The commonly used words algebra and algorithm derive their provenance from the great Persian mathematician al-Khwarizmi who lived from c. 780 to c. 850. The Latin form of his name, “Algoritmi,” is the source of the terms we know so well. Another related technique is called heuristics. According to Wikipedia, heuristics are utilized instead of algorithms “where the exhaustive search is impractical” and “to speed up the process of finding a satisfactory solution via mental shortcuts to ease the cognitive load of making a decision.” That must also be the source of the term “no brainer.”
Whether we saw algorithms, heuristics or no brainers at the end of the week, we saw evidence of the “invisible hand” of the Wall Street and the central planning gang at work….
Like clockwork, the S&P 500 once again bounced smartly off of the 200-day moving average, despite a horrific jobs report and substantial internal damage to the leaders within the stock market. On cue, the mainstream media concluded that the jobs report was really no big deal as one does not require employed people as a critical component to having economic growth. The bad report was blamed on the weather.
[amazon asin=146997178X&template=*lrc ad (left)]The reaction to the jobs report was striking. For a very short period of time, the stock market futures sold off precipitously, but then smartly reversed the downward slide and roared ahead in the opposite direction. Many of the leading companies that had suffered severe declines during this correction regained a great deal of the value that was lost. Like clockwork, we got our algorithmic/heuristic pullback, and it is now back to the races. At least that is how it looked and felt when the closing bell rang on Friday.
Our interpretation of the action on Friday is that the market participants correctly perceived that the jobs report was horrible, but then realized that it really means that the Fed is going to have to take action once again. The report reinforced that we are trapped in a situation where the only two solutions are more printing/debasement or economic collapse. The central planners proactively only know how to do the former.
The TLT is an exchange-traded fund that mirrors the return on the 20-year Treasury bond. The TLT and gold have been two of the best performers since the start of the year, outperforming the popular stock indexes by a[amazon asin=0984017836&template=*lrc ad (right)] substantial margin. It continues to be the case, but with the rally toward the end of the week in equities, there might be a change in the wind for relative returns if the Fed is suspected to be ramping up the quantitative easing. We have probably seen the lows for Treasury rates and the rates will trade in a narrow range with a upward bias. To have both gold and 20-Year Treasuries showing near-identical returns suggests to us that markets have been betting on more, not less QE, and that the talk of continued tapering is just that.
The same can be said for gold and silver. It is very obvious that the manipulation is alive and well. What has been different, though, is there definitely seems to be a significant base that has been building for both metals. Silver has been trapped in a very tight trading range between $19 and $20, but the trading range for gold has been migrating higher. Not too long ago, the top looked to be $1,200. The next top was $1,250. The most recent top has been $1,270, but it feels as if we are close to breaking through it. Perhaps this is the “managed retreat” that has been mentioned before on KWN.
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