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July 8, 2009 / Jeb

Another Deflationary Scare is Amongst Us.

At the end of June I mentioned the market indexes look weak.  Federal Reserve Chairman Ben Bernanke said the risk of deflation was behind us.  He spoke too fast…

Unemployment numbers are close to 10%, consumer confidence is low, banks are not lending out free money and VP Biden is already speaking of another stimulus.

The market is showing us that another deflationary scare is amongst us.  Base metals are reversing, emerging markets and gold are correcting and the Yen is soaring as well as long term treasuries.  At the moment cash is king.

GLD

This is the long term chart of gold and it appears gold will correct to the $850 level.  Mining stocks are acting poorly.  This coupled with the breakout of the yen and long term treasuries are telling me to protect my investments and wait for another opportunity.

GLD

Good support has been missing since the previous top and the previous break above the 50 day moving average showed little support.  Now it appears to be making a head and shoulders pattern.  Until I see more bullish support I will be in other markets.

Take a look at the FXY.GLD

There was a major transfer of assets today.  It appears that a new trend may be developing.  The Japanese Yen is the reverse carry trade or what I call a the “fear of margin and borrowing.”  Money is drying up, governments are printing but banks are not lending.  Until the economy recovers deflation will be the prominent fear.  Stay tuned.

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