Archive

Archive for Jul, 2016

Market update

Jul 24th, 2016 No comments

The initial BREXIT shock is now history and the UK begins the process of leaving the EU under the guidance of it’s new prime minister. This is likely to affect the EU as well as the UK with probable UK recession and indications from the ECB that additional stimulus is ready to be applied, as the whole process will take a long while yet to work through. Japan’s election of Abe indicates large additional stimulus, but nothing has changed and global growth rates and inflation remain anaemic with remedial stimulus packages still not working.

Impacts on currencies are a direct result of all this, with:

  • Large depreciation in the British £;
  • Drop in the value of the Euro, with more to come;
  • Intended drop in the value of the Yen;
  • Increase in the value of the US$;

The Equity / Bond market Dichotomy continues

International stock markets maintain their broadening top patterns and sideways movement, except for the Dow Jones Industrial and S+P500 indices in the US inching up to new highs. This condition continues to promise better economic times ahead.

Interest rates remain at record lows with bond yields continuing to indicate economic prospects are dire.

Rising equity values on stock markets and dropping yields in the bond markets are opposites and cannot both be correct: Rising stock markets promise a euphoric future while dropping yields in the bond markets promise the opposite.

Consider the S+P500 graph below indicating new equity highs.

S+P500small

Bond yields continue to plummet with many now negative. As an example, consider the 30 year US Treasury Bond yield which continues to plummet in this view since 2008 at the time of the global financial crisis.

US 30yr Bond yield 2008small

Currency values

The US$ has broken up through it’s diagonal downtrend resistance and is set for higher values. This is despite no particular economic good news from America but rather from global economic woes: It also appears now that the US Fed is unlikely to increase rates during 2016 because of this.

US$ Indexsmall

The Gold Market

The Gold market bottomed in Dec 2015, coinciding with a major 8 year cycle low, and is currently building the start of the new 8 year cycle bull market. Consider the gold price chart below indicating the cycle structure.

Gold cyclessmall

The major 6 month cycle lows can be clearly identified during Jul 2015 and Jun 2016, with the new cycle lows at the start of the new 6 month cycle beginning in Jun 2016.

In support of the upward moves we need to also view major indicators which corroborate precious metal movements historically, such as the:

  • Dow / Gold ratio, which should be declining if gold value is to rise;
  • Gold / Silver ratio, which should be declining if gold value is to rise;

Consider the Dow / Gold ratio and Dow / Silver ratio chart below

DJ ratiossmall

Both these ratios are declining which is positive for the shiny metals. The traditional range for the gold ratio reached low points of 3 in 1932 (in the depression years) and 1 in 1980, and a high of 45 in the year 2000. The target low is at <1 in the current bull market cycle (indicating low equity / high gold price), and with the ratio at 14 currently this indicates a significant reduction still to come from lower equities and higher gold price.

Now. consider the Gold / Silver ratio chart below which is in a very distinctive declining phase: Positive for the metals.

Gold silver ratiosmall

The traditional range for this ratio is a high of 100 (low gold price) and a low of 10 (high gold price) with the figure at 67.22 at the moment, indicating a significant reduction still to come from a rising gold price.

A stronger US$ will retard stronger metal prices however, and always needs to be considered.

Categories: Currency, Equity, Gold Tags:

Why Stock Markets will continue to Rise forever

Jul 17th, 2016 No comments

Why stock markets will continue to rise forever or why they will collapse. It is now 7 years since the stimulus responses to the global financial crisis of 2007 / 2008 began, and there appears to be no end to this with the EU and Japan especially intensifying efforts to re-ignite growth. Economies remain reluctant and central bank remedies appear to be unsuccessful.

The imperative of central bank monetary policy is generating growth and inflation, and the low (and sub-zero) interest rate policy has caused the worldwide boosting of asset prices such as stock and bond markets, etc., which unfortunately refuses to boost demand: Inflation remains elusive. This is an ever more attractive environment for Gold and Silver because confidence in central banks and the current international monetary system is eroding. Abe’s election in Japan is to herald a wave of new QE and there is much evidence that ‘Helicopter’ money will become a reality. If this were to succeed in finally igniting inflation then this would add to the attractiveness of Gold and Silver.

 

The Greatest Dichotomy in the History of Financial Markets

Equities     It is often said that whilst interest rates are low (let alone zero or negative) then equity markets cannot collapse. And so it has proved, with world stock markets having risen from 2009 to form massive top patterns which seemingly refuse to collapse: The US markets are now reaching new highs. But these new highs are in spite of corporate results which are not as stellar – meaning investors are placing higher valuations on shares (with higher PEs) than are justified, which in turn means a more euphoric view of a better future.

Bonds        Interest rates are at record lows with bond yields now lower than during the Great Depression in the 1930s. In other words the bond market is indicating prospects for the US economy are dire. Bond yields elsewhere have also plummeted: In Switzerland the yield on their 50 year Treasury Bond has now gone zero.

So, a euphoric view on the stock market and a dire view on the bond market. This cannot be: Bonds are pricing in Armageddon and equities are pricing in a new golden age.

Traditionally, the bond market has attracted demand for yield and the stock market has attracted demand for growth, and what we have now is the reverse. This is an artificial circumstance generated by the activities of central banks, and the world has ended up with bubbles in both markets, in a desperate search for yield.

 

Will the Bubbles Burst?

What might be the pin that finally pricks the first bubble?

  • The UK has voted for BREXIT. Who might be next;
  • A banking crisis is developing – will Italy be first;
  • Terrorist atrocities continue;

 

“There is no doubt there are and will continue to be unintended consequences, and the further we move away from something conventional into unconventional, the ratio of unintended consequences to intended consequences will rise” Erik Weisman.

Categories: Equity Tags:

Big Moment in Gold and Silver

Jul 3rd, 2016 No comments

This was a monumental  week for precious metals: Gold and silver have broken up through final resistances and are now set to continue the confirmed bull market that will take prices up another 10 or 20 fold in the next 5 to 6 year cycle. Massive inverted head and shoulders patterns that have been building over the last 2 years have broken through on the upside.

This presents a fascinating balance between threats and opportunities as international equity markets strengthen in the wake of Brexit anxiety recovery but still maintain their dreadfully threatened positions in massive top patterns, while precious metal miners now promise stellar growth in line with the metals. General equities require huge buying demand to lift absurdly top heavy markets which are held aloft by ZIRP and NIRP and other questionable central bank activities.

The ills of the world are global and isolated shocks such as Brexit will take time to work through the system, with much worse to come still. Many commentaries are alerting to imminent potential devastation in financial collapse with the authorities unable to provide remedies that work.

Gold

Gold has broken up through telling resistance levels in a variety of test templates with the bottom at $1045.40 on 3rd Dec 2015 now confirmed as all the key ratios also strike positive, including Dow : Gold, and Gold : Silver, etc.

Goldsmall

Silver will out-perform gold in this bull market and all the above test templates are equally positive for Silver. Expect short term increases in the price of gold to $1600 and in the price of silver to $25, in line with technical analysis theory of rising by the depth of the head.

Silver2small

However, an interesting aspect of the Silver potential is to consider:

  • Silver price rose to $50 in the 1980 peak;
  • Silver repeated this in the 2011 peak, forming a double top;
  • Silver is now at $19 and is expected to rise much higher during the current bull market;
  • As it rises above $50 level on the exponential graph below, so it forms a very bullish ‘Cup and Handle’ formation;
  • In technical analysis this means it will rise by the height of the cup;
  • A rise of this magnitude on the exponential axis means Silver is expected to reach $500;

Silversmall

Expect Silver to briefly touch $500 in this bull market cycle.

Categories: Equity, Gold Tags: