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THE REAPER MARKET COMMENTS
Prepared by R.E. McMaster, Jr.
General Market Comments
Fundamentals, technicals, market psychology, and my turning point work are all causing me to focus on this shift toward the precious metals. My first turning point falls August 27-28, right in the time frame of the Labor Day anniversary turning point for precious metals and many other financial markets. The U.S. Dollar has been king of the hill since early 1995. It is now challenging levels last seen in late 1986. Is this a unique situation? The U.S. economy is the strongest globally. U.S. real interest rates are the highest worldwide. There are currency crises in Europe as the EMU tries to bring about the Euro, and in the Far East in Thailand, Malaysia, Singapore, Indonesia, and to a lesser extent, Australia and New Zealand. The Asians were affected by the financial collapse in Thailand, which just received a $16 billion IMF bail-out. But the European and Asian currency crises are not going to continue forever. Nor is the U.S. Dollar going to grow to the sky, nor is the stock market going to rally to the moon. A soaring U.S. Dollar cuts back U.S. exports and hurts the earnings of the big Dow companies. This is negative for the stock market. In addition, T-bonds topped as expected between 116-117 resistance, tumbling all the way to 112. An intermediate high has been made in December T-bonds. Also, while no one was looking, both the CRB Index and the Goldman Sachs Cash Commodity Index made a spike low, an island reversal bottom on July 21. These commodity indexes have moved higher and consolidated their gains since then. Energy has strengthened. Corn went limit up on the surprisingly bullish August 12 USDA Crop report. So, a shift is underway. Are the central bankers now finding deflation? For deflation to really take hold, the September U.S. Dollar Index will have to close on wide range and heavy volume above 106, and September T-bonds close strongly above 117 resistance.
August 14, 1997R.E. McMaster, Jr.
The Reaper
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