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I remain convinced
that a nasty new cyclical bear market in common equities has begun. Now that Germany's
stock market ($DAX) has dropped
35% from its May peak, there is
little point in Wall Street trying
to pretend that this is "just another correction/buying opportunity." The
US stock markets have held
up better than most, but this is about to change in my
opinion. In fact, it was Germany that held up much better than the US in late 2007/early 2008, only to play catch-up later once the bear market really got rolling. Now, the crisis is centered in Europe (for now), so Germany and the US get to reverse their roles relative to the prior cyclical bear market of 2007-9.
Greece continues its deflationary collapse as predicted.
The Greek stock market
($ATG) is now down 84% from its late
2007 highs, versus 89% for the Dow Jones in the
1929-1932 bear market.
Close enough and I don't think the decline in Greek shares is over yet. Japan's chart looks like it wants
to break down yet again
(3 year daily chart of the Nikkei Index thru Friday's close follows):
Meanwhile, one of my
favorite indicators for this
secular bear market, the industrial metals to Gold index, is screaming for caution. I like
the $GYX industrial metals
index, but the copper:Gold ratio uses the same concept and the chart
looks the same. The message is
simple: if Gold is rising
faster than industrial metals (i.e. falling $GYX:$GOLD ratio or falling
$COPPER:$GOLD ratio), the underlying economy is likely
to be in trouble. Here's
a 6 year weekly chart of the $GYX:$GOLD ratio thru
Friday's close with my thoughts:
Meanwhile, the Dow
to Gold ratio continues on another cyclical down move within its secular downtrend
that began in 1999. To keep Gold bulls focused on the big picture of "Gold versus paper"
(i.e. paper=stocks as a proxy for financial assets), here is a monthly
chart of the Dow to Gold ratio ($INDU:$GOLD) over
the past 10 years thru Friday's close (log scale):
I also think ol' Uncle Buck is beginning yet another death
dance rally. This separates
me from the "Dollar to zero
tomorrow" crowd, but
doesn't temper my belief that
Gold will top $2000 before
the year is over. All fiat
paper currency is sinking relative to Gold, just at varying
rates. Here's a 20 year monthly chart of the $USD Index
with my thoughts:
I think it is shaping up to be a great fall
for bearish stock trading
and bullish Gold trading.
I wouldn't short stocks before the fedspeak meeting next week, as I think the current equity dead cat bounce can go a little further in US markets, but I also wouldn't fear that apparatchiks and central bankstaz
can stop the train wreck that's coming. Unlike most Gold commentators, I am not yet bullish on Gold mining stocks and continue to favor
metal over metal equities for now.
Adam Brochert
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