Sand Spring Advisors LLC
Weakening Demand & Different Fractal Rhythms of Silver
June 17, 2002
by, Barclay T. Leib
Cause, reaction, and unintended consequences -- so goes the economy and the Fed's attempted manipulation of it. A rush to overbuild telecom and broadband infrastructure with overly cheap money, previously available from the convertible bond market, became a root "cause" behind the equity market collapse of 2000-2001. The Fed "reacts" by dramatically cutting rates, but these telecom companies in trouble have already done their borrowing, and the market will offer them little further credit at any price even as Treasury yields decline. The "unintended consequence" of the Fed lowering of rates leads to a final rush to refinance mortgages and establish new home building loans, keeping the consumer and property market strong -- for now. Gold and silver rally, while the U.S. dollar declines on the perception of an overly stimulative Fed and a U.S. merchandise trade and governmental budget twin-deficit starting to move out of control.
But can the last unintended consequence of a property and consumer spending boom really last? Or is it a last gasp to grab and spend cheap money? Will today's loose lending practices of institutions such as Fannie Mae and Freddie Mac soon turn into the next "causal" disaster that circles back to hurt Wall Street yet again? Is a new "stagflation" really upon us, or must we first wade through a yet-longer period of significant debt deflation beyond just corporate balance sheets and directly into consumers' pockets?
Last week, we saw evidence in various economic releases and confidence surveys of waning consumer strength. The nirvana of the mortgage refinance boom of last November-December may already be starting to dissipate a bit.
In the meantime, we look at the fractal Fibonacci rhythm of a chart like the silver market, and we are left with two distinct interpretations. If the 4.015 low of the continuous weekly silver chart made last November is truly a significant bottom, then approaching moving average support currently rounding under the market near 4.63 should hold. However, a significant risk remains that the 4.015 low was not "it." Pulling our Fibonacci bands further down, maybe this market is missing yet another low at 3.78? Yet another fractal rhythm (not shown) would suggest that the silver market could yet see 2.99.
Given our previously espoused view that weekly Heating Oil may be in the process of falling away from a huge weekly head and shoulders topping formation, and the weekly chart below of Copper that also looks vulnerable to our eye, perhaps the forces of "debt deflation" are now increasingly taking center stage with this economy instead of stagflationary fears.
Will the next "causal" shoe to drop be a consumer finally constraining spending? More and more, it looks that way to us, as the easy money of late 2001 finally gets spent. Given all this, we are not industrial commodity bulls at this time.
Non-subscribers are invited to sign up for our premium level of service below, and gain immediate access to this commentary entitled "The Coincidence of Time," as well as our May subscriber-only write-up "The Search for Survivable Themes."
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