Whiplash and Motion Sickness…
Monday, 16 March 2020
By Bernd Struben
- QE Down Under
- Dirty opportunists
- Video update
‘We simply don’t know how long or how severe the disruptions could be. What we do know is that gold preserves wealth in times of crisis better than any asset in history.’
Port Phillip Publishing founder, Dan Denning
‘Whiplash’, complained an analyst mate who’d been tracking Friday’s market action.
‘Motion sickness’, said another friend. ‘Maybe traders can get a discount on Dramamine now that the cruise ships have stopped sailing.’
Marginal analogies aside, they had a point.
While I was writing Friday’s Port Phillip Insider, the ASX 200 went from a loss of more than 8% to finish the day up 4.4%.
The 13.7% rally from its intraday low is unprecedented. And it demonstrates the soaring level of uncertainty investors are grappling with.
Can we expect the same from the ASX today?
By the time you read this you’ll have your answer. It certainly started out on a similar path. The index lost 7.0% within 20 minutes of the opening bell only to recover to a ‘mere’ 4.0% loss an hour later.
But a repeat of Friday’s miracle rally is looking highly unlikely. At 3pm AEDT, the ASX 200 is down 7.8%. And futures in US markets are plumbing the basement.
One thing’s for sure, if equity markets do continue to trend lower over the coming weeks we won’t be able to blame the central banks.
They’ve come out with all guns blazing.
Across the Ditch, the Reserve Bank of New Zealand slashed interest rates by 0.75%. That brings the Kiwi’s official rate to a rock bottom 0.25%.
The US Fed had a bit more room to cut. And they used it.
More, after the markets…
Over the weekend, the Dow Jones Industrial Average closed up 1,985.00 points, or 9.36%.
The S&P 500 closed up 230.38 points, or 9.29%.
In Europe the Euro Stoxx 50 Index closed up 40.79 points, or 1.60%. Meanwhile, the FTSE 100 gained 2.46%, and Germany’s DAX closed up 70.95 points, or 0.77%.
In Asian markets Japan’s Nikkei 225 is up 7.33 points, or 0.04%. China’s CSI 300 is down 1.44%.
The S&P/ASX 200 is down 413.19 points, or 7.78%.
West Texas Intermediate crude oil is US$30.67 per barrel. Brent crude is US$32.39 per barrel. That puts WTI down 49.9% since we rang in the New Year.
In a move to support domestic producers and top up its Strategic Petroleum Reserve at bargain prices, the US is poised to buy 77 million barrels of oil. Or more than US$2 billion worth.
This will be welcome news to the industry. Yet, with global travel and trade restrictions hammering demand and the Saudis and Russians pumping near capacity, crude could still well slip lower from here.
Turning to gold, the yellow metal is trading for US$1,555.90 (AU$2,520.08) per troy ounce. Silver is US$14.80 (AU$23.97) per troy ounce. That’s a small loss for gold in US dollars since Friday. But a small gain in Aussie dollars, as our currency continues to droop.
One bitcoin is worth US$5,373.30. That’s down another 7.5% since Friday. The last time bitcoin traded at these prices was back in April 2019. It then went on a tear, topping US$12,500 by June.
What can you expect from bitcoin in 2020? Find out here.
The Aussie dollar is worth 61.74 US cents.
QE Down Under
Yesterday, overnight our time, the Fed slashed rates by 1.0%. The official US rate now sits in the 0.00–0.25% target range.
And the Fed didn’t stop there. The bank also announced a fresh US$700 billion (AU$1.1 trillion) bond-buying splurge.
As for the RBA, its next official rate decision meeting isn’t until 7 April. But the rumour mill has it we can expect another cut well before then. Of course, with the cash rate already at a record low 0.50%, a rate cut alone won’t deliver much of a kick.
Which means QE is coming Down Under.
As my good mate Dan Denning pointed out this morning:
‘It’s a veritable wall of money — a combination of interest rates, stimulus, quantitative easing and even “helicopter money” deposited directly into your account.’
Now, all this easy money is meant to help businesses and consumers get through the worst economic fallout from the coronavirus closures. It’s not meant to be the new normal.
But Dan warns that may not be the case.
‘If history is any guide, it will be very hard to “normalise” monetary policy no matter what happens with the coronavirus in the next few months. Once inflation leaks into the real economy, prices for everything begin to rise dramatically. It is a difficult process to reverse.’
Most developed nations have been trying, and failing, to stoke inflation to their target levels for years now. But once this virus is contained and life returns to something like normal, the new wall of money unleashed by governments and central banks could see inflation take off.
That would usher in higher nominal interest rates, which would put a lot of indebted businesses under pressure. But real interest rates (nominal rates minus inflation) would likely remain low.
And that, according to Dan, could be another big tailwind for gold.
‘[Gold] could be headed much higher in the coming months. It’s a combination of low real interest rates, higher inflation expectations, a premium attached to the gold price, and much higher real inflation.’
You can rest assured that gold, and the companies that hunt for it, will be among the hot topics in tomorrow night’s ‘Market Crisis Summit’.
That takes place at 7pm AEDT, Tuesday 17 March. You’ll receive a link to the briefing. Be sure to tune in.
With the world gearing up its war against the coronavirus, global governments appear to be taking the opportunity to up their own war against cash.
This headline comes from Bloomberg, ‘Fear of Virus-Tainted Dollars Opens New Front in War on Cash’.
And this one comes from The Australian, ‘Cashless payments “help stop spread” of coronavirus’. The article continues:
‘[University of NSW microbiology professor Peter…] White said a shift towards cashless payments during the outbreak of the coronavirus in Australia would be “much safer” because “no one touching anything is a good thing”.’
Regular readers will know we’ve long sounded the alarm on the more insidious aspects of a cash ban.
Those include a total loss of privacy in your daily transactions. The inability to make transactions in case of power outages. And an essential loss of control of your own wealth.
With interest rates in the US now at zero and rates in Australia likely to fall to 0.25% sooner than later, the renewed media attention on potential cash bans shouldn’t go unheeded.
Because the only way to get rates even lower is to drive them into the negative. And so long as you and I have good old cash to fall back on, that plan doesn’t work very well. But once it’s all digital your money will be trapped in the banking system, subject to the interest rates of the day…whatever those may be.
With that said, perhaps temporarily switching over to cashless payments where possible does make sound medical sense. Just like pressing elevator buttons with your elbow may be in order. Before washing your elbow…
But the key word here is temporarily.
Keep an eye on how the Aussie government plays this one. Remember, the government moved to ban most cash transactions over $10k before the virus broke out.
If cash bans are encouraged during the height of the virus impact, those same bans could remain in place to discourage tax evasion once the virus threat fades and the massive taxpayer funded stimulus bills come due.
Governments are great at implementing new rules, especially in times of crisis.
But history shows they’re not so good at repealing those rules once the dust settles.
Video update…equity market crash
Below veteran stock trader Murray Dawes share’s his latest trading tips and insights.
In his premium advisory service, Alpha Wave Trader, Murray uses his proprietary ‘slingshot method’ to hunt down rapid fire profits from stocks while minimising risk. And in today’s markets, minimising risk is what it’s all about.
Today, Murray looks at the crash in equity markets…and how he plans to play it.
Scroll down and click on the image below to watch Murray’s latest video now.
For more about the edge Murray offers active traders over at Alpha Wave Trader, click here.
[Click on the picture above to see Murray’s analysis of the crash in world markets. He also shows you why he thinks gold is going to start rallying again soon.]
In my ‘Week Ahead’ video update last week, I outlined the risk that prices could collapse.
Fast forward one week and we have the E-mini S&P 500 locked limit down in the overnight market. The US Fed threw the kitchen sink at the market in the hope it would arrest the slide, but it appears the market has taken fright.
If you would like to learn more about the theory behind my way of analysing price action, you will be sent an invitation on Wednesday to be part of a trading workshop put together by Simon Munton and I.
You need to register to be a part of it. But you will be given the chance to watch the videos at your leisure for a limited time if you do miss the actual sessions, which start from Saturday, 21 March.
There will be four videos provided outlining various aspects of my trading system, so make sure you register.
We are seeing something extraordinary unfold in the markets right now.
I have never seen the market slide so fast from an all-time high. It is history in the making.
But the interesting thing about it is that prices are still respecting the key support and resistance zones on the way down.
Last week I gave you targets to 2,450–2,590, which was the buy zone of the wave up since late 2018.
Prices had a vicious bounce out of that area on Friday night, but are once again sliding.
In the video above I give you the key line in the sand below the market, where things could go nuclear. If that level is broken I could see another 20% drop in prices from here.
But as long as the support doesn’t give way, I am searching for opportunities to get long on this next wave of selling early in the week.
I think gold is the key commodity to watch. We are seeing strong selling because many market players are being forced to raise cash levels to cover margin calls etc.
Once that wave of selling is done, I think the market will refocus on the fact interest rates are staying near zero for longer than anyone thought, and QE is starting up again.
That is an environment where gold shines. I show you a quick analysis in the video above.
Editor, Pivot Trader