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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.
To view more articles click on Archive
Crash in Crude Oil Rattles -Energy Junk bonds
Updated11:59 PM, Jan- 6, Tue
If “risk-free” refers to situations with known outcomes and known probabilities, and if “uncertainty” is un-known outcomes and un-known probabilities, then “Black Swan” events are outcomes that were not or could not be known in advance (even remotely), because they were not thought possible or had never even been considered. Black Swans events are very, very rare, and sometimes have never been observed before. It is an example of the dangers of inductive logic. Just because the first 1,000 swans that were observed happen to be white does not mean that all swans are white.------------------------------ Black Swan events happen so infrequently they could not have even been imagined or conceived. Putting it in statistical terms, the odds of a Black Swan events occurring in any given month is about 0.1% or slightly more than 1% in any given year. Is it smart to plan for Black Swan events with such low probabilities? But the concept is useful because it points to the limitations of knowledge and forecasting the future based on the (recent) past. ------------------- However, the latest “Crash in Crude Oil,” which began in the first week of July ’14, and so far, has continued to spiral lower for six straight months, is the third such Crash that has occurred over the past three decades, and wiped out 2/3’s of its market value. Yet very few operators in the Shale oil business, or their financial backers, thought a third crash of crude oil was possible, after prices have gyrated in a narrow $20 range for 3 1/2 years around the mid-point of $100 /barrel. Traders, government leaders, and oil company CEO´s had been lulled into believing that the "New Normal" for crude oil prices was at an average price of $100 /barrel.----------------------- The Shale oil and gas boom in the United States was made possible by $500-billion of loans to drillers. Not only did financing come from company shareholders and traditional banks, but hundreds of billions of dollars have also come from junk-bond investors looking for high returns. Junk-bond debt issued by companies in the Energy sector has increased to $250-billion, or 19% of the $1.3 trillion junk-bond market. That is a dramatic rise from just 4 percent that energy debt represented 10 years ago. ---------------- Quantitative easing “has been one of the keys to the fast, breakneck pace of the growth in U.S. oil production which requires abundant capital. As a consequence of the Federal Reserves´ "Zero Interest Rate Policy," lots of yield hungry investors and banks lent hundreds of billions to companies with much riskier drilling prospects than, say, the oil majors.------------------------ One of those to take advantage was Goodrich Petroleum ,, an oil and gas explorer, which has raised $1.45-billion in the bond market and $245-million in bank loans in the past four years. Goodrich Petroleum has been among the hardest hit as Saudi Arabai helped knock oil prices to a five-year low of $48 /barrel this week. The oil selloff is deepening concern among bond investors that the least-creditworthy oil explorers will struggle to pay their obligations and prompt bankers to rein in credit lines as revenue slumps. Halcon, SandRidge and Goodrich are among about 21 borrowers operating in the costliest US Shale-producing regions that will be unprofitable if Nymex crude oil stays below $60 /barrel.-------------------- CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year. Deutsche Bank analysts predicted in a Dec. 8 report that about a third of companies rated B or CCC may be unable to meet their obligations should Nymex crude oil prices drop to $55 a barrel. Companies with ratings of B or below are “virtually shut out of the market” and will have to “rely on a combination of asset sales” and their credit lines. ----------------------------- Worse yet, the price of Bakken shale oil plunged to as little as $42.35 /barrel,on January 6th, and the bid price on Goodirch Petroleum´s 8.87% note, due in March 2019, and rated CCC, - melted down to 48-cents on the dollar. Since the start of July ´14 - the Crash in Crude oil has lifted the yield on GDP´s 2019 note to above 32% today, and far above the 5.65% yield seen six months ago. In September, the average energy high-yield issue yielded 450 basis points above Treasuries, according to Bloomberg . Now that premium has increased to above +1,000-points. ----------------------- Now, with oil prices -60% below what they were six months ago, there are concerns that the weakest oil companies won’t be able to generate sufficient revenues to service their debt. Not only that, their collateral is evaporating as well. Goldman Sachs analysts figure that $1 trillion of oil investments are virtually worthless as long as prices stay this low, because marginal fields are simply not worth drilling. In four years of $100/bbl oil, the global oil and gas industry has taken on a quarter of a trillion dollars in debt, has delivered zero production growth outside of North America and is facing a $1 trillion+ reduction in global revenues.--------------------------- Meanwhile, the flow of good jobs that this industry has been producing is also likely to start drying up. The energy sector as a whole, generates an economic stimulus of almost $1.2 trillion in gross product each year, as well as more than 9.3 million permanent jobs across the nation.
Archived Comments:
Crash in Crude Oil Rattles -Energy Junk bonds
Crash in Crude Oil Crushes Russia´s Rouble, the Kremlin jacks-up Interest rates, sells $113-billion
Updated11:58 PM, Jan- 6, Tue
The Russian rouble got hammered last year as the Urals blend of crude oil, the nation’s biggest export, collapsed to $48.25 /barrel on Jan 6th, and sanctions over the Ukraine conflict pushed Russia’s economy toward recession and a probable downgrade of its credit rating to junk. The central bank responded with a trebling of its key interest rate as it burned through $113 billion of reserves while the government ordered state-controlled exporters to sell foreign currency and announced a bank recapitalization plan.---------------------- The Bank of Russia raised its key rate six times this year, to 17% from 5.50%, and eased access to euros and dollars as the ruble plunged to a record 80.10 on December 16th. The Kremlin ordered Gazprom and four other state-controlled exporters to cut foreign-currency holdings, helping spur the ruble’s brief rebound versus the dollar.------------------------- However, Russia’s ruble remains fundamentally weak due to the negative effects of sharply lower oil prices, and the excessive dollar- and euro-denominated indebtedness of the private sector. Russia’s authorities have said the reason behind the recent dramatic decline in the ruble’s FX rate was sheer currency speculation; and could eventually opt to impose limitations or direct control of capital flows.---------------------------- The principal driving force behind the ruble’s resurgence has been speculation over that the government’s decision to ‘advise’ exporters into selling part of their hard-currency revenues in order to hold down a looming financial crisis. The fact of the matter is that the current tax period has prompted large-scale sell-offs in dollars and euros by the nation’s leading exporters as they are paying taxes in rubles. -------------------------------- The Bank of Russia is implementing its plan to provide dollar-denominated liquidity to companies that need it the most as sanctions have largely cut them off from international lenders. All in all, the CBR is intending to lend up to $19 bln to commercial banks in order to prevent a full-scale financial crisis. Next year, Russia’s private sector has to pay off some $120 bln of external debts, and the CBR said yesterday it will provide further dollar- and euro-denominated loans to companies in need. The measure, the CBR said, would allow Russian companies “manage their own currency liquidity and also refinance Russian exporters’ external foreign currency debts payable in the near future, in conditions of limited access to international capital markets.” As the CBR provides more hard-currency liquidity on the domestic market, while simultaneously sucking up excess ruble liquidity by having raised its interest rate to 17%. Still, the net effects of these policy measures are fragile.------------------------------------ The third factor, supporting the ruble, is the ongoing massive sell-off of Russia’s FX reserves on the domestic market. Between December 12 and 19, the Bank of Russia sold $15.7 bln of its FX reserves, some of which were sold in order to support the ruble, the rest being lent to banks and other enterprises. The total value of Russia’s FX reserves diminished from $414.6 bln on December 12 to $398.9 bln on December 19. According to CBR data, the regulator spent $113-bln on FX interventions over the past 12-months.
Archived Comments:
Crash in Crude Oil Crushes Russia´s Rouble, the Kremlin jacks-up Interest rates, sells $113-billion
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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