The 12 Charts Of Christmas

Tyler Durden's picture

After the success of the 'scariest charts for equity bulls', the following 12 charts are the most important, in CitiFX's view, to establish a 'starting point' for views on markets as we head into 2013. From employment trends echoing the 1970s, one-last-low in Treasury yields and '90s analogs, to EURUSD and its mid-'80s mirror, and the ongoing trend higher in gold; there is something here to scare equity and bond bulls and bears alike.

Via CitiFX:

What do we believe for 2013?

  • Initial claims will follow a similar path to that seen in the 1970s and begin to move higher in 2013. This will be the first indication that further trouble lies ahead. The 2’s – 5’s curve will eventually move higher also but not before posting one last move down.
  • U.S. 10 year yields will have one final push down towards 1%-1.2% at which point they could bounce up like a “beach ball let go underwater”.
  • EURUSD will fall towards 1.20 in Q1 2013 and possibly even 1.10-15 with parity a real possibility in 2 years. We also expect a rally on the USD Index this year of about 15% which suggests that this move will be predominately driven by EURUSD (57.6% of the USD-Index).
  • USDJPY will eventually move higher as the interest rate dynamic kicks in and we would not be surprised to see a move into the low 90s over the course of the year.
  • We expect Gold to move to $2,055 -$2,060 in the first quarter of 2013 a and ultimately a rally towards $2,400 in 2013.
  • Crude Oil (Brent) should rally to the 2011/2012 highs around $125 and possibly move to all time highs in 2013.
  • The DJIA will drop over 20% towards the 10,000-10,500 area.

 

The dynamic in this cycle is similar to 1973-1978 albeit at higher nominal levels. In 1978 this was a turning point which then saw these numbers head significantly higher again. However that, as well as a deterioration in economic activity and housing, was partially induced by a tightening Fed which given the present debt/housing/employment dynamic is highly unlikely even if we see some inflation in the system. However we think there is a real danger that higher yields (Bond markets) and a tighter fiscal dynamic could induce this move.

Bottom line we think the best may be behind us for now on this chart and expect renewed deterioration in 2013

This chart has been in our view, the best interest rate chart in the World for the last quarter century.

Our bias is that we have limited downside left here before we “pop”

Where initial claims go... the yield curve will follow.

We did not quite reach this base in late 2008 when it stood at 1.89%. It now stands at 1.05%. As yet we have not regained any levels of importance on the topside.

While we do not for a moment suspect that we would stay down there for long, we do think a danger remains for one last move lower as seen in previous trends. IF so, that low could be subject thereafter to a sharp bounce as seen in prior instances.

There are currently many scenarios at play which could be the catalyst to such a move. Candidates? 1. Fiscal Cliff and/or debt ceiling negotiations; 2. Europe’s sovereign debt crisis; 3. Middle East turmoil; 4. China slowdown

A little lower then a lot higher - for Treasury yields.

EURUSD set to weaken

USD strength is on its way

It may as yet be a little early for this move but if we get the expected bounce in bond yields expect USDJPY to power higher

The trend is clearly higher.

The present dynamic in Crude continues to remind us of the 1970’s when we got 2 supply shock moves. The first came in 1973-1974 at the same time as we had a collapse in the Equity market (1973-1974); a collapse in housing activity (1973-1975) and a sharp fall in economic activity (1973-1974). During the 1973-1974 period Crude pretty much tripled in price (low to high) over 18 months.

Then about 5 years after the 1973-1974 surge it “did it again” and once again virtually tripled in price in 1978-1979 over 18 months (backdrop here was the Iranian revolution and the Iran-Iraq war).

In 2007-2008 Crude virtually tripled in price over 18 months and we saw an equity, housing and economic dynamic very reminiscent of 1973-1975. Now as we head towards 2013 could we be setting up for another tripling in price over 18 months to 2 years? We hope not as that would put Crude close to $200.

Stay Far Away From Equities...

Every bounce off this trend line on the VIX since 2007 has been followed by a sharp move lower in the S&P (average 23% over 4 ½ months)

 

Charts: CitiFX