As we approach the festive season around the world, this is probably one of the last major blog updates for the year. With Christmas holidays tomorrow and new year celebrations next week, the up and coming week could be a quiet one in the financial world. Volumes and news headlines usually die down until early January. So with that in mind, I will do a little bit of a global macro summary in the current post, so let us begin.
When I look at the overall global macro picture for risk assets, I get a picture of an ending investment cycle. Let us understand that the majority of risk assets have bottomed between October 2008 and March 2009. What followed next was a dramatic reflationary bull market, which has lasted for some 4 years. The S&P 500 is the main poster child of this move, and one of the most followed assets in the world. Its bull market is still alive, but with a gain of 114% since the lows, most likely close to the end. The German DAX has approached a major resistance zone being up more than 50% since last year's October lows. With that in mind, I'd argue that the majority of the equity gains are now just about done.
Commodity currencies and Asian currencies are highly correlated with the S&P 500 and therefore will follow its leadership. Recent price action suggest a topping process too, especially with record high bullish bets on the Aussie Dollar. Commodities continue to under perform all other asset classes and look the weakest at present. Industrial commodities like Crude Oil and Copper have been struggling since the early parts of 2011, as China slowed down. Despite money printing, commodities have not been able to regain upward momentum, but in my opinion the secular bull market is still alive and well. Let us use the magnifying glass on some of these major assets.
Commodity currencies and Asian currencies are highly correlated with the S&P 500 and therefore will follow its leadership. Recent price action suggest a topping process too, especially with record high bullish bets on the Aussie Dollar. Commodities continue to under perform all other asset classes and look the weakest at present. Industrial commodities like Crude Oil and Copper have been struggling since the early parts of 2011, as China slowed down. Despite money printing, commodities have not been able to regain upward momentum, but in my opinion the secular bull market is still alive and well. Let us use the magnifying glass on some of these major assets.
When it comes to the US equity market, I tend to be a big fan of following the internal mechanics. As the old saying goes, the bull market is at its strongest when breadth is broadest and its weakest when breadth is narrowest. Looking at the extraordinary gains out of the March 2009 lows, one can conclude that the breadth has started to weaken since March 2012. There are now less and less stocks remaining above the 200 MA and a very bearish divergence is in place. This lets us know that the bull market is approaching its top, and while the process of sideways action could go on for longer, it seems to me that leaders like Apple are signalling that the best is behind us.
Sentiment also confirms this picture too. It is worth noting that real market bottoms and sound buying opportunities occur during times of panic, when the volatility spikes and bearish sentiment starts reaching extreme levels. Since October 2011, all we have seen is complacency and the two indicators above aren't the only ones telling us this. Whether it is credit spreads, implied volatility, options sentiment, cash levels or a variety of other indicators - all of them have been signalling that investors remain loaded up on risk. Therefore, I continue to believe that this is one of those times when selling the market looks dangerous during the present, but by the time the end of 2013 and early 2014 comes about, it will look almost obvious in hindsight that one should have sold out near the top in late 2012.
There has been a lot of talk about the bond bubble finally popping and interest rates rising. As the Fed has now engaged into QE4 with $45 billion of monthly Treasury purchases, this is definitely a possibility. Furthermore, the Long Bond in the chart above has achieved amazing gains over the last couple of years and, in my opinion, remains extremely overvalued. There is no way that I would ever lend my capital to the US government at 1.7% interest for 10 years. That is just ludicrous.
But one thing puzzles me, is the assumption that bond prices have topped during a period of very low credit spreads and very high inflation expectations. This is very unusual, because that type of a cocktail mix usually signals that Bond prices are about to bottom instead of top. What is more common during current conditions is a sign of a risk asset top. Before I have full confidence that the bond market is finally changing its trend and turning a corner, I would like to see one more deflationary shock, which would force credit spreads to widen and inflation expectations to collapse. That could force a lot of money into a final vertical blow off top for the great bond bull market (similar to the Nasdaq in 1999).
The currency market globally has been subject to major manipulation of what one could call a currency war. Central bank interventions have turned towards extreme debt monetization. The Fed is printing money, the ECB is printing money, the BoJ is printing money, the BoE is printing money, the SNB is printing money, the PBoC is printing money and the rest of the central banks are cutting interest rates. It seems that everyone is trying to stimulate their economies by lower their exchange rates. Since the Fed has started its QE infinity program, the Dollar has been weak. Furthermore, it has also lost its 200 day MA and seems to be rolling over. However, I am personally not 100% sure just yet that the Dollar has peaked. There seems to be a lot of negative fundamental developments that could occur into 2013 and we should all know that during times of turmoil investors almost always rush into the US Dollar.
Source: Short Side Of Long
Another non-believer of the current US Dollar weakness and QE policies is Gold. Even though The Federal Reserve is printing $85 billion per month, as they try to weaken the Dollar, precious metals like Gold and Silver are currently not buying it. The base case scenario is that Precious Metals ran ahead of themselves in August of this year, just as QE3 was announced. But let me make one important observation: Gold should be rising rather rapidly with the current "favourable" fundamental news, but it is doing nothing of the sort. As I always say, whenever an asset fails to rally on the back of "favourable" news, it means that it could be discounting the up and coming "unfavourable" news. What could this be?
In my opinion, what is occurring here is the end of the business cycle. Policy makers throughout the world are trying to prolong the expansion, which is synchronising into another slowdown. Many market participants continue to bark like Pavlov's dogs at Fed monetary easing, using quotes like "don't fight the Fed" and "the Fed won't let assets go down", but the truth of the matter is that the one asset class which tells us if reflationary policies are working or not - Gold - is just not reacting right.
Since July and August of 2012, I have maintained a primary view that deflation will come before inflation. In my opinion, a deflationary shock will surprise the majority of investors at first, despite everyone positioned for a rise in assets (rise in yields, equities and commodities). That could mean a serious correction in all risk assets including equities, risk currencies and industrial commodities. Obviously, policy markers will not let another slowdown turn into a full blown Lehman 2.0, so they will really turn up the heat on easing, which will make the recent QE3 look like a walk in a park.
However, we could all be wrong with our forecasts, so what could also occur is a secondary view where we just enter an inflationary spike almost immediately into 2013 due to all the money printing around the globe. However, I am reluctant to think this view will occur due to two reasons: a) it is a completely consensus view and the majority are almost never right; and b) assets like Gold are not buying into the reflation story just yet.
Regardless of what occurs, I enter 2013 long PMs and short US cyclical stocks. The way I have positioned myself is to be long precious metals in case of an inflationary boom and short US cyclical sectors if a deflationary shock comes about first. If inflation comes first, that will most likely create a huge commodity spike, similar to that of early 2008, while stocks will start to struggle like in late 2007. On the other hand, if deflation occurs first, while precious metals could be sold down hard I also hope that my shorts on other risk assets protect me and balance out my fund NAV. At that point, policy makers will increase easing to extreme levels in fear of a Lehman like situation reoccurring. I will then take my profits in shorts and purchase even more precious metals, averaging down my investment price.
Also, I would like to wish all my readers a very Merry Christmas.
Trading Diary (Last update 09th of December 12)
- Economic Outlook: The global economy continues to slow towards a recession, as we find ourselves in the very late cycle of the expansion. United States growth is anaemic, while the Eurozone and Japan are in a recession. German CEOs see the business cycle moving deeper into a downturn with a high probability of a recession, with Japanese business confidence continuing to shrink. Chinese growth remains slow, with a massive credit bubble lingering in the background. Most likely, a hard landing will not be avoided.
- Equities: Short positions are held in various US equity sectors, which include Dow Transports (IYT), Technology (XLK), Discretionary (XLY) and Industrials (XLI). Large put options have been bought on Apple (AAPL). Call options have been sold on Homebuilders (XHB), JP Morgan (JPM), Amazon (AMZN), IBM (IMB), Commonwealth Bank (CBA), Adidas (ADS) and others.
- Bonds: There isn't a lot of exposure in the bond space, as we believe this sector is experiencing euphoric investor demand. Call options have been sold on Junk Bonds (HYG). Plans to short Long Bond Treasuries (TLT) in due time.
- Currencies: Long positions are held in Japanese Yen (FXY). Short positions are held in Australian Dollar (FXA). The trade is now essentially short Aussie / Yen cross. Put options have been bought on British Pound (FXB) & Canadian Dollar (FXC). Put options have been sold on Japanese Yen (FXY).
- Commodities: Long positions are held in various commodity sectors, which include Silver (SLV, SIVR, PSLV, Comex futures), Agriculture (RJA, JJA) and Sugar (SGG). Plans to increase longs in PMs and Softs in due time.
What I Am Watching
Tiho I was reading the previous blog and looking back I think Gary was correct in his prediction all along.
ReplyDeleteThat is, 2012 will go down as one of the worst years ever [for the goldbugs]. Great entry again.
I see how your plan is coming together and I have one question re. Japan/Yen. Gundlach is of opinion that Japan will weaken currency to stimulate exports.
ReplyDeleteDo you think that,
Yen rises first due to recession, then Yen falls from currency debasement.
Or do you see the Yen rising and then continue to rise even Japan debases their currency.
Or maybe something else.
I realize this is a hard scenario to forecast and any insights you have would be appreciated.
[sorry for my english, I hope what I write is readible]
ReplyDeleteHi Tiho, what's about latests macro data? Are you of the same opinion that we will see a tourndown in the economy? It seems central planning is working, having delayed or soppressed the deflationary forces and the bad signs that come from the economy. Here is the link with improvements in the pmi of china and others majors economic data from U.S. ....http://www.news-to-use.com/
Tiho Your analysis says that gold is not behaving right as the fed cranks up the printing press with QE4. Maybe the reason gold is not acting right is that the gold and silver markets are being manipulated by the likes of JPM to keep investors out of precious metals. If there is a flaw in your analysis it is that the markets are behaving normally. Interest rates are being manipulated. Even the great bull market of 2009 was probably manipulated. It is quite probable that JPM is working with the fed to keep gold and silver down. How do you invest in a rigged market? Do you try to time when the market runs past the manipulators? Terry
ReplyDeleteDear Tiho,
ReplyDeleteMerry Christmas!
Thank you very much for yet another interesting article and for taking time out of your Holiday to update the blog.
I often agree with you, but this time around I do disagree on a rather important point(and this will surely make the contrarian inside you happy).
I argue that we're positioned for the best of both worlds, namely for an increase in gold prices and a bear market in equities.
This for various reasons:
1)Gold is the market's money and as such it tends to perform well during times when society's demand for money increases.These generally include periods of economic turmoil like the one we're about to enter.
2)Inflation and deflation are correctly defined as an increase or a decrease in the supply of money and money substitutes.Falling asset prices are not deflation.This is important because during 2008 deflation was actually starting to take hold(as the market's way of clearing unsound credit from the system).Please note that even though the gold price collapsed,physical demand exploded(point 1 explains why)and the asset quickly recovered its footing.Bernanke has now made sure that the supply of money and money substitutes will continue to increase, as such I doubt gold is going to experience another "deflationary" collapse, for the very simple reason that we don't and won't have deflation.
Stock prices may of course decline in price and are in fact likely to do so, since QE does not benefit the economy, but rather undermines it.This is very different from saying that we'll have a deflationary shock.
3)Gold is negatively correlated with equities over the long term.The famous mid '70s bear market in gold often cited by scared gold bugs happened at a time when the Dow almost doubled in the course of a cyclical bull.And gold actually more than doubled in the period before, just when the dow was declining.I would argue we're about to see this negative correlation continue into 2013(gold has now been declining whilst the s&p has been rising).
3)Gold has a dubious correlation with the dollar.Sometimes it is negatively correlated since a falling dollar reflects inflation which is beneficial to gold and viceversa,but sometimes they are both positively correlated as they both are money(one sound and freely chosen by the market,the other of course unsound and imposed by government decree,but yet money)and hence they both experience increases or decreases in demand because of point 1.
4)Speaking about consensus views,pretty much everybody considers gold as a risk on asset and expects it to decline brutally should the s&p enter a bear market.
5)Many people fail to consider the fact that the new QE targets of unemplyment and "inflation" give Bernanke a lot of leeway in increasing the size of his operations:unemployment is likely to go up due to the coming recession and "inflation" will probably remain below their target or even decline,given the usual dynamics of recession and point 1 above.This will prove to be a major boon for gold,which reflects actual inflation and not the phony measures used by the fed bureaucrats.
Keep up the good work and enjoy a well deserved rest!
A quick follow up:with point 2 above I meant to say that during 2008 actual deflation was starting to take place(thus driving down the price of almost all assets),but that Bernanke intevened to stop it.Now that we are likely to enter another recession,the situation is very different,since Bernanke is already very active and happily printing(and ready and willing to up the dosage at the first excuse).As such,whilst equities are likely to decline given the sorry state of the economy and the coming recession(made worse,not better by money printing),gold is more likely to be driven by monetary phenomena and as such respond well to the continuing inflation(no deflation as properly defined is possible as long as the Fed prints enough).The fact that the business cycle is drawing to an end has no bearing on gold's performance,if not a positive one(point 1).
DeleteThen there is one more point:
6)Technicals and sentiment told us that this summer gold bottom was a major one,unlikely to be taken out in the near future.
Thanks, Thio, i´m agree with you, but i think if the standard Cycle of the Industrials works as I have studied 2013 would be a bearish year for US Index, european Inex, Commodities, including Oil and Gold, and bonds.
ReplyDeleteFirst of all i expect an important drop from jan13 to feb13-march13, target dow below 11.700, may be from 11.300 to 11.600.
The FED is lagging the Industrial Cycle from since last summer, but not any more, what is next?
Antonio Pérez Algás. St. Sebastian.
Antoni
.
HI don't under how can everything (bonds, stock, commodities) go down? Is the dollar up at least.
DeleteIt would not be the 1st time, you can see in 2008-09, gold, Oil, Bonds (only up from nov to dec08, before sideways and from dec08 to jun09 a sharp decline), assets, in thos cases in a short period of time, in a great retracement, everything goes down) and i´m waiting for it from summer 2012, trendtrader. Regards.
DeleteAntonio Pérez Algás. Cycle Analyst.
You miss spelt Psycho Analyst :)
DeleteTiho Happy Holidays & good post as always...
ReplyDeleteHere is another opinion on the gld/usd points you raised which might interest you and your readers:
http://blogs.stockcharts.com/chartwatchers/2012/12/gold-and-the-dollar-are-falling-together.html
Share your same view that a deleveraging might come before inflation. This last post reminds me of an interview Ray Dalio gave on these opposing forces and how 2013/14 might play out. At the very best we can look forward to a "beautiful deleveraging." If the fed/gov get it wrong hold on to your undies it might get ugly...
video is worth your time if you havent already seen it:
https://www.youtube.com/watch?v=SFaRazMpxcM
Regards,
Alex
So basically we could have inflation or deflation. Stocks may collapse or they may surge. Ditto gold and PMs.
ReplyDeleteI am not rubbishing the article - just pointing out that these are very scary times for people trying to keep their money safe.
12-25-12.
ReplyDeleteHere is the only certain investment strategy: Be short this world and long Jesus Christ!!
Mat_6:24 No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon.
1Jn 2:15 Love not the world, neither the things that are in the world. If any man love the world, the love of the Father is not in him.
1Jn 2:16 For all that is in the world, the lust of the flesh, and the lust of the eyes, and the pride of life, is not of the Father, but is of the world.
1Jn 2:17 And the world passeth away, and the lust thereof: but he that doeth the will of God abideth for ever.
God love you, but can we keep the religion out of this? Scripture is great, but not really useful to investors.
DeleteTiho,
ReplyDeleteMy algorithm signaled Risk Off phase started last Friday.
It had pretty good accuracy (eg. I called November bottom in realtime here) in last few years, so there is a good chance you will have your bear market soon.
Tiho, one reason PMs *could* be acting heavy is (1) Paulson getting lots of redemptions and having to sell off PM positions, and (2) investors in general cashing in on big PM gains while capital gains taxes are at the lowest they are likely to be for some time. I'm just raising the possibility.
ReplyDeleteAs for the yen, I notice today that FXY is down to where it was in August 2010, i.e,. before QEII. That seems pretty extreme to me given how much money printing the US has done since August 2010. I am thinking that the yen will get a spike up from here almost regardless of what JCB does. Your thoughts?
There is definitely a limit that jcb can do. if jcb wants to spend all money on interest payments - that would be a quick e
Deletend game for japan.
a fairly large change in Trenton developing in September of 2012 which can lead to a move into the January 2013. Therefore if March unfolds as a reaction high we could see a retest of support in May U rack reaction high into August for Labor Day and a decline into a final low in January 2013. It is clear that January 2013 should be a very important target. If that is a low then we should be able to see a significant rally into 2017 thereafter.
ReplyDeleteOur Directional Change models indicate that turning points are due the months of 02/2012 and 03/2012. Having to back to back directional change targets in February and March implies we may see some choppy transience just ahead. Our Panic Cycle Models suggest that higher volatility is due the month of 08/2012. August clearly shows high volatility in addition to the panic cycle. September is showing up as the most important turning point on a monthly level for 2012.
Monthly Turning Points: 03/2012, 05/2012, 07/2012, 08/2012, 09/2012, 01/2013
MONTHLY TECHNICAL OUTLOOK
RESISTANCE: 16903
SUPPORT: 14544 10105
TABLE #3
Monthly Technical Projections
01/01... 10105 14544 16903
02/01... 10151 14634 16318
03/01... 10197 14724 15733
04/01... 10243 14815 15148
05/01... 10288 14905 14563
06/01... 10334 14995 13978
07/01... 10380 15085 13393
Monthly Indicating Ranges
Date Momentum
Tiho -
ReplyDeleteI noticed you trade in investment vehicles like sgg, slv and others. When would you be concerned about a possible derivatives meltdown?
I am not qualified to answer that, but the best thing to do is to own some physical Gold if you fear that. In my view, if the derivatives explode, we will probably have another world war too - that is how serious it would be as so many would lose so so so much money. It would be a total financial wipe out. At that point, I do not think you should be worried about markets, but your own well being hahaha! *smile*
DeleteThank you for all the comments. Before I add a few observation on the market, I would like to thank all of those who visit this blog over the last year. It has definitely grown from a very humble beginning, where I used it to write notes for myself. I would also like to wish all the readers a very happy holiday season, merry christmas and a happy new year.
ReplyDeleteFew observations I would like to make on equities:
- In my opinion, the business cycle has already ended or is coming to an end very very soon
- Forget Fiscal Cliff and media non sense, as the main focus should be earnings and margins
- Margins are sitting close to record highs after a 4 year expansion, so I expect mean reversion
- Earnings have expanded rapidly for a record number of quarters so I expect disappoint
- VIX is looking for a breakout on the upside, which could be very negative for US equities
- Apple continues to look weak as it flirts with $500 support level, if broke watch out below
- Semiconductors, a very economically sensitive equity sector, continues to look weak as well
- I continue to think German DAX 30 is extremely overbought and ripe for short sale
- Tech investors are super bullish at 75% net long exposure, according to Hulbert Sentiment
- Hedge funds hold record net longs on Russell 2000 contract, contrarian bearish signal
- NAAIM survey has showed that fund managers are extremely net long for last two weeks
- Market Vane survey shows 66% bulls, only a handful shy of 68% at the recent two peaks
- Retail trader NYSE odd lot purchases are extremely bullish, contrary sell signal
- Over the recent few weeks, option markets show quite a lot of bulls on US equities
- Cash levels with hedge / mutual / money market funds and retail investors is very very low
- Rydex investors hold close to minimum short bets on the S&P 500, contrary sell signal
- Regarding breadth, TRIN as well as VIX remain very very low, which is a danger sign
- There is a short term bearish breadth divergence between S&P 500 and 10 MA A-D Line
- There is a short term bearish divergence between S&P 500 and 10 MA High Low ratio
Few observations I would like to make on other assets:
- I believe Aussie, Kiwi, Loonie and Pound are close to correcting together with equities
- Gold & Silver DSI has averaged 10% bulls over the last 10 days, very depressed sentiment
- Coffee and Sugar sentiment continues to remain depressed by almost all standards
- Grains have been beaten down recently too and the overall sentiment picture is improving
- US Treasuries look just as weak as US stocks, so the question is will they decline together?
- Corporate bonds remain overvalued despite corporations having strong balance sheets
- Junk Bond market looks extremely overvalued and display over-leveraged funding risks
Comments regarding Japanese Yen specifically - I have to admit that Yen has overshot and surprised me on the downside as Mr Abe is really pushing towards devaluation. I know that majority have already proclaimed that I have gotten the Yen trade wrong, which is far enough on their behalf. However I would like to make two points:
1) Sentiment remains depressed and is at the lowest level in 7.5 years so I do not think this is a time to sell, but maybe buy some more. Also, negative sentiment like this usually doesn't occur at the beginning of a bear market, but close to the end.
2) My trade is short Aussie long Yen (AUD/JPY cross) therefore when the bear market starts together with slowing global economy (and it will start sooner rather than later), I am very sure that RBA will cut rates rapidly and carry traders will withdraw their capital out of Australia back to Japan a.l.a 2008. This will result in a huge Aussie Dollar vs Japanese Yen re-pricing.
All comments are appreciated and once again I wish all the readers of this blog a very happy new year and LOTS OF PROFITS in 2013 for all!
Tiho
To answer some questions:
ReplyDeleteemg - Gundlach is much much smarter than I am, so he could possibility be right. However, regardless of who says what, I remain short Aussie Yen cross. When the global economy slows down and certain central banks like RBA cut rates to stimulate, I see capital fleeing Australian banks back to Japan, putting pressure on Aussie value and increasing Yens value. Just like in 2008, we could have a re-pricing of Aussie yen cross.
Anonymous December 25 @ 3:09 AM - I do not think the economy is recovering nor do I believe that central bank planning, as you called it, is working. I have never seen, read or heard of a business cycle where central banks managed to save us from a recession. I've seen of how they "apparently" post-poned recessions in the 90s, but I discredit central banks interventions for that. We war win the middle of Kondratiev Autumn, which is usually know as a super bull market. So regardless of central banks activity, the market would have row into a bubble anyway. Now that we are most likely back to a normal business cycle period, and also suffer from de-leverging, I doubt central banks can do much other than post poke things for a few quarters.
Terry - I do not believe in manipulation. Those are stories for little kids. Markets move with demand and supply, with buyers and sellers. If... and that is a big if... Gold and Silver are manipulated, you should thank the politicians. In my opinion, you are getting a discount and a huge gift. They are essentially letting you buy Gold and Silver at very low prices. Eventually the market will overwhelm them, so better go and buy some more now...
Anonymous December 25 @ 4:19 AM - it is possible for Gold to rise and for equities to fall. it has happened before. While I doubt it for now, Gold and Silver will have to prove themselves by breaking out above $1800 and $36 respectively. Regardless, I think eventually this will happen and that is why I remain long PMs and short stocks.
Antonio Pérez Algás - merry christmas and happy new year mate. I also agree that there have been times in history where bonds fell, stocks fell and even US dollar fell. Gold, Silver, Energy and Agriculture rose. Who knows... maybe that will happen again. I remain long PMs and short US cyclical stock sectors over the coming quarters and years.
Anonymous December 25 @ 2:21 PM - Ray Dalio is a very smart man, much much much smarter than I am. However, I do not believe in "beautiful de-leverging" and I believe we are moving towards a recession and a bear market. I do not think it will be "beautiful" in anyway, but most likely "painful".
Anonymous December 25 @ 6:50 PM - Yes, we could have inflation or deflation. As a matter of fact, we will have both. Let me explain: we are already experiencing reflation since March 2009, because fundamentals are awful and yet risk assets like equities rose. So many central banks will go crazy and really push risk assets further for awhile longer, and that is what I mean by inflation. Under this scenario, if CBs go really crazy, maybe PMs will go crazy too. But a more likely scenario is that we will see a deflationary shock first, where everything corrects and hurts a lot of market participants who expect risk on. This will shake up policy makers who are afraid of Lehman repeating itself and will most likely force them to go into a full crazy easing mode. And that is when PMs will go crazy too.
ikti - thank you for the update - it is really appreciated. I am not too good at timing these short term switch between risk on and risk off, so I have been shorting equities since late July, August and early September of this year (various positions opened at various times). I see the end of a bull market and a next major move to the downside. I try to do things in a very basic and simple way, but it doesn't always work. :-)
Tiho,
DeleteMy trading style is different than yours. I am more like a herd follower :)
On fundamental basis, I was totally on your side from summer, but since market didn't care neither did I. Actually, I made nice profit on the long side.
Now I see market has changed. I think fiscal cliff will force investors out of complacency, and they will start to evaluate market data without a bias. Hopefully they see what you were telling for months. That's where I find your work valuable. I can detect risk on/off swings, but not magnitude of the move. With your fundamental insights, I know that this risk off phase will likely be stronger and longer than usual and I can size positions accordingly. Thanks.
Interesting article on the non reproductive generation in Japan.
ReplyDeletehttp://moneymorning.com/2012/12/26/why-japans-lost-decades-will-arrive-here-for-good-in-2016/
http://moneymorning.com/2012/12/17/dont-expect-japans-election-to-foster-economic-turnaround/
Yen, monthly chart:
http://stockcharts.com/h-sc/ui?s=$XJY&p=M&b=5&g=0&id=p34508166797&a=282659613&r=1356595060524&cmd=print
Tiho,
ReplyDeleteWhen u have the time I was wondering if you could help me get my head around something.
Regarding currency moves: the AUD unlike the USD is not as widely held and therefore gets moved by much smaller amounts of capital. Is there an actual number of inflows/outflows that can measure this? e.g. a 1% move = 20 Billion in flows? any light on this subject would be appreciated.
Thanks in advance,
Alex
As suggested yesterday and yes again....through Forex Kong - USD is now set to roll over - which should obviously translate into higher equity prices.
ReplyDeletehttp://www.forexkong.com
Your blog is invaluable to me. In a large part because your strategy is so contrary to my natural instinct to chase momentum. You keep leading me back to the basics. Also I like the tone here where most everyone is fairly humble. It's interesting my being a 68 year old American, that my favorite financial information is from a young man in Australia by the name of Tiho!
ReplyDeleteThe best to you and everyone in this new year!!
Terry
Tiho I'm curious but do you think that 2013 will go down as one of the worst years in history?
ReplyDeleteHA! well said Terry, I feel exactly the same way ..
ReplyDeletefredflintstone, I think 1939 will be up there as one of the worst in history. What was the year of the Black Death again? Whatever happens in 2013 to be one of the worst years there would have to be world war, genocide and/or plague and famine.
ReplyDeleteTiho -
ReplyDeleteContainer cliff is coming to major ports in us. If strike occurs look for delays of sugar and coffee from brazil to US. Strike is set for Sunday.
Niels - thank you for the update on Japan and the Yen.
ReplyDeleteAlex - I am not too sure about that. I do not have this kind of data, but you might consider doing some of your own research on it, starting with capital flows from the RBA / ABS websites. If you find anything constructive, don't forget to let me know! *smile*
Stock Rocket - Personally, I do not think so. I am short stocks, but good luck to you with your views. I wish you a very good 2013.
Terry - some of the kindest words I have received. I thank you and also wish you a very happy and prosperous 2013.
fredflintstone - Hi there. To answer your question, first of all... I wouldn't know. Anything and everything can happen. If I was to take a guess than I'd say no. Finally, I expect a recession, fall in corporate earnings and a bear market in stocks between 2013 and 2014, but I do not expect a full blown crisis and destruction of wealth like in 2008. I am not ultra bearish like some perma-deflationists. I'd be a buyer if stocks fell 30% or more.
I would like to wish everyone a very happy and prosperous 2013! Take care and look after yourselves during the holiday period. ~ Tiho
This comment has been removed by the author.
ReplyDeleteMary Christmas and Happy New Year!
ReplyDeleteTo Ili, about India`s impact on PM. In 2012 we already experienced gold tax rising in India. 17 January tax was doubled from 1,5 to 3% and on 16 March it was additional increasing from 3 to 4%. So if Indian tax is a huge fundamental factor, where is it`s impact on price?
Yes, You are right India get big trade deficit, but the most profitable (export) sectors of Indian trading are cotton, and other agriculture commodities (sugar, coffee, tea, spicies), so this asset-class have very big chances to make an explosive rise in such macro environments, and the profit will be no doubt invest in gold.
It is because Indian society is very traditionalist especially in it’s agriculture part, and this society all historical time plays the same role of the agriculture – gold exchange. It is something like Egyptian Pyramid. The higher is world agriculture demand the higher is Indian retail gold demand and vise-versa. The potential danger for Indian retail gold demand can came only from «Monsanto and others» side, because modified seeds should be bought every year from the corporation and it will decrease the earnings of Indian peasants dramatically.
But now genetically modified shit is not penetrating so active in Indian agriculture.
I can just add – the INDY index looks technically bullish and it seems like China, India, Iran and Russia alliance have some success in Syrian tug of war. It is no doubt good for Indian economy and for agriculture commodities as well.
To Tiho about Gold is non-believer of the current US Dollar weakness and QE policies. COT picture became more and more bullish for gold. I am looking always not only futures, but combined with options data. It indicate already much less speculative participation. The picture became even more interesting if we look at custom summarized COT indicators.
Here is the formula. Open interest * large specs longs / large specs shorts / percent of the hedge funds which position on gold market is net short. So per this parameter we already have just the same sentiment laydown like in recent spring-summer important bottom. Please note! There will be no much change if we exclude depressed open interest from the formula. In additional HUI/gold ratio is showing good behavior.
So, I think, downside is limited by 50 bucks or so from here and the buying opportunity is right on cue.
How do you track indian and chinese metal demand? No one really talks about this but I have no idea how we track this.
DeleteThe India argument is flawed in principle.It is not an important factor,but rather a marginal one.Notwithstanding what Ili says,it is of course global investment/monetary demand that drives this bull market(like every other bull market in gold).You can't value gold in the same way you value an average commodity,because the fact that almost all gold ever mined is still part of the available stock makes any usual "commodity" argument nonsensical.What if just a small fraction of the gold hoard comes on the market?The price collapses,and who cares how much Indians buy or sell.The bull market exists because the current economic and monetary situation pushes more people into gold than it pushes out of it.End of story.
DeleteSo are basically saying, that if biggest buyer of gold stops buying it won't have any effect on prices... :D
DeleteDoes any of you know that gold now is not a part of basic supply/demand, but speculative supply/demand? Like oil in 2008? It was not like real oil demand spiked enormously in early 2008, given the worldwide starting recessions...
DeleteGood question agtrader. I see lots of people with opinions but no one who can answer your simple direct question. This usually means they have no idea what they are talking about.
DeleteThe world gold council has all the data you need.
DeleteSince I have seen a few skeptical replies to my point,I'll reiterate it,backing it up with more data.India is not the driver of this bull market.End of story.A few factual observations:Indian demand in 1997 was 737 tonnes,in 2008 it was 712 tonnes and in 2009 it was 480 tonnes.In 2011 it was 933 tonnes,a remarkable figure,but just 26.5% higher than 1997.Good luck to anybody looking for a positive correlation with gold prices.
DeleteA few logical observations:the available gold stock is so huge so as to make any purely demand driven argument meaningless.The potential supply of gold that could at any time come on the market is enormous and it follows that the primary concern of a prudent gold investor should be to determine the likelihood that substantial selling takes place.If it does,then I guarantee you that Indian farmers would be of no help,even if they were buying record amounts.Case in point:2009 saw world gold demand coming in at 2423 tonnes,down 20% from the previous year.Yet prices climbed...oops!Clearly,supply matters.And supply does not mean mine supply,which is meaningless,but rather the amount of hoarded gold coming onto the market each year.
Economics 101 then tells you that price is set at the margin.Clearly,India is not the marginal gold buyer.If it were,then 2009 should have seen collapsing prices,not a 24% positive performance.
I'll tell you who the marginal buyers are:investors buying gold as money.It's your average Joe(or your average Franz as in Q2/Q3 of 2011),people worried and afraid for their financial future,it's hedge funds and UHNWI stocking up.
If you still wish to maintain your view that India is somehow magically doing all the job,you're welcome.
@Alexander M,
Deletealex, I finally managed to open a broker account in my country with access with PSLV, CEF, etc, although they charge heavy fees.
In case of another financial mess I understand your points about SLV/GLD. But, is there any warranty that Sprott and Central Fund of Canada would be a safe heaven?. Let's imagine a derivative meltdown occurs, those vehicle would be safe?. I have still my doubts.
Best. Santiago
Happy new year Tiho, and keep on your good work!
ReplyDeleteGerman Sentix-Sentiment-Survey shows now a 12% bullish reading. The DAX looks strong and it seems to me that nothing can stop him, which is not so good for my short-position.
Ben
agtrader.
ReplyDeleteI don't know if you can find some of the information you searching on these site's. There are some statistic's.
http://www.antaike.com/
http://www.indianmetals.com/
Tiho nice site you have here.
ReplyDeleteI have been reading good things about you over a Poly's site. It is rare to see an analyst who admits their mistakes and is honest in their analysis.
Well, that late rally in gold and the US stock markets was staggering to watch - all on the back of no news at all.
ReplyDeleteHow on earth can ordinary people put money into such rigged markets - they look so top heavy and ready to collapse.... but then they did so this time last year as well.
Are the markets about to crash and burn.... or will Bernanke's printing of money non-stop see the DOW closer to 14,000 or 15,000 12 months from now? I do not have a clue.
Happy and healthy 2013 to everyone.
Happy New Year All. Here's to the PM's :-).
ReplyDeleteLong and strong - Hi Ho Silver !
Mitch
Still holding jpy...?
ReplyDeleteHappy new year to all. I will update the blog in due time, but right now I am still away. I hope everyone enjoyed themselves during the NYE celebrations and I also hope everyone will have a very happy new year.
ReplyDeleteTiho
All assets up today - stocks in the UK are soaring with UK banks up about 5% currently, US Futures are leaping ahead with Apple up about 8% and gold and silver have soared.
ReplyDeleteThis deflationary shock had better come soon :)
To Agtrader: I like to see google trends on china per instance.
ReplyDeletehttp://www.google.com/trends/explore#q=%E4%B9%B0%E9%BB%84%E9%87%91
And also i always monitor asian globex trading hours especially after significal american comex seloffs. The rebound on asia on good volume means fysical asian buyers are active.
Of course i agree world gold concil data are important, but i withstand with anonymous Dec 30 8-14 PM - It is not right to overvalue "Indian demand parameter"
To AnonymousDecember 30, 2012 11:22 PM
First of all I can tell you that "Biggest buyer" and "biggest importer" are two compeletly different terms. The have no even mutual points. India is not biggest buyer, just biggest importer.
Second, If Indians stop buy gold at all it of course impact price. But it is a catastrophic event, and trade deficit or 1-2% tax increasing cannot cause such kind of earthquake.
To Sanitigo. My best warranties for You! (Joke!)
I wish to assure You but I can`t. Sprott provide just a bit - I accentuate just a bit less counterparty risk not more but not less.
I can suggest always divercificate and buy physical even if you are affraid crime. You can always rent a bank safe or make a hiding-place like in "Hot money" Dick Frensis.
There is no possibility to avoid risk and fear, investment is not for weak person.
Few good news for gold.
ReplyDelete1.There were significant withdrawal from comex registered vaults on 31 DEC
2. Quantity of net long commercials traders is at extreme level just like on spring gold bottom
3. HGR cleared november highs.
4. 1631 last gold low occurs right on the date of winter solstice.
So, I think we are in the strong buy mode. There is very high probability of the end of correction in gold.
The COT positioning in the mexican peso(not to mention the yen)tells us that this rally in equities is going to end in tears.BTW,the yen is a screaming buy here:even if the long-term trend had actually turned bearish(something I doubt for a variety of reasons,not least the fact that it would be the first time in history that the clueless retail traders got a major turning point right and did so en masse...),the current oversold conditions have been seen only a handful of times in the last 10/15 years and it always ended badly for the shorts.
ReplyDeleteCOT retail traders were right in october 2007 and march 2009, be careful with record high positioning that is a bit contrarian from them.
ReplyDeleteTim
Btw my march sp500 put and short mxn/jpy from end of september 2012 are getting toasted in hell.