Analysis and Charts of Global Markets

written by Gary Dorsch, Editor and Publisher

“Dangerous Divergences” betweens Bonds and Stocks,

Jun 4, 2013

It all seems so surreal. After being mesmerized by the Fed’s hallucinogenic “Quantitative Easing,” (QE) drug, and seduced by the Fed’s Zero Interest Rate Policy (ZIRP), and rescued by the Fed’s clandestine intervention in the stock index futures market, for the past 4-½-years, it’s easy to forget that there was once a time when the Fed’s main policy tool was simply adjusting the federal funds rate. It’s even harder to recall that two decades ago, the Fed’s raison d’être was combating inflation, whereas today, the Fed’s main mission is rigging the stock market, and inflating the fortunes of the wealthiest 10% of Americans.

How high Can the US$ Fly versus the Japanese Yen?

May 13, 2013

Shale Oil is a Big Game Changer for Dow-to-Gold Ratio

Apr 16, 2013

Since mid-November, the market value of the Dow Jones Industrials – compared to the price of Gold (the Dow-to-Gold ratio), was moving steadily higher. Traders figure the best way to profit from the Fed’s QE-schemes, is through purchasing US-stock market index futures and ETF’s. Today, 1-share of the Dow Jones Industrials can fetch 10.7-ounces of Gold, compared with only 7.35-ounes last November. Given that the Dow peaked at 42-oz’s of Gold in 1999, there’s still plenty of room for the Dow to regain lost ground against the yellow metal. When speaking of the Dow-to-Gold Ratio, - no matter which way the wind blows on Wall Street, the Dow is likely to gain further ground compared to the price of Gold.

Dealing with QE-Wars and Currency Devaluations

Mar 20, 2013

What’s most urgent right now, is learning how to profit from the QE-Wars and competitive currency devaluations that have become the “New Normal” of in today’s marketplace. And as long as governments’ budget deficits continue to spiral out of control, presumably, there’s no end in sight to how much currency that central banks will print, or how much politicians will try to tax. A key question facing investors is - what is the best strategy for staying ahead of the money printing schemes and currency devaluations that are expected to unfold in the year ahead?

No End in Sight for Global “Currency Wars”

Feb 14, 2013

A January 16th warning issued by Russia’s central banker Alexei Ulyukayev has also set the narrative for the G-20 meeting. “The world is on the brink of a fresh “currency war.” Japan is weakening the yen and other countries may follow. If Japan continues to pursue a softer currency, reciprocal devaluations would hurt the global economy,” Ulyukayev warned. “We’re on a threshold of very serious and confrontational actions. The new government of Japan is a course towards a very protectionist monetary policy through a sharp depreciation of the yen. Other colleagues from respected central banks and governments already pursue this policy. This is not a path towards global coordination but rather a separation,” Ulyukayev declared.

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"Dangerous Divergence" between Bonds and Stocks

Updated 3:21 PM, Jun- 5, Wed

James Carville, a former political adviser to President Clinton famously remarked at the time that “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody,” he remarked. The Treasury Bond Vigilantes, - is a nickname that was used to refer to a legendary band of renegade bond traders, who used to fire-off warning shots to Washington, by aggressively selling T-bonds in order to protest any monetary or fiscal policies they considered inflationary. --------------------- However, the so-called T-bond vigilantes appeared to be dead and buried over the past few years, as the US-Treasury was able to borrow trillions of dollars, largely financed by the Fed at the lowest interest rates in history. Keeping the T-bond vigilantes on ice, is a key linchpin of the Fed’s Ponzi scheme, that’s used to inflate the value of the US-stock market and keep it perched in the stratosphere. ------------ However, last month, (May ’13), something very strange began to happen. It looked as though the long dormant T-bond vigilantes were suddenly beginning to awaken from their slumber. Indeed, - the long-end of the US Treasury bond market suffered its worst monthly decline in 2-½-years, as yields jumped to their highest levels in 13-months. Ticker symbol TLT.N, - the iShares Barclays 20+ Year Treasury Bond fund lost -7% of its market value. It looked as though Wall Street’s bond dealers were whittling down their holdings of T-bonds, - acting upon insider information from the New York Fed, - that the biggest buyer in the T-bond market could soon reduce the size of its monthly purchases and thereby cause T-bond prices to fall. Interestingly enough, T-bond yields jumped +50-bps higher even though US-government apparatchiks said inflation was only +1% higher than a year ago. --------------- The recent plunge in T-bond prices did trigger a knee-jerk sell-off in the stock market, that briefly knocked the Dow Industrials lower to the 15,100-level. -------------- Still, many traders don’t believe that the Bernanke Fed could ever kick the QE-habit and act to tighten the money spigots. Since May ’12, traders have played the “Great Rotation” – shifting out of bonds and moving into stocks, seen as the best way to profit from the Fed’s radical schemes. However, there’s a good chance that going forward - the “Great Rotation” could morph into the “Dangerous Divergence.” If left unchecked, an extended slide in the T-bond market could trigger an upward spiral in the 10-year yield towards 3-percent, which in turn, would threaten to blow up the Fed’s Ponzi scheme.-------------------------- Already, the ratio between the value of the Dow Industrials and 10-year T-note futures has reached the 116-level, - doubling from the 58-level – where it bottomed out in March ’09, and is within striking distance of its 2007 high. A last gasp rally in the US-stock market could be the catalyst that triggers a sharp sell-off in T-notes. At that point, the “Dangerous Divergence” could reach the breaking point, leaving the bond vigilantes to do their dirty work.

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"Dangerous Divergence" between Bonds and Stocks

BoJ aims to fuel Inflation by Crushing the Yen, - Risk of big Jump in Japanese bond Yields

Updated 9:32 PM, May-13, Mon

Crushing the value of the yen is about the only mechanism that Tokyo has readily available in order to boost Japan’s inflation rate to +2%. That’s a pretty tall order, since Tokyo massages its inflation data, and uses fuzzy math to calculate its cost of living index. The methodology is completely under the control of Tokyo’s financial warlords, and the inflation data is routinely rigged to show a perpetual pattern of deflation. Last week, Japan said its consumer price index was -0.9% lower in April, compared with a year earlier. ------------------- BoJ chief sounded confident on May 11th that the central bank could prevent an upward spike in Japanese bond yields. “I do not expect a sudden spike in long-term bond yields. In the long-run, if the economy recovers and inflation heads towards +2%, we might see nominal interest rates rise but that’s natural.” The rigging of Japan´s CPI data is to be expected, so JGB traders should only trust the actual prices in the global commodity markets for real-time clues about the future direction of inflation, and not rely on doctored-up government statistics. --------------------- Despite Kuroda’s belief that the BoJ can easily continue to manhandle Japan’s $10.5-trillion government bond (JGB), some market investors are starting to question the wisdom of owning ultra-low yielding JGB’s. On May 13th, ten-year JGB futures price posted its biggest two-day drop in 2-½-years, and skidded to a 1-year low. The Tokyo Stock Exchange briefly suspended JGB trading as a circuit breaker was triggered. The 10-year cash bond yield shot upwards to as high as 0.80%, extending its biggest surge in 5-years. --------------------------- JGB yields initially plunged in a knee-jerk reaction to a historic low of 0.315% upon hearing the details of the BoJ’s scheme to purchase of ¥7.5-trillion of JGB’s each month, which might lead to a scarcity of bonds. But it did not take a single day for the market to reverse course. The 10-year yield is now more than 2.5-times as high as it record low of 0.315% hit on April 4th. As part of its two-year Big-bang QE, the BoJ bought ¥1.2-trillion of bonds on May 13th, but that failed to stop the uptick in JGB yields to 0.80%. Still, for Nikkei bulls, - there’s no need to panic - as the 10-year yield is still comfortably below 1%. ----------------------------- How long can Tokyo’s financial warlords continue brainwash the Japanese public into believing that the bogeyman of deflation is still haunting its economy? No doubt, MoF apparatchiks will continue to fudge the official inflation numbers. However, the truth is, - the Continuous Commodity Index, measuring the cost of a basket of 17-equally weighted commodities, is now trading +26% higher than a year ago, when priced in yen. A further weakening of the yen would only increase the cost of imported goods for Japanese consumers. Already, the cost for imported fossil fuels jumped +10% last year to ¥24-trillion, even before the US$ crossed ¥90. Be careful of what you wish for, since a higher cost of living can sap the disposable income of your citizens, and lift JGB yields, which in turn, can also cause an economic recession.

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BoJ aims to fuel Inflation by Crushing the Yen, - Risk of big Jump in Japanese bond Yields

How high can US$ fly, versus Yen, before BoJ Intervenes?

Updated 9:35 PM, May-13, Mon

The Wise Sages of Ancient days used to say, “The fate of a Liar, is that nobody believes him, - even when he’s speaking the truth!” Such is the case for Japan’s propaganda artists, including the Prime Minister, the Finance minister, and central bank chief, who are all trying to cover-up their boldest scheme yet, to crush the value of the Japanese yen, against the currencies of its major trading partners. On May 11th, the finance chiefs of the Group of Seven (G-7) gave Tokyo the green light to continue with its radical QE scheme, which has already led to a -24% devaluation of the yen against the US-dollar, and a -33% devaluation against the Euro, since market savvy traders first got wind of the plot in late November. ------------------------- In an age when ruling coalitions of every political stripe distort the truth to promote their self interests, it’s hardly surprising that Japan’s ruling LDP party is steadfastly denying that it’s engaging in a “beggar thy neighbor” devaluation of its currency. By the same token, Tokyo’s fraudulent claim that its economy is still plagued by a negative rate of inflation (deflation), is so wildly at odds with reality that it’s routinely regarded with cynicism and disbelief. -------------------------- How high can US$ fly, versus Yen, before BoJ Intervenes? If the yen begins to plummet into a free-fall, Japan’s competitors in China, Germany, Korea and the US might cry foul and demand that Tokyo either scale back its Big-bang QE operations or stop them completely. Otherwise, other central banks might push back against Tokyo in a full scale currency war, the likes of which, the world has never seen before. However, Tokyo is confident it can prevent a free-fall of the yen, and that it can carefully orchestrate a gradual devaluation, with verbal Jawboning exercises and utilizing its enormous war chest of foreign currency reserves, now totaling $1.26-trillion, and mostly consisting of US-dollars. ------------------------------ Although Japan is supposed to refrain from using its FX reserves for purposes of direct intervention in the currency markets, according to the Feb 12th G-20 communiqué, the renegade BoJ is expected to begin clandestine sales of US-dollars at higher levels, in order to keep a two-way market intact, and prevent a currency free-fall. Where would Tokyo try to cap the US-dollar’s advance? On January 18th, Koichi Hamada, the chief architect of “Abenomics,” gave a subtle hint to reporters at the Foreign Correspondents’ Club of Japan in Tokyo, saying the US-dollar can rise to ¥110 before excessive inflation risks kick in. “If the dollar goes above ¥110, there may be reason for worry, but at ¥100 or ¥95, it’s OK.”

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How high can US$ fly, versus Yen, before BoJ Intervenes?

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Analysis and Charts of Global Markets

Global Money Trends Audio Broadcasts Audio Broadcasts are uploaded Monday and Wednesday evenings, to our subscriber section, with the latest news and analysis moving markets

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Audio Broadcasts are uploaded Monday and Wednesday evenings, to our subscriber section, with the latest news and analysis moving markets