Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Black Swans and Gold

Commodities / Gold & Silver Jun 14, 2008 - 08:59 AM GMT

By: John_Needham

Commodities

Best Financial Markets Analysis ArticleWhile it is all white swans and their cygnets on the common at this time of the year in London , black swan events are a very real possibility as John Needham explains in the following article. - Yvonne Lundon-Marchant - The Daniel Code U.K. and Europe

With Fed chief Bernanke trumpeting that the credit crisis is abating, a postscript to his promise that “the subprime problem is contained”, and asserting that the US will not see recession, punters are feeling warm and fuzzy about US markets and apart from an occasional frown about gasoline prices, generally the thrust is that the worst is over. If you are in that camp you may have to think again. As our theme photo shows, tree climbing skills come in handy when bears are on the loose.


A report from the Bank of International Settlements (BIS) carried in this week's Banking Times drawn to my attention by Danielcode member Rob H has a very different view on what is coming down the track. This august body are not known for inflammatory stories or “look at me” blogger posturing. By nature (Swiss) it is inherently conservative. As its customers are central banks and international organisations, the BIS does not accept deposits from, or provide financial services to private individuals or corporate entities so we can assume that uniquely amongst banks it is likely to be unbiased and we can put some weight on its publicly voiced concerns.

Central bank body warns of Great Depression - Stock Photography - boy climbing a  tree to escape  bear. fotosearch  - search stock  photos, pictures,  images, and photo  clipartThe Bank for International Settlements (BIS), the organisation that fosters cooperation between central banks, has warned that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s. In its latest quarterly report, the body points out that the Great Depression of the 1930s was not foreseen and that commentators on the financial turmoil, instigated by the US sub-prime mortgage crisis, may not have grasped the level of exposure that lies at its heart. 

According to the BIS, complex credit instruments, a strong appetite for risk, rising levels of household debt and long-term imbalances in the world currency system, all form part of the loose monetarist policy that could result in another Great Depression. It also raises concerns about the Chinese economy and questions whether China may be repeating mistakes made by Japan , with its so called bubble economy of the late 1980s.

Levels of Pain

Long before the Bear Stearns blow up, the Fed was propping up US markets. The over inflated and quite unrealistic valuations on public corporations must be preserved, at whatever cost apparently. This disease has now spread to UK where with minimal drops in housing prices the tabloids are screaming over the catastrophic effects on those who have abandoned savings in favour of more intensive property investments. On UK markets, Bloomberg reported today that 

“The U.K. will demand disclosure of short selling in rights offerings and may restrict investors from borrowing the stocks after plunging share prices hampered banks' attempts to increase capital. The Financial Services Authority will impose the requirements June 20. They follow a slump in Royal Bank of Scotland Group Plc and HBOS Plc as they tried to raise 16 billion pounds ($31 billion) of capital by selling new shares. Britain , regarded as the most open of the world's financial centers, becomes the first major market in Europe to put limits on short-selling.” 

What the UK authority is really doing is joining its American cousins in seeking to short circuit price discovery to the downside, a normal function and safety valve of markets.

A steadfast refusal to accept market truths is the common thread. In tiny New Zealand the last sane banker in the western world, NZ Reserve Bank Governor Bollard stated " In real terms, we are projecting a 22 per cent fall in New Zealand (sic house prices). This compares to a 38 per cent fall in New Zealand real house prices following the first oil price shock in the 1970s ," Nobody is listening.

In Europe ECB President Claude Trichet is acting with teutonic stoicism which shows the benefits of pan European pretense since Trichet is actually a French bureaucrat. Totally overwhelmed by the competing demands of the sick men of Europe , Trichet is reduced to an impotent bystander. UK Telegraph's Ambrose Evans-Pritchard has a different view:

ECB chief Jean-Claude Trichet has "signalled" a rate rise in July to combat 3.6pc inflation, much to the fury of Paris , Madrid , Rome , Lisbon and Dublin . It is a perilous path for Europe 's monetary union."I would advise Mr Trichet to be more careful in his comments," said Spain 's premier Jose Luis Zapatero. The counter-attack has begun. Spain 's property crash is calamitous. House prices have tumbled 15pc since September, say the developers (APCE). Over 98pc of Spanish mortgages are on floating rates, priced off three-month Euribor. This rate leapt 32 basis points to 5.24pc after Mr Trichet opened his mouth. The ECB demarche is ominous for the rest of us as well. We may be watching a replay of the Bundesbank's ill-judged rate rise in October 1987, which sent the dollar into a tailspin and triggered the Black Monday crash.

The ECB official rate is 4% and has been unchanged for 12 months. They are no more going to take their medicine willingly than are US , Australia and a host of others with plenty of worse offenders in Asia . Denial to the end has become central bank policy de jure! 

Parsing the Dollar

As the Dollar rally continues with the dollar headed for its biggest weekly gain in more than three years against the euro it is timely to review the larger picture. Recall that in February the Danielcode report issued a call for at least an intermediate bottom in the Dollar at 70.40. DX obliged by making its low for the year just 30 ticks away at 70.70. Given that we have demonstrated some insights into this market by accurately predicting the March low at a time that others were screaming for a meltdown, it is now timely to reflect on what those insights reveal. The chart below is the Danielcode monthly chart of DX:

The structure around the July 2001 high has created the current Daniel number sequence controlling this market. This sequence is shown in dark blue. So far we have seen price fall to four of these levels and every DC price level has elicited a reaction from the market. At 103 we got a three month rally that advanced 6.5 points. At 92 we got a another three month rally that advanced 7.5 points. At 81, the end of the first leg down we got an eleven month rally of 12.5 points. 

The best interpretation of current price action is that we are in a small cycle rally that will last approximately three months and advance about 6 or 7 points. From the March low we are already into the third month and have advanced just 4 points so the clock is now ticking. Corrections are at best a three pronged affair. The first leg ran 41 months from July 2001 to December 2004. The second leg down began in November 2005 and ran 28 months into the March 2008 low.

On a time versus price basis the current rally is the weakest since the devaluation of the Dollar started in 2001. It bodes ill for the future of this market. A common pattern in markets is equality of range and time. This, the most likely outlook for DX puts the next leg at 48.66 to 52.79 a fractal of the old bull market and equality of time puts the next low at April 2009. The downward velocity that this outlook implies is quite staggering and implies an accelerated recognition of structural damage in international markets.

A DX move of this magnitude is unimaginable unless you are counting on seeing a re-run of the Great Depression of the1930s. Impossible you say? This scenario is exactly what the BIS is warning about!

Gold

In NN Taleb's new book “The Black Swans,” his definition of a black swan is a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations. Taleb regards many scientific discoveries as black swans-undirected and unpredicted and applies this thought to markets. The term black swan comes from the ancient Western concept that “All swans are white.” In Lake Taupothat context, a black swan was a metaphor for something that could not exist. The 17th Century discovery of black swans in Australia morphed the term to connote that the perceived impossibility actually came to pass.

Taleb claims that almost all consequential events in history come from the unexpected, while humans convince themselves that these events are explainable in hindsight. Beautiful Lake Taupo in New Zealand 's North Island where I spend much of the year is a collapsed volcanic cone that over the millennia has become a huge fresh water lake. On Lake Taupo , virtually at my front door, there are black swans. Hundreds of them, and nothing but black swans. And trout! Nary a white swan has ever been sighted, which might explain why I am so predisposed to black swan or “fat tail” events. I see them every day.

For Gold, the BIS scenario holds promise of a true moon shot if this black swan event transpires. Whatever the probabilities, Gold does not see them now as it works on a corrective pattern that is so far straight out of the text book:

As it has all year, Gold continues to make almost every turn on the daily chart at its DC numbers while punters assess if the correction will go deeper or if the markets' black swan will soon swim into sight. If it does your only alternative to Gold will be to run for the trees!

I invite you to visit the Danielcode Online to get all the Daniel numbers for the extensive markets I cover. You will never be surprised by market behavior again.

This is an abridged extract from the article “Run for the Trees-BIS and the Black Swans”

by John Needham, The Daniel Code Report | June 13, 2008

See http://www.thedanielcode.co.uk for the full article and for more information about DC Numbers including a free two week trial .

John Needham Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in