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Analysis and Charts of Global Markets

written by Gary Dorsch, Editor and Publisher
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.
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.
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Trading Volume in Crude Oil ETF's Soar - as Traders bet on a Bottom and Rebound for Oil
Updated 6:21 PM, Feb-16, Mon
The "Crash in Crude Oil" in the second half of 2014, that saw oil prices drop by -$60 /barrel within a very short period of time, caught most traders and Oil company executives completely off guard. Even the most die-hard Bears on crude oil, leaning on the far dated December 2018 contract, were only betting a decline for the price of Texas Sweet into the low $80's per barrel range. So the severity and the swiftness of the Crash in Crude Oil was truly a "Blue Swan" event, with a less than 5% chance of occuring. ------------------------------------------------ In the first week of January, an influential Goldman Sachs analyst predicted that US-crude oil prices would fall below $40 /barrel, and added that oil prices would have to stay lower for longer, in order to balance the market. But is an over-supply of 2-million barrels per day enough of an imbalance to be called a "Glut" that can sustain a collapse of $60 /barrel? Eventually, cooler heads will prevail, and already, bargain hunters have sensed a great buying opportunity, and have bid-up the price of crude oil by +$14 /barrel above the crash bottom lows hit in mid January. China is soaking up some of the 2-million barrels per day of excess oil supply in the world markets - and stockpiling crude oil for its strategic reserves. ------------------------------------------------ Conspiracy theorists say the truth behind the headlines is that Saudi Arabia and its Persian Gulf allies are attempting to topple the regime of the Ayatollah of Iran, which depends upon oil sales for 95% of its foreign currency earnings, and pays for the subsidies that is keeping its impoverished citizens above the poverty line. A sustained decline in crude oil could push Iran's economy into a depression, and possibly lead to a violent overthrow of the Ayatollah's regime, so the story goes. ---------------------------------------------- On January 13, --Iranian President Hassan Rouhani said the countries behind the fall in global oil prices would regret their decision and warned that Saudi Arabia and Kuwait would suffer alongside Iran from the price drop. "Those that have planned to decrease the prices against other countries will regret this decision," Rouhani said in a speech broadcast on state television as oil plunged to near six year lows. "If Iran suffers from the drop in oil prices, know that other oil-producing countries such as Saudi Arabia and Kuwait will suffer more than Iran," he warned. -------------------------------------------------- On Feb 10-- the head of Kremlin-controlled energy giant Rosneft launched a broadside at the forces behind the oil price crash that has hit Russia's economy hard. Igor Sechin, one of President Vladimir Putin's closest allies, said during a rare visit to London that OPEC had erred in not cutting output, as he blamed the low oil price on factors from financial speculators to US-government policy. Sechin, who has been targeted by Western sanctions over Russia's role in the Ukraine crisis, said the sharp collapse in oil could not be explained only by the forces of supply and demand, hinting there may be other factors at play. -------------------------------------------------- While careful not to go as far as some politicians and analysts, who have suggested the price crash was orchestrated by the United States and Saudi Arabia to hurt Russia and Iran, Sechin nevertheless said prices have been "manipulated." And he attacked the role of oil futures markets in London and New York, which help set the price of crude globally, where trading volumes have soared over the past decade. "We need to control the influence of financial players," on oil price movements, Sechin said. --------------------------------------------------------- As such, on the following day- Feb 11,- traders were surprised to learn that Saudi Arabia's Oil chief Ali al-Naimi met with government officials from Russia and Algeria, Saudi state news agency SPA reported. Naimi met in Riyadh with Viktor Zubkov, chairman of state-controlled Russian energy giant Gazprom, and they talked about cooperation between OPEC and non-OPEC oil producers as well as opportunities for Saudi-Russian energy projects. Whether the meeting turns out to be a key turning point for the oil market remains to be seen. However, traders in the crude oil futures and oil related ETF’s are now betting heavily on a rebound in crude oil prices in the weeks, months, and years ahead. Traders are betting that the Crash in Texas Sweet crude oil hit ROCK BOTTOM at around $45 /barrel last month. According to futures traders, Texas Sweet will rebound to $68 /barrel by the end of 2018. The Dec ’18 oil futures contract is trading +$15 /barrel above the spot price, and the trading volume in the Ultra-Long Crude Oil fund, NYSE ticker symbol; UCO has exploded to as much as 110-million shares last week, - seen as Bullish signals. ------------------------------------------------------------ Still, if Texas Sweet crude oil stays below $68 /barrel for the next four years, it could exert enough financial pressure on Iran's economy to ignite a regime change at some point. Much would depend upon the future actions of Saudi Arabia, which has 3-million bpd of spare capacity, and is the only player that could enforce a ceiling on crude oil at $65 /barrel for the next several years, if Riyahd wishes to do so. Still, if pushed to the brink of bankruptcy, Iran might strike out militarily at its Persian Gulf adversaries.
Archived Comments:
Trading Volume in Crude Oil ETF's Soar - as Traders bet on a Bottom and Rebound for Oil
Slumping Chinese Imports weigh on Commodity prices
Updated 8:50 PM, Feb-16, Mon
China is the world´s second biggest economy, using the most copper, aluminum, iron ore, steel and coal and the second-largest consumer of oil. Chinese demand has fuelled commodity market rallies for a decade and created a bonanza for many of the countries and companies that supply it. But after almost a decade of growing at more than +10% / year, China´s economy has been slowing down. On Feb 16, - a state newspaper quoted Xu Lin - the director of China´s National Development and Reform Commission (NDRC) Department of Planning, as saying that the economy would expand at a +7% annual rate in 2015, and average +6.5% over the next 5-years. --------------------------------------------- Slowing Chinese growth has created a global surplus of raw materials expanding more slowly than the economy as China reduces its dependency on infrastructure spending. According to calculations based on China´s GDP and consumption growth over the last six years, -- for every -1% slowdown in China´s economic growth rate, its demand for industrial commodities falls by about $10 billion. China consumes around 7.6 million tons of refined copper annually, and every -1% less growth equates to around 64,000 tonnes less demand. A -1% slower growth rate equates to 80,000 barrels per day (bpd) less oil demand, as well as about 22 million tonnes less coal. ------------------- That is 15 very large crude carriers of oil, and over 200 typical shipments of coal. Beijing has previously taken advantage of a decline in commodity prices to build stockpiles, so a softening in the markets triggered by a flagging global economy may whet China´s appetite. That, in turn, would cushion the impact on prices of the slowdown. What is clear, however, is that there will be no return to China´s 2008-09 stimulus-inspired commodities shopping spree. When enough bridges, railways, highways, and basic urban infrastructure have been built around each person, it will be difficult to keep finding more things to build. Data over the weekend showed a surprising -20% plunge in China’s imports in January ´15, compared with a year earlier, worsening from the -2.4% fall in December, and suggesting China’s economy is still losing momentum despite a recent raft of liquidity injections by the People´s Bank of China to support growth. ------------------ The Continuous Commodity Index (CCI) is a broad grouping of 17 equally weighted commodity futures, has tumbled to a five year low, and is lowering the inflation rates in most countries around the world. --------------------------------------------- After buying up the world’s commodities, China gears up to trade more of them. ---China has overtaken the US as world’s largest commodity Futures market, according to China Futures Association. China, currently has three commodity futures exchanges, with agricultural commodities, such as soybean, soybean oil, corn, palm oil, soy-meal,-- mainly traded on the Dalian Commodity Exchange and gluten wheat, sugar, cotton, rapeseed oil trading on the Zhengzhou Commodity Exchange, and copper, aluminium, zinc, lead, gold, deformed steel bar, wire rod, natural rubber and fuel oil, --- mainly traded on the Shanghai Futures Exchange.
Archived Comments:
Slumping Chinese Imports weigh on Commodity prices
Rebound in Urals Crude Oil Stronger Rouble, leads to lower Russian bond yield
Updated 8:50 PM, Feb-16, Mon
In classic contrarian fashion, S&P’s downgrade of Russia’s debt to junk status on January 26th, was the turning point for the bear market in Russian bonds. Since the downgrade, the price of Russian 10-year T-bond has rallied from 66-cents to 74.1-cents, and its yield has dropped from around 14.50% to 12.30% today. Rating agencies are poor market timers, but provide reliable contrarian signals. Sharply higher short-term interest rates have made Rouble Bears think twice about betting against the ruble. -------------------------------------------- But double-digit interest rates come with a heavy cost. The Russian central bank said it expects the economy to contract -4.5% in 2015, if the Urals blend of crude oil averages less than $60 /barrel. However, the hope is that by stabilizing the rouble, the sense of financial panic and the rapid outflows of capital will subside. While such drastic tightening measures will inflict more pain on the economy, it is not about preventing recession, but a full-scale financial turmoil caused by the precipitous ruble fall. While he spars with Kiev, Russia’s kingpin Vladimir is directing a full-scale currency war to defend the value of the ruble, and prevent tens of billions of roubles from flooding away from the country. The collapse of the rouble and the Russian stock market have reduced the wealth of the Richest 20 Russians by roughly $73-billion. The fortunes of some oligarchs have more than halved. In response, they are moving ever more capital into foreign banks. On Dec 19th, Putin ordered the tycoons and big industrialists to sell much of their foreign currency reserves and convert into Russian bonds, and lock in 16% interest rates for 10-years. ----------------------------------------------- So far, the gambit has worked. The rouble has stopped falling, and the US$ has found a ceiling at 70-roubles, thanks to a +$15 /barrel rebound in Urals crude oil to $59 /barrel today. The market price of Russia’s 7% note maturing in August ’23 has rebounded from a double bottom low at the 60-level to the 74.15-level, for a +23.5% capital gain. Bank Rossi has even shown enough confidence in the rouble’s new found stability, that it recently lowered its 1-week repo rate -200-bps to 15%. The bank wasn’t expected to change the rate anytime soon. Following the decision, the rouble initially fell -4%, and lifted the US$ to as high as 72-roubels. Since then, the US$ has dropped -12% to 63.5-roubles. Russia’s kingpin Vladimir Putin vowed on Jan 19th to stand firm in the face of the meltdown in crude oil prices and the rouble, saying the US is seeking to destroy his empire. “Tough times pass, tough people don’t,” Putin said before a packed auditorium of Russian and international journalists. ---------------------------- Looming debt repayments by Russian companies are now central to discussions of Russia´s ability to weather the financial shocks caused by low oil prices and Western sanctions. Many analysts assume the Kremlin will need to help stae owned companies such as Gazprom and Rosneft, repay their $550 billion in foreign debts. The whole debt burden has to all intents and purposes been transferred to the national balance sheet. Pessimists say Russia´s $370- billion in foreign exchange reserves will eventually run out. At the very least, sizeable foreign debt repayments add to the strain on the balance of payments, weighing on the rouble. According to central bank data, Russian companies and banks need to repay $109 billion in foreign debt in 2015, a heavy burden at a time when low oil prices have sunk export earnings.
Archived Comments:
Rebound in Urals Crude Oil Stronger Rouble, leads to lower Russian bond yield

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