Thursday, July 2, 2015

Japan's "Lucky Few"

In what gradually became practically an anything but US equities market approach for us,  Japan's Nikkei succeeded in strongly outperforming the S&P 500 in the first half of the year; rising just under 16 percent - while the SPX barely remained in positive territory (0.20%) for 2015. 

Along with China's Shanghai Composite Index, the Nikkei remained one of our preferred equity markets going into the year, with expectations that Japan was breaking free of the long tentacles of deflation that had constricted their economy and constrained its equity markets over the past twenty-five years. 


On average, a quarter century is the generally accepted length by historians between generations. From the birth of a parent to the birth of a child, the timespan can encompass profound behavioral changes within society, many times greatly affected by shifts in economic prosperity or hardship. And while Japan's experience with perennial deflation and economic contraction was in fact much less austere than what the US experienced in the 1930's and early 1940's, similar to the US generation born during the Great Depression and World War II, historians might ironically refer to those brought up in Japan over the previous two decades as the "Lucky Few" as well.  


Over the past two years we've followed the Nikkei in relation to the US equity markets across the 1930's to 1950's (see Here), with expectations that despite a more protracted regression decline in the Nikkei - would result with a similar equity market rebound (see Here & Hereas deflationary conditions subsided in its third decade since its secular peak in December 1989.



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Both the SPX and the Nikkei contracted ~80 percent below their secular peaks. However, in the US, the equity market collapse was acute and reached a cycle low less than three years from the 1929 high. For Japan, the contraction was more gradual - reaching a secular low ~20 years from its 1989 high. One could argue that this difference reflected the broader influence the asset declines had on each society, with the more severe decline profoundly impacting the US through the Great Depression. 

That said, it's interesting to note that from a patterned perspective, by pivoting the performance regression trend of the Nikkei (~14 degrees) to the SPX, the respective cycles within the span correspond. 

Another pattern we've followed in the Nikkei over the past two years - and one that guided our expectations from the relative performance extreme reached at the end of 2013; extends from the long-term trend line resistance that begins as well at a relative performance extreme in 1987.

Overall, the Nikkei continues to follow the performance trace from the 1987 retracement decline - a pattern trajectory we expect it will continue to loosely hold this year.   

In what has increasingly become en vogue for investors today, participants have flocked to novel currency hedged ETFs - such as Wisdom Tree's DXJ, that offers equity exposure to Japan, while at the same time hedging fluctuations between the value of the US dollar and yen.

While these funds strongly outperformed non-hedged ETFs in 2014, their outperformance has been attenuating in the first half of this year. We maintain the expectation that a trend change is afoot in the yen/Nikkei relationship, which would reverse the prolonged inverse correlation extreme that's been in place since Abenomics was introduced at the end of 2012 - and shifts the equity hedge, in our opinion, in favor of a stronger yen. 

The BOJ's Kuroda would appear to agree
With another bitter milestone approaching for Greece and Europe this weekend, we'd feel remiss in not mentioning once again the fragility of where some of the key peripheral markets such as Spain's IBEX are trading across this year - in relation to our Long Tails of Deflation performance series. 

As mentioned in previous notes, from a comparative perspective - you could argue that what the ECB is attempting to avoid with its more aggressive policy pivot this year, is the missteps that were compounded by each central bank in their respective cycles; both by the Fed in late 1936 into early 1937 and the BOJ in 1997. In both occurrences, the powers that be worsened economic conditions by tightening monetary and fiscal policy, where they very likely should have eased.

With the referendum vote on deck this Sunday in Greece, it's no coincidence that the ECB just today (see Here) added corporate debt to the list of assets eligible for purchase under its new QE program. And while the ECB's bazooka would help mitigate the fallout in the debt markets should conditions in Greece remain or worsen, we would still approach the lack of compromise and resolution that currently exists between Greece and the EU a broader failure and policy misstep - with unknown negative consequences to Europe's periphery.

As outlined in Game of Loans, we'd consider that more than just a Greek tragedy.    

Wednesday, June 24, 2015

99' Barrels of Crude on the Wall...

Light sweet crude (WTI) is currently trading ~$60/barrel, with an opportunity over the short-term to rise above overhead resistance. 

Since breaking out in March after testing the lows from late January, oil has remained in a narrowing range over the past two months, with resistance and support coming in around $61 and $58, respectively. 


As described in previous notes throughout the year (most recently - Here), we've followed the SPX:Oil ratio through a comparative prism with the two major exhaustion pivots (86' and 99') that define the asymmetrical structure of the ratio.


All things considered, we still believe the ratio has cyclically pivoted lower, with the current market expressing the closest similarities with the secular low achieved by oil in Q1 1999 and the subsequent rally that coincided as the Fed postured - then shifted towards tighter monetary policy.



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Figure 1
Congruent with the momentum signatures in late June 1999 (Figure 2), oil appears poised to roll momentum in the ratio lower if the market breaks overhead resistance above $61/barrel.
Figure 2
Figure 3
Figure 4
While the lags and offsets in correlation trends across markets are unique for each period, the yield profile with 1999 is congruent with the current market. This is primarily due to similar expectations of tighter monetary policy, which was first postured by the Fed in the first half of 1999 and administered with an initial rate hike at the end of June of that year. 

Below is an update of the 1999 10-year yield comparative fitted to the markets respective pivots, which if indexed to the low and first rate hike in June 1999, would point towards a liftoff by the Fed around September of this year. 

Figure 5
Figure 6
Although we'd speculate that "liftoff" likely overstates the ultimate reach of yields and the Fed this time around, we still expect long-term resistance in 10-year yields to be challenged later this year ~ 2.65%.
Figure 7 
When it comes to gold, from a trend perspective there are structural and momentum similarities with 1999 as well - as both markets traded precariously through a shift in monetary policy. 

The chart below was normalized to the seasonality of the 1999 yield comparative (Figure 5).

Figure 8
The question is, will gold offer up the same opportunity it provided going into the first rate hike in June 1999 - which ultimately became gold's bear market secular low one month later. 

Back then, support was initially broken in May as the Fed unveiled a new push towards greater transparency and announced a bias shift in policy for the first time ever in its communique to the markets. 

The net effect was traders heavily sold gold in unison on misplaced fears that real yields were headed materially higher as the Fed shifted towards tighter monetary policy conditions. 
Figure 9 
While we expect the long-term outcome to remain the same - in that gold offers great relative value for investors today as global inflation has begun to rise and the reach of nominal yields will likely be modest; the market has humbled our own bullish leanings and remains susceptible to short-term expectations - as the market trades near its cycle lows and about to come through another historic policy transition. 

That said, one significant difference we noted recently between 1999 and today - and which we suspect would more broadly support commodities and precious metals should it continue, is that the intermarket relationship between yields and the dollar is diametrically different today. 


In 1999, yields led the turn tightly correlated with the dollar, as oil followed the pivot higher with a 10 week lag. Over the past year, long-term yields and the dollar have moved inverse to one another, with yields finding a low in late January and the US dollar index setting a high from its relative performance extreme 10 weeks later. 

Figure 10
Figure 11

As such, the 1999 10-year yield/oil chart resembles the 10-year yield/euro chart today - which we believe would support a broader reflationary profile for commodities and downstream inflation expectations. 
Figure 12
While it's still in the markets near-view window, the US dollar index continues to loosely follow the breakdown pattern from its 1985 secular high. Should the index sustain the move from the relative performance extreme, a symmetrical retracement decline would unfurl across the balance of the year.  
Figure 13
Figure 14
Figure 15

Wednesday, June 17, 2015

Shanghai's Gonna Crash!..Like a Bull in a China Shop

Rising ~150 percent over the past year and more than doubling since Thanksgiving - any way you slice or weigh its breakneck outperformance, the rally in China's Shanghai Composite index has been outstanding. 

Considering that many of the most vocal critics on China and Chinese economic policy have remained tenaciously bearish or bent on qualifying every gain with growing skepticism in the face of such momentum - the magnitude of such a move personifies the underlying nature of how off-balance the consensus opinion was and still remains towards investing in China today.


Last December (see Here), we re-outlined our comparative blueprint for China and the Shanghai Composite index, that was derived in part from the consolidation breakout pattern in US equities in the summer of 1982 - after Tall Paul Volcker applied the screws to the US economy, subsequently knighted around the world as the man that beat inflation.


*  *  * 
"In our opinion, what the popular perspective failed to grasp was that the reforms were not about economics per se, but primarily driven by rooting out corruption that had infiltrated all levels of government - and which was a prerequisite to ensuring and maximizing future growth as the economy transitioned to a more mature footing. In essence, where the Chinese saw opportunity - the west feared economic instability. 
Back in January (2014), as concerns over the Chinese banking system were brought to focus after the Industrial & Commercial Bank of China refused to compensate investors in a troubled trust, we drew up a weak cartoon (see Here) that depicted what we believed was an overreaction by the west that played on these fears and cognitive biases. Although we won't dispute that future growth in China will likely be considerably less robust than what it was over the past three decades - or that investment excesses weren't evident; we do believe the binary implications inferred with the economic rebalancing hypothesis are misplaced and or exaggerated. Cynics will undoubtedly think otherwise, but while the prescriptions for their afflicted economies are quite different, the tough love provided by Volcker in 1981 and 1982 is similar to the anti-corruption campaign by Xi Jinping over the past two years. Both strangled the market for a spell and set the stage for the next phase in their respective economies." - Taking Off in the Rain
*  *  * 
Over the past few months, growth in China has continued to slow, with first-quarter GDP coming in at 7% year-over-year - it's weakest quarterly growth rate since the depths of the financial crisis in 2009. Earlier this year, even its own central bank - the People's Bank of China, revised their own forecasts lower for economic growth and consumer inflation for 2015. 

And yet in the midst of such a protracted slowdown, China's equity markets have trounced world indexes once again this year, much to the dismay of the growing den of angry panda bears that perhaps should consider removing the bamboo from their ears, eyes and fingernails and read the writing painted loudly on the wall.


China slowed and didn't implode. 


In perhaps the most anticipated bust since America's sweetheart - Vanna White, shockingly graced the pages of Playboy in 1987, China's inevitable slowdown from the halcyon days of domestic investment, has been on participants and pundits radars since China's GDP growth peaked in 2007 at 14 percent and the then white hot Shanghai Composite index crested above 6000. Since then - and with the financial crisis magnifying investors concerns and cynicisms, there's been an endless drumbeat of implications behind the steady decline that has seen China's growth rate cut in half - and up until last year whittled over 60 percent (+70% during the financial crisis) off the Shanghai Composite. 


Apparently - it seems, not deep enough for some. 

And while the pandas will cling to the obvious slowdown that has come to fruition - or push back the goalposts of an inevitable market collapse, "It's still coming ..." (see most recently Here); behind the numbers the Chinese government has made clear progress in slowly transitioning the economy from driven primarily by capital intensive production - that most economists understood would never be sustainable, to a more developed economy's growth path led by domestic consumption - that for a variety of reasons economist can't quite seem to swallow as easily.


Regardless, a market always marches to the beats of its own drummers - no matter how raucous or persuasive the crowd may be.  Although pundits and pandas may qualify the moves under bearish predisposition, ultimately, the proof is in the performance pudding. In this case, there's a lot of pudding.


In hindsight, the broader impressions for us is that the SSEC consolidated with the slowdown in China and as the government instigated its new agenda of reforms back in the fall of 2013, set the stage for the subsequent breakout that coincided as the PBOC returned to looser monetary policy last year. While there's certainly no shortage of fodder for those looking to place the move in an ephemeral and speculative light, the reality clearly acknowledged in the market paints a much brighter picture. 
 

Then again, with two years of daylight now reflected back on the consolidation pattern (see Here), the corollary inferred with the historic breakout in US equities in 1982 appears rather prescient. Although the Joe Granville's of this chapter will undoubtedly fulfill the behavioral biases required and cling to their pandish memes of inevitability, the contrarian outcome has replicated the proportions of the pattern - which defined the cycle low in 2013 and the breakout range exceeded this year. Despite the fact that the magnitude of the move in the SSEC was larger than the historic pattern in the S&P 500, proportionally, the pivots and breakout ranges have remained congruent. 

Comparatively speaking, where that leaves us today is potentially at the top of another consolidation range, that admittedly arrived earlier than we had estimated prior to the March breakout. And while we are more than happy to accept any gifts this bull in China may choose to bear or break, we're compelled to further contrast the next structure of the pattern - which alludes to an extended period of consolidation as the S&P 500 digested and accepted its new range over the course of the next year. 
As a loose prospective guide, we pulled forward the current move in the SSEC to align with the initial high in the SPX that helped set the top of the range in late 1983. Should the broad structure of the pattern hold proportion, the index will test the highs from early June over the coming months, before consolidating lower over the course of the next year.   

Which brings us to a closing thought: if you found the pandas in China were loud this year, just imagine how deafening they'll become if China's equity markets cooled off for a spell. Thankfully, from a long-term bull's perspective - they're still a long way from extinction.

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For further reading on our thoughts on China this year, see:

Thursday, June 11, 2015

Breaking Away

With the 10-year yield breaking away from the top of its 2015 range, Treasury yields continue to push higher with all the bravado of an Italian cutter racing in Bloomington. Technically, the 10-year remains on course towards challenging long-term overhead resistance, which we expect will come in                     ~ 2.65% - after retracing and digesting the large moves over the past few weeks.

Bloomington bravado? 

Considering that the average age of traders today on Wall Street (30) would place their birthdays six years after the classic coming of age film, the reference may fall on deaf ears as this Millennial class also looks to graduate to a higher education. 

Then again, in many ways this speaks to a recurrent theme from us over the past year of the complexity for today's participants in understanding and visualizing where the markets have been and where they may be headed. As much as today's stockjocks and bond boys and girls were in diapers or their parents imaginations during previous rising rate environments, the insights and wisdom imparted from even the previous generations experience may prove incomplete. 

Although the shift in Fed policy has our complete attention and respect, we have found the more obvious comparative insights to most tightening cycles over the past fifty years less correspondent. The obvious being, that the Fed has stepped away from actively supporting the markets and is progressing towards further normalizing policy. Granted, "normalizing" is a strange characterization in a dynamic system. Certainly, what was considered normal in recent tightening cycles that were not tethered to ZIRP for an extended period or accompanied with QE, isn't all that normal this time around. 

While you'll find that many contemporary tightening cycles share certain insight similarities with how rising yields affected the performance between different markets and sectors, our own deference towards a wider scope of history with a more top down read of the long-term yield cycle, also strongly resonates with a lesser known period of the 1940's - sandwiched between the traumas of the Great Depression and the 1951 Treasury-Fed Accord. 

This melded perspective of both old and new, impressions our expectations that 1) the tightening - if and when it arrives, will be minimal, and 2) considering yields disposition in the trough of the long-term cycle, we believe real yields will ultimately fall as the capacity of inflation today could easily exceed the reach of nominal yields.  

As described in previous notes, the mid 1940's shared a structural similarity to the trough of the current long-term yield cycle, which is also reflected in comparable cyclical moves in the equity and commodity markets since equities set a secular valuation high over fifteen years ago. Moreover, there are parallels extend in policy and practice, as the 1940's were the last time the Fed conspicuously supported and bought Treasuries in like magnitude - to prop up the financial system as markets and participants recovered from the long tail of the Great Depression and the colossal price tag of World War II. 

That said, it wasn't entirely a free lunch, as ultimately there were latent effects from the historic liquidity provisions extended by the Fed and the inevitable psychological shift away from such support that impacted participant expectations. 


Through the balance of the late 1940's, the equity markets in the US primarily treaded water with a ~20 to 25 percent nominal cut below the cyclical high set in May 1946 - directly after the Fed's historic balance sheet expansion had peaked. Over the next four years, the financial markets struggled through adjusting to new policy and paradoxical market conditions, as strong pulses of inflation worked their way through the system, while participants remained concerned that another deflationary leg of the Great Depression would unfold. 

Today, as the Fed creeps further towards normalizing policy, we expect that yields will remain supported, as the disinflationary trend that reflexively fed back and buttressed the bid in equities since the back half of 2011 - dissipates. Our best guesstimate is that as inflation finds traction, it will translate with accompanying cyclical pivots in the dollar and commodities - which we believe has already begun to unfold from the relative performance extreme witnessed in the US dollar index this March.
Following up on a reflationary study we've contrasted throughout the year, the SPX:Oil ratio continues to remain under pressure, supporting our expectations that oil should outperform US equities, as the strong disinflationary trend that began in 2011 exhausts.
We continue to closely follow the SPX:Oil ratio through a comparative prism of the two major exhaustion pivots (1986 & 1999) that make up the asymmetrical disinflationary/reflationary construct that the ratio represents. 

Although both timeframes reflect market environments where oil strongly performed from its Q1 cycle low through the balance of the year, there were notable differences in the magnitude of the moves (1999/WTI+138% vs. 1986/WTI+70%), relating to policy and inflation/growth expectations - which greatly determined the direction of yields through the year. 

In 1986, yields troughed as the Fed moved to further ease the fed funds rate as the economy slowed, completing its last rate cut by the end of August and moving to marginally tighten policy by the end of December. 
Conversely, in 1999 yields led and rose with oil throughout the year, as the Fed began in late June to tighten policy - eventually contributing to pricking the equity market cycle less than one year later. 

As described in previous notes, while the current relationship between oil and yields is tighter than both periods, we find greater similarities with 1999 - both with respect to Fed policy posture and the respective cyclical trends in the equity and commodity markets. Moreover, current market conditions reflect the potential for a more long-term downtrend in the SPX:Oil ratio - which we expect would translate with a "shoulder" on the asymmetric pattern now in place.  
Interestingly, from an intermarket currency perspective, there are significant differences between 1999 and today - which we believe if left standing would strengthen the case that a broad based rebound in commodities and inflation was unfolding.

The most glaring difference is that in 1999 yields led the turn - tightly correlated with the dollar, as oil followed the pivot 10 weeks later with a lag.  
Today, the opposite dynamic is true, with the move higher in yields in late January - inverse to the recent pivot lower in the dollar.
This has also been translated downstream with a lag, with the euro and oil remaining tightly correlated from their cycle lows in early march.
  
Consequently, the 1999 10-year yield/oil chart resembles the 10-year yield/euro chart today. Should the comparative pattern hold prescience, yields over the coming weeks will retrace and flag as the euro takes its turn breaking away. This perspective would dovetail with our work in the relative extreme noted in the US dollar index, which continues to loosely follow the symmetrical secular pivot from the index in 1985. 

Wednesday, June 3, 2015

Game of Loans

You might have guessed that after five years and countless volleys of eurozone crisis flares and resolutions, the euro would callous to an ever-shortening and hyperbolic news cycle. And yet, here, on the precipice of another crisis benchmark along the EU's stormy and tumultuous timeline, the euro rallies over 3 percent on whiffs that a deal with Greece's creditors would soon be presented to Athens.

Although we're not surprised and have expected as much (see Here), it's still worth noting that after all that has come before, the existential threat to the euro and EU is still very much alive in the markets. This maintenance of kinetic uncertainty is testament to the inherent design flaws within the current structure of the EU, that continues to provide a perennial bouquet of weeds to be pulled and treated by the ECB each year. Make no mistake about it, the fact that the euro still reacts with such sensitivity to rumor and innuendo reveals the complexity and underlying fragility of the EU and the importance of avoiding a possible Grexit - even if the broader union has been fire-walled from such consequence.  

This is in stark contrast to the US side of the pond, where over the same timeframe the litany of political and economic travails have been greatly qualified and absorbed without any real lasting effect in the markets. Although it's certainly more complicated and nuanced than just one factor, the differential in policy affects between what the Fed widely prescribed in the US after the financial crisis and the "take it one crisis at a time" mentality that the ECB had towed up until this year, lies squarely at the feet of the glaring structural flaw that exists within the European monetary union. 

There is no political union. 

All things and animosities considered, that reality appears increasingly unlikely these days, as the rise of leftwing anti-austerity parties in southern Europe has been met by the ascension of rightwing nationalist parties in the north. Game of Loans - anyone? Nevertheless, it is a dangerous echo and potentially self-fullfilling cycle, emblematic of the significant economic and political chasms that were grossly ignored at the euro's conception - then heighten during and after the financial crisis and which continue to greatly motivate the euro today. 

If Greece decides to leave or is forced out, who's to say Spain won't follow suit in the years to come as the political winds shift further to the left. As much as the German's posture their resistance to QE or reluctance to concessions with Greece, their fates are invariably entangled. By pushing Greece off the cliff it would flame and entrench the dangerous political divisions within Europe, ultimately broadly hurting the German economy that has benefited the most from its flawed structure and impressionable currency. 

Pragmatically speaking, the significant actions finally enacted by the ECB this year could provide another window for deflationary conditions to subside and for political extremes to weaken from. The economic data in Europe has mostly surprised to the upside this year, with figures released Tuesday showing eurozone consumer prices had risen for the first time in six months in May. Do the German's really want to roll the dice here as fresh tread from ECB policy begins to find traction? As much as the German's don't see eye to eye with Draghi on many things, the fallout in confidence alone would be irreparable. 

Whether by design, coincidence or convenience, the prolonged uncertainty towards Greece and the broader EU economic and monetary policy debate, has disproportionately benefited the export driven German economy, as the anchor around the euro's neck has maintained a strong existential correlation to future expectations of the union. Where do you think the deutschemark would trade today without Greece's baggage? Spain's? Italy's? France's? Needless to say it would be substantially higher, given Germany's considerable trade surplus.  

Contrary to earlier crises where certain acute market stresses forced reluctant participant hands, the slow boil in Athens over the past year has primarily been a consequence of a patient sous chef holding up the meal's final presentation. Boil the meat to remove the fat, marinate for a spell - then slow roast to perfection. While many things in the economy and markets are indomitable to influence, German officials have seemingly chosen to push the limits of extending concessions to Greece, contributing to the euro's burden which was already under significant pressures from recessionary and deflationary forces swirling the continent. While those winds appear to be subsiding and the deadline for payment from Greece to the IMF awaits the markets this Friday - let's just hope they didn't overcook the roast. From our perspective, that would be more than just a Greek tragedy. 

Tuesday, May 26, 2015

Currencies at a Crossroads

With the final sessions of trading on deck for May - and following a week in which the US dollar index rallied over 3 percent, the USDX arrives at another potential crossroad: Continue heading north above milepost 100 or get back on a reflationary road to the southeast. 

Technically speaking, considering the relative performance extreme reached in March, we remain in the later camp and continue to contrast the 1985 secular pivot as a roadmap through the prospective turn.   
  
To date, the bounce has taken place proximate to where momentum in the historic pattern alluded, with the 1985 market retracing 50 percent of the initial downside pivot. 
Through Tuesday's close, the USDX has retraced 61.8% of the current move.
Euro weakness - the largest currency component (57.6%) of the USDX, has resurfaced as a resolution in Greece remains elusive, as time runs out for the troubled nation to avoid a possible default and make the first of four payments in June to the IMF next Friday. 

Recently, there's been talk of allowing Greece and its creditors more time to negotiate a final funding arrangement without default, by allowing Greece to bundle the four payments together at the end of June. However, this extension will only be feasible if there is credible confidence communicated to the markets that both parties were working towards a tangible and realistic resolution. 

All things considered and as described in previous notes, we believe at the end of the day it's overwhelmingly in the best interest of the EU and its strongest economy - e.g. Germany, to compromise with Greece and avoid a fracture in the monetary union. Considering the election results in Spain this weekend that echoed Greece's sharp pivot to the left last year - and the reality that there is no firewall tall or broad enough to contain contagion if a larger member state such as Spain would look to follow suit - we expect the gamesman and brinkman-ships to set sail towards calmer and more considerate seas.     

As such, we will be looking for early strength to be sold in the back half of this week as markets set their sights on June.
   
On a tangential currency slope and making up the second largest weight of the USDX (13.7%), the yen also remains at an important crossroad: Break long-term support - or find traction and strengthen from the correlation extreme extended with the Nikkei over the past two years. 

On Tuesday, the yen traded below long-term support as the US dollar broadly strengthen against all 16 major currencies. While certainly not a vote of confidence towards our own expectations that the yen will strengthen from the correlation extreme with the Nikkei; from a relative performance perspective, the yen remains stretched by more than 2 standard deviations below its 45-year trend (h/t: Will Slaughter) - and completing what we perceive to be an inverse resolution of the correlation extreme witnessed during the financial crisis (see below). 
In view of this, we continue to favor a position in the yen, predominantly as a hedge of equity exposure to Japan. Similar to the resolution of the correlation extreme between the yen and the Nikkei in Q1 2009, it wouldn't surprise us if the previous outperforming asset (yen 2009/Nikkei 2015) initially underperforms as the markets transition to a new positive correlation relationship.
The yen has audibled from the 1998 comparative trend, by breaking back below at the vertex of the descending range it remained in over the past 5 months. Our biased suspicion is that the short-term breakdown in the yen and breakout in the closely followed USD/JPY exchange rate will be ephemeral, as those late to the party buyers of the breakout will add fuel to the prospective reversal. This brings to mind the old technical market adage - from false moves come fast moves.     
 
That said, gold and the precious metals sector has closely followed the trend breaks in the yen over the past four years, with the three month rally recently turning down last week with continuation through Tuesday's close. 

Should the yen continue to decline below long-term support, it would strengthen the expectation that new lows in gold and the broader precious metals sector were forthcoming.