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Analysis and Charts of Global Markets

written by Gary Dorsch, Editor and Publisher
Bonds and Currencies Brace for BoE and Fed rate hikes
Jul 16, 2015
with the Federal Reserve poised to hike short-term interest rates for the first time in nearly a decade, “The actual raising of policy rates could trigger further bouts of volatility, but my best estimate is that the normalization of our policy should prove manageable,” said the Fed’s “Shadow” chief Stanley on May 26th. Fischer gave no time frame for when the Fed will start its first tightening cycle since 2004-06, but he made it clear that higher rates are coming. Still, he warns, communications can be a "tricky business,” and when the Fed does tighten, policymakers are bracing for spillovers to financial markets both at home and abroad. “Some of the world’s more vulnerable economies may find the road to normalization somewhat bumpier,” he added. The key question hanging over the markets, in general, is whether the Federal Reserve and its Anglo sidekick, the Bank of England , will finally begin to hike their short-term interest rates in the months ahead. On June 28th, the Bank for International Settlements, , based in Basel, Switzerland, which is an adviser for global central banks, called on the world’s top central banks to start normalizing monetary policy, - either by raising interest rates, or shutting down the printing presses under the guise of “Quantitative Easing,” , and the sooner the better.
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%.
 
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Fed´s Unwinding of QE-3 buoys US$ index near 13-year high; Fed rate hikes lie ahead
Updated 5:30 PM, Jul-16, Thu
With the Federal Reserve poised to hike short-term interest rates for the first time in nearly a decade, “The actual raising of policy rates could trigger further bouts of volatility, but my best estimate is that the normalization of our policy should prove manageable,” said the Fed’s “Shadow” chief Stanley on May 26th. Fischer gave no time frame for when the Fed will start its first tightening cycle since 2004-06, but he made it clear that higher rates are coming. Still, he warns, communications can be a "tricky business,” and when the Fed does tighten, policymakers are bracing for spillovers to financial markets both at home and abroad. “Some of the world’s more vulnerable economies may find the road to normalization somewhat bumpier,” he added. ------------------------------------------------ The key question hanging over the markets, in general, is whether the Federal Reserve and its Anglo sidekick, the Bank of England , will finally begin to hike their short-term interest rates in the months ahead. On June 28th, the Bank for International Settlements, , based in Basel, Switzerland, which is an adviser for global central banks, called on the world’s top central banks to start normalizing monetary policy, - either by raising interest rates, or shutting down the printing presses under the guise of “Quantitative Easing,” , and the sooner the better. “By keeping rates anchored at these historic, ultra-low levels threatens to inflict serious damage on the financial system and exacerbate market volatility, as well as limiting policymakers’ response to the next recession when it comes,” the BIS warned. “Risk-taking in financial markets has gone on for too long. And the illusion that markets will remain highly liquid has been too pervasive. The likelihood of turbulence will increase further if current extraordinary conditions are spun out. The more one stretches an elastic band, the more violently it snaps back,” (like the recent experience in the Chinese stock markets), warned Claudio Borio, head of the BIS's Monetary and Economic Department. --------------------------------------------- “Cheap money encourages more debt and creates financial booms and busts that leave lasting scars on the economy. They underpin both the potentially harmful high risk-taking in financial markets, while subduing risk-taking in the real economy, where investment is badly needed. And while increases in interest rates could cause stock prices to fall, - the likelihood of turmoil is only increased by waiting,” the BIS warned. It advises that monetary policy should be normalized with a firm and steady hand. “Near-zero interest rates could become chronic in the world’s major economies unless “a firm hand is used to raise them back to more normal levels.” “More weight should now be attached to the risks of normalizing too late, and too gradually,” the BIS warned. “Restoring more normal conditions will also be essential for facing the next recession, which will no doubt materialize at some point. Of what use is a gun with no bullets left?” the BIS report said.----------------------------- Moreover, the monetary policies of the big-4 central banks will soon be moving further out of sync. The Fed began to taper its $80-billion per month QE-3 injections back in January 2014, and finally mothballed it on October 31st, 2014. The Bank of England spent £375 billion on purchasing British Gilts and mothballed its QE-injections in Nov 12. And according to recent leaks to the media, both the BoE and the Fed are preparing to follow the advice of the BIS, and will be the first of the G-7 central banks to hike their short term interest rates, in the months ahead. -------------------------------------------------- On the other hand, the global markets will be swimming in a sea of liquidity, as the Bank of Japan and the European Central Bank have both reaffirmed this week, that they will continue injecting a combined $140-billion worth of Euros and yen into the world’s money markets in the year ahead. The BoJ is continuing its QQE injections at a rate of ¥6.5-trillion per month, and the ECB is continuing with its first ever QE-1 scheme at a clip of €60-billion per month until the end of Sept ‘16, despite opposition from Germany’s Bundesbank. Together with funneling cheap 4-year, loans to banks, the ECB’s Q€-1 scheme will inject more than €1.1-trillion into the money markets. Currency Carry traders’ eyes are fixated on ECB chief Mario Draghi and the BoJ chief Haruhiko Kuroda who carry around the big bazooka. A weaker Euro, and a weaker Japanese yen, is precisely what ECB chief Mario Draghi and BoJ chief Haruhiko Kuroda want. It makes local exports to other currency areas cheaper, thereby increasing the competitiveness of German, French, and Japanese Multi-Nationals. At the same time, it increases the price of imports, thus, reducing the threat of deflation at home. If the Euro and yen hadn’t declined so dramatically in the past year, their cost per liter of diesel would be -20% less than it is today. ------------------------------------ Thus, with full blown QE-schemes underway in the Euro-zone and Japan, and the BoE and the Fed having kicked the QE-addiction, -- the net result was a sharp increase in the value of the US$ index, measured against a basket of six currencies, climbing +20% higher from a year ago, and at one point reaching the psychological 100-level, its highest in 13-years. Behind the rise, the US$ rose from around ¥101.50 to as high as ¥125.50, while the Euro fell from as high as $1.3650 to as low as $1.0400. With the #1 and #2 Fed officials going on record, and hinting they will comply with the wishes of the BIS, with a few baby-step rate hikes in the months ahead, the US$ index is comfortably perched in the zone with support at the 94-level and resistance at the 100-area. Meanwhile, 1- British pound now buys €1.434 – it’s highest exchange rate in 7-½ years. That is +24% more than the €1.1350 the pound could fetch this time two years ago. If the ECB ends up maintaining its QE program thru Sept ‘16’s scheduled end, the upside target for the pound could be €1.50.
Archived Comments:
Fed´s Unwinding of QE-3 buoys US$ index near 13-year high; Fed rate hikes lie ahead
Bursting of Global Bond Bubble, Starts in Germany,
Updated 2:39 PM, May-27, Wed
Sometimes, in pays to be a market Contrarian. One year ago, according to a KPMG survey, which canvassed nearly 200 senior US Energy executives, 94% of them expected the price of North Sea Brent crude oil would be $100 /barrel or higher. Brent crude averaged around $108 from 2011 to 2014. However, contrary to widespread expectations, Oil prices collapsed almost -50% in 2014 as a shale boom drove US-oil production to the highest level in more than three decades. The US's stockpiles of unsold crude oil are near the highest level since 1930. In turn, t he price slump has forced Canadian and US oil- companies to reduce the number of active rigs by nearly -60% since December, the most prolonged retreat from the nation’s fields on record. --------------------------------------------- Today, the KPMG survey showed that 45% of respondents expect an average Brent price of between $50 and $59 a barrel this year, even though it is currently trading around $62.50 /barrel. Only 24% of executives polled expect oil prices to average $60-to-$69 /barrel this year. As such, many traders are making contrarian bets that oil prices could climb towards at least $70 /barrel this year. ------------------------------------------------------ With global benchmark oil prices still down -40% from last June’s highs, China has been adding to its strategic reserves, and lending support to crude oil prices. China’s imports of crude oil rose +8.6% in April from a year ago, hitting a new record of 7.4-million barrels per day (bpd), as implied demand remains high and stock building continues. China imported a higher-than-expected 30.3-million tons of crude oil in April, data from the General Administration of Customs showed. On a daily basis, April imports were up +13% from March. ----------------------------------------------------- --------- However, analysts at Goldman Sachs predic that Texas Sweet crude oil, traded on the Nymex, is still poised to slump to $45 /barrel by October as a surplus of crude oil weighs on the market. "A recovery in prices to near $60 /barrel from a six-year low of $46 /barrel in March is premature, GS analysts said in report dated May 18. The availability of cheap capital exacerbates the need for sustained low prices to keep U.S. producers from boosting output, according to the bank.“We find that the global market imbalances are in fact not solved and believe that the rally will prove self-defeating as it undermines the nascent re-balancing.” --------------------------------------------------- While markets have focused on the U.S. rig count, given its weekly frequency and potential insight into slowing shale output, production will still grow in 2016 at the current number of active machines, according to Goldman. Uncompleted wells can be brought into production quickly and add at least 250,000 barrels a day, according to the bank. “Should WTI remain near $60/bbl, U.S. producers will ramp up activity given improved returns with costs down by at least 20 percent,” Goldman said in the note. The backlog of drilled but uncompleted wells represents more than 100 million barrels of crude held in underground storage, Goldman said. ------------------------------- -------- Saudi Arabia's crude exports rose in March to their highest in almost a decade, as the top oil exporter revved up its output to the loftiest rate on record. The OPEC heavyweight shipped 7.9 million barrels per day (bpd) of crude in March, up from 7.350 million bpd in February and 7.474 million bpd in January. That was the highest level since November 2005, when the kingdom shipped 7.962 million bpd. Oil Minister Ali al-Naimi has said Saudi Arabia produced some 10.3 million bpd of crude in March. ------------------------------------------------------ Gulf oil producers, led by Saudi Arabia, are expected to resist attempts to cut output at an OPEC meeting on June 2nd. The Arab oil kingdoms in the Persian Gulf want to safeguard their share of a market that has a supply glut as a result of sharp increases in the production of shale and Tar sand crude. The burden of any cut in OPEC output would likely fall on the Arab Gulf members — Saudi Arabia, Kuwait, the UAE and Qatar — whose production has risen by around 3.5-million bpd since 2011. Currently, they pump 16.8-million bpd, or 55% of Opec's total, with Saudi Arabia accounting for 10.3-million bpd. They export around 12.5-million, almost two-thirds of the group's total. -------------------------------------------- The recent rebound in oil prices and a drop in US shale oil output are likely to convince the big-4 Arab oil producers to continue with its strategy. US crude production fell 112,000 bpd since March 24th to 9.26mn bpd in early May. "Prices are improving, growth in supplies from outside OPEC — especially shale oil — is lower than before and demand is recovering," Kuwait's governor at Opec Nawal al-Fuzai said. He says crude oversupply dropped from around 2-Million bpd late last year to between 1-Mil and 1.2-Mil bpd now. ---------------------- ------------ In recent weeks, however, with oil prices stabilizing within a narrow range, analysts and traders said it looked as though the US$'s exchange rate had become the key driver of oil prices. Oil market players are now paying closer attention to currency markets. An inverse correlation of -63% has developed between the value of the US$ index and the price of Brent crude - its highest in three years, indicating that the two instruments moved in opposite directions about two-thirds of the time. Many trades expect the US$ to move higher against most currencies as the Fed moves to lift short-term US-interest rates. If correct, a stronger US$ could exert downward pressure on global oil prices.
Archived Comments:
Bursting of Global Bond Bubble, Starts in Germany,
 
China´s Nasdaq Style "Chi Next´ Soars into Stratosphere, even as M2 growth Slows
Updated 4:48 PM, May-27, Wed
China´s stock market is being called a casino, with share prices soaring into the stratosphere, and bearing little connection to underlying economic conditions, which are getting weaker. But while the stock market has strayed from growth trends in the past, its divergence over the past few months has reached new extremes. Economic growth in the second quarter is projected to fall to +6.5% to +6.8%, the slowest annual figure in six years, but stocks have more than doubled in value since the middle of last year. A shift to monetary easing and expectations of more liquidity injections explains what looks like a classic case of irrational exuberance. --------------------------------------------------------------------- Is the Chinese stock market in bubble territory? That depends on what part of it one looks at. The Chi-Next, a board for start-ups, especially tech firms, is priced a ta price-to-earnings ratio that has reached 130, more than twice a more reasonable level for companies with strong growth stories. Chi-Next is supposed to be China’s version of Nasdaq. At the moment it looks like precisely that in 1999, just before the dotcom bubble spectacularly burst. ------------------------------------------------------ Starting from a tiny pool of 28 enterprises in 2010, the Chi-Next Index is now home to 458 companies in emerging industries such as electronics, information technology, new energy, new materials, environmental protection, high-end manufacturing and bio-medicine. More than 50 companies listed on the board, such as online video streaming service provider Leshi Internet Information Technology Corp and Chengdu Yunda Technology, jumped by the daily limit of 10% during last Friday´s trading. --------------------------------------------------- At one point on May 13, Leshi´s market value even topped that of main board-listed China Vanke, the nation´s largest residential property developer. Leshi´s market value stood at 148.77 billion yuan (US$24 billion) as of Friday. The total market value of the Chi-Next board has grown more than thirty-fold in five years to hit nearly 6-trillion yuan (US$980-billion) as of May 21. ------------------------------------------------------------- Another measure of the stock mania in China is the gap that has opened between share prices in the mainland and Hong Kong. The same companies with shares listed in both markets now trade at a 30% premium in the Shanghai, not far from a five-year high. China’s surging stock prices increased net wealth by CN¥37-trillion ($6-trillion), equivalent to 57% of China’s GDP, in just 18 months. --------------------------------------------------- Another indicator of just how much mania is buoying the Chinese stock market is the surge in openings of new trading accounts over the past year. Almost 8-million accounts were opened in the first quarter of 2015. In April regulators allowed individuals to open up as many as 20 accounts (previously, they were restricted to one), a rule change that makes it easier for day traders. Since then, investors have opened about 4-million accounts per week. Retail investors account for as much as 90% of daily turnover, whereas institutions dominate more developed markets. -------------------------------------------------------- Eighty-one percent of retail investors in China surveyed by State Street said they trade at least once a month. That´s the highest of any country on the planet. Likewise, 73% of investors in Hong Kong said they trade monthly or more often in stocks, bonds, currencies and other securities. Those are very high figures, especially considering just 53% of Americans and 32% of French investors say they trade monthly or more often. ------------------------------------------------------------ Hong Kong is an integral part of China’s capital market reform and Hong Kong Exchange & Clearing (388.HK) is a market leader, after Beijing launched a second Connect for mutual funds and ETF's. Only in March, the average daily trading volume in mainland China’s two stock markets was 941-billion yuan. But the average daily trading volume jumped to 1.4-trillion yuan in April and May. -------------------------------------------------------- The spectacular surge in China´s stock market is unfolding amid a backdrop of a slowing economy that is flirting with the specter of Deflation. On May 27th, China´s central bank forecast subdued consumer prices for the year and a challenging growth outlook. Annual consumer inflation ran at +1.5% in April, well short of the government´s 2015 inflation target of +3%. But the People´s Bank of China (PBoC) also tried to allay concerns about China´s stuttering economy, saying it can expand around +7% this year, in line with the government´s economic growth target. In its 2015 annual report, the PBoC reiterated that it would would make timely adjustments - or "fine-tuning" - to ensure conditions are "appropriate". The PBoC has cut interest rates three times in six months, and lowered banks´ reserve requirements -1.5% to 18.5-percent. It also restated China´s plans to expand its M2 money supply by around +12% this year compared with 2014. That may reassure speculators in the stock markets who are worried about slowing growth in China´s M2 money supply. Growth in the measure in April fell to +10.1%, the lowest since records began in 1998, raising concerns that an easier monetary policy is like pushing on a string, and not sparking a faster rate of economic growth.
Archived Comments:
China´s Nasdaq Style "Chi Next´ Soars into Stratosphere, even as M2 growth Slows
 

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