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Analysis and Charts of Global Markets

written by Gary Dorsch, Editor and Publisher
China’s Stock market Mania; How high can Red-chips fly?
Apr 2, 2015
While Beijing was busy cracking down on money laundering in the casino colony of Macau, it was also sanctioning its securities regulators, stock brokerage firms, overseers of the stock exchanges, and hundreds of high-tech engineers, to begin working night and day to launch the world’s third biggest casino, - dubbed “Shanghai - Hong Kong -Stock Connect.” It would allow global investors to trade Chinese Shanghai “A-shares” for the first time, through brokers located in Hong Kong, and mainland Chinese investors could trade Hong Kong’s ”H-shares” index via the Shanghai Stock Exchange, subject to quotas both ways. The combined size of the Chinese and Hong Kong markets is roughly $10.5-trillion today, behind only the combined $27-trillion size of New York Stock Exchange and Nasdaq.
The Raging “Currency Wars” across Europe
Jan 29, 2015
The theater of the absurd became even more bizarre on Jan 22nd, when the European Central bank desperate to extract the Euro-zone’s economy from the quagmire of deflation and stagnation, decided it would try its hand at the magic elixir of “quantitative easing,” (Q€). Starting on March 1st, the ECB will inject €60-billion of liquidity into the Euro-zone’s money markets, each month until the end of Sept 2016. The ECB is the last of the Big-4 central banks to unleash the nuclear option of central banking – QE, - starting about six years after the Bank of England, the Bank of Japan, and the Fed began flooding the world markets with $7-trillion of British pounds, Japanese yen and US$’s.
How to Recognize a “Bear Raid” on Wall Street
Oct 30, 2014
The objective of a “Bear Raid” is to make windfall profits within a brief time period through short sales. Bear Raiders must closely monitor the number of short positions in the target stock, or exchange trade fund, (ETF), since a huge short interest increases the risk of a short squeeze that can inflict substantial losses on the Bears. These short sellers cannot afford to wait patiently for many weeks or months until their short strategy works out. They must act to cover their short positions, before other investors see the beaten down market as a bargain. --------------------- If operating in the US’s centrally planned market, where the Fed is actively intervening to prevent sharp downturns, the Bear Raider knows the gains from the short sale trade will eventually be reversed, and usually within short order. Once Bullish investors begin to realize that they were hoodwinked, and scared out at the lows, - they begin to pile back into stocks again at higher prices. What usually follows is an eventual recovery of all the previous losses that were engineered by the Bear Raiders.
The mini Crash of October 2014
Oct 22, 2014
The long awaited downturn in the S&P-500 index finally began on Sept 19th and ended on October 15th. The S&P-500 index topped out at an all-time high of 2,015 and briefly fell to as low as 1,820, for a decline of -9.7%, or just shy of the -10% requirement to be regarded as a bona-fide correction. Such shakeouts are part of the normal cyclical movements in the stock market that wipe out the speculative froth from the market, and thus prevents the emergence of unsustainable bubbles that can burst into Bear markets later on. What’s unusual this time however, is the extraordinary length of time that the S&P-500 Oligarch index has avoided a correction of -10% or more. The Dow Jones Industrial index has gone 725 trading days without a correction, the fourth-longest streak since 1929. However, a correction in the S&P-500 index typically occurs about once every 18-months. But it’s been 38-months since the last bona-fide correction of more than -10%.
The Emergence of the US Petro-dollar
Sep 15, 2014
A less cited reason behind the recent strength of the US$ index and what could auger the beginning of a multi-year advance for the greenback, - the US’s output of crude oil and natural gas continues to surge to new record highs. The US’s production of crude oil has reversed years of decline thanks to the development of shale resources, which have boosted output by more than +65% in the past six years. The US’s shale boom has allowed producers to unlock thousands of barrels of reserves, putting the US on course to become the largest producer of oil globally, which would dramatically reduce its dependence on imports.
 
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Booming Shanghai Red-chip Rally spreads to Hong Kong, Shanghai trades at +29% Premium
Updated 5:14 PM, Apr-22, Wed
Most market traders classify themselves as either technicians or fundamentalists. A "fundamentalist" studies the cause of market movement, while a technician studies the effect. In reality, there is a lot of overlap. Most fundamentalists have a working knowledge of the basic tenets of chart analysis. At the same time, most technicians have at least a passing awareness of the fundamentals. The problem is that the charts and fundamentals are often in conflict with each other. ---------------------------------------- Some of the most dramatic market movements in history have begun with little or no perceived change in the fundamentals. By the time those changes became known, the new trend was well underway. Stated another way, - usually at the beginning of important turning points in the marketplace, the so-called "fundamentals" do not explain or support what the market seems to be doing. Instead, its the market price and the price action, - that acts as a leading indicator of the fundamentals and or the conventional wisdom of the moment. While the known "fundamentals" have already been "discounted in the market," prices are now reacting to a new set of fundamentals that are not easily recognized by the majority of traders. ------------------------------ Almost one year ago, the Shanghai red-chip market was scraping along the psychological 2,000-level, having beeen largely abandoned by the average Chinese retail investor, that traditionally, accounted for 80% of the trading volume. The Shanghai red-chip market had lost more than two-thirds of its peak value of 6,124 set in October 2007, and appeared to be caught in a headlocked by the tight fisted money policies of the People's Bank of China . Yet for traders that study longer-term market cycles, the recent doubling of the Shanghai stock market to the 4,400-level this week, looks a lot like the so-called "rubber-band" effect, - a fairly straightforward cyclical pattern: a strong tendency for periods of worse-than-average returns to be followed by periods of better than average, and vice versa. --------------------------------------------- The +112% rally in the Shanghai red-chip index from a year ago's levels, was triggered by two major shifts in the "fundamentals,' - a "Crash in the Crude Oil" market, and a subsequent easing in the PBoC's monetary policy. Lower prices for crude oil and other commodities are delivering China a big windfall, as the world’s largest importer of natural resources stocks up and saves money in the process. By some estimates, China is enjoying annual savings of as much as $250 billion from stepped-up purchases of discounted crude oil, copper and iron ore--much of it arriving aboard dented bulk carriers and greasy tankers at northeastern Dalian port and other trade gateways.-------------------------------------------- China is the mega winner from the drop in industrial commodity prices. Its estimated that China would save over $600 million on its daily 12-million-barrel import bill, if oil prices stay around $55 /barrel. The Crash in crude oil to around $50 /barrel helped to push China's producer price index to a -4.8% annualized loss in March, which in turn, gave the PBoC the leeway to begin injecting lots of liquidity back into the Shanghai money markets. -------------------------------------------- In its most recent move, the People’s Bank of China lowered the amount of deposits it requires banks to hold in reserve, and thereby, injected a big amount of cash into the markets. The cut to banks' reserve-requirement ratios , a full -1% drop to 18.5% for large banks, is the most aggressive since 2008. Such a decisive move signals Beijing is more worried about the slowdown in its economy than previously thought. It is also a sign that officials in the Politburo are hardly concerned about blowing a stock-market bubble.----------------------------------------------- While most economists had expected some sort of easing of the reserve ratio, the cut was twice as big as usual. Previous measures had already started to have an effect, with one-week inter-bank lending rates below 3% for the first time since October. All things being equal, with an additional 1.2 trillion yuan ($200 billion) to lend, borrowing costs should fall. Incidentally, it is the first time in history that the PBoC has been easing its monetary policy into a surging stock market. The biggest RRR-cut for China since November 2008, - follows Premier Li's vow last month to actively step in if the economic slow down begins to hurt jobs, as well as the PBOC's hint that it has room to lower interest rates further. Still, the RRR cut to 18.5% adds fuel to the already red hot stock market. ------------------------------------------------------- For Beijing, the benefits of a rising stock market may outweigh the risks of inflating a bubble. China’s state-owned companies are in a better position to sell assets and raise equity capital, moves that help the most-indebted parts of the economy deleverage. Because as long as China is unable to halt its housing hard-landing, it will gladly take an equity bubble in lieu of a housing bubble if that helps preserve the people's wealth. --------------------------------------------------- Hong Kong is set to overtake Japan as the world’s third-largest stock market, spurred on by surging Chinese demand for shares in the former British colony. The value of equities listed in Hong Kong rose to $4.9 trillion on Thursday, catching up to the $5 trillion total for Japanese stocks. This Bull run in the Hong Kong market is led by mainland Chinese investors. The real catalyst was to permit mutual funds based in the mainland to invest in Hong Kong stocks. The move prompted more mainland investors to relocate money from the A-share market and their bank accounts and use it for buying cheaper Hong Kong H-shares. Trading through the Shanghai-Hong Kong Stock Connect began on November 17, 2014, and for the first time, allows global investors to trade Chinese stocks directly from Hong Kong, while mainland investors will be able to access the Hong Kong equities market. --------------------------------------------- Individual investors in China account for 90% of the trading volume on the A-share market (compared to 20% on the Hong Kong market), and have more than 40 trillion yuan ($6.44 trillion) worth of savings in their accounts. They've already bid-up the Hang Seng Index by more than +4,500-points over the past six weeks, and hit a seven-year high at the 28,000-level. The Hang Seng A/H Premium Index, which tracks the most liquid dual-listed Chinese stocks, shows that the Shanghai A-shares are +129% more expensive than the Hong Kong listed H-shares.
Archived Comments:
Booming Shanghai Red-chip Rally spreads to Hong Kong, Shanghai trades at +29% Premium
Saudi Arabia boosts oil output to 10.3-Mil bpd, a 30-year high, to Enforce $45 to $65 price Target
Updated 6:59 PM, Apr-22, Wed
Big money investors are calling a bottom in US light crude oil prices, after they tumbled by more than half from June 2014 highs above $107. Money managers and other big speculators in Nymex crude oil futures and options raised net long positions that call for higher prices by some 52 million barrels in the week to April 7, data from the CFTC showed. That was the biggest one-week rise in bullish bets since 2011. Traders raised their combined futures and options position in New York and London by 51,802 contracts to 224,689 during the period, the biggest net long position since last August. About one-third of the increase came from new long bets, pushing managed money´s long-only positions to the largest since July. But a much larger share, some 33,000 lots, came from traders closing short positions that had ballooned to their highest on record just a few weeks earlier. Those traders may have given up waiting for another slump in prices amid signs of slowing U.S. supply growth and surprisingly robust demand. ------------------------------------- The rebound in US-light crude oil prices to above $56 /barrel was somewhat surprising, considering that Saudi Arabia revealed it had boosted its crude production by 658,800 barrels in March to an average of 10.3-million, its highest in three decades. In the space of 31 days, Saudi Arabia managed a production boost that took drillers in North Dakota’s Bakken almost 3 years to achieve. Iraq increased its oil output by 318,800 barrels a day to 3.63 million barrel. Saudi oil chief al-Naimi reiterated on April 7 that OPEC will only pare output to rebalance the global market if other producers share the burden. the Saudis are trying to keep oil prices depressed and within a self imposed Target Zone of $45 to $65 /barrel, by boosting oil supplies, in order to deal a severe economic blow to its adversaries in Moscow and Tehran. -------------------------- Yet Nymex oil prices have rallied to above $56 /barrel in recent weeks, buoyed by news of a record decline in US oil rigs that has fanned speculation that the US´s oil output will slow from its highest pace in three decades. The number of active rigs has fallen for a record 19 weeks in a row to the lowest level since 2010, according to Baker Hughes data going back to 1987, after slumping oil prices caused energy companies to idle half of the country´s rigs since October. The oil rig count fell to 734 after peaking at 1,609 in October, energy producers have responded quickly by cutting spending, eliminating jobs and idling rigs. Schlumberger SLB.N, the world´s biggest drilling services provider, said it would eliminate another 11,000 jobs in addition to the 9,000 cuts it announced in January.-------------------------------------------- President Obama’s insistence on easing sanctions on the Islamic Republic and pushing for a controversial nuclear deal, which would allow Iranian leaders to maintain all of their nuclear infrastructure and have a path to obtain a nuclear bomb, is leading to a significant shift in the balance of power in the Middle East in favor of ayatollah of Iran. One of the results of President Obama’s actions is the recent decision by Russia´s President Vladimir Putin to deliver advanced and sophisticated Russian air defense missiles to Tehran, that can provide a shield against attacks on its nuclear sites.
Archived Comments:
Saudi Arabia boosts oil output to 10.3-Mil bpd, a 30-year high, to Enforce $45 to $65 price Target
 
German DAX-30 Index Rally unfazed by Surge in Greek Note Yield to above 20%; soothed by QE-1
Updated 8:32 PM, Apr-22, Wed
Greece has been pushed a step closer to default and potential exit from the Euro after the IMF all but ruled out allowing the cash-strapped country to delay repaying the €1-billion due next month. The head of the IMF, Christine Lagarde, said delaying the payments would be an unprecedented action that would only make the situation worse. “Payment delays have not been granted by the board of the IMF in the last 30 years,´ and heightening fears that senior policymakers in the US and Europe are preparing for Greece to leave the Euro-zone. ---------------------------------------- If Greece was unable to pay the IMF and is forced to default on payments to public sector staff, pensioners and welfare recipients, economists have speculated it may be forced to introduce capital controls to prevent a flight of funds out of the country. There is increasing speculation that unless Athens puts together a detailed reform agenda, the country will be allowed to leave the euro and bring back the drachma. Olivier Blanchard, the IMF’s chief economist, appeared to pave the way for an exit when he said earlier this week that the eurozone without Greece was possible, saying that for the rest of the 19-member currency bloc it “would not be smooth sailing, but it could probably be done”. ---------------------------------- Greece´s cash reserves are running low and are likely insufficient to meet obligations falling due in May. As such, the yield on Greece´s 5-year note rose to as high as 20.2% this week, and up from just under 4% at the start of Sept ´14. As the Financial Times of London noted; “a default would almost certainly lead to the suspension of emergency ECB liquidity assistance for the Greek financial sector, the closure of Greek banks, capital controls and wider economic instability.”------------------------------------- Greece´s future in the euro zone may hang in the balance once more, but investors believe the market fallout from any current political turbulence can be insulated, unlike during the region´s sovereign debt crisis of 2012. Investors are betting that a rout in Greek markets, sparked by the latest political upheaval in Athens, will not spread, placing their faith in firewalls built following the euro zone debt crisis. ------------------------------------------- In fact, an HSBC list of the 10 biggest market risks for 2015 does not even mention Greece, even though Greek shares and bond prices have plummeted since anti-bailout party Syriza won the election in January. It´s a big contrast to May 2012, when the prospect of a "Grexit" sent yields in Italy and Spain close to all-time highs and stock markets plunged. This time, damage to assets in the rest of the euro zone has been limited.------------------------------------------------ The price of protecting against a Greek default using 1-year credit default swaps must now be paid upfront, a classic sign that investors fear Athens might not repay them in full. It would cost $6-million up front to insure $10 million in debt. ------------------------------------------------ This relative calm is based on the assumption that if Greece defaulted the impact on private investors would be limited because 83% of Greek government debt is held by Greek banks. Furthermore, if panic did spread, other debt-laden countries could seek help from the ECB and the European Stability Mechanism´s bailout fund, inaugurated in October 2012.----------------------------------- A Syriza default on debt would imply a loss for the ECB on its holdings of Greek bonds, but otherwise, markets still assume Greece will be ring-fenced and that any fallout would be mitigated by the ECB´s quantitative easing scheme.----------------------------------- European share prices have maintained their bullish momentum, propelling the Eurofirst-300 past its 2007 high and towards the record peak set during the dot-com era. Investors have poured record amounts of money into euro-zone equities over recent months, emboldened by the prospect of an economic recovery as the ECB’s €1.1-trillion quantitative easing policy has suppressed borrowing costs and cheapened the single currency.-------------------------- With the ECB’s €60bn of monthly bond purchases starting only last month, investors are mindful that the Euro-zone equity rally has further room to run. A quarter of Euro-zone government bonds now trade with a negative yield, creating a powerful incentive for investors to own shares that pay a higher dividend. The declining value of the Euro, which has fallen -12% this year, also provides a boost for Euro-zone exporters and muti-nationals that rely on foreign-based revenues, providing a notable tailwind for such as Merck, BASF, Volkswagen, Adidas, Peugeot and Airbus.
Archived Comments:
German DAX-30 Index Rally unfazed by Surge in Greek Note Yield to above 20%; soothed by QE-1
 

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