Archive for June, 2010

Inflation or deflation predictions

Many commentators in the markets like to suggest that a period of 'hyper inflation' may arise from the easy money printing stimulus programmes, or at least there remains a big risk of it. 

While there are fewer voices in the doom and gloom camp predicting a slide into a depressionary spiral over the next 5 years.

Its easy to agree with some points of both arguments and it is also possible there will be a year or so of both sharp rises in inflation and equally sharp declines, in not just stocks but all classes of assets like commodities and bonds.

One thing that does indicate there is some merit in the bear case (deflationists) is that of "social mood". 

There is a vocal proponent of this idea within a well known theory of wave movement (Elliot Wave) – its not something I use or think is easily usable in technical analysis – but, the social indicators used within this are predictive I believe. 

Just look at the news storys about what is happening where there are these 'austerity' packages in the Eurozone.

Its clear to see unrest is growing and with each new one, perhaps Italy, Portugal and more in Spain, there will be growing nationalist tendencies, protectionism and distrust of the Government when it becomes clear the bail-outs are really to be paid for by cuts in public services and benefits. 

This has a few years to run yet and it is within Governments power to flood the markets with new money – the trend as it appears now is for real cuts in spending, and not just in one country but throughout the Eurozone and in time, the US too.

Its not all bad news though as traders can thrive in volatile periods, just look at 2008 and the rebound in early 2009, it is possible to capitalise very quickly when the right conditions appear.

2 New trades 2 Changes to existing trades Changes GOL change stop to 1,230.0 Read the rest of this entry »

Vote for Gold!

There is a UK "emergency" budget on Tuesday in which we will discover how the 'structural deficit' (AKA the bank bail outs) among other excesses will be paid for. 

The usual suspects are increasing the retirement age, think 70+ and reducing benefits payments and of course reducing salaries and 'gold plated' pensions in the public sector – all to shore up Sterling and prevent our interest payments spiralling further higher (maintaining UK Plcs' credit worthiness as a country). 

All this means the fledgling demand for goods and services will be hit – together with 'austerity' packages in other Euro countries there will be a lot less cash to be spent on 'stuff' by the people. 

The infusion of easy money into the system from late 2008 sparked the rally up in stock and commodities prices so far, we've reached new highs just this week in Gold at over $1,250/ounce – and the new highs are in more than just the US Dollar, new highs in Euros too and other currencies. 

This is a broad based Gold bull market – Gold has increased each and every year in the past decade!  This is no accident, it is a natural consequence of there being too much 'paper' chasing too few things, in this case physical gold.

So where from here? 

It seems a common sense idea that surely, if taxes are going up and disposable income in the Eurozone countries is headed down – this rally in stock and commodities must be of limited duration and further downside is ahead, it is a matter of time – except perhaps for Gold, the choice is yours but for me;

"You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold." — George Bernard Shaw

Market Logic

Sometimes, most times even, the markets move in ways that confound us, and thats why using some form of technical analysis filter, even simple trend filters can be hugely helpful.

Recently the US Dollar has been on a great rally higher just falling short of 90.00 in the DX (US Dollar weighted index). 

It is now near the highs of late 2008 and will face some 'overhead resistance' here. 

Many markets, move opposite to the direction of the US Dollar – its a generalisation but plays out most of the time. 

The interesting point to note at the moment is that Gold too, has been pushing up toward its highs around $1,250 an ounce and although took a breather in the last week or so,

it too is near a key trading point. 

So, the question is, will Gold continue to move higher in tandem with the US Dollar – as fears of sovereign debt defaults continue to trouble the markets – both acting as 'safe havens' (or less worse havens than other places to park money) – or, is there really a 'broadening of the recovery' and if so – we will see both Gold and US Dollar likely sell off and equities power ahead. 

A read a very telling research article this weekend which suggested that there will be a significant decline in most world stock markets later this year and that there were few if any havens from this coming sell off. 

This may well turn out to be true – this was a paper written using Dow Theory and cycles turn indicators. 

If it is true a trading opportunity of sizeable proportions exists on the short side in most portfolio markets, and this includes Gold.