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Bad Economic Omens Hover Above Many Nations

By Hans Parisis
Wednesday, 25 Aug 2010 01:52 PM Current | Bio | Archive

Last week, I told you that the “Hindenburg Omen” (H.O.) is considered as confirmed if a second (or more) Hindenburg Omen signal occurs during a 36-day period from the first signal, which appeared on Aug. 12.

The “Hindenburg Omen” is a technical indicator that foreshadows (at a 25 percent accuracy rate) when a stock-market crash is in the offing. Its creator, a blind mathematician named Jim Miekka, says now his indicator is now predicting a market meltdown in September.

In the nine trading days that followed the first H.O. signal, we have noted three more H.O. signals occur, which should, at least in my opinion, trigger flashing red lights to investors that are still overweight in stocks.

There is no reason for panic so far but keep in mind the critical moment will be when prices dip below the lows we saw beginning in July.

Anyway, during these nine trading days that followed the first H.O. on Aug. 12, we have seen: the NYSE fall 2.92 percent; the S&P 500 slide 2.93 percent; the Dow Transports down 3.55 percent; the Dow Utilities gain 0.63 percent; gold gain 1.33 percent; copper fall 1.32 percent; the Pimco 20-years-plus U.S. Treasuries Zero Coupon ETF (Symbol: ZROZ) soar 13.69 percent; the Dollar Index rise 0.62 percent; the euro fall 1.52 percent; and the Japanese yen soar 2.29 percent.

Now, with so many talking about a bond bubble, I must immediately say “Don’t buy it.”

I want to remind you that in the middle of the 1990s, we noted similar outcries about the Japanese bond bubble, with betting on the collapse of Japanese bond prices, something that not has happened yet, even 15 years later.

Of course, the United States is not Japan and vice versa. Interestingly, we now see various “disinflating” signs like very low inflation expectations and high unemployment. American personal saving rates also are rising again.

Meanwhile, growth in the United States, and in other important parts in the world, has clearly started slowing once again as the “stimuli” have started showing signs of slowly losing their so-called sustainable stimulating effects on the real economy and the behavior of the American consumers. (We should see an important downward revision of second-quarter U.S. GDP on Friday.)

It seems that we are on our way to a new reality of spending and doing with less and not living beyond our means if no new stimuli are created.

We’ll have to wait and see what will happen. I certainly don’t expect wonders to happen. Deflation is the major challenge in the foreseeable future.

It’s also important to note that a double-dip scenario will occur, which I believe it will, if we have a “weak economy” (which is already here and will be in place for a long time to come) and a real “shock” that has still to happen.

But the shock doesn’t have to occur in the United States.

The United Kingdom, France, Germany, the Netherlands, Japan, Sweden, Italy, Switzerland, Spain, Belgium and Luxembourg have the real potential today to spread a crisis globally.

So, there is no lack of choice. Investors should be prepared for when the next crisis will be triggered.

So, what could an investor look for in this world of “unusual uncertainties” in most of the economies in the world?

Looking back to beginning of this year, we can see: the NYSE down 8.81 percent; the S&P 500 down 7.16 percent; the Dow Transports down 1.17 percent; the Dow Utilities down 2.63 percent; gold up 9.74 percent; copper down 4.23 percent; the Pimco 20-years-plus U.S. Treasuries Zero Coupon ETF up 35.61 percent; the Dollar Index up 7.27 percent; the euro down 12.39 percent; and the Japanese yen up 10.13 percent.

In clear English, the Pimco 20-years-plus U.S. Treasuries Zero Coupon ETF has delivered the stunning performance of a more than 35 percent gain so far this year.

From here on and forward, I really expect that the U.S. 30-year Treasury yields could further come down to yields of 2.5 percent or even 2 percent from the 3.57 percent where it stood yesterday.

Times have changed since more than a decade and “buy and hold” has proven to be bad investment policy.

I still believe that yields will go lower and they could stay there for a much longer time than most investors expect.

Of course, everybody does what he or she thinks is best.

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HansParisis
Last week, I told you that the Hindenburg Omen (H.O.) is considered as confirmed if a second (or more) Hindenburg Omen signal occurs during a 36-day period from the first signal, which appeared on Aug. 12. The Hindenburg Omen is a technical indicator that foreshadows...
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