The US puts on a brave face as it says that it's dollar is not in trouble. The Treasury Secretary implies that a weaker dollar is a good thing for exports and to stimulate growth. Yet the US$ is buying 28.8% less in Euro terms than it did year ago. Since as recently as November 2002, the US$ has depreciated by some 16%. Attempts by G8 countries to support the dollar in terms of the official US strong dollar policy have not been successful.
And now there is no longer a war to blame. The world is having to face the reality that the rate of US growth is not sufficient to support the global economy and to keep it away from an extended recession. Asia and Europe and most emerging markets are also in trouble.
And in the US, the normally thriving Disney World Epcot Centre -- usually busy through thick and thin -- I see on TV that many of the rides and day passes are offering desperation discounts for business -- "Buy a day and get a year free."
Yet the housewives and day traders are again buying their favourite IT shares such as Juniper and Cisco to hold for just a few days and a few % profit. Juniper has come from $4.15 in October 2002 to around $12.00. J.P. Morgan Chase and Co. has come from $15.45 to over $30 in the same period . The mood out there is one of complacency and denial about the US economy's structural problems and there is hopeful expectation that the new stock market bull has been born -- that the worst is over. Typical of the mood in extended rallies in a bear market. Also called a bull trap.
Yet the US$ and $Gold price are telling the real story. The rate of disinvestment from US assets and the US$ is accelerating -- and it is only a matter of time until property and bonds collapse. The recent attempts to declare the Middle East a free trade area should make investors sit bolt upright with wide-eyed attention how serious the global financial situation is.
It will not take much to make many Muslim countries and others who do not much trust the US -- to insist on payment for the goods in Euros instead of the US $. Already Malaysia wants Euros for its oil -- it says it's getting 25% less in real buying power terms than it did two years ago and it is just good business to deal in a currency that holds its value instead of depreciates. Technicians are still warning -- and our counts corroborate -- that the US$ is still in major downtrend relative to two-year averages -- and there is still scope for another 20% softer in the next two years [using the US$ Index as a basis for measurement]. And that is not a panic or dump scenario -- those projections show a 30% weaker US$ and more.
Meanwhile $Gold has been behaving just the way you would expect of a manipulated commodity. The $ price of gold falls from $388 in February to $320 in April at a time that the US$ and the US economy is under more pressure than it has ever been. Is it just the war risk premium being replaced? No -- nonsense -- the outcome of the war was never seriously in question, nor was it the main issue. The main issue is the vulnerability of the global economy. The $30 push since April reflects the plummeting US$ as well as declining confidence.
The whole world's financial system as we know it, depends on the health of the US$ and avoidance of a panic run into gold. Plenty of reason for central bankers and financial institutions to co-operate to depress the price of the yellow metal. Through the ages, gold has been generally accepted as the ultimate symbol of value enabling exchange of goods and services, the only serious non-barter competitor to paper assets. Paper assets are not real assets at all, merely claims against a corresponding liability. Compare Gold - the only widely exchanged physical asset which if held physically, is widely accepted for value. In contrast to a mere piece of paper recording a claim for value. The Ultimate Medium of Exchange. Therefore Ultimate Value, particularly when confidence is low. Gold' s disadvantages also become less significant when confidence is low.
Anathema to the custodians of the US$ who with wide support have been doing their best for decades, to wean global perceptions of value away from the Gold Standard and in favour of the US$. Of course those custodians are doing everything they can to protect and maintain the US as dominant financial, technological and military power. The free trade idea is a good one, but it remains to be seen how many countries of seduced. Lowering interest rates has its own problems and leads eventually to inflation. Confidence rallies from time to time still persuade those that don't understand bear markets to buy paper assets such as tech stocks, so as not to miss the "bull run."
Yet when confidence next takes a knock and later on when there is the first whiff of inflation after years of low interest rates, the gold price will rocket on simple supply and demand factors.
The good news is that in any long-term stocks bear market there are often periods of months or even two years in which some sectors do an investable rally of 50 percent or more.
So let's keep on the lookout for buy signals from other sector groups, not just golds. There are a couple which are showing opportunities as prospects of lower interest rates increase -- but for the moment, we still say stay clear of Financials and non-Gold Resources until an investable trend is signalled technically.
A market leader among Resources, Anglo, shows share price behavioural footprints corroborating that the global economy is going to face falling demand and dropping commodity prices in the next year or two at least. Our behavioural counts suggest scope for Anglo to probe support at R64 or on a worldwide equity dump scenario at R30. After the falls and when perceptions change to expect inflation and reviving global growth down the line, plus the technicals confirm, Anglo will be a great buy - perhaps next year already.
I am still sceptical regarding Tech, Networking and Telecommunications at current levels. The rally could be nearly finished.
And what do Gold Believers do? What about the Rand and US$ ? Many of the gold shares are giving technical buy signals and the Rand is giving short term broadly based sell signals, good news for saGOLD shares.
It is critical to find useful levels in a cyclically supportive window of opportunity and to have an exit strategy in case a long period of ranging from previous high prices to previous support is commencing, instead of the huge lift-off to $445+ that gold bulls have been waiting for. We publish technical and cycle signals relative to fundamentals at www.GOLDSignals.com and www.saGOLDS.com. For now, even gold bulls are being cautious, because when the next round of US$ buying hits the screens -- nervous gold bulls will exit, planning to buy a little lower.
S&P 500 watchers - are pleased that the S&P has been hovering above or consolidating above its 200 day moving average, currently at 882. There is a cluster of key resistance between 932 and 960. Plenty of technical traders are expecting one-way from here - up. One 3 to 4 month wave count scenarios suggests scope for a push from here to 1050 or 1110. However, various sentiment indicators are suggesting overconfidence about the near term -- often a point where the market suddenly reverses, particularly the bear. Action back below 899 for a day or two, would probably turn all the commentators negative about the short term again. Accelerating momentum back below 854 would on another [nine-month] count scenario, signal behavioural count scope for a dump or dribble to 295. An indication of how vulnerable these markets are. On the other hand consolidation or trend development above 960 would suggest a bias of up for some weeks as the rally extends - typical count target resistance at about 1055. But even up there - the two year count shows scope to 585 or 290!
On balance, seasonal factors probably support a few more weeks of S&P500 guarded optimism - perhaps as long as into the seasonal July rally peak candidate -- but as Mr. John Bollinger of www.bollingerbands.com says, "The market is very overbought and the VIX has fallen to worrisome levels, but no signs of weakness yet. As they used to say on Hill Street Blues 'Be careful out there'. "
Best regards
Victor Hugo
www.HugoCapital.com
www.GOLDSignals.com
www.saGOLDS.com
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-- Posted Wednesday, 14 May 2003
