Chris Vermuelen

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US Federal Reserve

Elliot Wave Analysis: I expect a decline after FOMC!

The bullish point of view is that the stock market has clearly broken out with the Dow Theory confirmation!  Some will argue that we are witnessing a blow off rally in the market, which will be followed by a sharp and dramatic reversal into a bear market. By traditional fundamental metrics, it is overbought and overextended.  Which school of thought should you subscribe to?

It is my belief, based on my Cycle Analysis and my Predictive Analytics Model, that the FED’s rate increase will be the trigger for the next wave down  (http://www.economist.com/news/finance-and-economics/21711323-first-time-years-central-banks-forecasts-monetary-policy-look).

Elliott Wave (4) usually unfolds as a complex correction:

Elliott Wave (4) although being corrective, can be tricky to trade. Prices may meander sideways for an extended period and Wave (4) typically retraces less than Wave (2) has. Volume is well below that of Wave (3). However, Wave (4) offers the BEST  buying opportunity if you understand the potential ahead for Wave (5).

Elliott Wave (5) is the final leg before the top:

Wave (5) is the final leg in the direction of the dominant trend. The news is almost universally positive and everyone is bullish. Unfortunately, this is when many average investors finally buy in, right before the top. Volume is often lower in Wave (5) than in Wave (3), and many momentum indicators begin to show divergences (prices reach a new high but the indicators do not reach a new peak).

Below is a chart of the monthly SPX which is still showing a BULLISH TREND!

Below is a chart of the weekly SPX displaying that we are going to experience a correction in this  BULLISH TREND!  This is where you should take your profits, or otherwise, the market will take it from YOU!

EXTREME GREED INDEX!

This is another WARNING SIGN to bank the profits you have already earned from the unsustainable market rise!

http://money.cnn.com/data/fear-and-greed/

The SPX has not experienced a down month during December for three years in a row since 1950. The SPX index fell during the month of December in 2014 and 2015. It has never before been down more than two years in a row during the month of December. December shows the highest win rate.

The U.S. Dollar Index

The major high of 102 is projecting to much lower levels. For now, I simply want to be short and will most likely increase my short, on any strength, if 103 is not breached to the upside.

The latest COT reading shows that commercial traders still hold a massive and highly concentrated short position, which makes it more important.  They did not cover any of their contracts. This tells me that they are waiting for significantly lower lows. An interest rate hike seems all but assured, as it is priced into expectations in the FED Funds futures. Pricing implies that traders place the probability of an increase at 100 percent.  Chairperson Dr. Yellen and company have probably learned their lesson from last year’s liftoff debacle. Then, as now, the FED prepared investors for a hike well in advance. The U.S. dollar may even fall due to year-end portfolio readjustments.

The Yen!

The Yen is now very oversold on daily indicators, and commercial dealers have built a large long position. More importantly, the short-term price pattern to the downside is most probably complete, as I expect major weakness in the U.S. Dollar Index. I would consider going long the Yen down the line.

Gold!

My big picture of gold has not fully resolved to the downside yet. The final long-term lows have not been achieved, but given how oversold short-term conditions have become, I expect to see a short-term bounce.

Commercial positioning is still bearish. Both the price patterns and COT actions reflect a short-term bearish and intermediate long-term bullish view.

TLT!

Treasuries are extremely oversold on daily and weekly indicators. It should be in the process of putting in a medium-term bottom. The commercial traders have flipped from a massive short position to a very significant long position. I am intending to reestablish a new position during the next strong bounce.

Irrational Optimism?

Optimism pertaining to the economy and stocks has surged since President-Elect Trump’s election victory: (http://www.cnbc.com/2016/12/09/optimism-on-economy-stocks-surges-since-trump-election-cnbc-survey.html).

Consumer sentiment jumped in November 2016 following the November 8th, 2016 presidential election. Forecasters see an increase for the preliminary December index. The consensus is 94.1 vs. a final November 2016 reading of 93.8.   The pre-election consensus was 91.6:(http://finance.yahoo.com/video/trumps-victory-consumer-confidence-near-221958012.html).

Even though everybody is aware that the FED will raise rates to a target range of 0.5%-0.75%, do the markets have it baked in?  (http://www.economist.com/news/finance-and-economics/21711323-first-time-years-central-banks-forecasts-monetary-policy-look)

If the post-election rally in U.S. bank stocks caught you unaware, you are not alone; Jamie Dimon didn’t see it coming either. At a conference, the Chairman and CEO of JPMorgan Chase & Co. said he “kind of got surprised” by the market reaction to Donald Trump’s presidential win. As you can see in the charts below, the financial sector has moved the markets much higher to new all-time highs (https://www.bloomberg.com/gadfly/articles/2016-12-06/jpmorgan-special-dividend-may-shrink-if-it-doesn-t-act-fast).  U.S. banks have been among the biggest beneficiaries of Donald Trump’s presidential election.

2017 looks to be setting up for some severe volatility with opportunities popping up across the board.

By: John Winston
Co-Author: Chris Vermeulen
www.TheMarketTrendForecast.com
www.TheGoldAndOilGuy.com
www.ActiveTradingPartnerscom

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Donald Trump

Eric Balchunas, ETF Analyst for Bloomberg Intelligence, stated that, “Financial ETFs are on fire, but the center of the heat is really banks, which will benefit from rising rates more than other areas of the financial sector.”

Is the strengthening of the dollar merely temporary? Is this recovery an illusion, which will precede an inevitable crash? I have maintained all along that there has been no real recovery and that the FED will not raise interest rates soon, contrary to common widespread beliefs.




The strong U.S. dollar seems to put extreme stress on China and other emerging market currencies. In the past, this has led to liquidity shortages, which have eventually bled into the U.S. stock market, and the People’s Bank of China does not appear to be finished with the latest round of yuan devaluation.

John Engler, President of the Business RoundTable said, “We see tremendous opportunity for economic growth, trade and immigration. I see a silver lining.” “The Republicans understand,” he said, “that they’re on the spot to produce results.”

The new Trump Administration favors the other side of Keynesianism, which tends to favor fiscal expansions driven by tax cuts. The Obama Administration favored increased government spending through Quantitative Easing. Foreign and domestic investors will continue to buy U.S. government paper, as it is still regarded as a safe haven in an unstable world. This fiscal expansion is going to move towards the normalization of short-term interest rates in government bond yields.

The US citizens desire this shift, as they have suffered from the long period of extremely low interest income. The country would benefit from the stimulatory effects of the fiscal expansion. The expansive monetary policy should have reached the end of the road in the Eurozone. Fiscal expansion in Germany would be a significant step to returning to the norm. The US is about to rebalance fiscal and monetary policy, as the Eurozone continues its current madness towards more quantitative easing and NIRP.

Sector Rotation

The main category looks for those that gained favor as money flowed from sectors that were previously favored to those expected to perform better in the new, post-election environment. Previously, the leaders were defensive growth stocks that became expensive based on price-to-earnings ratios. Now, the advantage goes to cyclical stocks and sectors, financials and industrials that are less expensive but should be able to increase earnings if GDP growth improves. However, large capitalization multinationals will most likely find tough going against rising interest rates and a higher dollar. Accordingly, the advantage should be with smaller domestic companies.

Based upon the first few days, it looks as though the election will become a market game changer.

With stock market bullishness at extreme levels and the gold perma-bears out in force, a sharp rally in gold will certainly catch almost everyone by surprise. So, could a rally be coming in the days ahead? Perhaps you should just keep your eyes focused upon the yuan, as it may once again be foreshadowing what is yet to come!

The combination of expectations for an interest rate hike by the FED next month, along with the potential of higher inflation upon implementation of new fiscal policies, imply rising interest rates and a stronger dollar. There are several ways to position oneself for future rising interest rates and future declining bond prices.

Follow my lead at www.TheGoldAndOilGuy.com where I trade ETF’s and recently close UNG for a quick 2.6% profit and GDX for another 5% profit in a couple days.

If you prefer more potential gains like EDZ 20.7%, NUGT 11%, UGAZ 36%, VUZI 25% then join us at www.ActiveTradingPartners.com

Chris Vermeulen

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Donald Trump

The Trump win might not be bad for markets!

Republican Donald Trump stunned the world last Tuesday night, November 8th, 2016, by defeating heavily-favored Hillary Clinton in the race to the White House.  This now ends eight years of Democratic rule and sets the United States on a new and uncertain path.

Donald Trump’s victory shows that the markets are hoping that, as president, he will act in a rational manner once he takes office. His acceptance speech appears to have gone down well with stock market participants.




He is clearly pro-business and pro-Wall Street. He believes in less regulation and in letting businesses thrive. Trump proposes to reduce taxes across the board, which will boost consumption. He plans to lower the business tax rate from 35 percent to 15 percent and eliminate the corporate alternative minimum tax. This will result in larger savings for corporations and boost earnings. I feel that his biggest measure is a one-time offer to businesses to repatriate business profits from overseas back to the USA by paying a tax of 10 percent. This would help boost the U.S. dollar.

Mr. Trump favors much smaller number of federal regulations than the Obama Administration. He has no specific plans on imposing restrictions on banks and Wall Street firms. The markets should view this as a favorable factor to the U.S. stock markets.

He proposes to renegotiate the NAFTA (North American Free Trade Agreement) with Canada and Mexico. The Trans Pacific Partnership (TPP) deal will be put on hold. The TPP imposes a countervailing duty on Chinese imports and use tariffs to eliminate trade deficit.

Investors Should Brace For A Further Slump In Global Stock/Bond Markets!

His triumph was a rebuke to President Barack Obama’s failed economic policies that have been implemented over the past 7 years. This election was about JOBS, JOBS, and new JOBS!

Bank of America Merrill Lynch reported that global bond investors lost $337 billion yesterday, November 9th, 2016. Thursday morning, November 10th, 2016, the Stoxx Europe 600 had climbed back up 4.6% from its post-election low, the FTSE jumped 0.70% in early London trading, the DAX is currently up 1.02%, and Asian stocks rebounded, with the Nikkei 225 surging by 6% in Tokyo.

Today, the best investment opportunity is to be in is cash. Yes, you read it right; cash is the best investment possible today. markets move very fast without providing much time, and one needs to be ready with the trading plan. This is where my expertise lies! There are times when making money should not be your priority; the main goal should be to sit tight with your cash and do very little. I have been recommending for a long period now to SELL the bounces, so you should be out of stocks and ready for my next big trade suggestions. Do not fall for the various experts who advocate being fully invested in stocks or other asset classes. Read on and decide for yourself if you agree with my concept of holding cash.

Staying primarily in cash is an opportunity to buy when everyone else is selling in the next panic. A smart investor should keep his shopping list ready and pick his favorite asset classes for pennies during market downturns. You might get a chance to buy your favorite asset 20% to 30% lower than current levels. What percentage of your portfolio you should hold in cash depends on your investing philosophy, but in the current scenario, let your cash holding be the maximum you have ever held in your portfolio.

The Bottom Line:

Jim Roger is following a cycle analysis similar to ours, as he is saying:

The main cause is the Federal Reserve, and Washington, D.C., more broadly. They’re accumulating gigantic debts and doing huge amounts of money printing. That can’t last; it’s going to cause problems for all of us down the road. If you’re looking for a single culprit, it’s Washington, D.C.  It’s already happening. In 2015, for instance, twice as many stocks were down on the New York Stock Exchange as were up. It was disguised by the averages, but the averages are dominated by 15 or 20 big stocks that never go down. Most stock markets are down around the world. Japan is already in recession. It’s just not visible to the press or to the public yet. Something similar happened in 2007.

In our latest trades this week with our active trading partners newsletters, we took profits on EDZ for a 20.7% profit, and UGAZ locking in another 14% profit in just 2 days.

Shouldn’t you also be following our time-tested proven trading analysis?

Chris Vermeulen – www.TheGoldAndOilGuy.com

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Are The Banks Safe?

Although the seeds of the 2008 financial crisis were sown at a much earlier period of time, the banking institutions continued to reap the benefits of easy money until the financial crisis of 2008 negatively impacted the economy. The damage would have been much larger had U.S. taxpayer’s money not been used to bail out a large number of struggling banks and companies.

It is now more than eight years since the last financial crisis has occurred, and the current global situation is now beyond that of the financial crisis of 2008. The central banks have been able to kick the can down the road, but that has only produced such vast proportions of debt that the next financial crisis will not be manageable by the global central banks.

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European Banks Have Already Begun The Crisis

The world’s riskiest bank, according to the U.S. Federal Deposit Insurance Corporation, is the Deutsche Bank.

The Bank’s leverage ratio of 2.68% is far worse than that of what the U.S. banks were before the 2008 crisis.

“In 2008, the 10 largest US banks held on average 3.1% tangible equity capital-to-assets. When the financial crisis hit, these institutions experienced significant losses and required extraordinary government support,” said FDIC Vice Chairman Thomas M. Hoenig, reports the Business Insider.

The recent fine of $14 billion demanded as RMBS settlement by the U.S. authorities is 80% of the bank’s market cap and twice the amount that the bank has in reserve for litigations. The Deutsche Bank is on the brink of collapsing and will need a full-fledged bailout immediately.

However, it is not only the Deutsche Bank. There are other European banks in trouble as well. Primarily, it is the Italian banks which are under considerable pressure.

With a GDP of approximately €16.2 trillion (nominal), the European Banks have approximately €1.2 trillion of bad loans. The total non-performing loans of the Italian banks is around €360 billion, which represents 20% of Italy’s GDP.

However, Italian and German counterparts both continue to spar over their struggling banks.

Recently, Italian Prime Minister Matteo Renzi told Bundesbank Chief Jens Weidmann to sort out the mess of the German banks, which have “hundreds and hundreds and hundreds of billions of euros of derivatives,” rather than worry about the Italian banks.

The European Banking Authority said in July that the region’s banks may need as much as 470 billion euros ($524 billion) in additional MREL-eligible funding. The EBA sample consisted of 114 banks representing 70 percent of the EU’s banking assets, including lenders not overseen by the SRB,” said Elke Koenig, Single Resolution Board Head, who is the resolution authority for 142 banks, reports Zero Hedge.

Will U.S. Banks Be Immune To A Financial Crisis Since Their European Counterparts Are Experiencing Such A Crisis?

Fed Chairwoman Janet Yellen wants us to believe that the large U.S. banks are in a much better situation as compared to 2008 because they “have put in place numerous steps and have more in the works that will strengthen these [financial] institutions, force them to hold a great deal of additional capital, and reduce their odds of failure. There will be much lower odds that a so-called systemic firm will fail, and should that occur, we’ll have better tools to deal with it.”

What is the reality? Even before the 2008 crisis, the regulators of Bear Stearns, Wachovia, Washington Mutual, Fannie Mae, and Freddie Mac all kept on assuring the public that the institutions were well-capitalized until the very end.

Therefore, we cannot accept the regulator’s word as final and/or factual truth.

In a recently published paper for the Brooking Institute, authors, former Treasury Secretary Larry Summers ,and a Harvard Ph.D. candidate in economics, Natasha Sarin, found the opposite to be true!

To our surprise, we find that financial market information provides little support for the view that major institutions are significantly safer than they were before the crisis and some support for the notion that risks have actually increased,” the authors wrote.

The authors analyzed the six largest U.S. banks and fifty of the largest banks, around the world.

Conclusion:

Multiple experts like Steve Eisman have pointed out that the next financial crisis will originate within the European Union. The politics of the region is unlikely to allow for a logical solution to the problems plaguing both the Italian and the German banks.

Don’t waste your time! Click here to find winning trades in minutes!

If one had believed the regulators in 2007, they would have incurred huge losses. Similarly, if one believes that the American banks are immune to the next financial crisis, believe so at your own risk.

This is the beginning of The Great Reset, globally.

Learn more and profit from this big change within the financial sector.

Chris Vermeulen – www.TheGoldAndOilGuy.com

[Image Courtesy of Pixabay]

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An International Monetary Fund (IMF) financial system stability assessment report on identified one bank in Europe, Deutsche Bank AG (NYSE: DB), as the TOP bank that poses the greatest systemic risk to the global financial system. Systemic risk was identified as a major contributing factor in the financial crisis of 2008. This is, essentially, the risk of contagion by the failure of one firm leading to failures throughout its industry.

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On February 24th I talked about DB (Deutsche Bank) as the next major bank to fail. Since then, its price has plunged 31% and it is likely headed much lower yet.

IMF: The Top Bank That Poses Global Financial Risk Is DEUTSCHE BANK!

Deutsche Bank’s $75 Trillion In Derivatives Is 20 Times Greater Than German GDP!

chart-1

Deutsche Bank was historically one of the most respected banks in the world. Today, it is increasingly the subject of reports that it is on the verge of collapse, which is primarily due to a massive exposure to derivatives estimated at $50 to $70 trillion. The bank has struggled continuously since the 2008 financial crisis, and its stock price, as of late July 2016, stood at a new seven-year low of just $14.57 per share; this is less than 10% of its peak price in 2007, before the financial crisis.

chart-2

The bank’s CDS spread shot up to recent highs (a CDS is a measure of risk – higher is bad), and its share price hit 33 year lows. DB has been struggling in Europe’s negative interest rate environment. Negative interest rates have been crushing European and Japanese banks. Deutsche Bank’s CEO John Cryan told analysts that banks will increase fees and take other measures that will be passed on to customers.

chart-3

The bank was hit with a $2.5 billion fine in October 2015 for its involvement in the LIBOR scandal regarding interest rate rigging. In January 2016, it announced a record loss of more than $6 billion for 2015, which was a stunning reversal from a 2014 profit of $1.6 billion. In my past articles, I issued a warning that Deutsche Bank was massively leveraged and that its problems were most probably insurmountable. In June 2016, the Fed announced that Deutsche Bank had failed its stress test for the second year in a row. The bank was also hit by the BREXIT decision, seeing as it derived nearly 20% of its revenues from the United Kingdom.

Does Deutsche Bank Have Similarities To Lehman?

The biggest problem that Deutsche Bank faces is excessive leverage on its balance sheet. It faces insurmountable challenges from poor-performing core businesses and a lack of capital. I believe that the company ultimately must raise more equity capital to solve its leverage problems. Deutsche Bank’s valuation highlights the market’s pessimism. As of June 15th, 2016, the bank traded at 27% of tangible book value, which means that the company is worth less than its liquidation value.

In 2008, failures at Lehman Brothers and American International Group Inc. (NYSE: AIG) led to a run on banks and imperiled the financial system. Similarly, a failure at Deutsche Bank will have catastrophic consequences for the banking system during 2016.

The U.S. Department of Justice (DOJ) has ordered Deutsche Bank AG (DB) to pay $14 billion in order to settle claims of miss-selling mortgage-backed securities. Deutsche Bank said it would fight a $14 billion demand by the U.S. Department of Justice to settle claims that it miss-sold mortgage-backed securities, which raises questions about the future of Germany’s largest lender.

The bank’s market value is about $18 billion. A pending fine of $14 billion is not a good sign. The bank, which is already battling multiple legal cases, has only around $6 billion in its litigation reserves. Therefore, paying a $14 billion fine would seriously impact the capital structure of the bank. It is important to note that Deutsche Bank has already been struggling in terms of profitability.

The Destruction Of An Illusion:

Last Monday, September 26th, 2016, their stock crashed yet again, down another 6%. Its bonds have slumped, while the cost of credit default swaps are essentially a way of hedging against a collapse. It all has a very 2008 deja vu feeling to it.

chart-4

Markets should be bracing themselves for the worst outcome. The European debt crisis will create long-term systemic risks for ALL banks. Shares in all European banks continue to lag, while, at the same time, U.S. indexes are making all-time highs!

Deutsche Bank has struggled in Europe’s negative interest rate environment, and the German Chancellor Angela Merkel has ruled out a government rescue of the bank very recently. Deutsche Bank has the second largest derivative book in the world, behind JP Morgan, and that is indeed a serious concern. If the viability of Deutsche Bank is put in jeopardy, many other Euro banks will go under as well, which would induce global turmoil reminiscent of 2008. The IMF has highlighted Deutsche Bank as the most important net contributor to systemic risk. Once confidence is lost, a bank is in big trouble. If Deutsche Bank does go under, it will most likely take Merkel with it and quite possibly the euro as well!

This Is The Biggest Buying Opportunity Of Your Life!

The difficulty in identifying asset bubbles is directly related to credit expansion. The problem is not the asset bubbles, whether they be in stocks, housing, or student loans. This is merely a symptom of a deeper condition. The real threat is the underlying credit expansion by easy monetary policies that has created these asset bubble problems in the first place. 

Every crisis also brings an opportunity with it, hence, let’s make the best use of the opportunity before the price of gold and silver blows through the roof. It is better to invest now and see our investments multiply, instead of waiting for the crisis to start, as, by then, more than half of the rally would be behind us.

Don’t waste your time! Click here to find winning trades in minutes!

Follow my trades and long-term investment position at www.TheGoldAndOilGuy.com

Chris Vermeulen

[Image Courtesy of Pixabay]

China’s debt is a staggering $24 trillion with 247% of annual GDP as of last year, which is, in fact, an increase of an astounding 465% within a decade. The total borrowing by both the financial and non-financial sectors was only 78% of the GDP in 2007 and has since increased to 309% of GDP according to economists at Nomura Holdings Inc. led by Yang Zhao and Wendy Chen.

Some naysayers believe that the leverage in China is still far below that of what the U.S. was in 2007 previous to the financial crisis. However, they neglect to note that the property sector has increased by 4.5 times between 2000 and 2015 within the top-tier cities. Experience suggests that such a rise is both unsustainable and “bubbly.” A sharp drop in the property prices will increase the leverage to astounding levels, thereby threatening their economy.

chart-1

Huge Fiscal Deficit Challenge

The IMF has forecasted that China will have a moderate budget deficit of 3%, which sounds very comfortable. The IMF has merely considered the government’s debt so as to arrive at said figure, which accounts for less than 20% of public spending. The local governments and municipalities in China account for over 80% of public spending.

When the total figures are considered, this balloons to 10% according to the IMF, whereas, Goldman Sachs believes that number is much higher – above 15%. These numbers are far worse than those in the United States directly before the financial crisis of 2008. Learn more here: fiscal deficit

Most state-owned companies are taking on more debt in order to pay off their earlier debt. Bad loans soar, as shown in the chart below. The government has not allowed any major firms to become bankrupt in order to keep their job numbers propped up. If they start to let companies fail, unemployment numbers could skyrocket!

chart-2

Growth Is Struggling

With growth struggling, and in order to merely reach those of the beaten down estimates of the Chinese government, it appears highly unlikely that China will be able to manage their debt overhang.

In light of the forthcoming five-year congress of the communist party, the government will not want to push through unpopular reforms, although they are indeed necessary. The Chinese debt binge has reached such a vast amount that the experts now believe that in order to raise the GDP by $1.00, China must take a credit of $4.00, which is most certainly a sign of an impending crash that will have both global repercussions and further consequences!

Major Investors Who Have Raised Concerns About China

Legendary investor George Soros finds an “eerie resemblance” between the U.S. prior to the financial crisis and the current Chinese situation. “It’s similarly fueled by credit growth and an eventually unsustainable extension of credit,” Soros told the Asia Society in New York in April, reports Bloomberg.

Similarly, BlackRock Chief Executive Officer Laurence Fink has also raised concerns about the Chinese debt.

The famous short seller Jim Chanos is short on China while stating that it “is the gift that keeps on giving on the short side,” reported CNBC, in May of 2016.

China Shifting From Dollars To Gold!

China is gradually reducing its’ holding in U.S. treasuries. In July, it held $1.22 trillion in US bonds, notes, and bills, which represents a drop of $22 billion since June of 2016. This is the largest drop, in three years according to U.S. Treasury Department data that was released on Friday, September 16th, 2016.

chart-3

There are many who believe that China’s mammoth holdings of US Treasuries will restrict it from dumping them. However, Bocom strategist Hao Hong said, “The gold reserve on the China balance sheet has almost doubled since 2009. By holding gold, and moving away from a US-dollar centric system, we actually require less U.S. dollars,” reports Zero Hedge.

China’s gold holdings, which was a paltry 395.01 tons in the second quarter of 2000, has now risen sharply to 1,828 tons, according to the World Gold Council.

With the Chinese Yuan set to enter as the fifth currency in the International Monetary Fund’s SDR (Special Drawing Right) on October 1st, 2016, the Chinese are propping up the gold-backed Yuan as a fierce competitor to the U.S. dollar!

“The recently-opened Shanghai Gold Exchange differs greatly from the London Gold Exchange in one fundamental area: In Shanghai, buyers take physical delivery of gold whereas London deals in paper-based gold futures contracts. In Shanghai, ‘what you buy is what you get’ whereas in the West, gold is a virtualized commodity,” Tom McGregor, Commentator and Editor at CNTV (China Network Television), told Sputnik.

Conclusion

Similar to that of other developed nations, the Chinese debt has also reached “bubbly” proportions. However, the Chinese are leaning towards gold in a big way, as witnessed in their latest holdings. They know that during the next crisis those nations with a large gold backing will not only survive, but will become prosperous as well!

China is most certainly going to increase their gold reserves even further in the future. Imagine if only a portion of their U.S. treasury holdings are shifted to gold – the yellow metal will go parabolic. Therefore, keep an eye on gold and be well prepared to buy it when we reach that last dip before the bull run.

Want to know where gold, silver and mining stocks are within their bull/bear market cycles? Or do you want to know when and how to take full advantage of these next major moves?

Follow me at www.TheGoldAndOilGuy.com

Chris Vermeulen

[Image Courtesy of Wikimedia]

Economic Danger

The cycle since 2009 has been different from other market cycles in one significant manner. That having been said, it is the global central banks that have intentionally pushed interest rates to zero and below. This encouraged investors to speculate on the equity markets, which have now become dangerously overvalued, overbought, and “over bullish” – extremes according to all measures. In my opinion, this has deferred – and not eliminated – the disruptive unwinding of this speculative episode.

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They have encouraged an historic expansion of public and private debt burdens with equity market overvaluations that rivals only those of the 1929 and 2000 extremes on reliable valuation measures. The brazen experimental policies of central banks have amplified the sensitivity of the global financial markets to economic disruptions and distortions of value in relation to investor risk aversion.

It is very clear that a zero interest rate policy has encouraged yield-seeking speculation by investors. As I have previously discussed in many of my past articles, monetary easing in and of itself does not support the financial markets. Easy money merely stimulates speculation while investors are already inclined to embrace even more risk. The FED’s aggressive and persistent easing will fail to prevent this market collapse.

Any financial professional who has any understanding of how securities are priced should know that elevating the price that investors pay for financial securities does not increase aggregate wealth. Financial securities (stocks) are nothing but a claim to some future set of cash flows. The actual wealth is embroiled in those future cash flows and the value-added production that generates them. Every security that is issued MUST be held by someone until that security is retired. Therefore, elevating the current price that investors pay for a given set of future cash flows simply brings forward investment returns that would have otherwise been earned later on. The FED is leaving poorly compensated risk on the table for the future!

The total debt of the United States has reached gigantic proportions well beyond 2008.

The crisis ended in the second week of March of 2009, precisely when the Financial Accounting Standards Board (FASB) responded to congressional pressure and changed rule FAS157 so as to remove the requirement for banks and other financial institutions to mark their assets to market value. The mere stroke of a pen has eliminated any chance of widespread defaults by making balance sheets look financially stronger. The new balance sheets may be great in the short term, but, ultimately, have become weapons of mass destruction.

The Race To Debase Continues…

As of September 2nd, 2016, the BLSBS disappoints with a print of just 151,000 jobs. This will eliminate the possibility of a FED funds increase, however, do not be surprised if some FED officials emerge to tell you otherwise, as we are already experiencing some counter-intuitive moves within several of the markets.

The true unemployment rate is ACTUALLY U-6! Consequently, the U-6 rate more accurately reflects a natural, non-technical understanding of what it means to be unemployed. Including discouraged workers, underemployed workers, and other people who exist on the margins of the labor market, the U-6 rate provides a broad spectrum of the underutilization of labor within the country. In this sense, the U-6 rate is the TRUE unemployment rate, which is close to 10%.

U-6 Unemployment Rate
Unemployment Rate Chart

Concluding Thoughts:

In short, this incredible bull market in stocks, which we have embraced since 2009, is quickly nearing its end. The FED’s mass easy money policies, stock buyback programs, and accounting rule changes have simply masked/covered up most of the financial mess people, businesses, and global economies are in.

Eventually all these tactics to cover-up and kick the financial can down the road will start to fail. One they start failing, things will quickly get really ugly for the entire economy for those not knowing how to avoid and profit from market weakness.

Don’t waste your time! Click here to find winning trades in minutes!

If you would like to learn more about how to take advantage and profit from tough times, follow me at www.TheGoldAndOilGuy.com

Chris Vermeulen

[Image Courtesy of Flickr]

Deutsche Bank and Commerzbank are presently in the process of merger talks. The fact that these meetings are occurring is a signal that Germany’s banking troubles are indeed accelerating.

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Deutsche Bank to Initiate the Next Financial Crisis – Click Here

They are desperately seeking ways to cut costs and improve profitability. These plans include restructuring and job cuts using highly unconventional measures. Last June (2016), Reuters cited anonymous sources as saying that Commerzbank was exploring the option of hoarding billions of euros in vaults as a way of avoiding paying a penalty to the European Central Bank, which is due because of negative interest rates.

Their main problems are derived mostly from both low and negative interest rates. These lenders are used to depending on interest rate margins for income, while offering some services to depositors at either low or no cost. Low interest rates have significantly eroded these banks’ abilities to make money. It has become difficult for German banks to give incentives to their customers to encourage customers to keep money in their financial institutions. These inefficiencies, and the intense competition within the German banking sector, have already led to serious financial difficulties. If one combines these factors with the new challenge of declining interest rates, what possible positive impact can they expect to incur?

Interestingly, rates are not just low within the context of American history, but they also happen to be at their lowest levels – ever – in over 5,000 years of civilization.

5,000 Years Of Interest Rates – Rates Lower Than 1930’s Depression Era

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Deutsche Bank is not merely Germany’s biggest bank, but the political role that it plays in Germany is unique when compared to other countries. Deutsche Bank’s importance to Germany is many times greater than that of an investment bank like Lehman Brothers was to the U.S. in 2008. Deutsche Bank is technically a private bank, however, it is informally tied to the government and formally tied to most major German corporations. The bank’s fate will have an impact on all of Germany.

The Italian banking crisis is not only Italy’s problem!

Italy’s non-performing loan issues have now become common knowledge. Who will be forced into dealing with the repercussions of settling Italy’s impaired debt? That is a political question, and the answer depends, in large measure, on who holds Italian bank debt.

The U.S banks are not shielded from these European Continental banking problems. There is a substantial amount of uncertainty and risk.

The consequences of these failures pyramid the crisis due to the European Unions’ regulations. The European Central Bank (ECB) and the Central Banks of member countries cannot bail out failing banks by recapitalizing them. The bail-in strategy is, in theory, a mechanism for ensuring fair competition and stability within the financial sector across the Eurozone.

The bail-in process can potentially apply to any liabilities of the institution that are not backed by assets or collateral. The first 100,000 euros ($111,000) in deposits are protected in the sense that they cannot be seized, whereas, any money above that amount can be.

Germany insisted that the bail-in process should prevail.

The Bank for International Settlements stated that German banks are the second most exposed to Italy, after France, with a total exposure of $92.7 billion. Demand for gold has increased!

Italy’s ongoing banking crisis is presenting yet another threat to the stability of the ECB.

Commerzbank’s financial statements revealed that their Italian sovereign debt exposure was 10.8 billion euros ($12.1 billion).

Deutsche Bank’s net credit risk exposure to Italy is 13.3 billion euros as of the end of December 2015. Its gross position in Italy is 35.4 billion euros. Deutsche Bank is sitting on $41.9 trillion worth of derivatives.

Consequences of large bank failures are going to be significant.

Gold Is The Only Safe Haven Left In The World

Gold has remained as a form of currency for many centuries. Whenever countries followed a strict gold standard and used it as their currency, those economies were very stable. But, governments have always surpassed their means with their costly spending and have to leave their gold standard so as to fund their inefficiencies. Currently, gold is now beginning its’ multi-year “BULL MARKET”. Gold is the only asset class which will maintain its store of value during the impending crisis which is on the near horizon. The gold mania is about to be unleashed. While global central banks are now implementing negative interest rates, this is the perfect scenario for gold to surge much higher.

Gold does have historical store of value characteristics. It is held by central banks and institutions as a reserve. They do not want to sell it; on the contrary, many of them want to buy still more and accumulate it. Therefore, gold’s characteristic role, with regard to sovereign reserves, is still intact, even amid the fascinating evolution of central banking and institutional finance that we are witness to today.

This week I shared a detailed video for my newsletter subscribers talking about the big picture trends and price targets for gold, silver, mining stocks, oil, natural gas, the S&P 500 index, coffee, and sugar. We have some huge opportunities unfolding on the monthly charts. If you are looking for some easy, big trading opportunities, then follow my analysis and trades at: www.TheGoldAndOilGuy.com.

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Chris Vermeulen

[Image Courtesy of Pixabay]

If a bond has a negative yield, then the bondholders will lose their money on their investment. In the long run, their expectations are lower and, consequently, they lose the incentive to investwhich may have far-reaching repercussions.

Green Bonds Are Changing Investor Expectations

The rapid growth of the green bond market has sparked interest from many audiences. 

What Are Green Bonds?

Using debt capital markets to fund climate solutions, green bonds were created to fund projects that have positive environmental and/or climate benefits. The majority of the green bonds issued are green use-of-proceeds or asset-linked bonds.

In this new financial era, how can one ensure that the necessary investments are still coming? In addition, how can investors ensure that they are still receiving financial returns? Green bonds may very well be the solution.

The green bond market provides an innovative way to obtain both a financial return and produce a positive impact. The main characteristic of a green bond is that their proceeds are allocated exclusively to environmentally friendly projects.

According to HSBC, the green bonds market is rapidly increasing; around $80 billion worth of green bonds could be issued by the end of the year. This would represent almost a 100% year-on-year growth.

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In this negative-yield bond era, green bonds represent quite a good deal; 82% of them are rated at investment grade and they satisfy the medium long-term preferences of institutional investors, as well as covering a broad range of sectors. Investors are drawn to both the liquid, fixed-income investments that green bonds offer and the positive impact that they can have.

Many institutional investors, such as pension funds, now have mandates for sustainable and responsible investments and are developing strategies that explicitly address climate risks and opportunities in different asset classes. Green bonds can provide the verification and impact measurement that investors need. In the case of World Bank green bonds and IFC green bonds, they also bring AAA ratings.

Investors increasingly recognize the threats these forces create for long-term financial value and are increasingly considering it in their investment choices,” said Laura Tlaiye, a Sustainability Advisor at the World Bank, one of the first and largest issuers of green bonds with more than US $7 billion issued in 18 currencies.

Green bonds also give smaller investors a way to vote with their money. The State of Massachusetts, for example, received more than 1,000 orders from investors for a green bond that it issued last year – most of them are individual investors interested in supporting their local government’s investment in the environment.

A Holistic View Of Where The Economy Is Headed:

Green bonds enable capital-raising and investment for new and existing projects with environmental benefits. Recent activity indicates that the market for green bonds is developing rapidly. The Green Bond Principles (GBP) are voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the green bond market by clarifying the approach for issuance of a green bond. The GBP are intended for broad use by the market: they provide issuers guidance on the key components involved in launching a credible green bond; they aid investors by ensuring availability of information necessary to evaluate the environmental impact of their green bond investments; and they assist underwriters by moving the market towards standard disclosures which will facilitate transactions.

To help investors evaluate green bonds, MSCI/Barclays and others have also launched green bond indexes, which score issuers and check their project selection criteria and management of proceeds so as to ensure the promised use and ongoing reporting.

List Of Green ETFs For Responsible Investing:

Green bonds have definitely become an exciting market development with demand from investors consistently outstripping supply. If this is of interest to you, take a look at these Green Bond ETFs.

If you want to follow my lead as I swing trade and invest long-term using ETFs, join me at www.TheGoldAndOilGuy.com.

Chris Vermeulen

[Image Courtesy of Pexels]

Monetary Policy

Low and negative yields mean that no one has the confidence to invest in real capital projects. Investors would much rather lose money over a 10-year horizon than invest in building dams, repairing pipes, creating better grids, starting new businesses, etc. A new monetary order must replace the existing one, and as soon as possible. It will likely be one that China is determined to dominate this time around.

The Bank of Ireland is set to become the first domestic financial institution to pass on the ECB’s negative rates to customers for placing their money on deposit with the bank. I have learned that the Bank of Ireland, which is 14% owned by the State, has informed its large corporate and institutional customers that it plans to charge them a negative rate of -0.1% for deposits of €10 million or more starting in October 2016.

Ulster Bank, which is owned by UK lender Royal Bank of Scotland, has already introduced negative interest rates for a small number of large corporate clients. Ulster Bank has products priced off the back of Euribor, a European interbank lending rate, which is at an all-time low and had turned negative last year. These interest fees being charged by the bank do not apply to SMEs or to personal customers.

Additionally, as Bloomberg reports, The Royal Bank of Scotland, which is Great Britain’s largest taxpayer-owned lender, stated that some of its biggest trading clients must pay interest on collateral as a consequence of low central bank interest rates. Some of the bank’s institutional clients will need to pay interest on funds pledged as collateral when trading futures contracts.  The changes for sterling and euro futures and options trading will probably affect about 60 large clients. “Due to the sustained low interest rate environment, RBS will now be passing the cost of holding such deposits onto a limited number of our institutional clients,” the bank said in the statement. RBS said it had previously applied a zero percent floor to the overnight rate charged for collateral required by clearinghouses for future traders.

This is the first indication that the Bank of England’s decision to cut rates to historic lows is forcing lenders to collect negative interest from deposit holders.

Ironically, unlike Europe, the U.K.’s rates are (still) positive, even though the BOE recently cut the interest rate to an all-time low of 0.25% as it unveiled that it would resume monetizing government and corporate bonds. It may soon cut rates to negatives.

While the RBS move affects only a subset of business customers, some lenders in Europe, where both the European Central Bank and the Swiss National Bank have kept interest rates below zero for months, have been charging a wider array of customers in order to hold their deposits.

What you’re seeing is there have been a few banks in Germany and a couple in Switzerland which have started to charge for deposits; importantly, it’s to corporate customers, or very wealthy people,” said Andrew Lowe, an analyst at Berenberg, as quoted by the FT. “You are likely to see the UK banks follow suit, in particular if rates fall further,” he added. “Everything that applies to Europe applies to UK banks as well.

After a certain period of time passes, it will also apply to less than “very wealthy people.”

The RBS charges would apply to clients who trade futures and options and, therefore, hold cash on deposit as collateral. He said customers were being encouraged to put their cash into bonds, instead, so as to avoid the cost.

Conclusion:

In short, customers who hold money at banks are slowly beginning to get squeezed and charged fees. What does this mean? To me, I feel it’s going to be negative on the banks and their share prices as investor slowly move away from those banks and/or spread their money to other asset classes to avoid paying interest to a bank to hold their money.

Banks have it really bad, if you ask me. They are not making much interest on the capital they hold for clients, and charging customers to hold money is a sure way to lose some of their biggest clients and income.

The financial sector has never recovered from the 2008-09 bear market in stocks, and with, potentially, another bear market just around the corner, bank stocks could be in for a massive bout of selling.

Where could a large chunk of investors’ capital flow? Precious metals is one of the places, though many other greater opportunities are slowly unfolding, and its just a matter of time before we take advantage of them.

Join Me at www.TheGoldAndOilGuy.com and see my exact trades to prosper during these interesting times.

Chris Vermeulen

[Image Courtesy of Pixabay]

Thought Leader Discussions

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Aytu Bioscience Inc (OTCMKTS: AYTU) Recently, the CNA Finance team had an opportunity to speak with Josh Disbrow, CEO of Aytu Bioscience. Josh Disbrow has...