The market action has rendered this trader/analyst very weak and weary … quoth the trader nevermore. When FUNDAMENTALS MEET A DELEVERAGING SET IN MOTION IT IS ENOUGH TO LEAVE ONE WEAK AND WEARY. Every conversation I have had for three days is: What is wrong with the GOLD and how can it not rally with all the problems that the global financial system is facing? The corollary to the GOLD IS OF COURSE THE GLOBAL BOND MARKETS. Today, the SCHATZ traded down to three basis points. The U.S. 2/10 yield curve is undergoing a severe flattening as the curve closed at around 143 BASIS POINTS TODAY. The buying of high quality DEBT is indicative of a movement to havens coupled with the need for QUALITY COLLATERAL FOR THE REPO MARKET.
Every downgrade of sovereign debt leads to a greater shortage of good collateral putting even more upward pressure on BUNDS, JGBs, GILTS and U.S. TREASURIES. The fundamentalists all are looking to SHORT THE LONG END OF THE CURVE and the time will come but as the TECHNICALS REFLECT, NOT YET. The RAVEN is not yet at the door of NEVERMORE, but as sure as day follows night it will happen. The problem for all fundamental-oriented traders is the picture seems clear but the power of DELEVERAGING in a BALANCE SHEET RECESSION can shake the confidence of the best fundamental traders, thus the need for technical analysis.
The GOLD has been sold in an effort to raise cash by those investors in EUROPE struggling to overcome massive losses in equity and debt markets. As I warned a few weeks ago, GOLD will reassert its BULL IN FULL FORCE when the Germans accept its role as EUROPE’S BANKER. Massive liquidity injections by the ECB will provide the next boost. Of course, when?
***The answer to the previous question may become clearer after this weekend’s G-8 meeting. The WORLD’S “LEADERS” will meet in the U.S. and the fear of a GLOBAL FINANCIAL MELTDOWN will be a large part of the discussion. The world is in a very critical situation far different from the ASIAN, RUSSIAN, DOTCOM and recent other crises. When JAPAN went into recession it was able to weather the storm thanks to growth in other areas of the global economy. The present situation is struggling to find a GROWTH LEADER that can bear the burden’s of slowing global growth. It is no coincidence that the recent selloff of global markets started with FED CHAIRMAN BERNANKE’S public declaration of the “FISCAL CLIFF.”
If Europe stays the course with AUSTERITY and the U.S. ECONOMY FALLS OFF THE FISCAL CLIFF, where will global growth come from? Let’s watch the G-8 for any hint that the major developed nations will be nervous enough to push hard on the throttle of liquidity. While the markets are sifting through the remains of questionable policies, the immediate effects of deleveraging and the need to raise cash are disrupting the fundamental analysis while revealing the importance of technicals to minimize the pain and monetary losses. Hey, BEN BERNANKE: THE PORTFOLIO BALANCE CHANNEL IS NEVERMORE.