I’m pretty sure by now – everyone has fallen under the “Bernanke spell” and is more or less convinced that stocks will go up forever. As a currency trader this is really of no consequence to me “directly” although I’ve always maintained a measure of “risk” via the SP500 – in my week to week analysis. Looking at the index unto itself it would be hard to argue that “risk is off” as U.S equity prices “appear” to just keep going up and up and up.
Although If you removed the banks ( and their reported profits in the 2nd quarter – thanks to the “Bernank”) you’d be left with an entirely different picture. Heavy weights like Apple, IBM and CAT all down, down ,and down some more.
The SP500 is now about as far stretched above its mean price ( the 200 Moving Average ) as it’s ever been in the history of the index and has taken on the characteristics of a large, thin membrane , floating translucent object. You’ve got it – a bubble.
Gold on the other hand is also stretched about as far from the mean as it’s been in a very long time, and has recently shown evidence of bottoming. As we’ve discussed earlier – since the massive liquidity injections / stimulus provided by both The Fed as well The Bank of Japan there really hasn’t been a “need” to own gold, as investors have had little need to seek safety.
TIming trades on these longer time frames is difficult for the newcomer, as well not exactly what one considers “exciting trade action” but it’s important to get a lay of the land before stepping out on the field. With “all things” as stretched as they are – the elastic band will always ALWAYS snap back. It’s important to weigh the odds of “risk vs reward” – and even more important when things are pushed to these extremes.
Could the U.S stock market continue to climb forever? as Canada’s market still can’t break higher? As Japan has just put in a “lower high”? As EU Zone continues to struggle? As the U.S dollar continues to grind lower?
I suppose anything is possible, but generally speaking – non of this exists in vacuum. I assume that Gold and the precious metals in general “should” take a large part of the “safety trade” when we do finally see the turn.
Will it be next week?
Kong, have you ever lived in the US?
Yes – in both Miami as well Las Vegas.
It has been a great ride, so If this is the problem what is the solutions thoughts
Yes of course the solutions.
My view – until the U.S/Planet finds itself on the cusp of some kind of “new advance” or “new technology” or “new means to actually create jobs” ( such as the Internet, the Industrial Revolution etc…) we will move into an extended period of malaise / down / struggle / recession / depression etc……
Some look to biotechnology as the “next best thing” others to ” green technologies” and the list goes on……
Until something “legit” actually spurs “global growth” I see alot more of the same / lower as this “easing thing” has already passed ridiculous.
It doesn’t work. It won’t work. Period.
Kong, what do you think the nikkei is going to do?
I think that any “easy money” made on the Bank of Japan’s easing has already been made (I might as well not work for the next several years based on profits made from catching the entire slide) and from here on out – we will see the “repercussions” of such drastic/ insane monetary policy.
The fact of the matter is – the massive liquidity injection out of Japan has “already” backfired via the insane moves in the bond market, and in turn the continued “desparate attempt” to contain it.
******* IF ANYONE READING DOESN’T ALREADY KNOW THIS – ITS AN ABSOLUTE CERTAINTY THAT JAPAN’S EASING WAS NOT ONLY ENCOURAGED BY THE FED BUT EVEN “STRONG ARMED” WITH RESPECT TO THE GLOBAL INITIATIVE TO GET THRU THE CURRENT CREDIT / DEBT MESS******
We are already seeing that “it isn’t going to work” via the “pop” in Nikkei and subsequent sell off ever since.
I expect an extreme move in “all asset classes” essentially wiping out the weak hands….( Yen gonna blast higher ) and then a period of flat / down / frustration / confusion.
Nikkei to make new highs??? – not in Kong’s lifetime.
Well…..I’m only 23 so…..perhaps.
Levity people levity.
23 in spirit of course. Christ, I just walked the beach for an hour in the blazing sun – and debate if perhaps I’m pushing 70.
Whew! It’s hot out there!
Thanks are you expecting the yen higher sort term or long term or both. Thanks again for the answers and the informative blog.
Gap down in NSD/USD on Sunday opening
Hi Kong & Kompany,
As usual, lots of good posts and comments over the last few days.
A few key points to mention. These are not my original thoughts. I’ve never had one.
Also, these points apply to many countries, economies, central banks, currencies, etc.
1. The historical Economic Cycle that we have come to know and love (and predict) is dead. Our world and it’s economies are now a huge, spinning ball of shit. Each country’s economy is a glob of multi-bubbles, including stocks, real estate, personal debt, personal spending, gov’t. debt and currencies. And each country’s messed up economy is dependent on other country’s messed up economies.
2. The innovations that created a new world and raised the standard of living for billions over that last 150 years are done. Remember, for thousands of years and for everyone on earth, life was a struggle to survive. Most of the time was like the Dark Ages with a few exceptions. Even the Renaissance was no picnic.
They were the Industrial Revolution (machines, electricity, mass production) and the Automobile & Airplane. In only 150 years the IR and A&A changed all of that. People starve and suffer today but only due to distribution problems caused by politics and the cruel tyrants’ lust for power.
There are and will be new innovations as Kong mentioned, and they will improve things for many, but none will be significant enough to duplicate what the IR and A&A did.
Even the PC, which I still marvel at, didn’t do it. It saves tons of labor and processes tons of data so it increases productivity. It changed/improved the work and life styles for billions. But it did not bring billions out of the “Dark Ages”.
3. Kong wrote, without a “new advance” or “new technology” or “new means to actually create jobs” ( such as the Internet, the Industrial Revolution etc…) we will move into an extended period of malaise / down / struggle / recession / depression etc……
Due to numbers 1 & 2, the latter portion, “struggle, recession,…” will be the norm for a long time. The last few decades of insanity can be undone but it will take a long time. First, we have to kill the politicians, central bankers, lawyers and a few others (joke).
4. Inflation creates the illusion of prosperity. It is the expedient thing for politicos to do so we don’t hang them. Few understand the damage created by long term inflation. Remember when a blue collar dad earned enough for a home, a car, and for mom to raise the kids so we wouldn’t become a nation of idiots. Working women are great but the main reason they went to work is because it was the only way to earn enough to support a middle class lifestyle. The middle class is shrinking and getting closer to poverty every year.
5. Finally, inflation is the most painless way to DEFAULT ON DEBT. That includes destroying the currency. It is win win for the destroyer. Pay back debt with more worthless money and make export goods more competitive. Higher interest rates hurt, but nothing like the alternatives.
6. I find intra day trading to still yield lots of opportunities. One hundred pip ranges and leverage used properly have enabled me to maintain my cash flow.
Bye for now,
Dev and everyone.
I’m just travelling today and won’t be able to respond / contribute.
Great stuff Dev – just fantastic.
I’ll be on the ground again in the late evening!
Thanks Kong. Happy landings.