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Analysis and Charts of Global Markets

written by Gary Dorsch, Editor and Publisher
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.
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.
 
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Saudi Arabia Unleashes the "Oil Weapon" to Topple the Ayatollah of Iran and bleed the Kremlin
Updated 5:18 PM, Dec- 3, Wed
Barring an Israeli strike on Iran’s nuclear weapons facilities, the onus has fallen upon the shoulders of the Arab Oil kingdoms in the Persian Gulf, to topple the Ayatollah’s regime and prevent the possibility of a nuclear war. As such, it appears as though, Saudi Arabia has unleashed the “Oil Weapon” to deal a crushing blow to the Iranian and Russian economies. ---------------------------- US light crude oil plunged -10% on Nov 28th, in its biggest one-day drop in more than five years, and benchmark North Sea Brent broke below $70 a barrel, as Saudi Arabia’s decision not to cut its oil output sent oil traders and analysts scurrying to find a new trading floor. Texas Sweet plunged $7.54 /barrel to settle at $66.15 /barrel, and fell further post-settlement, reaching a five-year low of $65.69. The last time the market lost -10% in a single day was in March 2009. North Sea Brent finished down $2.43, or -3.3% lower, at $70.15. It fell to as low as $69.78 on the day, last seen in May 2010. Brent also finished down -18% for November for a fifth straight month of declines, or the longest losing streak since the 2008-09 financial crisis. --------------------------Since June, Brent has given up about -40% of its value, falling from above $115, as increasing shale oil supplies in the US have created a glut amid a sluggish global economy. Friday’s selloff culminated a stunning meltdown on global crude markets, as Saudi Arabia abdicated its traditional role as the swing producer in the global oil market, and refused to cut its output, from its current level of 9.65-million bpd. Russia has also increased its oil output to 10.6-million bpd, up +1-million bpd compared with five years ago. With the two biggest oil producers refusing to compromise on oil output, the price of Texas Sweet went into a free-fall, plunging to as low as $63.72 /barrel on Dec 1st, in electronic trading. ---------------------------------------------------------- It’s a major shock to the world markets, and there are big winners and losers in the fallout. For the past four years, business decisions and investments were made under the assumption that a stable trading range of $90 to $110 /barrel was the “New Normal” for Texas Sweet, and other blends of oil. So the stunning plunge in crude oil prices reverberated throughout the global stock markets, with energy company shares taking a beating. The winners are retailers that sell consumer staple and discretionary items, and lower energy costs would widen the profit margins of airlines and other transportation companies. Shares of shale energy firms saw outsized declines, as the price of Bakken Shale Oil closed at under $60 /barrel, - far below the median break-even point of $70 /barrel for which drillers become unprofitable. Denbury Resources, QEP Resources and Newfield Exploration all lost more than 15 percent. The longer the price of Bakken shale oil stays below $70 /barrel, the greater chance a highly leveraged US shale producer will go under. But it will take a few months. ------------------------------------- The precipitous decline in the price of oil is the most stunning development this year. Igor Sechin, chief of Russia’s Rosneft, said oil prices could hit $60 or below by the end of the first half of next year. However, in order for the Saudi gambit to be effective in crushing Iran’s economy, the price of OPEC’s benchmark would have to stay lower, for longer, - within a range between $50 and $60 /barrel. The Saudis have the ability to make $50 /barrel a reality, since the kingdom has the capacity to increase its oil output by +3-million bpd to 12.5-million.------------------------------------------ If crude oil prices stay below $70 /barrel, it would inflict major damage to the vast majority of public oil and gas companies that require oil prices of over $100 to achieve positive free cash flow, - in order to pay their current dividends, and maintain their capital expenditures. Nearly half of the global energy industry needs more than $120. Last year, OPEC collected $1-trillion in oil related revenues. However, the recent plunge in oil prices, if sustained, would subtract around $350-billion from OPEC’s coffers, and subtract more than $100-billion /year from the Kremlin’s oil revenues. --------------------------Since the historic crash in crude oil prices in the second half of 2008, to below $40 /barrel, Saudi Arabia and the Persian Gulf oil kingdoms of Kuwait, Qatar, and the UAE have been busy building up their foreign currency reserves, held at their central banks. More importantly, they control much bigger investments, held in sovereign wealth funds . Saudi Arabia holds about $185-billion at its central bank to meet its monthly import bills. In addition, as of Oct ’14, the United Arab Emirates (UAE) controlled $863-billion in SWF’s, while Saudi Arabia controlled $757-billion, Kuwait $548-billion, and Qatar with $170-billion. Over the past decade, the Arab SWF’s diversified their investments to include high grade bonds and stock index funds in the Western markets. So even if their oil income drops -35% in the year ahead, it can be offset, by higher prices for bonds and stocks. The Gulf Cooperation Council is in a strong financial position to sustain a $50 to $60 trading range for crude oil. ----------------------------------The same cannot be said for Iran, which could find itself unable to pay for vital imports within a year, if crude oil prices sink further and stay below $70 /barrel next year, with its overseas assets frozen and cut off from international markets by crippling economic sanctions. Iran’s foreign currency reserves, which are critical to Tehran’s ability to withstand sanctions pressure, are being depleted, and in large part, are frozen. Twenty months ago, Iran had $90-billion in foreign-exchange reserves, according to the IMF and the Wall Street Journal; experts estimate that today Iran is left with no more than $70-billion. Most of Iran’s FX reserves, $50-billion is locked up in “semi-accessible” accounts in countries that buy its oil but cannot transfer payment to Iran because of EU and US-banking sanctions. As a result, Iran is accumulating foreign currency in restricted accounts in China, India, Japan, South Korea, and Turkey. Tehran has unencumbered access to only $20-billion of reserves that cover as little as four months of imports.-------------------------With oil prices at $70 /barrel or less, there will soon be a shortage of hard currencies in the marketplace that would cause Iran’s Rial to plunge, and as a result, the costs of vital imports would become more expensive, thereby sparking double digit inflation, with 23% of Iran’s youth out of work.
Archived Comments:
Saudi Arabia Unleashes the "Oil Weapon" to Topple the Ayatollah of Iran and bleed the Kremlin
Plunge in Crude Oil prices; Japan Yen Carry traders; boost Shanghai Red-chip index to Three Year hi
Updated 7:43 PM, Dec- 3, Wed
The Shanghai Red-chip Stock index has advance to a 3-year high, extending its gains to +35% sunce the last week of July. Mainland investors are opening stock brokerage accounts at the fastest pace in three years, and the trading volume in Shanghai has surged to an all-time high. ------------- Such optimism is a stunning turnaround from just three months ago, when the number of stock accounts dropped to a 4-year low of 52.4 million. Four months ago, the Shanghai red-chip index was bumping along the 2,000-level, or -70% below its all time high set in October 2007. ------------- However, the -35% plunge oil prices is a boon for China´s economy and stock market. --------------- China is dependent on imports for nearly 60 percent of its domestic oil supply. The fall in oil prices, therefore, translates into huge foreign exchange savings. According to data from the National Bureau of Statistics, the country imported $220-Bln worth of crude oil in 2013. .---------------------------------- It means China will save up to $70-billion in oil imports this year if the declining trend in oil prices continues. ------ Bank of America Merrill Lynch said that for every -10% fall in the price of oil China´s GDP growth would be boosted by around +0.15%, lower consumer inflation by around -0.25%. Falling oil prices will also benefit the consumer sector as lower inflation raises consumption through higher disposable incomes. CICC noted lower oil prices will provide Chinese policymakers with more room to ease monetary policy. -------------China´s retail fuel prices have been cut for the eighth-consecutive time since July as the government reacts to lower crude prices and the country is very likely to announce price cuts again late on Friday. Moreover, lower oil prices will not only be passed on to downstream industries but also influence the prices of other energy and grains through the substitution effect. The impact of oil prices on agricultural product prices is more important for China than for developed countries due to the higher proportion of food consumption in the country. ------------On the stock market, airlines surged on Friday on hopes of lower fuel costs. Air China, China Southern Airlines and China Eastern Airlines all climbed by the daily limit of 10% while China COSCO Holdings jumped +9.4% The transport sector in China, the world’s largest oil importer, will benefit most as a -1% drop in crude equates to $2.2 billion in savings and boosts profit by 0.2 percent, Citigroup said in a report. China Shipping Container Lines jumped +6% while Air China added +6.4% set for the biggest increase in a year. ------------------ On Nov 17th, - foreign buyers snapped up Chinese stocks at the debut of an exchange link that allows Hong Kong and Shanghai investors to trade shares on each other's bourses, a major step towards opening China's tightly controlled capital markets. The so-called Stock Connect scheme gives foreign and Chinese retail investors unprecedented access to the two exchanges, which some analysts said could eventually lead to the creation of the world's third largest stock exchange. Foreign investors can collectively buy up to a daily quota of 13 billion yuan ($2.12 billion) of mainland stocks
Archived Comments:
Plunge in Crude Oil prices; Japan Yen Carry traders; boost Shanghai Red-chip index to Three Year hi
 
Sharp Slowdown in China Factory Output Undermines Copper market
Updated 5:36 PM, Dec- 3, Wed
China’s factory sector slowed to a +7.7% annualized rate of growth in October, the slowest in a decade, and only half the rate of expansion of the blistering growth years from 2002 through 2012. China's industrial profits were -2.1% lower in October than a year earlier. The ripple effects from China’s slowing economic growth are being felt from Beijing to British Columbia to Chile. At risk is a nearly decade-long run of unquenchable demand and high prices for a range of metals and other commodities, powered by relentless spending on homes, office towers, and transportation and communications infrastructure across China. China’s big build is maturing as capacity catches up with demand, even leaving entire residential and retail complexes nearly vacant due to a lack of buyers. That is beginning to backfire through parts of the global commodities supply chain that has fed China for the past decade. For the global mining industry, the worry is that the “Commodity Super Cycle” is unraveling. ---------------------------------- “The stagnant growth outlook for China’s infrastructure and property sectors, combined with construction-biased Chinese demand, marks the end of the Chinese commodity super-cycle,” Credit Suisse concluded in a recent report. “Though China may still engineer a soft landing for its economy, the downshift is enough to upset a long-running favorable supply-and-demand picture.” As China slows, commodities have borne the brunt of the pain, CS said. Canadian resource companies – some of the world’s largest – were made richer with each pound of copper, zinc, nickel, iron ore and steel-making coal that China consumed. Today, though, traders are spooked by falling Chinese demand and mining and oil company shares have nosedived. -------------The price of Copper fell to a three-week low on Nov 25, after Chinese speculators hit the market amid worries about weak demand. The metal used in power and construction has been trading in a range between roughly $3 and $3.40 per pound in New York, since mid-September and is down -10% this year. ----------- The copper price has mainly come under pressure due to new supplies that are growing faster than demand. An October report by metal consultancy GFMS predicts over the next six months, more than1-million tons of new copper capacity, or around 6% of global mine production, will come on stream. New mines in Peru, led by China Minmetal's $6 billion Las Bambas project, coming on stream next year and in 2016 will double production to 2.8 million tonnes, placing the South American nation in second place globally behind Chile. Other significant projects include First Quantum's Sentinel project in Zambia which will add 300,000 tons starting this year, Southern Copper Buenavista expansion in Mexico will add 170,000 tons next year while the KGHM-Sumitomo Sierra Gordon project kicked off production of 220,000 tons per annum earlier this month. A research note from Goldman Sachs cuts its outlook for the copper price and warns even the reduced prediction could turn out to be too optimistic. Over the next six months Goldman expect copper to trade at $2.80 a pound, and also cut its 12-month outlook to $2.72 /pound). -There was a surplus of Copper this year, equal to 353,000 tons and Goldman Sachs is predicting it to increase to 492,000 tons in 2015, even with an expected +5% increase in demand from China.
Archived Comments:
Sharp Slowdown in China Factory Output Undermines Copper market
 

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