Friday, October 30, 2009

What kind of bull is this?

The 12 month moving average has been a pretty good tool for spotting bull and bear markets. However there are two types of bulls, cyclical and secular.

The first two charts appear to be cyclical bulls. The S&P is most definitely a cyclical bull within a secular bear. The CRB is debatable at this point. Generally speaking the only asset class that can even be vaguely considered to have improving fundamentals would be commodities. However the demand side of the equation is now impaired for most commodities.

Certainly many commodities can rise based on nothing more than currency debasement. We are certainly seeing that right now in the energy markets. But on the whole a true secular bull market needs to be firing on all cylinders and that means not only a currency component but also a supply and demand imbalance. The ongoing global recession has taken away the demand side of the equation.

This last chart is most definitely a secular bull market and one that's starting to catch fire. The gold bull is firing on all cylinders. Not only do we have currency debasement but we are also seeing a tremendous supply and demand imbalance in the precious metals market as investors and many central banks scoop up the rare metal as protection against oncoming inflationary pressures. This at a time when almost every gold mine is struggling to keep up production.