SPX/Gold, 30Yr Yields And Yield Curve – Amigos 1, 2 & 3 Updated

We began the Amigos theme last year in order to be guided by the goofy riders during the ending stages of a cyclical, risk-on phase that was not going to end until the proper macro signals come about, no matter how many times the bears declared victory along the way. The fact that grown adults see conspiracies around every corner (okay, I see them around every third corner myself, but work with me here) makes such macro signaling very necessary in order to keep bias at bay.

To review…

Amigo #1 is the SPX/Gold Ratio (more generally, stocks vs. gold) and a countercyclical and risk ‘off’ environment simply will not engage until stocks top out vs. gold, if even for a cyclical down phase within the up phase.

Amigo #2 is the 30yr Treasury Yield and its 100 month EMA ‘limiter’, which has supported the funding mechanism (unrestrained credit creation) for the leveraged economy for decades. If the limiter holds yet again, while there could be some deflationary problems the system will persist. If it breaks for the first time in decades well, we are not in Kansas anymore and the door would open up to an inflationary Crack Up Boom (von Mises style).

Amigo #3 is the Yield Curve, which is in the late stages of flattening. When it turns up it will either be under pains of deflationary or inflationary pressure. Note the word “pains” because there would be pain, either way; but in different financial and economic areas.

The picture above shows Amigo #1 closing his eyes and bracing for impact, just as Amigo #2 did many months ago. Amigo #3 is the dim one (I mean, Martin Short with Steve Martin and Chevy Chase? Come on) happily riding along, his star shining less brightly than the other two. He is still a macro holdout.

Let’s get to our review.

Amigo #1

SPX/Gold Ratio (daily chart) took a hard hit and has bounced a bit. If this were a stock chart we’d call it a bear flag. As it is we call it a hard lurch toward a risk ‘off’ situation that does not look complete.