Welcome to the Fuller Treacy Money audio commentary. This is Eoin Treacy recording, it is 1:42 PM pacific standard time, today is January 14th.  

Well, one thing that really grabbed my attention today was the fact that you had some very sensational headlines, but not a great deal of activity in the markets. You can see, for example, that the Chinese market is gone nowhere for the last four sessions and that's also something that we've seen, for example, with the S&P 500 – it hasn't really gone anywhere for the last four sessions although it was in mildly negative territory today, but one thing they both share is that they’re at a potential area of resistance and fact that we have pauses confirming that this is certainly a period of time where people are starting to have a pause in consolidation and to think about what happens next. 

There's been a very impressive rebound since December 26 and now the big question is how much further it is going to go and whether it represents a medium-term low or a near term low and we’re really not going to have an answer for that question until we see a higher reaction low that holds and we haven't really seen that. We also need to see that the sequence of lower valley highs is broken, but obviously by the time that happens, the market will be well off its lows. The next thing we would need to see is that it sustains a move back above the trend mean but it at least needs to put in a higher reaction low more than a higher high and then to hold those if we’re to give the benefit of the doubt to the upside. This is still very much a corrective phase and the corrective phase on going for a year. Well if this is a medium-term correction, then we should start to see it putting in some support reasonably soon. 

One point that I think is worth mentioning is that we are now heading into the third year of the presidential cycle and the Federal Reserve is back to doing what it normally does which is to tighten in the first couple of years and then to loosen moving through into the second half of the third year so that that gives some impetus to the incumbent to try and win the election. So that didn't work in 2008 but it worked reasonably well in 2012 and potentially, generally speaking, what we anticipate from the presidential cycle is that you get a meaningful correction in the first half of the third year of the presidential cycle and then a very meaningful rebound in the second half of the year and I think that’s something we need to have in the back of our minds as we head into 2019. So I think that's one of the more important things to add to consider that in here today. 

The second is that there has been a very meaningful rebound in natural gas prices and against a background of a very deep oversold condition and now we’re seeing a very clear upward dynamic and that is a low of at least near term significance. One of the features of this market going into the winter season was that we have historically low inventories. So I think the big move that we had at the end of last year was reflecting just how tight the market is against the background when we do get cold weather, well the fact that we had abnormally warm weather brought prices all the way back down, but cold weather now starting to move back in has started to push prices back up again. I think we’re going to be in for a very choppy environment for natural gas prices going forward and I think the third really noteworthy thing that we have seen happen today is the continued pace of M&A activity in the gold sector. 

So Newmont mining has bought Gold Corp. Both shares were in negative territory in here today. Newmont was down 10% and at Gold Corp, having popped on the upside, finished at the lower side of its trading range. Well, what that suggests is that investors are concluding that the shareholders are not getting particularly good value here, so that's certainly something that is perhaps weighing on the sector, but gold remains really quite steady and generally speaking, mines tend to consolidate at the lows and they tend to invest heavily in expansion at the peaks. Well, we certainly saw the expansion at the peak back in 2011 and the fact that Barrick has acquired Randgold resources and Newmont is acquiring Gold Corp., these are major pieces of M&A activity in the gold mining sector. It suggests that we are getting some rationalization, that there is an attempt to try and clean up the balance sheets that could potentially be not great news for shareholders in the short term, but as long as gold prices remain reasonably steady,  it should be beneficial for shareholders over the medium to longer term and gold is continuing to push higher at within this three year range. So as long as that remains the case, then we can continue to give the benefit of doubt to higher to lateral ranging. I think the most likely scenario is that it is going to get back up towards the upper side of this range. Well that was what I think the other last primary piece of information here is, that despite the fact that there were headlines left and right saying that the dollar had declined, the dollar index is pretty much unchanged in here today.

Where we do have some action is in the pound and the pound has been rallying since the beginning of the year. It's bounced again from this 125 area and it's now approaching the region of the trend mean. So this is the point at which some questions going to be asked about at the ability of the dollar to continue to rally against it. But what is at at leasy been confirmed is that the pound is bouncing from around this 110 area. It's also testing its trend mean right now as well. So, obviously, in the UK we are going to have the votes on Theresa Mays deal tomorrow, it's still looking quite likely that it's going to be defeated. Quite whether her government is going to be able to survive that event also remains to be seen, the DUP from Northern Ireland are almost certainly going to vote against it, but whether they will then turn around and continue to support her government remains a bit of a wildcard. 

The FTSE 100 has been trending down since May and it paused in the region of 7000 in here on Friday and followed through on the downside in here today. Well, there does look like some continued potential for downward pressure, most particularly if the pound continues to rally. If we simply look at the chart, we can see very clearly that immediately after the Brexit vote and the devaluation of the pound, the stock market went up very sharply. So if the pound continues to rally then that does represent a headwind for the market but from the perspective of the FTSE, 7000 is an awfully big psychological level, considering it represents the upper side of what is effectively a 17 year base formation, so then people are probably going to start looking at the sequence of high reaction blows since 2009, and at then 6000 becomes the next area of potential support. 

So it really is all to play for in terms of what exactly we can anticipate from the UK. I really think that regardless of what happens, there's going to be an awful lot of people who are going to be disappointed and disillusioned with the political process, and that that is a significant challenge. Hopefully the one lesson that the political class has  learned from this is that there is at least half the people in the country are deeply unsatisfied with their lot in life and that is something that requires a rather urgent remedial care, but it's not something that can be solved easily. Now when we look at the high-yield sector again in here we had a very significant rally. It's now at the area of the first potential region of resistance so high yields prices were in mildly negative territory here today, but not in the particularly dynamic fashion so this doesn't look like anything other than a pause right now, that doesn't preclude the potential that we will have a somewhat more volatile environment later, but the VIX index has contracted pretty steadily since 26 December and it's unwound just about all of the advance that we'd seen prior to that. The big question is whether it could possibly sustain a move below 15. I rather think that's unlikely and think that we had a very impressive rally and that at this pause that we’ve had with very inert trading is out of character with what we've seen previously. Well, there is an additional point here that government bond yields. Now when we look at for example the 10 year treasury have steadied up and there is an awful lot of additional supply that is coming to market this year. That's from new issuance as well as refinancing then you have the fact that treasury bonds mature on the 15th of the month and on the 30th. Well tomorrow is the 15th and at the next round of treasuries is indeed the runoff campaign that the Fed is running are going to mature tomorrow, so that is perhaps something that could influence markets. 

Generally speaking, if we look back at the influence that this runoff is had on the stock market, it's generally tended to price it in while one interesting thing at that I saw here in here today is the Morgan Stanley's implied pace of rate hikes measure and it's gone negative over the course of December. So initially the market was willing to give the Feds prognostications the benefit of the doubt and they believed that the Fed would continue to raise interest rates and that has been completely priced out of the market since December. Now they’re pricing in absolutely no potential for a rate hike in 2019 and potentially they’re pricing in one rate cut in 2020. But if we look at some more history for this index, what we can see that at this measure went negative back in at the middle of 2006 and then it progressed downwards. We can also see that it was towards the end of 2007 that the market had been pricing in the potential for significant rate cuts. So this is potentially a lead indicator for trouble in the market and now the big question is the extent to which it is capable of rallying. So this is I think something to monitor and I'll be adding it to the chart library. What happens in terms of the 10 year treasury when it gets back up towards the region of the trend mean is going to be an equally important arbiter of sentiment as we are seeing with the S&P 500 at 2600 points or the Dow Jones at 24,000 points. Then when we look at the outlook for the European markets well they’re beset with uncertainty and at the next speech by Mario Draghi in the next few days, the rate decision by the ECB is not long afterwards and it sounds extraordinarily unlikely that the ECB is going to be raising interest rates that we’re going to find out in the next few days whether Germany is in fact in a recession. German government spending is due to trend higher in a meaningful fashion over the next few years so they may not completely erode their surpluses, but they’re certainly going to cut into them and that additional spending is the equivalent in Germany of a fiscal stimulus, it's simply not going to be framed as deficit spending, whereas France is most certainly going to be engaged in definite deficit spending and so is Italy and course if Germany is stimulating and in a recession then that is going to at least enhance appetite for additional monetary easing measures in Europe. So we certainly have the potential for sources of new liquidity to come into the market, but they’re not readily apparent just yet. Then the yen has continued to advance and at the Nikkei was in positive territory in here today, but the rebound that it’s had has not been nearly as impressive as we seen with other indices, it still has really quite a wide overextension relative to the trend mean and the, the rally has largely be contained by the extent to which the Yen has had been rallying over the course of the last six weeks. Well, we had the flash rally in the yen at the beginning of the year and that is likely to represent a significant peak for the yen, but it wouldn't be beyond the bounds possibility that that at peak is retested. So I think there is the scope here for some additional consolidation in stock markets, and indeed in the high-yield markets were certainly seeing some of the biggest value investors starting to salivate at some of the valuations that are out there, but perhaps not in the FANGS, but rather in some of the more distressed areas of the market like at General Electric, for example, whereas at PG&E is, and this I think is one of the more interesting pieces of the corporate bond market. If we look at, for example, at the most liquid of our PG&E's debt, I don’t think I’ve got something that has any bonds that that can't possibly be the case so maybe we’ll find a different part of it. I was looking at their bonds relatively recently and they were trading at a a position that was I found rather interesting that the yield is in the order of about 7 or 8%. Well, we can see the extent as which we had a very big move in the daily chart of the loans but it's only in the order of a couple percent whereas General Electric unsecured debt is trading in the order of 15%. Well, that's I think an inconsistency in the market. The market is only beginning to price in the risk of a company that really could go bust for its liabilities from the California fires greatly exceed its available capital, whereas General Electric has been priced as if it’s going out of business, and that's looking really rather unlikely, so when value investors see these kinds of moves in markets well, they're obviously going to get out rather excited because you don't get these kinds of bargains all the time but when we look at the wider stock markets we’re at a very important juncture. We've had a significant deterioration in terms of the trends that we had. The consistency of the trends that was evident in 2017  has been completely broken. And now, there is increasing evidence of completed top formation characteristics and if those completed top formation characteristics are going to be negated, we’re going to have to see higher reaction lows. We’re going to have to see a sustained move back above the trend mean and so far the number of indices that have been able to do that is comparatively small, we do have at evidence of this is in some of the emerging markets. The Brazilian index was in positive territory again in here today at the BOVESPA but continues to move on to new all-time highs and the Real continues to hold the majority of its gains. Now, when we look at the Mexican Peso, it’s also been really quite firm. The big point question I think is whether it is going to be able to rally enough to break the dollar sequence of higher major reaction levels evident over the last year and ½. Then when we look at Indonesia, the Jakarta composite has been able to sustain its move above the trend mean and at the NIFTY index in India that continues to range around the trend mean as well so it certainly within the emerging markets that we’ve started to see some evidence of that demand returning to dominance, whereas I think a number of the developed markets are at very important junctures and that it really is for the Bulls to demonstrate that they can continue to reassert dominance. The fact that US treasuries are below their trend mean continues to represent a demand for a safe haven because against a background where there is an enormous amount of additional supply going to hit the market, there isn't a logical argument other than safe haven buying for why yields should be this low and I think with that I will leave you for today and I wish all the best to all of you