A Disturbing Warning From UBS: "Buy Gold" Because A 30% Bear Market Is Coming
As Wall Street axioms (Santa rally, January effect, as goes January etc.) are rapidly falling by the wayside at the start of 2016, following a chaotic but return-less 2015, the UBS analysts who correctly forecast last year's volatility are out with their forecast for 2016. It's simple - Sell Stocks, Buy Gold.
UBS Technical Analysts Michael Riesner and Marc Müller warn the seven-year cycle in equities is rolling over.
UBS expects S&P 500 to move into a 2Q top and fall into a full size bear market, with risk of a 20% to 30% correction into minimum later 2016 and worst case early 2017
"The comeback of volatility was the title of our 2015 strategy. Last year’s rise in volatility was in our view just the beginning for a dramatic rise in cross-asset volatility over the next few years,"
Noting that while equities have had a good run, Risener and Muller warn, "we are definitely more in the late stages of a bull market instead of being at the beginning of a new major breakout."
Our key message for 2016 is that even if we were to see another extension in price and time, we see the 2009 bull cycle in a mature stage, which suggests the risk of seeing a significant bear cycle event in one to two years.
S&P-500 trades in 4th longest bull market since 1900 Bear markets are defined by a market decline of 20% and more. It’s a fact that since its March 2009 low, with 82 months and a performance of 220%, the S&P-500 now trades in its 4th longest and 5th strongest bull market since 1900. So from this angle alone we suggest the 2009 bull cycle has reached a mature stage.
Keep in mind, since 1937 the average downside in a 7-year cycle decline was 34%...
Having said that, if we look at equities globally the picture looks more diverse. Last year we said we think the May top in the MSCI World represents a major equity top. Our view is unchanged, and in this context it is important to understand and sort in the extent of last year’s summer correction. In the MSCI World universe, we saw in 20 out of 48 markets a correction of 20% and more (DAX -25%), which is per definition bear market territory. The MSCI Emerging Market has been factually trading in a bear market since 2011 but from its May top alone the EM complex lost another 28% into its late August low!
Together with the 200-day moving averages rolling over in more and more markets globally, the break of the 2011 bull trend in the Russell-2000 and the equally weighted Valueline-100 index in the US, as well as intact sell signals in our monthly trend work, we can clearly say that globally, a bear market is already underway in more and more markets; whereas the S&P- 500 has just corrected 13% from its May top, and where into H1 2016 we can still see the large and mega cap driven S&P-500, Dow Jones Industrial and Nasdaq Composite to hit a new all-time high.
In 2013, high yields topped out and particularly since 2014, we have a real bear market underway in the high yield segment, which in the meantime is forming a multi-year divergence versus the S&P-500, similar as prior to the major market tops in 2000 and 2007.
The bear market started with the energy complex but it is a trend, which is filtering through into other commodity themes, as well as Emerging Markets, Asia and at the end of the day into the Western world, which translated means we are running through a very classic credit cycle.
2016 is a Presidential Election year, which usually have a rather bullish track record in the 4-year cycle. However, if we look more selectively into this cycle there is a big divergence between a normal Presidential Election year and the 8th year of a presidential turn, which we highlighted red in chart 9.
Since 1920, more or less all 8th years of a presidential turn were amongst the worst election years.
Also, pattern-wise the two cycles have a very contrarian message where the average of all 8th years of a presidential turn is actually outright negative for next year, which we think would be quite a big surprise for most investors.
So if stocks are due for a 30% correction - what to do? Buy Gold...
Gold has been trading in a cyclical bear market since 2011.
In 2016, we expect gold and gold mines moving into an eight-year cycle bottom as the basis for the next multi-year bull market.
Initially, we see gold profiting as a safe haven and as of 2017, gold could profit from the US dollar moving in a major top and starting a bear market.
Tactically, over the last three years, we’ve tried playing bear market rallies in gold and gold mines several times. In 2013 and 2014, our targets were reached.
In 2015, the bounce in gold was weaker than expected. However, in all these cases we made it clear that we just expect a bear market rally before resuming its dominant cyclical bear trend. Generally, our cyclical roadmap and our long-term call on gold of the last few years has not changed.
A potential bottom in 2016 bottom could be a rather powerful bottom, since together with a four-year cycle low we have also an eight-year cycle low projection for this year. In this context we expect a potential 2016 low in gold to be the basis of a new multi-year bull market.
In contrast to the underlying secular trend in commodities (which has turned bearish) UBS sees gold (which is in our view a currency and not a commodity) still trading in a secular bull market.
Pattern wise we continue to see the 2011/2016 cyclical bear market in the same context as the 1975/1976 bear cycle in gold. Keep in mind, in the mid-70s gold lost 43% of its value from its January 1975 top before another gold bull market started into the January 1980 bubble peak. It is amazing to see that with a loss of 45% from its August 2011 top into the early December 2015 low, the decline in gold has more or less exactly the same proportion as in the mid-70s.
Furthermore, there are still a lot of market commentators who say that the August 2011 top in gold was the top of a bubble. According to the average gains we have seen in historical financial bubbles, the gold bull run from 2001 into 2011 (760%) was far away from any bubble territory. In the first gold bubble, gold gained 2400%. In the 1903 to 1929 Dow bubble, the Dow Jones Industrial gained 1200%. The 1979 - 1989 Nikkei bubble came in at around 2000% and the 1980 – 2000 Nasdaq bubble topped out a +3900%.
So if gold moves into a bubble, we would need to see a gold price of minimum $3300, and in this case we would still talk about a low bubble phenomena such as the 1903 – 1929 Dow Jones bubble!!
What kind of macro environment could justify such a gold bull market in the end of the decade?
In December we saw the Fed’s first rate hike. Even if we were to see another 1 or 2 rate hikes in H1 2016, with a 20% to 30% bear market event in later 2016 or into early 2017, it would be very likely to see a big U-turn in the Fed policy where initially we should see a negation of the rate hikes and at the end of the day we would expect the Fed to move into QE4.
Our call is, that at the point where we see a Fed u-turn, we get the top of the decade in the US Dollar, and together with the accommodative stance of the ECB, BOJ and the PBOC, this would be the trigger for the ultimate reflationary trade, where equities, commodities and finally also gold could rally hard on the back of a big recovery in inflation towards the end of the decade.
And judging by the market so far this year - and post FOMC - the Buy Gold, Sell Stocks plan is already being implemented...
(21 votes)
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you mad, bro?
Yes. The ultimate consequences of all this FRAUD is simply mind boggling.
The consequences of "mark to FANTASY" alone are a fucking disaster and the fallout will be on a scale humanity cannot comprehend but that certainly has never been seen before.
Eventually all those paper claims will start chasing real assets. unless of course you really believe that all that debt will simply be forgiven.
If the bankers/financiers forgiving THEIR debt again, I don't see how they do it without totally destroying the FRN.
I don't see it either...
It has to be some transfer mechanism like the spawning of a new world currency. I am not sure the SDR will be far enough from the dollar to allow all the debt to disappear....
There will be a point at which the producers of essential commodities that are required for survival simply cannot deliver, regardless of how much "fiat du jour" you offer them.
They will band together in smaller tribes and simply produce for their own survival. Everyone else can just fuck off and die. Can't wait to see the pretty boys in their fancy suits that pushed paper their whole life try and survive at that point.
Could be a while considering all the overproduction and the fact that this time it will be a global event.
Perceptive. That seems to be the basis for the new wave of commodity-based Barter Agreements and Swap Facilities. In case of global currency destabilization, you have incrementally greater freedom to cherry-pick preferred units of measure, from national currencies to commodity units.
Chinese Swap Facilities Since 2009 (CFR.org)
paper or physical?
I don't see how the Fed can "reverse course" without destroying the FRN. That means WWIII in earnest or a global currency collapse, neither being desirable outcomes (aside from the MIC).
They might reverse course in secret, but I don't see how they can do it publically.
"Personally, I think gold is going to go back down first, as things deteriorate." Agree. Educated guess, looking at gold bottoming around 850, oil around 25, and S&P around 1450. Breach of the 1500 level will trigger badmotherfucker QE.
If I see one more projected "UP" arrow on a gold chart...
So does this mean the recovery is cancelled?
Officially, no. "Please stay on the line, your call is important to us..."
But unofficially, ya.
Anyone else see the contradiction in this "analysis"?
Are they talking PAPER gold or physical?
same as it ever was...
Gold, shouldn't UBS keep their clients happy and tell the muppets to buy cocaine instead?
And so is this how all of the productive capacity of the US is entirely put in the hands of the banks (banks create money out of thin air to complete their purchase of all powerful company equity)and the sellers are left with metallic paperweights?
The central banks own all equities anyway threough Cede and company. This would just make them the beneficiaries as well.
Global ownership by the satanic/phaeroic bloodlines is completed.
Basically.
These bankers are such fucking clowns! A reflationary trade? Are you fucking kidding me?
The global markets are so fucking full of cash right now, they make the term reflation look a deflated balloon.
Yes, with so much "stimulus" sloshing around I do not see how they can "reverse course" publically. maybe they already have in secret.
You're properly on a roll in the New Year, Yen.
Keep it up! You, me and Doc!!!!
Hallelujah!!!!!!
As we used to joke about in the 70's; "Root for the bread lines"
+1 for you & YC too.
May I please borrow this phrase and quote you? It's a serious winner.
Bullshit. The sellside know their gold is overvalued relative to oil (the Saudis can't maintain the USD <40 target forever) and are trying to cash out.
The Union Bank of Switzerland's plan is to pick up stocks---oil stocks especially---for a song, and wait for Janet to blink---which she will.
That is my prediction as well. now for a decent hedge...
Janet's Blink may not be what you think it is (some scrolling down required):
http://www.urbandictionary.com/define.php?term=blink
@NotN,
Don't be so sure.
Rottenfellars didn't divest XOM for nuffin.
As per janus' post with the Shah the other day...pick up the 20yr lag in tech?
http://www.bibliotecapleyades.net/ciencia/ciencia_energy120.htm
>=2k
<2k
todzay's s&p
bonus round: how big's the 3:30 ramp into close?
Not big enough. The only thing staying green is VIX
Too late, it's all been shipped to India and China. Maybe next time.
A bank telling us to buy gold? I'm suspicious.
They want you to buy "gold investment products" that they can use to short the actual metal at your expense.
UBS is long,the killer squid short..UBS//Swiss is severely damaged by US Regulators and still managed by Axel A. Webera ex Bundesbank president.He knows the rules of this financial war and more inteligent than those GS/FED Clowns...
Now I have a dilemma, I very much enjoyed being a contrarian.
PPT buying up FANG trying to change the tide
Shouldn't we follow that trade??
It depends on your leverage and time frame.
Disturbing Warning why?
Because they're underestimating by a lot?
Because they're suggesting investing into more fixed investments like paper gold (320+:1 paper to physical ratio)?
Because they're not recommending pulling everything out of the fraud that you can't afford to lose?
Because they've waited until all the alleged elite and wealthy have pulled out or repositioned to tell everyone else?
The banksters and their mouthpieces the MSM are almost always days, months or years late, megabucks short and still push you into something to keep the fraudulent fraud going.
They're pushing everyone to move it from under one shell (stocks) over to another shell (paper gold). So when the big reveal comes and both shells are lifted you've got nada.
Yes... Buy Teh Goldz. Down 21% over the last 5 years. Up 83% over the last decade... BUYS IT ALLS.
Shhh, someone don't tell the Zero that S&P 500 Total is up 90.4% over the last decade. And up 71.4% over the last 5 years. FACT BITCHES.
Yup. Gold is only a good buy if you're really so naive as to think a day of honest accounting will come.
Just as I predicted yesterday. Faux gold going up, eh? Please buy all the gold you can get your hands on Z/H Goldbugs, and then watch how the overlords rig the market as soon as you have spent all that dough.
And next month I will proclaim that I told you so when the price of gold is artificially lowered so you lose your investment strategy as the greater fools thatyou obviously are.
Stoooooooopid is as stooooooooopid does, suckers!
The zero seems to think that the overlords are going to lose control. They're not. If they do it'll be a full-on tech crash... and under those circumstances NOBODY will trade edibles for inedibles.
I fully agree with you, CRD.
Gold makes Kings
250 on the S&P sounds about right....
Around it's value before EVERYTHING became financialized and completely bastardized!
I think we would all be better off if so many people were not looking to profit from a spiritual battle.
This shit has happened too many times to call it a rout. Suspect, just like before, It'll be even or up by Friday PM. Might be some money in it for those with the stomach and nerves of steel.
BTFD
Have you ever once looked at a chart your entire life? Dippy has been dead for an entire year at the very least. Glad to see that you've got the sense to stay wide away from trading though. Good decision.
http://tos.mx/WvLUr0
don't look now but gold just puked after FOMC comments.
thought gold was going to hit 2000$ just 30% not worth investing
VIX being manipulated like a motherfucker once again. Being slammed hard every time it pokes its head up. These boys are scared - clearly. It's setting up for a massive move though....
Of course they want you to convert all your savings into physical Au.
And then - one word - confiscation.
Paper gold is manipulated to their advantage either way it goes.
There is no safe haven for savings.
It will all be digitized.
Buy gold and silver from a pawn shop where they won't write down your name. Take the loss on the premium.
Long shovels.
Long hardware store stawks! Shovels, PVC pipe, pipe glue (sniffff!!! Ahhh!)!
I have reduced Punjab's duties and hired his cousin, Hanu. I hope he can drive better than Punjab.
The humor in the comments section is the draw for me, you guys are the best!
What that first chart fails to show is the 1929 all-time high, which was not broken until 1952. If we're entering a Really Great Depression after the all-time high last May, and history from the Great Depression repeats itself, that means we can expect a new one in 2038.