There is no good reason for what has happened. None. Fundamentally, the economy the world over, and what is befalling the financial sector by way of an absolute debt-bomb now going off, is going to be devastating, and not too far off either. Almost certainly within 2016! China is slowing… well, let’s not go there. We simply chart all that’s pertinent, and we read them. It starts with basic commodities, goes to interest rates as determined by bonds, then to stock indexes from every corner. The only reason stocks have risen as they have is simple… it is a bubble that the central banks are inflating. They’ve created a debt-bubble, which is beginning to burst now, and they are now creating a stock bubble… which is also going to have to burst, as there will be NO fundamental economic activity and growth to support the valuations that they are creating with this global stock run-up… due to the ‘free’ money they have created out of nothing!
First, commodities are the measure of inflation or deflation. What are the commodities doing? Inflating in price, or deflating? Looking at the 5 ETFs… XOI, DBC, GSG, GSP and USO as a means of charting commodities with their 50 and 200 day moving averages. They are all in Bear Markets of deflation. This is not what the central banks want. They want a modicum of inflation. They last peaked in June of 2014, and have been in decline since.
Second, what has been the interest rate and bond market response to the deflationary scenario of the past 2 years? For that, I can chart bonds of all kinds with 7 ETFs… PCY, TLT, HYG, LQD, TIP, AGG and GVI. PCY, Emerging Mkt debt is looking surprisingly bullish. This is extraordinary due to the fact that most such nations are dependent upon rising commodity prices to meet their debt payment obligations. This would appear to me to, perhaps, be another bubble being inflated. TLT is our own 20-year Treasury Bond. In what would appear to be a flight to safety, these bonds are in a bullish pattern just since our market’s top last summer! This is critically important to know! When our stocks top and our treasuries bottom… we’re looking at the very prescription for an ensuing Bear Market in stocks! HYG is the ETF for our corporate high-yield, or ‘junk’ bonds. It is in a perfectly plain and clear bear market pattern, indicating less and less confidence that corporate America can pay its debt in the lower tiers of credit-worthiness… and, is another warning of a bear market in stocks. LQD is that ETF for our high-quality, investment grade bonds. And, like Emerging Mkt debt, these are looking very bullish, as though the truly great and strong companies will be well able to service their debt… or, is this also a bubble? TIP is our inflation protected security. And interestingly enough, they have transitioned from a Bear to a Bull Market… the latest of the central bank efforts in Europe, Japan, and now here, in the US, being so inflationary in nature. AGG is like all bonds, actually, bonds in the aggregate, is what the symbol means. It, along with International Govt Bonds of the developed world, emerging mkts, and high-quality corporates, have all gone bullish, but without the high-yield bonds. Here is what this all means: The debt-bomb is among the high-yield issues; specifically energy firms. The central banks are being so accomodative, that the better yields and semblance of safety can be found in higher quality bonds than in high-yield issues. Commodities are incredibly weak, and the central banks are trying to stimulate activity to raise commodity prices to a small or light inflationary level… and, that is, quite simply, not happening. With all the incredibly cheap and free money these banks are creating, it is flooding into the bond and stock markets everywhere.
Third, stocks around the world. First, China. I have too many ETFs for just China… XPP, GXC, MCHI, FXI, HAO, TAO, CHIQ, CHIX, ASHR and KBA. They all look the same, and they are all entirely bearish! Emerging Market ETFs… EEB, VWO, BIK and EEM are actually trying, ever so tenuously, to hang onto what appears to be an attempt to break out into an actual bull market confirmation… but, simply, without an oil bull market, I can’t begin to see how they can! I would expect this confirmation attempt to fail. Europe in 14 ETFs… EWO, EWK, EWD, EWN, EZU, VGK, EWG, EWQ, EWU, FEZ, IEV, EWP, EWL and EWI are nearly all pretty much as bearish as China, and that is bad! Japan, as represented by EWJ is a basket case! If I look at 32 other individual stock markets around the world, by their ETFs, Latin America shows definite strength. Russia, Canada and Mexico are trying, but not looking well, like emerging markets. But, what about the US?
Finally, here in America, our large caps, as seen in DIA, IVV, IWB and SPY have actually attained unto… pay close attention, the very lowest highs of last December. Which is a way of saying that they are now just really entering into that greatest area of overhead supply and resistance, where we should expect this rally would most likely fail. It is clearly an attempt to regain its former Bullish status, but there has been nothing in the volume of this rally, at any time since it commenced back on 2/11, to indicate that the conviction has ever been there to carry this on to, into, or thru this zone of overhead resistance… yet it is now at, and beginning into it. The question becomes, can it continue thru, and on into new all-time highs beyond those of last summer? Well, I just found something truly fascinating, let me get back with more later this weekend….
Here’s to your successful investing!
Harold F Crowell