The current stock market is being driven by those using technical analysis. Unfortunately, however, it is being controlled by the fundamentals. More specifically, and more importantly, is the lack of a national savings strategy. The U.S. government is attempting to keep its ten-year note yield as low as possible while simultaneously draining our economy's liquidity. The former benefits retail sales and encourages consumer spending (at most levels). The latter benefits dollar value and pressures the price of natural resources. MZM's lack of liquidity has been hovering around zero for the past several months. Consequently, this pressures stock market prices. Earnings tighten when consumers lose faith (as has been the case for the past several months). Therefore, sectors affected by the loss of liquidity lose value. Moreover, a loss of liquidity also pressures inflation hedges, such as, gold, silver, oil & gas and real estate. Oil & gas and precious metal stocks have had a blood bath. Another reason for the pressure on inflation hedges, other than liquidity, is the selling or threat to sell off gold by Central Banks. Additional factors are a strong dollar rally and falling energy costs.
Hedge fund investors are taking note of this. They have begun to bail out of losing hedge positions in growing numbers. Now, the market has a major negative disposition-hedge fund managers are being forced to unload huge stock positions based more on investor fear (motivated by technical analysis) rather than fundamentals. As long as MZM stays around zero or below, the stock market and natural resources will be under pressure. This will provide technical analysts the message that the economy is on the verge of a disinflationary collapse, and, thus, hedge fund investors will be forced to sell off more positions. When will it end? When liquidity begins to turn up. The next report for MZM is Wednesday, May 18, 2005. I will be discussing these issues and provide more information on www.gemradio.net Friday, May 20, 2005, as well as through special e-mail alerts.
