So
if the money supply has grown tenfold since the early
1970's, is it any wonder that stock prices have increased
fifteen fold? Since 1991 alone, the market capitalization
of the S&P 500 has increased by 500%, while the main
money aggregates have doubled. From 1970 to 1990, on the
other hand, stock prices measured by the S&P 500 index,
which accounts for 85% of the total market value of US
shares, had quadrupled while the money stock had also
quadrupled. Thus, it would seem that since 1990 every
dollar created by the Fed could propel stock prices with
the same potency as every 2-½ dollars used to. We would
argue, however, that the greater apparent efficacy of
monetary policy on stock prices in the nineties has more
to do with a broadening in the definition of money than
it does with the incalculable concept of productivity.
 |
 |
Are
we promoting erroneous facts or statistics? Nope. Are
we using statistics to mislead you? We haven't said much
yet. Are we making use of the shock value in the graphs
above to support our opening argument? Hell yes! Though
we don't need to do we? The argument is a basic truth.
Seriously, think it through, and then find someone who
can discredit it if you still aren't sure.
Productivity
cannot make stock prices go up any more than the invisible
hand can stimulate aggregate demand. Money makes the world
go 'round, remember? That means that for stock prices
to go up, the visible hand has got to reach into the wallet
and pull out a fresh bill, then hand it over to the broker
who gets to take a cut almost immediately as he puts the
money to work. If there is no money in the wallet, not
only will you not get past the receptionist, but also
stock prices will ignore your will too & no matter
how productive you've become at work.
Extreme
nonsense calls for extreme measures
The
choice to show you Agnico-Eagle's chart here is arbitrary.
Our goal is to highlight what is going on beneath the
surface in the gold shares that have minimal hedge book
exposure, and thus (off balance sheet) liability, against
their future production. We could have equally used Newmont,
but felt that the technicals stood out better here.
The
one below isn't bad either. Note the break out from the
elegant Head and Shoulders class bottom on the chart of
the XAU below. Furthermore, note that the last lowest
high preceding a new low was made in September at around
55. That's the reversal point for the down trend, which
began right after the Washington Agreement was first signed,
which could in turn infer a move back up to the 70 level
on a whisper. Shhhhhhh &
But
this stock sector will require a little more than a whisper
in order to turn the primary down trend around. We're
confident that it will get it. In the meantime, we've
got another question for you. Have a look at the close
up of the above breakout in the XAU below:
This
Week:
| >> |
Exploring the interaction between Fed policy and other market
variables today to those that existed in 1998 for
insight into some of the important differences |
| >> |
Are the bears about to strike a fatal blow at blue chip stock
markets? Undoubtedly. And we're going to highlight
the sectors that we feel are imminent breakdown candidates |
| >> |
One old Wall Street trading axiom holds that the stocks, and
stock sectors, which hold up best in a bear leg are
the ones that will lead the market out of the bear
leg |
| >> |
Despite collapsing global share values, recessing economies
& and with all of this talk about deflation and
government bond buybacks in the United States, how
can we interpret the relative inaction in the long
bond today? |
| >> |
Which way is the Dollar/Gold price going to go now & and
will US gold stocks outperform foreign gold stocks? |
Primary
Trend Reversals
There is a lot of talk about capitulation, oversold stock
markets, and too excessive pessimism. Unfortunately the
talk is geared toward looking for these characteristics.
Everyone is looking for a sign that the next sell off
is the capitulative one. Speculators are hurtin'
to make some money. And many of them are new to the business
of speculation. Our sense is that they have been sold
so many bottoms now that they are running out of excuses
to give to the rapidly aging credit manager at whichever
brokerage firm their dealings are with. And so far, there
really hasn't been any reprieve for them.
It
is our view that the Nasdaq Composite has now become oversold
& technology shares have been accelerating into no
bid. With the exceptions of Messrs. Galvin and Yardeni,
who are still allowed on TV to prospect for new accounts,
most analysts have now become afraid to call a bottom.
Note the volume peak in the Nasdaq Composite (above link)
in January, which suggests the potential for a real V
bottom in an environment where it seems as if there was
not a single buyer to be found. But don't get too excited,
for we don't see a real bottom in the broader market,
Nasdaq or otherwise, anywhere in sight.
In
fact, the S&P500, Wilshire 5000, and some of the European
markets are just now accelerating out of their rounding
tops and appear to have had little trouble in knocking
over key primary support levels on Monday. The TSE (Toronto
Stock Exchange) 300 is staring at fresh lows after painting
a beautiful Head & Shoulders top on the chart and
gapping beneath it. The Nikkei average is in a steep one-year
bear market, having made new multi year lows on media
misinformation and exaggerations of important political
developments. Folks, this is a real bear market &
and it has only begun.
There
is more... if you are already a member then you can enter
your username (email address) and password below... if
not, but you would like to know more, please consider
signing up for a subscription by clicking on "Subscribe
to The Goldenbar Report" below. For more information,
just go to the subscribers area by clicking on the Subscribers
button on the top frame.
