Tuesday, March 8, 2016
Everything else is credit – Too Much Debt Pervades the Entire Global Financial System
Over the last three weeks, U.S. equity markets have recovered and are now more overbought than any time since 2009. While this is the case with equities, it is not the case with high yield debt. As I have said many times before, credit analysts actually look under the hood to discern the real situation and credit at this point is not buying the equity bounce/short squeeze. In fact, high yield credit spreads are rivalling the dark days of 2008.
The other area of interest since January is gold and silver. Gold and to a lesser extent silver are quite overbought short term. Many analysts in the “alternative” space have been recently cautioning that gold and the mining shares are about to be monkey hammered. Other than being overbought, we also have COT numbers showing the commercials very net short and the same setup as prior to previous waterfall events. So where do we go from here?
While we are very over bought short term, gold and silver are moving off of EXTREME OVERSOLD levels not seen in the last 18 years and possibly EVER! Let me explain this because it is more important to gold bulls than anything over these last 18 years. Looking at the chart below you will notice a “hook” at the very bottom right. This hook is occurring from the lowest levels for the MACD (moving average convergence divergence). The “hook” or crossover is coming at a time where gold and silver have been continually beaten down with paper contract for over four years. The apologists can argue all they want to but it is fact that physical demand has been strong and gotten stronger while supply has peaked and begun to shrink (particularly in silver). The “supply” over these years has been of the paper variety and hasn’t been real metal by any stretch. In fact, it is the nature of this naked shorting and selling that will lead to something far different than just a garden variety rise in the metals! Paper exchanges will become irrelevant shortly as physical exchanges are opening up and none as important as the one opening in China next month.