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Analysis and Charts of Global Markets

written by Gary Dorsch, Editor and Publisher
Russian Bear Rattles markets, but PPT Rides to the Rescue
Aug 14, 2014
There are very rare events that occur somewhere around the world, otherwise known as “Black Swan Events” that can befuddle “financial science” and the best designed computerized models. For example, heading into 2014, few traders could’ve predicted that the Kremlin would act to seize Crimea’s territorial waters along with the region itself, and that Moscow would deploy 20,000 to 45,000 troops along the eastern and southern borders of Ukraine, thus marking the start of the biggest confrontation between Moscow and the West since the Cold War, and triggering a round of economic sanctions with Europe and the US.
Which way is Inflation Blowing? Watch Commodities
Jul 15, 2014
In an age when governments of every political leaning and ideological stripe distort economic data to promote their parties’ interests, it is hardly surprising that the nation’s inflation rate is reported in a manner that best suits their political needs. By the same token, in an age of near universal cynicism on the part of citizens towards their corrupt politicians, - it is entirely natural for official inflation data to be wildly at odds with the reality faced by consumers and businesses, and in turn, to be regarded with utter disbelief.
“Least Loved” Bull market becomes Euphoric
Jun 6, 2014
After nearly six years of unprecedented intervention by the world’s top central banks, the world’s financial markets are hopelessly broken. What used to be accepted as market gospel that guided investors’ decisions in the marketplace, before the 2008 financial crisis, - no longer seems to apply in today’s marketplace. Wall Street is no longer the bastion of free and open markets, where the prices of bonds and stocks are determined by the collective judgment of millions of investors. Instead, market prices are determined by political appointees, called central bankers, who pull the monetary levers behind the scenes.
ECB Draws a Line in the Sand for Euro at $1.400
May 1, 2014
ECB chief Mario Draghi, who famously declared in July ’12, that the ECB would do “whatever it takes to save the Euro,” is now making a 180-degree U-turn, saying at a Jan 9th news conference that that the Euro has become too strong, and a further appreciation could threaten the Euro-zone’s tepid recovery. While the ECB does not profess to have a target level for the Euro, there’s been a steady drumbeat of comments, issued by most ECB members, since the Euro first cleared the $1.370-level, and the rhetoric escalated as the Euro approached $1.400.
Cold War “Lite” - the Battle over the Russian Rouble
Mar 20, 2014
In truth, the Kremlin’s tactical triumph in annexing Crimea does not threaten to plunge Europe towards a new Cold War. But it has caught German Chancellor Angela Merkel and US President Barack Obama flat footed, and they’re struggling to come up with a response to Moscow’s land grab. The West is reluctant to take sanctions to the next level, because it could spiral into a destructive trade war that could topple Europe’s wobbly economy into a “triple dip” recession. Instead, the secret G-7 game plan, - working to weaken the Russian rouble, and exert upward pressure on Russian interest rates, in order to topple the Russian economy into a severe recession, and ultimately force the Kremlin to roll back its takeover of Crimea.
 
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Commodity Cycles - key Indicator of future Inflation
Updated11:44 AM, Jul-16, Wed
In an age when governments of every political leaning and ideological stripe distort economic data to promote their parties’ interests, it is hardly surprising that the nation’s inflation rate is reported in a manner that best suits their political needs. By the same token, in an age of near universal cynicism on the part of citizens towards their corrupt politicians, - it is entirely natural for official inflation data to be wildly at odds with the reality faced by consumers and businesses, and in turn, to be regarded with utter disbelief. ------------------------------------- Since the days of the Clinton administration, the US-government has tinkered with the methodology of computing the inflation rate, and therefore, the CPI is no longer considered to be an objective gauge of the prices of a fixed basket of goods, that consumers normally buy. Instead, the US-government has a vested interest in understating the true rate of inflation, because it enables Washington to lower cost of living allowances for Social Security checks, helps the Fed to keep interest rates artificially low, weakens wage demands, buoys confidence in the US dollar, and artificially increases the “real” rate of US-economic output. -------------------------------------- The tens of thousands of government apparatchiks who work for the Bureau of Labor Statistics, Bureau of Economic Analysis, US Treasury, Office of Management and Budget, Economics and Statistics Administration, and countless other agencies, - massage their spreadsheets day in and day out, and fudge the numbers. It’s hard not to notice that the inflation rate is reported with distortions caused by seasonal adjustments, hedonic deflators, chain-weighted substitutions, skewed sampling, delayed reporting, and with a twist of political bias. Yet perhaps the simplest advice on how to resolve contradictions between the costs that households face everyday, and the phony CPI, is to watch the dollars and cents flowing through the global commodity markets, and to map their longer term price trends. Who are you going to believe, the commodity price charts or skewed data from apparatchiks? ----------------------------------Commodities make-up 40% of CPI, According to the Bureau of Labor Statistics, in 2012, US-households spent 40% of their total expenditures on commodities, and the remaining 60% was spent on services. Thus, the commodities markets have become less of a leading indicator of future trends of inflation than in the past, when commodities made up 58% of expenditures in 1980 and 64% in 1970. Still, the alternative to relying on the commodities markets for clues on inflation, is to blindly adopt the Fed’s favorite gauge of inflation, the “personal-consumption-expenditures” price index, (the PCE), which strips out the cost of the basic essentials of life, and is conjured-up by apparatchiks. The PCE was reported to be +1.8% higher in May from a year earlier, or -0.3% less than the CPI. On June 17th, 2014, the US-government reported that consumer prices increased +0.4% in May - the biggest monthly increase in more than a year, saying the cost of food and gasoline showed big gains. Airline fares jumped +5.8% - their largest monthly increase in 15-years. The cost of clothing, prescription drugs and new cars all showed increases. Overall, the consumer price index was +2.1% higher compared with a year earlier. That left prices rising at slightly above the Fed’s so-called +2% inflation target, and traders questioned if the uptick would sound the alarm bells at the Yellen Fed. ------------------------------------- The increase in the consumer inflation rate was preceded by a sharp upturn in the market value of the Continuous Commodity Index (CCI), a basket of 17-equally weighted commodities – that started in January ‘14. Six months later, the CCI was trading +9% higher than a year earlier. For the first time in 2-˝-years, the CCI has emerged from deflation territory (or negative year-over-year returns). However, commodity prices are notoriously volatile, and so, the outlook for inflation can often turn on a dime.--------------------------------------
Archived Comments:
Commodity Cycles - key Indicator of future Inflation
Cost of Consumer Staples outpacing Wage increases
Updated11:31 AM, Jul-16, Wed
Commodity markets are notoriously volatile from month to month, and from year to year, quite often due to unforeseen acts of nature or military conflict. However, in order to filter out the “noise” of the markets, a simple approach is to take a much longer-term view of price trends. And for a wide array of commodities, their prices have trended significantly higher. For some of the basic staples of life, the market price of rough rice is up +83% higher, Butter is up +69%, and unleaded gasoline is up +67%, compared with 8-˝-years ago. Milk and cattle prices are up +63%, and the cost of Wheat is up +61%. So when Americans are driving to the grocery store, they are feeling the pinch of accumulated rates of inflation. --------------------------------------- But what about the wages of the US-worker, - have they kept pace with the increasing cost of living? According to the Labor Dept apparatchiks, the average wage is up +19% compared with 8-˝-years ago, for an increase of +2.2% per year, on average. However, for many Americans, their incomes are actually declining and that could put a squeeze on discretionary spending. For example, in the month of June ‘14, the BLS reported that the number of higher paying, full-time jobs plunged by -523,000 to 118.2-million while lesser paying, part-time jobs increased +799,000 to over 28-million. That suggests that many US-workers’ are being forced into part-time work, and their income is decreasing. Thus, the hallowing out of the US-middle class and the impoverishment of the lower income groups is worsening. --------------------------------- As such, the Fed is already talking about moving the goal posts again, from targeting inflation to targeting wage increases. “Signs of labor-market slack include slow wage growth and low labor-force participation,” Fed chief Yellen said on July 15th. Earlier, on July 11th, Chicago Fed chief Charles Evans, said on Bloomberg TV that it would not be a “catastrophe” to allow the inflation rate to overshoot the Fed’s +2% target. “Even a +2.4% inflation rate, I think that could work out,” he said. So the message is; the Fed would be tolerant of above target inflation, since lower paying part-time wages are supposed to keep inflationary pressures in check. For the Fed, with the passage of time, many of its sins of the past, in the form of a higher cost of living, are seemingly washed away into obscurity.
Archived Comments:
Cost of Consumer Staples outpacing Wage increases
 
Gold market builds a base of Support - Eyes Volatile Commodities
Updated11:34 AM, Jul-16, Wed
Gold Builds a base, eyes Volatile Commodities, History shows that rapid growth of the money supply usually fuels higher rates of inflation. Yet while the Fed increased the size of the MZM Money supply +$700-billion in 2013, and +$350-billion in the first half of 2014, what has surprised traders is the lethargic behavior of the US’s rate of inflation. The CPI increased +1.5%, on average, in 2013, and bumped up to +2.1% in May ’14. However, given the -6% slide in the Continuous Commodity Index since the start of July, led by a drop of 20-cents in the price of unleaded gasoline on the Nymex, it’s a good bet that the consumer price index will start to edge lower again, with a lag time of 2-3-months. --------------------------------------- Former Fed deputy Alan Blinder explained why the Fed’s QE-scheme didn’t spark an upward spiral in inflation. “The monies the Fed pumped into the banking system didn’t circulate in the US-economy. Instead, it all got bottled up in the banks, and essentially, none of it got lent out,” he explained. Because the Fed began to pay 0.25% interest on excess reserves, the banks agreed to park the QE-monies at the Fed itself, instead of lending and creating deposits and increasing the money supply. Therefore, QE didn’t contribute to inflation. And if banks aren't lending, there’s no boost to the economy. However, there is reason to believe that the $3.5-trillion of QE-injections were funneled into the US-bond and stock markets. -------------------------- The meltdown in the yellow metal in 2013 left many Gold bugs licking their wounds. However, in hindsight, - the collapse in the Continuous Commodity Index (CCI), in the first half of 2013, was probably the biggest contributing factor behind Gold’s slide to the $1,200 level. And it’s the narrative about low inflation and /or deflation, and weak Gold prices that enables the endless printing of money by central banks. Bubbles in the European and US bond and stock markets can be sustained in the stratosphere, as long as inflation is said to be running near-zero. In fact, the Bank of Japan, the ECB and the Fed all say they must print money to counter the threat of deflation. As for the price of Gold, the average break-even point for Gold miners worldwide is estimated to be around $1,200 /oz, and it’s this figure, that was the “rock bottom” price for the yellow metal in 2013. Gold Bugs have been building a big base of support for the past 12-months, but a sustained rally to $1,400 /oz and beyond, might require the revival of the “Commodity Super Cycle.”
Archived Comments:
Gold market builds a base of Support - Eyes Volatile Commodities
 

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