You are in a bull market until proven otherwise. We are in a bull market and the question is when is the change coming?

This USA bull run started way back in 2009.

However, on a more current look the last attempt to decline was in Oct. 2014 when the S&P lost about 200 points over about 3 weeks. Then a slight wobble of 100 points in Dec and it has been a slow choppy rise to where we are today at all-time highs.  Will we go higher?  As you can see in the graph below the S&P is in a rising wedge which over time will resolve itself one way other the other.  There is a stronger probability that it will test the October 2014 lows (at worst) and then head back up, we will review if that comes. So, we would wait until this unfolds before entering or adding more to equities.

 

Japan….the economy is in an untenable position. Unless Japan open their borders and embrace change, both unlikely, their hopes to end 25 years of economic malaise rest with Abe-no-mics and massive money printing.  Abe’s three policy arrows have been largely rhetoric and designed to keep the status quo… strange as Abe did campaign on change and the future.  But, bearing in mind 40% of the voters are over the age of 60 why would they want any change quickly? Abe clearly has this in mind and not the future of Japan.  Difficult and costly choices need to be made by the Japanese people as the leaders will not do it.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As you can see in the chart above the Nikkei has taken 25 years to reach the top of its Bollinger band. (This is one of the more popular technical analysis techniques. The closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market.)

The real problem in Japan is the containment of the human spirt –  Japan needs to unleash this innovation once again — an example is as Richard Katz says “brands like Sony, Panasonic and Sharp continue to dominate in Japan – where not a single new market entrant of any significance has emerged since 1946. In the US by comparison, 8 of the top 21 consumer electronics hardware firms, including Cisco, did not even exist in 1970. In Japan, incumbents keep holding on.”  We believe the bureaucracy of Japan has a huge role in stifling this wonderful country.

A current example of the human spirt alive and well in Japan is the food and restaurant scene now available. Back in 1990 the only foreign food was a limited McDonald’s menu – today Tokyo has more Michelin stars than France. Good thing food bureaucracy is relatively low.

The Japanese market continues to rise but the gains now are very correlated with the direction of the Yen and that “easy rise” in the stock market has happened.  Going forward can companies in Japan make real profits that are not directly linked to the weakening Yen?

 

As a contrast; Australia

Source http://www.tradingeconomics.com/japan/corporate-profits

So what other markets are lined up for a correction?   Seems all are at or not far from mulit-year highs and my guess is the US market will lead, as whatever it does the rest of the worlds markets will follow — some more violently than others.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The chart above shows the US$ index, which is a measure of the value of the U.S. dollar relative to majority of its most significant trading partners.

As you can see from the chart the US$ is correcting downwards but this is a normal correction based on the fact the US has been posting some poor economic numbers but the chart is indicating the US$ index may fall to around 90 then turn back up as the US growth numbers, even poor, look better than the rest of the world.

Dollar/Yen

 

 

 

 

 

 

 

 

 

 

 

Recently we have seen 122 as a high (March 2015) and we have seen 118 (April 2015) as the low. The pair have been stuck in trading range. This reminds me of Jan 2014 to August 2014 when the pair was stuck in a range of 105 to 100.  The BOJ continues to do QQE: the Bank will purchase JGBs so that their amount outstanding will increase at an annual pace of about 50 trillion yen and the BOJ will increase the monetary base at an annual pace of about 60-70 trillion yen. In Addition the Bank will purchase ETFs and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual pace of 1 trillion yen and 30 billion yen respectively. So again we believe the Yen is stair stepping itself higher .. once 125 vs 1$ goes there is little resistance until 147. One should not hold Yen, unless there is a material change in BOJ policy. (Remember a ‘rising’ Yen is a weakening Yen.)

EUR/Dollar

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The fall of the Euro over the last several years from 160 in 2008 to a low of 104 in 2015 — it is only natural to see a bounce but the question is how high can that bounce be 115 or 120?  We doubt anything more than 120 if it can get there — Greece is still a huge issue which leads to Portugal, Spain, Italy and the rest of Europe. These issue have not been resolved and judging by the progress in Greece things can likely only get worse.

GBP

 

 

 

 

 

 

 

 

 

 

 

The Election in the UK produced a small Conservative majority win – this has given the Pound wind in its sails for now. The question is can Sterling keep these gains longer term.

 

AUD

 

 

 

 

 

 

 

 

 

 

 

 

Australia can still cut interest rates. Many believe this will happen especially in the face of falling commodity prices.  However the last rate cut was highly anticipated and factored in as the AUS$ rose after the cut. Australia can take on more debt as the government has low debt levels compared to its peers.  The other wild card for the Aussie is China as any stimulus China does has a direct effect on the Aussie economy of just about 24 million people — about the same as the Shanghai municipality.