A Risk Off Week

It’s an easy call this week. With everything down except T-Bonds, it was a risk-off week. While gold would normally be expected to rise in a risk-off week, keep in mind that last week T-Bonds (TLT) was down a whopping 3.06% while gold was up 1.41%. Gold remains the number one go-to market for safety. For the year, gold is up 27.56% and TLT is up 20.55%.

Was this week’s decline in the equity markets the start of a connect with a global economic depression? While the Trump Administration crows about the bounce back in the economy, from the COVID-19 shutdowns, what is being ignored is the fact that even before the pandemic, problems were arising having nothing to do with the pandemic but with a globally overindebted, sick, dollar-based system.

On my radio show last week, Alasdair Macleod talked about how there is no way of escaping a major banking crisis with the globally systemically important banks (G-SIBS). Listen here: https://tinyurl.com/y2muquw2, as he explains. Now Michael Oliver provides confirming evidence in his charts on your left, showing the Vanguard Financials Index Fund ETF (VFH) comprised of: JPMorgan, Berkshire Hathaway, Bank of America, Black Rock, American Express, and Citibank, among others. Michael stated: “Like the S&P 500, it has crashed early this year and has since rallied. But its rally has been anemic on both price and momentum charts. MSA still argues that this situation continues to argue for darkness. Among the sectors, financials and especially banks have had the Fed at their back, yet they’ve remained anemic. The clock is ticking on this rally. And if the bubble has in fact peaked for the narrow internet and information technology leaders such as AAPL and AMZN, then their downturn will join with the ongoing negatives that are already evident in this key sector. 

Michael said that “on an intermediate basis,” with a decline to $59.50 for VFH you could assume the rally is over. It closed on Friday at $61.77. If you can cut through all the propaganda from the politicians and focus on the facts, the global economy is a badly hurting overindebted mess that will require untold trillions upon trillions of newly created currency. No wonder China is reportedly planning to continue reducing its holdings of dollars and move toward a digital currency, according to local news outlet Global Times. Gold and gold shares relaxed a bit this week. But given the financial mess the world is in, I can’t see any reason not to believe we are continuing in the bull market of a lifetime.

About Jay Taylor