Bullion Rallies Despite “Losing US Fed Prop” as Stock Markets Sink on Weak China Data
BOTH gold and silver rose in Asian and London trade Thursday morning, defying a sharp slide in global stock markets to gain 3.0% rally from yesterday’s sharp sell-off.
Commodity prices fell as major government bonds rose but weaker Eurozone debt slipped, pushing interest rates higher.
Tokyo’s Nikkei index – up by 85% from November – dumped more than 7% after new data showed a surprise contraction in China’s manufacturing sector.
Private “retail” investors have “abducted” the Japanese stock market, accounting for more than a third of recent volume, according to brokers quoted by the Financial Times.
“[Gold's] inability to hold the highs is bearish,” says the latest technical chart analysis from Scotia Mocatta.
“[Wednesday's] intra-day rally is indicative of bargain hunting in gold rather than a change in trend,” the bullion bank adds, pegging support at the April 2013 low of $1323.
Like Barclays Capital’s analysts, Scotia now puts short-term resistance at yesterday’s sudden spike of $1412.
Gold prices rose Thursday morning to breach $1390 per ounce once again, recovering two-thirds of Wednesday’s plunge from that 1-week high – made as US Federal Reserve chairman Ben Bernanke was testifying to the Senate on the likely direction of Dollar interest rates and quantitative easing.
Having warned against “a premature tightening of monetary policy” however, Bernanke was then asked if the Fed might start reducing its $85 billion in monthly QE purchases of government debt and mortgage bonds before Labor Day on Sept. 1st.
“I don’t know,” Bernanke replied.
Minutes from the US central bank’s latest policy meeting also showed one participant wanting to reduce the level of QE “immediately”.
“Not having the future support of the Fed,” says Edward Meir’s note for INTL FC Stone, “will remove a major prop for gold.”
“It seems the market is now squarely focusing on the September 17-18 [policy] meeting for the Fed to make its move,” reckons ING bank’s analysts.
“Together with expectations of tightening quantitative easing,” says Mitsubishi analyst Jonathan Butler – also quoted by Reuters – “the general trend for a modest economic recovery in the developed markets is going to fuel growth in the equity markets and the Dollar.
“That should see gold coming under pressure.”
“The momentum is strongly negative,” says Edward Lashinski, global strategist at RBC Capital Markets in Chicago.
“The market understands that gold is no longer a safe haven.”
On the supply side meantime, “Being more profitable is better than being bigger,” said Jamie Sokalsky, CEO of the world’s largest gold miner, Barrick, at Bloomberg’s Canada Economic Summit in Toronto on Tuesday.
Also forecasting new record highs for the gold price thanks to central-bank demand and the state of the global economy, Sokalsky mooted “divesting” some smaller, higher-cost mines to focus on more efficient projects.
In particular, the giant Pascua-Lama project in Chile – valued at some $8.5 billion, and already eating some $5bn in costs – has been delayed by environmental concerns, says Canada’s Financial Post.
“Barrick is considering all its options at Pascua-Lama,” says the paper, “including outright suspension.”
At current gold prices around 10% of gold mines globally will be making losses, according to Thomson Reuters GFMS data.
“We would initially expect the oldest mines closing,” says a special report from Japanese trading house Mitsui’s metals strategist David Jollie in London, “as they are in many cases coming to the end of their operating life.”
Gold mining companies are likely to avoid closing newer projects “as long as possible,” Jollie says. But if the gold price stays low enough long enough, “closures will happen.”
Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.
(c) BullionVault 2013
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
In January of this year I published a piece on the “fair gold price” in order to demonstrate that, if one was to simply treat the gold of all international central banks as the world’s true, reserve currency – as history has held it as for over hundreds, if not thousands, of years – then a logical calculation would place the value of gold at an astonishing $10,617 an ounce. Compared to gold’s price of $1,675 back then, this was a significant revaluation.
The fair gold price can be calculated by the use of James Turk’s Gold Money Index formula:
Fair Price of Gold (per ounce) = Total Central Bank Foreign Exchange Reserves / Total Central Bank Gold Reserves
As I attempted to explain in my January piece, there is nothing surprising about the formula: it compares the gold bullion reserves of the central banks with their foreign currency reserves.
I concluded by asking what would happen to the market/spot price of gold if central banks around the world started to slowly, or quickly, divert their foreign currency reserves – over $10 trillion’s worth – into gold.Defining foreign currency reserves
Foreign currency reserves are accounts, mainly held by central banks, composed of foreign currency, foreign government securities, and other foreign currency assets. Under the Bretton Woods Agreement (1944-1971), foreign currency reserves were especially important because the entire agreement hinged on the fact that participating countries would not only commit to a fixed exchange rate for their currencies, but more importantly, that they would “lend” their currencies (or gold) to the International Monetary Fund (IMF) so that the IMF could use said currencies (or gold) to intervene in the foreign currency markets in order to artificially maintain that pre-agreed upon, fixed exchange rate.
For example, whenever one country experienced a balance-of-payments deficit – a situation where it was importing more goods than exporting and, as a result, the supply of its currency was increasing and therefore depreciating in value – the central bank (or even the IMF) would intervene in the foreign exchange markets and use “stronger” currencies from its foreign reserves in order to purchase the “weaker” currency at a fixed rate (usually above market value) in order to try and stabilise the exchange rate and increase the value of its currency.
For proponents of the Bretton Woods system, this type of arrangement was ingenious. For those with more commonsense, economic literacy, and foresight – like the New York Times’ reporter, Henry Hazlitt – this policy was illogical and unsustainable:
“It is obvious that such a plan could maintain even the outward appearance of success only for a short time. It is possible, of course, to keep a valueless currency at any arbitrarily chosen level by a commitment to pay that price for it, just as it is possible to keep a worthless stock at $100 a share by buying at that price all of the stock that is offered for sale. But when the allotted resources of the buyer run out, the currency or the stock will immediately drop to its natural level, and the buyer will find himself holding just that much worthless paper. The plan becomes particularly unrealistic when each nation can turn out unlimited amounts of its own currency on its own printing presses-with the incentive, which it does not ordinarily have, of a buyer at a fixed price. It seems probable that the plan could only lead to a huge waste of funds and to a temporary world inflation with a subsequent collapse.”
Mr Hazlitt was right: It did collapse and, in 1971, the United States reneged on Bretton Woods and ceased redeeming dollars for gold. But this was not the end of central bank intervention in the foreign currency markets. In fact, it was just the beginning.Is there an exit strategy for central banks and their foreign currency reserves?
In an article titled, “Do Industrialized Countries Hold the Right Foreign Exchange Reserves?”, published by The Federal Reserve Bank of New York in its Current Issues in Economics and Finance newsletter, the authors focus on primarily two things: 1) the recent and unprecedented amount of foreign currency reserves that central banks have accumulated and 2) how central banks are going to handle – possibly unwind – said reserves from their accounts without disrupting monetary policy and/or economic stability.
In regard to the first point, see the chart below. It clearly shows that central banks across the world are flush with trillions in foreign currency reserves.
In regard to the second and most important point of the article, about how central banks can try and unwind their foreign currency reserves without disrupting the market, the article only has this to say:
“Central banks that acquire a large stock of reserves through foreign exchange interventions . . . face another, longer-term issue. Once reserve balances become high, the central bank may need to identify an exit strategy.”
Forgive me for spoiling the ending, but an “exit strategy” was never fully articulated in the article. But that should be of no real surprise; when it comes to the Federal Reserve’s “exit strategy” for its current $85 billion-a-month diet of mortgage-backed securities (MBS) and US Treasuries, not to mention its previous $2.7 trillion-worth of US Treasury purchases, there can be no exit strategy. And it will be the same with the foreign currency interventions: there will be no exit.From paper reserves to gold reserves
The only real exit strategy for any central bank is to switch its foreign currency reserves – which are fiat paper dollars – into real reserves: gold. (Let us see what this would do to the price of gold).
According to recent data in/from the Currency Composition of Official Foreign Exchange Reserves (COFER), central banks across the world (excluding China) have accumulated almost $11 trillion in foreign reserves. Additionally, these same central banks – excluding China once again – have just 28,764 tonnes of gold reserves. Therefore, using the Gold Money Index’s formula (shown above), the fair gold price should be $10,783/oz.
Market intervention (otherwise known as manipulation) is the prerogative of central banks. Whether it be intervention that aims at intentionally weakening a currency or intervention that supports a currency above market value, “the true forces of supply and demand be damned” is the philosophy and practice of central banking. But such a philosophy cannot last. The market is stronger than any group that attempts to control it. Why? Because the market is not a single entity but a society of individual actors, working together peacefully, in order to achieve his or her ends by scarce but intentionally means.
Thus, acting individuals will at some point discern the intervention – that is, the manipulation of the supply and demand of the market – and react to protect him or herself.
If central banks are not careful, they too will lose the confidence of the market – that is, the people. And when that happens, not even all the foreign currency reserves in the world will save them. Only gold will.
That should be our exit strategy.Tags: fiat currency, gold price, gold reserves, sound money Author: Gabriel M. Mueller Buy precious metals with us
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Copyright © 2013. All rights reserved.
Written by Gabriel M. Mueller – Contributing Author
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Yesterday I sold a few of my position and took a long position in SDS. This is an ultra-short leveraged ETF that trades against the S&P 500. It is designed to go up at twice the rate that the S&P 500 falls. That also means that if the S&P 500 goes up it will lose value too. I took this position as a way to put a hedge on the long positions in my account.
Right after I made these trades I made a post about them. I got a lot of emails question about them last night and will try to address them in this post.
A few people got angry about it. I don't think they really listened to my video or read in detail what I was doing and just assumed because I was selling a few positions and taking a short position that I was now a bear in the stock market - and that made them mad. I think a lot of people have just recently bought into the market the past few weeks and are highly emotional - not really knowing what they are doing. It is not to doubt the entire bull market or to be unpatriotic to think the stock market is likely to pullback! Even in bull markets you get corrections. We all have to manage our money to make money and not simply out of loyalty to the stock market, and the stock market is not the country. I get worried when I get crazed emails that we are getting people that just bought in - and those are the people that end up selling in panic.
Even though I bought SDS I am not really trying to make money by shorting - or betting against - the stock market. I am trying to lock in the bulk of my profits through a hedge. If the market corrects I will probably still lose a little bit of money - but it will only be 1/3 to 1/2 of what I would have lost. Instead of selling and realizing gains I rather hold and hedge. And I don't know I may be invested in positions that may go up anyway as I'm not in the US stock market but invested in European markets and gold. Gold may even go up while Europe will probably drop some too.
Gold and silver are not trading exactly in synch with the US stock market.
Gold crashed last month and is trying to bottom while Europe has not gone up as much as the US market did during the past few months and last year in December Europe went up when "fiscal cliff" worries hurt the US stock market for a few weeks. Looking at the charts I think Europe will correct, but not as much as the US can.
Gold is up today. That is interesting, because the US stock market is poised to gap down almost a percent. I think that is a sign that they are not going to trade in synch with one another either. Last year there was a correction in the US stock market associated with the Greek debt crisis on the TV news that shook a lot of people out of the market. Gold and gold stocks though actually put in a bottom almost a full month before the US stock market correction came to an end. The same thing could happen again - so I'm not really worried that a US stock market correction will make gold fall much more - it already crashed.
When there is a big market move the TV news will use a story to explain the reason behind it. So last year in the summer they claimed the Greek debt crisis caused the market to correct. In December they said "fiscal cliff" could ruin the economy. AS the market has gone up the past few weeks the TV news has come up with crazy explanations to expect it to continue - that stocks are somehow "cheap" because interest rates are low, which is nonsense economics. But Steve Liesman will say anything to praise the Federal Reserve actions and back up Wall Street and the masses eat it up, because they want to believe in the rally after they buy into it.
The Japanese stock market just lost 7% of its value today. It's economy is a basket case and central bankers there have pledged to go on a mad money printing operation. The country has a debt to GDP ratio over 200% which puts it at a high risk of defaulting on its debts if its bond yields go up.
It's bond yields have doubled over the past week and are up this morning.
My guess is that over the next few weeks we are going to see a 7-12% correction in the US stock market from here that the TV news will associate with worries over Japan and the end of QE in the United States(that's a laugh, it ain't ending). Gold will hold up. Once the correction is over gold and metals will enter a new bull market and leadership in the global stock market will shift for the rest of the year from the S&P 500 and into cheaper valued markets that are not as overextended such as those in Europe.
I think after the correction the US stock market will likely enter a period of sideways movement into the Fall and maybe even into the end of the year...and then rally again once that sideways phase is over. Markets that get as overextended as the US stock market has lose their momentum. TV news will scare a lot of people out and those that bought at a top in fear of missing out will sell as their losses cause stress to build up inside of their brains and their body.
If the markets correct people will get frightened and sell out. But the world won't end and the correction will end up being a great opportunity to buy the right stuff. You just have to keep a level head and take prepare for it. That's what I did by selling three positions yesterday and putting on a hedge. This is how markets work.
And no again I do not think this is the start of a bear market. I'm not going to get bearish on the stock market until I see real evidence that we are in one.
Here is one sign - the resignation of Ben Bernanke. Back in 2005 or 2006 Alan Greenspan left the Federal Reserve. He did it right as the real estate market topped out and the the banks crashed in 2008. He got out before he could become a target for the blame - and his policies were to blame. Ben Bernanke's policies have created a new bubble in the bond market, which once it bursts will eventually cause another stock market collapse and harm to the economy. I don't think this will happen for a few years - but he will leave his post as Fed Chairman before it starts.
So as long as he is Fed chairman we can know to stay bullish. Once he leaves the post we can start to worry.
Mark my words he will leave his post so he won't be around to take the blame. Everything about this man's life and his character points to him doing that. And the day he leaves his post I expect we'll see Obama give a speech praising his "leadership" at the Fed and even see reporters on CNBC run a marathon honoring. Steve Liesman will be the first on TV to do it. That's the TV news for you.
Part of the reason the country is in the economic straights it is in, is because the US TV media failed to report on the 2008 crisis. It failed to explain to the American people why it happened. It said nothing about the bank bailouts and Fed money printing and simply accepted statements from the Treasury Department and Ben Bernanke at face value. It investigated nothing. It failed us.
It is failing us again as Ben Bernanke creates more distortions in the economy with his QE money printing operations and creates a new dangerous bubble. The bubble policies must end!
Just a few weeks ago Ben Bernanke received an internal Fed report that told him that his policies are creating new bubbles that could put the economy at risk all over again if he does not stop his QE money printing operation. He is ignoring the report and besides Bloomberg's website, the US media is too.
But no on cares either and they won't until they have a reason to... and right now there isn't one...and probably won't be for sometime... I say all this not to be bearish on the stock market. I think the correction will be worth buying into - but to tell you that one day the bull market will end and we will have to keep our eye out for signs that it is ending, although I don't think they will start to appear for another year or two.
Earlier, the USD/JPY currency pair broke down from its 1-week price channel seen in the 4-hour chart above. As for my technical analysis, this could continue to go down and find some support at the 3-week uptrend. If that support doesn’t hold, the next support could be the 1-month uptrend. Despite the 150-pip intra-day drop, I’m still bullish with this pair as long as the 6-month uptrend remains intact. Let’s just wait for it to find some base and bounce back up.
I am honored to publish an insightful essay by longtime contributor Eric A. on the inconvenient financial era Generation X finds itself in. What sets this essay apart from most other generational analyses is its focus on data and charts.
(Eric's most recent essays here were A Brief History of Cycles and Time, Part 1 and Part 2.)
In The Brewing Generational Conflict (May 15, 2013), I mentioned the Cultural Monster Id (CMI) that arises whenever inter-generational emotions are freely expressed. Every generation-- the Baby Boomers, Gen X and Gen Y/Millennials--is slammed for its supposed character flaws.
Personally, I don't find much value in these outpourings of Cultural Monster Id, for several reasons. One is that generations do not naturally divide into crisp cohorts; people are shaped by the events and shifting myths/worldviews of their culture. As a result there is an inescapable arbitrariness to bright lines between generations.
There's also a bit of intrinsic falsity in defining generational characteristics. Were the draftees of the Vietnam Era any less heroic than the draftees of World War II? Were the volunteers of World War II and Vietnam any more heroic than the volunteers of Desert Storm?
We can while away many a night around the campfire lambasting or lauding various supposedly generational traits, but I don't think that gets us anywhere useful. Ultimately, there is an element of luck in history, and it doesn't neatly favor generations evenly.
For example, the Silent Generation (born 1925-42) got stuck with a thankless war in Korea (1950-53), but was handed a golden opportunity to buy housing in the late 1960s before Boomer demand and geographical constraints sent it skyrocketing. Homes in high-demand areas purchased in the late 60s (before most Boomers could afford to buy a house) doubled in value in a few years and went on to rise 10 or even 15-fold in the ensuing 35 years.
Luck matters, timing matters, but so does context.
There are four Grand Narratives at work: demographics, resource extraction/pillaging, geopolitical conflict and the nature of the economy. The last two are heavily influenced by the first two; some studies suggest that large cohorts of unmarried, under-employed males are precursors to war, as political leaders channel that restless and potentially disruptive force against external enemies.
Economies based on endless resource extraction founder when the resources are found to be less than endless.
The Grand Narrative of the U.S. economy is a global empire that has substituted financialization for authentic, sustainable economic expansion. In shorthand, those people with capital and access to credit can take advantage of the many asset bubbles financialization inflates. They have a chance to do very well for themselves, if they have the presence of mind to exit the asset bubble before it deflates.
Those people who do not have capital or access to credit become poorer. That is the harsh reality of neofeudal, neocolonial financialization. Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012)
Large cohorts generate their own self-referential feedback loops. A large cohort of home buyers drives up real estate as demand exceeds supply, and those who get in early are handsomely rewarded. Those seeking similar returns provide the fuel for further advances. This is the basic story of housing from 1970 to 2006 and the stock market from 1981-2013, as the Baby Boom cohort bought houses and saved for retirement via stock and bond mutual funds.
As the Boomer cohort sells its homes and stocks, supply will exceed demand and prices will decline, especially if household capital and access to credit are also declining. This selling cycle will also be self-reinforcing.
In my view, the reality Eric describes is part of the larger destructive narrative of financialization. Those people who are prepared for the inevitable collapse of the financialization era of debt, centralized manipulation and fantasy will do well for themselves and their families.
My position on the entitlements promised to the Baby Boomers has been clear since 2005 (Boomers, Prepare to Fall on Your Swords June 2005): demographics, the changing job market and the destructive consequence of financializing the U.S. economy render the entitlements promised (Social Security and Medicare) unpayable.
Here is Eric's essay:
Lately there has been some talk about Generation X and retirement.
“The typical Gen X couple, born between 1966 and 1975, only has enough savings to replace half of its pre-retirement earnings. Married Americans born during the first part of the baby boom, from 1946 to 1955, can expect to retire with about 82 percent of their income.” (Gen X Has New Reason to Resent Boomers as Retirement Looks Bleak).
The response from some circles has been that the net worth of GenX is half that of their parents because they’re slackers who blew the money. Really?
Setting aside how the Boomers have been the most spendthrift generation in American history, quadrupling personal household debt and doubling US Federal debt in a single lifetime, I’d like to focus on something much simpler: 6th grade math.
Financial people should easily recognize this chart:
This is your standard net worth chart, starting with an income of $20,000 at age 20 and increasing income by 3% a year to a pleasant $40,000/year at age 43. This person saved a standard 10% of their income, and invested at the standard 6%/year compounded.
Standard lifetime incomes have a tendency to rise from your 20s to your 50s and level off, so your real income-generating years are strongly back-loaded. This earnings chart from Canada is pretty standard:
As for 6% compounding markets, this is what portfolios from 1980-2000 looked like:
Wow, this investing stuff is easy! But we know what happened after that. The Dow has since gone sideways for a brutal 13 year Bear market:
Oh well, those are the breaks. Markets tend to have a periodicity that rise for >20 years, but then reverse or at least stall in a bear market for <20 p="" years.="">
So what does this have to do with GenX?
Everything. Investing is an exponential function. One of the interesting aspects of the exponential function is that interest compounds very slowly at first, then increasing the amount contributed by interest ever-faster as time goes on. This is why Brokers are adamant about people beginning to invest when they are young: no realistic level of interest can make up for the compounding effect of time. Here is the same assumption as above—3% income rise, 10% savings with 6% compounding -- taken from age 20 to 65, halting peak income at a reasonable $55,000/year:
Note it takes 21 years to reach the first $100k, but only 8 to reach the $200k and 4 to reach $300k. This compounding-made-real actually happened from 1980-2000.
Here is a matrix of the 4 Generations:
Note anything on this chart? The Boomer generation had a rough start in the bear market of the 70’s, but were only about 25 when it ended, so the Bull run coinciding with 20 of their core income years. Very nice.
Quick look to the right and you’ll see GenX. When did they come into their equivalent earning years? Year 2000, just as the market was cut in half:
Why should that matter? The Dow has now recovered and gone to new highs of 14,000.
Well, let’s run the charts and see. Again assuming $20k starting income, 3% income growth, 10% savings, and full investment in the Dow as a proxy, let’s compare GenX income theory to reality:
Wow! Right at the 10-year compounding point in 2000, the X-er’s market clock was re-set to zero. Then in 2008, the next 10-year compounding point, they were re-set to zero again!
Remember what we said about compounding being strongly back-loaded? The difference in 6% compounding vs the market stalling at the critical 10 year mark has cut GenX net worth in half! And if this chart was inflation-adjusted their net worth would be another 30-50% lower!
This is even assuming the massively optimistic assumption that GenX incomes are neatly rising from $20k to $55k. They’re not:
What did the Bloomberg article say again, that GenX has half the retirement savings of their parents? That reality is exactly what we predicted given the math. Anybody want to argue about how Boomers worked hard to succeed but GenX and Y are slacking wastrels? Or does math trump all?
But okay, maybe despite advertising to the contrary GenX should have known better than to trust a 19 year-old bull market. Maybe they should have gone short. If so, when? Going short in 2001, they would have to have reversed and gone long in ’03, then short in ‘08, then long in ’09, and possibly short again sometime soon? Is asking a whole generation to pick 5 exact tops and bottoms reasonable? Perhaps not. If not, where should they have put their money?
Bonds? Interest has averaged under 3% since 2000:
The chart of 3% vs 6% interest: a 25% difference over 10 years:
Maybe they should have invested in houses. Here’s your table of average buying ages:
Severely burned by stocks, GenX statistically became first-time homebuyers at the age of 32, not much older than when their parents did. However, they bought their first home in 2005, not 1985. How did that work out?
Whoops! Sorry, suckers, stole your money again: your peak home-buying years coincided with another bubble! Housing was no safe-haven. Not only that, but again, the catastrophe is not the up-front losses but the 10 years of lost compounding that can never be re-made. The math says that if GenX worked until they were 80, they will NEVER recover.
But there is only one national economy, all the same houses, same stocks, same companies: to some extent it’s not a matter of national wealth, but the DISTRIBUTION of wealth in the nation. So if GenX was systematically disenfranchised by engineered stock and housing bubbles plus low interest rates, who was their expected slice of GDP transferred to?
That’s right, the Boomers, in allegiance with the financial elite, engineered a transfer of all other generations’ income to themselves. This, plus being born in an expanding demographic, was the totality of their investing genius.
Why should anyone protest this observation? What do you think the decades-old phrase “the national debt has enslaved our children” means? It means that the Boomers, who were in power at that time, took all the wealth of the nation for themselves and left their children with the bill.
That’s not a surprise, it’s well-known fact that has been approved of by everyone in power for 20 years. I’ve been hearing it openly stated since before the National Commission on Social Security in 1983. When I was 13, my national parents said that I would pay their debts so they could get wealthy at my expense, and they have fully kept their promise. Now I am 43 and not only had the $80,000 of my net worth systematically stolen, but being unable to outvote them, have been saddled against my will with the $50,000/person of the national debt. An estimate of $130,000 per person has been transferred. From us, GenX and Y, to them. And with 10,000 Boomers a day retiring and a 1:1 worker to recipient ratio, they expect much, much more.
So think again before you so easily dismiss the 25% unemployment rate and 3rd-world incomes of Generations X and Y and start with a short lesson on the problems of exponential functions.
Yet this terrible math leaves the question of what's next? Can this unequal state of affairs remain a permanent feature of American life? Can the work of one group-- the very hours of their life--be morally claimed and transferred to another by dictate? That is to say, does one generation have the right to enslave another, whether physically with chains they never earned, or financially with debts they never accrued? And if this transfer was voted into power by a generation and enforced by government dictate, why can’t Generation X and Y vote to transfer all the Boomers’ wealth back to themselves?
We don’t know at this time, but with the Dow at all-time highs it would seem that, one way or another, incomes and prices can only revert to the mean. And brother, speaking from the bottom, it’s a long way down to here.
by Eric A.
How income varies with age
Income by age and education attainment (Canada)
generational matrix chart
Dow Jones Industrial Average historical charts
U.S. House Prices - Nominal, Real, Price-to-Rent
Median age of homebuyers chart
On a related topic: AND THE BAND PLAYED ON Jim Quinn on the Millennial Generation and the Fourth Turning.
Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:
1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
5. Technological, financial and demographic changes in our economy
Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).
We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.
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Last night, the USDCHF broke out from an ascending triangle pattern when it moved above its resistance at 0.9750. Given the height of the pattern, the pair may aim for a target of around 0.9900. However, it may first correct in the near perhaps back towards support at 0.950 before eventually rising to the mentioned target. But if the 0.9750 gives way then it may fall down to at least 0.9700. I’m going to look to buy as close to 0.9750 as possible and sell at 0.9900 with a stop loss at 0.920.
In Monday's recap we wrote, in regard to Bernanke's testimony Wednesday:
The fact we are going into that testimony on such a huge run and at the top end of the channel probably means odds are he is going to say something that someone will interpret at somewhat hawkish and we might actually get some modest selling, but we'll see.
Well we got some modest selling; in fact a bit more than modest. Not versus Tuesday's close but certainly versus the highs enjoyed this morning. The S&P 500 moved in a 35+ point range today as every comment from Bernanke (and then later in the day during the minutes of the last Federal Reserve meeting) was cause for concern, pro or con. This is what the market has become - simply a daily monitoring of what the central powers say and will do. Really nothing new was said - the Fed is monitoring things and will adjust their program in the future. The S&P 500 fell 0.83% and the NASDAQ 1.11% but it certainly felt worse in the fact mid and small caps took bigger hits and the drops from morning highs were far more substantial. Here is a chart of the wicked intraday volatility:
Technically the indexes had what is called a bearish outside day, rising above the previous day's highs and then falling below its lows. Prior to the quantitative easing era this would be a serious warning sign. In the QE era warning shots like this often end up being forgotten in a few days as stocks start another leg up. So to be blunt the constant flood of liquidity into markets alter the traditional way things work and cautionary signals often fail. But we're throwing it out there for examination. For the S&P 500 all today did was take the index from the top of its channel back to the 10 day moving average, a place it has not seen since May 2nd.
The McClellan Oscillator quickly turned to a mildly oversold condition in the mid -20s.
Unlike prior selloffs for most of the past few years, there was NOT a flight into bonds as the reason for the selling is an eventual slowdown in bond buying by the Fed. Hence without the biggest buyer on the planet prices go down for bonds, and yields up. But it is too premature to forecast when that will be.
You can see this "bearish outside day" action in a host of sector ETFs and stocks - see the ETFs for financials and industrials for example. Again, in a normal environment this often signals a turning point or at least a place to be cautious to see what the market does in the following 3-6 sessions. In the QE environment all bets are off.
With market players trained to buy every dip and volume sure to drop off significantly the next few days as traders head out early for the holiday weekend it seems unlikely to see any major downside action but we'll see what happens when people return early next week.
Here is some data through yesterday's close from BeSpoke Investment, speaking to how consistent the rally has been in 2013.
This Friday will be the 100th trading day of the year, and no matter how the rest of the week plays out, 2013 will rank near the top in terms of years where the S&P 500 was the most consistent in terms of positive days. So far this year, there have been 61 up days and 35 down days. Even if the S&P 500 trades down every day this week, 2013 will be tied for 5th place in terms of most up days to start the year. If the index trades up every day for the remainder of the week, it will have had 65 positive days in the first 100 trading days, which would rank second all-time behind 1995 (68).In the table below, we have listed each year where the S&P 500 traded up on the day in at least 60 of the first 100 trading days. Prior to 2013, there were eight other occurrences. Of those eight years, the S&P 500 averaged a gain of 9.1% over the rest of the year with positive returns seven out of eight times. Furthermore, in the one year where the S&P 500 was down for the remainder of the year 1975), the decline was less than 1%.
Original post: STTG Market Recap May 22, 2013
The following is a recap of our call on the EUR/USD pair and how we recommended subscribers to trade. This morning the EUR/USD traded up past our range of 1.29942 (seen below) which is were we felt would be a solid short entry. We closed that trade via twitter this morning at 9:30am for a PL: +141 pips profit
EUR/USD is trading within a 1.27201 - 1.29942 range. We are on the sidelines.
The outlook is bearish, but the pair needs to have some kind of a rally for us to get short. We want to establish a short position anywhere between 1.29942 and 1.3018.
EUR/USD is trading within a 1.28356- 1.3018 range.
From yesterday’s report: “The outlook is bearish, but the pair needs to have some kind of a rally for us to get short. We want to establish a short position anywhere between 1.29942 and 1.3018.”
We opened a short position @1.2994 and covered @1.2853 (Twitter notification to cover).
At this point there is no future analysis. We had very extended moves to the downside. We have to see how the pair trades within the next few days.
The following is a special report from ForexAlerts.ca . They recently launched their service and are offering a 50% discount for a limited time. To learn more about currencies and take advantage of this offer click here.
WSW Open Portolio - Buying SDS As Partial Stock Market Hedge, Selling Few Positions - Mike Swanson (05/22/2013)
The stock market has been going straight up now for days after going up for months. At some point it is going to have a correction and it could happen at any moment. Today the DOW went up 100 points and is now almost even - it looks like a potential reversal day. This morning the Investors Intelligence survey showed that 55% of the people are bullish on the stock market - a level not seen in years.
I don't think a crash is coming or a bear market, but a correction can begin at any moment in the US stock market.
When you hold positions and the market rallies week after week it becomes time to take some money off the table and/or put on a hedge. I'm doing that today. I just sold three of my positions and went long the ultra-short SDS ETF, which is designed to trade against the S&P 500 and go up when it goes down, as a hedge on my other positions.
This way if the market does correct I won't lose much and will be in a position to keep most of my profits and then get rid of this hedge and happily buy.
By buying SDS I am actually on about 20% margin in my account, however it is a short position(ultra short so about 214k) against my long positions(excluding SDS 273k) so I'm really about 20% long in my account.
I think the S&P 500 is likely to fall down to its 50-day moving average, around the 1600 area. That would be about a 1,000 point drop in the DOW and likely take 4-8 weeks to play out.
I'm not sure what markets outside of the US will do as most of Europe has not gone up as much as the US has the past few weeks. They look like they could pullback about as half as much as the US stock market. Gold and silver probably just float around and build a base like it did last year from June-August. US Nasdaq tech stocks actually look most vulnerable to me...
Sold ISNPY 500 @ 11.12
Sold NILSY 270 @ 15.24
Sold PT 2K @ 4.54
Bought 3K SDS @ 38.15
For the most recent spread sheet file with portfolio positions click here.
For the most recent spread sheet file listing all portfolio trades click here.
***This is a preview. Please click on the post title or go to http://www.econmatters.com for full content. ****
I just did this podcast with David Bannister of www.activetradingpartners.com.
In this podcast David and I talked about the recent action in gold and his trade in MUX.
Last Thursday Dave wrote an article saying that it was time to be brave and get into gold stocks. He listed ten reasons why he was bullish. You can read them here.
For more from David go to www.activetradingpartners.com.
You can also download the mp3 audio file for this interview on your computer by clicking here WITH A RIGHT BUTTON CLICK and selecting SAVE FILE AS from the drop down menu.
If you have an itunes, ipod, or rss reader you can subscribe to the podcast by clicking here.
As a people we have lost a sense of narrative understanding of our times. We seem to live in chaos and the media constantly reports a stream of horrible events with no connection to them. As a result the world seems senseless and frightening. Younger people have lost a sense of history and their place in time:
That is an Adam Curtis interview about the use of stories in culture and how the telling of stories has changed overtime.
I saw this interview a year ago, but got to thinking about it today after reading a blog post by Charles Hugh Smith titled Present Shock and the Loss of History and Context.
In this post he reviews what sounds like an interesting book titled Present Shock: When Everything Happens Now.
In his new book, Rushkoff examines the telescoping of time and context wrought by ubiquitous digital technologies. We're always accessible, always connected and every channel is always on; this overload affects not just our ability to process information but our culture and the way media and marketing are designed and delivered.
The title consciously plays off the influential 1970 book by Alvin Toffler, Future Shock, which posited that our innate ability to process change was limited even as the rate of change in our post-industrial world increased. That rate of change would soon overwhelm our capacity to process new inputs and adapt to them.
The internet is a great resource for finding information, but has not been a useful tool for increasing people's understanding of the world and has not empowered people. You can see that in the stock market. Despite living through the crash of 2008 the masses have no understanding of why it happened and once again are piling into stocks with no game plan seemingly having learned nothing from their experiences. They live only in the here and now - and right now the market is going up so that is all that matters to them. CNBC reporters and the mainstream media cater to the Fed and Wall Street and never tried to expose the reasons for the crash or demand reforms. They demanded no change. They had no outrage and sit there as a new dangerous bubble in bonds forms in front of our eyes.
People have no understanding of the outside world and history. As Curtis explains TV news does not bring understanding and nor does 99% of what is on the internet. Much of it is simple rumor mongering. It takes deep reading, learning from experiences, and disconnecting from the confusing mass culture for periods of time to bring understanding and wisdom.
See Charles's whole post here.
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Good day everyone! My forex pick for the day is USD/SGD and will share my technical analysis on it. As you can see, the currency pair has been smoothly rising for two weeks now seen in the 1-hour chart and could continue to do so as long as the uptrend remains intact. In any case the pair taps the trend and bounces back up, yesterday’s high of 1.2623 may immediately be retested or even surpassed within the week. A breakdown from the uptrend, however, could bring it down to the next support at 1.253.
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