While politicians hammer out the details it is generally accepted that corporations and by extension the investor and asset owner classes are targeted for benefits under the coming Republican tax plan. The logical implication of that beneficial treatment is that barring a market meltdown in the interim, people looking to unload stock positions and take profits would tend to wait until January in hopes of gaining the 2018 tax benefit vs. 2017’s tax code.
Among the under performing sectors subject to tax loss selling in late 2017 I have selected the gold miners for this post because they tend to be counter-cyclical and “in the mirror” to the broad risk ‘on’ asset party currently ongoing. We have noted again and again that with the asset party in full swing the miners’ fundamentals cannot possibly look good, and at face value they don’t. Sector fundamentals like gold/oil and gold/materials ratios are not good and macro fundamentals like gold vs. stock markets, the economy (which is relatively strong) and the yield curve are not at all supportive either… as they currently stand.
In a perfect world stock market-to-gold ratios, long-term interest rates and the yield curve would work together to signal a time of change for the macro. The red shaded areas show a logical limit for stocks vs. gold, the 100 month exponential moving average has limited 30 year yields for decades and the yield curve is on the same message, heading toward but not yet to a logical limit.
Below is the current status of just one of the macro fundamentals we track, the 10yr-2yr yield curve. The reference to “Op Twist by another name & method” has to do with the curve flattening implications highlighted in this post on Nov. 20. The bond market manipulators led by Ben Bernanke announced an operation to buy long-term debt and sell short-term debt in 2011 with the expressed objective of sanitizing inflationary signals. Well boyz, job well done. The Goldilocks boom particularly, kicked in with the Semiconductor Equipment cycle that we first noted in early 2013.
