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Well not in the short term.
Last week I asked, against the backdrop of the melodramatic US debt ceiling shenanigans, was there anyone out there that cared because markets were ignoring the signals last week. Clearly many took heed of my question – but now they have all gone crazy and gone the other way and are over reacting – in the short term and for the wrong reasons.
All we need now is for love to come back and then all will be sweet again and everything forgotten and the US equity markets will continue higher:
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But my caveat is, there could be another few days before love and forgiveness returns. There are still maybe some more pots and pans to be thrown around the kitchen. So stay out of the heat of the kitchen for another few days maybe.
But after that we could see equity markets move higher – but just for a short time.
And in the meantime anyone who pushes gold higher in the next few days could have regrets because gold is now heading into overbought territory. Overbought markets can still go higher but why take the risk?
But really all this debate about debt ceiling and reduction will not address the underlying structural issues and these basically relate to the USA and other western economies having lived beyond their means for a long time. And the reality of this is still some way off. One does not have to be a bean counter or economist to see the recent debt agreement is just plugging the hole in the dyke. A bigger flood is developing throughout western economies with government debt rising as they have to cope with mounting health costs to keep the baby boomers alive for the next 30 years. Unless of course draconian measures are introduced – and that will challenge the ‘Y’ generation.
The streets of Asian capitals are teaming with Western bankers and governments seeking buyers for their debt paper. It is sort of a joke how the west lectures developing nations about how to run a country and because even the major recent developed nations are seen as unsophisticated they are excluded from high brow world economic bodies. But what developing nations know is that no matter wherever you are an individual, a business owner or a government – you need to balance the budget and square something away for the inevitable rainy day.
So in time this is what will happen to the USA equity markets:
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A decent pullback.
And gold will be back again.
These times are a traders dream
Enjoy the ride
Tom Scollon
Chief Analyst
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