The monetary safe havens:
Sometimes you just get the feeling, based on volatile market moves, that you are in the calm before the storm. This week (and probably next week) is that week.
First we have silver which has taken off like a rocket over the past 3 weeks, crushing the shorts as it trended up in US Dollar terms. It has not only outperformed gold substantially in percentage terms (with gold already putting in a recent strong performance) but has surprised even the people on the long side of the trade with its highs. Then, of course, the aforementioned gold prices, which have put in a strong showing recently.
Bitcoin has also shown recent strength, rising 100% last year, and having consolidated and recently smashed through the sell-side momentum.
All three of these assets act like highly liquid (monetary) commodities, shelters from taxation, and counter-party risk. They are safe havens. All three have been showing strength during a similar time period and all three have been stalling at roughly the same time period.
The US Dollar put in a strong showing in 2013 until Q3 2015 (check the DXY:CUR 5-year from Bloomberg: the US Dollar index)
The EUR has been in a bearish trend, with a “waterfall event” in the Q3 2013 through to Q1 2014 but has since based, and has firmed up some recently.
The GBP appears to have entered a bearish market in Q3 2015 but once again firmed up a little recently.
The Australian Dollar, the Japanese Yen, the Canadian Dollar, the Brazilian Real, the Russian Rouble, the Malaysian Ringgit, the Indian Rupee, the USD-pegged Arabian Gulf currencies and the Chinese Yuan have all been subject to negative news articles (along with many others.) Moves in the currency space have been driven by “who is the cleanest dirty shirt?” (ie: which is the least risky country).
Hot topic issues:
General issues in the macro markets include:
– Is the US Dollar going to collapse?
For some reason May 28, 2016 seems to be the “Mayan Prophecy” for the US Dollar, with retail investors and individuals alike proclaiming the end of US Dollar dominance).
– Is Gold and Silver market manipulation finally coming to an end, causing the markets to break?
Has the market found found “fair price” after years of banking manipulation?
– Is China going to collapse/Is the Yuan going to collapse, or will it be the next superpower?
Again these issues are driven by hedge fund speculation and big Wall Street names speculating against China (supposedly). The reasoning being something to do with China’s overproductive capacity and the spread between their offshore and onshore currency.
-What was this month’s emergency Fed. Reserve monetary policy meeting about and what was the subsequent meeting with Obama about?
Are interest rates set to continue rising? Is more QE impending? Are we now officially in a recession? Only a few insiders within the Fed. Reserve, and the political scene will actually know.
And to top this all off you have Eurozone woes with the BREXIT, European sovereign debt problems, Brazilian unrest, Middle Eastern instability (although that’s nothing new) etc. As well as several critical elections, including the US Presidential race.
So which way are markets moving?
Stocks and precious metals appear to be in a tug of war: this is not expected during a sovereign debt crisis- typically during a global sov. default, stocks, precious metals, and other asset classes (particularly those not subject to excess leverage) would be trending up.
So we are now left wondering…
– Is this move a fake move ahead of the Global Sov. Debt Crisis? If so, expect volatility followed by excessive deflation (probably followed by significant inflation.)
– Have expectations of a Sov. Debt Crisis caused the repositioning of institutions into asset classes which would have otherwise been left untouched? ( In which case Sov. Debt Crisis will occur but history will rhyme rather than repeat.)
– Will the role of better historical record and better access to technology extend the maturity time (but not remove the threat) of a debt crisis?
These are valid questions, and the current uncertainty in the markets hints at this. Therefore, a market inflection point is likely coming, and soon, as well as hints as to how to position for the impending recession and its associated problems. As such, extreme caution is advised: timing is a difficult thing. It is just as easy to get ahead of markets and lose as it is to be behind them. Right now, staying liquid and staying nimble is critical.
Edit: I should add, if I was a betting man, and I suppose to the extent that I am involved in markets, I am, I would suggest that the following is the case:
1. The US Dollar will not collapse any time soon, but a new reserve currency regime will emerge: The USD is the largest and deepest market for capital in the world and that alone means that there are many (global) vested interests in keeping it supported in the short-run (next few years.) An alternative system is needed before it derails, and that could be many decades away.
2. A global sovereign default will happen: though this current market movement may be jumping the gun- it’s probably a little early. Either way, lots of money will change hands over these volatile price movements.
3. Interest rates policy and/or central bank policy will pivot soon: given the Fed. meeting and turbulent market moves, I think central bank policy will be forced to pivot and make a shock announcement (probably a significant rate hike) and/or..
4. We have entered a confirmed recessionary period (liable to be reminiscent of the previous Fin. Crisis, but maybe centered in the Emerging Markets) and the global economy is turning down.