Saturday, February 6, 2016

The Bell is Ringing

There is a saying that 'nobody rings a bell at the start of a bear market'. But I think a bell is ringing.

The bell is the action of the Japanese Yen. Despite the best intentions of the Japanese govt. and Japanese central bank the yen will not stay down. Japan has one of the highest levels of govt. debt in the world, and they are the worlds third largest economy, second only to the U.S. and China. And China's banks are known to have little in the way of reserves as a slowdown appears to be worsening in that country. The Chinese yuan is falling, the yen is rising, and the U.S. dollar is falling as there dawns the expectation that the central bank of the world, the Fed, will have to put a rate rise on hold or risk a collapse in world markets. It remains to be seen if they can bring themselves to recognize this state of affairs. World debt levels have only risen since the last great financial crisis. And we appear to be on the cusp of another.

Gold, metals, and emerging markets in general have seen relative strength in the last few days. Perhaps on the prospect of a weaker dollar and debt that is easier to repay.

The China problem appears like it will precipitate a Japanese problem. I don't know how it will end, but I must say I have a sense of foreboding.
The Chinese have a cultural affinity for gold. Gold has been flowing to the east for some time now. See this well documented by Jesse at Jesses Café .

See also this great article The Big Reset.

I conclude with these charts.

May you weather the storm.

Control risk,

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