As we near the end of July, it’s all about QT, sentiment and a bullish development for gold and silver.
It’s All About QT & Sentiment
July 26 (King World News) – Here is what Peter Boockvar noted as the world awaits the next round of monetary madness: With plenty of hints that QT from the Fed comes before another rate hike, the only question today is whether the groundwork is laid in the statement for a beginning of this process in September or do they rely on upcoming speeches to set the stage. As the September meeting is not until the 19th/20th, they do have some time but considering that Yellen only a few weeks ago at her Congressional testimony said QT would start “relatively soon”, it would be nice to have some more color today on what that timeline means. When it does begin, what will long end yields do? On paper the obvious answer is higher but yields fell after QE1 and QE2 was underway and sunk when they were done. Yields rose after QE3 started but really spiked when Bernanke hinted at tapering in May 2013. I continue to believe that long end yields will remain in this tug of war between modest economic growth and below 2% inflation on one hand and QT and likely ECB tapering on the other hand which could be a drag on yields to the upside…
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As price likes to drive sentiment, Investors Intelligence said Bulls rose to 60.2 from 57.8 last week. That’s the first time it’s had a 60 handle since March 1st when it got to 63.1 (which was a 30 yr high). Bears fell .2 pts to 16.5, the lowest since March 1st. The spread between the two widened to a 4 month high at 43.7. Those expecting a Correction is also at a 4 month low. II said this in response to the extreme bullish sentiment read, “This is a new major warning calling for defensive measures to protect profits, renewing the same signal from earlier this year. In the historical comparison, the bulls ended January 1987 at 64.6 and then returned to 60.8 that August after further market highs.” This data is also corroborated by the CNN Fear and Greed Index which closed yesterday at 81 from 72 on Monday, 62 last week and vs 52 one month ago. This puts it in the ‘Extreme Greed’ part of the curve. Bottom line, from a purely contrarian standpoint, the times this year when bullishness has gotten stretched, markets have chopped around and consolidated which then has lead to a drop off in positive sentiment which then has set the stage for another push higher.
Housing
The MBA said mortgage applications to buy a home fell 2.2% w/o/w to a two month low but are still up 8% y/o/y. The Spring/Summer transaction season was pretty good relative to last year but I continue see evidence that buyers are beginning to push back against the persistent price increases. Yesterday, home builder Pulte Homes talked about discounting being given on some higher end homes. Refi applications rose 3.4% w/o/w as the average 30 yr mortgage rate fell 5 bps but refi’s are still down 41% y/o/y.
Industrial Metals Surging
After yesterday’s 4% spike which brought gains in 10 out of the last 12 days, copper prices are up a hair. I would love to argue that the two year plus high in prices is due to an acceleration in global growth but I believe this is more due to supply discipline which started early last year. I also read a story today that there is chatter that China was going to restrict the imports of metal scrap which would have been used for copper extraction which would pollute the environment. The 3 month high in nickel prices is being driven by the threats of higher taxes on mining companies in the Philippines.
King World News note: KWN will be keeping a close eye on inflation. If commodities begin to surge on across the board, this will be extremely bullish for gold and silver prices.
***The remarkable KWN audio interview with Gerald Celente has just been released and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: Despite The Euphoria, A Major Warning Flag Is Now Waving CLICK HERE.
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