“What, Me Worry?” Markets

IMG Auteur
Published : August 11th, 2017
1356 words - Reading time : 3 - 5 minutes
( 1 vote, 5/5 )
Print article
  Article Comments Comment this article Rating All Articles  
[titre article pour referencement]
0
Send
0
comment
Our Newsletter...

Mad Magazine introduced Alfred E. Neuman (What, Me Worry?) in the 1950s. He did NOT become a central banker. That is “fake news.”

Global central banks, including the Federal Reserve, created “What, Me Worry?” markets after the 2008 crash.  There has been little worry since the November election, until now. But the market worry level may have increased.  Changes between highs and lows in two days – until time of this writing:

Date                       Aug. 8                   Aug. 10

DOW                     22,179                  21,920

Gold                      1251.6                  1287.2

Consider the 50+ year chart of the Dow Jones Industrial Average.

Black line:  Nice move up.

Green Line:  Acceleration out of the nasty 2008 crash

Red line:  What, me worry? (Too far, too fast!)

In a world where markets are “managed” by “bots” or computer driven buy and sell programs, fundamentals hardly matter.  Human analysis is of little importance, and valuations are just numbers.  What matters is liquidity – flows of digital currency units into markets.

The central banks entered markets aggressively in 2008.  Stock markets also rose because of the Rise of the Machines – High Frequency Trading!

“Print” more dollars, euros, what-have-you, buy stocks and bonds to support the paper markets, and watch them fly to the moon.  What, me worry?  As long as the central banks print currencies, increase debt, levitate the markets and inspire confidence … the game continues.  But what happens when “the music stops?”  Russian sanctions and North Korean war tweets may puncture the confidence bubble.

We know about black swans, exponentially increasing debt, wars, weakening confidence in currencies, government decisions, leaders, the debt ceiling dance and so much more.

In the short term it is all about liquidity. Create enough liquidity and fundamentals and valuations become less important. But from a larger perspective valuation matters, overbought and oversold are important, and technical analysis is useful.

Where are the stock markets in early August 2017?

  • Valuation: by any measure, P/E, P/Sales, P/GDP and more, valuations are high, so high that we should expect minimal returns for many years.  Read John Hussman, Ph.D.:
  • Overbought and Oversold: The Dow has moved too far, too fast and is overbought.  More upside is always possible, but the next big move is more likely down. [Train wreck?]
  • Technical Indicators: Consider the RSI (Relative Strength Index), MACD (moving average convergence divergence), and TDI – Trade Signal – another momentum indicator.
  • Analysis: Use MONTHLY data so short term manipulations are less important.  Use the above three technical indicators and look at the “danger zones” from the past:  1987, 2000, 2007, 2015.

The S&P 5oo ratio has only been higher a few times in the entire history of the stock markets… during the dotocom bubble and just prior to the financial crisis. The bubble could continue inflating, but those were truly unprecendented moments in the markets. Setting those two bubble periods aside, stocks have not been this overvalued on a price-to-earnings ratio since 1895!

24hGold - “What, Me Worry?” Ma...

The Shiller PE ratio is the cyclically-adjusted price-to-earnings (CAPE) ratio of a stock market. This ratio is one of the standard metrics used to evaluate whether a market is overvalued, undervalued, or fairly-valued. As you can see below, the Shiller PE ratio is flashing overvalued and is currently as the same lofty reading as it was on Black Tuesday back in 1929. This was the worst day ever for stocks and effectively ended the Roaring ’20s and led the global economy into the Great Depression.

24hGold - “What, Me Worry?” Ma...

Danger Zone when:

RSI:  Greater than 75 (high and rolling over)

MACD:  High and rolling over

TDI:  High and rolling over

TDI:  P/E ratio over 20

Conclusion:  These conditions were met in 1987, 2000, 2007, and 2015 before the Dow took a nasty tumble. (Note: The RSI did not reach 75 before the 2000 crash.) Compare to 2017.

Ominous:  These indicators are currently at 20 year highs, higher than in 2000 and 2007.  Markets and indicators could roll over any time.

What, me worry?  No problem, this market can go up forever.  Dow 36,000 here we come.  Technical indicators, shooting wars, valuations, trade wars, political risk, debt ceilings and more – no problem!  The central banks of the world will protect the markets – that’s their job.  Maybe NOT!  DOW 36,000 may occur only after hyperinflation.

DOW CONCLUSIONS:

  • The DOW has moved too far, too fast.
  • It may move higher, but downside risk is considerable.
  • Technical indicators parallel conditions prior to the 1987, 2000 and 2007 crashes.
  • Depending upon central bank created liquidity to levitate markets is dangerous. What if the powers-that-be cash out early, crash the markets, blame a “scapegoat,” and then buy back at a 60% – 80% discount in two years?

GOLD MARKET:

What about the gold market and gold stocks?

Did the same technical indicators show LOWS in gold prices and the XAU at the bottom of those markets in late 2015 and early 2016?

YES!  Use the RSI, MACD, and TDI.  Wait until they reach extreme lows and turn upward.  That happened in gold and the XAU in 2000, 2008, and 2015.  [Note:  Indicator lows were not as extreme as readings at stock market highs.]

Gold prices and the XAU have been moving upward since their bottom in 2015.  Expect more rapid moves as digital fiat currencies, global bond markets, and stock markets correct toward realistic values.

Other Commentary:

From David Stockman:  “David Stockman Warns…

“We are in the blow-off stage of the Fed’s third and greatest bubble of this century.  Yet the stock market has narrowed drastically during the last 30 months, as is typical of a speculative mania.”

“The combined $15 trillion of central bank balance sheet expansion since 2007 amounts to a monetary fraud of epic proportions. This massive injection of fiat credit has drastically falsified prices in the debt and money markets, … the prices of equities and all other risk assets have been falsified too.”

[Repeat:  monetary fraud and equity prices falsified.]

From Mish regarding central banks: “Debunking MMT, Keynesianism, Monetarism” [He provides a breath of fresh air and plain speaking about economics.]

“It’s no mystery why central bankers are mystified:  Collectively, they are economically illiterate fools engaged in Keynesian and Monetarist group think.”  [Highly intelligent Ph.D.’s can believe and say foolish things…]

“MMT, Keynesian, and Monetarism all suffer from the same basic flaw:  They promise something for nothing…”  [How well has something for nothing worked throughout history and in your own personal experience?]

“Any economic theory that proposes paying people to do nothing, debt is not a problem because we owe it to ourselves, and/or there is some sort of overall economic benefit to rising prices is charlatan economics.”

“It takes years of training to get someone to believe total economic nonsense, and that is precisely what academia provides.”  [Note: high salaries, prestige, book deals, status, and speaking fees also help economists believe total economic nonsense.  Regardless, it remains nonsense!]

From Zero Hedge:  McMaster:  U.S. Preparing for “Preventive War” with North Korea.

From Zero Hedge: Under Any Analysis, It’s Insanity [North Korea]

From Jeff Thomas:  “The Madhouse”

From Bloomberg News:  “China Bets Trump Won’t Resort to Strike Against North Korea

From F. William Engdahl:  “US Sanctions … Decline of the US as a Global Power” 

What, me worry?

SUMMARY:  

  • The DOW and most stocks are too high.
  • Economic nonsense remains nonsense regardless of academic degrees, high IQ’s, and official governmental support.
  • Gold and the XAU have considerable room to move higher. Expect huge rallies.  Gold will be “the last man standing.”
  • Asian central banks, individuals and businesses understand and value gold. We should also!
  • Gold and silver have been valuable and a store of value for several thousand years. They will remain valuable, regardless of disparaging comments from central bankers and politicians in the west.

New Subscriber $99 Special!

We believe precious metals have bottomed and are beginning to break out following the summer doldrums. August and September are typically two of the strongest months and many quality junior mining stocks remain deeply undervalued. Subscribe now to get our top stock picks, monthly newsletter, model portfolio and trade alerts for just $99.

Article written for Gold Stock Bull by Gary Christenson of The Deviant Investor

Data and Statistics for these countries : China | Georgia | All
Gold and Silver Prices for these countries : China | Georgia | All
<< Previous article
Rate : Average note :5 (1 vote)
>> Next article
Jason Hamlin is the founder of Gold Stock Bull, a site providing investment strategies for profiting on the bull markets in Gold, Silver and Alternative Energy. Jason has a background in market research with ACNielsen, and has developed an expertise at analyzing data, charts and market trends for several Fortune 500 companies around the world. Jason has an in-depth knowledge of investing, has passed the Series 65 Uniform Investment Adviser Law Examination and has been tracking the secular bull market in precious metals since its inception.
WebsiteSubscribe to his services
Comments closed
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
The Future (Not)
04:54according
"now dwindling supply of oil that can be profitably extracted from the ground". really james/ you need to keep up with your reading. <...
The Silliness of the Bretton Woods Years
16 OctThe Recusant
KUDOS! The book is anti-gold slanted throughout and subtly mocks those that value gold as seen in that silly Las Vegas Golden Rooster tale. As I pr...
The Future (Not)
14 OctS W.0
I have it on good authority that the Aliens living in Antarctica have discovered a way of turning Ice into Oil. All we have to do to secure ou...
No Joy in Trumpville
10 Octaccording
and the wine-glass is half empty. throw another log on the campfire jim.
Betrayal!
09 OctThemis1
I agree 100% with all the points you made. You have summarized my own anger and the reasons for it. My only consolation is that I believe the eli...
A silver price-suppression theory gets debunked
07 OctDoom
I think he linked the wrong article, because there's minimal facts and logic there relevant to price suppression. It's a shame, because I really wo...
Light It Up
07 OctThemis
I keep wondering whether the US is fermenting a war with North Korea so as to indirectly draw China in and delay implementation of the yuan-for-oil...
One Nation Under Gold (2017), by James Ledbetter
05 OctThe Recusant1
Sadly, I too hoped for a more even-handed assessment of gold in our economic history. The book IS biased and by the time I got to the 20th century ...
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS