What a week its been and not the week to go on vacation it seems..
The sp500 has moved down 10% in the last 5 days. Dow around 8% or so.
Oil has fallen by nearly 15% in the last week but was already more than 15% off her high of the year. Oil’s move down has been stunning.
Gold is up around 3% or so.
Dx is up a little and the aud down vs many by around 4%. New all time lows are in for the eur and gbp vs chf. Euro at 1.415 or so remains relatively strong. The Chinese and Russians used very strong language vs the US. One official in china calling the US a ‘parasite’ on the world. This means continued trouble for the USD, imo, once the trader deleveraging is done.
Many of the softs are where they were and haven’t really reacted yet to this market.
Fixed income is surging up with yields approaching new all time lows.
Many of the miners are now getting killed from copper to silver. Gold miners are performing the best though still down by nearly 10% against the underlying which is up. This is odd to say the least as very few of the miners carry any debt and their earnings will increase significantly as energy and inputs decline in value as the underlying rises. Go figure.
So where next is the trillion dollar question of course. The UBS call looks very wise now as the cyclical bull looks to have been brought down. What i still don’t understand is where was the fight? I’ve been looking back at the price action and the volume and only in the last few days has the herd joined to liquidate and repatriate USDs. The first wave down in May June was very hard won. The move back up was hard and fast with no battle. The political debate started the drift down again. A line seemed to have been crossed and nervous participants moved to safety, just in case it seems. Once again there was no particular battle. This makes for a very tough trading environment.
We knew the data was rolling over of course. But i also see stella valuations given the cost cutting and negative interest rates. Can you ever imagine picking up a conglomerate multi national asian focused blue chip co at a pe of 4 or earnings of 25% p.a. with 10% borrowings. (ok i realize HK property may be overvalued but these sorts of earnings only look expensive if we are about to really enjoy a deflationary collapse).
Technically on US equities and world equities, we have the sell off which has confirmed the end of the cyclical bull. She is very over deeply oversold. She can remain deeply oversold for longer than your wallet can sustain so this is no reason to enter by herself, i accept. Fundamentally I see Merkel has canceled her holiday to meet with Sarkozy to discuss matters. The BOJ has acted as has the ECB. In my opinion we will once again see a sustained monetary move by our masters to liquefy the system. They are determined not to let the system clean herself and deleverage. In truth if the markets were allowed to clean out the system every bank and western government would be insolvent and or bankrupt as tax revenues would collapse and the entire ponzi social security system would fall. There are too many people too well paid from this current system to let this occur.
Therefore i see this as a value opportunity to add on stella earnings. With the dm fixed income markets (ie g8) so strong (italy aside) there is no way the governments won’t use the opportunity to monetize. We cannot know exactly when this is but there is no way i would be shaken out by these spikes down and move into cash. In the last few years we have markets that move in unconventional ways, imo. Sure we have a pattern, this is true. But we did not have a battle. This makes the entire move highly suspect to my method. I cannot argue with the tape but i can temper how the tape arrived to her price point. This ‘how’ determines the ‘real’ underlying strength and sustainability of the move. Imo there is little weight this move. Participants are aware of the monetary issues and have not sold the bulk of their holdings, imo. The markets desire monetary easing to keep prices moving northward. The party has to keep moving forward or the whole thing will collapse. I would guess this time around monetary easing will come with strings, ie some capital controls on commodity trading to avoid the side effects of the easy money policies.
There are a number of reports in my in tray which I will release in the coming days on matters inc Faber who i see referenced many of the reports i published on this webside inc the Ernest Gold report as well as the ML report on Gold. Faber is targeting 1100 sp500 by the way. I suggest any targets are very difficult i would and intend to fade the move with half of my remaining cash. The basic maths of the matter must not be forgotten.. Western governments have made vast promises they cannot fund. They can only meet the obligations via inflation. We will therefore get inflation beyond the rate they increase their debts. Inflation adjusted, the US and UK currently add to debts at around 10% p.a. Inflation needs to get significantly higher to enable these massive real term increases to be diminished.
Much more to say especially on silver. I have to confess i am now down on the year inc dividends. I wrongly let the shorts all go around 12150 ym. This is disappointing but i have a feeling the money printers will come to my aid again very soon. The lack of any ‘battles’ is very telling imo. These near term issues will soon be forgotten again as the maths is really very straight forward.
All the best Rich
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