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Friday, 6 July 2012

Massacre of the Innocents

What strange times these are. I saw a story this morning in the UK's Daily Express about the meltdown in private pensions in the UK. You can see that here. There's not much to say about this really, regulations (from the government) force pension funds to hold long dated bonds, the yield on those bonds has been pushed down to less than inflation (by the government), and UK pensioners are forced to buy annuities at retirement (by the government).

A 65 year old man retiring at the moment.in the UK can use a £100,000 pension fund to buy an annuity yielding £5,743 per year. As the life expectancy for that man is 78 at the moment, the company selling him the annuity can expect to pay him about £75,000 on average before his death, at which point they will keep the change, as well as any return they have made from the £100,000 in the interim. If you're wondering how that's possible, you should remember that the competition authorities in the UK are notoriously deaf, dumb and blind. They famously concluded a study in the 1990s looking into why compact discs cost 25% or more in the UK than elsewhere by saying that UK consumers were happy to pay more, and the cartel of car dealers and manufacturers in the UK kept prices so high for so long that car manufacturers used to refer to the UK as 'Treasure Island'. That scam only ended because UK car buyers starting buying in large numbers from Europe through the internet.

So in the UK private pensioners get screwed by the government first, and then by a cartel of annuity sellers afterwards, but private pension systems are collapsing worldwide under pressure from governments to hold bonds with yields that don't even keep up with inflation. The pension problem is just the tip of the iceberg as these policies attack savings worldwide, discouraging people from saving and eroding the value of what has been saved in the past. Who benefits? Governments primarily, as they can borrow more for less, and the financial sector, which gets to borrow for almost nothing, and gouge their customers for what they do provide to them with government approval.

I don't have a chart for this today so I thought I'd show a copy of the wonderful 'Massacre of the Innocents' by Rubens instead. This links to a high res copy if you want to save one:
Obviously we saw some retracement yesterday but we didn't hit my upside targets for ES, SPX and NDX. I don't think we've topped out yet but the key levels to watch on SPX are 1357 (April low) to 1360 (100 DMA), and if we see a break below 1350 then main support is in the 1335 area, where we have the IHS neckline, the wave A or 1 high, the middle bollinger band on the daily chart, and the 50 DMA (1340 today). A break below 1335 would look VERY bearish but until we see that I'm still expecting that equities will go higher to a target most likely in the 1390-1420 area:
I'm expecting the 1357-60 SPX support area to (roughly) hold, possibly with an overshoot that should stay above 1350. I've updated my SPX 60min chart to show the rising wedge options on the basis that we hit the upper trendline before we hit the lower one:
On NDX we still haven't seen a hit of obvious resistance, though the negative divergence on the 60min RSI is worth noting:
TLT is still trading in the 124 to 127.40 range. This looks increasingly bullish for bonds to my eye and therefore bearish for equities. At the least this is a non-confirmation of the move up in equities from the June low which will continue as long as TLT holds 124 support:
I thought I'd post the silver chart today as it is looking interesting. Silver tested rising support from the 2008 low last week and that was obviously the highest probability level to see a major reversal if silver isn't going to continue lower. The bounce from there has been strong so far, the smaller declining channel from the 2012 high looks as though it might be breaking up, and silver is testing the 50 DMA, which is a significant bull/bear level on silver. A promising start, though silver will need to break over the 50 DMA with confidence and then the 200 DMA and main declining channel resistance to establish a new bull trend:
Only five charts today, and I'll be cutting back to four or five charts a day for the next two weeks while I'm on holiday. I haven't yet tested the quality of the internet access where I'm going on holiday, but I'll know how that looks on Monday. For today I'm looking for a bit more downside to complete the retracement that started yesterday before the next move up to what may well be a significant high. The jobs number today may be a significant market mover. 

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