Global Market Analysis For This Week

EXECUTIVE SUMMARY

Strong Retail Sales – What Strong Retail Sales?

Retail sales have been strong. Right? If that is the case, then why are sales of 40% to 70% off the norm throughout the malls? Regular full price appears to be an endangered species. While recent Canadian retail sales numbers have not been bad since the 2008 financial crisis, the retail sector has underperformed previous periods. The same is being seen in the US, where retail sales growth, after peaking following the 2008 financial crisis, has since been on a steady downward decline. Job growth in the sector has supposedly been strong, but retail jobs tend to be tenuous, part time, low paying, and come with no benefits. Auto sales have led the way, but signs are that auto sales are slowing. The growth uptrend has been broken, although auto sales have not as yet broken down. Buying a new car is not a necessity.

Helicopter Money?

Money from helicopters. Sounds great, doesn’t it? Following years of NIRP, ZIRP and QE, what’s coming next may be helicopter money. Money just dropped from helicopters. The concept has been around for some time, first proposed by economic monetarist Milton Friedman. The aim is to boost the money supply, increase economic activity, and hopefully push inflation up. QE is a form of helicopter money whereby the central bank buys bonds from the market, giving it money to spend or loan out. Mostly, however, it has gone into speculation, fueling bubbles in stocks, bonds and real estate. Former Fed Chair Ben Bernanke has been in Japan working with the Shinzo Abe government on a scheme to float perpetual bonds – bonds with no maturity date, bonds in perpetuity. The government issues the bonds and the central bank buys them, putting money into the financial system, and the government spends the money on goods and services, hopefully creating jobs. Guaranteed income programs have also been discussed as a form of helicopter money. It’s a new world. Money dropped from helicopters. Whee!

The Brexit Won’t Go Away

The Brexit is not going to go away. The new, unelected PM, Theresa May, has put together her cabinet and appointed a no-nonsense austerity hawk as Chancellor of the Exchequer and a strong-arm Brexit hawk to head up the UK leaving the EU. The new Brexit hawk wants to get this done in a hurry. Theresa May wants tough negotiations and to take their time. The EU is in a hurry. Somebody isn’t going to get their way. The Brexit vote is non-binding, and only Parliament can approve. Parliament is divided, just like the populace. May has promised a UK approach to the Brexit. Scotland’s First Minister, Nicola Sturgeon, views this as a veto. The new Brexit hawk says no one has a veto. Scotland and Ireland may bolt from the UK if they don’t get their way. Law suits are underway in the courts. The young are restless, not liking either the Brexit or austerity. Street clashes may be inevitable. Oh wait, those already happened under former PM Cameron. Will the Brexit even happen?

Nice, Turkey and a Divided America

A demented man plowed a Mack truck into hundreds in Nice, France, killing dozens. He was declared an Islamic terrorist. A military coup happened in Turkey - except it was a failure. Going into the November elections, America is deeply divided. There is vitriol against the other side at new levels and violence on the street, with clashes with protestors and attacks on police. France responded to the Nice attack with renewed bombings in Iraq and Syria, and extending martial law for another three months. The failed military coup resulted in deaths and thousands arrested and detained, with further clampdowns on the press and others, martial law imposed and the President Erdogan firmly in charge, backed by the loyal military. Throughout all this, the markets yawned and moved higher. It’s a party. Party on.

Weekly Market Review

Stocks

The stock markets moved to new all-time highs. Well, at least the Dow Jones Industrials (DJI) and the S&P 500 (SPX). Too bad nothing else has confirmed it, not other major indices or numerous indicators. The advance has been narrow, with few stocks participating in the rally. Behind it was apparently central bank buying as a result of the Brexit. Central banks fear the markets going down. Throw money at it, and keep them up. But it is a short-lived game, and it usually ends badly. Once again we note the possible 90-year cycle of depressions. The S&P 500 may have some more upside, but volume is poor and it will be a struggle. Under 2,100, the S&P 500 could be in trouble. Under 1,990, a breakdown could well get underway.

Currencies

A story in the Wall Street Journal about the potential for the Fed to hike interest rates once again before year-end helped push the US$ Index to new highs. Talk of helicopter money helped push the Japanese yen sharply lower. Gold responded by falling. Is the US$ Index about to break out? It could, with higher targets. But a rising US$ is negative for China, and twice over the past year or so the Chinese have devalued the yuan. Each time the Chinese devalued the yuan, the US stock market tumbled. The US$ is moving higher. But watch the Chinese as to what they might do.

Gold and Precious Metals

Gold fell as the US$ rose and the Japanese yen fell. That is normal. Is a deeper correction for gold coming? We note a lot of positives that we have observed over the past several months since the gold rally got underway in December 2015. The conclusion is that gold could well be entering a new bull market. Corrections are healthy and normal. Gold may have formed an interesting head-and-shoulders bottom pattern. It potentially points to $1,560. Key, of course, is that the pattern doesn’t break, as some gold bears contend. We outline the danger points. Silver is also looking good, and the gold stocks have been especially strong. Things are looking good. But like the stock market, gold climbing a wall of worry is healthier than a market that goes straight up. 

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