Saturday, November 26, 2011
Well, sure enough just a few short days later, the stock market broke out of the triangle pattern on the daily chart of the S&P 500 and started heading south. This was a huge tip for currency traders.
You see, when stock market breakouts happen like that, it illustrates currency traders which currencies will likely benefit and which ones will likely suffer from the breakout. In the industry, we call it the “risk on” or “risk off” trade.
When stocks breakout southward the risk-off trade is in play and when stocks breakout northward on the chart, the risk-on trade is in play. Now as investors, you just need to know who’s in the risk-on and risk-off camps.
So some of the risk-on currencies are the Australian dollar, New Zealand dollar, Canadian dollar and even sometimes the euro and the pound.
Emerging market currencies like the Mexican peso, South African rand, etc. are also risk-on currencies since they are influenced by commodities and have higher interest rates.
The risk-off currencies are the defensive currencies like the U.S. dollar, Swiss franc and yen. The dollar is really taking the lead right now as the “defensive currency of choice” because the central banks of Switzerland and Japan have made the other ones essentially bad defensive choices because of these central banks intervening in their currencies to weaken them.
So if you have an opinion on where stocks are heading, whether up or down…then you also have an opinion of whether the risk-on trade will be in play or if the risk-off trade will be in play. And knowing that, you’ll be able to know which currencies have an edge and which ones don’t. Then you can play them against each other.
For instance, if the risk-off trade favors the dollar and hurts the Aussie dollar and New Zealand dollars then you can sell-short AUD/USD or NZD/USD and benefit from both dynamics going on there.
So keep an eye on what stocks [and even commodities] are doing and you’ll have a great take on what is going on in the currency market even though you may not have as much experience in the currency market. This is a great way to take your stock market experience and translate it into what that means in the currency market.
As investors , you will find that transacting your trades in the currency market (rather than the stock market) can carry some distinct advantages such as: no commissions, just the spread to pay…less slippage, quicker fills on your orders, 24-hour a day trading, etc. Happy investing in the currency market
Saturday, November 5, 2011
Why does that matter? The Japanese yen has been making large gains against the U.S. dollar, reaching an all-time high until yesterday’s intervention, the second in three months. A strong currency (one that’s gaining in value relative to other currencies) is bad for a country’s exports. And Japan, the world’s number three economy, is a huge exporter of cars, electronics, robots, laptops and computers.
Those are high-value goods where astute customers are always looking for bargains. Japan needs a weaker yen to keep their economy afloat. That’s a hint to the market that the global economy isn’t as strong as expected.
The market expects a stronger price for the yen. That’s a bit ironic, as the yen is still seen as a “safe-haven” currency in times of tumult. But, like prior interventions, this one will ultimately fail.
JAPAN / USA/ SWISS are making currency intervention. Is it working? No
The question investors have to ask about these interventions is simple: Who benefits from this, and who suffers as a result? The specifics always vary. Governments benefit first, as they get to spend the newly printed money. Individuals see the decline of their purchasing power over time, as they’re on the bottom end of the fiat currency food chain.
Japan’s numerous interventions are part of a wider attempt to print its way out of a multi-decade bout with deflation. So far, it hasn’t worked. Just like a child at the beach building a sandcastle too close to the water, eventually the wave of market forces will wash away that labor. When that happens, some children cry. Others laugh in delight and rebuild again and again. The latter, it would seem, grow up to be central bankers.
Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.
Thursday, November 3, 2011
“(1) Co-ordinated fiscal tightening, with fiscal tightening of c1.8% of GDP in the US for 2012: Congress will vote on the report by the Super Committee on the targeted $1.2tn cut in the budget deficit. The report is due on November 23 –yet, various US rate strategists think the real deadline by which a deal has to struck is November 10 (in a way that the proposals can be evaluated by the CBO and put into legislation). So far, there is little sign of agreement between Republicans and Democrats. If they fail to reach a deal, there will be automatic cuts to discretionary spending worth $1.2tn and applied across the board. This would create subpar growth for the economy.
(3) China housing turnover: I am also worried that the preconditions are in place for a sharp fall in Chinese housing starts. According to one commodity analyst, housing starts are running 80% above demand and highlights that property stock per capita in urban areas has risen to 27sqm from 10sqm over the last decade. Housing accounts for 10% of GDP directly, but double this once it is added to the indirect effects. I have highlighted on 29 October’s State Council meeting re-emphasised tightening on property, and urged local governments to strictly implement tightening measures. In order to facilitate property price correction, it plans to further increase land supply for private housing.
Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.
Monday, October 31, 2011
The Fed has already carried out two rounds of quantitative easing — asset purchases from banks that pump money into the economy and send stock prices rising — and officials at the U.S. Central Bank have hinted a third round may be needed to fuel growth and ultimately, more hiring.
Side effects of such moves include rising inflation pressures, which are already on the path to getting worse. "Will it be effective? I think it will be effective in raising the stock market, absolutely. But not that much. Maybe a little.
If you raise the stock market, you will boost the economy by boosting people's confidence and spending.
Now the bad news is coming.....Food rationing is coming to USA.
Despite signs that inflation rates may cool, such as dipping global commodities prices, past quantitative easing rounds have pumped enough money into the system that consumer prices and prices at the wholesale level will continue to feel pressure to climb. US economy would be on food rating very soon. According to John Foley at the New York Times, "Food riots in 2011 are possible...."
Now I have a feeling that the world still looks and feels "nice," I have a tough time believing there's trouble brewing. It's basic human nature: why change what you're doing, if things aren't that bad?
But I believe, based on the information I've gathered... and my experience following the commodities markets for more than 12 years, it's only a matter of time before this development goes from bad to worse...
The US Government theft of the food supply will likely escalate... as US Dollar continues to weaken and as global supply routes get choked off. Over one million Americans have heard the evidence for 50% unemployment, 90% stock market crash, and 100% inflation. Be prepared.
Any time you print money you are going to get higher inflation. There's a lot of things that can slow the onset of inflation, but that doesn't prevent inflation. I think America is in that period where US is slowing the onset, but it's clearly still starting to come, and I think its going to see it going over 5 percent next year."Investors, meanwhile, need to rethink their strategies in light of what the Federal Reserve's policies have done to various asset classes. By unleashing enormous sums of dollars into the economy, the Federal Reserve has weakened the currency to create Asset bubbles in the emerging economies especially China.
And when the currency weakens, gold strengthens.
However, when stimulus measure stops and the excess liquidity drains out of the system, stocks can fall.
Investors are going to have to be more careful in how much exposure they take to those areas,and they are also going to have to look at alternative investments, things that are a little more uncomfortable, things like gold, certainly, but also just a little more protection. Its new for investors: If they don't want to go into more unconventional investments, they are going to have to accept some lower returns."
The U.S officially emerged from the Great Recession in 2009, but the government can claim victory over the downturn thanks to its fiscal and monetary stimulus measures, and not to natural recovery.
While government borrowing and money-printing can act like defibrillators and jolt some life into economic indicators, at the end of the day, the economy never emerged from the downturn that began several years ago.
USA is still in the same recession it were in 2008 and 2009, but Fed suspended it with massive money printing and massive government borrowing. That's helping to keep the economy out of what really is a recession.
If the stimulus goes down, USA is going to print as much money right now and they are increasing the amount of borrowing that would lead to head back into a slower economy and sub-par growth. And if they can stimulate it again but its always on the edge of going back into that 2008-2009 original recession, unless US government is running that stimulus. The additional easing programs hinted at by Federal Reserve officials will push yields on longer-term Treasuries higher. Sovereign monetary and fiscal policies, while generating undersized real growth, have managed to produce disproportionally large inflation which is dangerous for the consumers in the long run.
Saturday, October 29, 2011
There has been a major overhang, so I will see the easing of some pressure going forward, but the problem will come back because the Western world still has not dealt with its debt. Most European countries are increasing their debt rather than decreasing their debt. Until that changes, the problems are going to continue, just as they will in the U.S.
The European Union’s agreement shared with investors says that with banks for a voluntary 50 percent writedown on their Greek bond holdings means $3.7 billion of debt-insurance contracts won’t be triggered. Lets see how the global markets behave in the next 6-months. I see a lot of blood in the market.
Monday, October 24, 2011
Is it a moral hazard? The bailout of European financial institution Dexia highlights the fragility of banks worldwide, including in the U.S. I already predicted about the collapse of Dexia 6-months back in one of my TV shows.
Dexia’s trading partners include U.S. institutions Morgan Stanley and Goldman Sachs have taken steps to limit their exposure to Dexia and to protect themselves from further problems in Europe as a whole.
While banks can lend less to their troubled counterparts, exposure still doesn't go away in a sense that nobody knows how long previous bailout money will keep the creditors paid whole and the system afloat.
Those who favor such bailouts say they are necessary to preserve financial institutions, while critics say they only encourage shaky lending behaviors to continue, citing those who did business with U.S. insurance giant AIG as Freddie and Fannie Mae were other examples. I am in favor of restructuring and not in favor of bail out since economic cost is very high and above all its the Tax payers money.
Hence, phrases like "moral hazard" and "too big to fail" are grabbing headlines again in the international media.
The question is, did the AIG experience and the bailouts generally contribute to the current situation?
Would the banks "have had a different view in dealing with Greece — or with Dexia for that matter — if those who had dealt with AIG hadn't been made whole?"
Other experts point out that Dexia is not the only bank exposed to iffy European sovereign debt and operating on unfinished restructuring plans from the past. Many more banks might collapse soon.
There is a reasonable likelihood that it could start unwinding, and once that starts it could all go in a blur, meaning an international banking system running into more and more trouble raising the money to operate. BASEL 111 in operation. Happy investing
Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK
Sunday, October 23, 2011
Bank bailouts, huge deficits, high unemployment, sovereign default risk, depressed credit rating and austerity. Where as in emerging markets, the news is different: booming economies, sky scrapers going up, unemployment decreasing. and increase in purchasing power of people.
As opposed to Europe, a few South American countries in the past year have actually had their credit ratings increased in recent times. Part of the reason that people I knew are moving to these places is just to be a part of that boom. The positive aura breeds success.
Despite the problems in the West, there is still a lot of opportunity and wealth in these countries. However, my friends thought that all of the recession, economic downturns, etc., would affect them regardless of their success.
However, to make such moves takes a lot of courage and foresight. Most people will remain in the West because they don’t know anything else. Few will do what famed investor Jim Rogers and Marc Faber have done and move from the United States or Europe to Asia [ Singapore & Thailand] despite the opportunities there. John Templeton moved from the United States to the Bahamas in the 1960s, where investing got even better after his strategic move. However, making an investment like this in your life is something that investors should consider.
Moving to such a nation as Malaysia, Singapore,Indonesia, China, Vietnam, Peru. Etc., where things are booming and opportunities abound may be just what many people need to get out of their rut. On top of everything else, real estate is often much cheaper in these nations as is the cost of living. It may seem outlandish and crazy, but it might be the best investment investors can ever make.
Saturday, October 8, 2011
World Economy Faces the ‘Great’ Depression of the 1930s or the Long’ Depression of the 1870s. By Shan Saeed
You know it’s grim when the prevailing debate among economists and historians is whether the world economy faces the “Great” depression of the 1930s or the “Long” depression of the 1870s.
Harvard professor and economic historian Niall Ferguson, a fan of the British government’s austerity drive and skeptic of further stimulus, reckons the world is facing a “slight depression” and favors comparison with the late 19th century rather than 1930s.
Long-term market bear Albert Edwards at Societe Generale has talked more apocalyptically for years of an economic “Ice Age” dominated by household deleveraging, low growth and deflation.
But now “depression” is very much back in the mainstream lexicon as the small economic bounce from the deep global recession of 2008/09 fades rapidly after little more than two years and Europe’s bank and sovereign debt crisis intensifies. The currency crisis will escalate in
Economist and doomsayer Nouriel Roubini now says there’s a “huge” risk of 1930s-style depression ….Jim
HSBC chief economist Stephen King, who wrote earlier this year of a “new economic permafrost”, warned last week that the systemic financial threat of a euro zone collapse and breakup risked another “Great Depression”.
As I have shared for the last 3-years, the global economy is in a depression, and – because the government has done all of the wrong things – Market players are stuck in it.
It Could Be WORSE Than the Great Depression
§ Nobel prize winning economist
Bad Government Policy Has Us Stuck
§ The government is doing everything else wrong.
This isn’t an issue of left versus right. It’s corruption, misinterpretation of facts, and bad policies which help the top 1% but are causing a depression for the vast majority of the people either in
Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.
Friday, October 7, 2011
My prediction has come true in 2011 as well. First major European bank Dexia is looking for bail out. It has collapsed. The giant bank is looking for funds to remain floating on the sea otherwise it would sink.
First major European bank bailout of 2011 has now happened. French/Belgian banking giant Dexia has failed and both governments have pledged to participate in a rescue plan. But Dexia will not be the last major European bank to fail as I said earlier. There are many more banks to be balied out and this would destory tazx payers money. Its a big moral hazard. Let them fail and go bust.
Even now, governments all over Europe are feverishly developing plans to bail out major national banks in the event that the current financial crisis goes from bad to worse. Instead of learning the lessons of 2008, most major European banks have continued to pile up huge mountains of debt, leverage and risk. Now the bill for that stupidity is about to be passed on to the taxpayers of those nations. But with most nations in Europe already drowning in debt, are bank bailouts really the right course of action? What is it going to happen to Europe if dozens of major banks start failing and trillions of euros are needed to bail them all out?
Dexia is the first victim of the new credit crunch. It got to the point where Dexia simply could not get access to the funding that it needed in the credit markets.
It is starting to see this all over Europe. Nobody wants to loan much money to European banks right now because it is unclear what is going to happen next in Europe and it is uncertain which banks are stable and which are on the verge of collapse.
This is so similar to what happened back in 2008.
But Dexia is not going to be "the next Lehman Brothers" because the governments of France and Belgium are stepping in to save Dexia from collapse.
A recent article in the Financial Post described how the rescue of Dexia is likely to proceed....
Dexia will effectively be broken up, with the sale of healthier operations while toxic assets, including Greek and other peripheral euro zone government bonds, will be placed in a state-supported “bad bank.”
The details of the plan will be negotiated over the coming days, but authorities are making it clear that Dexia is not going to be allowed to collapse. Bank of France Governor Christian Noyer is assuring everyone that Dexia is going to have access to plenty of liquidity....
"We will loan Dexia as much as it needs"
It appears that the "too big to fail" doctrine is alive and well in Europe.
Sadly, this is not the first time that Dexia has been bailed out. France and Belgium also bailed out Dexia back in 2008. People tend to forget about financial and economic history.
But this was not supposed to happen.
Just three months ago, Dexia received "a clean bill of health" from regulators during European Union bank stress testing. Stress test was an illusion.
It just shows how credible those "stress tests" really are.
So are more European bank bailouts coming?
It certainly looks that way as I have predicted at the start of this year in 2011. I see lot of blood in the global financial markets and bail out of banks at various level of bankruptcies.....
An article in the Financial Post on Tuesday i.e. 4th October stated the following....
European finance ministers agreed on Tuesday to prepare action to safeguard their banks as doubts grew about whether a planned second bailout package for debt-laden Greece would go ahead.
Of course when they talk about the need "to safeguard their banks" they are talking about those that are deemed "too big to fail". Just like in the United States, banks that are "too small" don't get bailed out at all.
But western governments are very protective of the big banks. The big banks are allowed to take gigantic risks, and if they succeed they make tons of money and if they fail then the taxpayers bail them out. Bailing out is not the solution to the current mess of the global markets and financial institutions.
With big trouble on the horizon in Europe, authorities are already getting ready to bail out the major banks. A Bloomberg article from last monthacknowledged that the German government has been very busy getting ready to bail out their major banks in the event that a Greek default becomes a reality....
The fundamental problems that Europe is facing are not being solved and the financial crisis is getting progressively worse. With each passing day, more bad financial news comes pouring in.
Chancellor Angela Merkel’s government is preparing plans to shore up German banks in the event that Greece fails to meet the terms of its aid package and defaults, three coalition officials said.
For example, Moody’s slashed Italy’s bond ratings by three levels on Tuesday and Spain on Friday as well.
A reduction of just one level is very serious business. For Moody's to hit Italy that hard is a really big deal.
Italian banks have also been targeted by the credit rating agencies. The other day, S&P slashed the credit ratings of seven different Italian banks and more to come for Spain and Portugal.
If Italy goes down, it is going to be an absolute nightmare. The Italian economy absolutely dwarfs the Greek economy. The EU has been really struggling to bail out Greece, and there is no way in the world that they would be able to bail out Italy.
So if nations such as Italy or Spain start collapsing, will the U.S. Federal Reserve step in to help bail them out?
You never know.
The sad truth is that the Federal Reserve can do pretty much whatever it wants and nobody can stop them.
As I wrote about the other day, the Federal Reserve has agreed to join with other major central banks to lend hundreds of billions of dollars to major European banks in October, November and December. Quantitative Easing is going global and getting the recognition for its failure to stimulate the economy.
As the past few years have shown, wherever big, global banks are in trouble, the Federal Reserve is sure to step in and help.
And many big banks in Europe are definitely headed for trouble. Right now, European banks are holding more than $4 trillion in European sovereign debt.
A lot of that debt is bad debt. Today, troubled European nations Greece, Portugal, Ireland, Italy and Spain owe the rest of the world about 3.7 trillion euros combined.
That is a whole lot of debt out there, and many big banks are so leveraged that just a 5 percent reduction in the value of their holdings could wipe them out.
Hold on to your hats folks. So what should we be witnessing in the next 3-months?
Well, Greece continues to be a huge problem.
The IMF, the European Central Bank and the European Union are very frustrated with Greece right now.
On Monday, it was revealed that Greece is not going to hit the deficit reduction targets set for it by the "troika" either this year or next year.
European officials have been particularly displeased that Greece has been getting all of this aid money and yet has not been strictly adhering to the austerity measures that they agreed to. Austerity is contractionary, leading to recession for the economy and abysmally low confidence in the market.
However, the reality is that the austerity measures that Greece has actually bothered to implement have hit the Greek economy really hard. The more Greece reduces government spending the more the Greek economy seems to slow down.
Greek Finance Minister Evangelos Venizelos recently announced that the Greek economy is projected to shrink by 5.3% in 2011, and Greek debt continues to spiral out of control.
Meanwhile, severe economic pain continues to spark huge protests all over Greece. Scenes of riot police firing tear gas and protesters throwing stones at police have become so common in Greece that most of us don't even pay much attention anymore. Social cost would be huge for the economy. Its all about economics. When people dont have jobs, dont have food, dont have sense of purpose to their lives, its an excruciating agony.
But all of us should pay attention to what is happening in Greece.
Eventually these kinds of economic riots will spread throughout the rest of the western world as well.
And every day Greece just seems to get closer and closer to default.
At this point, global financial markets seem to consider a Greek default to be inevitable. The yield on 2 year Greek bonds is now over 65 percent. The yield on 1 year Greek bonds is now over 135 percent.
Greece is toast without more bailout money.
But now major politicians all over Germany are declaring that Germany is done contributing money to the European bailout fund.
And without Germany, the rest of the eurozone is not going to be able to continue the bailouts.
So the clock is ticking.
Once the current bailout fund has dried up, the bailout game will be over.
What will happen then?
Will that be what sets off a massive financial collapse in Europe?
Could we actually see the end of the euro?
For a long time there was speculation that it would be weak nations such as Greece that would leave the euro.
But now it appears increasingly likely that if someone is going to leave the euro it might be Germany.
Most German citizens would be in favor of such a move. One recent poll conducted for Stern magazine actually found that 54 percent of all Germans would favor leaving the euro.
But if Germany left the euro it would absolutely implode. German economic strength is the primary thing holding the euro up at this point. Germany is driving the United Europe.
In any event, it is going to be very interesting to watch what will happen to Europe over the coming months.
Greece, Italy, Portugal and Spain are all steadily marching toward collapse.
Germany says that it is done bailing out other members of the eurozone.
Dozens of major European banks are teetering on the brink of disaster.
People get ready - a storm is coming. Time is running out for Europe and there is no help in sight going forward.
Discalimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK