Energy & Commodities
On Tuesday, crude oil lost 1.36% as rising uncertainty around Brexit weighed on investors’ sentiment (leaving the European Union by Britain could trigger a recession and slow demand for crude in Europe). In these circumstances, light crude declined under the short-term support line and approached the Jun lows. Will we see lower prices in the coming days?
Let’s examine charts below and find out what can we infer from them about future moves (charts courtesy of http://stockcharts.com).
On Monday, we wrote:
(…) the commodity increased slightly above the Oct high, but then moved lower and invalidated earlier breakout. This negative signal encouraged oil bears to act, which resulted in a drop under the barrier of $50. Additionally, the Stochastic Oscillator generated a sell signal, while the CCI is very close to doing the same, which suggests further deterioration in the coming week.
Looking at the above chart, we see that the situation developed in line with the above scenario and light crude extended losses.
What impact did this drop have on the very short-term chart? Let’s examine the daily chart and find out.
Quoting our Monday’s alert:
(…) crude oil extended losses, closing the day under the barrier of $50 and invalidating earlier breakout above it, which is a negative signal, which suggests a drop to the blue support line based on the late May and Jun lows. If it is broken, oil bears will test the green support zone created by the late-May and Jun lows (around $47.40-$47.75) in the coming day(s).
On the daily chart, we see that oil bears pushed the commodity lower as we had expected, which resulted in a drop to the green support zone. What’s next? Taking into account sell signals generated by the indicators, we think that light crude will move lower once again and test the late-May low of $47.40 or even the Apr high of $46.78 in the coming day(s). If the commodity closes the day under these supports, we’ll consider opening short positions.
Having said the above, let’s take a closer look at the gold-to-oil ratio and look for more clues about future moves.
On Monday, we wrote the following:
(…) the ratio invalidated earlier small breakdown under the lower border of the red declining wedge (seen on the daily chart), which resulted in further improvement and a breakout above the upper border of the formation, which is a very positive signal – especially when we factor in buy signals generated by all daily indicators.
As you see on the daily chart, the breakout above the upper border of the red declining wedge triggered further improvement, which suggests that we’ll see a test of the 50-day moving average in the coming day(s).
What does it mean for crude oil? As you see on the above charts, may times in the past higher values of the ratio have corresponded to lower prices of light crude. We have seen this strong negative correlation in the second half of Jun 2008, between Apr and Sep 2011 and also between Jul 2013 and Feb 2016 (we marked all these periods with green), which suggests that another move to the upside on the above chart will translate into lower values of crude oil in the coming days.
Summing up, crude oil extended losses and closed the day under the blue support line, which suggests a test of the late May low of $47.40 or even the Apr high of $46.78 in the coming day(s). If the commodity closes on of the following days under these supports, we’ll consider opening short positions.
Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed
Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
Oil Trading Alert originally published on June 15, 2016, 6:25 AM
related: Martin Armstrong had a different view on Oil several days ago: Oil Bursts Through Resistance – Next Stop $69-$70

Gold prices are likely to explode if Britons vote to leave the European Union when they go to the polls next Thursday, gaining as much as 10% in a short space of time.
Gold is seen as a haven for cash. It does not pay a coupon like a bond, and it does not pay a dividend from a stock, but it does mean you own ounces in a physical precious metal that you can hold onto.
And it is for this reason that chief precious metals analyst James Steel and his team at HSBC say that the precious metal will take off after a Leave vote in the UK’s European Union referendum when market turmoil will reign supreme. Here is the quote (emphasis ours):
related:
George Soros has joined fellow billionaire investors Stan Druckenmiller and Ray Dalios on investing big in gold – George Soros Making Big Bets on Gold

The sudden lead for the no side in Brexit vote is just a continuing of the major trend sweeping the world as waves of capital is set to flee the European welfare state seeking safegy. This capital scared out of its wits will effect every market in the world driving up stock prices, housing prices and reducing interest rates whereever it lands. Michael thinks this is just the beginning of a major trend, and highlights where most of this frightened capital is likely to land and the social unrest it will leave in its wake.
…related:
Mike thinks we are moving into an era where asking the government to do something is no longer rational – Government Interference Mayhem

One of the oddest things in this increasingly odd world is the spread of negative interest rates everywhere but here. Why, when the dollar is generally seen as the premier safe haven currency, would Japan and much of Europe have government bonds — and some corporate bonds — trading with negative yields while arguably-safer US Treasuries are positive across the entire yield curve?
One answer is that the Bank of Japan and the European Central Bank are buying up all the high-quality (and increasing amounts of low-quality) debt in their territories, thus forcing down rates, while the US Fed has stopped its own bond buying program. So the supply of Treasury paper dwarfs that of German or Japanese sovereign debt. Greater supply equals lower price, and lower price equals higher yield.
The other answer is that this is just one of those periodic anomalies that persist for a while and then get arbitraged away. And Brexit might be the catalyst for that phase change.
It’s not clear that the UK leaving the EU will cause any real near-term problems. But the fact that it might happen at all is setting off a “who’s next?” contagion in which the viability of the EU itself is called into question. From earlier this week:
Biggest Brexit fear is really end of European Union as we know it
(CNBC)- European Council President Donald Tusk became the latest official to voice those concerns. In an interview with German newspaper Bild, Tusk said a Brexit vote to leave would be a boost for anti-European interests who would be “drinking champagne.”
“As a historian, I fear that Brexit could be the beginning of the destruction of not only the EU but also of western political civilization in its entirety,” he said in the interview. Tusk said the long term consequences are difficult to see but that every nation in the EU would be hurt economically, particularly the U.K.
This is the kind of sentiment that leads to extreme risk-aversion. And what, in the financial world, is safer then Treasury bonds when “Western political civilization” is in jeopardy? So a torrent of terrified global capital might soon be pouring into the US, pushing bond prices up and interest rates down. US Treasury yields, as a result, might behave the way German rates have since Brexit became conceivable:
Treasuries are already trending in that direction. From today’s Wall Street Journal:
U.S. 10-Year Government Bond Yield Falls to Lowest Since 2012
The yield on the benchmark U.S. government note closed at the lowest level since December 2012 on Tuesday as the yield on Germany’s 10-year debt fell below zero for the first time on record.
Tuesday’s move extends the record declines in high-grade global government bond yields, reflecting investors’ consistent concerns over sluggish global economic growth and the limit major central banks are facing in boosting growth via their unconventional monetary stimulus.
“It’s amazing. I never thought I’d see the day where 10y German rates would go negative,” said Anthony Cronin, a Treasury bond trader at Societe Generale SA. “It is difficult to say what is next but it seems safe to expect money to continue to flow into U.S. Treasurys.”
Traders say investors need to buckle up for higher market volatility. The VIX, a key measure of volatility in the U.S. stock market, hit the highest level on Tuesday since February. As investors cut risk appetites, it stokes demand for haven debt.
The yield on the benchmark 10-year Treasury note fell for a sixth consecutive day and settled at 1.611%, compared with 1.616% Monday. It fell to as low as 1.569% during Tuesday’s trading. Yields fall as bond prices rise.
The yield’s record closing low was 1.404% set in July 2012. Some analysts and money managers say they expect the yield to breach that level in the months ahead.
Our ability to accept crazy new things and incorporate them into “normal” life is truly amazing. Negative rates, as the initial surprise wears off, do indeed seem to be merging into the background, becoming simply part of the financial environment.
But they shouldn’t. Some things — for instance gay marriage or drug legalization — seem revolutionary but are on balance either harmless or beneficial. But negative interest rates are indeed revolutionary in the sense that they turn the operation of capitalism on its head. In a negative interest rate world, debt generates a profit and saving shrinks capital. Governments and corporations are paid to rack up ever greater obligations and thus have no incentive to control their natural hubris. To re-purpose some of John Maynard Keynes’ words, fair becomes foul and foul becomes fair, because foul is profitable and fair is not.
This is a world, in short, where all the old limits on our worst natures are removed and anything, no matter how long-term destructive or contrary to the laws of economics, becomes permissible. And where the only possible outcome is a crisis as epic in scale as the mistakes that will bring it about.
If gold-bugs circa 2000 were asked to sit down and design an environment in which owning precious metals is an absolute no-brainer, they’d produce the following: Unrestrained government spending leading to overwhelming debts leading to debt monetization leading to universal negative interest rates. A highly-unlikely wish list that is on the verge of coming true.
related: Don’t Bank On Rate Hikes!

While we await perhaps two of the most important developments this year — the next Fed rate hike and the Brexit vote on June 23 — I thought I’d take a little time and bust some of the myths that many investors get tripped up on.
Let’s take a look at my five favorite market myths, myths that cost investors tens, if not hundreds, of billions of dollars.
Myth #1: Gold can’t go down when there’s so much money-printing going on. This one is my favorite. All the shrills out there who constantly talk about fiat money and money-printing have egg all over their faces.
They said gold could never go down when central banks are printing so much money. I said bull: Listen to that garbage and you will lose your shirt.
And that’s what happened to oodles of investors who didn’t listen to me when I said gold had topped back in September 2011. Despite even more accelerated money-printing, gold crashed, losing as much as 46% of its value.
The facts of the matter are this:
First, what goes up must go down, and vice versa. There is a time for every move in the market, based purely on cyclical and technical factors. So if you get stuck to any one particular theory, vision, or even a set of fundamental forces you believe in, if you don’t realize that there is a time and place for every move the markets make, you will get caught — with your pants down.
Second, money has always been fiat! It was fiat even when the dollar was tied to gold. Why? Because the powers that be, the rule makers behind the monetary system, always have the power to change the rules, and devalue the dollar, as Roosevelt did in 1932.
In fact, Webster’s dictionary defines the word “fiat” as “an official order given by someone who has power: an order that must be followed.”
So as long as there are authorities who can change the rules, money, no matter what it is tied to, is always going to be fiat.
Moreover, money is merely a medium of exchange, not a store of value. Throughout history, money has always been fiat. It was fiat in Roman times, fiat in Byzantine times, fiat in every great civilization and economy in the world, from Asia to Europe.
You might argue that some currencies are more fiat than others. Sure, I can agree to that. But my point is that all money is fiat. Consider even Bitcoin, which is entirely fiat and secured only by its cryptography and the confidence — or lack of confidence — its users have in the digital currency.
Bottom line: Don’t buy into the fiat money nonsense when it comes to gold. Sure, it’s a part of it, but we already saw that part of the fiat argument play its hand in gold’s first leg up, from $255 to its high at $1,920.
That force is now dead, kaput. Gold’s next move higher will largely be due to the war cycles and how they are now showing massive social and geo-political unrest breaking out all over the world for the next four to five years!
Myth #2: Stocks can’t go up when interest rates are rising. Another great one. Fact: Most strong bull markets in equities occur when interest rates are rising!
Why? It’s simple: When rates are rising, they are rising because the demand for money and credit is going up. And if the demand for money and credit is going up, that in turn means that either …
A. The economy is improving, or …
B. That investors want to take on more risk for potentially greater returns, due to other motivations, like getting away from sovereign bonds, investing in stocks as a safe haven against government bank confiscation, and more.
The bottom line is this, especially at the turning point we are now in with historically and artificially low interest rates: Rising interest rates should be nothing to fear and instead should be music to your ears for the equity markets.
Myth #3: Hyperinflation is the end result of money-printing. I used to subscribe to this one. Until I realized that throughout history there has never been a major core economy that experienced hyperinflation. Not one.
Hyperinflation only occurs in peripheral economies that do not have deeply liquid stock, bond and currency markets or that have been bombed out and have little or no infrastructure to them.
If you want to bring up Weimar Germany, fine. The Weimar Republic had no bond market, no stock market and in the aftermath of WWI, no infrastructure either.
As I have been saying now for some time, the U.S. will not suffer hyperinflation. Deflation, yes. But hyperinflation, no.
Myth #4: The dollar is dead. Likely to be replaced as the world’s largest reserve currency — yes. But dead, NO.
We all know the existing debt-based monetary system with the dollar at its core no longer works in today’s globalized economy. And that a new monetary system is needed.
A new Bretton Woods, if you will, that learns from all the errors of the past and designs and implements a new monetary system without a single currency at its core and certainly not one based on debt.
That time is coming. That is where the world is headed, toward a new electronic reserve currency unit that is used for international trade and transactions only and with all countries maintaining their existing currencies for domestic use only.
The dollar will lose its reserve status, but long before it does, it will also gain incredible strength. Put another way, the U.S. dollar will eventually lose its reserve status because it becomes too strong, not too weak.
Myth #5: Real estate prices are sure to collapse again as mortgage rates rise. I love this one, too, since so many pundits subscribe to it.
But in my opinion and research, it’s a bunch of baloney. Mortgage rates typically negatively impact real estate prices when and only when they exceed the real rate of inflation and/or the anticipated appreciation in property prices.
Plus, at this juncture in the real estate cycle, as mortgage rates do begin to rise, potential homeowners will want to buy now, rather than later, in anticipation of still higher mortgage rates, helping to push property prices higher.
There are many more market myths I could go into, but you get the picture.
The bottom line is this: Wipe your head clean of all the junk you learn from the supposed pundits out there, even the bigwig names from places like Yale or Harvard.
Instead, use common sense, think things through on your own, and question everything. I can virtually guarantee you that by doing so you will make much more money, both over the short term and the longer term.
Speaking of which, keep your eyes glued to the dollar and to gold right now. They’re both signaling big developments lie dead ahead.
Best wishes as always …
Larry
also:
Why The Biggest Investors Are Praying For A Market Crash
