2018-08-12 Week - Market overview

This Week

One would hope it would be a slow week, with little market data being released but that will probably be wrong. Watch the twitter feed for the next big market move.

Australia data may move the RBA closer to hitting the Australian real estate market in the interest rate with a sledge hammer.

Market Overview

A market failure is coming. It may start with Vancouver and Sydney real estate markets that have been pumped up by Chinese buyers laundering wealth. It may come from bond market failures as investors realize that they are better sitting on cash. It may come from Russia and China exchanging a basket of currencies for oil instead of using US dollars. Or it may come from a tweet.

With markets moving by tweet, it is difficult to find a good place to invest or to trade. Any advice I give on short term trades will have to be timed well to profit based on volatility (you might as well just throw a dart or flip a coin). Until a cataclysmic meltdown occurs (it is coming), there are not any clear value areas to invest. Personally, I like long December Gold Calls, but with the paper gold market being so dodgy, I cannot recommend that as a safe haven play (more of a speculative trade).

Commodities

The Trade War has really slammed commodity markets. This volatility can be good if you are just flipping a coin to make your trades, but it is not so good for making position trades based on real world moves. USA products (Meat, grains, beans) rely on Chinese buyers, but without those markets prices collapse. However, each tweet changes the accesses and thus the price. China has slowed the buying of resources (iron ore, copper) because the manufactured goods market is slowing. So all the trade war will accomplish is to increase prices to consumers for manufactured goods while bankrupting food producers.

Stocks

Stock markets are not a good place to invest right now. Earnings (PE) are at levels that would require a 50% correction to get value buyers (long term investors) into stocks. Markets are having a record bull run, but everyone knows that stock prices do not go up forever (even with hyperinflation). So it would be prudent to short, except that any tweet or policy change has the potential to wipe out a short position (sorry Tesla shorts).

Bonds

Bonds seem to exist in a world of their own. Central bank intervention and money printing policies have created an exciting bond market. This is the exact opposite position of the investors that seek bonds. The whole purpose of bonds is to have financial security and stability. Bonds should be trading in a way that makes watching paint peeling seem exciting by comparison. But that is not the case in current markets. Central bank intervention in the markets would have to end for a sufficient period to create stability, but that will never happen. Central banks have intervened in these markets so long that they cannot extract themselves without collapsing the financial system. So they must continue to mess about in these markets until these markets push back enough to collapse on their own. That is NOT a good place to be, nor a sound place to invest in stability.

Currency

Government failures are destroying many counties wealth. Hyperinflation has already found some countries, and will find more before this market finds stability. Trade wars, embargos and changing political winds will effect exchange of goods and thus currency.

Oil must still flow from wells to consumers, and oil producers still want to get paid. Venezuela is happy enough to take yuan. Iran will be happy to take gold, ruble or bitcoin by the time the embargo settles. China and Russia are tired of being tied to the US dollar for oil (and the political strings that accompany it). So when the world cuts the US dollar out of the oil market, expect that the USA will land harder than the UK under Thatcher (when the pound was no longer the medium of exchange for oil).

There are no clear winners in the coming currency shakeup. The Euro has its own issues. They yuan is set by a non-transparent government. The ruble will continue to be viewed as a dodgy currency. The rest of the sovereign players don`t have enough weight to be contenders. That leaves crypto currencies and precious metals.

Cryptos

Cryptos may supplant the SWIFT system, but high volatility still plagues that market. As a medium of exchange, cryptos will supplant the banking system. In countries with hyperinflation, cryptos have already become a preferred store of value over sovereign cash. The question is which crypto will win as the new reserve? Much like currency, the winner will be any crypto that is used as a medium of exchange, cannot be printed at a whim, and is secure.

Gold

A currency crisis is a crisis of faith in the underlying government. Gold has ALWAYS been the go-to for investors that have lost faith in the government. Precious metals are expensive to store and transport (compared to digital bits) but are also limited in volume (governments cannot just print more gold). When governments no longer trust each other`s money, they will still gladly accept gold as payment. Shouldn`t you?

DISCLAIMER:

YOU ARE AN ADULT and must make your own decisions. ONLY YOU know what level of experience you possess. ONLY YOU know what level of risk you are willing to take. ONLY YOU know what your financial goals are, and to what lengths you are prepared to go to meet those goals. You will be the one to wear your losses, so trade with caution and do your own research.

Henry Ledyard is an independent trader. He has NO affiliations with banks, brokerages, funds, trading houses or markets. He trades for himself and posts trading ideas merely to share information. He does NOT want your money, advice or opinions. He does NOT want your unsolicited emails. If you require further financial advice, seek it elsewhere. Henry`s opinions should be considered as addled as his blog site:

www.addlepated.com.au