There has been a lot of discussion, in the US markets, over recent days, about the so called Hindenburg Omen. Basically, it means that there have been a record number of stocks in the Dow 30 hitting 52 week highs, at the same time as a record number hitting 52 week lows. Its a technical indicator, which has accompanied every sizable market crash. But, not every time there has been such an Hindenburg Omen has seen a crash. Its just one technical indicator suggesting that there is trouble ahead. I mentioned recently that the markets had also seen an instance of the so called Death Cross, where the 50 day moving average crosses the 200 day moving average in a downward direction. In addition, some traders have been pointing to action in the Futures market that point to a very serious event occurring in September, but serious good or bad is not clear.
In general, as I've said before, I pay little attention to these technical indicators, which are a bit like the casting of the runes. Trying to predict what is going to happen on a financial market, on the basis of similar patterns in the past, seems to me a Fools Errand, because financial markets are driven by psychology. The only time technical indicators can play any kind of useful role is to the extent that they confirm fundamentals. That gives more reason to believe that there is trouble ahead, because the fundamentals are not looking good.
The US recovery has stalled, and the ramifications of that, in the US housing market, are also showing their effect. The US has been pressuring its European Capitalist partners and competitors to stimulate their economies, in order to ensure that a global recovery is maintained. But, right-wing populist Governments in Europe are doing the opposite. Meanwhile in China, the government, concerned about too rapid growth, is taking action to slow it down. Altogether, the conditions for a sustained recovery are being systematically undermined.
I was reading, today, an old article, from 1981, about the role of Gold as world currency, and the way in which competition between the US and European and Japanese Capital, played out in the struggle between the dollar and gold to fill the role as world money. The article I thought was spot on, in that it pointed out that Paper Money could only fill the role of Gold as means of payment so long as there was no crisis. Once a crisis arises people realise that paper money has no real value, but Gold does, so they demand Gold. In the 1960's and 70's, US Imperialism was strong enough that, not only could it make it illegal for US citizens to own Gold, but it could force other countries to accept its diktat of what the dollar value of Gold was - set at $35 an ounce at Bretton Woods. It was the crisis of the 1970's that blew that apart, and led to the dollar price of Gold rising to $850 an ounce in 1980. During the 1980's, US imperialism reasserted its hegemony, and on the back of Monetary tightening, the price of Gold fell back during the Long Wave downturn, bottoming at $250 an ounce in 1999.
Despite what many people see as continued manipulation of the Gold market, to keep its price down - of which Gordon Brown's decision to sell of some of Britain's Gold reserves was a part - it now stands at five times that level, and many traders think its going to rise much more. That in itself is an indication that all is not well in the global Capitalist economy. But, there is a difference today from the situation in the 1970's or 1980, when the price went up by 1700%. Then the global economy was just coming to the end of a Long Wave Boom, and the problems of the time were an indication of that. Today, the world economy is only in the beginnings of a new Long Wave Boom. The problems faced by the US, UK and other European economies, and Japan, are a symptom of the measures they took to smooth the way through the Long Wave downturn, and the restructuring of global capitalism that occurred during that period i.e. the shift towards China and Asia. To see those problems as anything more than they are, and worse, to focus on the problems of those countries, rather than to recognise the continued, and growing economic strength of China and other Asian economies, is to be guilty of a terribly shortsighted US/Eurocentrism.
Its just been announced that China has passed Japan to become the world's second largest economy, and on present trends will pass the US within the next decade. Its not alone, India is growing rapidly too, and on some bases, has the potential for a more sustained growth model than China. China and Japan are forming a dual hub of a wheel of bilateral trade agreements with countries all over the world, particularly in Latin America and Africa, that are beginning to lay the basis for a decoupling from dependence on the US and Europe, for their further economic advance. The main consequence of an economic crisis now will be to rapidly enhance the economic, and therefore, also, the political and military power, throughout the globe, of China, and those Asian economies that are increasingly drawn within its orbit. That is one reason the US is desperate to avoid such a crisis. The fact that its erstwhile partners, in Europe, are heading in the opposite direction, is no doubt one of the reasons that all those traders in the US have the jitters and are seeing their worst fears hiding around every corner, and in the omens at the bottom of every teacup.
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