There once was President Trump
Who hated it when stocks would "dump."
He promised largesse
To fix this fine mess
By launching a big fiscal pump.
With global markets raging higher since the election
victory for Donald J. Trump, Wall Street has suddenly embraced the
president-elect as the new messiah for returning global growth and propelling
risky assets to all-time highs.
In the wee hours, after the election results were
finalized, central bank trading desks around the world kicked into action,
buying S&P futures and selling bonds, foreign currencies and gold and
silver in order to keep the dream alive and avoid a North American
"Brexit-style" crash in markets.
Forget Janet Yellen and the Fed; The Donald is now the
new poster child for jawboning markets to new heights. He is the new
Greenspan, complete with obfuscatory language, vagary of thought, and
brashness of assertions. The markets love their new messiah, as the Dow has
hit a record high led by guess who? Why the banks, of course, because higher
interest costs for consumers is a bullish development for bank profits, and
with the 10-year Treasury yield back above 2%, it represents a massive
increase in borrowing costs.
However, this market is being driven by excess liquidity
sloshing around in the system and as I have written about for years, one can
"never underestimate the replacement power of equities within an
inflationary environment." And DJT is all about spending and growth
and walls and infrastructure build-out, all of which is inflationary (see
chart above).
Global markets are advancing under the newly established
meme that the next era in portfolio strategy is no longer central bank
leadership but fiscal leadership. The Wall Street elite are now in the
process of canonizing Trump as "The Growth President," such that
the spin will deflect attention away from the ineffectiveness of the Great
Central Bank Experiment, where $57 trillion in new currency was printed to
avoid the disintegration of the banking system and instead focus on
government expenditures�not unlike the Tennessee Valley Authority or the
Civil Works Administration from the 1930s.
Sadly, this new regime is being orchestrated beautifully
by the Working Group on Capital Markets, whose efforts to control gold,
silver, stocks and bonds through the NY Fed has caused legendary bond
investor Stanley Druckenmiller to change his views on gold. It has been
reported that his fund (Duquesne) no longer owns gold, having dumped
"all of my gold on the night of the election."
This, my friends, explains perfectly how the
behind-the-curtain puppet-masters can influence markets. Had they not stepped
into the dollar-yen and intervened in the S&P futures early Wednesday
morning, there would have been no cover behind which they could sell massive
amounts of paper gold, creating an enormous "Gravestone Doji" for
the Wednesday session, hitting a new recovery high early and giving it all
back before it ended.
The problem we have now is that all of the
algo-bot-driven funds are in "Sell the Rally" mode for gold (not
silver), all because the interventions created a synthetic technical backdrop
showing as "bearish" for gold. And therein lies the rub: There is nothing
bearish or deflationary about DJT building an enormous wall between Mexico
and the U.S.A. and replacing bridges, highways, and airports, and therefore nothing
is bearish or demand-destructive for gold and silver.
However, markets are slave to the algorithms and all of
that pattern-recognition software, and the patterns are unmistakeable now, in
the new post-Obama, ex-Clinton world of high finance. Gold and bonds stink;
growth stocks and risky assets (including silver but excluding gold) rule!
While it is all a bunch of steaming manure being shoveled
at us by the Wall Street spin machine, there was a massive amount of
institutional cash around going into the election, and the events of late
Tuesday evening certainly shaved the annual return numbers downward for
anyone that tried to game the election. Accordingly, we are most certainly in
"chase" mode now, with underinvested managers scrambling to get on
board at all-time highs in the Dow.
In addition, the performance they are chasing is no
longer the gold and silver miners, which were massively outperforming the
S&P at the end of Q3, but rather the financials as represented by the XLF
ETF. To fully grasp the impact of interventions, look at where we were in
mid-September in the chart shown below.
Note that in the "Year-to-Date" chart, silver is
still the standout. However, when you shorten it to the "Six-Month"
chart, things really change in a big way. Financials go from the bottom of
the pack to superstar status as shown below.
So the "chase" back in mid-September, which was
shaping up to be gold and silver, has been recalibrated to highlight
financials, small caps and technology, followed by silver, large caps and
gold.
How do we trade the move in the markets looking out to
year-end? As is the case with all politicians, the name of the game is
"Print and Spend," so while The Donald�s election has been greeted
with gold down and stocks up, the "infrastructure trade" is fine
and dandy for those willing to pile on. But ask yourself where the money is
going to come from and how it will impact deficits and the purchasing power
of the USD.
Second, with the USD Index screaming toward par (100),
U.S. corporations are going to find that exports are increasingly challenged
given the currency disadvantage. All of this spells "reversal," and
after this spin is guzzled by the performance-chasers, I see a Wile E. Coyote
moment, when he suddenly realizes he is off the edge of the cliff, staring
down through a cloud.
I am adding another 25% to the SLV January $15 calls at
$2.85, having initiated the first 25% at $2.50. I see silver as a perfect
monetary instrument that captures the attributes of the industrial metal,
aligning it with the screaming bull markets we are observing in copper and
zinc. As I showed you earlier this week, copper and silver enjoy a
correlation, so given the proximity of copper to that downtrend line
stretching back to early 2011, and depending on the thickness of the line, it
appears to be residing at around $2.50�and that close today would be a break
above the downtrend line. I will feel more comfortable if I see copper stay
above $2.50 for a few more days.
But despite a relative strength index (RSI) at 87 now,
the moving average convergence/divergence (MACD) is still way below the range
from which it has historically corrected. Since silver moves in tandem with
copper, I will go with the shiny metal and see if we get the move to $22,
whichI think is possible within the constraints of this brand new
"reflation trade."
So there you have it�my synopsis of the world as I see it
going into the final seven weeks of 2016. And with that I leave you all one
thought: just as Wall Street asked us to believe that the Fed could rescue
the global economy, it is now asking you to believe that the new POTUS�a man
stilling using tax losses from decades ago to avoid paying tax�will be able
to navigate the global minefield of terrorism (domestic and abroad),
expansionism (China), sovereign insolvency (Europe), and derivative risk
(Deutsche Bank) while restoring a manufacturing base after thirty years of
globalization. Building a wall that the Mexican drug lords will burrow under
all the way to Moose Jaw with the petty cash they keep in their shoeboxes
seems like it will be a tall order, just like all of the other promises Trump
made to appeal to Silent (White and Christian) Majority adult males driving
around in pickup trucks with Confederate flags in the rear window.
Just as Brexit was a clandestine anti-immigration and
totally ethnocentric outcome brought about by the white English majority, so
was the Trump victory a scream from the heartland in the name of a return to
Leave it to Beaver and Andy of Mayberry. The feeling I am getting is
reminiscent of Kent State and Berkeley in the �60s antiwar protest movements,
which did not end particularly well. DJT had better be very careful
because a great many Millennials won't like having their free entitlements
yanked out of their hands, along with the free cell phones and food stamps.
And then there is "Crooked Hillary" and the
Clinton Foundation. . .and if you think that story has been put to bed, you
had better think twice. . .
Originally trained during the inflationary 1970s, Michael Ballanger is a graduate of Saint Louis University where he earned a
Bachelor of Science in finance and a Bachelor of Art in marketing before
completing post-graduate work at the Wharton School of Finance. With more
than 30 years of experience as a junior mining and exploration specialist, as
well as a solid background in corporate finance, Ballanger's adherence to the
concept of "Hard Assets" allows him to focus the practice on
selecting opportunities in the global resource sector with emphasis on the
precious metals exploration and development sector. Ballanger takes great
pleasure in visiting mineral properties around the globe in the never-ending
hunt for early-stage opportunities.
