jump to navigation

08222011 August 21, 2011

Posted by easterntiger in economic history, economy, gold, markets, oil, silver, stocks, Uncategorized.
Tags: , , , , , , ,

Current Positions  (Changes)

I(Intl) – exit; S(Small Cap) – exit; C(S&P) – exit ; F(bonds) 20%;  G(money market) – remainder

Weekly Momentum Indicator (WMI***) – last 4 weeks, thru 8/19

-16.05, -43.26, -71.25, -73.48

(3wks ago/2wks ago/1 wk ago/last week)

Hindsight is 20/20, but, foresight is golden!

I certainly hope that all of my warnings were heeded before the latest wave of losses, starting with my warnings in May with the 2nd of 3 eventual highs for the year.

Just as I had projected for months, this market has mirrored the patterns from 4 years ago.  I have embedded a chart that I created over 6 weeks ago.  I posted this very chart in a discussion section on one site of the ‘gurus’ I follow.  It was, in essence, open for discussion on whether my projections were correct or not.  As you can plainly see, my ‘Initial Target?” is exactly in the area where the market presently resides.  This is exactly the same pattern from 2007. (I have noted that in 2007, the total time of decline before any pause was about 10 weeks. We are now about 4 weeks past the last high, suggesting another 6 or so weeks before the downward progress might be expected to slow, even in the midst of short-term, upward reversals, which resume to lower levels.)

As you see from 2007, that area, marked by the 3 blue circles on the left, represented multi-year highs, from where markets continued downward, first slowly for one year, then with acceleration the second year, dramatized by the 2008 crash.  This is similar to what I expect to occur again, in the absence of SIGNIFICANT and COORDINATED central bank policy changes.  These changes would be similar to such actions as the recently completed QE and QE2.  Both QE & QE2 are generally considered to be failures. They mostly created enough asset PRICE inflation to feed a false sense of security for the periods in place, while actually doing nothing to address the fundamental nature of the problems;  that is, contributing to forming a credible gauge on actual asset VALUES.  Since the circumstances are somewhat different at this phase, I would expect focus toward lowering bank-to-bank lending rates, or adjusting (lowering) of reserve requirements, in order to position banks to better respond to further crises, such as, decreased credit flows.

Notice how these recent ‘high’ price levels, the circles on the right, never regained the levels of 4 years ago!!!  This is in spite of hundreds of positive news stories, positive corporate earnings announcements, stock buybacks, testaments of a ‘recovery’ already underway, hundreds of billions of dollars of federal budget stimulus and two heavy doses of Federal Reserve stimulus totaling over $1.5 trillion dollars;  and all without which any resemblance of a ‘recovery’ would never have appeared.  Any discussion by those who dismiss a double-dip recession simply fails the reality test, in denying that all that has occurred, so far, just to get the economy to it’s current position, is to get the economy to one  that is still teetering on the brink of another failure.

Following the end of the debt-ceiling battles and the credit downgrade by Standard & Poors,  the equity sell-off produced a near immediate, and traditional, ‘flight-to-quality’ into treasury notes/bonds.  The result of the sudden demand was a dramatic rise in bond prices, driving interest rates back to a record low (2-year note), or to a multi-year low (10-year note).  So, the F fund rose immediately, before pausing once again, during the final days of the month.  However, I did not respond with an allocation recommendation due to the uncertainty that persisted until after other factors were brought into play.  These include further debt evaluations were announced by other bond-rating services, including Moody’s and Fitch, both of whom disagreed with S&P and maintained the AAA rating.  I will be watching closely for bond prices to retreat briefly, for an entry opportunity, rather than to buy in at this high level, hoping for a move to an even higher level.

Given the weakening overall economic trend, oil prices plunged along with stock prices over the past few weeks, and returned to an area of recent lows again this week.  Lower oil and gas prices might be welcome on the one hand.  However, realize that this is an indicator of economic weakness that will ripple further into lower demand, and, therefore, hiring and related activity.

Gold and silver have remained on strong trends, as are all refuges for ‘safety’.  Overall, in spite of gold’s higher attention levels, silver has outperformed gold on several time spans.  I expect higher prices for both within a year, however, I also expect some periodic weakness, and not a straight line up, from which to ‘leg in’ to some additional positions.  Gold, now over $1800, has a potential downside of between $1475-1600, while silver, now at $43, has a potential downside of between $34 and $38, where buying would be more favorable than current levels.  A major contributor to my caution on these current high prices centers around the current levels for several key currencies, changes which could result in a dramatic drop in prices for gold, silver, oil, and other key commodities in the not too distant future.



No comments yet — be the first.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: