Global Fear... Don't Flinch
Der Invest
Informant
Randy Buss
3 Jun, 2005
Just when you thought it was safe to go back into the water the
market forces have seemingly been stirred up and have thrown
off some new waves. These last few days (and weeks) have brought
to the fore a number of issues but before we go a bit more into
detail on a few of the issues, I want to step back and take a
bigger look over the economic landscape.
To my mind, right now, the overlying tendency which I sense right
now is fear. The fear I sense is slowing creeping all over the
marketplace(s). It is a fear which is oozing into every major
market and marketplace in the world. Let us just take a look
and some of these. I will not go into long statistical aberrations
and charts and what have you but rather I will simply point out
what the markets are looking at. I read an incredible amount
of newspapers, magazines, websites, articles - all very informative
and much of it excellent. Remember, in a globalized and instantaneous
and news-addicted world, ideas and suggestions get transported
immediately to every part of the globe. But what is constantly
in the back of my mind and which is very often difficult to discern
is the forest from the trees. Where is the forest and what is
it looking like - inflation or deflation or benign bliss?
EU:
- The EU Constitution has been
voted down by two inner-core founding members, France and the
Netherlands
- A period of "euro-sclerosis"
may now be setting in upon the euro politicians and the entire
"EU project," I said "may."
- EU leadership under Barroso
is weak and flagulant
- The reforms at EU member state
level are much talked about but only grudgingly implemented with
the "least common denominator" approach
- EU citizens really believe
that the money for social transfer programs does grow on trees
and damn it, we are all entitled to it because that's the way
it was for my parents.
- The ECB is in a conundrum
on interest rate setting in a multi-gear EU where some nations
are growing well and the majority look stuck in the mud
- Britain, a strong motor, now
looks to be sputtering
- Britain housing market is
waning
- Throughout the EU there is
skepticism and down right fear of job losses due to EU expansionism
to the cheaper labour pools of its new Eastern Europe members
- Demographically, the EU looks
altogether "grey" with an aging population combined
with a xenophobic attitude to foreign workers
- Under the veneer of this is
the creeping and ever present fear that this whole reform scenario,
or as some call it, sham, cannot go on.
USA & Canada:
- The much talked about triple
deficits within the USA are still increasing and show no signs
of abating. 2005 estimates now put the budget deficit at near
7% of GDP - unprecedented for the world's reserve currency nation.
- Congress shows no signs of
serious budget reforms or cutbacks in key social transfer reform
or military spending reforms.
- The Iraq War is now costing
unprecedented billions of USDs combined with a complete loss
of face amongst its Allies.
- Due to technological improvements,
once safe white-collar jobs are now under scrutiny of being outsourced
while the blue-collar jobs have since gone to low paid and illegal
aliens.
- A drip-feed diet of low interest
rates has given rise to a citizenship now accustomed to "all
play and no work" as home mortgages are now practically
given away to anybody with a heartbeat and can sign a form. This
has been accompanied by a near savings rate of zero, in actual
fact, latest statistics point to a rate of 0.4% or $4 on every
$1000 earned - imagine that.
- Canada politics has succumbed
to what some would call "downright disgusting" levels
but who I am to disagree?
- The Canadian economy is to
a large degree highly US-coupled, which is an ever present Damocles
Sword hanging over it
- Under the veneer of this is
the creeping and ever present fear that this whole housing and
deficit scenario, or as some call it, sham, cannot go on.
Asia:
- The ever-present zero interest
policy of BOJ has done little to dig the economy out from its
deflationary grave
- The BOJ is the number one
recycler of USD paper money in order to keeps its factories above
water and its citizenship in jobs
- The never-ending Chinese Yuan
revaluation discussion will not go away and may even bring more
hurt to the US as many congressmen might have intended
- The Chinese are also a heavy
recycler of USD paper money in order to keep their factories
ticking over
- The Chinese need to keep all
this going as millions of farmers seek better paying wages in
the industrial centres and hence the ruling classes fear a band
of roving farmers wreaking havoc as they are told there is no
more slave-labour but higher paid work
- The ever-present fear that
Chinese banks are unsound and risk is too high having taken on
too much bad debt
- Under the veneer of this is
the creeping and ever present fear that this whole "soft
landing in China" scenario, or as some call it, sham, cannot
go on.
The biggest underlying factor
behind the three economies above is the global game of ROI verses
RISK. The now fully global operating banks and equity houses
have built a very complex house of cards around pyramid schemes
and derivative schemes in search of global income (Return on
Investment) whereby the underlying risks are most likely near
unknown and are likely so convoluted and spread across multiple
(unknown) parties, for that is the nature of the beast. This
is why the first one who blinks in this global game of DARE could
very well start a chain reaction of unforeseeable consequences.
As in all societies, complexity advances until the intelligence
of the players is no longer able to foresee or prepare adequately
and timely for the coming onslaught. It is a story of rebuilding
each time. And each time the players always think it will be
different. Has fear now paralyzed governments from embarking
on making logical and long-overdue decisions for fear that the
consequences of their decision shall be the equivalent of pulling
the lowest card out from under the delicately balanced House
of Cards? I believe it has. The only alternative is then to wait
for an external or exogenous event which will give one player
an excuse to move but without drawing fire from the other trading
partners and thus avoid being the global scape goat.
Right now each trading bloc above is staring down a loaded gun
barrel and dare not flinch.
A look at Gold:
Beyond the recent articles
whereby many an analyst had postulated on a potential drop down
to the $400 or even $380 level, and the HUI down to the 150 or
lower, both the metal and the shares have been holding up well
and even made considerable gains this week, so far. I believe
there is still a potential for a drop to occur mid-term but short
term we are seeing both rally along with substantial gains in
silver. After taking a closer look at a few charts, I thought
to highlight a few of them here.
Needless to say, from a technical perspective they are looking
very interesting and relatively bullish. I am cautious as often
we have seen very quick turnarounds in both gold and silver and
especially silver over the past 18 months. As is shown below,
some interesting information can be seen highlighted in yellow
on the WEEKLY charts, not daily.
- Both the RSI, STO combined
with the boxed-off formations look very similar.
- On the 65 week* moving average,
each time the STO has bottomed, a subsequent rally has formed.
Notice also that the 65 wk. average is the support line throughout,
having bounced off it each time (* Aden sisters)
- Silver may also now be in
a similar formation as before
- Equally, taking near-equidistant
dividers of time, we see a "W" pattern in the making
for the HUI.
I note that these are observations
- not solid facts. The point is simply to provide us with potentials
and to keep us aware that most things move in some sort of rhythm.
Nevertheless these do tend to point to bullish behaviour in the
near future.
Finally I wanted to take a
look at the latest COT figures and lo and behold we see the gold
action conformant with the Commercial trading lots. Over the
last 6 months the Commercials have been perfectly playing the
metals - relevant figures I have highlighted for you consideration.
Chart courtesy
of 321gold.com
I don't want to get much too
ahead of the game right now but where does money ultimately go
to in times of fear? Usually it goes to a safe haven. Could we
be seeing an elevated interest in gold and silver as the global
conditions are ever riskier and not well understood by all players
or the risks are perfectly well understood and those players
are hedging with a safe haven or is it all just coincidence?
We don't know and we can only watch. But I certainly would keep
it in mind as a strong possibility.
Well, that's it for the Thursday - this week was hard. I had
so much real work on my plate and could not get out my usual
- more frequent - updates. So goes it sometimes But tomorrow
is Friday so we should smile and enjoy...
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2 Jun, 2005
Randolph Buss / Berlin, Germany
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