Market GPS

We often fall into the trap of telling the markets what to do, instead of listening to what they, the markets, are telling us. To be able to listen and analyse correctly what they are saying, is quite the challenge. (Sort of reminds me of the game of golf). In order to analyse correctly, we need to accept that markets move in trends, mostly long term trends. Recognition of a trend is the secret to intelligent investing. Easier said than done. Not everybody is a Buffet or Gates, so I look for different indications and then try to recognise the trend (s). Interpretation of these indicators are difficult and thats why we have different "expert" opinions. I will take a shot at it and lets see what happens.......

1.The banks all claim to have massive liquidity and are ready to make loans, but according to them, there is no demand for these loans. Nonsense. The banks all have unknown amounts of  possible bad debts, and while this situation continues, they will not be making loans. An indication of when the economy is turning the corner,will be when banks initiate credit. (And believe me, they know how to do this).

2.Because of the trade imbalance between Western economies and the developing world, a currency war is in progress. In order to be competitive most countries are either devaluing their currency or preventing their currency from strengthening. The only "Honest" currency is gold. Gold is not a paper currency that can be printed. Supply and demand of the metal is worldwide and cannot be manipulated by individual (and not so honest) governments and central bankers. The price of gold is an indicator of the true value of paper currencies (and the dishonesty of politicians who arrogantly claim that gold has no intrinsic value, while at the same time vie for power by creating budget deficits). Gold has been in an upward long term trend for many years.

3.The demise of the debt bubble has created a huge hole in the world economy. There are different estimations of how deep this hole is. The US administration is trying to fill this hole by printing paper money (debt) at the rate of a trillion dollars a year. The debt is now so huge that the ONLY way to repay it, is by repaying with devalued dollars (less valuable). As the US currency devalues, prices of commodities and assets denominated in USD (metals, agriculture, energy etc.) will rise, having a domino effect on markets.
So, two more major indicators are the USD measured against a basket of currencies (check  www.kitco.com) and the Dow Jones Index of stocks.

In future posts, we will try to analyse these, and other indicators, to try and get an idea of  what the markets are telling us.

H