Timing & trends
Nov 11, 2015Asian Equity markets really had no idea which way to play today after a mixed set of economic data releases. The Retail Sales was marginally better than expected at 11% (estimates were for around 10.9%), whilst the YoY Industrial Output release failed to meet the forecasted 5.8% expectation as we saw a 5.6% print. As a result most core markets closed around unchanged with very little incentive to move in either direction. In Europe all the talk continues to focus on the ECB and their next QE move and the resent press reports of potentially larger cuts to the DEPO rate. A partially close US market saw stocks drift closing down around -0.3%.
The US Dollar also gave some ground back today with gains seen for GBP, TRY, and JPY but we continue to see the Russian Rouble drift with energy prices. The DXY (USD Index) closed a quiet day slightly weaker at 99.05 (-0.35%).
Still the concerns are for a global slowdown and there is nowhere that is having a greater impact than in the Oil market. Again today, we saw prices for WTI and Brent off around 3% each, which puts the YoY level down to around -44%.
The Bond Market in Europe is something we quote most days but not so much in detail. So, as of closing this evening I want to provide a quick over-view of just how extreme the European Bond Market pricing has become. In Germany the 1yr rate for government bonds closed this evening at -0.33%, with 2yr at -0.35%. It is not until 7 years do you actually see a positive return (7’s are +0.12%) in the yield curve; with 10yr closing this evening at 0.61bp. A similar yield for the US Treasury market would be 2yr at 0.87%, 5yr at 1.71% and 10yr at 2.33%. I often quote the spread between 10yr US and Germany (which incidentally closed at +173bp tonight) but not often the peripherals.
The Italian government bond market currently rated by S+P (Standard and Poors) is BBB-; is the lowest limit that is accepted as investment grade. A view of the yield curve would see 2years at 0.09%, 5yr at 0.58% and 10yr at 1.63%. This compares with the USA (AA+) 2yr 0.87%, 5yr at 1.72% and 10yr at 2.33% implying a negative spread for a positive credit. Client could sell Italian 5yr paper (at 0.58%) buy US 5yr paper (at 1.71%) and collect 114 basis points. It is possible to do this spread at 10yrs and take-out 172bp. Similar credits with a BBB- rating would be Kazakhstan, Romania, Morocco, Azerbaijan, Montserrat and Uruguay.
….also from Martin:
Civil Unrest, Revolution, & the Phase Transition Curve
“I guess the definition of a lunatic is a man surrounded by them.” ~ Ezra Pound
Is the Fed playing mind games with the masses or is it simply another version of Britney Spears hit song “Oops I did it again”? Only this time they did not. They keep mouthing off that they are ready to raise rates and then suddenly just before the moment to pull the trigger draws near; some unforeseeable event springs up, and they kick the can down the road again. Two questions comes to mind.
Why the intense focus on what the Fed might or might not do; has the press run out of real stories to focus on. Come on we are talking about a measly 0.25% hike. In the worst of scenarios, this should be treated as a hiccup and not a major tragedy.
Secondly, history indicates that the markets tend to trend higher for up to two years after the first rate hike. Thus, a rate hike should be viewed as a positive event as it would indicate all was well. But perhaps all is not well, and that is why the crowd is panicking at the mere thought of a hike.
We, however, believe that this boring Fed might raise rates story is a non-event and have said so many times in the past.
The Fed is hesitating so much in raising rates because they know that the economy is not really strong. However, what is more, important is they are trying to gauge if the public is buying the nonsense that the outlook is improving via all the manipulated data that is being put out? If they sense that the public is buying this nonsense, then they will initiate a tiny rate hike. To some degree, it appears that the public is buying this nonsense. Whatever move the Fed makes; their ultimate aim is to find a way to embark on another wave of QE. Look at the World’s markets; while the US markets look okay, the emerging markets are taking a beating and its just a matter of time before the contagion spreads to the U.S. The only way to prevent this is to flood the markets with hot money. ~ Market Update Oct 2nd, 2015.
The Fed is still trying to gauge if the crowd has bought into their drug induced theme, which states that all work and no play makes Jack a smart chap. We used to use the word sadly, but is that really the appropriate word to use; if the crowd does the same thing over and over again. Perhaps instead of saying sadly, we should instead begin the sentence with; insanely the crowd appears to be buying into this theme. Is the economy really improving?. ~ Market Update Oct 17, 2015
The most recent jobs numbers masked a dark story. Unemployment held steady at 5.1%, but only 59.2% of Americans have a job. The difference is the unemployment rate only counts people who don’t have a job and are actively looking for one. The labor force participation rate is perhaps a more accurate gauge of the economy. It includes people who’ve given up, don’t want to, or can’t work, and it fell to 62.4% last quarter Full story
If this story is taken at face value, the economy should be in tatters and people should be rioting. Instead, all appears calm; the masses suffer silently and lay the blame on forces they claim to have no power over. As long as they take this approach that is exactly how things will play out. It is, for this reason, the Fed is not raising rates; they know that they have just barely managed to create the illusion that things are stable. They are in no hurry to pop this bubble. While many call the Fed stupid and short-sighted; the truth is that at every twist and turn of the road, they have walked away unscathed. While the gold bugs wait for their day in glory (many have already passed away waiting for that glorious day to dawn), they do not understand that even if Gold moves to 10,000 which it will not, the Fed has, is and will still win the game.
Even if Gold could miraculously surge to $100K it would mean nothing; if you control the printing press, you just push the pedal to the metal and print a lot more and problem solved.
Never get caught up in any battle, for a battle is one of many in a war. The idea should be to win the war and not the battle. Before engaging your opponent, look around, gauge the situation and plan a course of action. The masses are frozen, they bitch and moan about how bad things are, but when push comes to shove, they opt for being shoved, instead of pushing back. In the end, their role as history indicates is that of cannon fodder. Do not feel sorry for the masses and do not attempt to educate them. Should you decide to undertake this unworthy venture, your reward will be a fistful of pain.
The masses are infamous for punishing the wrong person for the wrong crime. There is no such thing as a good Samaritan in the land of investing. A good Samaritan is usually a dead Samaritan and heroes usually have very short life spans. Pay attention to history, you will never see the masters of deceptions or the shadowy elite players move out of the shadows and try to play the role of a hero or a good Samaritan. These roles are created for the masses; they are sold a bag of lies, and they gladly buy into this mumbo jumbo.
No matter what the nuts out there state; the Fed is not hell bent on raising rates, they are not scared or nervous about anything, and they backed into a corner. They have backed everyone else into a corner, and the ones that are scared are the ones makes these idiotic proclamations. The Fed might raise rates, but their goal is to find an excuse that the masses will buy hook line and sinker, to come out with another round of QE. The whole purpose of this experiment is to find out just how far the crowd can be pushed with the proper brainwashing. Right now they are taking notes so that the central bankers of the future can build on these lessons and push the envelope even further. The reason there is no repeat of 1929 is because they took notes and learned from their mistakes. These guys are nefarious geniuses. They give the impression of being impotent, but they are omnipotent. So how do you win? The answer is simple. Throw your silly emotions and bias out of the window and ride on their coattails. End of story.
“It is wrong to think that misfortunes come from the east or from the west; they originate within one’s own mind. Therefore, it is foolish to guard against misfortunes from the external world and leave the inner mind uncontrolled.” ~ Buddha
Tactical Investor where crowd psychology and technical merge seamlessly.
Puru Saxena Says: ” Markets Are So Distorted And So Twisted That Reliable Indicators Are No Longer Working. Everything is Backwards”
As part of the ongoing series of Austrian School of Economics, FRA Co-Founder Gordon T. Long sits with Puru Saxena, of Puru Saxena Wealth Management. Mr. Saxena is the portfolio manager of his firm and he oversees discretionary investment mandates. He is also responsible for heading the firm’s research process and formulating investment strategy.
Mr. Saxena is also the editor of a monthly economic report – Money Matters. A highly acclaimed publication is read by professional and retail investors in numerous countries. He first began publishing his monthly economic report in June 2000 and it has now attracted a wide following. Prior to establishing Puru Saxena Wealth Management in 2005, he was a Founding Director and President of financial services firm – Bridgewater (now Tyche Group), where he oversaw the firm’s investment strategy.
LIMITING CENTRAL BANKS BALANCE SHEET GROWTH
“Financial markets are so distorted and so twisted that reliable indicators are no longer working. Everything is backwards”.
People are so conditioned now of believing the stimulus jargon that every time a central bank utters the word stimulus, everybody starts buying stocks again. If you look at japan, they have tried this for nearly 25 years now, and we have had recession after recession. There are zero percent short term interest rates, and not much economic growth in Japan. I don’t think this monetary experiment is going to end very well.
CENTRAL BANKS FUTURE ACTIONS
“I would be very weary by promises from the government and central banks at this point because they have a vested interest.”
I think they will try and inflate this in a typical Keynesian manner. We have negative interest rates already throughout Europe, so it won’t surprise me if you have it in the US.
“The problem isn’t a liquidity problem, it is a debt problem.”
The world has never been so indebted; the debt to GDP ratio is now over 280% globally. When you have this much accumulated debt, history has shown that economic growth slows down. Economic growth, by definition, comes from the private sector taking on more debt. When people borrow, they bring forth tomorrows consumption, today, and they consume without ever buying any assets.
“Whatever they’re doing, it’s not working.”
Central planners do not realize that if somebody is already in debt, they are not going to borrow anymore with interest rates at zero. We are currently in a deflationary environment. Central planners are trying to fight this by implementing quantitative easing, and all sorts of bizarre experiments. But at the end of the day the monetary velocity is at a decade low.
At some point, maybe even next year, we are going to get a recession. We are going to get a global recession which will occur at a time where interest rates at the short end of the curve are already at zero.
“Asset prices are going to deflate quite sharply and when this happens, there will be chaos.”
CURRENT MARKET MISCONCEPTIONS
“Major mistake people have is that QE works, or stimulus works.”
First one is that QE causes hyperinflation and therefore everybody drove up the prices of commodities to multi year highs. Investors still believe QE causes economic growth, I do not believe this. People think stimulus will cause economic recoveries and economic growth. When people realize stimulus actually leads to anti-growth you will see a big sell off in equities.
The one thing I’ve learned from being in this field from 16 years is that markets go up and markets go down. There is no one way street.
TO DIVERSIFY INTERNATIONALLY
“I think investors should keep a large chunk of their money in cash right now and long term treasuries are also a good idea.”
But if you’re look at a long term horizon, (i.e. 5 years+) I think investors should start looking at the beaten down commodity areas. Commodities have been decimated over the last 4 tears. If it was me I would not buy any equities right now. We personally don’t own any stocks on the long side for our clients at the present. The downside risks for many stocks is greater than their upside potential.
Abstract written by Karan Singh karan1.singh@ryerson.ca
Here’s a forecast chart I’ve been showing to members of my Real Wealth Report and Supercycle Trader this year. It is a must-see chart.
It’s a form of artificial intelligence, called a neural net, a forecasting model I use. This chart is of gold, and includes all known fixed and dynamic cycles that impact gold’s price.
The program finds the probable cycles in gold’s price fluctuations, dynamically updates them with billions of calculations, and then it projects forward a synthesis of those cycles to show the probable path of price.
The green line is the forecast line. The black line, the actual closing price of gold.
Uncanny, eh? This is one of the main tools I use for forecasting, not just in gold, but in all markets.
Now, let’s get to the exciting stuff. Remember I told you that this November was shaping up to be an ideal target low for gold? Throughout the year I mentioned it several times in this column. Just a few weeks ago I also told you that gold’s October rally was nothing but a bounce.
And now look at gold: It topped right on cue in mid-October and since then gold has plunged from its October forecast cycle high — shedding $108, a whopping 9.1% in less than a month — and is now plunging into a November low.
In the words of the late and great Jackie Gleason, “How sweet it is!”
So what’s next for gold? Can gold move still lower? Will this be a major bottom in gold?
What about the subsequent rally that is forecast on this chart (green line)? What should you do about it?
Let me answer those questions now …
FIRST, as this forecast chart clearly shows, gold can indeed move lower — into Wednesday, November 25.
That does not mean gold will continue to go straight down. Gold has already lost $108 since mid-October and is oversold on a short-term basis. So don’t be surprised if you see a mild bounce or two. But according to the forecast models, gold should — yes — head lower into November 25.
How low can it go? This is the tricky part. Cycles do not tell you much about price. They are about timing and turning points. My other tools come into play to determine price forecasts, and here is the bottom line:
A. Gold has major support at the nearby former low from July at $1,074. That low may hold temporarily, but it should give way heading into November 25. Once it does give way …
B. Gold’s major support levels will then be found at $1,063 … $1,035 … $1,005 … $984 … and the $905 to $890 area.
Right now, it’s simply too soon to say. But I suspect, based on early indications from my price projection tools, that gold will fall to at least the $1,035 level.
Ideally, I would like to see gold fall below $1,000. That would scare the dickens out of almost every gold investor on the planet, thereby setting up the market for an even more powerful rally to follow.
SECOND, and very importantly, as to whether or not this will be a major bottom in gold, here’s what we need to see …
A. For the move down to qualify as a major, final low in gold’s bear market since 2011, gold must break the former low at $1,074 and test the next major support level at $1,035.
B. If gold holds the prior $1,074 low — or falls through it but does not test major support at the $1,035 level — then odds are that it will NOT be a major, final low and that instead, gold will then rally, but decline again into April 2016 to yet another new, low.
If that is the case, then the new low that occurs in April 2016 will likely be around the $1,000 level, and it would then be the final low.
Either way, gold is nearing a final, major low. Hopefully, it will come sooner rather than later, in April of next year.
THIRD, as to the rally forecast on this chart, yes, it’s likely going to be a doozie! Moreover, that rally is likely to occur whether or not gold breaks its prior low at $1,074.
Stay tuned …
Best wishes,
Larry
Today King World News is featuring a piece by a man whose recently released masterpiece has been praised around the world, and also recognized as some of the most unique work in the gold market. Below is the latest exclusive KWN piece by Ronald-Peter Stoeferle of Incrementum AG out of Liechtenstein.
By Ronald-Peter Stoeferle, Incrementum AG Liechtenstein
November 10 (King World News) – The Unseen Consequences of Zero-Interest-Rate Policy – Short-term vs. long-term effects of economic policies…..continue reading HERE
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