After so many years mired in a weak global economy, many investors were hoping that 2012 was the year of the rebound. Not so fast, according to BHP Billiton Ltd. (NYSE/BHP). BHP recently announced that it was reducing the total amount of money spent on expanding production and developing mines, which it previously estimated would be $80.0 billion over the next five years.

BHP is plugged into the global economy. It has access to many countries all over the world, getting the feel of how the global economy is performing. The company then takes this analysis of the global economy and generates estimates for future growth. BHP reported that it sees a weaker global economy and lower prices for the commodities that it mines and sells. Part of the reason for this, according to BHP, is the European crisis, which is obvious to almost everyone at this point, and weakness in China. Many investors looking at the global economy feel that China will “come to the rescue;” but here is one of the better informed corporations stating that in its view that won’t happen.

Chart courtesy of www.StockCharts.com

Looking at BHP from a technical analysis point of view, we have first the weekly chart. When studying technical analysis, I like to look at the trendlines in technical analysis from a long-term point of view. The first significant warning sign obtained from technical analysis occurred last summer, as the stock broke below the uptrend line going back to 2009. The stock naturally fell to the 200-period moving average. The stock then used the 200-period moving average as support, as it tried to regain the momentum to start a new bull run.

You will note that the downward sloping trendline since April 2011 has shown that each major high was lower than the previous one, a very bearish indication when studying technical analysis. This weakness finally culminated in the capitulation by the bulls, what was left of them, as the stock broke another long-term support level and the 200-period moving average. In technical analysis, adding together all of these signs paints a picture of a stock with very weak internal strength.

Chart courtesy of www.StockCharts.com

Looking at the technical analysis of BHP on a daily basis, you will notice the strong resistance met by the 200-period moving average. In technical analysis, the more often an indicator shows its importance, the more respect one must pay to it. Now, for all of the bad news we’ve discussed in technical analysis, the stock could make a short-term bounce, as it is entering oversold territory. But, this would not be the only reason to buy, as a stock could continue going down even if it’s “oversold.” That term is a relative one, not absolute. Notice that the low of last year pivoted at approximately $62.50. That is a significant point of interest in technical analysis. Now you have a point of reference along with a slightly oversold stock. What technical analysis does tell us is that, even if the stock were to move up, many investors would take that opportunity to sell, as we’ve seen all year long. Technical analysis of this stock would indicate that, unless the price can exceed its long-term downtrend resistance level, it won’t be in a new bull market.

In the midst of the current market correction in the price of gold bullion, a Japanese pension fund, Okayama Metal & Machinery, is going to place 1.5% of its total assets ($500 million) in gold bullion-backed exchange-traded funds (ETFs) (source: Financial Times, May 16, 2012).

This is the first time the fund has bought gold bullion in its history.

The chief investment officer of the fund said explicitly that investing in gold bullion was meant to protect against sovereign risk.

Historically, the $3.4-trillion Japanese pension market has invested in bonds, with the balance finding its way to other assets, but not gold bullion…until now.

The perception in Japan has begun to change, as retail investors are beginning to view investing in gold bullion as a protection against a crisis—whether it is a tsunami or a debt crisis like in the eurozone.

The oldest and largest Japanese wealth manager, Normura, has added investing in gold bullion in its survey to retail investors. It has found—much to its surprise—that the average Japanese person views gold bullion as the third-most desirable investment.

The second-largest financial firm in Japan, Mizuho Financial Group, has begun to allow smaller Japanese pension funds to invest in gold bullion.

Unlike North America, the talk isn’t of investing in gold bullion as a commodity, but the perception is that of gold bullion as a currency.

Now that the tables have turned and Japanese pension funds are beginning to dip into gold bullion, while the average person in Japan is warming to the idea of investing in gold bullion, increased demand in Japan is just beginning.

Follow me here. If even five percent of assets are invested in gold bullion, then five percent of a $3.4-trillion dollar pension fund market is a staggering $170 billion.

You know what that would do for gold bullion prices…

I don’t believe I’m making an outrageous claim. If the perception of gold bullion as protection against a crisis takes hold in Japan, then five percent is a reasonable portion of one’s portfolio to set aside for insurance against a crisis. I’m not even counting the average person in Japan. The $170 billion represents just the pension funds.

Besides China, Japan is joining the group of gold bullion investors around the world. Central banks as well have been investing in gold bullion in the first few months of this year, as I’ve been writing about in these pages. (See: Half of World Gold Production Being Bought by Central Banks.)

If you want to sell your gold bullion, looks like there are plenty of Japanese investors who will be happy to take it off your hands.

Michael’s Personal Notes :

Last Friday came news that Hewlett-Packard Company (NYSE/HPQ) is considering cutting 25,000 jobs in an effort to help the company trim costs and increase profits.

With the second half of 2012 looking like a continued slowdown in economic growth, I believe we will see more companies like Hewlett-Packard announcing job cuts as the year progresses.

It’s been a snowball effect…

The recessions in various eurozone countries have resulted in big American companies that sell in Europe seeing softness in product/service demand. And the slowdown in China’s economic growth is causing a pullback in demand from one of the world’s biggest economies.

After a couple of years of solid earnings growth from big American companies, I believe earnings growth will falter this year.

Amid stagnant economic growth, companies are finding it difficult to deliver revenue growth. If revenue is not growing, and companies want to increase profits, their next logical move is to cut expenses.

Twenty-five thousand job cuts at Hewlett-Packard is a big number, but percentage wise, it’s only eight percent of Hewlett-Packard’s total workforce. As more companies cut payrolls in the second half of 2012, more pressure will be placed on the unemployment rate and, consequently, economic growth in this country could easily stall.

In a global economy, it is unreasonable to believe a country as big as America can isolate itself from worldwide slowdown in economic growth.

Because of what I have outlined above, the Fed will be forced to keep interest rates low for a very long period of time. As the stock market continues to struggle and economic growth falters, the Fed will be more aggressive in quantitative easing.

So, as investor, I believe you are looking at a prolonged period of low interest rates and more money printing by the Fed, both of which are inflationary.

Eventually, interest rates will be pushed up as a consequence of inflation. It’s just a matter of when. But in the meantime, just expect more of the same…record-low interest rates to continue, government debt to continue rising, and the monetary policy to be very expansive. Oh, and let’s not forget, economic growth to deteriorate rapidly.

Where the Market Stands; Where it’s Headed:

If I am correct, the stock market is just about finished putting in a huge top that will act as the right shoulder of a classic head and shoulders pattern. This means it is more likely stocks are headed down than up.

Facebook, Inc. (NASDAQ/FB) wasn’t able to change the market’s tide on Friday. If there is one thing I know about traders, when the market is fragile, like it was last week, they don’t like to go home for the weekend with too much stock on their books.

Expect a bad summer for the stock market. The economy is slowing rapidly, so corporate profits will be stretched. Those smart corporate insiders I’ve have written about a few times this year…they jumped off the bandwagon at just the right time. (For the benefit of my new readers, corporate insiders have been very big sellers of stock this year; see: Another Key Stock Market Indicator Flashes Red.)

What He Said:

“What group of stocks is next to fall in light of the softening U.S. housing market? The stocks of companies that sell retail products to the American consumer, I believe, are next on the hit list. Many retail stocks are already reporting soft sales. In my opinion, they haven’t seen anything yet in respect to weaker sales.” Michael Lombardi in PROFIT CONFIDENTIAL, August 30, 2006. According to the Dow Jones Retail Index, retail stocks fell 42% from the fall of 2006 through March 2009.

In the classic nursery tale “Goldilocks and the Three Bears,” first put in written form by British author Robert Southey, Goldilocks ran when she came face to face with the bears. On the price charts, gold is also now facing a bear market; but will gold also run away and tank?

Looking at the chart of the June gold, the picture is extremely bearish following the recent break below $1,600 and the subsequent failure to hold at $1,550. In fact, it has been a big and steady decline since trading at a record contract high of $1,928.30 on September 6, 2011, and just below $1,800 in late February. With the decline, the June gold currently sits at 20.33% below its September price and officially in a bear market and trend reversal.

Gold failed to hold on to its base with support at $1,620 and has broken lower. Now the key is to watch if gold can hold at $1,500 to $1,525 on the extreme oversold technical condition.

The June gold is below its 200-day moving average (MA) of $1,701 and 50-day MA of $1,648. There is a bearish death cross on the chart, so there could be more weakness.

The threat now is the 11-year streak, as gold is down nearly two percent this year.

While gold is in a technical bear market, I’m not ready to give up, but then I would also be more careful in adding gold positions whether in physical gold or gold-based stocks. The reality is that the current technical picture is bearish and void of any buying interest.

The downside break at the base support was bearish. Recently, I suggested that a “further decline to $1,550 would represent an excellent buying opportunity for the metal.”

We are at that juncture and I’m not sure I would pull the trigger at this point, fearing there could likely be more downside risk ahead. The extremely weak Relative Strength will place a drag on prices. A break below the 13-week low of $1,526.70 would be bearish. A further move down to $1,511 if gold fails to attract any buying support could be in the works, with a breach of $1,500 a realistic possibility. We could soon see $1,400 gold again, last encountered in June 2011.

Looking at it from another angle, the fixed exchange rate between gold and silver was 15.5:1 in the 19th century, but it moved much higher to average 47:1 in the 20th century. The spot gold price was $1,549 on May 16, compared to $27.84 for spot silver. This equates to a current gold-silver ratio of 55.63, which means the price of gold could fall further to the average—implying a gold price of $1,308, down another 15.56%. Of course, silver prices could be undervalued based on this ratio and head higher.

On the plus, if the June gold can hold at its 52-week low of $1,482.50, we could see a rally based on what I view continues to be above average global risk, which I discussed in Global Market Risk: Is it Improving?

Given the current downward pressure, my advice is to adopt a wait-and-see approach.

Gold and oil prices are having a really difficult time right now and I suspect that the falling price trend will continue for another month or so. The spot price of gold is going down because that commodity was due for a correction and because of strength in the U.S. dollar, which is trading up on worries about the eurozone. Oil prices are going down because of a massive of glut of oil in storage in the U.S. market and due to reduced expectations for global economic growth. It is the age of austerity and, frankly, I think it’s fair to expect a lot of change over the next 18 months, and by change I mean politically, economically and socially.

So far during the recent price correction, the stock market is holding up well. If the S&P 500 Index broke 1,300, I’d be more concerned, but because the market isn’t overpriced, institutional investors will continue to buy dividend yield when the market retreats. As for gold and oil prices; being commodities, they could experience significant price swings for the rest of this year, even as part of a long-term uptrend.

It’s going to be very difficult speculating on the long side in gold and oil stocks over the next several months. Oddly, it seems like the eurozone is calling the shots in U.S. capital markets. At the very least, the sovereign debt crisis is responsible for domestic investor sentiment.

I’m waiting for a bottom in spot gold; when it happens, I believe speculators should jump all over gold-related investments. The only caveat is the risks associated with the euro currency. Any breakup in the eurozone could have a cascading effect on currencies and the resulting “flight to quality” would skew the U.S. dollar above its fundamentals. As gold and oil prices tend to trade inversely to the U.S. dollar, spot gold could be down for a long time, because of the sovereign debt crisis and the resulting currency chaos.

So, it goes without saying that investment risk for investors remains very high at this time. All assets, even real estate values, are vulnerable with currency instability. I don’t know how things will play out in Europe, but the fact of the matter is, Greece never should have been admitted to the euro currency in the first place. In the end, a massive upheaval in the eurozone is likely over the next couple of years and investors need to protect themselves.

Near-term, gold and oil prices should experience more downside, as speculators pile into the trend. I see gold as a very important asset to own for the rest of this decade, but the price of gold will be skewed by the U.S. dollar trading as the only reserve currency. As for oil prices, I figure we’ll see price consolidation around $90.00 a barrel, which will be a boost for consumers and the industrial economy. (See The Winning Stock That’s a Positive Sign for the Economy.) Oil prices are the pulse of capital markets in terms of sentiment and expectations for economic growth. Right now, oil prices are saying things are slowing down.