Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

What the Jump in Global Markets Volatility Means?

Stock-Markets / Financial Markets 2011 Mar 18, 2011 - 12:09 PM GMT

By: Julian_DW_Phillips

Stock-Markets

After the earthquake and Tsunami wreaked horrendous damage in Japan and was blamed for huge drops in equity and other markets, extreme volatility was the best description of most global markets for this last week. The media even blamed the nuclear threat in Japan for the fall in the Dow Jones in the U.S. Clearly, this was not the case, but the extreme nature of the volatility has raised large questions as to what really is going on globally. To see why there is such high volatility over global markets we have to stand back so as to see the full picture.


The U.S. economic scene

Putting the Japanese tragedy to one side and looking at it simply as part of the trigger to the volatility, we have to look at the situation in the U.S. financial markets. Inflation, from food and energy, has risen sharply all over the world. Yes, there is a need to tackle it, but the tools required for the task work in healthy economic climates only.

The U.S. recovery is limping along at best. Housing starts for February dropped 22.5% against a rise of 18% in the previous month, undermining confidence that was in the recovery picking up momentum. So the Fed was right to hold interest rates at their lows and indicate they are continuing to use Q.E. There is a need to combat inflation with higher interest rates but not to combat food and energy inflation. In themselves this type of inflation reduces funds available for spending in other areas and would not be affected by higher rates. So, real interest rates drop further into negative territory, while growth is further undermined. In turn, such a picture points to overvaluations in equity markets. There is every reason to believe that the best current investment is cash in one form or another. With the bond markets overpriced and the prospect of further quantitative easing possible after June to prevent any threat of deflation as growth stumbles even more, the buying power of the dollar, both locally and internationally, is set to decline further. This seems also to be the future of the dollar exchange rate.

At the moment markets are tipping over into negative territory and providing an underlying reason why markets are now vulnerable to heavy volatility.

With the wide ability, at low cost, to leverage investor positions the system of 'stop losses', so important for limiting losses are also volatility precipitants. With a proliferation of day traders in most markets from equity to currencies and beyond, any market condition that produces uncertainty or fear, will become volatile quicker and deeper than were such leverage not so freely available.

In an investment climate that is essentially parochial in the States confidence in the system is higher than in nations who have a less uncomplicated past. In these countries you will find far less confidence in financial systems or in the governments of those nations, so volatility may be sharp but more easily reversed when the emotions drain away.

The state of the developed world

Since the start of the developed world's financial crisis in 2007 we have seen a deepening and widening of the maladies of the financial system there. As with the degeneration of a healthy man into sickness and weakness, the emotions claim a growing percentage of his mind and the vigorous health of the man sinks into declining confidence and fears of what lies ahead. The Eurozone debt crisis, the coming debt crises within the U.S. states and government, the limpness of the economic recovery are similar in nature to that ailing man. That's where we are today.

In fact, the way fear and volatility washed over the developed world's markets on the news of the Japanese woes was symptomatic of the condition of the developed world. That condition will remain even as Japan recovers into the growth of its ravaged areas. The indebtedness of Japan before the crisis and its growing debt afterwards will weaken the Yen promote Japanese exports and produce a level of growth not seen in the developed world for some years now.

Looking ahead to the rest of 2011 and into 2012, we expect the condition of the developed world to ensure that the new crises that are certain to arise will barge into one another making them worse still. The market reactions will continue to reflect the sort of volatility we have seen in the last week. Where real cause for weakness is found we have no doubt that markets will continue to overreact and possibly that overreaction will cause fundamental damage in itself.

We are in a financial winter of a destructive nature. Unfortunately the systems of the developed world are not designed or inclined to the deep reformation needed to bring an economic health, vigor and stability needed to put the developed world onto a long lasting growth path that we all had hoped for.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2011 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips 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