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Veteran
Posts: 214
| Just a quicky, much else to do...
Several correlations between different asset classes like stocks, US$, gold, oil, grain commodities, industrial metals, govt bonds, etc which have held fairly well for a decade and more haven't been acting true to form in the last week.
Perhaps most significant is US$ weakness, it's only 1% above its 12 month low on the DXY index. Commentators have been expecting a $ rally for several months but it's obstinately refused to oblige and the technical signals for a $ rally have faded. Stocks and $ have a clear and strong negative correlation (when one goes up the other goes down) but both are showing signs of weakness presently.
Markets seemed to be poised. If stocks drop and $ gains, or stocks gain and $ drops, then we are still in the current paradigm. If both drop significantly (say, by 10% for stocks, 5% for $, or more) then a fundamental market shift has occured that may well presage the next phase of economic turbulence.
Regardless of these (slightly?) longer term aspects there are strong reasons to expect an initial 3% to 5% correction in stocks within the next 2 weeks. It could be quite a bit deeper but I've insufficient data and time to sift it just now to guage.
The five weeks to April 4th-ish (tentative end of my current higher risk period) look a long way off, there could be turmoil. | |
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Regular
Posts: 80
| Part of the problem is what they are calling "Quantitative Easing". Basically they are printing more money. But printing money is inflationary, weakening the dollar.
A weak dollar is also ( partly ) why the price of oil, and other commodity prices are now so high. | |
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Veteran
Posts: 214
| QE is skewing things heavily, very true David. In July 2010 I said here that I expected US stocks to drop 25%+ - and they rallied 30% over the next 6 months. That rally started as soon as they 'pre-announced' QE2. I don't have any idea how far from reality this economic system can wander before it has to snap back but those at the party seem determined to frolic till its end. They will deserve punishment on a medieval scale in the aftermath.
Will we have a QE3? QE2 ends in 3 months I think, dare we another? dare we not have anoher? does it matter? (have we not already stretched the elastic band of reality too far?). To me the answer seems clear - we are already beyond the point when a controlled journey back to stability is possible. Let's hope I'm wrong and those holding the levers are smarter than me. Will the GOP controlled Hosue of representatives permt a QE3?
A weak dollar tends to increase the value of all other dolar denominated assets, but that looks to be breaking, that was the gist of my comment above. Today was a case in point: $ moved up a tad, so did US stocks more so, oil and gold barely moved. Logic and markets often do not gel.
A few interesting current articles:
http://www.minyanville.com/businessmarkets/articles/quantitative-ea...
http://www.minyanville.com/businessmarkets/articles/currencies-us-d...
http://www.financialsense.com/contributors/james-quinn/there-are-no...
Stocks over the last week or so have consolidated (trod water) they could go up or down when they break out, toss a coin rather than listen to me or anyone. One thing I am sure of: when they do eventually break down properly they will drop about 50% from present levels. That may start a day, month or year hence. Unless hyperinflation hits and everything apart from fiat currencies goes bananas.
In 4 weeks we are out of my high risk period, but things tend to flux at beginnings and ends of them so keep 'em crossed. | |
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Markets: established correlations perhaps show signs of breaking