Here is the big picture as gold surges $38 and silver spikes nearly a dollar.
March 9 (King World News) – Peter Boockvar: With Treasuries very oversold for now a week plus according to RSI which I mentioned a week ago, we have a big few days in terms of potential catalysts. Janet Yellen and Co. has a lot of bonds to sell with 3’s, 10’s and 30’s to be auctioned over the next three days. We know what happened with the 7 year a few weeks ago. I’m going to assume that higher yields will bring out some buyers, but we’ll of course see. We also see CPI tomorrow and PPI on Friday for February right before the easy comps kick in…
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The other big thing to follow in coming weeks is what the Federal Reserve decides on the Supplementary Leverage Ratio for banks which was waived a year ago when things were hitting the fan. That waiver expires at the end of March. If extended, banks can continue to be voracious buyers of US Treasuries, if not, they could be net sellers. So, the Fed might be making a regulatory decision not based on the capital need for a waiver or not, (there is no need as the pandemic is essentially over), but on the need to have a big buyer of US Treasuries in the context of this spike in rates.
Here is a chart of US bank holdings of US Treasury and Agency paper. Notice the steeper curve starting one year ago when the SLR was waived. I assume the Fed will want to continue to have banks be big buyers of Treasuries because of what they’ve just seen with the yield curve over the past few months.
I Remain Bullish On Gold
Treasuries are bouncing today following a rally in European bonds as Asian bonds were little changed overnight. That drop in rates and coincident fall in the dollar following a recent period of strength is also helping that other asset that is the most oversold in 2 1/2 years, gold which I still am very positive on. The NASDAQ, the contra bond yield trade, also has gotten very oversold with its 14 day RSI the lowest in a year. The European bond rally comes before the Thursday ECB meeting. I will repeat that after this bounce in Treasuries that will work off the uber oversold condition, I do believe rates will head higher again.
The NFIB small business optimism index for February was little changed at 95.8 vs 95 in January, 95.9 in December and vs 101.4 in November. I’m going to start with the inflation component where those looking to raise prices jumped 8 pts to 25%, the highest since August 2008 when crude oil was touching almost $150.
Inflation Anyone?
The NFIB said:
“Low inventories and solid sales are expected to present more opportunities to raise prices.”
Plans to Hire and Capital Spending plans each rose 1 pt m/o/m. Those that Plan to Increase Inventory fell 2 pts to the lowest since May and maybe an early sign that a lot of the inventory building we’ve been seeing and talking about might just be satiated.
While there are still 10mm people out of work vs pre pandemic, it’s still hard to find the right employee as Positions Not Able to Fill jumped 7 pts to 40%, the highest since this question was first asked in 1980.
Businesses Can’t Hire People Largely Due To Individuals Getting Paid More Money To Not Work
So yes, wage pressures can happen even with still many unemployed and now that Congress is adding to generous unemployment benefits, that might only increase. How much is that restaurant going to have to pay when competing against benefits where about half are receiving more than what they were earning before? Current Compensation Plans held at 25%, the highest since March 2020 before it fell sharply because of the shutdowns. Compensation Plans for the months to come rose 2 pts to back near its recent high. After falling sharply in the two prior months by 9 pts, earnings trends improved by 5.
With respect to the macro view and expansion plans, those that Expect a Better Economy rose 4 pts after falling by 7 last month. Those that Expect Higher Sales weakened by 2 pts and those that said it’s a Good Time to Expand also fell by 2 pts.
The NFIB said:
“Small business owners worked hard in February to overcome unexpected weather conditions along with the ongoing Covid 19 pandemic. Capital spending has been strong, but not on Main Street. The economic recovery remains uneven for small businesses, especially those still managing state and local regulations and restrictions. Congress and the Biden administration must keep small businesses a priority as they plan future policy legislation.”
As said here before, while we are all very optimistic about economic activity in the quarters to come with the mass inoculation, many small businesses still have to get thru the here and now until then.
Gerald Celente discusses the imminent global boom as the world prepares to open economies, what surprises to expect, as well as what’s next for the gold market and you can listen to it by CLICK HERE OR ON THE IMAGE BELOW.
To listen to Alasdair Macleod discuss the gold and silver takedown and what to expect next CLICK HERE OR ON THE IMAGE BELOW.
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