Saturday, June 5, 2010

Signals Still Point To Danger Ahead

This graph comes by way of the Financial Times (6/5/2010 edition). It represents a high level indication of where we are in the market presently. It does not paint a good picture to say the least. Across the board we are witnessing an increasing sensitivity to how volatiles markets can be. This observation is nothing new, yet market participants always (from time to time) ignore the warning sings. Hope is still being maintained; however, when all investors recognize the fact that the world major economies have been artificially propped up, a significant collapse is order.

That said, when that occurs, you should see a rise in prices in the secondary market for U.S. government debt. This provides a buffer to the Federal Reserve to print more money. While in the near term the Fed’s action may prop up the market, it is ultimately doomed.

Pay close attention to the graph of the price of copper. This commodity has been attributed as being the metal with a PhD in Economics, because it is highly correlated to the business cycle. An increase in the price of copper signifies higher demand for other higher order products, which is representative of a booming market. The opposite is true: a lower price signifies lower demand, which is indicative of a depressed market.

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