Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

Stock Market - All Is Calm, All Is Not Right

Stock-Markets / Stock Markets 2016 Aug 27, 2016 - 05:48 AM GMT

By: Doug_Wakefield

Stock-Markets

With every passing year since 2008, support for the idea of free markets and open competition without constant intervention by central banks has been declining. The idea of trust your central banker to always “assist” the markets has lead the public at large into the false illusion that stocks can always be engineered to return to all time highs in the US, even if just reaching these levels recently. 


Take for instance today.  A few minutes before US markets opened, futures were flat across every major stock index. Then this headline appeared, and US stock indices jumped in the opening minutes of trading.

Remember, Yellen had not said anything.  Everything was merely a reaction by high speed computers to a small number of words in a headline, followed by short term traders looking for scalping opportunities, and the conventional long term investor who almost subconsciously or consciously has come to believe that “they” will “always” keep it up.  Constant intervention by the state (i.e. central bank) is good, right?

 

Why have an exit or sell strategy? Why believe that risk levels have risen substantially with price? There is always more central planning of markets that can be done….right?

Can systemic risk be removed merely by individuals placing their “faith” in more debt, more futures bought by central banks, and more high speed games that have replaced the long held idea that free markets and competition were better than “leave the driving” to central bankers. But does anyone really think this is the right road?

It is no longer 2009, 2011, or 2014. It is now August 2016. Where will we go from the current all time highs in August? The S&P 500’s current all time high is only 2.7% higher than its May 2015 high, and we had to go through 2 declines of more than 12% each to get here.

Why Seek Capitalism Anymore? Financial Socialism Can ‘Always’ Levitate My Stocks!  

The majority view is that this statement is too extreme. The minority view, while growing ever larger, is that this is exactly what we have and must continue to monitor.

If you are reading this article, you are thinking.  So let’s engage our brains.  

Why do we in the West think that state owned businesses in China are a bad model if we don’t see problems coming from the actions of central banks in  Japan, Europe, and the US? I forgot, these central banks are only “assisting” the markets on a temporary basis after almost 8 years. How could things possible get better with less debt and a declining role of the state, ie central banks?

As an American there are many reasons I had rather live in the US than China. However, if the European Central Bank prints up money to buy up bonds directly from a European corporation in a private placement, is that really much different than the People’s Bank of China continuing to make loans to massive state owned businesses?

In this short piece, we are going to look at Japan. Europe and the US will be discussed in the September issue of The Investor’s Mind released next week to subscribers.

This is not to discuss economic theory. This is to address the incredible challenge going forward for both bull and bear, and why we must all ask the question, “What dates and events are central banks using to continue to foster the image of ‘things are under our control.’”

This has now become as critical as fundamental and technical analysis.

Bank of Japan: Land of Rising Stock Ownership

 

Whether you are an investor, advisor, or corporate leader, understanding this massive shift in global finance since 2008 is key to surviving the next major bust, which is running way behind, and could happen any time at these levels.

Japan continues to lead the race in centrally planned markets. Back in April, Bloomberg released a piece called The Tokyo Whale in which it was revealed that the Bank of Japan’s “print more debt, buy morestocks” strategy had brought it to a level where it was a top 10 stockholder of more than 200 companies that make up the Nikkei 225.  

At the time, the article also stated that the Bank of Japan also used this strategy to buy up 55% of the Japanese Exchange Traded Funds. That’s right, the whale investor.

Now leap forward to this month. CLSA’s equity strategist for Japan, Nicolas Smith, wrote that the “BOJ is nationalizing the stock market”. Now let that sink in. Remember when one big insurance company called AIG was in such dire straits that it had to be nationalized?

U.S. To Take Over AIG in $85 Billion Bailout; Central Banks Inject Cash As Credit Dries Up, WSJ, Sept 16, 2008

If we are nationalizing a market in an attempt to make certain the bull fever never dies, what happens when big buyers don’t want to be left holding the bag, and gladly sell down their positions to the BoJ? If AIG plunged in 2008 and was then nationalized, what will happened to the Nikkei when it goes into its next “correction”? Remember, it has been nationalized for years by massive sums of debt created out of thin air.  

Akihiro Murakami, chief quantitative strategist for Japan at Nomura in Tokyo, stated this month in another Bloomberg article about the BOJ, that “if the Bank of Japan does not sell, then liquidity will disappear”.

Who in the future will be large enough to replace the Bank of Japan as the buyer of last resort in Japanese stocks? Does the chart below reveal that global investors have shown complete trust in the actions of the BoJ over the last year?

In my opinion, this global drama continues to wait on US equity markets at these all time highs, a watermark seen this month in 5 of the largest stock indices. Current records have only moved 2-3% above their 2015 highs.

 

The NASDAQ cannot flat line at its March 2000 high indefinitely. Will financial socialism come to the rescue very soon to extend the patient’s bull life, or is it down we go from the August “all time high” headlines?

If we replace free markets with state controlled markets are we not embracing socialism? Is this really a better option than free markets? Are you ready for the next big shift, or waiting for Yellen, Draghi, or Kuroda to signal you or your advisor when it is about to start?

Be a Contrarian, Remember Your History

What mind games must all investors, advisors, and money managers deal with in this global financial/political game we now live in? How does one combine dates and events, financial history, and technical and fundamental analysis in order to gain confidence in this game where we are lead to believe contrarians will never win, and central bankers have overcome gravity? Find out in the September issue of The Investor’s Mind, released next week.

Bulls become bears, and bears become bulls. Trends always end; always begin.

To gain access to the most up to date research, click here to start a six month subscription to The Investor’s Mind, and ongoing trading reports. 

On a Personal Note

Check out the posts at my personal blog, Living2024. The latest post is No Worries, “They” Will Keep It Up.

Doug Wakefield

President
Best Minds Inc. a Registered Investment Advisor
1104 Indian Ridge
Denton, Texas 76205
http://www.bestmindsinc.com/
doug@bestmindsinc.com
Phone - (940) 591 - 3000

Best Minds, Inc is a registered investment advisor that looks to the best minds in the world of finance and economics to seek a direction for our clients. To be a true advocate to our clients, we have found it necessary to go well beyond the norms in financial planning today. We are avid readers. In our study of the markets, we research general history, financial and economic history, fundamental and technical analysis, and mass and individual psychology

Doug Wakefield Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules