Chaos reigns in the markets; US government is now in it’s 6th day of an on going shut down, it’s third this year, but certainly an indication of disfunction in Washington. Global growth prospects are dimming rapidly in China, Europe, Great Britain and the US, threatening a wave of defaults starting next year. US Consumer confidence declined in December, (the second month in a row), which may indicate a slow down in consumer spending. But perhaps the biggest threats to the markets in 2019 lies in the test of algorithmic trading.

Over 85% of all trading is generated by computer buy/sell models that use momentum as a key input. When you couple that with passive index ETFs, you get the herd affect. Which is awesome on the way up, but painful on the way down, where selling triggers additional selling, which triggers even more selling in what could be called a “Doom Loop”.

ETF derivatives gained prominence after the 2008 CDO derivative debacle. Studies by the IMF, BIS, FDIC and others, have shown how herding has supported liquidity evaporation and caused flash crashes, but, up until now, this has not been tested in a broad market. Neither has the global central banks QT (Quantitative Tightening) which is also removing market liquidity.

I believe markets being tested now and even though main street media is loath to come out and say it, their headlines say it best, “DOW, S&P on track for worst month since Feb. 2009 (the height of the 2007 crisis) and DOW, S&P having worst December since 1931 (the depression that lead to gold confiscation).

How low will markets go? Technical indicators are ugly. Trend lines indicate that the Nasdaq could drop 75% from its recent high and volume and volatility could be the catalyst for this move.

Markets want more QE (Quantitative Easing) free money and central banks may well give it to them when it gets scary enough, but recent experiences in China indicate that’s not likely to make a longer term impact.

So wall street has begun recommending gold, in the form of an intangible fiat GLD. In this way, investors perceive they own gold, but all they own is a contract and, in the meantime, wall street holds and controls the physical gold, which is the true flight to safety asset, since it is OUT of the fiat system.

Bottom line, we are now dealing with a liquidity issue. Fiat products have limited and at times, NO liquidity, but physical gold and silver are ALWAYS liquid. What do you trust?

  1. https://www.ft.com/content/c01707a0-08ba-11e9-9fe8-acdb36967cfc?segmentId=778a3b31-0eac-c57a-a529-d296f5da8125

https://www.ft.com/content/cdc9732c-051f-11e9-99df-6183d3002ee1

https://www.wsj.com/articles/behind-the-market-swoon-the-herdlike-behavior-of-computerized-trading-11545785641

  1. https://www.wsj.com/articles/behind-the-market-swoon-the-herdlike-behavior-of-computerized-trading-11545785641

https://www.bloomberg.com/news/articles/2018-12-27/billions-in-buybacks-no-match-for-bears-with-stocks-cratering?utm_source=google&utm_medium=bd&cmpId=google

  1. NA
  2. https://stockcharts.com/h-sc/ui
  3. https://stockcharts.com/freecharts/perf.php?$GOLD,$SILVER,$DJW

https://www.cnbc.com/2018/12/27/gold-markets-global-economy-us-politics-in-focus.htmlhttps://stockcharts.com/h-sc/ui

 

FOR YOUTUBE

12-27-18 IT HO HO HOLE: Don’t Let Your Wealth Disappear in 2019 By Lynette Zang

Chaos reigns in the markets; US government is now in it’s 6th day of an on going shut down, it’s third this year, but certainly an indication of disfunction in Washington. Global growth prospects are dimming rapidly in China, Europe, Great Britain and the US, threatening a wave of defaults starting next year. US Consumer confidence declined in December, (the second month in a row), which may indicate a slow down in consumer spending. But perhaps the biggest threats to the markets in 2019 lies in the test of algorithmic trading.

Bottom line, we are now dealing with a liquidity issue. Fiat products have limited and at times, NO liquidity, but physical gold and silver are ALWAYS liquid. What do you trust?