From Andy Semple at Andika:
The iron ore price has slumped to a one-month low as investors fret over the strength of Chinese demand. The commodity weakened 1.7% to $US53.50 a tonne at the end of last week, its lowest price since April 11. It’s the commodity’s seventh red session in the past eight and the price has now dropped to below the [Australian] government’s recent budget forecast of $US55 a tonne.
The US Dollar Index rallied off long-term support at 93 but this looks more a pause in the primary down-trend, signaled by decline of 13-week Momentum below zero, than a reversal.
Explanation for the Dollar rally is evident on the chart of China’s foreign reserves: a pause in the sharp decline of the last 2 years. China has embarked on another massive stimulus program in an attempt to shock their economy out of its present slump.
But this hair of the dog remedy is unlikely to solve their problems, merely postpone the inevitable reckoning. The Yuan is once again weakening against the Dollar and decline in China’s reserves, and the US Dollar as a consequence, is likely to continue.
Not quite a classic cup and handle pattern, but gold’s 2-week flag after a broad saucer through March-April suggests strong buyer interest. Breakout above $1280 would signal a fresh advance. Follow-through above $1300 would confirm, offering a long-term target of 1550 (the lows of Sep/Dec 2011 and May 2012).
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
Disclosure: Our managed portfolios are invested in Australian gold stocks.
Apocalyptic views of the next few decades are coming thick and fast. Tyler Durden summarizes an interview here with MB Advisors founder and CEO Milton Berg:
Here is the reason why Berg believes you can invest in the market today, go to sleep, wake up thirty years later and have made no money…
“Well, it is not unheard of in history. As you know there was a bear market in bonds lasting maybe forty years that began in the mid-40’s and ended in 1980. We’ve had a twenty, twenty five year bear market in Japan going back to 1989. We’re the most overvalued market in history, there’s more leverage throughout the world than there’s ever been in history, central banks have lost all their ammunition, basically because there is so much credit outstanding throughout the world. It’s not unheard of to have a long-term bear market. There will be a lot of money to be made both on the downside and the upside within the bear market.”
…..When asked what would happen if central bankers were to follow through on their whatever it takes promises, Berg gave the most rational response….
“If whatever it takes means Zimbabwe, or hyperinflation Germany, stocks will do well, but not relative to the inflation rate.”
Not sure that I agree with the 30-year bear market conclusion, though it is a risk.
We had a three decade easy-money credit binge, which saw debt rise to extreme levels, followed by a (2008) violent heave in which markets attempted to purge themselves of the excess debt. But central banks intervened to prevent the purge out of fear that the contraction would (as in the 1930s) cause long-term damage to the global economy.
The accepted wisdom is, or at least was, that rather than allow debt to contract and cause a deflationary spiral that would damage the financial system, instead suppress the contraction and wait for economic growth to gradually restore debt to more acceptable norms over time. There is just one problem: the economy is becoming even more bloated with debt and has stopped growing…..
The only solution is a managed contraction over the next decade, with central banks winding down their balance sheets and an unavoidable market purge. If combined with a coordinated program of government/private investment in productive infrastructure, we could see a recovery within 10 years.
Source: Milton Berg: “We Are On The Cusp Of A 30 Year Bear Market” | Zero Hedge
By Steven A. Cook, Amr T. Leheta:
The weaknesses and contradictions of authoritarian regimes are at the heart of the Middle East’s ongoing tribulations. Even the rampant ethnic and religious sectarianism is a result of this authoritarianism, which has come to define the Middle East’s state system far more than the Sykes-Picot agreement ever did.
The region’s “unnatural” borders did not lead to the Middle East’s ethnic and religious divisions. The ones to blame are the cynical political leaders who foster those divisions in hopes of maintaining their rule. In Iraq, for instance, Saddam Hussein built a patronage system through his ruling Baath Party that empowered a state governed largely by Sunnis at the expense of Shiites and Kurds. Bashar al-Assad in Syria, and his father before him, also ruled by building a network of supporters and affiliates whereby members of his Alawite sect enjoyed a privileged space in the inner circle. The Wahhabi worldview of Saudi Arabia’s leaders strongly encourages a sectarian interpretation of the country’s struggle with Iran for regional hegemony. The same is true for the ideologies of the various Salafi-jihadi groups battling for supremacy in Syria, Iraq, and Yemen…..
Source: Don’t Blame Sykes-Picot for the Middle East’s Mess | Foreign Policy
The ASX 200 is growing in confidence. Having penetrated its descending trendline, to suggest a bottom, the index rallied to test resistance at 3400. Rising troughs on 13-week Money Flow suggest buying pressure. Retracement that respects support at 5200 would strengthen the signal, while breakout above 5400 would confirm a primary up-trend.
Australian gold stocks have had a good run since the index (XGD) broke resistance at 2800. At some stage there is bound to be a correction but the up-trend now looks pretty robust, rising 13-week Money Flow confirming buying pressure.
The Dow Jones Euro Stoxx 50 rally of the last few weeks fizzled without making much headway over the previous peak before retreating below 3000. Failure of support at 2850 would warn of another test of primary support. Reversal of 13-week Money Flow below zero would warn of another decline.
The Shanghai Composite Index broke medium-term support at 2900, warning of another test of primary support at 2700. Reversal of Money Flow below zero would warn of a decline to 2400*.
* Target calculation: 3000 – ( 3600 – 3000 ) = 2400
Japan’s Nikkei 225 Index is edging higher but trend strength is weak. Breakout above resistance at 17000 was followed by a retreat to 16000. Support is weak and breach of 16000 would signal another test of primary support at 15000.
* Target calculation: 17000 – ( 20000 – 17500 ) = 15000
India’s Sensex is more bullish, testing its upper trend channel at 26000. Short retracement is a bullish sign and breakout above 26000 would signal that the down-trend is ending. Recovery of 13-week Twiggs Momentum above zero would strengthen the signal.
* Target calculation: 23000 – ( 25000 – 23000 ) = 21000
Canada’s TSX 60 found resistance at 820. Reversal below 800 warns of a correction but short retracement would be a bullish sign. And breakout above 820 would signal another advance. Rising 13-week Twiggs Momentum suggests a primary up-trend.
