I always like to say that if the layman was to ask a financial markets person in public about their outlook it would invariably be rosy. Ask them in private they would paint a totally opposite picture, especially today. Now I hate to be a conspiracy theorist but with all the manipulation of currency, credit and equity markets is it any wonder we haven’t seen a sustained market correction yet. How often do we hear authorities talk of ‘supporting’ markets? ‘Supporting’ is nothing but a euphemism for ‘manipulation’. What is wrong with markets finding a natural level? If banksters were behind this type of activity the regulator would jail them for life.
The Bank of Japan (BoJ) is now 60% of the ETF market and in a few years if it keeps going will become the largest shareholder of Japan’s blue chips. Yes, Japan will be a market of State-owned Enterprises (SOE). The BoJ is also owner of over 40% of the national debt courtesy of the currency printing press (made by Komori (6349) – which saw its share price quadruple and profits move from an Y8bn loss in 2011 to an Y8bn profit since Abenomics started).
I used to follow a recently departed sage by the name of Richard Russell. He had written a daily on the US markets for over 60 years. Every day. One signal he always looked to as one to determine bear market formation was if the Dow Jones Transport (TRAN) Index couldn’t reach new highs at the same time as the Dow Jones Industrial Average (DJIA) Index. Looking over the past 40 years, the trend has been accurate. If we examine the tech bubble collapse and the GFC, note that the shaded areas mark the final highs of the DJIA but no confirmation by the TRAN. What followed was the DJIA falling by c. 40% and c.55%.
Scrolling forward to today, once again we see the DJIA making new highs but TRAN hasn’t made a new high since Dec 2014. As I pointed out at the start of the year, Gold was one of the worst performing assets relative to overpriced equities and now one of the best performers. The market is quickly coming to the realisation that the authorities are losing the battle and no matter how they sugar coat the language the eroding confidence is showing.