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Analysis and Charts of Global Markets

written by Gary Dorsch, Editor and Publisher
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.
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.
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US$ Soars towards 70-Russian Roubles, Increasing Odds of Russian defaults on bonds
Updated11:53 AM, Jan-29, Thu
There is a major "Currency War" that is being fought in Europe, and this one has all the makings of a great conspiracy novel. There is an uncanny sequence of events that is unfolding before our eyes, that is threatening to topple the world’s 10th largest economy. For more than a decade, oil income and consumer spending have delivered growth to Vladimir Putin’s Russia. Not anymore. Russia’s economy is sliding into a severe recession. The Russian rouble has lost half of its value against the US$ compared with a year ago, and with it the faith of the country’s businessmen. Banks have been cut off from Western capital markets, and the price of oil, - Russia’s most important export commodity has plunged – 60%. Consumption, the main driver of growth in the previous decade, is slumping. Money and people are leaving the country. ------------------------- On Dec 22nd, Russia’s former finance chief Alexei Kudrin warned of mounting trouble that is spreading through the Russian economy, and what Economy Minister Alexei Ulyukayev called a “perfect storm” of plummeting oil prices, EU & US-economic sanctions related to its military action in Ukraine, and a $134-billion flight of investors’ capital last year. “Today, I can say that Russia’s economy is entering a real, full-fledged economic crisis. In 2015, we will feel it clearly,” Kudrin told a news conference on Dec 22nd. “The government has not been quick enough to address the situation.” Kudrin forecast a series of defaults among both medium and large companies -- though he said banks would probably be supported by the state -- which was likely to result in rating agencies downgrading Russia’s debt to “junk” status. The collapse of the Russian rouble will lift Russia’s inflation rate to +12% to +15% in 2015, Kudrin predicted. Russia imported $341-billion last year, so a devalued rouble quickly stokes inflation. ------------------ Long before he annexed the Crimean peninsula and began backing pro-Russian forces in eastern Ukraine, Russian kingpin Vladmir Putin created an economic system that allowed a clique of Oligarchs to grow wealthy on Russia’s vast oil and gas reserves. He did little to diversify the economy or to make it more resilient. As such, Kudrin’s outlook for Russia’s economy is bleak: “Even if the price of Russia’s Urals crude oil rebounds to $80 /barrel, gross domestic product is still likely to fall by more than -2% in 2015, Kudrin predicted. At $60 /barrel GDP would decline by -4% or more, he added. -------------------------------- The collapse of the Russian rouble is a mirror reflecting the crisis undermining its entire economy, which has been devastated by the plunge in oil prices to around $46.50 /barrel today. The Gazeta.ru newspaper said last month was “Black December” in Russian history. According to the central bank, capital flight amounted to $134-billion last year. Bank Rossi responded by tripling its key overnight lending rate to 17%, after it burned through $113-billion of foreign currency reserves. -------------------------------- On Dec 15th, nearly $10-trillion of foreign currencies traded hands in the world markets, double the daily average, when the US$ suddenly surged +30% higher to 80-roubles. Moscow reacted by ordering state-controlled exporters to sell their holding of foreign currency, and briefly succeeded in knocking the US$ down to 54-roubles a week later. On December 19th, Russian president Vladimir Putin met with 41 of the leading Russian finance tycoons and Oligarchs, and asked them to limit their sales of Russian roubles. The collapse of the rouble and the Russian stock market has wiped out $73-billion of wealth of the 20 richest Russians. The fortunes of some oligarchs have more than halved. ------------------------ However, on January 27th, Standard & Poor’s became the first of the big-three ratings companies to strip Russia of its investment grade, citing weaker growth prospects and a deterioration of fiscal buffers. Russia’s debt rating was lowered one notch to BB+ by S&P, while Moody’s and Fitch cut Russia to one level above junk this month. The country’s debt will no longer be eligible for some indexes that track investment-grade sovereigns if two of the three biggest rating companies cut it to junk. The cost of insuring Russian debt against default using credit-default swaps has soared to 600-bps this week, and up sharply from around 95-bps in Dec ‘13.------------------- Russia may have to spend more than $40-billion of its dwindling FX-stash this year in order to avert a banking crisis. Last month, the state spent 130-billion roubles to bail out the first major bank to fall victim to the rouble crisis, mid-sized lender Trust Bank, then ranked 15th biggest by retail accounts and 32ndby assets. If any of Top-30 banks get into trouble, the government will have to save them at any price, as it could spark a crisis of confidence in which the population withdraws deposits en masse and interbank lending rates spike sharply higher. -------- Russia’s finance ministry is warning of at least a $45-billion drop in revenues this year, if the average oil price is $50 /barrel. Finance chief Anton Siluanov said all state expenditure should be cut by -10% except defense, a priority for President Vladimir Putin. “The state cannot have the kind of spending it used to have with the oil price at $100 / barrel,” Siluanov warned. Russia’s budget for 2015 was based on an oil price of $100 /barrel but prices are now close to six-year lows at just above $46 /barrel. Siluanov said Russia needs to conserve its foreign currency reserves to overcome difficulties as the price of oil looked set to continue at low levels. “We think that with the average oil price at $50 /barrel (in 2015), we will lose some 3-trillion roubles in revenues,” he said. ---------------------- While Russia’s sovereign debt is just $57-billion, many Russian banks and corporations, including large oil and gas businesses, went on a borrowing spree. They increased their foreign-currency debt by $170-billion in the past two years, and are on the hook for a total of $614-billion in foreign currency debt. Most of this debt was racked up by state owned corporations and national energy companies, which gives it a quasi-sovereign status. And by the end of 2015, Russian firms will have to repay about $130-billion of foreign debt. The -50% devaluation of the rouble makes the servicing of the foreign debt twice as expensive. So instead of preparing itself for a crisis, Russia has prepared a crisis for itself. --------------------------------------------- Rosneft, Russia’s national oil company, run by Igor Sechin, Mr Putin’s close confidant, is already asking the Kremlin for a bailout, in part to help it repay $30-billion of debt which it took on when buying a successful private company, TNK-BP. If the price of crude oil stays below $50 /barrel for two years, much of Russia’s treasure chest of foreign currency reserves could become depleted.
Archived Comments:
US$ Soars towards 70-Russian Roubles, Increasing Odds of Russian defaults on bonds
Swiss National Bank comes to Rescue of Battered Stock market
Updated11:59 AM, Jan-29, Thu
Switzerland Stuns Markets by Giving Up on Currency Peg; On January 15th, the Swiss National Bank shocked the markets, in one of the most memorable days in the history of currency trading. The SNB swept the rug from under the feet of currency, debt, and equity traders alike, when it decided to abandon its defense of the Euro versus the Swiss franc. The SNB’s sudden withdrawal from the currency wars, sent the Swiss franc soaring by +20% within a few minutes, a move that rippled through global markets and wiped Sfr-155-billion off the value of the Swiss stock market. ---------------------- The SNB scrapped its defense of the Euro at 1.20-Swiss franc, just days after SNB officials said the currency peg was absolutely necessary, to fend off deflation and a recession. SNB deputy Jean-Pierre Danthine said on Jan 12th that the 1.20 ceiling would remain a “pillar” of monetary policy. “We took stock of the situation less than a month ago, we looked again at all the parameters and we are convinced that the minimum exchange rate must remain the cornerstone of our monetary policy,” Danthine declared. Earlier, on Jan 5th, SNB chief Thomas Jordan said the currency peg as “absolutely central.” ----------------------------------------- Since introducing the currency peg in Sept ’11, the SNB had printed roughly Sfr-400-billion and used to buy Euros and US$’s. As of Jan 14th, its foreign currency reserve had increased to a record Sfr-495-billion, or equal to 85% of Switzerland’s GDP. Then, the gig was up. The SNB realized it was not possible to match the ECB’s forthcoming €1.1-trillion Q€-printing spree. To counter the ECB, the SNB would have to print Swiss francs equal to 2-times the size of Switzerland’s annual GDP. -------------------------------- In Zurich, the SNB’s defense of the currency peg had in essence, become a quasi QE-scheme. Much of the 400-billion of Swiss francs that were injected into the foreign currency market, filtered into Swiss bonds, (pushing the Swiss 10-year yield below zero-percent last week), and into blue-chip Swiss stocks. However, when the SNB suddenly went cold turkey on quasi-QE, and abandoned the Euro /franc peg, it triggered an instant reaction of panic. The Swiss Market Index tumbled -15% lower to the 7,900-level. The two-day crash was the biggest since “Black Monday” in October 1987, and wiped out around 155-billion francs in market value. -------------------------------------------------- Morgan Stanley analysts wrote: “We estimate that 85% of SMI sales come from overseas, and many of the large-cap names generate 90-95% of their revenues from sales outside Switzerland. With the franc worth around +17% more than it was a day and a half ago - the franc is now nearly at parity with the Euro. Swiss companies must face the challenge of absorbing what amounts to a -17% reduction in revenue on every item sold in the Euro-zone.” The SNB’s retreat from quasi-QE also has far reaching consequences for 550,000 Poles, 150,000 Romanians, and many Croatians, who have mortgage debts denominated in Swiss francs, and now face +17% increases in their interest and principal payments. However, on Jan 18th, Switzerland’s finance chief Eveline Widmer-Schlumpf sought to reassure shell shocked investors that abandoning the currency peg with the Euro would not destabilize the Swiss economy. She predicted the Euro / Swiss franc rate would eventually rebound to 1.10. “I’m confident that the economy will be able to cope with this decision. Companies are in a far better position than in 2011 when the cap was introduced,” she told the SonntagsBlick and Schweiz am Sonntag newspapers. --------------------------------------------- Sure enough, on Jan 27th, the SNB backed-up the finance chief, and issued a warning that it is ready to intervene in the currency market to support the Euro against the Swiss franc. “Giving up the cap means a tightening of monetary policy. We accept this, but only up to a point. We are fundamentally prepared to intervene in the foreign exchange market,” warned SNB deputy Jean-Pierre Danthine. He said it would take some time for the foreign exchange markets to balance out, and declined to give exact levels, the SNB is aiming for the Swiss franc versus the Euro and the US-dollar. -------------------------------------------- Already, signs of stability in the Euro’s value at around parity with the Swiss franc was enough of a signal for bargain hunters to pick-up battered Swiss shares. With the SNB alerting traders that it is not completely walking away from currency intervention, traders bid-up the SMI +5% higher to the 8,400-level on Jan 27th, or +5% above the panic bottom lows.
Archived Comments:
Swiss National Bank comes to Rescue of Battered Stock market
Gold Soars +15% higher vs Euro, amid fears of Greek Exit from Common Currency
Updated12:08 PM, Jan-29, Thu
Around €1.4-trillion of Euro area government bonds are already trading with negative nominal yields, almost all of them up to 5-years maturity. Whatever the reason for the emergence of negative interest rates in Europe, it’s suddenly made the Gold market more attractive, simply because the yellow metal is yielding a higher rate of interest, or zero-percent. And with the ECB is vowing to further dilute the value of the Euro against other paper currencies, through its Q€ scheme, there has been a panicked flight from the Euro and into safer havens. And there is another wildcard in play that might explain Gold’s sudden explosive +15% rally against the Euro in the month of January ‘15, to as high as €1,150 this week. Most traders to date have concluded that the cost of Greece exiting the Euro currency union is so high that Athens would not contemplate it. However, the virtual economic collapse and high poverty level in Greece that has led the left-wing Syriza opposition party led by Alexis Tsipras to power have upset those calculations. Greece, in effect, has a lot less to lose by leaving the Euro currency. -------------------------------------------- Greece’s economy has shrunk by -25% since the onset of the “Great Recession.” Thousands of businesses have closed, wages and pensions have been slashed and more than half of young people are unemployed. Half a million citizens have left the country. At the same time, its massive public debt has climbed to €320-billion, or 176% of GDP last year, the second highest in the world. Greece could declare bankruptcy if a solution is not found. As such, there is a flight from Greek bonds that has already doubled the yield on Greece’s 10-year note since the start of September to as high as 10.70% this week. ------------------------------------------------ Yet Berlin believes that the rest of the Euro zone would be able to cope with a Greece exit if that proved to be necessary, the Der Spiegel magazine reported on Jan 3rd. Both German Chancellor Angela Merkel and Finance chief Wolfgang Schaeuble believe the “danger of contagion is limited because Portugal and Ireland are considered rehabilitated. In addition, the European Stability Mechanism (ESM), the Euro zone's bailout fund, is an effective rescue mechanism and is now available.” According to the report, the German government considers a Greece exit almost unavoidable if the leftwing Syriza opposition party led by Alexis Tsiprasto tries to cancel austerity measures and a chunk of Greek debt. -------------------------------------------- “If Alexis Tsipras of the Greek left party Syriza thinks he can cut back the reform efforts and austerity measures, then the troika will have to cut back the credits for Greece, “ warned Merkel’s chief advisor Michael Fuchs on January 3rd. “The times where we had to rescue Greece are over. There is no potential for political blackmail anymore. Greece is no longer of systemic importance for the Euro,” he said. On the other hand, many traders are bidding up the price of Gold and German bunds, fearful that a Grexit could open the way for the eventual demise of the Euro and a return to the Deutsche Mark. --------------------------------------------------- On the political front, the Greek election that brought Syriza to power highlights the growing strength of anti-austerity and anti-Euro parties. It is perhaps Spain which has the strongest parallels with Greece. The Spanish economy has suffered a major economic downturn that has fuelled the rise of anti-establishment, radical left party Podemos, only founded in 2014, which is currently neck and neck in the polls with the ruling People’s Party. Meanwhile, the long established Socialist Party is trailing in third place, but might yet win power in coalition with Podemos at the next election. So after 3 years of kicking the can and pretending it is fixed, suddenly everything that is broken in the Euro-zone threatens to float right back to the surface, and the ECB’s QE-scheme might only make matters much worse.
Archived Comments:
Gold Soars +15% higher vs Euro, amid fears of Greek Exit from Common Currency

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