Cliffhanger...

The backdrop of the global economy is one of an acceleration in Covid and a rolling shutdown of major economies.

Global Covid-19 cases show no signs of abating and our model continues to play out nearly perfectly. Vaccines are being rolled out but won’t really kick in until May/June at best.

The alternative investment and art market seem to be the optimum store of value as well as the precious metals market, and of course, Bitcoin.

Deaths are perfectly lagging cases....

There will be no choice but for Biden to try and impose much stricter measures in the US and force as much of the country as possible into lockdown. He fought the election on this and he needs to buy time for the vaccine to be rolled out or the virus will accelerate with the new UK strain.

In case you didn’t get what I’m saying, or skim-read it, let me reiterate: Our estimates show that in the NEXT THREE MONTHS the world is probably going to DOUBLE the number of deaths from Covid accumulated during the entire last TWELVE MONTHS!

This is the nature of a pandemic. No one is prepared for this and governments around the world will have to act.

We are already seeing an economic slowdown across the world and it’s likely to get worse – a double dip recession has to be the base case...

This is simply not priced into markets.

The market has chosen to take the reflation narrative and has leveraged it to the hilt. Everyone is ALL IN.

The bond market shows the speculative positions in 30-Year Bonds are bouncing off the 4 standard deviation short-position level. Unparalleled in the history of US bonds...

We saw similar in Eurodollars back in 2019, which hit 4 standard deviations. Six months later, Eurodollars exploded higher... a flight to safety!

But when we look at the 10-Year Yields (Chart of Truth) cycles always end at the bottom of the regression channel. It feels like we have unfinished business as rates go to zero...

But the thing that really worries me, is not the bond market but the equity market, which is now in clear bubble territory. Euphoria is all-time record highs.

Retail small investor call-buying broke new all-time records.

And the market is record-long gamma. The ultra-speculative pink sheets; over 1 trillion shares traded hands in December!!!

In December/January, Tesla became the epicentre of the wild, rampant speculation. Even the market itself has become the most speculative in terms of index constituents.

And valuations are at all-time highs, levels which have preceded major falls in the Index. It even looks a lot like 1987...

And Mutual Funds have the lowest levels of cash in history...

That has pushed valuations to peak, versus GDP, it’s an all-time high. Technically it has one of the largest RSI divergences in history.

This is in the top three most overextended markets in all history, using regression... We are in such rarefied air, that we have just printed a yearly 9-top in DeMark... which has completed a 9-13-9 yearly top. The last 9-top on the yearly chart was the stock market crash in 1987. The top gave 12 years of sideways price action. I’m getting very concerned that the stock and bond market are about to have risk off moment where the market reverses the positions rapidly. I’m not sure if the big move comes yet or in a few weeks, but it feels like it’s coming. The 1987 parallel suggests it might come after a new push higher.

I just don’t know.

I have some small bond positions on. I am watching this like a hawk to add, once price action turns. The equity markets, if I’m right, should give us an entry point on a Crash Pattern (fall, bounce, fall)

The set-up is eerily like this time last year and, if it plays out, it suggests new highs before the fall, mirroring 1987...

I don’t have a crystal ball so I don’t know exactly how or if this will occur, but I’m positioning for a big move.

Ok, so let’s assume I’m right. What happens next?

Well, the Fed step in to print and the government steps up the urgency of massive fiscal stimulus. Bond yields will fall in that scenario (low growth plus Fed buying) and the Fed will likely pin them lower with yield curve control.

That much printing will cause gold to rise again (falling bond yields help massively) ...

Gold is in a channel, which I expect to break to the upside in due course. A new high in Gold would be a MASSIVE break of the largest bullish cup-and-handle pattern in Gold’s history. This would create a mega trend for Gold...

And finally, bitcoin has been correcting in recent days but is following 2013 very well. It could hit $50,000 or even $100,000 and then correct significantly.

It is not a forecast. A bigger correction will come again, when it comes again. Just be ready to buy it.

Remember:

• If I’m right and we have another deflation and growth scare, the answer is more printing and BTC and Gold go up.

• If I’m wrong and we have inflation, the outcome will be BTC and Gold rising. But overall, I think the deflation scare is more powerful, even if Gold and BTC get hit in a liquidation for a short period.

Investors know that the outcome for a liquidation event is much higher prices in Gold and BTC and with institutions on the bid, the chances of a sharp hit like in March is much, much lower than people realise.

What happens to equities after a hit? I have no idea, but I think retail speculators will move on to the next shiny thing – crypto, especially if they have new stimulus checks to spend.

Conclusion

With Covid rising sharply and economies slowing rapidly, there is a rising chance that investors are too far one sided. (Think everyone running to one side of the boat, one side sinks and the other lifts.)

Proceed with extreme caution and have some cash on hand to add to the positions that count, and also get ready to potentially makes some trades to capture this move, if it unfolds.

So how does this relate to art?

Well....

Like any asset with fix supply or scarcity the value is likely to increase as The reaction function from central banks is generally to print more money and throw it at the economy.

While different artists have different valuations from a fashionable perspective it is likely that all art of importance and most alternative investments of scarce supply will increase in value.

The entire art market has a very bright future!

Any chance you see that challenges this is noise as any serious our investor knows the chart input is simply and entirely data driven from public auction. Private art sales, gold, Bitcoin, farmland are true stores of value in a very uncertain future.

Have a great day everyone, thank you for your attention and be safe out there .

M.Peat

Rhodes Fine Art - February 2021 Cliffhanger