Markets Soar

Markets surged this week, quickly rebounding from last week's sudden melt-down after the UK populace voted to leave the European Union.  While US markets fared well, with the Dow and SPX rising more than 3%, bigger gains came in most European shares.  Latin America shares also outperformed.

The star of the week though was Silver, which soared 11% on the week.  Silver also starred on the monthly returns list, rising 17%.

Notice the stellar year-to-date returns for Silver and silver and gold mining shares, Silver Wheaton (up 99.5% on the year) and Barrick Gold (up 200% on the year).


STOCKS REBOUND

Surprise, surprise!  Another V-shaped rebound.  Just look at past attempts of the market to sell off.  Each time, markets quickly rebounded and climbed back to the highs.  It was clearly evident last week when after the Brexit vote, it was immediately announced that the ECB (Euopean Central Bank) would add 250 Billion Euros to shore up the system.  I.e., more quantitative easing.  Other central banks also added that they were at the ready to print more money.

I had recently provided a story about how the hacker group Anonymous had hacked into Federal Reeserve systems and found that the Fed owned more than 50% of many large US corporations.  I have seen no additional news regarding this nor had Anonymous, to my knowledge, released the files that showed this.  Yet it's not surprising that The US Federal Reserve would be buying stocks to "stabilize" the market.  Other central banks have released information showing their US stock holdings so why wouldn't the US be in the lead on this?  Even if the US Federal Reserve is not holding large stock positions, other Central Banks are and of course, they are too "SYSTEMATICALLY" important to allow their assets to fall.

Well, perhaps this game is over.  And the sudden surge in SILVER could be the evidence.

SILVER SURGES

The breakout in silver was as unexpected as ever.  Many have suggested that the prices of gold and silver have been manipulated in the futures markets where institutions sell futures contracts to artificially suppress prices.  This can be easily accomplished in the futures markets since seldom does delivery of the actual physical commodity occur.  And, should anyone actually try to corner the market and buy more silver and gold than is available for delivery, the contracts may be settled in cash.  As a result, the laws of supply and demand go out the window since supply can be created just like our paper money is created, with a key stroke.  There is nothing real that supports it.

It will be interesting to see how far the silver rally can go.  Many have felt that silver and gold prices were suppressed so that people would continue to have faith in the paper fiat currencies that we use.  Surging metals prices would indicate that people are losing confidence in the fiat system

So where might silver go?

This chart is a weekly chart of paper silver (SLV) if you wish to trade it.  We can see the multi-year selloff after a big run-up.  Included in this chart are Fibonacci retracement lines.  After a move, traders often refer to these Fibonacci retracement levels to project where price might go.  Common retracement levels are 38%, 50% and 62%.  There could still be some decent trading profits to be made should these projections play out.

Then what?  Some believe that prices will then fall back and even hit new lows.  They believe that we will be experiencing a long period of deflation, similar to Japan, whose economy has stagnated for 20 years already.  Others believe that the massive amounts of money printing that have occurred will cause hyperinflation.  Perhaps we are already seeing signs of that in the food we buy.  Hey, even prominent fast-food burger joints are using "sawdust" as filler in their burgers.  Certainly my 1/2 gallons of ice cream are no longer 1/2 gallons and even my one pound package of hot dogs are now shrinking to 12 ounces, although the price remains the same as the one pound package (in better days).

The government cannot show that there is inflation as this would result in higher interest rates, higher social security payments, etc.  With the US debt at $19 trillion, interest rate shocks would certainly cause a lot of pain for the government (and taxpayers).

The deflation story also used debt levels as a cause.  We've all learned early on that when you borrow money to buy something today, you are borrowing from the future.  In the future, you will have to pay back the loan.  So with governments borrowing so heavily these days, we are consuming today what we would have in the future.  Therefore, there will be little growth.  Another cause for deflation is demographics.  As the populations of many developed countries decline and the birth rates slow, spending cycles will decline.  That makes sense.  If we build enough houses to suit the baby boomers, when they die off, will there be enough people to sell these houses to?  Not if the future generations are smaller than the previous ones.  I think that this might be one of the reasons why the government is so pro-immigration, even if it is not done legally.  We need more people here to be working and paying taxes to support the social security, medicare and other benefits to the elderly, who are living longer than ever.

Whatever happens, I believe that the massive amounts of money printing that have taken place over the years provide reason enough to be an aggressive buyer of precious metals.

WHAT ABOUT STOCKS?

Looking at the totality of the market move since 2009, we can see that if markets are topping now, the Fibonnaci retracement levels show the potential for pretty good downside moves.  Again, we are talking 38%, 50% and 62%.  Such moves are unheard of for many people but these are normal market moves.  Could it happen?  Yes.  Will it happen?  ???  Someday.

While we have made a huge move, a move that has been largely supported by central banks around the globe printing more and more money in an attempt to make their economies more competitive.  It is truly a house of cards.  But even as I say that and continue to position myself for a major move down, it's possible that the game can continue with higher prices still.  This past week, the European Central Bank indicated that it would continue to print even more money and buy securities in the European markets.  Japan is all in on this and many suspect that even in the US, the next move by the Federal Reserve will be to lower interest rates and do more quantitative easing.  Certainly this will catapult market prices even higher.  Where else can the banks go with the money in a world of negative interest rates.

As mentioned last week, I was eying EWL, a Swiss stock fund, at 28.  I bought it there and it nicely rebounded along with other European stocks.

I also jumped on Royal Dutch Shell (RDS.B)  Wanted to get a piece of the oil game.  Both did well on the week.


Next week, we will get the jobs numbers on Friday.  They tend to be meaningless.  If they are weak, it will just support the current thought that interest rates will continue to go lower, even negative, in the near future.  This will cause stocks, bonds and precious metals to continue rallying.  Bad News is Good News.  And even if the jobs numbers are good, the feeling is that the Federal Reserve will use the turmoil in Europe as a reason not to raise interest rates this year.

So might as well play the game for as long as it lasts.

OK, You Voted Your Desires, Now Get Back "In Line"

Friday's dramatic market moves are totally baffling considering that the Brexit vote, which markets had been trading off of for days now, is really irrelevant. 

It wasn't too long ago that the same thing happened in Greece.  The people had a chance to break away from the bondage of the EU and ECB and voted for it.  Now their punishment for disobedience has only increased.  When will they ever learn?

I can't believe that the UK will ever have the opportunity to break away from the EU and the power behind the curtain.  Consider that to even begin taking steps to move forward in this direction, it will have to wait for three months until David Cameron resigns as the UK PM and someone new comes in.  THEN, they will have TWO YEARS to put things into motion.  And then how much longer after that to establish the actual dissolution?  I doubt if I will even be alive then to see it, should it actually occur.

In the end, the bankers always win.  Even as the markets were being rattled, what was happening behind the scenes?  Central bankers were nimbly creating billions and billions more of fiat currency to provide liquidity in the event of margin calls.  And with interest rates very close to 0%, it's no problem to just go to the reservoir and borrow more free money to cover your losses.  After all, even if the markets should continue crashing, it's almost a certainty that the famous V-shaped recovery will again come in to save the day. 

So I can't see any real reason why the markets would crash, unless the powers behind the scenes Will It.  The UK vote is Non-binding.  It's just one of those "bones" us minions are thrown every now and then to appease us.  Even here in the US, the recent Primary season let us know the truth.  Voters don't nominate a candidate, the party does. 

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For the week, US stocks were down slightly and remain negative for the year.  European stocks, generally represented with EAF, was down 5%.  A closer look at country funds within the EU showed considerable damage to the weaker members, Italy and Spain. 

Precious metals again rose but as I had mentioned in other social media outlets last week, Silver looked to be hitting resistance.  I expect it to trade between 15 and 17 on SLV, offering some trading opportunities for those who have been accumulating positions at lower levels.  As prices surged above 17 on Friday, I sold some 17.5 call options in July.  Price couldn't hold the 17 level and fell back. 

The 15-17 trade range is clearly seen here.  Often, trading patterns are symmetrical.  We can see that the SLV price traded between 17 and 15 from September to the following June, nine months.  If we continue this pattern, it's possible to see silver trade sideways until early next year! 

But with the printing of hundreds of billions more dollars and Euros, and the potential for QE 4 in the US, I'm only selling options on 10-15% of my total position. I will be aggressively adding more physical silver and SLV to my portfolio as we test the rising trend lines.

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We can see the dramatic fall in price on Friday, and on big volume.  We have to wait and see what happens starting Sunday night when the SP futures open up, along with foreign markets.

It could be that the rally from early February was just a rebound from the big move down that we saw at the end of the year and now we could be headed down further.

Many are predicting a big move down but I'm not so sure.  The weekly chart shows that we just coiled sideways after rebounding from the Jan lows.  Normally, this type of action is very bullish and I would buy the trendline. 

I did sell some of my position in SDS (this is an Exchange Traded Fund that moves up 2% for each 1% that the SPX moves down).  But I only sold about 20%.

I added to the "bearish" position on Wednesday when I read in ZeroHedge the reason why the odds on the Brexit vote changed so much.

It appeared that after one British politician was assassinated, the atmosphere about the UK leaving had changed and that Remain was taking charge.  This was spotlighted with massive coverage of the Odds.  Apparently, there is big time betting there on political outcomes.  Suddenly the odds had changed, in favor of remain.  Markets across the globe began rallying and the US market came within a heartbeat of new ALL TIME HIGHS!  but a closer read into the ODDS which appeared to be driving the market showed that 75% of the bets made were for LEAVE while only 25% of the bets were for REMAIN!  Those that were betting REMAIN were betting big!  Big enough to considerably change the odds.  But unfortunately, when it comes to voting, the vote of one rich man equals the vote of one regular guy (at least in theory).  THOSE DOGS I exclaimed, they are rigging the markets by reshaping to odds.  I immediately increased my Bearish position.

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So I might do a little buying should the markets continue to tank next week.  I was looking at some of these European Exchange Traded Funds (ETF).  I get it that fundamentals have been deteriorating for years now.  I think that the markets have every reason to go lower, even by 30% or more, and that wouldn't be abnormal.

I'm interested in EWL, the ETF that covers Switzerland.

I want to see if it holds this 80 month trendline at 28.  It pays a 5.6% dividend.

We shall see how the markets play out in the coming weeks.  On one hand, I see that any violent sell off will be quickly bid up.  There's no doubt in my mind that Central Banks around the world are big owners of stocks in the US market.  This has more or less made the US stock market TOO BIG TO FAIL.  Central Banks just have too much skin in the game at this point.  If the markets really fell to where they should be, currency systems around the world would become insolvent with only gold and silver benefitting.

So with that in mind, I'll be picking up bargains, if I see any.  Good luck.  Should be exciting times coming.  But in the end, remember, it's all fiction.  If the UK does leave, it won't happen for at least another 4 years.

Lower Rates Stop Working - What's Next?

Stocks around the world declined this past week, led by European shares.  US shares, despite joining in the sell-off on Friday, declined only slightly.

As mentioned last week, Silver was looking like it was ready to pop and sure enough, it did, rising more than 5% this week.

More European bond buying by the ECB appeared to be the stimulus for the sell-off.  They will begin buying corporate bonds in a continuing effort to stimulate the economy.

In the past, more free money boosted stocks but over time, the effects have been less and less.  This week, a typical European market looked like this:

More Central Bank meetings coming up next week, including one with the US Federal Reserve Bank.  What can be said about that?  Doesn't really matter what Janet Yellen says, computer trading programs react to any comment with buy programs boosting prices back up to the highs.  Usually the volume is so light that it leaves many scratching their heads.

Don't have the precise info in front of me, but reports have shown that Hedge Funds and Major Banks have been net sellers for the past 18 weeks, yet US stocks continue to hover close to the highs.  WHO'S BUYING?  is the big question.  Can't say that I actually know, but as mentioned last week, it had been reported that the group Anonymous hacked into the Federal Reserve trading accounts and found that it is the Fed that is accumulating massive positions in an effort to keep the markets up.  Other reports have speculated that should European markets continue lower, the ECB will be buying stocks aggressively.

It's wonderful when you "have money to burn."

We may never know until it's too late but if the Central Banks are truly buying stocks with money created out of thin air, can equities really have a value?

It is a bit disturbing if one considers the consequences.



CONTINUED LOW INTEREST RATES

There was a time when there was a correlation between interest rates and the stock market.  I first started blogging about it in 2005 when rates started moving lower while the market moved higher.

It got pretty crazy there for awhile but then rates and the markets did come back together and in a hurry!

Isn't it interesting that the SP 500 dropped dramatically to match up with the interest rate?  Notice the very strong correlation between the two until external forces began trying to repeal the market cycle.

"So where are we today?" you might ask.

It certainly looks very "discomforting."  Notice that rates are even lower now than when the market melted down in 2008-2009.

It seems to be understood that there will be "pain" when interest rates rise.  How much pain is hard to say.  Those who do not consider the fall out that will occur when rates do rise may suffer substantially.

While Central Banks fight the good fight to get things moving again, nothing really has seemed to work.  Many who study the world demographics will attest to the fact that many important populations around the globe are aging and are not spending at high enough levels to stimulate the economy.  Business formation continues to decline as increasing levels of regulation add to the cost burden of starting a business.  Yet just sitting on low interest rates much longer will have horrible consequences.  As we've seen recently, pension funds cannot operate in a zero interest rate world.  I read that the Teamster's pension amounts will have to be lowered to just $35 for each year worked, meaning that a worker who had put in 30 years will only be getting $1,000 a month in pension benefits.  Good luck with that!  Insurance companies cannot honor their obligations either.


INTERESTING TIMES AHEAD

As mentioned, the Fed will be meeting this week and then next week, the long awaited Brexit vote.  I can only ask, "what difference does it make?"  Not long ago, Greece held a vote to escape the clutches of the European Union and voted to exit.  What did the government do?  Nothing.

UK can vote to exit, but it won't matter.  The game will play on until one morning we wake up with the news.  GAME OVER!