Discombobulated
Dan Norcini

The CONSTANT Price Index was released this morning and showed a 0.6% gain for May. Pundits were looking for 0.5%. The year over year rate on the headline number was 4.2%. The spinmeisters immediately went to work triumphantly exclaiming how "mild" the CORE reading was which came in at an annualized rate of a mere 2.3%.

You know, that is the number that excludes everything that people really have no need of in life such as food and energy and spend ZERO % of their disposable income on.

Why my goodness - that news should completely put to rest any murmurings on the part of the authorities whatsoever about the role we "evil" speculators have had in pushing prices so high. If that wasn't enough good news, the U of M consumer sentiment index fell to 56.7 in June from 59.8 in May. Stocks did their usual thing with traders bidding prices higher on the wonderful reports which were topped off by falling crude oil prices in the session. All that is missing from this parade of happiness is James Brown's old song, "I FEEL GOOD".

Folks - I know I have said this many times before but I honestly believe that this generation of investors in the US is absolutely the most ignorant group of unthinking clods that God's green earth has ever managed to produce. To think that there are enough people who actually believe the government's worthless CPI numbers and act on that belief by bidding stocks higher on the notion that such tame readings take the urgency off of the Fed to hike rates makes me tremble for the future of my nation. What do we have - the Fed ramping up M3 by something like 14% or even higher on an annual basis and these bozos are stupid enough to think that rising prices are not going to follow as surely as the sun rises in the East? Are these mind-numbed zombies incapable of seeing what is going on around them? I am beginning to wonder if some of these folks ever go out into the real world and leave their quote screens. They might learn something if they did!

The U.S. markets have become nothing but a bundled mass of contradictions. On the one hand we have the Forex guys bidding up the Dollar because Bernanke is going to hike rates (or so they believe). On the other hand we have the equity guys bidding up stocks because they assert that Bernanke WILL NOT hike rates because the CPI number is so tame. The bond guys are so bewildered that they are wandering aimlessly around the pit in circles not knowing who or what to believe. Meanwhile, fair weather friends of gold are boldly proclaiming the demise of the yellow metal’s bull run (they always do this whenever we enter the summer months) based on the notion that the Fed is going to hike and kill off inflation. These are the same guys who have their own special pair of CNBC glasses, complete with fancy carrying case, that makes them believe their own nonsense and renders the wearer incapable of seeing a $trillion-dollar-plus-derivatives sword of Damocles hanging over their head.

This is what happens when you get nothing but misleading statistics, jawboning, spin and price manipulation. And to think that this is the "efficient" price discovery mechanism at its finest! I do not know about you, but sometimes I wish we would scrap the whole thing and go back to the barter system! At least it would be honest and we would not have to deal with the yapping dogs from the Fed or the pencil pushing bureaucrats who have found computers much more to their liking seeing the ease with which they can change numbers if they do not like the end result.

“Say John, that food number looks a bit too high in the May report you are working on. See what you can do about that”. “No problem Boss, let me just hit the delete key and clear that out”. Now, what was the number you wanted this report to say again”. Okay – give me a couple of minutes and I will fix it for you”.

Incidentally, soymeal, the product made from crushing soybeans, hit a 35 year high in price in today’s session. Corn put in yet another all time high as well. But not to worry – such things don’t count because it is not in the “core”. It is only the folks who have to feed livestock and poultry, you know, the protein sources in our diet, who need be concerned about that stuff.

Meanwhile, gold is engaged in quite a titanic struggle. It managed to claw its way back from support near yesterday’s low which came in at the 860 level. That is all the more remarkable considering that this is taking place with a “NO” vote coming from Ireland on the EU reform treaty which put pressure on the Euro this morning as well as with weakness in crude and in the products.

Keep in mind folks that seasonally, the early summer months are not normally a strong time for gold. It tends to top out in May, move lower into June or July and then stabilize as it builds a base before moving higher in August and continuing to move higher into the end of the year. The best way to use such seasonal tendencies is to see whether or not a market is following its normal pattern or is moving in a contrary fashion. Any market that refuses to move lower during a period in which it historically tends to move lower is by definition a strong market. Contrarily, any market which does not move higher during a period in which it tends to move higher is by definition a weak market. If gold can hold above major support near $850 and maintain that level or higher for the next 6 weeks or so, it will prove to be most revealing. If it does not and moves down below that level, it will only be doing what seasonally it normally does anyway. Those who therefore predict the end of the bull market in gold during a period of seasonal weakness are betraying a great deal of ignorance about markets in general. Either that or they are too damned lazy to study price patterns.

The mining shares have thus far stubbornly refused to break down in today’s session. This is forcing some of the opportunistic shorts to cover. GG put in a potential bullish hammer bottoming formation yesterday. Today it has so far found willing buyers at and just below the low of that hammer formation which is encouraging but we are not out of the woods yet as there remains plenty of time left in the session. A positive close today would be quite significant technically. Bulls need to assert themselves to keep any advantage they are attempting to secure and to not squander their efforts.

Yield on the Ten Year Note is all over the place this morning. It has been as high as 4.32% and as low as 4.17%. Discombobulated is the word that comes to my mind that can best be used to describe the poor Treasury market participants.

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