None of us have a crystal ball but we do have technical analysis which on probability is proving once again a wonderful guide to short and medium term asset market direction. Levels wise we did indeed score the lower low across most risk markets and it did appear indeed to provide a wonderful trading entry for longs. Many levels across risk moved perfectly to the script. At least, thus far.
I realize there is a slight delay in posting this week so i give you the reports below but please do always have a quick look at the forum pages for updates on levels and trading entries, time allowing for posts.
Here the swiss team:
Equities it played out perfectly. Oil has been deeper than I anticipated but i do believe the bottom is in. Precious metals perfect and again the bottom is in I believe in spite of whatever happens US$ wise.
Here GS:
And here Fitzpatrick:
And here as an update:
And here a few jpegs from one of the world’s largest investments whose report i cannot post for legal reasons equity and risk recommendations and forecasts.
And here a few macro reports. We have passed a critical macro point where the single engine of America is starting to roll over. (Europe looks better but from a much lower point of course).
More to come on the macro side later.
And here MS with their excellent report on the FX weekly:
They raise some excellent questions here. Particularly the issue of “for how long” Euro Strong, Risk off correlation.
The eurusd trade is particularly complicated and you see here the divergence in forecasts between the majors. Im pretty even weight. Negative interest rates are broadening. Higher US$ rates are being pushed back. GBP has moved from 1st mover to higher rates to now likely another negative rate candidate. The SNB leads the way with -0.75% on the overnight. As the race to the bottom enters its new negative phase the ECB is near term losing its relative debasement race. If Draghi steps up in March perhaps it can regain the debasement edge propelling risk on a little harder. In this environment of aggressive competitive debasement in the face of poor economic performance precious metals shine out as the asset class of choice. The probability near term is for renewed euro weakness due to its carry trade status. No one is borrowing US$ any more and why would you. Just as equities are likely to score a lower high again the euro’s low should be a higher low as risk off suffers once again. Of course the central bankers can interfere with asset price directions and particularly carry trades but longer term the euro must be debased as the structural problems in the euro area demand this debasement to occur. 4 critical flags on ECB action are 1)Bundestag Court re OMT, 2) Bundesbank 3) Correlation between German economy and its euro neighbors 4) major German investment bank performance ie Deutschebank.
All the best for now.. so far so good but in a way this has been the easy bit. I hope all are prospering from the moves so far. Come April May things might become less easy to read. A buffer or margin for later in the year is likely to be needed for some false un predicted market moves.
Bullion wise the stage is now set for the secular bull to resume.
The historic comparison was always with the mid 1970s gold cyclical bear and dow cyclical bull within their respective secular bull and bear markets. The Dow Gold ratio moved from 3.06 to 9.47 or a factor x 3.10 in the mid 70s as gold fell and the Dow rose. On this correction in gold the ratio moved from 5.75 to 16.87 or a factor of 2.93. From 1974 to 1976 gold fell from 195$ to 102$ per ounce or a 48% decline. From 2011 to 2015 fell from 1895$ to 1070$ or a 44% decline.
From the 1976 lows for the gold price she rose nearly x8.5 to a peak of 850$ 3 years later.
If gold were to do a similar thing in the next few years this would give us a gold price of 9095$ per ounce. 10,000$ per ounce of gold seems a very probable target to me within 3 to 5 years. If this is correct it implies a lower Dow than her current levels as a gold dow ratio of approaching 1:1 seems not unreasonable.
Personally, thanks to our “wise” policy makers, i believe we will see considerable inflation (more than we saw in the 1970s) before this secular bull is don as debt levels are so much higher. So if compounded inflation ran at double the rate of the 1970s on a 1:1 ratio we would see gold price per ounce of 20,000$. Dow 20,000 within a 3 to 5 year time frame appears again, reasonable to me. In real terms, this would imply the Dow will be considerably lower than current levels.
Here Yardeni on the subject.. gold-yardeni-18-2-16
On many measures inc CPI adjusted gold is far from expensive right now.
All the best
Rich