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THE Breakdown Of 2015 Is Now A Fact
We wrote on July 5th that markets are increasingly looking scary. Now, only 3 weeks later, the situation seems to be escalating.
Let's get it straight: this is a serious deflationary bust in the making. The most worrisome fact is Dr. Copper's technical breakdown, as seen on the first chart.
Source: StockCharts.com
The price of copper, being a leading indicator for the health of the global economy, has broken through a multi-decade trend channel. This is really bad news for the global economy, and for markets in particular. This setup carries a message you simply cannot ignore if you are a serious investor.
Part of the problem resides in China. As the next chart shows, the correlation between the price of copper and the Chinese Manufacturing Purchasing Managers Index (PMI) has been very high. In particular, the copper price has a track record of anticipating the direction of the PMI index. The latest PMI reading earlier this week came in at 48.2 this week, still below the critical 50 level. It indicates that purchasing managers believe economic contraction is prevailing at this point.
Source: Capital Economics
It is not only copper, but almost all commodities are tumbling right now. So here must be more going on than contraction in China.
The price of gold, apart from the fact that last Sunday's crash was more than suspicious (given the low number of sellers, high number of contracts, in a overseas thin trading market), has broken through key support as well. What is more worrisome, however, is the trend of the gold miners. Traditionally, the miners are a leading indicator within the precious metals complex.
Calculations of our analyst team at SecularInvestor.com show that prices of various gold mining stocks are factoring in a scenario of $600 gold in the not too distant future.
Scary movie? It will probably become worse, as from a technical point of view there is still quite some downside in the leading commodities (copper, gold, crude oil).
The key question of course is what central bankers will do with this deflationary cabal. If anything, they cannot ignore the fact the economy is doing exactly the opposite to what they are aiming for, i.e. a 2% inflation rate.
China's central bank has become quite aggressive in their monetary easing. Also, they have plenty of room to set interest rates lower, as a tactic to stimulate inflation. In the U.S., however, the trend is towards higher rates, at least that is the message of Mr. Bernanke and Mrs. Yellen in their forward guidance since two years. On the other hand, both the U.S. and Europe have not much room left to bring interest rates down.
Is Mrs. Yellen caught between the proverbial rock and a hard place?
Potentially yes, but it could be that this deflationary scenario is exactly what she wants. Or what to think of the scenario in which she created this situation. As we explained in our latest article, we believe it is fair to think that Mrs. Yellen has created this scenario on purpose. The thinking behind this is that her relentless endeavor to raise interest rates will undoubtedly make things worse; so at a certain pint, she has to intervene and come out as the big hero who 'saved the world' (similar to what Mr. Bernanke did in 2009). Fact or conspiracy? We will never know for sure, but one should not exclude this scenario.
Trying to determine what is going to happen in the markets in the coming weeks and months is a fool's game as there is always the possibility of intervention of central banks. But as long as they don't intervene, it seems an easy call that commodities will continue their downtrend, and that they will take emerging markets and most key stock markets of the world with them. We are seeing the first cracks even in the U.S. stock market now, undoubtedly the strongest worldwide in the last 3 years.
Ironically, in such an environment U.S. Treasuries seem to do well as they attracted quite some inflows of money last week, according to an article on Zerohedge based on data of Bank Of America. However, would Mrs. Yellen decide to raise interest rates, then bonds would see a strong outflow, according to our view.
So here is the trilion dollar question: where is your money safe going forward? We have to say that these are rough markets, and the challenge to be successful is becoming bigger with the day. Meantime, having sufficient cash and remaining at the sideline seems to be a good strategy.
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bernanke was the last fed chief, yellen is just a caretaker of the treasury department of monetizing, or something like the labor secretary. all this talk about employment thresholds, do you know who the sec of labor is? planet janet will probably be on duty when they cement over mariner eccles with helicopters (see chernobyl) nobody wants global deflation, so you try to let it out a little at a time, and avoid the deflationary crash. next step beyond negative interest rates is tightening credit. this would be a huge boost to the credit industry, drive those predatory payday loan outfits and phony mortgage orginiators out of business, let the big banks take over usury, (its what they do best) then at least we can regulate their theivery. easy credit at high rates is replaced by more difficult to obtain lending at less than usurious rates (since the states regulate these things) for instance Money Mutual (montel williams) will get you money, even if your credit isnt perfect, but not in New York.
Come on, guys... Commodities, copper included are mean reverting. (Benefits of extraction, are mean reverting). They are also quite cyclical. ¿Trendline breakout? Well, yes... but I would have a look at the 6 year cycle, and where we are now after 4 years falling.
i love zh, and it's commenters, it's a survival blog for the middle-class.
the die has been cast for americans, Obama-care, and a fraudulent political, and judicial system,
america will have neither, inflation, or deflation, it's going to rot from the big cities out, I'm not rich, I'm just trying to keep what I've got, and keep me, and my family out of fema-witz,
it will not pay to be rich in America in a decade, their won't be 10's of millions ebt users coming to rob me, I can see hackers exposing adderesses, and net worths on the internet, along with all city, state, county, federal and civil service union employees, working or retired
in the end taxpayers were told 10's of trillions of tax dollars were to help the poor, not their 1% salaries, benefits, and retirements.
the BIS, and the NWO INC have decided that the fed, and the dollar will be the last ones standing, it's easier to rid the world of the 5,000,000,000 extra humans,they figure, there are in the world, when the em's unpayable debt is dollar denominated.
I can't understand their last move though, enabling people who will use nukes, to make nukes.
whats elon musk, goggle, and the mic going to do when their robot factories get nuked, or lose electricity?
Theeyjustcantstop :" I can't understand their last move though, enabling people who will use nukes, to make nukes."
The nukes are just a bargaining chip for them to get 180 Billion in their assets unfrozen. Everryone has nukes now, USA, INDIA, PAK , Saudi Arabia, Israel, USSR, Brasil, South Africa, Japan, the Norks (I'm probably missing a bakers dozen off of this list here)... , not to mention about 140 or so mini-nuke pits sold out the back door of a Texas company. Nukes are old school checker pieces being used on a chess board. They're worth more just sitting there unused for arm twisting purposes....than to actually pop one off.
That controlled demo job in the picture at the top looks sloppy to me... way too much outward thrust. The developers should've hired Larry Silverstein's guys.
I thought the building was hit by a plane.
Seriously. Don't you want the building to basically fall straight down on itself?
yes but do it on the sunday, not when everyone is going to work
So long as Governements can buy financial assets with tax receipts from the "future" everything is going to be okay -
The only way gold goes to $600 is if, a.) The U.S. succeeds at 'suckering' in the flight-to-safety trade again (in addition to 'Caribbean banking centers'), and/or, b.) there are no geopolitical 'fires' that involve China and/or Russia. In simple terms, same as it ever was, nothing has changed on the geopolitical/economic chessboard, and nothing ever will, thus sayeth the almighty $USD...
Pricing in 600 dollar gold? Forgive me, I'm just not seeing that. I see desperation. This is the blow off bottom, anything below 950 would be an absolute shock, but I gotta say- buying a one pound bar would not be out of the question for me sub 900.
The mining equity market is tiny so very easy to move. There was a lawsuit years ago, I believe brought by Blanchard, alleging ABX sold gold forward to throttle the other miners access to equity capital. If they borrowed from banks to finance projects they had to sell forward. So the billion banks could cover their endless shorts. Meanwhile ABX gobbled up the juniors to cover their own shorts. HW Bush was on the board as was Mulroney (I think it was Mulroney- him or another former PM). Much of this was admitted in the Boston court where the case was heard. At one point one of the defendant bulllion banks said: yeah but we did it as a matter of government policy so it should be OK.
The mining sector is no independent market indicator for gold.
+1 Great comment Bastiat! Still a scary sector to try and time correctly however....and soooo corrupt!
+1M
Are you hinting that we are near 'pitchfork time'...
Cash on the sidelines for what? Milk, bread, and eggs? O.K. Gold and Silver in my hand? O.K. Stocks? No fucking way!
Gold at $600.00, I don't think so. If it collapses to that price, the flow of the yellow metal to the east will be unprecedented and then the calls for delivery of physical will begin...thus collapsing the current CB driven ponzi scheme.
From my point of view, we are all well and truly forked.
;-D
Gold will do better in real terms through deflation than it would in inflation. Think of how few financial institutions would be safe as they are all predicated upon modest inflation and highly leveraged to debt products. Deflation would result in debt destruction which would likely threaten the central banks and their respective currencies as they try to get currency into circulation without creating more debt (AKA "helicopter money").
I don't understand why most pundits write gold off should we see a deflationary spiral. I could not imagine where else I would park my liquid wealth in such an environment. Gold might go down initially but demand would rise dramatically as the failures/bailouts begin in earnest.
Holding cash might look smart initially as but it would soon devolve in to a suckers trap. Good luck finding gold or silver at a reasonable price (or any price) once that happens.
It's hard to imagine, but then when gold was $1,900/oz few of us would have believed the current price of $1,097 either.
If I still have my current job, I will welcome $600/oz.
I'm not so sure it won't make it there. That $600 was alluded to in Martin Armstrong's blog this morning/late night. Many factors to consider but it is a possibility. Hedge accordingly.
Not seeing it. The worldwide demand would be so great that shorting the paper market A would not move the price of gold and (B) the suppliers would simply quit mining or selling. How can you spend 900 an oz to sell your product for 600? I call bullshit right here and now.
Central Bank solution:
Print more money, extend more credit, build fake demand, build excess capacity, create more deflation. What a bunch of ivory tower, real wealth killers.
Keep your eyes on the prize:: purchasing power parity in currencies. Kindleberger worked this out in the 1930s.
The Big Mac Index is a pratical measure to watch.
Create a chaotic event and then attempt to control it, this will work out well. Just like all the other butt nuggets running our system Yellen is a combination academic/government drone and they all love their Keynesian models because if you put the right numbers in you get the answer you want. Too bad reality isn't a model and tends to be chaotic with all kinds of little 'surprises' tucked away.....
Deflationary depression? Depression yes. Deflation no.
Economic deflation, monetary inflation in response. Been like that for years now.