Treasuries seem like they are stuck between a rock and a hard place as rates edged up this week, apparently torn between the paradigm that says rates should be rising because the economy is improving (?) and the ongoing torrent of liquidity the Fed continues to force feed into the economy. Here's a weekly chart of the Ten Year Treasury Yield:
Commodities continue to tread water, a result of flat global economic growth and a reflection of central bank inability to reflate global economic growth. Here's a daily chart of "Dr. Copper":
As stated in previous commentaries, my short term thesis is for stocks to rally to all time new highs against a larger backdrop of tepid global economic growth and continued deflationary pressures. These deflationary pressures refuse to dissipate which has been my main concern. In any other environment, all time highs in stocks and continued deflationary pressures could never coexist but for massive central bank monetary accommodation.
In the street's view, one of the biggest challenges stocks seem to have is growing earnings and the "top line" (revenues) in this muted economic environment in which we find ourselves. There are some on the street concerned that the projected inability for corporations to grow their "top line" will eventually impact earnings. And to this I would not disagree but only to respond that so long as the Fed continues to maintain their asset purchases and Wall Street continues to play the game of lowering earnings expectations enough so that companies can beat them, when, since 2008, have earnings ever been the key factor as to when stocks as a group move up or down? Or far that matter, can anyone honestly identify where we are in the business cycle with all the distortions that the Fed has created?
As I write this I can visualize a comatose patient on life support. And I would not want my readers to believe this is exactly where we're at in the financial markets and economy but, in my heart of hearts, I do believe the vision is not far from the mark!
Gold's demise should not be dismissed as an isolated event. As a predictor of future inflationary pressures it's continued beating since it's all time high of September, 2011, in the face of multiple central banks attempting to reflate the global economy, speaks to the failure of that experiment. The present weakness is telling us that the risk of the economy sinking into deflation is greater than anyone on Wall Street, the Fed or Washington is willing to admit to.
Here's an update of a chart I've posted in previous commentaries that serves to illustrate the ineffectiveness of the Fed's reflation policy up to this point: