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One of the epicenters of the global financial crisis that started during the second half of last year is Japan, and it looks like the markets in the land of the rising sun are entering yet another period of great turmoil. The Nikkei was down another 390 points last night, and it is now down more than 1,300 points since a week ago. Why this is so important for U.S. investors is because the Nikkei is often an early warning indicator of where the rest of the global markets are heading. For example, the Nikkei started crashing early last December about a month before U.S. markets started crashing really hard in early January. So the fact that the Nikkei has been falling very rapidly in recent days should be a huge red flag for investors in this country.

I want you to study the chart below very carefully. It shows the performance of the Nikkei over the past 12 months. As you can see, it kind of resembles a giant leaning “W”. You can see the stock crash that started last August, you can see the second wave of the crash that began last December, and now a third leg of the crash is currently forming…

And of course the economic fundamentals in Japan continue to deteriorate as well. GDP growth has been negative for two out of the last three quarters, Japanese industrial production just experienced the largest one month decline that we have seen since the tsunami of 2011, and business sentiment has sunk to a three year low.

The third largest economy on the entire planet is in a comatose state at this point, and Japanese authorities have been throwing everything but the kitchen sink at it in an attempt to revive it.

…click on the above link to read the rest of the article…

2016, The Year Of The Red Monkey: Expect Wild, Unending Volatility

March 14, 2016

2016, The Year Of The Red Monkey: Expect Wild, Unending Volatility

The past 25 years of “growth” and brief recessions may not be a good guide to the next few years.

In the lunar calendar that started February 8, this is the Year of the Red Monkey.

I found this description of the Red Monkey quite apt:

“According to Chinese Five Elements Horoscopes, Monkey contains Metal and Water. Metal is connected to gold. Water is connected to wisdom and danger. Therefore, we will deal with more financial events in the year of the Monkey. Monkey is a smart, naughty, wily and vigilant animal. If you want to have good return for your money investment, then you need to outsmart the Monkey. Metal is also connected to the Wind. That implies the status of events will be changing very quickly. Think twice before you leap when making changes for your finance, career, business relationship and people relationship.”

(Source)

In other words, the financial world will be volatile. And few will have the agility and wile to outsmart the market-monkey.

For those who don’t believe in astrological forecasts, there are plenty of other reasons to anticipate sustained volatility in 2016 that strips certainty and cash from bulls and bear alike.

What’s the Source of Volatility?

Why are global markets now so volatile? The basic answer is as obvious as it is officially verboten: the global growth story is unraveling, and central banks and governments are increasingly desperate to re-ignite stagnating growth.

When solid evidence of flagging trade, sales and profits surfaces, markets drop. When central banks and states talk up monetary and fiscal stimulus, markets leap higher, as seven years of stimulus programs have rewarded those who “buy the dips.”

…click on the above link to read the rest of the article…

Your Do-It-Yourself Page Financial Armageddon Story

February 23, 2016

YOUR DO-IT-YOURSELF FRONT PAGE FINANCIAL ARMAGEDDON STORY

“The media select, they interpret, they emotionalize and they create facts.. The media not only reduce reality by lowering information density. They focus reality by accumulating information where “actually” none exists.. A typical stock market report looks like this: Stock X increased because.. Index Y crashed due to.. Prices Z continue to rise after.. Most of these explanations are post-hoc rationalizations.. An artificial logic is created, based on a simplistic understanding of the markets, which implies that there are simple explanations for most price movements; that price movements follow rules which then lead to systematic patterns; and of course that the news disseminated by the media decisively contribute to the emergence of price movements.”

– Thomas Schuster, ‘Meta-Communication and Market Dynamics; Reflexive Interactions of Financial Markets and the Mass Media’.

Monday 15th February 2016. Our silver-haired trader, in front of a panel of random prices, clutching his head and grimacing, probably because he’s hungover, brings you the latest from a dealing room in the same stock photo that the Telegraph have used at least three times in the last five years:

Yes, it’s [Monday / all over / a bowel-clenching orgy of blood-soaked insanity] as [negative interest rates / China devaluation fears / lower oil prices / higher oil prices / sideways oil prices] strike [like junior doctors / pant-wetting horror / sharpened blades of doom-laden Götterdämmerung] into [the soft, pulpy hearts of innocent pensioners staring wide-eyed in stunned horror at the untimely end of their sheer financial existence / the markets].

• [Fed chair Yellen / BoE governor Carney / CoCo the Clown] seeks to reassure [investors / someone / anyone / turn those machines back on !]

• Gold makes biggest one-day gain since [yesterday]

Global financial markets endured a day of [you think I could stand this butcher’s yard more than once / mind-shattering turmoil beyond the edge of imagination / light winds and scattered showers] as investors’ fears rose over [China / global currency wars / negative interest rates everywhere / more QE / widespread banking failures / Take That reforming].

…click on the above link to read the rest of the article…

What Markets Are Telling Us

February 15, 2016

What Markets Are Telling Us

Last week US stock markets tumbled yet again, leaving the Dow Jones index down almost 1500 points for the year. In fact, most major world markets are in negative territory this year. There are many Wall Street cheerleaders who are trying to say that this is just a technical correction, that the bottom is near, and that everything will be getting better soon. They are ignoring the real message the markets are trying to send: you cannot print your way to prosperity.

People throughout history have always sought to acquire wealth. Most of them understand that it takes hard work, sacrifice, savings, and investment. But many are always looking for that “get rich quick” scheme. Monetary cranks throughout history have thought that just printing more money would result in greater wealth and prosperity. Every time this was tried it resulted in failure. Huge economic booms would be followed by even larger busts. But no matter how many times the cranks were debunked both in theory and practice, the same failed ideas kept coming back.

The intellectual descendants of those monetary cranks are now leading the world’s central banks, which is why the last decade has seen an explosion of money creation. And what do the central bankers have to show for it? Lackluster employment numbers that have not kept up with population growth, increasing economic inequality, a rising cost of living, and constant fear and uncertainty about what the future holds.

The past decade has been a lot like the 1920s, when prices wanted to drop but the Federal Reserve kept the price level steady through injections of easy money into the economy. The result in the 1920s was the Great Depression. But in the 1920s prices were dropping because of increased production.

…click on the above link to read the rest of the article…

2016 Market Meltdown: We Have Never Seen A Year Start Quite Like This…

January 22, 2016

2016 Market Meltdown: We Have Never Seen A Year Start Quite Like This…

We are about three weeks into 2016, and we are witnessing things that we have never seen before. There were two emergency market shutdowns in China within the first four trading days of this year, the Dow Jones Industrial Average has never lost this many points within the first three weeks, and just yesterday we learned that global stocks had officially entered bear market territory. Overall, more than 15 trillion dollars of global stock market wealth has been wiped out since last June. And of course the markets are simply playing catch up with global economic reality. The Baltic Dry Index just hit another new all-time record low today, Wal-Mart has announced that they are shutting down 269 stores, and initial jobless claims in the U.S. just surged to their highest level in six months. So if things are this bad already, what will the rest of 2016 bring?

The Dow was up just a little bit on Thursday thankfully, but even with that gain we are still in unprecedented territory. According to CNBC, we have never seen a tougher start to the year for the Dow than we have in 2016…

The Dow Jones industrial average, which was created in 1896, has never begun a year with 12 worse trading days. Through Wednesday’s close, the Dow has fallen 9.5 percent. Even including the 1.3 percent gains as of noon Thursday, the Dow is still down nearly 8 percent in 2016.

But even with the carnage that we have seen so far, stocks are still wildly overpriced compared to historical averages. In order for stocks to no longer be in a “bubble”, they will still need to decline by about another one-third. The following comes from MarketWatch…

…click on the above link to read the rest of the article…

The Precipice

December 12, 2015

The Precipice

Global markets have found themselves again at the precipice. My sense is that everyone’s numb – literally dazed and confused from prolonged Monetary Disorder and the resulting perverted market backdrop. Repeatedly, “The Precipice” has signaled easy-money buying and trading opportunities. Again and again, selling, shorting and hedging at “The Precipice” guaranteed you were to soon look (and feel) like an absolute moron – for some, progressively poorer dunces the Bubble was pushing yet another step closer to serious dilemmas (financial, professional, personal and otherwise). A focus on risk became irrational. Fixation on seeking potential market rewards turned all-encompassing.

All of this will prove a challenge to explain to future generations. Keynes: “Worldly wisdom teaches that it is better for the reputation to fail conventionally than to succeed unconventionally.” And paraphrasing the great Charles Kindleberger: Nothing causes as much angst as to see your neighbor (associate or competitor) get rich. In short, Bubbles are all powerful.

Going back to those darks days in late-2008, global policymakers have been determined to not let the markets down. Along the way they made things too easy. “Do whatever it takes!” “Shock and Awe!” “Ready to push back against a market tightening of financial conditions.” “Do what we must to raise inflation as quickly as possible.” Historic market excess and distortions were incentivized and, predictably, things ran amuck. “QE infinity.” Seven years of zero rates, massive monetary inflation and incessant market backstopping have desensitized and anesthetized. Rational thought ultimately succumbed to “perpetual money machine” quackery. And now all of this greatly increases vulnerability to destabilizing market dislocations, as senses are restored and nerves awakened.

It was a week of ominous developments among multiple key flashpoints. Let’s start with commodities and EM, where the accelerating downward spiral is now rapidly reaching the status of “unmitigated disaster.”

…click on the above link to read the rest of the article…

“We’ve Seen this Before” – in 1999, then Stocks Crashed

November 29, 2015

“We’ve Seen this Before” – in 1999, then Stocks Crashed

“A lot of deterioration and decay under the hood”

The fourth quarter is normally a very strong quarter, and December exceptionaly strong in the global markets, says Christine Hughes, Chief Investment Strategist at OtterWood Capital. This quarter too, global markets are in the green after a powerful rally in October.

But for the year, the S&P 500 has been stagnating. Wthout the top 10 mega-cap stocks (which are up 14%), the index is actually down 6%. This spread between the top ten names and the rest of the index now amounts to 20%.

“We’ve seen this before,” Hughes says. Last time a spread of this magnitude occurred was in 1999. At that time, the rest of the market was strong. And it ended in a three-year crash. This time, the rest of the market is already weak. Then there’s Glencore, whose collapse would ricochet around the global credit markets and hit stock markets. So here’s Christine Hughes, charts and all:

Video by Christine Hughes, Chief Investment Strategist, OtterWood Capital.

Hobson’s Choice

October 24, 2015

Hobson’s Choice

More than two months have passed since the August “flash crash.” Fragilities illuminated during that bout of market turmoil still reverberate. Sure, global markets have rallied back strongly. Bullish news, analysis and sentiment have followed suit, as they do. The poor bears have again been bullied into submission, as the punchy bulls have somehow become further emboldened. The optimists are even more deeply convinced of U.S., Chinese and global resilience (the 2008 crisis “100-year flood” view). Fears of China, EM and global tumult were way overblown, they now contend. As anticipated, global officials remain in full control. All is rosy again, except for the fact that global central bankers behave as if they’re utterly terrified of something.

The way I see it, underlying system fragility has become so acute that central bankers are convinced that they must now forcefully (“shock and awe,” “beat expectations,” etc.) react to any fledgling market “risk off” dynamic. Risk aversion and de-leveraging must not gather momentum. If fragilities are not thwarted early, they could easily unfold into something difficult to control. Such an outcome would risk a break in market confidence that central banks have everything well under control – faith that is now fully embedded in the pricing and structure for tens of Trillions of securities and hundreds of Trillions of associated derivatives – everywhere. With options at this point limited, the so-called “risk management” approach dictates that central banks err on the side of using their limited armaments forcibly and preemptively.

With today’s extraordinary global backdrop in mind, I’m this week noting a few definitions of “Hobson’s Choice”:

“An apparently free choice that actually offers no alternative.” (The American Heritage Dictionary of Idioms)

“A situation in which it seems that you can choose between different things or actions, but there is really only one thing that you can take or do.” (Cambridge Idioms Dictionary)

…click on the above link to read the rest of the article…

Global Markets to Fed: No Rate Hike, the Strong Dollar Is Killing Us

August 25, 2015

Global Markets to Fed: No Rate Hike, the Strong Dollar Is Killing Us

Global markets are puking at the prospect of higher yields in the U.S.

There are many reasons for global markets to melt down, but one that doesn’t get enough attention is the strong dollar. In effect, global markets are telling the Federal Reserve: don’t raise rates–the strong dollar is killing us.

Here’s the dynamic that’s killing emerging markets’ currencies and stocks, the China Story and U.S. corporate profits. In the glory years of a declining U.S. dollar (USD), a vast global carry trade emerged as speculators borrowed money in USD and invested it in high-yield emerging market assets such as stocks, bonds and real estate.

This carry trade was a two-fer: not only were yields much higher in emerging markets, the appreciation of local currencies against the USD provided a currency gain on top of the higher yield.

As the yuan strengthened against the USD, an enormous river of capital flowed into China to take advantage of the revaluation and higher yields in China. How much of this money was borrowed USD is unknown, but it’s estimated that Chinese corporations alone borrowed $1 trillion in USD to profit from higher yields in China.

The virtuous benefits of a weakening USD extended to U.S. corporations, which reap 40% to 50% of their total profits from sales overseas. As the USD weakened, U.S. corporations reaped the currency gains every time they reported overseas sales in USD.

Everybody won with the weakening dollar, except the U.S. consumer, who paid more for imported goods.

But a funny thing happened in late summer 2014–the USD started rising against other currencies–by a lot. Suddenly all those profitable carry trades reversed.

…click on the above link to read the rest of the article…

Central Banks Have Become A Corrupting Force

August 24, 2015

Central Banks Have Become A Corrupting Force

Are we witnessing the corruption of central banks? Are we observing the money-creating powers of central banks being used to drive up prices in the stock market for the benefit of the mega-rich?

These questions came to mind when we learned that the central bank of Switzerland, the Swiss National Bank, purchased 3,300,000 shares of Apple stock in the first quarter of this year, adding 500,000 shares in the second quarter. Smart money would have been selling, not buying.

It turns out that the Swiss central bank, in addition to its Apple stock, holds very large equity positions, ranging from $250,000,000 to $637,000,000, in numerous US corporations — Exxon Mobil, Microsoft, Google, Johnson & Johnson, General Electric, Procter & Gamble, Verizon, AT&T, Pfizer, Chevron, Merck, Facebook, Pepsico, Coca Cola, Disney, Valeant, IBM, Gilead, Amazon.

Among this list of the Swiss central bank’s holdings are stocks which are responsible for more than 100% of the year-to-date rise in the S&P 500 prior to the latest sell-off.

What is going on here?

The purpose of central banks was to serve as a “lender of last resort” to commercial banks faced with a run on the bank by depositors demanding cash withdrawals of their deposits.

Banks would call in loans in an effort to raise cash to pay off depositors. Businesses would fail, and the banks would fail from their inability to pay depositors their money on demand.

As time passed, this rationale for a central bank was made redundant by government deposit insurance for bank depositors, and central banks found additional functions for their existence. The Federal Reserve, for example, under the Humphrey-Hawkins Act, is responsible for maintaining full employment and low inflation. By the time this legislation was passed, the worsening “Phillips Curve tradeoffs” between inflation and employment had made the goals inconsistent. The result was the introduction by the Reagan administration of the supply-side economic policy that cured the simultaneously rising inflation and unemployment.

…click on the above link to read the rest of the article…

What the Heck is Going on in the Global Markets?

August 23, 2015

What the Heck is Going on in the Global Markets?

This wasn’t supposed to happen. The week was already on a crummy downhill path globally, and emerging-market currencies were blowing up, when on Friday in China the Caixin’s Purchasing Manager’s Index hit the worst level since March 2009; manufacturing is sinking deeper into the mire.

So the Shanghai stock index plunged 4.3% for the day, and 11.5% for the week, to 3,508, closing at the same level as the bottom of its July rout.

The entire machinery that the Chinese government and the People’s Bank of China had set in motion to bail out the markets during the July rout, which had worked for a couple of weeks, has now proven to be useless. And the markets, thought to be controllable by fiat or manipulation, suddenly regained a will of their own.

Other Asian stock markets plunged too: Hong Kong’s Hang Seng dropped 1.5% on Friday and 6.6% for the week; it’s 5.1% in the hole for the year. The Nikkei fell 3% on Friday and 5.3% for the week.

Europe was next. The German Dax, the British FTSE 100, French CAC 40, the Spanish IBEX 35, the Italian FTSE MIB, they all plunged about 3% for the day and lost between 5% and 6.5% for the week, except for the German Dax which lost nearly 8% for the week. It has now plummeted 18% since its dizzying peak in early April. Easy come, easy go.

Have central banks lost their omnipotence?

That despicable, unpredictable force that central banks were thought to have vanquished – markets with a will of their own – ricocheted in its unruly manner around the world.

In Europe and Japan, the central banks are currently engaging in relentless QE programs to inflate stocks, and China is doing a whole lot more, and yet, this debacle! A few more episodes of this – and folks are going to question the omnipotence of central banks, and they’re going to doubt the central banks’ vaunted ability to inflate the markets. If those doubts spread, not even QE can prop up the markets. Omnipotence only works if people believe in it.

…click on the above link to read the rest of the article…

What the Heck Just Happened in the Global Markets?

July 26, 2015

What the Heck Just Happened in the Global Markets?

It was the kind of day that shouldn’t have happened. Somebody dropped the ball at CNBC, or something.

Thursday evening, after three morose days in US stock markets, Amazon came out and said it made a profit! OK, a teeny-weeny profit of $92 million, a barely perceptible 0.4% of sales, a rounding error for other thriving companies’ with $23 billion at the top line. But for Amazon, the mere fact that there wasn’t a minus-sign in front of it, for once, was huge.

Its shares soared 22% after hours. The company’s valuation jumped by $40 billion. CNBC exploded with excitement. And Friday should have been a huge day for stocks.

But oh my!

From the first minute on, Amazon’s shares lost steam, drifted lower throughout the day and gave up half of their afterhours gain. The S&P 500 and the NASDAQ lost over 1%, the Dow almost 1%.

It topped off a bad week:

The Dow dropped 2.8%, its worst week since December 2014, broke its 200-day moving average, and is in the red for the year.
The Dow Transportation index fell 2.8%, its worst week since March, and hit a 9-month low, down 12% for the year.
The S&P 500 dropped 2.1%, its third worst week in 2015, and is up a mere 1% for the year.
The Nasdaq dropped 2.2%, its worst week since March.
The Russell 2000 swooned 3.1%, its worst week since October 2014

It didn’t help that Biotechs collapsed.

Biogen set the tone. It slashed its sales growth forecast for 2015 in half. Its multiple sclerosis drugs, its mainstay, are in trouble. Sales of Tecfidera, its main growth driver since its launch in 2013, ran smack-dab into reports linking it to brain infections. Sales of its injectable MS drug Tysabri and interferon-based MS drug Avonex both fell more than expected. And sales of Plegridy also disappointed. Shares of Biogen plunged 22%, wiping out $25 billion in stockholder wealth.

…click on the above link to read the rest of the article…

European Stocks, Chinese Stocks And Commodities Are All Crashing – Are U.S. Stocks Next?

July 8, 2015

European Stocks, Chinese Stocks And Commodities Are All Crashing – Are U.S. Stocks Next?

A global stock market crash has begun. European stocks are crashing, Chinese stocksare crashing, and commodities are crashing. And guess what? All of those things happened before U.S. stocks crashed in the fall of 2008 too. In so many ways, it seems like we are watching a replay of the financial crisis of 2008, but this time around the world is in far worse shape financially. Global debt levels are at an all-time high, the 75 trillion dollar global shadow banking system could implode at any time, and there are hundreds of trillions of dollars in derivatives that threaten to wipe out major banks all over the planet. The last major worldwide financial crash was almost seven years ago, and very little has been done since that time to prepare for the next one. If global markets do not calm down, we could see carnage in the months ahead that is absolutely unprecedented.

For months, European authorities have been promising us that a “Grexit” is already “priced in” to the markets and that any “contagion” from the Greek crisis will be “contained”. Of course everyone knew that was just a smokescreen. Just in the past couple of days since the Greek “no” vote, European stocks have already been crashing. The following comes from Zero Hedge…

Does this look contained to you?

Portugal, Spain, and Italy all collapsing…

As I mentioned at the top of this article, European stocks started crashing well before U.S. stocks started crashing during the last financial crisis. If you doubt this, just look at this chart, and this chart and this chart.

Will the same thing happen again this time?

And just like I have warned repeatedly, European bond yields have started to soar. When bond yields go up, bond prices go down, so many bond investors are losing a tremendous amount of money right now. Here is more from Zero Hedge…

…click on the above link to read the rest of the article…

The IMF and Austrian Theory – Ludwig von Mises Institute Canada

October 18, 2014

The IMF and Austrian Theory – Ludwig von Mises Institute Canada.

Back in the early 1960s, financial journalist Henry Hazlitt warned against efforts to create an international system to help facilitate the smooth transfer of currencies. Representatives from the world’s leading governments were attempting to increase liquidity in global markets. They wanted to make sure the banking system and sovereign governments would never had a lack of funds. Hazlitt was not fooled. “In plain English” he wrote, “they are pushing for more world inflation.” His words, though accurate, went unheeded. The International Monetary Fund, which was established decades earlier, was to play a role in facilitating endless inflation.

Half a century later, the IMF has overseen a tumultuous business cycle that came to a screeching halt in 2008. Big, overleveraged banks were on the verge of collapsing; millions of people lost their jobs and their homes; governments spent billions of dollars to maintain their welfare safety nets. The end result, which is still ongoing, is stagnant economic growth with dim prospects for recovery.

…click on the above link for the rest of the article…

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