Inflation in the Pipe
According to deflationists, we are at the cusp of a collapse in the money supply. There are two articles I previously published titled "Diatribes of a Deflationist" and "Diatribes of a Deflationist II". I do not like to spew information contained in prior research articles because unless I see any change to an argument it is pointless to regurgitate the same information. As such refer to the archives section of this site under my name to review these and other prior material mentioned below.
Deflation implies a sharp decline in ALL broad stock market indices but is likely not going to be the case over the coming years. There is likely going to be a reversal in the broad markets in mid March as mentioned in my most recent article posted on the net titled "Hang on, the S&P is Going Higher" published in mid-November 2006, which will be met with people touting that deflation has started. This will be a much-required correction in the market; nothing has changed, except the development of the pattern and the accompanying labeling scheme and updated time frames for when the market will top out. If one checks out the Elliott Wave pattern of the S&P 500 Index, it is in a corrective pattern, which is due for a correction. I see the S&P still hitting 1500-1550, with an accompanying correction to 1150-1200 at worst. This is going to be touted as "the next leg down", "the end of the stock markets" etc. etc. but this will be an interim correction in an upleg of the S&P that will last until 2010/2011. A piece I wrote some time ago titled "S&P to 3000..........Here's How" discussed how it can continue to advance: When the S&P has a weighting of 25% oil stocks and 17-20% gold stocks a top is near and currently 5% oils and 2% precious metals, we are no where near that point yet. The S&P 500 Index is fluid, so stocks that do poorly will be replaced by others that have a rise in earnings. The coming correction in the S&P 500 Index will be a sharp correction, but it does not mean the run-up in the S&P is over.
I have seen many different articles posting different economic indicators, what works etc. but the best I have seen is Elliott Wave, particularly the version developed by Glenn Neely titled "NEOWave". I suggest anyone who is serious about learning Elliott Wave to purchase his book titled "Mastering Elliott Wave". Glenn's site is www.neowave.com and has a wealth of post-Mastering Elliott Wave material referenced in "Questions of the Week". There are numerous new developments, many of which are directly applicable to today's market and will help to prevent errors in counting. There is not a better Elliottician on the planet and if one wishes to accurately determine future market direction and positions in a bull market I suggest at least viewing Glenn's book.
There is an article I published some time ago titled "The Technical Palette" describing the methods of technical analysis I use. For those not familiar, I suggest a quick scan of this article in the archives section of this web page under "David Petch" to follow any analysis presented in the articles previously published on the net.
If deflation were to be upon us, then the price of gold should decline also, but to a lesser extent thereby retaining its purchasing power. Gold and oil stocks should also decline in price, but there is a problem with this thesis.........the commodity indices are in bull markets and are poised to head higher (as per Elliott Wave Analysis). The supply of commodities is extremely tight and by definition, higher demand with diminishing supply creates a bull market. This bull market is different however because we are nearing or past the point of Peak Oil as I described in an article "Peak Oil and What it Means to You". Peak oil translates into resource wars and wars are inflationary, period. Coupled with government deficits and numerous other reasons previously cited for inflation, that is the course of the next 4-6 years at a minimum. Remember that rising prices are a symptom of monetary expansion, it works no other way.
As the analysis of the HUI presented nearly one month ago, there is no indication of any bear market lying ahead for the HUI. In fact it is about as bullish as one can get (Side note: I changed my longer-term preferred count to reflect the alternate count, given extremely bullish news for three companies we follow, but saw no follow through in share price). Extreme bearishness of this Degree should not be seen at wave .III, but rather the termination of wave II, prior to the start of wave III. The wave structure supported my initial preferred count, but switching to the alternate count (which had some labeling changes after I actually had to sit down and do ratio analysis on wave structures to confirm the count) removes any confounding issues I initially had.
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I hope everyone has a great day and good luck with the gold bull market.