Loading ...Debt ceiling, rates and PMs
Gentlemen and ladies,
Being the first Saturday of June 2023, I’d like to hear from the Tent what is the “vibe” for this month, which will also mark the end of 2Q 2023.
With the debt ceiling now effectively raised, I’m trying to understand how the flooding of treasuries will impact very short term rates/2 year rates/10-30 year rates?
If rates rise, will markets sell off hard?
Having gone up north of 10% in the last 12 weeks, S&P could just “correct” by 4-6% and yet remain “bullish” in the medium term?
From this point on I think it is more about ratios now, more than ever.
Today gold to S&P ratio is roughly under 0.46.
My educated guesses:
(i) Whether rates rise or fall, PMs rise.
(ii) If rates rise fast, due to higher treasury issuance, PMs rise faster, S&P could sell off, and the ratio rises, toward 0.48, or towards the magical 0.5 number. Many analysts are waiting for this confirmation.
(iii) No matter how much fiduciaries advise, to stop believing in TINA, I still see TINA is alive. NVDA, GOOG, AAPL all being at 52-wk highs is a simple proof.
JPMorgan Chase & Co. strategist Nikolaos Panigirtzoglou estimates a flood of Treasuries will compound the effect of QT on stocks and bonds, knocking almost 5% off their combined performance this year. Citigroup Inc. macro strategists offer a similar calculus, showing a median drop of 5.4% in the S&P 500 over two months could follow a liquidity drawdown of such magnitude, and a 37 basis-point jolt for high-yield credit spreads.
https://finance.yahoo.com/news/trillion-dollar-treasury-vacuum-coming-135944792.html
GL
I don’t see the psychology in the Gold and Silver market getting any worse than last fall. Frankly that was about the worse I have EVER seen it. The sector was as bad or even more abandoned than Jan 2016. The capitulation in the junior miners was simply epic late summer early fall 2022. Therefore I don’t see those lows being violated. IOW it was the bottom. This move down from the early April highs should prove to be the test of the 2022 lows. I see it testing over the next 1-2 months. Possibly a July bottom test that fills the wide open gaps of many issues.
Of course this is a normal seasonal low. This is all very encouraging as it fits a classical bottoming narrative. Gold stocks bottom under the radar while mania stocks grab all the attention in a summer blow off. With a July bottom that would be a 10 month rally/test of the Sept bottom. Quite broad based and a set up to a large sustainable 2-3 year cyclical bull market.
Regarding TINA, certainly it is alive and well. Actually the new TINA has become the narrow slice of tech that is blowing off. It is where the institutions are hanging out as a perceived safe haven.