Within the last month: Central banks in Asia, Europe and America have launched new “Q” policies of one kind or another and “risk assets” were bid higher. Gold jumped $200 from its mid-August lows, the DJI and the TSE each rallied over 600 points with the Dow hitting a 5 year high. The US Dollar fell and all other currencies rallied with the C$ trading above 103.5 for the first time in 13 months…up 8 cents from its summer lows. WTI Crude briefly spiked above $100 for the first time in 4 months.
My short term view: We’ve had a “blow-off” top in risk assets on the back of this latest round of “Q.” I think the “sugar rush” of “easy money” swung the Teeter-Totter of Market Psychology too far, too quickly, and that stocks, commodities and currencies will fall (are falling) from their recent highs.
Gold: I’m neutral on gold…although it will likely weaken if stocks and commodities fall and particularly if the US Dollar rises…but gold is the best hedge against Central Banks and governments getting out of control with their reflationary efforts…gold is at all-time highs Vs. the Euro and Swiss franc…the volume of outstanding Gold ETFs are at all-time highs…that makes me unwilling to be a buyer…if I really wanted to buy gold I’d buy it against stocks and commodities. I remain short WTI crude as it appears to be the weakest of the “risk assets.” (In mid-August 1 oz. of gold = ~17 barrels, now 1 oz. of gold = ~19 barrels.)
Market Psychology: My short term view is negative because I expect a swing in the Market Psychology Teeter-Totter. Monetary and fiscal authorities around the world have just thrown more fuel on the fire in their fight against private sector deleveraging…and the Teeter-Totter of Market Psychology swung in the direction of “risk on” because of their reflationary efforts…but I now expect it to swing the other way as the bullish exuberance wears off…and is replaced by worries about global fiscal and economic problems.
The inflation/deflation question: The Fed certainly seems determined to “break the back” of deflation and the “gold bugs” are convinced that we will have inflation and that gold prices will soar as the Fed and other central banks try to “print” their way out of deflation. The Fed wants to increase employment…they want to get consumers spending again…they want to create a “little” inflation and are convinced that they can keep it under control if they get it started.
My fellow North Americans are probably pre-disposed to expect inflation rather than deflation in their future…although the long-term unemployed may disagree. Inflation is easier to understand…it’s what we’ve grown up with…to most of us it means rising asset prices and we see that as a good thing…we want to believe that the Authorities can “fix” the deleveraging problem…just as we want to believe that the right Government can “fix” our economic and social problems.
Looking at the inflation/deflation question from a longer term perspective I expect that the deflationary trends produced by global deleveraging will be powerful and persistent…I expect that the central bankers understand that and see the latest round of “Q” as just one more battle in a long running war.
Ed Note: Victor has a great section on his website on what’s below HERE
These messages are taped to my trading screens:
- WAY MORE MONEY HAS BEEN BORROWED THAN WILL EVER BE REPAID
- WAY MORE PROMISES HAVE BEEN MADE THAN WILL EVER BE KEPT
- WHY DO YOU BELIEVE WHAT YOU BELIEVE?
- YOU GOTTA GET YOUR MIND RIGHT
- ANYTHING CAN HAPPEN
- MONEY IS SIMPLY TRANSFERRED FROM ONE PERCEPTION TO ANOTHER
- TRADE THE SAME TIME FRAME AS YOUR ANALYSIS
- EXACTLY WHAT ARE YOU TRYING TO TRADE?
- IT’S NOT A GAME OF PERFECT
- EVERYTHING NEEDS TO BE HEDGED
- ITS ONLY A TRADE
- ARE YOU TRADING WHAT YOU THINK THE MARKET SHOULD BE DOING…..OR WHAT IT IS DOING?
- Victor’s 22 Absolutely Essential Rules for Trading
- An excelllent trading lesson from Dennis Gartman – October 2011
- Black Swan Currency Trading – Courtesy of Jack Crooks
- Gartman’s Trading Rules – Courtesy of Dennis Gartman
- 1985 Interview with trading legend Roy Longstreet from Intermarket Magazine
- Know What You Don’t Know – Thoughts from Trading Master PAUL TUDOR JONES with comments from Dennis Gartman
- Bob Farrell’s Ten Market Rules – With comments from Dennis Gartman
- Keeping It Simple – by Black Swan Currency Trading August 29, 2008
- Sitting Tight – From Reminiscences of a Stock Operator – by Jesse Livermore
- www.HardAssetsInvestor.com interviews Victor Adair – May 2008
- “It’s not a question of enough, Pal. It’s a zero sum game, someone wins, someone loses. Money itself isn’t lost or made, its simply transferred from one perception to another.” – Gordon Gekko, Wall Street, 1987
About VICTOR ADAIR
Senior Vice President and Derivatives Portfolio Manager
Victor Adair is a Senior Vice President and Derivatives Portfolio Manager at Union Securities Ltd. Victor began trading financial markets over 40 years ago and has held a number of senior positions during his long career as a commodity and stockbroker. He provides daily market commentary on CKNW AM 980 radio Vancouver and is nationally syndicated on Mike Campbell’s weekly Moneytalks radio show.
Victor’s trading focus is primarily on the currency, precious metal, interest rate and stock index markets and his clients are high net worth individuals and corporations.
Victor Adair is a Senior Vice President and Derivatives Portfolio Manager at Union Securities Ltd. Victor began trading financial markets over 40 years ago and has held a number of senior positions during his long career as a commodity and stockbroker. He provides daily market commentary on CKNW AM 980 radio Vancouver and is nationally syndicated on Mike Campbell’s weekly Moneytalks radio show.
Victor’s trading focus is primarily on the currency, precious metal, interest rate and stock index markets and his clients are high net worth individuals and corporations.
