The swiss team reconfirming their near term correction call and providing targets etc..
All the best Rich
Weekly Technical Comments.. Break of S&P500 1386 Bearish..
The Swiss team unsurprisingly maintain their bearish short and medium term views. They expect a pro commodity pro risk rally in the aud and some commodities short term but sight this as only an opportunity to sell. The Eurostoxx50 looks very weak as well as the Shanghai and Audusd and many commodities. Here the report. (Apologies for the delay i was away from the office on a mini vacation). Rich
Weekly Technical Comments.. “Don’t Chase but S&P 1425 Overshoot Possible”
The Swiss team haven’t changed their minds. They see yesterday’s new highs as a wave 5 of this trend. They still favour a near term pull back sighting the weakness in the cyclical material, industrial and transport stocks as evidence. We can see this recent rally has not carried miners or industrials with it. Other cyclicals like banks, retailers and home builders have broken out to new highs so, my view would be, its a mixed picture.
I want to point out a couple of items the Swiss team have omitted on this report. They are normally very keen on sighting the AUDUSD as the key risk on and risk off indicator but they seem to be ignoring it on this occassion.
To me, she looks to be relatively weak and hence is showing continued weakness for materials. We can rationalize this easily of course from the weak Asian and European economies. But this industrial weakness need not affect the US economy and we should not forget this point. Here below the AAII sentiment survey, which no longer show over bullishness.
So overall, to be clear, I’m not advocating chasing here either but tactical entries on some stocks with stops in place if things retrace and rollover seems very wise to me as a US drifting higher cannot be ruled out.
Once again we must carefully think through correlations and price. Why have cyclical material stocks not joined the rally? Which regions economies demand materials and which do not? The US economy is all about services not materials, industrials and transports. As the Shanghai and Europe struggle can the US sustain, given its internal demand (albeit stimulus enabled)? In my opinion the US can decouple, to an extent, from this cyclical world. Indeed i can clearly remember reading the following article from the Economist back in 2003.
http://www.economist.com/node/2050678
When you read this article above you realize how little, if anything at all, has changed. But whether we love it or hate it the US has this ability to sustain their consumer demand as they own the world’s reserve currency, the USD. The US does not rely on anyone else’s demand for her products as she sits at the top of the pyramid. Europe is more closely aligned to Asian demand than the US as more of her economy is about industrial production. (Especially in the absence of state or private increases in debt levels). The USD as the reserve currency continues to provide a wonderful advantage, for now. Ben Bernake is doing all he can to destroy the USD but for now she sustains. (By the way, I checked back and i see the UBS team have basically followed a near term bearish stance from the end of Dec 2011. This ties in nicely with the data that demonstrates most professionals and private investors have entirely missed this rally.
All the best
Rich
Weekly Technical Comments
The Swiss team’s latest technical report below. They are sticking their prior view of a topping process. 1340 as a team nerm target before a retest of the recent highs before a may-ish resumption of the cyclical bear. In my view we are likely for a setback here and now. I have no set view on any following re test of the recent highs. Historically however the sell in May rule is the probable event and this year could well be no different. Commodities look be rolling over here as does the AUDUSD. Finally worth noting that the guys have altered their downside targets in view of the breakout of the KBX (banking index).
“Potential weakness into summer in the SPX will be much milder than favoured in our 2012 strategy report”.
Here the report.
Rich
UK – Putting it All Together..
The UK and US present us with the model for how developed nation’s economic recoveries will play out. Their recoveries are built on the basis of more consumer and government debt funded by increases in taxes and debt monetizations artificially surpressing interest rates to stimulate more consumption and reductions in savings. Wages lag inflation so that, over time, living standards decline and hopefully competitiveness increase. These policies are working at every level it seems.
The policies are working as risk taking is back on the table for those with access to credit. Those without access to credit are excluded from the asset price bubbles. On each turn of the cycle those with access to credit appears to narrow.The polarizing effects on the ul’s population are horribly obvious to anyone that cares to look.
Here a few of video links on the indicators of this polarizing phenomina from the UK.
http://video.ft.com/v/1517641872001/How-is-the-economy-treating-you-
http://www.bloomberg.com/video/88624918/
And here below David Mills (BOE) recommending that mezzanine corporate finance methods should be introduced to the UK’s residential private sector mortgage markets. If they are, he suggests, we can expect house prices to out perform wage growth well into the future. Wonderful stuff from the UK’s central bank and now financial regulator. (The FSA’s role has been transfered from this year to the BOE).
http://www.telegraph.co.uk/finance/economics/9153363/House-prices-to-rise-for-years-says-BoEs-David-Miles.html
It is as if the disaster of 2007/2008 (where almost all the uk’s banks became insolvent) had never occured. It reminds me of some communist era alteration of the history books. But if you recall never have any politcal leaders in the UK or US stated that too much debt was ever the problem. If you dont learn from history you are doomed to repeat the same mistakes should be ringing in all our ears. (Thanks to AllanM on the forum pages for pointing this Telegraph article out).
Rich
No Comment – Chart of the Week
Weekly Technical Comments – “S&P1400 Likely but don’t Chase the Rally”
The Swiss team are where they were essentially. They have revised up their near term S&P target but remain very cautious on the rally and advise not chasing. They maintain an end of Q1, early Q2 top followed by a resumption of the cyclical bear. “From a cyclical perspective, May to July
should be weak for risk assets”.
Personally, I’m less certain that they are of this near term top. Technically we can all agree that the trend line is very steep and volatility has been very low. Its over bought according to mathmatical formulas. But, to my mind this is entirely possible within a negative interest rate and money printing environment. We must be careful not to be trapped by prior metrics eg the Mexican and Zimbabwean equities markets showed overbought conditions beyond prior metrics for years. (So we should logically also anticipate this occuring in DM equity markets). For now, price and fundamentals are confirming high prices so im sticking with it. Some sectors look to be about to breakout here and now inc the very important banking index. BKX or as the etf KBW. (Possibly a contrarian top indicator just in. The ‘Breakfast with Dave” Rosenberg’s newsletter has started to mutter more positive sounds. If, even, Rosenberg is starting to become bullish pehaps things are close to a top).
They also cover the “rush” up in the USD vs the JPY and the rise in the Nikkie with some useful technical comments. I’ve held a very large position borrowing Jpy to invest in equities in the US and Japan. I’m extremely bearish jpy and bullish japanese equities but the usdjpy trade has moved a long long way very quickly so some profit taking on this seems wize to me. I mention in passing one small technical issue as some reports have sighted large shorts in the jpy etc as evidence of over sold. I partially agree and near term we are likely to have a top soon but i also wouldnt get too hung up on commercial (leveraged) net short positions either. The JPY vs USD pair are a large cash pair due to japanese cash savings and bank reserves. These can influence price greatly. This cash exodus is not in any market report and it is significant as regards this pair more than most.
All the best
Rich
p.s. Hot off the wires the WF Retail Sales fundamental analysis released in the last hour or so..
No Comment – Chart of the Week
A supplementary trio on the US jobs data…
The World’s Largest Ever Balance Sheet Exposure – ECB $4trn
The ECB now leads the world’s central banks by quite a margin in terms of size and risk of her balance sheet. The ECB’s balancesheet, post LTRO2 has hit a whopping $4trn. It is a dark comedy that the financial crisis of 2008 resulted from Bank’s over inflating their balance sheet exposures. As we can see below policy makers have simply socialized the exposures from commercial banks to soverign governments and central banks.
The ECB’s swap loans (LTRO1 and 2) have accepted low quality collateral in return for new euro cash. LTRO1 even accepted Greek bonds (Issued under Greek law) as collateral for fresh ECB cash. Its a good question how these loans will ever be paid back and if they are not what the collateral is really worth.
The BOJ comes second with 30% of GDP as balancesheet exposure. Next up comes the BOE who, until recently, has been in the lead in terms of balance sheet speed of expansion. And lastly of the G4 the FED whose balance sheet is exposed to the tune of circa $3trn.
Here Bloomberg’s take on the story:
The consequences we would expect to find of bond vigillantes and a gold silver mania have not occured as yet. The other consequence of inflation, as money is debased, has, equally, not occured, in earnest, as yet. Central banks are taking actions to ‘smooth’ these indicators but for how long they will succeed will be a function of the ratio of new cash to existing cash. So long as the ratio stays in check this story of financial repression can continue a while.
Rich
“Chaos is found in greatest abundance wherever order is being sought”. (Pratchett 1994)
Im out of the may silvers i added a few weeks ago at 33.26. 33.26 is about where i entered a few weeks ago. I made some money on the day of the take down so overall im up but the whole experience has certainly left a bitter taste in the mouth.
And so, here below, some considered thoughts on the ‘pms’ (precious metals) and where we are in at present in the great monetary game that surely defines this recent period of economic modernity.
I would suggest the evidence is beginning to show that the issue of the pms will be resolved by governments and not by traders. This is important to recognise. It seems the market feed back mechanism is no longer allowed to provide the disapline they used to on government actions. The post Bretton Woods age has produced an unside down paradoxical world where foreign exchange markets reward unsound policies and peanalize sound policies. More recently we find the, so called, ‘bond vigilantes’ have evaporated. And last Tuesday precious metal vigilantes were rendered impotent by massive central & bullion bank paper precious metal manipulations. The ‘melt up’ in listed security nominal values can be induced at will via central bank liquidity actions to relieve solvency, deleveraging, growth issues etc. These actions occur as and when they are required with the free market feedback muzzled.
Whether the year 2000 .com bust or the 2012 silver take down event or the 2008 debt deleverage bubble the ‘consequences of actions’ are taken on by central banks. They are battled down via tidle waves of paper money. From one issue to another, the disapline of the free markets have been totally negated, for now, it appears.
For anyone engaged in the markets on a day to day basis, no paranoia is needed to say, it is crystal clear there are large, incumbent, vested powers that are trying to resolve monetary and geopolitical issues. And that the free markets are not to stand in the way of their vision of how to resolve current problems.
But of course there are always consequences. All the central banks do when they prevent or constrain the market’s feedback on their actions is akin to ignoring the warning lights. It seems to me that many warning lights are flashing now but they are all being ignored.
Unfortunately, as each central bank fix exaporates another is born. With each turn of the wheel the USD fiat system (inc euro, gbp) is weakened. There is no long term resolution must be clear to all. Capital is being gradually destroyed but in the absence of an alternative system this process continues and increases in scale as the troubles and the means to resolve them escalates. Will bond yields rise? Will the PMs rise? If not these two issues what is the issue that limits manipulation of the free market? With regards to silver/gold. Imo, the pms will rise, as and when, the em countries are sufficiently confident to take on the USD system. Or are sufficiently unhappy with the US and Euro monetary debasement. How might unhappiness be experienced? Via inflation? Inflation is only effective limitation of monetary debasement it seems. For the moment, EM countries are happy to take the long game. They are accumulating ‘pms’ on pull backs. The longer pms stay at low levels the longer they can be accumulated. Over time the EMs are shifting a greater proportion of their wealth into pms in preparation for an end to USD hedgemony. But this process will take a while. No near term dramatic end game is in play for the USD as yet so long as inflation stays subdued. For this reason it suits both parties to keep a near term lid on the pms. EMs accumulate and the west debases. Its a win win until a critical mass is reached where upon EMs can drive pms to the moon. It may take a while for this to unfold as EM ownership of pms is at a low level for the moment.
On the near term, for this leg up to have closed to us in the way it has seems to me to be most unfortunate. The bullion banks are in the process of covering and therefore reloading. The physical issues will continue and the pm miner’s undervaluations look set to continue for now. Those that take on the US government and central bank in the markets had better watch out. The history is not kind to those that have previously tried eg Bunker Hunt. Bunker wasn’t an idle opportunist speculator on silver. No. He was a fundamental visionary. He saw the USD debasement, unpicked it and sought to put an end all by himself, and make money in the process. It cost him his liberty and fortune as he was charged with manipulation but only after his position was crushed.
So must we all take from this history and more recent experience? Diversification of portfolios is key. You have to ensure you take an income and can achieve capital growth via other means. To depend on pms for this growth is very dangerous in a world where fiat money ensures the continuation of the entire DM political and banking executive classes.
And as for inflation? Inflation will be accutely felt when sufficient particpants move out of cash and bonds. And lets be clear, there is a mountain of capital currently parked in cash and bonds. The simple mathmatical ratio of new cash to existing cash and near cash will be the key ratio that defines inflation. It is logical to suppose that the velocity of cash moving into and out of assets will increase as we march down this road. Cash will move into assets and then experience great shocks, some of them government and central bank created. As the capital moves back into cash central banks will pull the ratio back into line so that new monetizations can occur. Cash will come back into assets until it is forced out and then more waves of monetizations will occur. This has in effect been occurred for about 40 years via central banks and or the banking system creating new money. It is just that the velocity of these cycles is increasing reflecting the system’s weakness and movement into an end phase. But, lets be clear, this end phase could last five or ten years before its volatility is at a point that renders it permanently broken.
Regards Rich
p.s. Here the Bunker Hunt story from Sept 2011 on Capsyn.
http://www.capitalsynthesis.tech/the-hunt-brothers-remembered-regulatory-lessons/
Weekly Technical Comments
No Comment – Chart of the Week
