MBO 2017 Annual Issue: Bold Predictions on Currencies, Gold, Bonds and Stock Markets

Last year I posted my year 2016 predictions on various financial markets and it was very well received. Instead of doing it occasionally, I am making it part of the Market Bias Observer newsletter this year. Enjoy!

Content

• Scorecard for My 2016 Predictions
• Nothing Happens Independently
• Currencies Heading Towards a Vortex
• Gold Two Opposite Scenarios in Play
• Portfolio Pyramid from Last 30 Years Is Toxic
• Stock Markets Not Suitable for Casual Investors
• Conclusion

Scorecard for My 2016 Predictions

I posted my predictions for year 2016 back on Dec 30th 2015.

First market I commented on is the US stock market,

“Several things go in favour of a strong rally in the US stock markets but I say those factors do not matter.

The main issue is that the third year after last US Presidential Election, which is year 2015, is a wash so far. This outcome alone has very high correlation with another year going nowhere, at least up to the day for which election result is know. This means we can expect the US stock market will be going nowhere into November 2016.”

Well, that’s pretty much what happened to S&P500 until November isn’t it?

Next, I talked about Euro, for which the section title says it all,

“Euro Will Be Forced To Go Lower In A Very Volatile Fashion Consistent With Other Bear Markets”

Again, no matter what the central banks had tried this year or whatever jawboning tricks they have done including no less than sudden midnight announcements, Euro simply cannot sustain any continuation after spike up upon these events. By now, hopefully, the government officials should learn their lessons that they cannot manipulate the markets when the dominating force is not on their side.

Last one I commented on was gold, using GLD as the proxy,

“The pattern highlighted in green is a falling wedge. Once the wedge breaks to the upside, we can expect a very volatile rally back up to at least the start of the wedge. This puts 130 area in play.”

This prediction panned out so precisely as if I were the person who orchestrated the move.

I have to humbly say that I am in no position with such market moving power to produce the outcome we have seen. My predictions are just observations based on my theory on price discovery for which certain market conditions can lead to predictable outcomes. People in general may be irrational with their decision makings. In aggregation, however, the consequences from crowd behaviours can be quite predictable, as we have witnessed this year.

Nothing Happens Independently

Majority of investors only focus on a few markets that they are interested in. It works well during time when the world is stable economically and politically. A trader does not need to consider the effects of other major markets as the fluctuations in those other markets do not produce significant price driving forces affecting the ones the trader trade.

However, during times of worldwide uncertainties economically and / or politically, the price swings in important markets around the world produce strong price moving forces one can no longer ignore.

For example, when US dollar is gaining strength across the board, commodity prices, including gold and crude oil, cannot move higher easily as they are all priced in US dollar. In other words, even if a commodity has every reasons to go higher, from fundamental supply demand forces to technical price driving factors, it may still stuck at certain ceiling price level and fails to move higher beyond that.

When these major markets around the world started moving significantly within very short period of time, they also disrupt normal business activities around the world as international trades depends on stability in exchange rates and production capacities. Sudden swings in crude oil prices can affect the textile industry around the world as many garments are made from by-products coming from crude oil. Yet, the long term effects are not felt until after several months later.

In short, nothing in this world really moving in price independently from the other markets. Everything affects everything else. Price shocks in one market can now easily interfere, if not outright control, the immediate direction of price movements in many other markets at the same time.

With this understanding, one can see the future price movements in all the major markets are sets of possible scenarios, as oppose to each market having its own independent potential outcome. It is something that we have to pay a lot of attention to in year 2017.

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