We've seen the Citi Panic/Euphoria model flying off the chart into the "YOLO Stage" (my name for the stage of the market past euphoria). We've seen any number of sentiment surveys showing that things are just a wee bit frothy out there in equity market land. We see all the new SPACs (blank check companies that are formed with no particular business in mind) being trotted out every day.

Yeah, it's silly season out there.

The above survey is interesting because it's clear when there is risk aversion (see end of 2008 and early 2020) but it is less clear when there is rampant risk taking.

The Fed is committed to creating inflation at any cost. Even if it means creating any number of asset bubbles. Have you heard Ontario real estate prices are up 50% year over year? South Florida residential real estate price appreciation isn't far behind.

After all, when you've made $10 million on Signal Advance and TSLA calls out of pure dumb luck and mindless speculation you've got to park your wealth in some real assets, right? Buy a house in Miami and get a couple Lambos.

Do I sound bitter? I'm really not. I find the market to be amusing and I am actually quite happy to see other market participants make huge sums of money. The overall pie gets bigger and hopefully that means my little tiny slice also will get bigger (even though I won't be buying Signal Advance stock anytime soon....).

My overall market "feel" based upon price action and conversations with various market participants is that we are at the "risk no longer exists" stage. People are eager to invest, people who have made money on Bitcoin/crypto etc. are upset they didn't make more and they are eager to increase their positions, even if it means borrowing money to do so. Money is easy to come by (we are seeing several bought deal financings every day in the battery metals arena) and the fact that people are willing to invest hundreds of millions of dollars into SPACs is all one needs to know.

Biden's stimulus is coming and we are expected to receive more details about it tomorrow. The market is hopped up on hopium that the vaccines are a panacea of all of our ills, including the economic ones. A $1.9 trillion fiscal stimulus is a foregone conclusion at this point, and it has been MORE THAN PRICED IN by the market at this point.

What will be the catalyst to reach S&P 4,000? TSLA $1,000? Bitcoin $50,000?

At what point does the Fed say "Ok, this is concerning. We are blowing unsustainable asset bubbles and encouraging reckless speculation that IS NOT helping the real economy."?

I don't know the answers to these questions but I do know the Fed is not near creating full employment or meeting its inflation targets so we probably have further to go.

Notice the massive gap between the parabolic increase in M1 money supply and the steep decline in monetary velocity:

Bigger asset bubbles and rampant speculation in these bubbles DOES NOT equate to increased lending and growth in the real economy - the decline in monetary velocity since the 2008 Global Financial Crisis is a strong sign of poor health in the real economy, and continues to contribute to persistent disinflationary pressures. 

Turning to gold and the gold mining sector. Gold is trading $1863 as I type these words. Two years ago, if I had told you gold would be at $1863 on 1/21/2021 you would have probably been happy to hear that if you are a gold investor. If I had told you the same one year ago, you would have probably been equally as pleased. Yet, here we are today and gold investors are the sourest bunch in the entire market.

Comparisons to other assets like Bitcoin have probably made many gold bulls feel left out. The GDX and GDXJ are also basically flat so far in 2021, despite other equity indices rallying aggressively.

Gold bulls just can't catch a break it seems.

Let's have a look at the 20 year chart of the HUI Gold Bugs Index and see if we should start to get worried as gold mining investors:

HUI (Monthly)

The HUI is consolidating in a bullish flag pattern ABOVE the 2016 highs - this is a good sign and actually quite healthy from a long term structural standpoint. The monthly Relative Strength Index is also still in bullish territory, and actually appears to be poised for the next leg higher to begin soon. The MACD is about to make a "bear cross", which in the context of a long term uptrend and the recent consolidation, is actually a BULLISH characteristic.

Just as many gold mining investors and gold bulls are selling and moving into Bitcoin or other stocks/indices, they might actually be missing out on one of the best times to be invested in the gold sector. Never before have senior producers been so profitable in their operations, and never before have the long term structural tailwinds for gold been so strong.

Via @TaviCosta 

The Fed isn't tightening aggressively anytime soon. Massive bubbles and the popping of those bubbles only serve to ensure that gold will continue to find its place at the investment table.

Gold will continue to be worth more over time, however, that price appreciation over time is not linear and CAN NOT follow a predictable pattern in the short term. 


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