Doctor Copper Becomes Doctor Plopper
Tuesday April 17, 2012 12:38
What economic phenomenon is most worrisome to Dr. Ben Bernanke? To view a picture of the answer, please click here now.
1. A higher oil price is Dr. Bernanke’s biggest fear, and I believe a new move higher is beginning right now.
2. David “SuperDave” Greenlaw is Morgan Stanley’s chief U.S. fixed income strategist. A number of Morgan Stanley’s top economists, including SuperDave, have issued substantial warnings that the American economy faces what they term a “fiscal cliff” in 2013.
3. There is talk of dividend tax hikes, the end of the Bush tax cut extensions, and it’s conceivable that both individuals and American corporations could enter the year 2013 with no idea what their tax rates will be for the year.
4. How much fiscal tightening are you facing in 2013? Well, Dave argues that the total amount of fiscal tightening will not be the “3.5% of GDP” number bandied about by many respected economists and by the congressional budget office.
5. He feels the American economy is facing a 5% hammer that will send America back into recession in 2013.
6. I agree, because if the Dow Jones Industrial Average had a chief economist, it would be “Doctor Copper”. The weekly chart of copper looks like a train wreck waiting to happen.
7. In my view, this chart “technically certifies” the superb fundamental analysis produced by SuperDave, who says, “Under current law, the US economy will experience a fiscal tightening of unprecedented magnitude at the end of this year.” If you like horror movies, you’ll love this copper chart. To view Dr. Copper’s horrifying forecast for the economy of America, please click here now.
8. That head and shoulders top pattern is ominous. Sadly, I think that for the intermediate term, Doctor Copper, both fundamentally and technically, is about to become Doctor Plopper.
9. The last time that the U.S. economy faced a fiscal tightening almost as big as what appears to be your coming 2012 Christmas present was in 1969, and America didn’t rise from those ashes until the 1980s.
10. Quite frankly, if the price of oil skyrockets, I don’t think SuperDave will want to imagine the magnitude of the American recession that he could be forecasting.
11. Probably the single most important question to be asked if the economy goes into severe recession in 2013 is; what are the ramifications of a new recession for the existing mountain of OTC derivative contracts? They look like a minefield of financial nuclear weapons with hair trigger detonation switches.
12. New OTC derivatives are cleared through professional clearing houses, but there are hundreds of trillions of existing OTC derivatives baggage that are cleared nowhere, and it’s unknown what happens if a new recession occurs.
13. The Dow has hesitated here, but it has not fallen. Please click here now. There’s a small head and shoulders top pattern that is forming, but note the position of the Stochastics oscillator and the MACD indicator.
14. They are both verging on crossover buy signals, telling you that the Dow could surge to a new high just as easily as it could break below 12,700.
15. How the Dow, and gold, move from here is likely to be determined by the action of the US Treasury bond. Please click here now. Note the small wedge pattern that I have highlighted.
16. Many technicians thought the bond market would decline strongly from the 139 price area. From there, a small decline took the bond down to the 136 area. The bond could have fallen further, but instead a substantial rally occurred, shocking the bears.
17. Look at the Stochastics indicator now. It’s rolling over, but it’s unknown what happens if the bond itself rolls over at this point in time and price, because the market sits in “analysis quagmire”.
18. After months of reports that showed an improving economy, the latest jobs report shredded the view that everything is fine, and happy times are here because it is an election year. Still, there simply hasn’t been enough data released to convince institutional money managers that the recovery has died.
19. When the bond first broke down, money managers believed it was because the economic news was so good that no further credit easing was required.
20. Now, they are less sure but not yet convinced that the recovery is dying.
21. Gold has been tracking the bond price. Please click here now. Gold seems to be attempting to establish a new uptrend, which I’ve highlighted with two trend line arrows.
22. My main concern is that I think most investors in the gold community are looking at the “super-wedge” pattern on the gold chart as something that will produce a violent move to the upside.
23. A vertical move could occur, but I think the most likely scenario is a “steady as she goes” plodding type of move towards $1800. Gold is your beacon of light in a crisis of darkness, but I still believe there are too many gamblers rushing to buy a perceived “breakout” each time gold moves higher to allow for that type of vertical move. If you are always long gold, and I always am, you will benefit from any vertical move, but I would suggest the focus should be away from a vertical move and towards the slow but growing buy programs of central banks that will support gold on price weakness, and ultimately revalue it thousands of dollars higher!
Thank-you
Cheers
st
SQUADRA
