Investor Opportunity Before The Financial Storm
Stock-Markets / Financial Markets 2012 Aug 25, 2012 - 12:34 PM GMTBy: DeepCaster_LLC
“Many members [of the Federal Reserve rate-setting committee] judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery…” Minutes from the Fed’s recent policy meeting, released 8/22/12
Rarely do the Fundamentals, Technicals, Interventionals and Actual Share Values line up so Favorably as now, but only for a very few select Sectors.
Why? Consider one of the Wise Old Timers of Market Forecasting – Richard Russell’s observation that these Markets are “as Difficult and Puzzling as any that I’ve ever had to wrestle with.”
Russell notes that while Key Fundamentals are Lousy, and Dow Theory is signaling we are in a Bear Market, (both True) the Equities Markets have nonetheless been bullishly approaching recent highs. Russell has recently expressed Puzzlement at that too. We do not.
There are 4 Main Reasons that certain Markets and especially Gold and Silver (as we earlier forecast) have been increasingly signaling “Bull.”
- The Massive and Ongoing Liquidity Injections, plus the (repeated!) prospect of more QE (e.g. per above quote) into the Markets by Major Central Banks such as the Fed and ECB have temporarily lifted the Prices of certain Risk Assets, even though The Actual and Prospective Fundamentals do not Justify elevated price levels (except in the Commodities Arena – see below).
- The President’s Working Group on Financial Markets has the Power to Boost, or suppress, various Markets. We are approaching the Election. Enough Said!
- The Major Economies are still slowing and they are all (U.S., Eurozone and China) over-indebted, with (so far as the U.S. and Eurozone are concerned) debts that cannot be repaid given any Reasonably likely Economic Scenario Going Forward.
And that Debt is Compounding, thus Further Weakening Economies going Forward.
Russell’s Analysis has it right
On Wall Street nobody knows anything -- and nobody is doing anything -- because nobody knows what to do. Volume has sunk to ridiculously low levels. The hour glass for trouble is running out -- and what I mean is that debts are compounding, and the balance sheets are looking worse every day. And this is happening with the current low interest rates.
The US MUST do something about its deadly compounding debts.
The US dollar must be devalued in order to shrink the destructive power of debt.
And on a hopeful note for equities Bulls, Russell adds:
Finally, a hopeful signal. Yesterday, amid all the low volume and sluggishness, the Transports gave us just a hint of something hopeful. It was a breakout of the declining trendline, as you can see on the chart. The Transports have been the laggers all year, and it seemed as though if the Industrials closed above their May peak, the Transports would not confirm. Now with this little upside breakout, the Transports are giving us a ray of hope. Maybe, just maybe, the Transports will add on a few more point, and get in the game.
“The Trend is your friend – until it ends.”
(Jim Dines) Richard Russell, Dowtheoryletters.com, 08/16/2012
- The Major Central Banks continue to repeatedly Dangle the Hope/Prospect of further QE in front of The Markets to juice them up.
So consider how all this is likely to play out.
Equities
In Equities, note well that Volatility has been Near Record Lows, but given the foregoing Challenges, this cannot last, for long, though relatively low levels may last through the November Election.
The Bullish Tone in Equities in recent weeks (The Dow has been bumping against its May Highs and even the Trannies have been showing a little Upside Breakout) is entirely inconsistent with the underlying Economic and Market Fundamentals. But that is not surprising given, especially, #1 and #2 above.
However, none of the foregoing changes the fact that we are in a primary Bear Market, and therefore subject, at any time, to Events causing Market Takedowns. This is primarily because the Real Economy is still quite unhealthy in the US, Eurozone, and especially, in China. (Recent Chinese export and PMI Numbers have been quite bearish.)
Therefore it is no surprise that Dow Theory confirms we are in a Primary Bear Market. The Trannies have not confirmed the Dow’s recent surge up and the post-Fed-minutes-release Market Action suggests they may not. Moreover, a recent confirmed and reconfirmed Hindenburg Omen – reflected in an Ominous Jaws of Death Pattern on the Charts -- indicates the probability of a Major Market Crash in the next four months is substantial – at least one in four.
Longer Term:
Realistically, were it not for Overt (and Covert) QE, and the prospect/hope for more, it is highly likely the Equities Markets would have crashed already.
We do not have a healthy Economy or Markets when Equities performance is reliant mainly on QE.
The fact remains that Neither the U.S. nor Eurozone has solved their Debt Saturation and other Problems and China is slowing. This is bound to adversely impact the Equity Markets going forward. One can exploit the coming Equities Market Crash by going short (such as we recommended with five leveraged short positions before the 2008 Market Crash); at the right time.
Sovereign Debt and Interest
But all the massive Q.E. and Easy Credit of recent years has created a Bubble of Excess Debt which is now beginning to Burst.
Indeed, The U.S. Treasury Securities are starting to deflate, albeit slowly at first. Over the next few months, and very few years, the Treasuries Securities weakening should accelerate into an eventual bursting with consequent sky-high yields, interrupted only by The Coming Storm – The Great Equities Crash of 2013.
Even longer term, U.S. Treasuries are a Dead Man Walking, at anywhere near current levels.
Gold and Silver
Until just this week, The Cartel (see Note 1) had been able to hold Gold Price in its Consolidation Zone just above $1600.
But in recent days, the Technicals have been signaling ever more strongly what the Fundamentals have been telling us for years. Gold, Silver and their mining shares are likely to explode upward very soon, as we earlier forecast. Indeed both Precious Metals exhibited a nice breakout this week.
Both Equities and the Precious Metals have been trading together off Liquidity Injections and Expectations in recent months, but with the Precious Metals upside action has been hamstrung, until just this week, by The Cartel.
The Gold Price has recently broken out and up through the 90 day MA confirmed by a MACD Buyers Cross and A/D line signal of Share Accumulation.
While we see much more upside to Gold and Silver, mid to long term, this does not preclude Gold and Silver being taken down very temporarily by a Cartel attack with Gold dropping perhaps to $1525 and Silver to $25-26ish (a great Buying Opportunity, by the way); however, there is an increasingly robust floor under these Precious Metal Prices due mainly to robust Asian buying, with the Buyers actually taking delivery of the Physical Metal.
Crude Oil
As usual, Crude Oil is the “Truth Teller” in this era of Manipulated Markets. Our following Crude Oil forecast has been right on.
The key point is that since we already have Real QE-generated Inflation (9% in the U.S. already for example per shadowstats.com – see Note 2), which Officialdom tries desperately to hide, WTI Crude continues to slowly trend upward, approaching $100/bbl.
As well, when and to the extent we get “Risk-on” Equities Rallies, that should impel a very modest Crude Price Rally and a somewhat stronger Energy Shares Rally.
So long as Risk-On Equities Rallies Continue the Crude Price is likely to Trend Modestly higher. When Equities tumble, Crude is likely to drop again too, [but not proportionally as much – This is because, recall, we still have Ongoing Real Inflation]. Caveat: a wider Mideast War would send Crude to the Moon.
Key Commodities and Q.E.
The Central Bankers ongoing Q.E. is boosting the Prices of Commodities, especially those which get used up. (Recall the “Arab Spring” uprisings were sparked by rising Food Prices.)
The recently higher-trending Crude Oil Price (as we forecast) and uptrending Copper prices are not the result of Drought in the US. And Higher Prices for Corn, Wheat, and Soybeans are only partly caused by Drought. Note well, the Cargill CEO’s recent forecast, that Food Prices could rise 40% to 50%.
Given population growth pressures, and limitations on productive arable land, we do expect Food Prices to continue increase dramatically over the mid to long term. On dips, we expect to recommend additional purchases in this sector, so stay tuned.
In sum, even though the Markets have been remarkably quiet and with low volume for several weeks, this has led to select spectacular opportunities. One is clearly in Gold and Silver.
And if another one which we just recommended were “merely” to return to its 52 week high that would generate about a 4,500% Return (that’s a four thousand five hundred percent Return) (see Note 3).
Moreover, (while it is not likely to move all that way in the next 52 weeks) there is good reason to believe it will make a major move in that direction in the next few months.
Low Volume Markets generate Opportunities which can be exploited in The Coming Storm.
Best regards,
www.deepcaster.com
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