Stock jitters, Gold and JPY still compressed

Gold and the yen each worked still lower this week on highly depressed sentiment readings. Each of these has had a negative relationship with the “risk trade” lately, falling as stocks have rebounded from their oversold and overbearish condition of mid-November. Now, stock sentiment has recovered to neutral territory, and traders are afraid of these sometime “safety trades.”

Trader opinion gold has been very low since late October, a full eight weeks ago. Every similar instance in the past several years has been followed by a substantial multi-week rally. That said, if the bull markets in precious metals and the yen are indeed over, we should expect downtrends to become more protracted, with sentiment remaining low for longer.

Here’s a 1-year daily chart of gold:

1-year daily JPYUSD:

I’m holding to a thesis that the risk trade is topping out here as the US slides into a recession that remains largely unrecognised. Tops are rarely sharp peaks, but consist of several months of choppy sideways action during which sentiment deteriorates from giddy to nervous and the VIX picks up even before prices have fallen substantially. I view the rebound since mid-November with that context, akin to the action of April-July 2011 or pretty much all of 2007.  Last nights mini flash crash in stock futures fits into that context of a increasingly jittery market.

We’re three months from the 4-year birthday of the (presumably) cyclical bull market. It is now older than most cyclical bulls within secular bears, though the last bull phase lasted from March 2003 to October 2007, 4.5 years.

Another cyclical bear and a recession and drop in corporate earnings may finally compress multiples to the investable levels required to build a solid base for another bear market. I don’t expect this to happen quickly, though, since prices have a long way to go before we see anything that can be called historically cheap. I wouldn’t be surprised to see stocks hold at or beneath current levels for the rest of this decade as inflation creeps in towards the end and boosts earnings, as happened during the latter stages of the last three secular bear markets (roughly the 1910s, ’30s, ’70s).

US already in recession? Hussman makes the case.

For those unfamiliar with John Hussman, I cannot offer high enough praise of this mutual fund manager for his prudent, long-term style of equity investing, and his actionable financial market and economic research. The man uses statistics better than anyone else I’m aware of in finance.

Lately, he has been making a strong case that the US entered recession in 2012, as shown by those indicators that, when viewed as a group, have a strong record of appearing at the start of recessions, and only at such times.

From his weekly market commentary:

While we continue to observe some noise and dispersion in various month-to-month economic reports, the growth courses of production, consumption, sales, income and new order activity remain relatively indistinguishable from what we observed at the start of the past two recessions. The chart below presents the Chicago Fed National Activity Index (3 month average), the CFNAI Diffusion Index (the percentage of respondents reporting improvement in conditions, less those reporting deterioration, plus half of those reporting unchanged conditions), and the year-over-year growth rates of new orders for capital goods excluding aircraft, real personal consumption, real retail and food service sales, and real personal income. All values are scaled in order to compare them on a single axis.

 

12.12. Fred recession data Hussman

Readers are strongly encouraged to read this week’s commentary in full and to browse Hussman’s archive here.

Retail: some perspective on the positive July figures

Advisorperspectives.com has assembled charts showing that, adjusted for inflation and population growth, sales have only half recovered from the last recession. Sales are comparable to those of a decade ago, which is probably a healthier level than what we experienced at the height of the credit boom: 

Click to View

Ron Paul starting strong in first debate

The first Republican debate of the 2012 US presidential election was held last night in South Carolina. I found this video of Ron Paul’s responses. Looks like he got a lot of time, unlike in the 2008 debates:

He also raised a million dollars online yesterday in the first of probably many moneybombs. He has never expected to win, but runs because the election is the best way to spread his message. The appearance of fellow libertarian Republican Gary Johnson this year is probably a direct result of Paul’s trailblazing.

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BTW, I post a lot on twitter under this account – some on the resources sector, some on the markets in general and whatever else I feel like: http://twitter.com/miningalmanac