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Analysis and Charts of Global Markets

written by Gary Dorsch, Editor and Publisher
China’s Stock market Mania; How high can Red-chips fly?
Apr 2, 2015
While Beijing was busy cracking down on money laundering in the casino colony of Macau, it was also sanctioning its securities regulators, stock brokerage firms, overseers of the stock exchanges, and hundreds of high-tech engineers, to begin working night and day to launch the world’s third biggest casino, - dubbed “Shanghai - Hong Kong -Stock Connect.” It would allow global investors to trade Chinese Shanghai “A-shares” for the first time, through brokers located in Hong Kong, and mainland Chinese investors could trade Hong Kong’s ”H-shares” index via the Shanghai Stock Exchange, subject to quotas both ways. The combined size of the Chinese and Hong Kong markets is roughly $10.5-trillion today, behind only the combined $27-trillion size of New York Stock Exchange and Nasdaq.
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.
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Investors in the Euro-zone Revolt against Negative Interest rates
Updated 2:54 PM, May-12, Tue
Nothing is getting in the way of the European Central Bank chief Mario Draghi; neither worries about negative yields, nor the apparent pickup in the Euro-zone economy, nor signs that the descent into a Japanese stlye "Deflation Trap´ have been averted. For now, even protesters yelling “End the ECB dictatorship!” couldn´t knock President Mario Draghi off his stride. At an April 15th news conference, Mr. Draghi likened himself to a marathon runner - saying he wasn´t thinking about stopping only just after the race began. While acknowledging that the ECB´s latest scheme, dubbed Q€ - could feed bubbles in bonds and stocks, he said it was worth the risks. Draghi said the central bank was sticking to its plan to keep buying government bonds, asset backed securities (ABS´s), and other debt at a rate of €60-billion , or about $64-billion /month at least through September 2016, or until inflation was back up to its +2% target. "Our focus will be on the full implementation of our monetary policy measures," Draghi told a news conference after the ECB left interest rates at record lows at 0.05-percent. ------------------------------------------------ Soon after unveiling the Q€ scheme, - German Bund and schatz yields hit fresh record lows, with a stunning €2.8-trillion (US$3.1-trillion) of debt in Europe (dominated by Germany and France) falling below zero percent. in fact, Germany´s debt extending out to a 7.5-year maturity, was yielding less than zero percent, meaning that investors were paying the interest costs for the privilge of lending money to the Bundestag. Mr. Draghi did acknowledge the risk that ultra-loose monetary policy was “fertile terrain” for the development of threats to financial stability (ie; bubbles). ---------------------------------------------- Bundesbank chief Jens Weidman warned on April 19th, that ultra-low interest rates fuel stability risks (ie bubbles). And to get a sense of just how far the central banks have gone with their radical monetary schemes - "53% of all global government bonds were yielding 1% or less!" --------------------------------------------------- Still, Draghi insisted that there were no signs of bubbles. Yet with German bond yields hovering below zero percent as far out as January 2024 and 10-year Bund yields hitting a record low at 0.07%, Draghi´s comments sounded questionable at best, and intentionally deceptive at worst. --------------------------------------------------------------- Across Europe’s $7.1 trillion market for government debt, yields are paying a record low 0.86 percent, less than one-third of the average during the past decade, Bank of America Merrill Lynch index data show. Negative yields are a by-product of the ECB’s biggest financial experiment ever. Wide swathes of the German life insurance sector may yet face tough times as low yields clash with the returns they have promised investors, the Bundesbank has warned. ------------------------------------------------- However, on April 30th, investors began a Revolt against negative yields in Europe, dumping bonds across the spectrum, and wiped €55-billion ($76-billion) off the value of the region´s government bonds in one single day. The value of European debt dropped to €5.84-Trillion on April 30th, even with the ECB´s bond buying program fully under way. The yield on 10-year German bund, the European benchmark, came within a whisker of zero percent, - before shooting sharply higher, to as high as 0.81% last week. -------------------------------------------------------------- The outlook for Europe´s bond markets has turned negative, as investor psychology is focusing on the reflationary effects of QE - such as the increasing growth in Euro-area M3 money supply, which policy makers see as a gauge of the underlying strength in economic activity, - it averaged an annual +4.1%in the first quarter, the fastest pace since 2009. Germany's consumer inflation rate quickened to an annualized +0.3% in April, up from +0.1% in February, adding to the bearish bent towards German Bunds. on May 7th, ECB policymaker - Yves Mersch said QE is working better than expected and had eliminated the risk that the Euro zone's economy would fall into deflation. ------------------------------------------------------------------- A sharp selloff in Euro zone sovereign bonds over the past two weeks is proving a shot in the arm for the ECB's asset purchase plan, allaying concerns the bank may struggle to find enough bonds to buy. ECB purchases of German bonds are estimated to be over €11-billion /month, and the universe of bonds eligible for it to buy was shrinking as yields fell below the ECB´s lower limit of -0.20 percent. However, with the recent upturn in Euro-zone bond yields, the ECB should have an ample of inventory of notes and bonds to buy from. Seeking to soothe concerns the central bank might struggle to meet its €60 billion /month spending target, ECB chief Draghi argued on March 9th, that sellers would be found among foreign investors that hold about half the region´s debt. Barclays strategists estimate the ECB´s QE scheme will include the purchases of €850-billion of government bonds, compared with net debt issuance by national treasuries of €290-billion this year. In light of the recent +60-basis point uptick in German 10-year Bund yields, it looks as though the ECB will have plenty of debt to feast on! -------------------------------------------------
Archived Comments:
Investors in the Euro-zone Revolt against Negative Interest rates
Saudi Arabia boosts oil output to 10.3-Mil bpd, a 30-year high, to Enforce $45 to $65 price Target
Updated 6:59 PM, Apr-22, Wed
Big money investors are calling a bottom in US light crude oil prices, after they tumbled by more than half from June 2014 highs above $107. Money managers and other big speculators in Nymex crude oil futures and options raised net long positions that call for higher prices by some 52 million barrels in the week to April 7, data from the CFTC showed. That was the biggest one-week rise in bullish bets since 2011. Traders raised their combined futures and options position in New York and London by 51,802 contracts to 224,689 during the period, the biggest net long position since last August. About one-third of the increase came from new long bets, pushing managed money´s long-only positions to the largest since July. But a much larger share, some 33,000 lots, came from traders closing short positions that had ballooned to their highest on record just a few weeks earlier. Those traders may have given up waiting for another slump in prices amid signs of slowing U.S. supply growth and surprisingly robust demand. ------------------------------------- The rebound in US-light crude oil prices to above $56 /barrel was somewhat surprising, considering that Saudi Arabia revealed it had boosted its crude production by 658,800 barrels in March to an average of 10.3-million, its highest in three decades. In the space of 31 days, Saudi Arabia managed a production boost that took drillers in North Dakota’s Bakken almost 3 years to achieve. Iraq increased its oil output by 318,800 barrels a day to 3.63 million barrel. Saudi oil chief al-Naimi reiterated on April 7 that OPEC will only pare output to rebalance the global market if other producers share the burden. the Saudis are trying to keep oil prices depressed and within a self imposed Target Zone of $45 to $65 /barrel, by boosting oil supplies, in order to deal a severe economic blow to its adversaries in Moscow and Tehran. -------------------------- Yet Nymex oil prices have rallied to above $56 /barrel in recent weeks, buoyed by news of a record decline in US oil rigs that has fanned speculation that the US´s oil output will slow from its highest pace in three decades. The number of active rigs has fallen for a record 19 weeks in a row to the lowest level since 2010, according to Baker Hughes data going back to 1987, after slumping oil prices caused energy companies to idle half of the country´s rigs since October. The oil rig count fell to 734 after peaking at 1,609 in October, energy producers have responded quickly by cutting spending, eliminating jobs and idling rigs. Schlumberger SLB.N, the world´s biggest drilling services provider, said it would eliminate another 11,000 jobs in addition to the 9,000 cuts it announced in January.-------------------------------------------- President Obama’s insistence on easing sanctions on the Islamic Republic and pushing for a controversial nuclear deal, which would allow Iranian leaders to maintain all of their nuclear infrastructure and have a path to obtain a nuclear bomb, is leading to a significant shift in the balance of power in the Middle East in favor of ayatollah of Iran. One of the results of President Obama’s actions is the recent decision by Russia´s President Vladimir Putin to deliver advanced and sophisticated Russian air defense missiles to Tehran, that can provide a shield against attacks on its nuclear sites.
Archived Comments:
Saudi Arabia boosts oil output to 10.3-Mil bpd, a 30-year high, to Enforce $45 to $65 price Target
ECB's Expansion of Balance sheet lifts US$ to 13-year high vs Euro
Updated 5:11 PM, May-12, Tue
Since the start of 2014, the European Central Bank has said that it is "ready to consider all available instruments" to address the persistent weakness in consumer prices and to guard against an outright decline in prices. The fear is that low inflation could turn into deflation, a widespread and sustained fall in prices that can be economically debilitating and difficult to reverse. ECB chief Mario Draghi warned about the danger of an inflation rate that becomes entrenched below +1%, and creating the sort of situation that caused Japan´s "lost decade" of poor growth and economic pain. ----------------------------------------------- "Let me be absolutely clear... We have a mandate to maintain price stability — in both directions," he told a news conference on January 9, 2014. "We have several instruments. The choice will depend on what happens," Draghi said. Three months later, a report in the Frankfurter Allgemeine Zeitung revealed that the ECB has constructed models that showed 1-Trillion Euros of asset purchases spread over a year would boost inflation by just +0.2%, while another model pointed to a +0.8% uplift. As a general rule of thumb, studies have shown that a Euro devaluation of -5% will translate to additional growth of +0.3% in the Euro zone´s economy. --------------------------------------- One month later, on May 8, 2014, - the ECB chief was stressing that the Euro´s strength against the Chinese yuan, Japan, yen, and US$ was "a serious concern," and that the exchange rate would have to be addressed, using "all instruments" at the ECB´s disposal. The ECB´s vice president Vitor Constancio said, "What is important to consider today is the signal that the ECB Governing Council has given with unanimity: to use all measures if the risk of too prolonged low inflation would materialize," he warned. ------------------------------------------------ Ever since inflation in the Euro zone fell to less than +1%, the ECB has toyed with the idea of launching "Quantitative Easing" Q€ - or boosting the money supply to ramp up inflation. Finally, on January 22, 2015, the waiting game was over - the ECB said it would purchase sovereign debt from March ´15 until the end of Sept ´16, despite opposition from Germany´s Bundesbank. The ECB said it would inject €60-billion /month into the money markets. By Sept ´16, about €1.1-Trillion will have been created out of thin air, under quantitative easing. Draghi delivered a bigger bazooka than traders were expecting. ----------------------------------------------------- Since the ECB began to buy asset backed securities in Dec ´14, it has increased the size of its portfolion by slightly more than €300-Billion to €2.37-Trillion today. ------------------------------------------- Four days after the ECB formally launched QE, on March 13 Goldman Sachs slashed its forecasts for the Euro , predicting that it will fall through parity with the dollar and skid to 95-US-cents within a year and plunge to a new record low of $0.80 by the end of 2017. On April 13 - Morgan Stanley predicted the Euro will sink below parity with the US$ before the end of this year. Credit Suisse, Bank of America Merrill Lynch and Deutsche Bankalso jumped on the bandwagon, and lowered their forecasts for the Euro, with the launch of QE. Deutsche Bank, the world´s second largest FX trader, led the way in forecasting a devaluation of the Euro, predicting a fall to 85-US-cents. ------------------------------------------------------------ So far however, the US$ has failed to reached parity, peaking at €0.96 on March 13th. The first big roadblock for the US$ versus the Euro was encountered on March 18th - when the US$ tumbled the most in six years after the Fed slashed its projections for the fed funds rate in the years ahead. The Fed´s "Dots Matrix" estimates for the federal funds rate at the end of 2015 was lowered to 0.625%, compared with 1.125% in December '14 -forecasts. The outlook for 2016 was cut to 1.875% from 2.50%, according to the FOMC´s quarterly Summary of Economic Projections. As such, the Euro rebounded from a 13-year low at $1.04 to above $1.12 today. In recent days, the Euro has been supported by a surprising +60-bps increase in 10-year German Bund yields, a signal that the specter of Deflation and "negative" interest rates that has plagued the Euro is slowly disapating.
Archived Comments:
ECB's Expansion of Balance sheet lifts US$ to 13-year high vs Euro

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