Economy

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IMF

The International Monetary Fund (IMF) met in New York on Tuesday, 18 April 2017, to deliver its World Economic Outlook address. The IMF was bullish on its projections for worldwide growth, particularly for the United States which has enjoyed a honeymoon period since Trump’s election to the Oval Office. Additionally, there are improved economic prospects for major EM economies, as trade figures are reflective of strong growth. After 6 years of economic slowdowns, various countries like Turkey are now enjoying better growth (+19% year on year). One of the most heavily traded ETFs for emerging market economies – the iShares MSCI emerging markets fund is currently trading +11% for 2017. This is an extremely bullish sign for financial markets, particularly the emerging markets which tend to falter when developed economies adopt rate hikes and fiscal stimulus. The IMF forecast US economic growth at 2.3% in 2017, well beneath Trump’s estimate of 3% – 4%.




IMF Goes Long on Global Growth Rates for the Year

In 2016, the International Monetary Fund (IMF) projected global growth of 3.1%. Back in 2016 the IMF expected global growth to increase at 3.5% in 2017. However, the IMF remains staunchly against protectionist measures, particularly those that the US is considering against countries like Mexico and China. The US Secretary of Commerce, Wilbur Ross does not agree with IMF policy vis-à-vis protectionism, given that the US is in debt to China, India and other countries to the tune of $500 billion, making the US a net contributor to the protectionist policies of countries like China. For her part, Christine Lagarde of the IMF believes that protectionism could jeopardize global economic growth. Regardless, the economic indicators show that Asian exports are increasing and that overall economic trade is resurgent. The IMF’s prediction is that global economic growth will increase to 3.8% in 2017, increasing to 3.9% next year. Spearheading gains will be emerging market economies which are expected to improve by 4.5% in 2017 and as much as 4.8% next year.



What is Driving Markets to Stronger Global Growth?

At the start of 2016 it was a slowdown in China that crippled emerging market economies. Recall that Chinese GDP fell beneath the key 7% level, and this decrease in demand affected the export potential of countries like Brazil, Russia, India, South Africa, Turkey etc. Now, China is back in the pound seats. In Q1 2017 the Chinese economy powered ahead at 6.9% GDP growth – the best figure in 2 years. Fueling the Chinese economic powerhouse is an increase in public investment and private-sector investment. In 2016, the IMF noted that Chinese GDP grew by 6.7%, but that figure is likely to be downgraded to 6.6% for the current year. One of the major concerns for Chinese economic growth is credit. Domestic credit growth has fueled a bubble in GDP growth that may or may not become a problem in the future.

US Credit Shortfall in February

While the US economy is on track for improved gains this year, they are some concerns taking place on Main Street. Unmet credit demand in the United States increased in February 2017, according to the Center for Microeconomic Data, courtesy of the Federal Reserve Bank of New York. According to the statistics, the respondents were increasingly discouraged when they applied for credit. A figure of $2000 is considered the amount required to meet unexpected expenditures in the month ahead. The study found that 32.5% of respondents would require that amount, with 67.2% of people said that there was an average probability of coming up with that amount, which is approximately 1.3% higher than the October 2016 reading. What the data tells us is that applying for credit and obtaining that credit is increasingly difficult. There are signs of discouragement in the markets and that’s why there was an uptick in the number of people feeling that they would need $2,000 within the next month.

What is particularly unnerving is the number of US consumers who are reluctant to make credit applications at traditional banks. In October 2016, the number of people who needed credit but didn’t apply for it was 5.7%, that figure is up at 7.1% for February 2017. This gives credence to other non-bank lenders which are available at platforms such as LendingTree. Peer to peer lending has gained in popularity since the late 1990s, and various providers have entered the markets to replace the traditional forms of lending from banks to banks and lenders to lenders. Comparative ‘loan shopping’ platforms have come into being, and these facilitate the provision of information on best loans, terms, and repayment timeframes. As US consumers face the prospect of increasing interest rates, it becomes all the more important to acquire the most customer-friendly loans on the market. Consumers may be eschewing banks in the US, but they are increasingly migrating to peer to peer networks to supplement the shortfalls in their income.

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0 7277
Brexit

The world is changing fast as a wave of populist sentiment continues to steer the political discourse to the right. Many people are exasperated by the economic woes of rising debts, unemployment, inflation, and increased strain on social services. The rise in acts of terrorism and the migration crisis is also making people less accommodating to strangers. Hence, the populist voice is having a field day whipping the electorate into a frenzy in order to take control of the political landscape.





However, the events taking place in the political landscape often have a resultant effect in shaping the direction of the global economy. Globalization is already taking a hit as the populist voice advocates an increase in isolationist foreign policy. This piece seeks to explore how some events in the political landscape can affect the financial markets. I’ll also try to provide insights on how to take proactive steps in order to leverage political moves to their trading advantage.

Events Are Already Underway In Europe

Right-leaning events are already underway in Europe, as the European Union sits in a precarious position to negotiate its future. Last year’s Brexit vote in which 51.9% of people in UK voted to leave the EU opened the proverbial Pandora Box on how the EU is most likely an association of strange bedfellows. The Brexit vote caused the pound to fall; it is yet to recover, and forex traders who made the right bets against the pound will most likely be smiling all the way to the bank.

A couple of months later, Italy had a related vote in which citizens voted against a referendum aimed at reforming the constitution. Italy’s Prime Minister Matteo Renzi has said that he’ll step down after the failed referendum, and the Euro is in a weak position because the populist now have another win.


It doesn’t matter whether you are involved in forex, stocks, commodities, or cfd trading, you’ll need to stay proactive, because political uncertainties will continue to move the market in Europe. Traders with exposure to the forex markets and derivative trades will also find themselves in a better position to leverage political instability in Europe to make winning trades.

Pay Attention The U.S. Political Landscape

Traders and investors will need to pay more attention to events in the U.S. political scene because politics will have a material effect on moving the markets this year. The election of Donald Trump as the President of the United States speaks volume about how politics will move the markets this year. There is no doubt that Wall Street and the most vocal U.S. media have largely dismissed the possibility of Trump’s victory in the polls.

Many Wall Street analysts also stuck their necks out with predictions about how the markets will crash in the “unlikely” event of Trump’s victory. Trump won the election and stocks began to fall as investors reacted to the prevailing fears about increased uncertainty under Trump’s presidency. However, the decline was short-lived, and stocks rebounded to an impressive rally.

The major reason for the rally in U.S stocks is that Wall Street is now speculating that Trump’s policies could have a positive effect on the markets. In essence, if you have exposure to assets in the U.S. markets, you’ll need to stay tuned to reliable news sources so that you can make informed decisions.

Disclaimer – The article above expresses the views of its author, Luis Aureliano. It does not necessarily express the political views of CNA Finance, or any particular member of the CNA Finance team.

Luis Aureliano is a business writer and financial analyst. With over 15 years of experience in global finance and an MBA in economics and management, Luis’s areas of expertise include business, marketing, communications, personal finance, macro economics, stocks, and emerging markets.

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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

[Image Courtesy of Flickr]

0 7855
Italian Referendum

Mr. Matteo Renzi resigned after the referendum defeat: (http://www.npr.org/sections/thetwo-way/2016/12/04/504356413/italian-voters-reject-referendum-prompting-prime-ministers-resignation).




This vote will rattle European and global markets because of concerns about the country’s economic future and support of populist parties. It is prompting worries about plans by a consortium of banks to come forward. Investors now fear that the victory for NO could destabilize the banking sector. They could rule against a rescue Banca Monte dei Paschi of Siena:( (https://www.bloomberg.com/news/articles/2016-12-02/italian-banks-flirt-with-disaster-again-as-government-teeters).

Italy has voted on a constitutional referendum. The decision of the current Italian Prime Minister Matteo Renzi is to step down from office which has added to the uncertainty and risk.

After Brexit and the US Presidential elections, this is the third most watched event of this year. Brexit produced a knee-jerk reaction, while the US elections have seen a more sustained rally. Hence, it’s important to understand the Italian referendum and position ourselves accordingly to profit from it.

What is the referendum about?

Italy has seen 63 governments since the World War II, which shows the kind of political instability in the nation. Along with that, it is a humongous task in Italy to get any reform pushed through by the government, because both the Senate and the Lower house have equal powers, which was done to avoid another Benito Mussolini rising to power.

However, this has also resulted in a logjam for approving new bills, because both the senate and the lower house pass the bills to and fro for ages. Sometimes it takes decades to get any reform approved.

The current Prime Minister Matteo Renzi, therefore, has proposed a reform to speed up the reform process. To achieve that, he has proposed to cut the strength of the senate to one-third, abolish the layers of government overlap between the center and the regions and give more powers to the Prime Minister.




So why have people been opposing it?

Renzi’s opponents say that the reform will put more powers in the hands of the Prime Minister, making him invincible. Even if a corrupt and inefficient leader becomes the Prime Minister, it is difficult to remove and replace him.

They say that the reform did not address the real problem with the economy and the nation.

What is the political fallout of the referendum being defeated?

The markets fear that if the referendum is defeated by a large vote, Renzi will resign and the opposition parties will ask for early elections, which are due in 2018.

The markets fear that if early elections are called, the anti-euro, populist party, Five Star Movement(M5S), led by Comedian and blogger Beppe Grillo will come to power.

What happens now that the M5S comes to power?

The M5S is opposed to the current structure of the Eurozone. It has said it will renegotiate the terms of agreements with the Eurozone. If the negotiations fail, they have threatened to go to the public to decide whether they want to stay in the Eurozone or opt for an exit like the U.K.

Among the top three Euro nations, Germany, France and Italy, Italians are now more inclined to quit the Eurozone. The current support for the single currency in Italy is 67%, but we know how things can change quickly. Hence, a risk of a breakup of the Eurozone remains very strong, similar to the Brexit type referendum.

What are the financial implications of this defeat of the referendum?

The spread between the Italian bonds and the German bunds will widen sharply(shown in the chart below).

chart-1

Italian banks are teetering on the brink of a financial crisis (http://www.zerohedge.com/news/2016-11-27/eight-italian-banks-may-fail-if-renzi-loses-referendum), with a huge burden of bad loans. The chart below, sourced from The Wall Street Journal, shows the annual cost of insuring against a default on $10 million of debt for five years using credit-default swaps.

The overview of the markets after the vote:( http://www.cnbc.com/2016/12/05/live-renzi-steps-down-as-prime-minister-after-italy-rejects-his-reform-plan.html).

Look for another financial rolecoaster ride in the markets as ripple effects take hold

chart-2

Italy’s No.3 lender by assets and the most troubled bank in Europe, Banca Monte dei Paschi di Siena will certainly need a bailout, it has lost 84% of its market value in 2016. The markets will then shift focus on to the other troubled banks in Europe like Deutsche Bank. A banking crisis is certainly in the cards if the European Central Bank is unable to manage the situation at hand.

The Euro, which has tanked to multi-year lows against the dollar will take another nosedive and fall below the critical support level of 1.04624. The EUR/USD downtrend was unable to break below the major support zone from the weekly chart.

JPMorgan will decide whether to put together a plan to go ahead with a €5bn recapitalisation, the FT reports, citing people informed of the plan.

Senior bankers will decide whether to pursue their underwriting commitments or exercise their right to drop the transaction due to potential adverse market conditions

chart-3

The risk off trade in Europe is likely to see a flight to safety and into the U.S. dollar. Investors are unlikely to remain invested heavily in Europe, where the uncertainty remains high and talks of an eventual break up of the Euro will gather steam. U.S. stocks will get a boost of fresh investments considering the potential brighter prospects in the U.S. with the new President at the helm.

The dollar is likely to break out to new highs.

chart-4

Conclusion:

Last month subscribers and I closed out 3 winning trades: EDZ 20.7%, NUGT 11%, and UGAZ 74%. We did take one loss on TMF of 8.2% but overall it was an awesome month for ActiveTradingPartners.

Over the next few weeks, I will keep a close eye on this situation for new potential profitable trade setups .My subscribers will be Immediately alerted!

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]

0 10613
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]

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

chart-1

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.

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

Chris Vermeulen

[Image Courtesy of Pixabay]

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]

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Bubble Pop

The current overall SPX pattern is a broadening top, which is usually a very reliable pattern.  The market continues to look as though it wants to go even lower. The momentum shift, which I have been expecting, has been slow to start, however one should be prepared for this occurrence ahead of time.

Nevertheless, the large divergences which I have been viewing, in my proprietary oscillators, are most real, and, once the selling starts, the momentum should quickly move to the downside. 

The current market is being supported by a lack of sellers more so than aggressive buying.  With investors still thinking that there is no other place to store their money, they appear to be content with leaving their money with risk-on assets within a market that is pushing to all-time highs. 

This type of mentality usually leads to large losses rather than big gains.  There isn’t any real opportunity for growth in the SPX that I can see right now.

Dow Theory: Market Indexes Must Confirm Each Other

The Dow Theory was formulated from a series of Wall Street Journal editorials which were authored by Charles H. Dow from 1900 until the time of his death in 1902. These editorials reflected Dow’s beliefs regarding how the stock market behaved and how the market could be used to measure the health of the business environment.

Dow first used his theory to create the Dow Jones Industrial Index and the Dow Jones Rail Index (now Transportation Index), which were originally compiled by Dow for The Wall Street Journal. Dow created these indexes because he felt they were an accurate reflection of the business conditions within the economy, seeing as they covered two major economic segments: industrial and rail (transportation). While these indexes have changed, over the last 100 years, the theory still applies to current market indexes.

Market indexes must confirm one another. In other words, a major reversal from a bull or bear market cannot be signaled unless both indexes (generally the Dow Industrial and Transports Averages) are in agreement. Currently, THEY ARE DIVERGING, ISSUING A MAJOR NON-CONFIRMATION HIGH ON THE DOW JONES INDUSTRIAL AVERAGE. If one couples this with the volatility index (Fear Index), this is a warning sign and a recipe for disaster.

chart 1

The FEDs’ monetary policy over the last eight years has led to unproductive and reckless corporate behavior. The chart below shows U.S. non-financials’ year-on-year change in net debt versus operating cash flow as measured by earnings before interest, tax, depreciation, and amortization (EBITA).

Chart 2

The growth in operating cash flow peaked five years ago and has turned negative year-over-year. Net debt has continued to rise, which is not good for companies.

This has never before occurred in the post-World War II period. In the cycle preceding the Great Recession, the peaks had been pretty much coincidental. Even during that cycle, they only diverged for two years, and by the time EBITA turned negative, year-over-year, as it has today, growth in net debt had been declining for over two years. Again, the current 5-year divergence is unprecedented in financial history!

Today, most of that debt is used for financial engineering, as opposed to productive investments. In 2012, buybacks and M&A were $1.25 trillion, while all R&D and office equipment spending were $1.55 trillion. As valuations rose, since that time, R&D and office equipment grew by only $250 billion, but financial engineering grew by $750 billion, or three times this!

You can only live on your seed corn for so long. Despite there being no increase in their interest costs while growing their net borrowing by $1.7 trillion, the profit shares of the corporate sector peaked in 2012. The corporate sector, today, is stuck in a vicious cycle of earnings manipulation management, questionable allocation of capital, low productivity, declining margins and growing debt levels.

Conclusion:

In short, I continue to pound on the table to help keep you and fellow investors aware that something bad, financially, is going to take place – huge events like the tech bubble, the housing collapse a few years back, and now national financial instability. Experts saw all these events coming months and, in some cases, years in advance.

Big things typically don’t happen fast, but once the momentum changes direction you better be ready for some life changing events and a change in the financial market place.

Follow my analysis in real-time, swing trades, and even my long-term investment positions so you can survive from the financial storm: www.TheGoldAndOilGuy.com

Chris Vermeulen

[Image Courtesy of Wikipedia]

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