Hello all, I have been working on an idea for a while and it seems to me the market is trying to confirm that idea - deflation is our primary concern, not inflation. This is such a concern for me, I thought I ought to bring it to the broader investment communities attention and am doing so through this TradingView platform. The chart here is a comparison of the US Dollar index (DXY) the spread between the TLT/TIPS and one popular Inflation proxy of late (Bitcoins). One could use the price of gold or Bitcoins, they basically look the same. So what are some of the messages we can draw from the market's price action? 1. The US Dollar has turned dramatically higher over the summer. Double bottoms within double bottoms suggested rally and that has what has happened. 2. The spread between the Inflation protected US government bonds and non-protected US government bonds has gone negative suggesting investors are not willing to pay a premium for inflation protection. A negative reading would go so far as to imply deflationary expectations as the inflation premium will actually cost you. 3. One inflation proxy (in this case Bitcoin) has a very solid market structure top working that coincides with the US Dollar Index's bottom.
So put it all together and I think we are getting one clear message. That message is a cautionary one - keep in mind, the US Dollar index is considered the market;s 'fear' proxy and from what I can see, investors do have a bit to be fearful of at the moment. From an economic perspective, Europe has been and continues to languish. At the same time the prospects for more easy monetary policy (QE) from the US Federal Reserve Board appear to be diminishing. That is understandable considering the US stock market is at or near all time highs. The problem here is that these two economic drivers are dangerous when we look out into the future. If stocks are at all time highs and the Fed wants to take away the punch bowl, does that not imply a lot of risk? From a Geo-political perspective, the world is a rather 'hot' place at the moment and only looks to be getting 'hotter' From the typical Middle east concerns to saber rattling in the South China Sea, to an all out civil war on Europe's doorstep in Ukraine, one could argue there is very good reason for the market to rather fearful at the moment. The problem too with current Geo-political situation is there appears to be no leadership coming from the West. Obama is basically a lame duck and the American electorate doesn't seem to have the appetite for direct US involvement. Lets hope it doesn't take another 9/11 to change their minds.
So with all this said please take this cautionary note when going forward. If you are heavily invested in stocks then maybe buying a Put option might be wise ( a little insurance never hurts). If you are new to the market consider waiting until we get on the other side of this typically tough time of year (September is historically the worst performing month on average) before considering purchases. If you just don't know what to do, maybe is a good time just to stay out...
Hope this analysis helps in your trading decisions and best of luck, Brian aka The Rational Investor
p.s. if you are serious about working on your trading skills and may actually consider trading for a living, please take a moment and visit our Bitcoin related trading site at therationalinvestor.co Along with regular blog posts and member videos, we run a school to teach aspiring traders the basic essentials to trading for profit over the long term. From risk management, to strategic planning to crafting a personalized trading plan, our 12 week program's aim is to give you the tools needed to survive and prosper over the long term.
Komen
SunnyEvening
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yes that's true thank you for your words and comments
MarvinMartian
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A better word of caution to investors...
You're "investing" (long) in BTC? Are you serious?
If you think you are a chart trader, and you can't see the OBVIOUS manipulation of BTC, you are not a TA.
I mean, would you give me $10,000 to invest for you, and then hear back each day... It's worth 9000 today, it's worth 11,000 today, it's worth 8500 today, etc? Same thing, you are giving basically an algorithmic trading bot, your money to play with.
Now, if you are playing the sawtooth... carry on =) I know I am.
If you want an algo trading bot, message me.
MarvinMartian
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Downvote me, but I'm a programmer and dev in the crypto community, I've had a hand in making some of those bots you meatbags are trading against. And I've been trading in Forex since BEFORE the crash, not like these newbs. Plenty of MT4 programming experience way before crypto was even thought of.
There are STABLE markets and there are INSTABLE markets. This is WILDLY instable.
CRInvestor
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lol total
CRInvestor
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Couldn't agree more. Interestingly, when I first got started with my Bitcoin adventure last fall/winter I would make the exact same argument to the tech zealots- Main street simply can not consider using BTC as an alternative to 'fiat' because of it's volatility. Interesting too, I built a BTC oriented business and as an experiment priced the first offering in BTC - boy was that a mistake...lol...
Sadly, you seem to have missed the whole point of this post. Regardless of it BTC, gold, property, bonds, stocks...whatever, this is a very very risky market at the moment and both my classic 'fear' proxy (DXY) and my inflation/deflation gauge (TLT/TIP spread) are confirming that notion....Please don't insult me (or this post) with your grandiose trading statements, I have over 20 years trading/brokering experience, I am more than comfortable with my skill set and trading/investing ability. if you have an idea publish it, don't waist your time being critical of my posts, if you don't like....don't read....
BStewart1984
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Thank you for your graph above and discussion points. Gold and certain types of property could do well in deflation. Cash might also be good but there is the risk of bail outs/in, confiscation. Your thoughts?
CRInvestor
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As long as the Fed can print money (ie market accepts more QE's) then the Fed will do more QE's if the market tanks. If the Fed does not need to do more QE's (ie market does not crash) then they will continue to curtail programs. My hunch is market will break and they will need to do more QE's. One could argue a rallying US Dollar gives the Fed lots of wiggle room to work with. The market is saying 'its ok to do more QE, please don't stop'..... at what time does the Fed listen, usually they are a lagging indicator meaning they only act after they have to...
LudmilaHanania
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This will work out as long as the USD is the currency, Saddam and Gaddafi were both executed because they started selling oil in other currencies , now it is on a different level with Russia , China and the rest of the BRICS doing business in their own currencies, one day soon the printing press will not be able to do the job. One of the best traders ever, who was featured in Market wizards who i got to meet during a private 2 day training he did for 10 attendees a few years ago, told me to get all money out of the USD and put it in Palladium coins and Norwegian Kroner for the long term.
CRInvestor
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ah, who was that? I luv Schwager's work. Palladium, why not Lithium :0) far greater profit margins, I luv the rare earths too...lol
LudmilaHanania
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Russian Ballerina Palladium coins, bought at an average of $350 , some serious $ amount, i am still holding to them, todays price for these coins is over $1200 in MS70 or PR69. He predicted Palladium will take the old $1200 high from the early 2000s , dwindling supply and Russia being the main producer. On cash I have been earning 3.5% in NOK , though I missed all the rally in the stock market because I was not a believer and still not. It was trader Vic, Victor Sperandeo, he is one of a kind , and a very down to earth person whom i was fortunate to learn the way he thinks .