Ad Hoc Commentary – last sucker rally for the goldbugs, stay away from equities till German elections

Gold did well overnight, so did the JPY. It seems that after years of USD weakness, some still cannot accept that the USD will be king in the next two years. What we could be seeing is perhaps the last USD weakness before the USD returns with vengeance in September.

All this will be driven by Merkelections on Sep 22. It is worth repeating that hot capital that left Asia in 1998 went for the dream of Europe. In the last few years, this capital migrated from the European peripherals to the core. Merkelections will likely melt the European core. Big money will then have little hope in Europe and might thus let their BTANs and Bunds portfolio mature without reinvesting back into the European bond markets. The flight from Europe will be faced with the question: what is quality in a world of high taxes and high unemployment?

The nimbler small money had given up on Europe. Last week, the ECB residential property price index showed that new and existing properties across the eurozone hit a seven-year low:

We might see some bearishness in the Dow as we head into Merkelections. This time one might want to wait for a proper sell-off in equities before buying the dip.

We talked about Detroit bankruptcy back in June:

Last week, Detroit went ahead with filing for bankruptcy. Many years from now, textbooks will have: Cyprus = depositors bail-in; and Detroit = pensioners bail-in. Coupled with high taxes on the gainfully employed, how are we ever going to get to hyperinflation? The lights are turning off on the goldbugs.

Good luck in the markets.