Maund on the Markets
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Many investors have been taken by surprise by the sudden strength in the broad US stockmarkets, especially given the severe structural problems of the US economy. The breakout to new highs by the Dow Jones Industrials was predicted in an article on 13th April, Marketwatch based on volume studies. The S&P500 index has not as yet broken out to new highs, but is close to doing so and is expected to shortly. What are the reasons for this sudden strength and to what extent is it an illusion?
The US economy now has severe and intractable structural problems arising from massive and universal indebtedness which ranges across the spectrum from extremely high levels of personal indebtedness and then through high corporate debt levels and then on up to the State and Federal level. A highly geared life based on maxing out credit opportunities has become the norm across all strata of US society, but naturally such a way of life is not without risk. For all players, from the ordinary guy on the street trying to pay his huge mortgage and keep up with his credit card payments, right up to the Fed and the government, the specter of a liquidity gridlock and a deflationary implosion is understandably the thing to be feared more than anything, even eventual hyperinflation, and the thing that needs to be kept at bay. Who was responsible for this mess? - principally the government and the Fed, but essentially everybody - including every corporation and private individual who has run a highly geared operation or lifestyle based on credit. The essential point to grasp here is that there is now no way back, no way to return to a life of financial propriety. The flood gates were opened long ago and structural indebtedness has reached such extreme levels that any attempts to rein it in and bring it under control would quickly result in a liquidity gridlock and an inflationary implosion. A monster has been created with an insatiable appetite, and the Fed now has no choice but to keep feeding it. This is the reason for the latest wave of liquidity which is driving down the dollar and contributing to the rise in the stockmarket, but there is another factor driving up the stockmarket which we will now look at.
Some of you may recall how before the Asian Tsunami struck, the sea receded as if there was a very low Spring tide, and those folk on the beach who did not understand what that meant walked further out looking for shells or maybe sunken vessels and were doomed as the Tsunami then came rushing in. This makes a fitting metaphor for the ocean of cash - of dollars - that has been accumulated by countries such as China as a result of prolonged and massive trade imbalances with the US. With the dollar dropping ever lower this ocean of cash, that was until recently held back like the waters before the Tsunami, is now rushing forward like a tidal wave to literally buy up America lock, stock and barrel, via its capital markets, and it's all perfectly legitimate - it's a free market, right? - or so they say. This is globalization in action, folks, so be smart and be sure to send little Johnny to Mandarin classes. The world IS NOT getting poorer, at least not in the financial sense, it's getting richer, a lot richer, driven by the powerhouse economies of Asia, principally China and soon India, where people are ambitious and want to work to make a better life for themselves and their families, and are not burdened with an entitlement mentality. For many American workers the age of driving 2 hours to get to an office to spend the day making cups of coffee and paper aircraft and ordering stuff on the internet (as the writer used to do before he was mad enough to become self employed) are numbered - the new oriental bosses are going to take a dim view of that kind of thing. Instead, American workers will be arriving at 6 am to begin the day with Tai Chi and chanting the company anthem, followed by watercress soup for breakfast.
Ironically, this economic takeover of the United States by far-eastern interests may be what saves the country from itself. But what about the effect on the prices of commodities, specifically Precious Metals and Oil, of this global growth and rebalancing?
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Clive Maund, Diploma Technical Analysis
Copiapo, Chile, 29 April 2007
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Clive P. Maund’s interest in markets started when, as an aimless youth searching for direction in his mid-20’s, he inherited some money. Unfortunately it was not enough to live a utopian lifestyle as a playboy or retire very young. Therefore on the advice of his brother, he bought a load of British Petroleum stock, which promptly went up 20% in the space of a few weeks. Clive sold them at the top…which really fired his imagination. The prospect of being able to buy securities and sell them later at a higher price, and make money for doing little or no work was most attractive – and so the quest began, especially as he had been further stoked up by watching from the sidelines with a mixture of fascination and envy as fortunes were made in the roaring gold and silver bull market of the late 70’s.
Clive furthered his education in Technical Analysis or charting by ordering various good books from the US and by applying what he learned at work on an everyday basis. He also obtained the UK Society of Technical Analysts’ Diploma.
The years following 2005 saw the boom phase of the Gold and Silver bull market, until they peaked in late 2011. While there is ongoing debate about whether that was the final high, it is not believed to be because of the continuing global debasement of fiat currency. The bear market since 2011 is viewed as being very similar to the 2-year reaction in the mid-70’s, which was preceded by a powerful advance and was followed by a gigantic parabolic price ramp. Moreover, Precious Metals should come back into their own when the various asset bubbles elsewhere burst, which looks set to happen anytime soon.
Visit Clive at his website: CliveMaund.com
