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Long Trend View

Long Trend View

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Published by Bruce Lawrence
A quick look over long term trading strategy
A quick look over long term trading strategy

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Published by: Bruce Lawrence on Jul 20, 2011
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01/16/2012

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July 16,2011
³Give me a place to stand, and I will move the Earth.´ Archimedes
The first thing I do when trying to look for investment or trading ideas in the exchangetrade markets is look for a place to stand. What is out there that I can confidently use a base belief from which to judge all the moving parts of the global economy and markets.This seems to be especially necessary in the current circumstances.December of 2008 I started with a very strong belief that the Fed would maintain thezero interest rate (zirp) policy until the 2010 legislative elections at a minimum. That bedrock belief at the time served me well as a starting point for developing a marketstrategy.That is no longer a solid base from which to drive ideas but finding a replacement isproving a challenge. I began by scanning through the charts and here are three gave me a base view I believe is solid.Gold: This chart goes back 2 years but the real uptrend goes back much further than asthe 2
nd
chart shows. The lower chart begins in the late 1800¶s with $16 up to $1562 peroz. This chart is a log chart and each grid line is a double in price. That is an uptrend!
 
This next chart is the ADXY or Asian Dollar Index comprised of a number of prominent asia-pacific currencies. The chart is in a strong steady uptrend andalmost perfectly matches the 2 year Gold chart. ADXY Index
The third solid trend is the relentless strength of the Swiss Franc over the dollar and theEuro.
The common denominator among these three is that they all are alternatives to the USD ,Euro, and Yen bloc ofof developed market currencies that have served as the maintrading currencies for the last decade and a half. The developed world currencies aresteadily being debased as a backdoor mechanism for dealing with poisonous levels of debt. Devaluation and inflation are the tools of choice for cowardly politicians Wealth isseeking asylum and Gold and the Swiss have historically filled that roll and now theemergence of Asia economies and un-indebted currencies promises to add a little growthto a non dollar/euro portfolio.I do not see the anti US/Euro currency sentiment changing in any material way given thespinelessness of the current political leadership in Europeand the US. Until the
equivalent
 
of a Volcker backed by the resolve of a Reagan emerges in western politics these 3 trends willcontinue. Proof of the spreading doubts about the value of fiat currencies backed by promisesfrom dissolute legislators and toothless central bankers is visible in the next chart. Decliningofficial global gold reserves which declined for 40 years have turned up. Non US and Europeangovernments are now accumulating gold in their reserve portfolios. These counties are forgoingcurrent interest income in order to protect the real purchasing power of their national savings.Central bankers and treasurers are the most inside of insiders and they are voting with their feet.
The simple approach taking advantage of this data is to buy gold. A reasonable strategy.But there are negatives. First even though the strong gold trend has been pronouncedsince Nixon took the dollar off of the gold standard, there still have been long periods of flat or correcting prices which provide no return. A second negative is that gold must besold in order to realize any gains since it has no cash flow to the holder.The Swiss currency does offer a small interest return but is at risk of political attempt to protect Swiss industry by weakening the historic prudence of Swiss monetary authorities.In fact this past year the Swiss Central Bank took billions of dollars in losses as it tried tohold down the value of the CHF. Such behavior is a worrying crack in the foundations of CHF integrity.The ADXY Index offers up some interesting possibilities. Comprised of CNY, HKD,INR, IDR, KRW, MYR, PHP, SGD, TWD, THB the index is therefore still a product back by fiat paper currencies with the attendant risks of all paper money. The differenceis in the fiscal, debt, and growth circumstances of economies. Over 60% of the global population is in this region and yet only around 25 to 30% of global capital is invested

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