As the game enters its glorious final weeks, the chill of fall signals the reality of defeat for all but one team. The fields of play will turn brown and harden, the snow will fall, but in the heart of the fan sprouts a sprig of green.
-- John Thorn
In my various Buzz & Banter postings
(subscription required), Lead-Lag Reports, and writings here on Minyanville
, I have continued to stress that intermarket trends are warning of a correction in risk assets. As I said yesterday
on CNBC, this is not about earnings, but about something bigger – the return of the deflation pulse. The market is saying that “unlimited may not be enough” given the Fed's announcement to pump $40 billion/month to increase hiring. This seems almost unthinkable given the blind belief by what I call “nouveau bulls” that the “Bernanke Put” means stocks can't go down.
And yet, that appears to be what is happening. How long it lasts is unclear, but the deterioration within the markets is now undeniable. Many things should have happened post-QE3, but didn't. Remember how gold (GLD) was supposed to soar? Take a look below at the price ratio of the SPDR Gold Trust Shares
(NYSEARCA:GLD) relative to the S&P 500
(NYSEARCA:IVV). As a reminder, a rising price ratio means the numerator/GLD is outperforming (up more/down less) the denominator/IVV.
Gold relative to stocks bottomed mid-August as talk of monetization from the European Central Bank was coupled by hope for aggressive monetary stimulus from the Federal Reserve. That hope resulted in a nice spurt of outperformance in the precious metal. But notice what has happened since then. Gold is now underperforming
QE3 and the reflation that one would think should come with it. It remains to be seen if this is simple indigestion or not, but the message here is clear: If the Bernanke Put means inflation and higher risk assets, it simply ain't happening based on expectations right now. And yes – that likely means a correction is at hand.
No positions in stocks mentioned.
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