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Gold Top


I have always coveted owning a vintage guitar from my birth year, 1954. The iconic Gibson 'Gold Top' is amongst the most highly prized from that era, although the tonally superior ''59 Sunburst' is a more highly valued collectible. Nevertheless, I follow the vintage market with interest.

Last Friday saw the high water mark in valuation for the vintage axe market when David Gilmore of Pink Floyd fame sold his personal guitar collection, raising $21.5 million for what amounts to a pile of old wood and steel. His Gold Top, an unremarkable item which he rarely used due to his Fender preference, fetched $450K. His prized 'Black Strat', used on 'Dark Side of the Moon' went for a smooth $3.975 million.

Recently real gold, you know - the "archaic relic" of investments - is back in the news. Gold, the ultimate collectible for the past 5,000 years, has signaled its presence on the investment landscape, breaking out of a huge 6 year base (below). The 'Fed pivot' has prompted this move more than any other factor. Stock investors, shunning sectors that are exposed to the economy, are grasping at any asset that looks stable during periods of economic upset. Bonds, Bitcoin, and until yesterday IPOs, fit the bill nicely. But Gold is the granddaddy of them all.

I have always believed gold is an asset the performs well during periods on 'excess' and/or 'duress'. We have plenty of both right now, given the geopolitical backdrop. The common catalyst in both excess and duress is low or negative real rates.

During periods when the central banks are easy, responding to perceived 'duress', zero carry assets like gold can perform well. With U.S. 10 year bond yields dropping below the expected forward inflation rate, that condition now exists. Now that the last hold-out, the U.S. Fed has signaled its intention to cut rates, gold has been unleashed, free to run wild.​ This should eventually mark the top of the current bull market.

Gold - 2012-19

The message of the markets is clear. The consensus has spoken. There can be no debate. The events of 2019 have pushed markets into a corner. People are getting out. Equity fund redemptions are accelerating as frightened risk takers bail out. Haven assets are in vogue. Bonds are telling a stark message, as the hoped-for late cycle environment has failed to materialize. The rotation trade has failed yet again.

Bullish contrarians are getting their clocks cleaned as they argue "Value over Growth" "Eurozone over U.S" and "Cheap versus Expensive". The basic premise that underpins these hopes is a co-ordinated positive global growth environment and rising rates. Good luck with that.

But with ever lower risk-free rates, the investment force feeding continues unabated. And short sellers need not apply. The Fed is a formidable foe in terms of winning the race to the bottom. Deflationary forces have hog-tied the Fed and forced it to capitulate, cushioning the downside risks.

The Fed is having policy dictated to it by market forces beyond their control. After last years' false hope of a successful reflation ended in the December panic drop, Powell et-al are dancing to the markets tune.

To make matters worse, President Tweety Bird has tried to jump out in front of the parade by proposing rate cuts as a cure to his self-inflicted wounds from the tariff-induced slow down. If the incoming data fails to improve by next month, the Fed will look stupid in not cutting rates. But they will also look stupid for doing so, seeming to have caved into Trump's rate-cut click bait.

This morning, New Home Sales and Consumer Confidence just wiffed again. Over to you Jerome. "It's the economy stupid - 2.0".

I won't be buying any over-priced collectible guitars anytime soon, just as I'm not playing the short-term haven trade. Sitting out the market is a nice luxury when you don't have short term performance pressure.

Besides, I already have a prized possession. My 1969 Gibson ES-150 that my father bought me that year. I'd rather crank up the amp, plug in, and enjoy the music than chase the momentum.

We will see this week at G-20 if Trump and Xi can kick any cans down any road. A major dust-up can't be ruled out either.

Hmmm...'Peaceful Easy Feeling' would be a good song to work on.

Risk Model: 2/5 - Risk Off

Only the market level itself is in a positive position (RSI and 200DMA). The volatility, sentiment and inter-market elements are all signaling risk off. Sentiment is trying to bottom, as cooler heads prevail entering the G-20 and July Fed meetings. But the depressed feelings emanating from retail investors is pushing hard on the haven trade. We know Bonds, Utilities, Reits, Bitcoin and Gold are expensive, but we just can't bring ourselves to buy cyclical risk - especially when the curve remains inverted. Hence the signal from the model.

Can I make a suggestion? Turn the TV off and listen to some Pink Floyd.


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