2016 Market Preview – Part I

It’s been a wild month, and a busy one.   It’s convention season in Vancouver and elsewhere.  I’m finishing this issue at conference number four for me in the past 10 days.  That will be it for a month though so things should get back on track.

This is a long double issue.  I’d recommend a pot of coffee.  I’ve laid out my thoughts on what I think several markets and commodities will do this year.  That gives me a chance to be wrong on multiple levels.

It’s very much a mixed message.  I’m probably most comfortable about gold in the near term since I’m not comfortable about the upside of just about anything else until we see how a major market bottom will play out.  As I point out in the editorial subsections there are some other metals that look like they should do well but none of us should forget the impact of sentiment.  If we get into a crash phase of a bear market sentiment can overwhelm everything else, at least for a while.

I’m short term bearish but I think a bear market that resets some overvalued sectors and cleans out some mal-investment would be a good thing and I don’t expect it to last too long.  A real sustained rally in oil and or a policy reversal would be the biggest “risks” to the bear market scenario.  I don’t consider that likely, at least not soon enough to stop a bear market sized fall but if it does happen it would help most metals anyway.

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This is a long double issue.  I started out trying to cover as many markets/metals as I could in a single article but it soon became obvious that wouldn’t work.  I’ve split the editorials into a number of sections since the supply/demand picture for individual metals are quite different even though they all have the same dark clouds hovering over them.

This first section is more about equity markets and what will impact them.  My recent more bearish near term view hasn’t changed but there are a lot of moving parts.  Central banks are getting more active again which adds another layer of complexity since some of them are acting against each other’s interests, even if unintentionally.

It’s no secret to any of you that central banks have been front and center for this entire bull market.  ZIRP, QE and other forms of central banker largesse have kept the financial sector from imploding and bestowed bigger gains on that sector of the economy than any other.  I’m often accused of cynicism (with good reason) but even I don’t think this is a situation central bankers have any comfort with. This isn’t a case of central bankers helping bankster friends get ahead. 

I believe most central banks would love to cut the cord, step back, and let the markets find rational levels without them.  But, given the economic backdrop, deflationary forces and imbalances in the international financial system they are terrified to leave it to its own devices.  It’s that obvious fear on the part of central bankers as much as anything that has been making me bearish lately. 

Central bankers as a group are seeing things that trouble them greatly and I don’t see how you put a bullish spin on that. No one moves their national bank to negative interest rates unless they fear dramatically bad consequences if they don’t.   Ironically those that chastise the central bankers most should be fervently wishing they are getting things right.  If not…

I closed out the editorial in the last issue by commenting that I thought the NY markets were due to roll over again soon.  They did that in spades, and quickly.  No sooner had the calendar page flipped over than the selling started on bourses across the globe.

In the past couple of sessions we’ve had a nice bounce, as you can see from the right side of the SPX chart below.  The latest dip is one that can be (and is) interpreted differently depending on whether one is fundamentally bullish or bearish. 

Bulls see it as another successful test of levels that are comfortably above bear market territory. They believe it’s all about China or oil and that those will either bottom themselves or fade from traders consciousness. Falling oil prices are good and China is too small in terms of trade flows to matter.