12:19pm

    Hidden virtue of stacking in deflation

    A deflationary collapse is precisely the scenario where you'd see bail-ins. So, while what we've seen, and what we're likely to see, may be unpleasant, just know full well in your hearts the gold/silver held outside the banking system (very important) is safer than money at the bank.

    Return of capital becomes more important than return on capital. And if the capital gets stolen that's impossible.

    Oct 2, 2014 - 12:21pm

    Hope you are right

    I did not sell our house, however rented it and bought another one. It really pissed me off that I had to sell uslv at a loss in July around $52 leaving my investable amount considerably reduced. Lucky I did as its now about half that.

    Hence change of strategy, invested in faz a triple bear. Back in 2008 it peeked at around $29,000 and can be bought today for around $17. Looking for a sharp correction on the dow of about 30%. Sky rocketing faz while metals are under pressure.

    Sell at the right time and return to uslv for the move to silver at $100.

    Should make me happy if I can time it right and get back in physical.

    Time frame, all before the end of the year would be nice.

    Key Economic Events Week of 10/21

    10/22 10:00 ET Existing home sales
    10/24 8:30 ET Durable Goods
    10/24 9:45 ET Markit flash PMIs
    10/24 10:00 ET New home sales
    10/25 10:00 ET Consumer Sentiment

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    Key Economic Events Week of 10/21

    10/22 10:00 ET Existing home sales
    10/24 8:30 ET Durable Goods
    10/24 9:45 ET Markit flash PMIs
    10/24 10:00 ET New home sales
    10/25 10:00 ET Consumer Sentiment

    Key Economic Events Week of 10/14

    10/15 8:30 ET Empire State Fed MI
    10/16 8:30 ET Retail Sales
    10/16 10:00 ET Business Inventories
    10/17 8:30 ET Housing Starts and Bldg Perms
    10/17 8:30 ET Philly Fed MI
    10/17 9:15 ET Cap Ute and Ind Prod
    10/18 10:00 ET LEIII
    10/18 Speeches from Goons Kaplan, George and Chlamydia

    Key Economic Events Week of 10/7

    10/8 8:30 ET Producer Price Index
    10/9 10:00 ET Job Openings
    10/9 10:00 ET Wholesale Inventories
    10/9 2:00 ET September FOMC minutes
    10/10 8:30 ET Consumer Price Index
    10/11 10:00 ET Consumer Sentiment

    Key Economic Events Week of 9/30

    9/30 9:45 ET Chicago PMI
    10/1 9:45 ET Markit Manu PMI
    10/1 10:00 ET ISM Manu PMI
    10/1 10:00 ET Construction Spending
    10/2 China Golden Week Begins
    10/2 8:15 ET ADP jobs report
    10/3 9:45 ET Markit Service PMI
    10/3 10:00 ET ISM Service PMI
    10/3 10:00 ET Factory Orders
    10/4 8:30 ET BLSBS
    10/4 8:30 ET US Trade Deficit

    Key Economic Events Week of 9/23

    9/23 9:45 ET Markit flash PMIs
    9/24 10:00 ET Consumer Confidence
    9/26 8:30 ET Q2 GDP third guess
    9/27 8:30 ET Durable Goods
    9/27 8:30 ET Pers Inc and Cons Spend
    9/27 8:30 ET Core Inflation

    Key Economic Events Week of 9/16

    9/17 9:15 ET Cap Ute & Ind Prod
    9/18 8:30 ET Housing Starts & Bldg Perm.
    9/18 2:00 ET Fedlines
    9/18 2:30 ET CGP presser
    9/19 8:30 ET Philly Fed
    9/19 10:00 ET Existing Home Sales

    Key Economic Events Week of 9/9

    9/10 10:00 ET Job openings
    9/11 8:30 ET PPI
    9/11 10:00 ET Wholesale Inv.
    9/12 8:30 ET CPI
    9/13 8:30 ET Retail Sales
    9/13 10:00 ET Consumer Sentiment
    9/13 10:00 ET Business Inv.

    Key Economic Events Week of 9/3

    9/3 9:45 ET Markit Manu PMI
    9/3 10:00 ET ISM Manu PMI
    9/3 10:00 ET Construction Spending
    9/4 8:30 ET Foreign Trade Deficit
    9/5 9:45 ET Markit Svc PMI
    9/5 10:00 ET ISM Svc PMI
    9/5 10:00 ET Factory Orders
    9/6 8:30 ET BLSBS

    Key Economic Events Week of 8/26

    8/26 8:30 ET Durable Goods
    8/27 9:00 ET Case-Shiller Home Price Idx
    8/27 10:00 ET Consumer Confidence
    8/29 8:30 ET Q2 GDP 2nd guess
    8/29 8:30 ET Advance Trade in Goods
    8/30 8:30 ET Pers. Inc. and Cons. Spend.
    8/30 8:30 ET Core Inflation
    8/30 9:45 ET Chicago PMI

    Key Economic Events Week of 8/19

    8/21 10:00 ET Existing home sales
    8/21 2:00 ET July FOMC minutes
    8/22 9:45 ET Markit Manu and Svc PMIs
    8/22 Jackson Holedown begins
    8/23 10:00 ET Chief Goon Powell speaks

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