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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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Moscow allows Rouble to float freely; after burning through $100-billion of FX Reserves
Updated 4:44 PM, Nov-18, Tue
Russia Says Sanctions are biting; Kremlin abandons defense of the Rouble, - Russia’s financial guardians made their broadest acknowledgment yet that EU-US-sanctions are biting its $2-trillion per year economy. The Bank of Russia said on Nov 11th, that economic output will probably stagnate in 2015, highlighting the damage wrought by a slump in oil prices and EU and US-sanctions linked to the conflict in Ukraine. Governor Elvira Nabiullina warned the Russia must face “the true reality,” and “Wishful thinking is over for now.”----------------------------------- Accused of stoking the conflict in Ukraine, Russian kingpin Vladimir Putin is struggling to shield the Russian economy, which is growing at the slowest pace since a 2009 recession. The rouble has depreciated -30% this year against the US$, and the Bank of Russia (ie; Bank Rossi) has raised its net capital outflow forecast to $128-billion this year, double the $61-billion it reported for 2013. Putin, in Beijing for a regional summit, played down the ruble’s decline, saying it was “absolutely not connected” to the performance of the Russian economy. Earlier today, the US$ was trading slightly above 47-roubles, up from 34-roubles at the start of July. -------------------- Russia’s central bank has struggled to stem the rouble’s decline as fighting flares anew in Ukraine and the Urals blend of crude oil slides to $78.80 /barrel, a four-year low. US and European Union sanctions have limited the access to capital markets for most state owned Russian companies, and increased capital flight, has fueled a faster inflation rate of +8.3%, and pushed Russia’s economy to the brink of recession. ------------------------------------------------------ On Nov 10th, as Russia’s battered ruble hit 48-roubles /US$, Putin dismissed its recent drop as “speculative” and said the central bank would allow the rate to float freely in the market. “We’re seeing some speculative jumps in the rate, but I think this should come to an end in the nearest future in light of the actions the central bank is taking in response to speculators,” Mr. Putin told a business conference in Beijing. Shortly afterward, Bank Rossi said it would eliminate the trading corridor it has been setting for the rouble. In recent weeks, that mechanism has done little to stem the rouble’s slide after the central bank burned through nearly $30-billion in interventions in the month of October. In its place, the central bank said it would intervene only when it sees “threats to financial stability.”------------------------------------------- Elvira Nabiullina, the central bank’s chairwoman, told Rossiya-24 state television on Nov 10th that the bank’s remaining $429-billion of FX reserves are adequate. She explained the decision to end regular interventions as a recognition of reality of the marketplace, namely the collapse of crude oil prices, saying that “if we spend reserves unwisely, trying to fight fundamental market trends (ie; crude oil), that would lead us to the same result, only a bit later and with much less reserves. In our view, the ruble rate is now deeply undervalued compared to an equilibrium level.” By the end of the trading session on the Moscow exchange, the ruble was at 45.53 /dollar, compared with Friday’s lows of more than 48 against the dollar. However, by week’s end, the US$ had rebounded to 47.15-roubles, as the price of Urals blend crude oil slipped below $80 /barrel. Finance Minister Anton Siluanov praised the move to the free float but scolded the bank for not doing it earlier. “I think that the decision came a bit too late as there was no need in having a trading corridor and spending reserves when the pressure on the ruble emerged,” Siluanov said.----------------------------- Also Monday, the Russian central bank downgraded its forecast for economic growth and raised its expectation for capital outflow this year; it warned it now expects sanctions to stay in place through 2017. Even so, the bank said it expects Russia to be able to avoid a deep recession unless oil prices fall significantly further. “The Russian economy will be stable even if oil prices remain at the level of $80 /barrel in 2015-17 and mutual sanctions are not canceled,” said Kseniya Yudaeva, first deputy chairwoman. But she said the bank’s baseline scenario calls for stagnation over the next two years after growth of +0.3% this year, the weakest performance since the 1990’s and far different than the booming +7% growth rate that prevailed prior to the Western financial crises that began in 2008. An oil-price drop to $60 /barrel, would trigger a deeper recession and further falls in the rouble, the bank warned.----------------------------------------------- On the other hand, most Russian companies are commodity exporters and are collecting their shrinking revenues in US$’s. But even if you disregard the rouble effect, the risk premium on Russian companies is on the rise,, referring to the interest rate premium of +7% that global investors demand over 10-year US T-Note yields, to hold Russian rouble 10-year bonds. Most analysts reckon that Russian banks are at the sharp end of the knife, and the central bank will probably dip into its coffers to bail them out, as it did during the 2008 crisis. Banks have over $50 billion in payments due in the coming year and, unlike commodity counterparts, have few dollar assets to set against dollar debts. Total external debts amount to $192 billion, a tenfold increase since the 1999 crisis.------------------------------------------- With the weaker rouble pushing up the cost of repaying US$ denominated debts, at its current level of 47 per dollar, the hit to banks’ balance sheets could be around one trillion roubles ($22 billion). Banks are also vulnerable to the slowing Russian economy and the rise in bad loans. Around $180 billion of their outstanding loans were made in hard currency, the servicing of which has suddenly become costlier for local companies and individuals.
Archived Comments:
Moscow allows Rouble to float freely; after burning through $100-billion of FX Reserves
Tokyo Warlords Jack-up Nikkei-225 Index above 17,000, a 7-year high, by lifting US$ vs Japan's Yen
Updated 4:50 PM, Nov-18, Tue
Foreigners buy ¥2-Trillion of Japan Inc in 2-weeks ended Nov 7th, Japan’s Nikkei-225 index closed near a seven-year intraday high amid choppy trade ahead of Monday's third quarter GDP figures. The Nikkei advanced +0.6% to 17,490, its fourth consecutive day of gains. For the week, the Nikkei added +3.6%. Since the Bank of Japan's QE-shock on October 31st, the Nikkei-225 index has soared +11.7%. The BoJ also said it would triple its purchases of exchange-traded funds linked to equities, helping to lift the broader Topix index +8.7% higher. Foreign investors have rushed in, and purchased ¥2 trillion ($17.3 billion) of Japanese equities in the two weeks ended Nov 7th, the most in almost a year, finance ministry figures showed today.------------------------------------ Buyers outside Japan favor investing in the Nikkei 225 because its stocks are larger and more liquid. The BOJ, which will put about 2/3’s its ETF investments, or ¥1.8-trillion, into funds that track the Nikkei. The BoJ plans to expand the monetary base by ¥80 trillion a year and make annual purchases of ¥3 trillion of ETF’s and ¥90 billion of real estate investment trusts. The stimulus pushed the Nikkei 225 above 17,000 for the first time since 2007, while the yen slumped to a seven-year low against the dollar. The average Nikkei 225 company has a market value of $12.2-billion, compared with $2.4-billion for the 1,825-member Topix. Nikkei 225 futures trade in Osaka, Singapore and Chicago, helping global asset managers and the BoJ to adjust their holdings around the clock.---------------------------- The concerted effort by Tokyo to weaken the yen by driving more pension fund and other domestic money offshore appears to be working, with the yen hitting new medium and long-term lows against a range of currencies. Among these is the Australian dollar, which closed at ¥101.75 today, or +8% higher this year, and trading at its highest point since May 2013. More than half of that gain has occurred since October 31st. Meanwhile, the Aussie has weakened -3% against the US$ this year, last at 87.83-US-cents.-------------------------------------------- This “Currency war” initiated by Tokyo has caught the attention of the Reserve Bank of Australia, which mentioned the weakening yen in its November statement on Nov 7th. The RBA said the recent BoJ moves on QQE and the government’s pension allocations would put further upward pressure on the Aussie versus the yen, just at time when it has eased markedly against the US dollar. The RBA is keen to see the Aussie lower on a trade-weighted basis, and the yen's decline is working against this. “Japan’s monetary policy and pension fund asset allocation increase the probability of consequent capital flows seeking more attractive yields on various assets in Australia. Such flows could hold the Australian dollar at a higher level than real economic fundamentals would imply,” the RBA warned.
Archived Comments:
Tokyo Warlords Jack-up Nikkei-225 Index above 17,000, a 7-year high, by lifting US$ vs Japan's Yen
US$ Index Climbs to 4-year high; buoyed by Booming domestic Oil Supply
Updated 4:40 PM, Nov-18, Tue
Many analysts and traders were caught off guard by the US$’s recent bout of strength, and as George Orwell used to say; “To see what is in front of one’s nose requires a constant struggle.” ------------ The most obvious explanation for the US$’s resiliency is the Federal Reserve’s withdrawal from its Quantitative Easing (QE) scheme. The Fed pumped $1.5-trillion of excess US$ liquidity into the US financial markets, through its QE-3 scheme. However, on Nov 1st, the Fed turned-off the money spigot, and thereby removed a major headwind for the US$. ----------------------------- Economists are now trying to pinpoint when the Fed would begin to hike the federal funds rate from its current range of zero to 0.25%. Expectations of a series of baby-step Fed rate hikes to begin sometime in 2015, were heightened on Sept 11th, with the appointment of the Fed’s #2 chief, Stanley Fischer to oversee the central bank’s all-important “financial stability panel” - otherwise known as the “Plunge Protection Team” (PPT). Fischer’s crisis management skills will be utilized in guiding the clandestine activities of the PPT – as it tries to cushion the US T-bond and stock markets from the fallout of the Fed’s exit from QE-3. A series of baby-step rate hikes to 1% could tip the US-economy back into a recession, or worse yet, trigger a -10% correction in the US-stock market. ------------------------------ Even if the Fed gets cold feet and decides to delay the series of baby-step rate hikes, the US$ could still win the reverse beauty contest, because the Bank of Japan (BoJ) and the European Central Bank (ECB) are also expected to keep their lending rates locked near zero percent for years to come. Better yet for the US$, - the BoJ is on a set course to weaken the yen by injecting around ¥7-Trillion per month into the Tokyo money markets, through the end of Sept ’15, and the ECB is preparing to print €1-trillion over the next 12-months, under its “Targeted” QE scheme, which is designed to boost bank lending in the Euro zone economy. Thus, the US$ has the winning edge in the arena of competitive currency devaluations with its trading partners. ----------------------------- Yet there’s another 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 +65% over 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.--------------- US oil output averaged 9.1-million bpd in October, the highest level since July 1986. “US-crude oil production will approach 10-million barrels a day (bpd) in late 2015, and will help cut US imports of fuel next year to just 21% of domestic demand, the lowest level since 1968,” the EIA says. In Q’1 of 2014, the US passed Saudi Arabia to become the world’s largest producer of petroleum liquids, with daily output exceeding 11-million bpd, including crude oil, hydrocarbon gas liquids, and biofuels. In fact, the US would account for 91% of the 1.3-million bpd increase in global oil output next year. ------------------------------ The shale revolution has enabled the US to reduce its imports of crude oil to 7.2-million bpd, or roughly -34% less from its peak in June 2005.--------------The US’s shale oil revolution has helped to narrow the overall US trade deficit to -$42-billion per month, on average. That’s far less than the average deficit of -$62-billion /month from 2005 thru mid-2008, when the US trade balance was at its worst. The narrowing of the US trade deficit is adding an estimated +0.6% to the US’s annual economic growth rate, compared with a few years ago. And looking towards the future, with the growth in world energy demand expected to increase around +35% by 2030, the US-economy could find itself at close to self-sufficiency in energy. -------------------- The story line for the US Petro dollar is bound to get better in the years ahead. The US has more recoverable natural gas than any other country. This represents a century’s worth of output and can support peak production at more than twice the 2013 level. As such, the EIA forecasts natural gas prices will average below $5 through 2023 and less than $6 until 2030.
Archived Comments:
US$ Index Climbs to 4-year high; buoyed by Booming domestic Oil Supply

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