It may appear to be safe for everyone to be on the same side of the boat, but the gunwale is awfully close to the water.
Just when the dollar's last rites were being considered, it has bounced back and looks poised to move higher in the days ahead.
Gone are the days where people looked towards next year when building their portfolios, or five years down the road as they approach retirement. Now from a combination of apprehensiveness and shear paranoia in our unstable markets, investors are looking only as far as they can throw for their personal investment decisions. In more than 30 years of money management, Lance Roberts has never seen such a rapid change in the way people make financial plans. Instead of saving for the future, many are opting for fast gains - yet at the same time they want low risk. Others are playing it completely safe. In fact, in a quarterly poll, 83% of respondents said they were holding on to their cash versus investing in the stock market.
In the long term, it will ultimately be the fundamentals that drive the markets. Currently, the deterioration in the growth rate of earnings and economic strength are not supportive of the speculative rise in asset prices or leverage. The idea of whether, or not, the Federal Reserve, along with virtually every other central bank in the world, are inflating the next asset bubble is of significant importance to investors who can ill afford to lose a large chunk of their net worth. It is all reminiscent of the market peak of 1929 when Dr. Irving Fisher uttered his now famous words: "Stocks have now reached a permanently high plateau." Does an asset bubble currently exist? Ask anyone and they will adamantly say 'NO.' However, maybe it is precisely that tacit denial which might be an indication of its existence
As stocks press back towards all-time highs amid a US government shutdown, extreme weakness in earnings pre-announcements, slower-than-expected China growth, Europe's recovery in doubt, and a looming debt-ceiling debate in the US, we look at four 'big picture' charts of dismal divergences that suggest it's not different this time at all...
With TrimTabs seeing real wage and salary growth at a mere 0.7% year-over-year in August, some of the more 'robust' expectations for tomorrow's non-farm payroll report appear a little exuberant. However, Goldman's 200k estimate (based on 24 labor market indicators) suggests there will be enough to provide cover (aside from the cornering via sentiment, deficits, technicals, and international resentment) for a Fed "Taper." SocGen's Brian Jones is top-dog at a stunning 220k expectations (2-sigma above the 180k median expectation for 'probably the most important data point in the world'). At the other end of the scale of 95 estimates summarized below by Bloomberg, is TrimTabs' Madeline Schnapp who sees a 5-sigma miss at a mere 79k jobs added. Goldman expects the unemployment rate to hold steady at 7.4%.
Last week's 90%-down day and TRIN (market-breadth) above 2.0 provided the ammunition for an oversold bounce but as BofAML notes, there is plenty of resistance to limit upside. With 1658 as critical resistance (S&P 500 cash traded 1651 this morning), the following charts show the weight of evidence suggests deeper downside risk to the June lows around 1560.
The Fed's GDP forecasts are still too optimisitc even after the Q2 GDP revisions. And the core PCE deflator is closer to zero than it is to the Fed's target. Tapering still a done deal ?
With Silver's strong recent run, Citi FX Technicals suggest the present technical set up is now starting to look very constructive. At the same time, they add, Gold is also starting to move higher; and trending moves in the precious metals (up or down) tend to be led by the Silver price and the Gold/Silver ratio remains supportive of that view again. Given that they remain cautious near term about the fortunes of the US Dollar, all of the above would suggest, Citi concludes, that the "playbook" is to be long Silver against the USD.
After a slow start in the week, there is a substantial pick up with announcements from the FOMC, ECB and BOE (as well as monetary policy updates from the RBI, RBA, Israel, and Czech Republic) with the possibility, if not probability, of a Fed update on tapering expectations. On Wednesday we get the much expected wholesale GDP revision which will boost "growth data" all the way back to 1929 and is expected to push current GDP as much as 3% higher, and on Friday is the "most important NFP payroll number" (at least since the last one, and before the next one), where the consensus expects a +183K print, and 7.5% unemployment. All this while earnings season comes to a close.
Citi's FX Technicals group is biased to believe that the low in this correction may have been posted for Gold. Here's why...
Turd Ferguson, of the TF Metals Report, does superb work and commentary on the precious metals markets. His latest analysis on Friday’s Commitment of Traders Report caught my attention for a number of reasons, in addition to it being so well done.
While stocks could continue to climb higher that does not mitigate the underlying risks. In fact, it is quite the opposite. It is very likely that we are creating one, or more, asset bubbles once again. However, what is missing currently is the catalyst to spark the next major correction. That catalyst is likely something that we are not even aware of at the moment. It could be a resurgence of the Eurocrisis, a banking crisis or Japan's grand experiment backfiring. It could also be the upcoming debt ceiling debate, more government spending cuts, or higher tax rates. It could even be just the onset of an economic business cycle recession from the continued drags out of Europe and now the emerging market countries. Regardless, at some point, and it is only a function of time, reality and fantasy will collide. The reversion of the current extremes will happen devastatingly fast. When this occurs the media will question how such a thing could of happened? Questions will be asked why no one saw it coming.
Price action in the foreign exchange market. Discuss.
The recent slide in the gold price has generated substantial demand for bullion that will likely bring forward a financial and systemic disaster for both central and bullion banks that has been brewing for a long time. To understand why, we must examine their role and motivations in precious metals markets and assess current ownership of physical gold, while putting investor emotion into its proper context. The time when central banks will be unable to continue to manage bullion markets by intervention has probably been brought closer. They will face having to rescue the bullion banks from the crisis of rising gold and silver prices by other means, if only to maintain confidence in paper currencies. This will likely develop into another financial crisis at the worst possible moment, when central banks are already being forced to flood markets with paper currency to keep interest rates down, banks solvent, and to finance governments’ day-to-day spending. History might judge April 2013 as the month when through precipitate action in bullion markets Western central banks and the banking community finally began to lose control over all financial markets.