DEFLATION FEARS RAMPANT - CENTRAL BANKS STEP ON THE GAS

This ratio proves that Central Banks are reacting to what the markets are telling them and they have responded. The Bank of Japan on Friday was the latest to fire up the engines. Earlier this week, France and Sweden cut rates to less than zero to get people to start investing their money (and stop "sitting on it"). The announcement by the BOJ that it would also be buying listed securities really put the after-burners on the stock markets with the Nikkei stock index up 1000 pts or 4% on Friday.

If you read the whole text of my last chart on this "deflation" ratio, I pointed out that bonds could move up sharply 4 or 5 points in this type of environment and that is indeed what we saw. Also, adding to the analysis, I noticed that 4 of the last 5 deflation waves was a double-top pattern and although we are still forming the current up-leg (this week with gold going down to drive up the ratio), it certainly could mark a decent turning point here. Once the ratio starts falling, (bonds falling and gold rising) then jump on board the trade. Go short Bonds and Go Long Gold.

Tim

Saturday, November 1, 2014 5:10PM EST

Comment:

Gold has outperformed Bonds (TLT) this year, so the ratio has backed off as the market is fearing inflation and worrying about anticipated Fed Rate Hikes starting in December. (October 13, 2016)