timwest
Short

DEFLATION FEARS RAMPANT - CENTRAL BANKS STEP ON THE GAS

862 14 42
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)
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Tim, can you please add SPY or IWM into the picture? Great chart, many thanks!
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Awesome work.
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interesting! thanks for sharing.
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With QE, the deflation is ahead... This is not the good sign for the world economy overall ~
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It is not a good sign for anyone holding loans to customers to buy assets.... as the assets deflate in value, capital gets destroyed and lending capability gets destroyed at an exponential rate. It would be a dangerous environment for banks from what I can discern. I'll overlay the XLF or a Bank Index against it next.
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I added the BANK Index and XLF Financial SPDR to show how bank stocks normally trade along with this deflation-wave... and this time it is completely different.
snapshot
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From what I can see here: The biggest gains in financial stocks happen AFTER this ratio spikes up dramatically. Note: 2011, 2012, (2013 was simultaneous = QE?), 2014, then the latest run up is the big???
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I added the waves down in Bonds/Gold together with rises in the XLF & Bank Index
snapshot
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But surely you cannot expect the market to go from a fear of a global dis-inflation and deflation in Europe and Japan to fearing inflation in 3 or four months.
The fear of inflation will not be there for years, this is a disinflation era. So I think this trade idea is a little early :) but it can be used to buy the dip though.
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All it will take to form a red box (like we get all the time) is for a slight rally in gold and a slight setback in bonds. The red boxes retrace 55%-90% of the previous advance in the last 4 years.
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I'm merely pointing out that there are waves and we are on an upwave and banks have already discounted the next wave of inflation that they hope will save any losses they will avoid from deflation. If you own bank stocks, this is a windfall profit and a good one to take off the table, in my opinion. This is a gift from the markets and central banks. (This = rally in banks)
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One month has passed and the ratio is still about the same.
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Great look at inflationary and deflationary period, but each of these periods are of different lengths, and for me the data beyond Oct-2014 is not loading so (maybe my issue), I am not sure what the current scenario is right now although it has got to be deflationary (assumption). We can say that up comes after down, and down comes after up, but how, do you read this now?
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Unfortunately the chart does not load - would you please post an image of it at this time for you?
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