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Stocks to Crater 27%, Bonds to Rally & Gold to Remain Firm
Today a top analyst at Citibank told King World News that global stock markets are set to plunge 27%. Fitzpatrick, a 28 year veteran and top analyst at Citibank, which has $1.3 trillion in assets, also said the panic will move global bond markets to extreme levels, but gold will remain firm. Here is what Fitzpatrick had to say: “Our bias, both in the shorter-term and in the medium-term is we will have more losses on the S&P. The setup is very similar to what we saw when we came off the peak last year. We formed a similar type of head and shoulders pattern and the initial down-move (at that time) took us to the 200 day moving average.”
Tom Fitzpatrick continues:
“So our bias is to think that (we will head down to the 200 day moving average), in a similar fashion to what we saw last year. That is down quite a bit below present levels, at around 1277 (on the S&P). This would translate into 700+ points (lost) on the Dow, to the region of around 12,000.
We have two long-term overlays we favor. The one we favor the most is the ’73 to ’77. We favor this one because it has so many dynamics in play that fit with the (current) equity market. (At that time) we had a similar deterioration in housing, in the economy as well as in the dollar, gold and the oil price shocks.
So this most closely fits the markets and the underlying backdrop of what we see today. If we look at that overlay, we sense that we may have already put in the peak here, the suggestion is that the next down-move would be in the region of 27%. This could be a very quick move, in as little as four or five months.”
When asked if he remains bullish on gold, despite the fact that the markets should plunge, Fitzpatrick responded, “Yes. Overall, on a medium-term basis we remain bullish. Obviously we recognize that when you get these nearer-term type of risk dynamics, any market that people own tends to come under some pressure.
But we still believe that when you look at the gold price independently, in terms of the way it trades, that we are in a consolidation....
Continue reading the Tom Fitzpatrick interview below...
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“We are in a base-building process. It’s not necessarily going to turn around and go shooting up overnight.
We may be doing this (consolidating) for a number of months, particularly if we have some underlying and/or economic stress, with Europe being the greatest focus at the moment. Then, it is quite possible that we will see gold chop around.
But we do believe from both the technical, price action perspective and the backdrop, this is a platform that will see gold move higher. Gold will continue to perform well against paper currencies. We believe gold will go higher against a dollar, which strengthens against the euro.”
When asked about the implications for the global bond markets, Fitzpatrick stated, “The German ten-year yield is obviously leading the way in terms of its breakout. Looking at this chart, on the breakout (below the 1.5% level), we could easily be looking at the region of 1.2% to 1.3%.
We also believe, when we look at the setup of the US ten-year yield, it suggests we could actually be seeing levels as low as 1.15% to 1.2% on US ten-year yields also. Overall, when we look at these bond market charts, and in particular when we look at the US charts, the indication of the type of levels we may go to, on yields and on the yield curve, are levels that are very hard to justify when you look at the underlying fundamental backdrop in the US.
So our bias is to believe these moves that are going to come, are going to be people who are actually trying to preserve capital. The most likely cause and effect on this is going to be further turmoil (in the markets). Essentially, in that instance, the beneficiaries would tend to be German bonds, US bonds, the US dollar and the Swiss franc.”
© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.
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Eric King
© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast,
rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.
May 10, 2012
