Market Talk – December 11th, 2015
Asia managed a mixed session torn between the falling oil price
and the Dow’s rally. Europe was very sure what should happen when oil
was hit again this morning. When WTI and Brent fell another 1.5% on the
back of an earlier report from the IEA (International Energy Agency)
that they are forecasting a slack in 2016 based upon Q4 2015’s
slowdown in demand. All core markets reacted immediately as nervous
Friday book-squaring ahead of the all important US numbers that were due
lunchtime. Ahead of the release the DAX, CAC, FTSE and Dow future’s
were off between 1% and 2%; so the trend was well and truly set for the
afternoon’s roller-coaster ride.
This was all before data release in the USA (PPI, Retail Sales and
Univ. Mich. Sentiment) all slightly positive the best of which was the
Retail Sales at +0.5% (Ex food and energy) against a consensus of +0.3%.
However, it was news reported on Dow Jones New Wire that the Central
Bank of China are reviewing the possibility of loosening policy on the
Yuan’s Peg (against the USD). We saw the CNH (off-shore) trade out to
over 65.55 upon the news and it remained there for the balance of the
day.
Dealers will be watching the press over the weekend for further confirmation. This news, coupled with the oil related sell-off (Brent traded down 5% at one stage but closed -4.65%), was enough to push equity markets lower ahead of the weekend and the FED rates decision next week. Dow traded down over 335 points and finally closed -315pts (-2%).
The Bond markets also reversed their losses mid-session to close at their highs of the day. US curve flattened as the long end led the rally. 2yr notes gained 6bp to close yield around 0.89%; 5yr closed 1.56% -11bp; 10’s closed 2.125% -11bp and 30’s closed 2.87% -10bp. Germany bonds also rallied but to a lesser extent narrowing the spreads. 5yr (US/Germany) closed +167bp and 10’s +159bp.
In the currency space the core’s held their ground and so the DXY (US Dollar Index) lost only 0.35% but Emerging Market currencies did suffer across the board. The Turkish Lira, Russian Rouble, A$ and Brazilian Real all lost between 2% and 3% in todays trading.
Next week the Federal Reserve is in play and almost everyone expects them to raise. We published previously that behind the curtain, the Fed was ready to raise rates in June. The IMF turned to the press publicly to say thjey was a wrong decisions demonstrating the IMF and Fed did not agree. Then in September the called the Fed and pleaded not to raise rates because it might bankrupt some European banks.
Dealers will be watching the press over the weekend for further confirmation. This news, coupled with the oil related sell-off (Brent traded down 5% at one stage but closed -4.65%), was enough to push equity markets lower ahead of the weekend and the FED rates decision next week. Dow traded down over 335 points and finally closed -315pts (-2%).
The Bond markets also reversed their losses mid-session to close at their highs of the day. US curve flattened as the long end led the rally. 2yr notes gained 6bp to close yield around 0.89%; 5yr closed 1.56% -11bp; 10’s closed 2.125% -11bp and 30’s closed 2.87% -10bp. Germany bonds also rallied but to a lesser extent narrowing the spreads. 5yr (US/Germany) closed +167bp and 10’s +159bp.
In the currency space the core’s held their ground and so the DXY (US Dollar Index) lost only 0.35% but Emerging Market currencies did suffer across the board. The Turkish Lira, Russian Rouble, A$ and Brazilian Real all lost between 2% and 3% in todays trading.
Next week the Federal Reserve is in play and almost everyone expects them to raise. We published previously that behind the curtain, the Fed was ready to raise rates in June. The IMF turned to the press publicly to say thjey was a wrong decisions demonstrating the IMF and Fed did not agree. Then in September the called the Fed and pleaded not to raise rates because it might bankrupt some European banks.
One Reason Not to Vote Republican
The political elites do not like Trump or ANY outsider. Now, top Republican Party officials are actually discussing the possibility of a brokered convention — a DICTATORSHIP — where
the choice of the people will have no input. Since Trump is leading in
double digits against all career politicians, the only way for
Washington and the press to maintain their power base is to usurp the
entire election process and DECLARE who
they would like to be president. Screw the people, as always. It is not
much different from the Soviet Union of Europe where the people have NO RIGHT to vote for the three member heads of the Troika whom destroy their lives.
I have warned that the Republican Party is always the one to split.
The last time was with Teddy Roosevelt who split to create the
Progressive Party. At a monthly dinner meeting in Washington, the
Republican Party ELITES, who look down upon the rest of us as scum, decided it would be “prudent” to
plan for a contested convention, which they will most likely rig so
they can install their own choice against that of the people.
Democracy is dying EVERYWHERE. This is right in line with what our computer has been warning. It is a shame that you cannot buy an ETF short on politicians or parties. This one might be a good short. If they have the audacity to pull this one off, then I do hope Trump and Carson move to a third party. That would be the ONLY hope we have at softening the collapse of our system for NO CAREER politicians will ever say, “Hey. This is debt crisis and raising taxes with negative interest rates is destroying everything. Whose idea was this anyhow?”
Yes, Trump says some stupid things now and then. But he will change his mind as anyone else from the real world. Career politicians will destroy everything by trying to force an outcome that is economically insane like the Euro, Syria, and countless others.
Democracy is dying EVERYWHERE. This is right in line with what our computer has been warning. It is a shame that you cannot buy an ETF short on politicians or parties. This one might be a good short. If they have the audacity to pull this one off, then I do hope Trump and Carson move to a third party. That would be the ONLY hope we have at softening the collapse of our system for NO CAREER politicians will ever say, “Hey. This is debt crisis and raising taxes with negative interest rates is destroying everything. Whose idea was this anyhow?”
Yes, Trump says some stupid things now and then. But he will change his mind as anyone else from the real world. Career politicians will destroy everything by trying to force an outcome that is economically insane like the Euro, Syria, and countless others.
The Computer Did Pretty Well on the Dax
Notice the Panic Cycles targeted 12/03 and volatility in cycles into the end of this week. We live in interesting times. People ask how the computer can do this. It is NOT the instrument that matters. HOW people interact through that instrument is the common denominator, which is why fundamental analysis fails. People act in ANTICIPATION of events real or fictional.
It’s what you BELIEVE
that matters — nothing else. This is why analysis is still in the
primitive stage of being a witch doctor. Fundamentals far too often
become mumbo-jumbo. People act on what they THINK will happen even when
it does not.The Superbug Has Arrived
For years, there have been warnings that the overuse of antibiotics was a danger. Now that danger has arrived. A new superbug has evolved, as life itself is always a cycle. This new superbug is impervious to ALL known antibiotics, an evolutionary step that was never contemplated. This superbug has the ability to infect other bacteria, yet instead of destroying its virulent competition, this new evolutionary strain of e. coli actually strengthens them by giving them the same antibiotic shield it has evolved as a self-defense mechanism.
While it is believed to have emerged in China, it has been discovered in Denmark as well. The fundamental cornerstone of everything is a cycle. Each cycle creates the next generation by referring to the last. Children are constructed from the merger of DNA from both parents, which is why children take on traits from each parent.
Markets function in the same manner. We call it technical analysis, Elliot Wave, or whatever, but these types of analyses are generally looking for a repetitive pattern that comes down to self-referral.
Everything evolves. This is the recognition in the design of the Global Market Watch. Understanding that everything functions in a cyclical manner of self-referral is the starting point. This applies to absolutely everything. It is fractal.
Do We NEED Computers to See Beyond Our Own Hardwiring?
One of the battles in trying to produce real analysis is our
hardwiring. We naturally have an attraction toward repeating sequential
and palindromic numbers or events that extend beyond what we consciously
realize. This is our inherent hardwiring that comes down to our basic
species survival instinct. Animals hear just a sound and scurry. They
did not actually see a threat; they simply assume everything is a
threat. Even an animal will connect a pattern and realize that humans
are not a threat when offering food. This squirrel has learned to hang
out in a theme park where he can trust humans.
Our instincts come from our survival instincts as well. Our brains are constantly working to make sense of the information we do not even realize is taking place. Recognizing patterns is critical to our ability to learn from past experiences and anticipate challenges as well as threats. We learn in this manner just as the squirrel learns through repetition to trust humans offering food in a theme park.
Essentially, our brain is wired to form associations and then complete the pattern. We are pattern recognition machines. Some people keep forecasting a crash because that is what they have experienced like the squirrel. Others predict that whatever trend is in motion will continue for they cannot comprehend how things change rapidly.
Apophenia is the human tendency to perceive meaningful patterns within random data. Scientists define this as “unmotivated seeing of connections” accompanied by a “specific experience of an abnormal meaningfulness.” The first use of the term is attributed to Klaus Conrad. Pareidolia is a visual form of apophenia, such as when people believe they see Jesus’ face in a piece of burnt toast (don’t worry, scientists say it’s perfectly normal).
One of the most well-known examples of apophenia is the gambler’s fallacy as the call it: wrongly believing that after tossing heads 10 times in a row, the probability of tossing heads again is no longer 50 percent. Of course, the odds for each flip of the coin is always the same. Yet, we comprehend that there is some higher overriding pattern. Then in 2008, Michael Shermer coined the word “patternicity”, defining it as “the tendency to find meaningful patterns in meaningless noise.” But is this really true? Perhaps we assume there is noise so we are incapable to observing complex patterns that make the flipping of the coin subject to two worlds of patterns.
Strangely enough, those in the field of studying the mind may be wrong and it appears are falling into the trap that they may be the victims of our own observations. By trying to be too detached, they prevent themselves from seeing the patterns within what they ASSUME is random noise. They are wrong because there is a higher order that they do not understand.
The father of chaos theory is Edward Lorenz. (1917–2008) who was an American mathematician and meteorologist. Lorenz was certainly THE pioneer in chaos theory. A professor at MIT, Lorenz was the first to recognize what is now called chaotic behavior in the mathematical modeling of weather systems.
During the 1950s, Lorenz observed that there was a cyclical non-linear nature to weather; yet, the field relied upon linear statistical models in meteorology to do weather forecasting. It was like trying to measure the circumference of a circle with a straight edge ruler. His work on the topic culminated in the publication of his 1963 paper “Deterministic Non-periodic Flow” in the Journal of the Atmospheric Sciences, and with it, the foundation of chaos theory. During the early 1960s, Lorenz had access to early computers. He was running what he thought would be random numbers and began to observe that there was a duality of a hidden repetitive nature. He graphed the numbers that were derived from his study of convection rolls in the atmosphere. What emerged has been perhaps one of the most important discoveries in modern time.
This illustration of the Lorenz Strange Attractor is incredibly important and was first reported in 1963. Lorenz’s discovery of a strange attractor was made during an attempt to create a model of weather patterns. The actual experiment was an attempt to model atmospheric dynamics of the planet. It involved a truncated model of the Navier-Stokes equations. It is a visual example of a non-linear dynamic system corresponding to the long-term behavior in a cyclical manner that reveals a hidden order we cannot otherwise observe.
The Lorenz Strange Attractor is a three-dimensional dynamical system that exhibits chaotic flow. Noted for its interesting shape revolving around two invisible strange points in space-time, we call them strange attractors. The map shows how the state of a dynamical system with three variables of a three-dimensional system evolves over the fourth dimension (time) in a complex, yet non-repeating pattern. In other words, here is a visualization of duality – what appears to be randomness (chaos) simultaneously has a broader clear pattern of order. The same identical structure appears in light where it is both a waveform and particle, as we see in the economy where we retain our individuality, yet at the same time, we are part of a broader collective pattern. This is the very essence of the invisible hand – or in Lorenz terms, a strange attractor.
Lorenz also discovered in 1969 that very minor differences in a dynamic nonlinear system, which would include the economy, could trigger vast and often unsuspected drastic results. These observations ultimately led him to formulate what became known as the term butterfly effect in 1969. Very tiny changes in what appeared to be minor data at the outset had a ripple effect throughout the entire system and created substantially different outcomes. This term grew out of an academic paper he presented in 1972 entitled: “Predictability: Does the Flap of a Butterfly’s Wings in Brazil Set Off a Tornado in Texas?”
So, when we look at economic forecasting you will notice that the typical analysis projects the same trend which is in motion will stay in motion. They cannot see the big event which appears like a rogue wave out of what seems to be a normal sea.
Then
there are those who keep seeing a crash simply because a market remains
high, as in the Dow, or that the dollar must crash because the U.S. has
an $18 trillion debt. They fear the rogue wave, yet are clueless how to
forecast when they arrive.There is something much deeper than these superficial observations. Unfortunately, it may require a computer to help us see beyond our own hardwiring and prejudices. We cannot see what we do not understand.
Gold & Dow Inflation Adjusted
QUESTION: Mr. Armstrong, you have said that gold adjusted for inflation has not exceeded the 1980 high. Have we exceeded the 1929 high in the stock market?
Just curious
KW
Dow Jones Industrial in LOG Scale
ANSWER:
The 1929 high on the Dow Jones Industrials was 386. That adjusted for
inflation in 2015 dollars would be $5,300.43 assuming each point in $1.
So yes, we have obviously well exceeded that level and it equates to
support in the 15,000 area today which is about a 300% multiple. That
equivalent in gold would be major resistance which would be in the
$6,000 level.Market Talk – December 10th, 2015
The USD was the talk of the day where we saw gains made against most of the majors and watched the DXY (USD Index) move higher again (last seen at 97.81 (+0.50%)). The Euro resumed its weakness (109.40 -0.90%) as rumours that traders are re-entering the carry trades circulated dealing rooms. The Australian Dollar did well following a better than expected employment number (expected -10k actual released was +71.4k), gaining 0.9% on the day. SNB (Swiss National Bank) left rates on hold and so benefited the currency slightly against the USD. South Africa has been a hot topic of conversation amongst dealers today when we saw the Rand fall to 15.34 (-2.5% on the day), after President Jacob Zuma surprised the markets when he dismissed the Finance Minister.
In the Bond markets we saw the US curve flatten but only by a small amount. 2yr bonds gave up 2.5bp and was last seen at 0.95%; 5yrs lost 4bp last seen 1.675%; 10yr were +1bp at 2.225 and lastly 30yrs (despite additional supply) remained below 3% level and were last seen trading at 2.965% which is almost unchanged on the day. Meanwhile in Germany 5yrs were last traded at -0.085% and 10yrs last 0.58% brings the spread at 5’s to +175.5bp while 10yr spread was last seen at +164.5bp.
All eyes will be on the big economic data out of the US tomorrow especially ahead of the FED’s highly anticipated announcement next week. Tomorrow we see PPI (Expected 0.1% previous -0.3%); Retail Sales (Expected 0.3% previous 0.1%) and finally later in the day University of Michigan Sentiment Index (Expected 92 against a previous 91.3).
No comments:
Post a Comment