Dear PGM Capital blog readers,
In this weekend’s blog edition we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of January 9, 2017:
- The Dow Jones Industrial ended the week in the red.
- Gold and Treasuries ended the week in the green
DOW JONES INDUSTRIAL ENDED THE WEEK IN THE RED:
The week of January 9th 2017, marked the first full week of trading and the last full week of president Obama as the 44th president of the USA, because on coming Friday, January 20, president elect Mr. Donald Trump, will be inaugurated as the 45th president of the USA.
During this week we saw signs, that Wall Street’s post-election honeymoon with president elect Donald Trump could well be ending, and with it, the historic two-and-a half-month uptrend that pushed the Dow Jones Industrial Average from 17,888.28 points on November 4, 2016, to within a point of 20,000, on Friday, January 6 this year, as can be seen from below chart.
Due to this post election rally, valuations of US stocks are stretched, which brought Investors in US securities with an aggressive bullish position, over their toes.
Due to this they are watching Q4-2016 earnings releases and the Outlook for 2017 very carefully, any disappointment could unleash a torrent of pent up selling pressure and cast a pall on Trump’s first weeks in office.
GOLD AND TREASURIES ENDED THE WEEK IN THE GREEN:
Based on the above, the breadth of the USA equity markets continues to deteriorate and evidence of buying activity in safe haven assets – Treasury bonds and gold – is rising.
As can be seen from below chart, Gold futures are on the rise again from the post Trump election bottom of December 15, 2016 and are challenging the US$1,200-an-ounce level and have crossed up over their 50-day moving average for the first time since the first week of November.
Based on fear and uncertainties investors appetite in US-Treasuries has increased, with a decrease of the yield of the 10-year note, from its high of December 16, 2016, as can be seen from below chart.
It is worth mentioning the yield of bond and its price has an inverse relationship; so when one goes up, the other goes down, which means that soaring yield of the 10-year note from November 4 – December 16, 2016, was a consequence of declining bond prices as a consequence of a sell-off.
On the other hand a decline from the yield of the 10-year note from December 16 up to now, is due to a increase of its price due to renewed interest in it.
PGM CAPITAL ANALYSIS AND COMMENTS:
We believe that the valuations of US-Securities are stretched into bubble territory and that the plans of president elect Mr. Trump, have all the ingredients to put inflation on the rise, with rising interest rates as a consequence.
This in combination with a huge national debt of almost 20 Trillion US-Dollars, which Mr. Trump will inherit from president Barack Obama, has all the ingredients in triggering a hard recession, stagflation period like we have seen in the early eighties.
In larger terms, many phenomena we see correspond to the so-called “long-wave” theory of Russian economist Nikolai Kondratiev, who studied long trends in economic life, characterizing them as seasons.
A Kondratiev “winter,” according to his theory, is characterized by stagnant growth, among other things.
Analysts who use Kondratiev’s theory identify the world as presently experiencing a Kondratiev winter.
This case would only be strengthened by the advent of higher inflation, with the consequence that investors will seek the safety of Gold and other precious metals as a protection.
Until next week.
Yours sincerely,
Eric Panneflek