In the Land of the Blind
by Brian Bloom, Beyond Neanderthal | May 6, 2010Print
The first five charts below are courtesy of http://au.finance.yahoo.com/intlindices?e=asia
All of them are showing signs of weakness.
The following is a summary of what they show:
|SSE||China||Sell signal at point (A) followed by an anemic rise followed by a retracement to below the falling two year trend line|
|DAX||Germany||Sell signal at point (B) when the rising wedge was penetrated on the downside. This was followed by a rise to a new high but the index is still below the resistance of the upper boundary of wedge. This is in context of a “double top” (2000 & 2008). i.e. The recent sell signal needs to be taken seriously|
|FTSE||UK||Sell signal at point (C) when the rising wedge was penetrated on the downside. This was followed by a rise to a new high but the index is still below the resistance of the upper boundary of wedge. The index has now fallen below its previous high. This is in context of a “double top” (2000 and 2008, not shown on this chart) i.e. The recent sell signal needs to be taken seriously|
|BOVESPA||Brazil||Breakdown from a strongly rising channel at point (D). This in context of a “double top” (2008 and 2010, not shown on this chart) i.e. The recent sell signal needs to be taken seriously|
|All Ords||Australia||Breakdown from both a rising wedge and below the lower support line of a strongly rising channel. This is in context of long term chart (not shown) which was showing exceptional strength relative to all the markets below except China|
The second last chart – courtesy of Bigcharts.com – shows the Dow Jones Industrial Index with volume on a weekly scale. It shows a breakdown from a rising wedge after prices had been rising on falling volume. The chart then moved higher that the previous (wedge) high – but also on low volume.
The last chart – also courtesy Bigcharts.com – shows the Dow Jones Industrial Index with volume on a daily scale. It has recently given sell signals in all three of the price chart, the MACD oscillator and the Relative Strength Index.
This analyst has taken the persistent – if sometimes contentious – position that the markets have been rising because investors have been assuming that a “greater fool” will buy at a higher price than they bought. Ultimately, the markets have been rising because of central bank funded, government driven, economic stimulus across the planet; and investors have been assuming that this will ultimately manifest in rampant inflation.
Ultimately, what drives markets higher in the longer term is “values”. Ultimately, what drives value is “wealth creation”. Ultimately, what drives wealth creation is “satisfying market needs”.
When you build buildings that remain unoccupied, when you give tax breaks which people use to pay down debt, when you invest in “shovel ready” infrastructure projects which serve no practical purpose, you are not adding value.
Further, when you go deeper into debt to borrow the money to finance this type of mal-investment, what you are really doing is destroying wealth.
We need to stop kidding ourselves and face the realities of life. The core issue facing the world economy is that energy per capita – which drives all wealth creation activity – has flattened and is now heading south. The failure of the US and Australia to ratify the Kyoto protocols in 1998 had the effect of blocking the march to market of new energy paradigms to replace fossil fuels. We are now playing catch-up.
The US public debt as at last night was $12.9 trillion. Exactly one year ago it was $11.2 trillion (source: http://www.treasurydirect.gov/NP/NPGateway ). Only a moron will argue that this is sustainable. The party is over.
When one goes deeper into debt one becomes poorer, not richer. The sell signals being given on markets across the planet are not being caused by the disintegration of the EU. They are being caused by a slowly dawning recognition by investors that growth in values is what drives growth in prices and that the governments of the world have been taking politically popular decisions which, at the end of the day, have been contributing to a destruction of wealth.
The solutions to our problems lie in genuine wealth creation activity, driven by the markets, responded to by entrepreneurs and facilitated by the abundant availability of (low cost) energy.
“Energy” holds the key. That’s where we should be focusing.
Having said this, there can be no quick fixes or silver bullets. Neither can anyone be allowed to “corner the market” in energy. Ultimately, it’s precisely because the market in oil was “cornered” flowing from decisions dating back to 1917 (and the dissolution of the Ottoman Empire), that we are now witnessing these particular sell signals. The world has passed Peak Oil and we have been caught flat footed because the oil and coal lobbies were happy to maintain the status quo – which is why the US and Australia did not ratify Kyoto. In maintaining the status quo, the door was opened to “management” of the economy by the bankers. They thought they could print their way out of the economic problems. This opened the door to greed, graft and corruption.
But, at the end of the day, in a democracy, the government is voted in by the people. We have no one to blame but ourselves.
Final Note: I am currently working on the manuscript of my second factional novel which will have Nuclear Fission energy as its core theme. Via the medium of its entertaining storyline, it will communicate some of the “real” issues which underlie the nuclear story. It is proving to be a highly complex and time consuming task but my research has given rise to some surprising conclusions; some good and some not so good. It is my expectation that the manuscript will be ready in approximately 9-12 months time. It may be regarded as a ‘prequel’ to Beyond Neanderthal.