Macro Observations

We’re starting to see some genuinely unusual behavior all across the financial markets. And it’s behavior that could be portending some quite negative for investors. All of these things are interconnected and they’re beginning to tell a similar story. The economic slowdown in the United States and globally is real and the credit event appears to be getting closer to reality all the time. Let’s break these down one by one.

People don’t like negative outcomes so they either underestimate them or dismiss them altogether. The reverse yen carry trade has become the poster child for this. In reality, nobody knows anything for sure. Is the reverse yen carry trade over? Maybe, maybe not. I think there are a few logical arguments here as to why it isn’t over yet.

As the markets try to figure out what the Fed is going to do about interest rates, one group that has unquestionably benefited from the change in conditions has been precious metals. But what does past history tell us? Do gold and silver typically move like this as we near the beginning of a rate cutting cycle? Are the gains finished or are they just beginning?