The majority of the world’s stock indices topped out this month on Monday, February 1st, 2016 after a strong oversold technical bounce in price. Several indexes are now in the process of their first re-test of those multi-month lows which should act as support.
My belief is that the FED will abandon its plan to raise short-term rates in March 2016 and…
READ FULL ARTICLE HERE: http://cnafinance.com/the-2016-market-meltdown-and-the-golden-age/8279
If you held LinkedIn, in your portfolio, you have lost more than 43% of your investment within a single day, and it is most likely to decline even further. In the current situation of flux, it is difficult to find an asset class where you can safely deposit your money. The stock market is dropping and has entered a bear market, the crude oil market continues to hit new yearly lows while, base metals have no buyers, making it difficult to find an asset class where one can invest. But in the sea of red, the oasis will be Gold.
However, most of the experts in the media, as well as financial advisors, have advised you against buying the yellow metal. They claim it does not pay you a dividend yield, and that is just an asset whose value is determined by the market place. This may be true, but there are times when you want to safeguard your capital.
History of Gold:
Though Gold coins have been used since the 8th century, in China, accounts of their usage can be found throughout India’s history, which is many centuries older. Gold has been in existence for millenniums; it is not new. It is believed that 90%-95% of all the Gold that was ever mined, still exists in one form or another. Despite increased mining operations, Gold continues to generates interest amongst its’ buyers.
The Gold Standard:
The world was officially in a Gold standard from 1881-1913. This was one of the best periods of stability Globally and would have continued to do so in much the same way had it not been for WWI. Even during the Bretton Wood’s System, the world witnessed a fast-paced growth and inflation was contained and under control. With increased central bank interventions, the world is on the cusp of a major global financial crisis.
The world is currently witnessing unprecedented Central Bank interventions. The chart below displays a graph of the rise in the Central Banks’ assets to GDP of all of the major economies globally. With yet another fresh round of QE, as announced by Japan and the EU, it appears that there is no end to the “madness”.
How can we protect ourselves from the impending debacle?
Even if Gold were to experience the same growth as the Central Banks’ assets, it should be trading much higher. The chart below shows the valuation gap. With the world economy on tenterhooks, currency wars between nations are rapidly increasing. We have seen glimpses of such occurrences, when the Swiss Central Bank unpegged the Franc to the Euro, which in turn, led to massive bankruptcies.
With talks of a Brexit and the European Union on a slippery slope, it has all the makings of the next big crisis. The famous commodity Guru, Jim Rogers, often states that ‘The US dollar is a terribly flawed currency’.
Performance of Gold against the recent fall in equity prices:
History suggests a bullish future for Gold, but how has Gold performed during the current drop in equity prices.?
The below chart displays the comparative performance of the three important asset classes: Gold, SPX and Crude Oil. Gold is an outperformer while the other two are struggling to put in a bottom. Moving forward, with the US equity markets entering into a bear market. The confirmation of the bear market will be complete once the markets break their recent lows. Gold is the only “financial standard” in which you should invest during the current financial crisis.
Watch this video analysis from Feb 10th that explains where gold is headed in the next few days: https://youtu.be/yWPT_3Huxhk
Conclusion:
In short, Stanley Druckenmiller, amongst other informed investors, are purchasing Gold. In fact, Druckenmiller sees Gold as a ‘run’. I am not advocating that you should follow them blindly, but the data and the economic conditions suggest that this is the new. In order to benefit the Bull Market in gold.
I will further advise you of the proper timing of the correct entry price. Be sure to join my free newsletter for future updates and trade alerts! In the past two months I have closed 11 trades with 9 of those being winners.
Visit: www.TheGoldAndOilGuy.com
Chris Vermeulen
After a gap in time of almost a decade the FED increased interest rates on December 16th, 2015,. The SPX has a one day bounce from the news on the day of the announcement, then it turned negative and since that time the index plumeded 13%.
The markets, which were rising, due to the low-interest-rate environment, encountered a rude awakening, catching most investors off guard. Was this a surprise reaction from the market? Absolutely not. Just look back in time and compare interest rates and the stock market. When the fed starts to raise rates equities typically top out and fall.
On January 29th, 2016, the Bank of Japan lowered their interest rates into negative territory, which inspired the markets, thus causing them to “rally” by 2.4%.
Why is this important?
I had written in my earlier article of how the FED steps in with a QE, or an interest rate drop whenever there is a significant fall in the SPX. During their recent policy meeting, they maintained their resolve to raise rates, albeit with caution; however, the market is skeptical, today. The FED is still far from obtaining their inflation objective while the recent GDP numbers came in at a disappointing 0.7%, for the fourth quarter. Suddenly, the economy does not look to be standing on a strong footing.
What is the mood of the market?
Bonds are the best indicator in which they predict what the FED is likely to do. Take a look at the chart below, of iShares Barclays 20 Year Treasury Bond Fund ETF (NYSEARCA: TLT) in order to understand the mood of the market participants.
TLT should have been declining, since the FED rate hike was implemented in December. It did begin to decline after the announcement was made but that only lasted a couple days. And with the US markets “tanking”, it has since turned its’ direction around as being a safe haven and presently reflects a fresh breakout (from a 10-month range).
The move has a pattern target of 132.7, which is also a resistance level from an earlier high. This means two things: 1) the equity investors are choosing the safety of the TLT rather than “buying the dip”, and 2) the market participants do not believe that the FED will raise interest rates, anytime soon.
There is a cool new site that provides Free Stock Ratings if you want more ideas.
The Utilities Select Sector SPDR (NYSEARCA: XLU) is also moving in the opposite direction towards a tightening interest rate environment.
The utility sector is a defensive sector which is popular among investors for its dividend yield. When interest rates rise, investors shift to the safety of the banks in order to earn a handsome return. However, despite an increase by the FED, the utility sector has also broken out of a year long consolidation. The chart pattern targets suggest a move towards 49.5. This suggests that traders are flocking to the defensive and are ignoring the commentary of the FED who are promising high-interest rates, in the future. They do not believe interest rates will rise to make the yield from the XLU less attractive.
What do these two charts indicate?
The two charts indicate that the market believes the FED will have to quickly reverse the direction of interest rates. They may need a sharper decline, in the markets, in order to reverse; however, the market believes that they are not only going to reverse but will also come out with a QE4 in order to appease the markets.
Will QE always work?
No, it can never ALWAYS work. The market participants are already questioning the effects of QE and soon, there will come a point when the market will stop reacting to QEs. This may possibly happen in 2016 when the markets enter a freefall and stop responding to the FED actions. The market will correct the excesses of the past few years with a sharp selloff.
Conclusion:
The market is indicating the forthcoming FED actions. It does not believe that the FED will be able to stick to their rate tightening cycle. Traders must be prepared to face the forthcoming slide in the US stock market. There will be only a handful of asset classes which will put up a brave front. Timing, as always, is the key.
Crisis always brings opportunities for those who can see the obvious realities. I am very excited about what’s starting to unfold. You will be presented with these opportunities to make more profits in the next 3 years than you accrued in the previous 9 years.
Watch My Video About What Is About To Happen Next: www.TheGoldAndOilGuy.com
Chris Vermeulen
A preview of this weekend’s show The Gold and Oil Guy, Chris Vermeulen provides his outlook on gold. For the full interview on the weekend show we also cover the movements in the oil price.
LISTEN NOW: http://www.kereport.com/2016/02/04/gold-promising-expect-straight-run/
Are you getting excited to buy oil stocks? you may want to think twice because the bottom may be in for oil but that is only the beginning of the bloodbath that is in-store…
A “rally” attempt is underway. Stocks are continuing to rebound and all is well with the World? Or is it? With each passing day, the United States plummets deeper and deeper into a “black hole” of debt, of which it will be almost impossible to repay. At the time, of this writing the national debt is $18,939,663,109,937!
To put this into perspective, the national debt is so bad that if every citizen (including children) were to help pay it off, each one of us would have to contribute $58,652.00.
In the last couple of weeks, I have informed you of this “rebound” in the US Markets. Yesterday, February 2nd, 2016, a sharp fall in the markets was recorded.
Major support levels have held, perhaps slightly bent last month, but they did not break. Major support level of the SPX is 1880. If this support is breached, it may drop to 1861 before it rebounds. I do not see the SPX sustaining below 1880.
Markets are once again expected to bounce back.
I still have a bullish bias for the market, in fact if my analysis is correct it could last until March 24th.
But if we do get more downside from this current level it would create another wave of “Panic Selling” and we must hold above the low of January 20th, 2016 or it may be the start of the next bear market for large-cap stocks sooner than later.
The U.S, Stock Markets have not reacted to any bad news, as of yet. The markets are at their fourth highest level of valuation, in history, according to the Shiller P/E Model. Professor Robert Shiller, of Yale University, invented the Schiller P/E to measure the markets’ valuation. The Schiller P/E is a more reasonable market valuation indicator than the P/E ratio, because it eliminates fluctuations of the ratio, caused by the variation of profit margins, during business cycles. There are only three other periods, in time, that these ratios occurred (1929, 2000, 2007) in with we measured similar readings when the market topped or should I say triggered market crashes and multi-year bear markets…
Short term I’m still bullish but the longer-term bias remains firmly BEARISH!
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Chris Vermeulen