Global Market Analysis - 10/9/2016

The Economy is in Trouble

The US economy may be approaching its 28th consecutive quarter of growth from the end of the 2008-2009 recession, but all is not as it seems. Shadow Stats shows that, because of changes to the way GDP is calculated dating back to the 1980s, the US economy, instead of growing since 2000, has largely been trapped in a series of rolling recessions. According to Shadow Stats, the US economy is in its 45th consecutive quarter of negative growth. Stagnant income growth largely benefiting the top 20% of the working population; the collapsing labour force participation rate that results in a gross understatement of the real unemployment rate; a large army of part-time workers; many not counted as a part of the labour force just because they have been out of work a year or longer and are no longer counted; half the working population earning less than $30,000 annually; millennials burdened with record student loans and unable to form households as they cannot find the jobs; and a retiring baby boomer workforce, many of them unprepared for retirement, are just some of the reasons the US economy continues to underperform even as officialdom touts growth.

The Stock Market is in Trouble

By numerous measurements, the current US stock market is overvalued. The S&P 500 Case Shiller P/E ratio is at levels seen prior to the 2008 financial collapse; S&P 500 earnings are down from their highs and earnings growth has turned negative just as it did prior to the 2008 financial collapse; NYSE margin debt, while off its highs, remains historically high, even when compared to the levels seen prior to the 2000-2002 high tech/internet crash and the 2008 financial crash; and volume remains abnormally low for a bull market in stocks. All of these and others are pointing to potential trouble ahead for the stock markets, yet most are not paying attention.

Deutsche Bank (sigh) Again

Deutsche Bank (DB) cannot stay out of the news. Some believe it is technically bankrupt. There is concern about its huge derivatives portfolio, even as most likely under 10% and even under 5% of it is high concern. Derivatives are a notional amount, not a real amount like loans, yet many continue to quote its derivatives as if they were real loans and securities. Even so, credit default spreads on Deutsche Bank have soared back to highs seen earlier in the year. The risk for Deutsche Bank is its huge loan portfolio to other banks, particularly the insolvent Italian banking system, and loans to corporations in Eastern Europe, Ukraine and Russia.

Weekly Market Review


It’s October and something scary might happen in the markets. October is the month of crashes, but it is also the month of important bottoms. The S&P 500 continues to roll over, but it has not as yet broken down. The patterns remain negative, and a potential huge ascending wedge triangle points to the potential for the US stock markets to fall back to their January/February 2016 lows, near 1,800 for the S&P 500. We await a confirmation. We also look at the Bloomberg article that potentially points to a Trump victory in November.


If all is well in the bond markets, why is the TLT breaking down? It hasn’t fallen under its next support line yet, but the pattern suggests it should. Yields have been rising. Yes, there is more talk once again of a Fed rate hike at the December 2016 FOMC, although we find that difficult to believe, given the IMF has come out with a report that lowers the GDP growth forecasts for not only the US, but a number of other countries as well.


The US$ Index enjoyed an up week, but it was not because of a fall in the euro that constitutes 57.6% of the US$ Index. No, it was because of a sharp fall in the British pound over Brexit, and a sharp fall in the Japanese yen because the market wanted more QE. Both the US$ Index and the euro continue to trade in a neutral fashion within the context of their forming triangles. The break could come either way, or the US$ Index could just waffle through the apex of the triangle and continue its meandering.

Gold and Precious Metals 

It was the week from hell for gold, as someone on Tuesday, October 4, 2016 unloaded 1,000 tonnes of paper gold on the market at the open. Only large or official institutions could pull that off. Manipulation? Most certainly, but remember that manipulation is a part of all markets, and it works in both up and down markets. Still it came as a shock, and it took out weak longs as well as creating bit of a mini panic. Targets, however, are not that far away at around $1,240. Watch this Friday’s commercial COT for clues as to whether they covered some of their large short position on this plunge. The likelihood is yes. Gold and silver’s fundamentals remain strong, and Elliot wave counts suggest this is just a correction to the up wave that got underway back in December 2015, topping in July 2016. Sentiment indicators plunged to levels not seen since the lows of December 2015. 

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Disclosure: None.

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Chee Hin Teh 6 years ago Member's comment

Thanks for sharing your warning.