America At A Cross-Roads?

During less than 3 weeks the US daily new infections have doubled, from 27 000 to 57 000 on Thursday and 54 000 on Friday. So far the increasing trend shows few signs of wanting to reach a peak and reverse. 57 000 new infections on one day will place the US in position 29 on the list of 213 countries ranked by the total number of cases. How long can this exponential trend continue before a general lockdown has to be implemented again? Or is the new spike soon to fall away when people realise they have to take great care not to get infected – or, even more important, not to risk passing on the virus when someone feels a bit off and might be carrying the virus. These are some of the important questions at the moment.

The trend in daily new deaths is still in decline and still with a jagged pattern of 4-5 days of high mortality followed by two days of many fewer deaths – almost as if the number of deaths is large on a Monday, decline through to Friday then to fall much lower over the weekend. This clear pattern has been steady now for 8 weeks.

The weekly stats above cover the past 7 weeks of daily statistics for Saturday.

There are people who believe that eventually everyone will come into contact with the virus, that is, unless there is a breakthrough with a safe and easy to produce vaccine within a reasonable time frame. Should the reported 35% asymptomatic fraction of the population hold true, then the 65% of the population destined to experience the effects of the virus represent a very large number. Survivors who had a severe infection report it was unpleasant and with lasting effects.

The number of active cases in the US exceeds 1.5 million – half of the total infected so far – of which a little more than 10% are ranked as ‘serious to critical’, likely to require ICU care. If the rate of new infections do not peak soon to decline steeply, the next 2-3 months will severely test the ability of some of the regional health care systems to cope. This is a critical time for the US, in more ways than one.

Apart from a working visit of a few weeks to Minneapolis in 1973, I have not been to America, and what I know is from the various media over many years. My main interest is in the PM and some other US markets. As a foreigner living thousands of miles away and with no close personal contact, my view of events there cannot be taken as knowledgeable. However, it does strike me from what I see and hear that the America that I saw 50 years ago and the one of today are very different.

1973 saw two momentous changes; the virtual end of the war in Vietnam and the Nixon saga. Also, of course, the first effects of the end of the dollar-gold link that changed the post Bretton Woods global monetary system, which at the time did not interest me as a software engineer for CDC. (If that still rings a bell here or there!)

The impression I retain of that time, real or coloured by memories of time past, is that the US was a land of true Americans. Yes, the division in pro and anti-war up till that time was fierce and violent. By hindsight the reason was that one section of Americans was pro-war in much the same way as during the Korean action twenty years previously; it was America’s duty to prevent parts of the ‘free world’, i.e. the non communist part, being swallowed by Russian and Chinese communism. It was a war to achieve a favourable balance in the global pro- and anti-US stance.

Opposing this section of Americans were other Americans who believed that the US was large enough to stand out on its own and did not need to get involved in wars in remote parts of the world on behalf of people who looked and lived in differently that would cost American lives. It was a case of two opposing and different views of where American should find itself after WWII in which both sides were committed to be pro-America. Over the past 25 years this has changed.

Nixon visited China, but this had little effect; his fascination with technology led to his resignation before he could follow up. It had to wait for Bill Clinton before the US began to open its borders in ways that were not possible – or perhaps desired – earlier. By 2000 US imports of goods and services from China had increased 135% in less than 10 years, clearly giving the industrial revolution in China a large boost. While keeping US inflation low, the cheaper Chinese imports soon ignited an exodus of US jobs to China as US corporations relocated manufacturing facilities there, to extend a trend that saw Mexico and the Philippines gaining job opportunities from the US open border policy at the cost of US high wage employment.

Apart from the changing economic realities in the US, there was another change – one that snuck in gradually, until Trump beat Hilary in the 2016 election. From the reactions and actions since then, it seems to me that while 50 years ago practically everyone was pro-American despite holding opposing views, this has now changed; too many American citizens no longer have the best interests of America at heart. I really do not want to label all Democrats with this view, because I think their party has been hijacked during the past 25 years by a faction that is much more global in their objectives than pro-US. To me, observing form a distance, they clearly have become very well organised over some decades, with many people indoctrinated to the extent of becoming fanatical followers of a new ideology, keen to be used as foot soldiers who have no respect for the property or personal safety of others.

I do believe that if the momentum is allowed to build up during the time remaining before the election, the traditional social fabric of America will come under threat of being torn apart and shredded. It does not require a large fraction of a population, fanatical and with no fear of the risks, to act in open, violent support of a strategy to destabilise a country. This has happened often during the past 30 years, but not yet in the US. Until now. This is not the place to speculate about things such as the New World order or the Deep State, but it is quite evident the trend over the past 25 years is not happenstance; it is well designed and executed as a purposeful and destructive strategy, regionally organised to achieve specific objectives.

To be open about Trump, I am not a fan of him; would not like to invite him for a meal if I had known him personally. But I do support in most respects what he is trying to achieve – making America self-sufficient again as his primary objective. No predominantly service economy can be sustained if it has to rely on imports for most of the material goods used by consumers and elsewhere in the economy. As Herb Stein, often quoted here, said, “If something cannot continue indefinitely, it will stop.” Not even having the reserve currency of the world can prevent a service economy from running into a solid wall long before “indefinitely” ends. The next little more than 3 months are going to be very important for America’s future.

Meanwhile Wall Street is being levitated to not far below its all-time highs. While the precious metals are trying very hard to resume the post 2015 bull market. they find themselves running into their own walls. The break higher from the six week sideways trend of the price of gold will have to be extended this week and not sink back below $1750 in order to sustain the new momentum. It appears that silver is to be the follower until the time is finally ready for it to take over the lead.

Best wishes for their wellbeing to all readers and their families should COVID ramps up further to continue the new trend.

Euro–Dollar

After its sideways move, the euro managed to hold to in bull channel JKL ($1.1059) and then broke higher to reach the top of bear channel VW ($1.1245) to reverse off at resistance of line R ($1.1364). So far, bear channel VW held the euro in check to prevent further gains; line W was again being tested late last week. It remains to be seen whether the euro rally was a flash in the pan , taking advantage of a brief period of dollar weakness. Or whether a break from channel VW will be followed by a second leg of a new rising trend for the euro.

Euro–dollar, last = $1.1244 (www.investing.com)

DJIA Daily close

DJIA, last = 25827.36 (money.cnn.com)

The steep rally since 23 March held clear of the steep support of line G ( 23 517) to reach lines A (27 4218 and L (27 194) before reversing lower, leaving a spike top. The reversal lower at first held at line T (25 808) then broke steeply lower on two occasions, only to recover above line T – the second time, last week, the DJIA just barely broke back above line T on Thursday, before the long weekend. Any further gains this week must rely on the deep pockets of the PPT, since the increase in new COVID-19 cases, if sustained, could result in tighter lockdown regulations in some states, with probably more to follow. If so, it will become more difficult to support Wall Street at these lofty heights.

Gold London PM fix – Dollars

Gold price – London PM fix, last = $1771,90 (www.kitco.com )

On Thursday, gold had its highest London PM fix of the new bull market. After a sustained battle to break above the ceiling that was set at $1750, two weeks ago, the price crept higher to reach a fix of $1777.45 on Thursday, ending the week a little lower at $1772.90. However, this was still good enough to hold above line F ($1771) if only by a fraction. Line F recently acted three time as the resistance where the PM fix was set and what gold will do next now depends on how strong its support will be.

Should the trend continue, line Z will be significant resistance at $1793, while one can be certain that $1800 will be another imposed ceiling. The regular waterfall attacks are still happening as if the situation of the past decade has not changed and there is no scarcity of metal. This could well be the cornered rat syndrome.

Euro–gold PM fix

Euro gold price – PM fix in Euro, last = €1577.70 (www.kitco.com)

Recent weakness in the euro, since its strong rally, continues to support the euro price of gold and last week the euro price also received assistance from a strong dollar price of gold. The price broke above resistance at line C (€1561), but then barely held the break as it approached the support of steep line G (€1564). Late last week it moved a little higher, but then only managed to keep its distance from line G.

It looks as if it will be a close call what will happen next – holding above line G to break above channel VW (€1593) or yield under the pressure of new resistance to break sideways below line G. Should the latter happen, line C will be critical support needed to sustain the rally – to place greater demand on the dollar price of gold if the euro could manage to break above its own bear channel.

Silver Daily London Fix

Since September last year, silver has twice tried to break above the resistance of line W ($18.35); both rallies failed to make any impression and fell back as steeply has they had spiked higher. At the moment, silver is close to a double top of minor spikes higher, but still some distance below line W. It looks as if silver is allowed to have only two London fixes above $18 in a week before being slammed lower. As last week’s fixes above $18 were on Thursday and Friday, we might see the two new higher fixes early in the week. If so, then it will become nail-biting time.

Silver daily London fix, last = $18.02 (www.kitco.com)

U.S. 10–year Treasury Note

U.S. 10–year Treasury note, last = 0.669% (www.investing.com )

Since the break below channel KL (0.686) on 26 June, the yield on the US 10-year Treasury note has remained below that watershed for all of last week. Wednesday the yield approached line L, but failed to issue a serious challenge, sinking a little lower again on Thursday.

earlier it was speculated that if the yield did break below channel KL it could be a warning that lower yields are in store for this market and that perhaps a negative could be lying in wait just below the horizon. Given the way the epidemic in the US is developing and speculating about the effect of sustained higher new infections on the economy as attempts are made to slow the spread of the virus, a tighter bond market is very likely. Lower rates make sense as the volume of new Treasuries that are issued implies a jump in the cost servicing the debt and very low interest rates become an essential feature of the financial system.

The question then becomes what happens when for whatever reason a break point is reached and rates jump? One guess would be such an increase in inflation that it can no longer be hedonised away as has been done for 25 years at least.

West Texas Intermediate crude. Daily close

WTI crude – Daily close, last = $38.49 (www.investing.com )

After quite some time while the price of crude hovered in the late $30s, it still looks as if $40/bbl remains a hurdle the price finds difficult to cross. The price remains clear of the steep bull channel KL ($24.86) so far, but not too much time will pass before the channel will be tested. Meanwhile, line C (%37.83) is acting as technical support for the price.

© 2020 daan joubert

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