I was recently talking to James Mound, Founder of Futures Press Inc. We started talking about current market conditions and why he thought a majority of the "predictions" he was hearing were pretty far off base. I must admit he had some good points and I asked if he would do a guest post to address some of the issues. Take a look and be sure to comment with your thoughts. If you like what you see be sure to visit James here.
I apologize in advance if this particular report offends any analysts or traders as it is not my intention. I am here to tell it like it is, and right now many of the pundits have it DEAD WRONG about the future of the stock market, the dollar, bonds and commodity prices.
The world’s financial industries – currencies, interest rates, stocks, real estate and commodities – are all being driven by one critical issue. That issue is confidence. If you can predict the future track of investor confidence you might be able to forecast these critical industries and that is what I am going to do right now.
First, what is this confidence thing all about?
ECONOMIC CONDITION > CONFIDENCE LEVEL > RISK PROFILE > INVESTMENT GOAL > PROSPERITY > STABLE CONFIDENCE >RISK TAKING > OPTIMIZE RETURNS > RECESSION/DEPRESSION > CONFIDENCE COLLAPSE > FEAR/PANIC > ASSET PRESERVATION > RECOVERY > UNSTABLE CONFIDENCE > SELECTIVE RISK TAKING > SEEK INVESTMENT OPPORTUNITY
During periods of growth and prosperity confidence is not the critical component to the financial world. When things are good, so to speak, investors focus on taking risk because the psychology is that it is not whether you will make money but rather how to make the best return possible. When things are in a freefall, like the markets experienced in 2008, investors are in panic mode and confidence is shattered. This condition removes confidence and the panic psychology seeks out safe havens and brings trepidation to opportunistic investment decisions. When things are in a period of recovery, which many believe we are currently in, psychology shifts to one of seeking support for an investment decision.
Investors are coming out of the woodwork to seek out investment opportunities with the potential for solid returns. However, that trepidation from the freefall period is not entirely out of sight or mind. Therefore, during periods of recovery confidence becomes the driver behind many of the financial trends that take place. Allow me to illustrate this point.
In May 2010 the ‘Flash Crash’ brought the Dow crumbling nearly 1000 points in just a matter of minutes, landing a devastating blow to investor confidence in the stock market. During this confidence collapse where did investors flock? To the Japanese Yen – so much so that the yen had one of the largest 1 day rallies in history!
During the Greece economic panic money flooded out of the Euro currency as confidence in the Euro as a unified currency structure was disappearing by the second. Where did investors run? To the U.S. dollar and the Japanese Yen where confidence in the stability of those respective currencies remained significantly stronger than that of the Euro.
The list goes on, but the story remains the same – confidence is key during economic recovery and that confidence can turn on a dime when fundamental events occur.
In 2010 the world experienced the beginning of a major currency shift. Currency trends tend to come over long time periods – recent U.S. dollar trends have been between 3-7 years. These longer term trends tend to have volatile short term price action followed by periods of congestion or mild trending channels. However during a global currency shift it is likely to become a bit more of a tug-o-war as nearly every currency experiences its own internal supply/demand shift while being affected by multiple other currency shifts at the same time. In the end this tug-o-war is often won by currencies supported by the strongest underlying confidence amongst investors. In Europe the confidence continues to evaporate based on continuing economic uncertainty amongst its member countries. In Japan the yen has experienced an epic rally, one that may continue but will likely see diminishing global investment as the perceived value of the yen is reduced because of its strong gains. The U.S. dollar, however, is a different story altogether.
The U.S. dollar will continue to be a perceived safe-haven currency play because of one main underlying factor – confidence created by monetary policy leadership. The fear of investors throughout the world does not necessarily stem from poor monetary policy, but rather an insufficient or complete lack of initiatives. Inaction stimulates fear but action creates confidence. The U.S. is leading the action to stimulate a recovery, regardless of whether or not that action is ideal. This means that during periods of panic or declining confidence investors will probably flock to dollars. The dollar will lead the way to 4 critical events affecting commodities, stocks, bonds and inflation.
Best wishes for a happy, healthy and wealthy 2011,
Futures Press Inc.
This and more is included in the 2011 MEGA Commodity Forecast, currently available to INO readers prior to its January 6th release for 50% off. James is also including a premium 2011 Commodity Wall Calendar from Futures Press as a special free bonus ($24.95 value).
Visit here to take advantage of this promotion and get immediate access to Jame's critical report of the 4 biggest financial forecasts for 2011 along with specific price predictions for: Energies, Metals, Grains, Softs, Meats, Stock Indices, Bonds and Currencies.
14 thoughts on “What is this confidence thing all about?”
As my mentor taught me, "The stock markets are 100% psychology."
The confidence is coming from the market emotion. At the moment, for a number of reasons there seems to be a positive sentiment around the world and therefore we are seeing unexpected confidence. The key question is, is this sentiment backed by real growth (jobs/consumer spending) or is it just on the back of government spending and printing more money. Unfortunately, the fundamentals are still week and therefore I see this confidence as a short term thing only. I hope people don't get complacent and make risky investments.
To Your Wealth!
What you say makes sense to but how do you know when the bug money is going to sell or buy. Do you watch the DOW or volumn or what. You make it sound easy but you don't say anything substantial. Of course we should buy and sell with the big money and we should also buy low and sell high but it is easily said and hardly done. Thanks to candlesticks and market club I have been making a little money but it would be nice to make more.
hey forex traders dont you see that the 81 level on the us dollar index is a major fibbanacci level? it is the longer term 50% fib, we are hitting 81 right now as i write jan 6 , 6;03 pm pacific time
Confidence has nothing to do with it. If it did we never would have fallen from 12,000 to 6,469. You have to let the market dictate where your investment should be. If you didn't get out at 12,000 and back in at 6,600 and then back up to 11,250 then you just simply don't know what you are doing. There are people who forecasted these things in writing well in advance. I know one who did. They could care less about fundamentals, which is what most of you guys are talking about. Wake up guys, look at the market in a different way. It's all about tracking Big Money. If your on the same side as Billion dollar purchases then you purchase. If you are on the side of Billion dollar sales, you sell. By the time you get fudamentals Big Money has already bought or sold. When they do something the market is going to go that direction. The key is knowing where Big Money is going to sell or buy. That's all plain and simple.
“confidence created by monetary policy leadership”
I have no confidence for the monetary policy of the QE money printing currencies as USD, YEN, GBP and the Euro's bad structure. I have no confidence in the stock market since valuations are high and future looks bleak. I understand why people buy gold, silver, oil, etc, but prices are now so high I don't have confidence in them either.
I have confidence in no debt and balanced budgets and reasonable high interest rates, at least dubble the inflation rate.
The only promising sign I see today is that bonds are trending lower and interest rates goes up in the USA. Maybe a little hope that the new congress will at least reduce the defecit, it would be fantastic if they could balance the budget and start paying down debt.
I would have confidence if debt was payed and budgets balanced and bad banks and bad debtors goes bankroupt. It feels very shaky trying to build a recovery on bad debt and money printing.
Nothing feels safe today.
I can't agree with Mr Mound.
No individual, company, or country can continue to spend more than they earn beyond the point of being able to pay back the loans to the people, businesses or countries that have lent them the money to get to that very sharp point.
The US is tip toeing down the knife edge path to either Stagflation or outright Hyperinflation...it is only a matter of time before they are shackled with most likely a much worse variation of the Dirty 30's.
The US currently has had the status of reserve currency for most of the world's countries due to the US's post WWII untouched infrastructure and (up to 71/72) gold backed dollar that was un-fixed by Tricky Dick Nixon. Without that golden link to reality, off balance sheet accounting and QE (I, II, +?) has allowed for some very creative accounting in the US of A. and other countries where floating currencies have tended to sink any desire for saving.
Did anyone else feel the financial earth shake a few weeks ago when China and Russia chose NOT to use US dollars for exchange...or when the head of the world bank suggested gold be included in consideration for a new reserve currency...or, as happened to me for the first time ever, when my bank (TD Canada Trust) suggested purchasing gold as an option for a store of value.
Any run to the US dollar is not a flight to security, it is a bet that there is a bigger fool out there...my bet is that very soon there won't be.
Yes Jeff is right, when we face a global melt down like we did from 2008 to present; gold is looked at as a safe haven. But putting Gold aside, I feel that what James is saying is true! The stock market is nothing more than an emotional roller coaster, from the large investors. They drive prices up then down, then down and up. And that’s what James is saying, a large amount of money is shifted around from US dollars, Yen and the Euro as emotions of fear or confidence drives the large investors.
The best thing to do is to do what market club is teaching us to do! Take your emotions out and fallow a trading plain, if it’s the trading triangles then follow them, if you designed your own trading plan then fallow it. You need a trading plan that tells you the emotions of the large investors, because if you trade by your emotions, your emotions may not be the same as the large investors.
I’ll like to say thank you to everyone at Market club, for all of your information you share with us is sooooooo VALUABLE! I know that I would be years behind on my trading skills, if it wasn’t for all that you do! I’ll be a member of Market club forever!
James, I'm not a negative guy but this is not Marketclub stuff. Jeff cmments are so right...you lost all credibility when you talked about CONFIDENCE created by MONETARY POLICY leadership. My goodness James....what leadership? The entire global ship is sinking and leadership is flat out lying to us. While i agree that it is nice to keep it simple (i.e. a one word cause of the global issue (confidence))...it is flat out so much more. Should i bring up all of the interrelated issues that are causing our current global economy to fall apart. Interesting that you don't discuss debt. The USA taking on such a debt load sure gives me a lot of confidence....Jobs, foreclosure (where is the leadership that is holding banks accountable to what they have done), mbs security fraud, greed, bailouts, and the list continues on and on. The Titanic is sinking and will finally sink. I hate it, but it is the truth. Wish our leadership would tell us the truth....then i might gain some confidence....
James, you need to rethink what you write...
This is no proof of confidence in the economy, the Federal government, or the gangsters that manipulate the stock market. We all know of the corruption in the above. Spending billions of printed money will raise the price of stocks, and that has been unable to raise the market. The volume is extremely low over the past year. Take a look at the average volume over the past three years. No amount will raise the worth of our US bonds. That is a total lack of confidence. Bonds are money as well and traded as such, they are dropping daily. I can only conclude that there is no trust based on these facts or the authors Gold has risen in a non-inflationary enviornment, this is not normally the case, as we are seeing falling prices, deflation, a good example is the value received vs. the current price of computers, automobiles and home prices, which will continue to drop for years. Central bankers and bankers have manipulated metal prices for years as a way to earn income in both directions. Before the creation of a central bank, this country did have a tax system. Look at the value of the dollar since this private bank took over. This scam is not new, and seen in the past. Our pensions and worth has been taken by the bankers, buying on the cheap. This profit never goes back to the national treasury. Now the same people will encourage you to buy and make them richer. They boost of their profit. No they were give trillions to bail them out, our worth, our loss is their gain. Does that give anyone out there confidence? Did the treasury send you a check to cover your losses? Did the government send you millions of dollars to invest and pay it back when you made billions? If you believe any of this BS, which even a child could figure out, jump right in and make them richer. "Thank you very much" ELVIS P
Either way, it is pretty safe to assume that buy and hold is not something that will even be considered until new highs are reached in the stock markets, it's whether or not the us dollar weakens this as a play or not. Trading volatility is more likely a better ploy at times like these, in any market
James says in regards to the $US: "confidence created by monetary policy leadership." Does he suggest that the more the US borrows and artificially stimulates the economy the higher the $US will go? If that is the case, then why has the $US fallen over the past few years while the US goes into record debt?
One could agrue that the rise in the price of gold is largely due to the lack of "confidence" in fiat currency. James doesn't mention gold as a safe haven.
"confidence created by monetary policy leadership"! your guest blogger writes. I can't believe how a grown man, even if he has only a rudimentary knowledge of the results of US Monetary Policy, could make such a blatantly incorrect statement.
JOBS........ JOBS.......... JOBS!
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