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By John Mauldin

 

“In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

“There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

“Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.”

– From an 1850 essay by Frédéric Bastiat, “That Which Is Seen and That Which Is Unseen”

I’ve come to South Africa a little bit ahead of my speaking tour next week to spend a few days “on safari.” Which is another way to say that I am comfortably ensconced in a game lodge next to Kruger Park, relaxing and trying to get some time to think. We’ve been reasonably lucky on the game runs: besides the usual lions, rhinoceri, water buffalo, etc., we’ve seen both cheetah and leopard, two animals that avoided my vicinity on every other trip to Africa. I’m here at the end of the rainy season, so everything is lush and green, and you have to get a little lucky to find the animals in the dense bush.

In several moments here, I was reminded of an essay I wrote two years ago called “The Lion in the Grass.” So I went back and read it and decided to update it fairly extensively in order to talk about the hidden lions we don’t see today that could catch us unawares tomorrow. Just like the African bush I am surveying at this moment, the economic landscape out there could harbor some serious but still unseen problems.

I have been captivated by the concept of the seen and the unseen in economics since I was first introduced to the idea. It is a seminal part of my understanding of economics, at least the small part I do grasp. It was introduced by Frédéric Bastiat, a French classical liberal theorist, political economist, and member of the French assembly. He was notable for developing the important economic concept of opportunity cost. He was a strong influence on von Mises, Murray Rothbard, Henry Hazlitt, and even my friend Ron Paul. (I will have to ask Rand about his familiarity with the Frenchman the next time I see him.) Bastiat was a strong proponent of limited government and free trade, but he also advocated that subsidies (read stimulus?) should be available for those in need. “[F]or urgent cases, the State should set aside some resources to assist certain unfortunate people, to help them adjust to changing conditions.”

Today we explore a few things we can see and then try to foresee a few things that are not quite so obvious. The simple premise is that it is not the lions we can see lounging in plain view that are the most insidious threat, but rather that in trying to avoid those we may stumble upon lions hidden in the grass.

But first, I really want to urge you to consider joining me in San Diego May 13-16 for my Strategic Investment Conference. We are continuing to fill out the strongest list of speakers we’ve ever had in our 11 years at this. My good friends George Gilder, Stephen Moore of the Wall Street Journal, and Neil Howe (who wrote The Fourth Turning) have all agreed to come and join Niall Ferguson, Newt Gingrich, Kyle Bass, David Rosenberg, and a dozen other A-list speakers from around the world. You can see who else will be there by clicking on the link above or here.

And I’m especially honored and pleased to announce that Vice Admiral Robert S. Harward, Jr., has agreed to join us on Wednesday night as a special keynote speaker. The three-star admiral (just recently retired) is a Navy SEAL and former Deputy Commander of the United States Central Command. In addition to his numerous other positions and awards, he also held the title of “Bull Frog” from 2011 until 2013 (longest-serving SEAL on active duty).

This is simply the finest economic and investment conference anywhere in the country. Don’t procrastinate; make your plans to come and register now.

The Lion in the Grass

When I was discussing this concept with Rob Arnott (of Research Affiliates and the creator of Fundamental Indexes) in Tuscany a few years ago, he mentioned the following photo, which he took on the savannah in Tanzania. I think it’s a perfect way to start out our discussion of the lions in the grass.

Going back to Bastiat, let’s look at that first sentence:

In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

It is natural to focus on the apparent dangers in front of us. That is part of our evolutionary heritage from the time when humans were first dodging lions and chasing antelopes on the very African savannah in Rob’s picture. But we soon learned that, if we were to survive, it wasn’t enough to dodge the lions we could see. It is the hidden lions that may spring upon us suddenly and take an arm or a leg.

Below I have once again reproduced Rob’s picture. Even when I knew there was a hidden lion, I couldn’t find it. But after it was pointed out to me, it is now the first thing I see. And there is a direct analogy there, to both economics and investing.

So, before you go to the next page, I suggest you go back and look one more time to see if you can spot the hidden lion. Just for fun, you know.

I showed this to a friend of mine who is a hunter, and he found it almost immediately. But then he has taught himself over the years to look for hidden game. And as Bastiat noted, it is the skilled economist who looks for the effects that are hidden, the surprises that are unseen. It should be a habit to look at the potential second- and third-order consequences of what we can see happening before our eyes. That way, we not only avoid the hidden lions, we also turn what would hunt us and do us harm into the hunted. Sometimes, the dangers themselves can be turned into a very nice trophy indeed – if you can act in time.

As I noted, that previously invisible lion is now the first thing I see. And that is the way with economic lions in the grass. Once someone points one out, it’s obvious, so obvious that we soon convince ourselves that we would have seen the lion without help. How many people told you they “knew” all along that subprime debt was going to end in tears? Or that the housing market was a bubble? Or that we would be plunged into the Great Recession?

I remember that in the fall of 2006 I was beginning to talk about the probability of a recession, in this letter, in speeches, and in numerous media interviews. (There is one such episode still up on YouTube.)  I was told I was ignoring what the market was telling us, and indeed the market proceeded to go up for another six months or so. Being early is lonely. Me and Nouriel. J

Today there are a lot of people who tell us they knew there was a recession coming all along. In fact, the farther we get from 2006, the greater the number of people who remember making that call. It now seems I had no reason to feel so lonely out there on that limb, scanning the tall grass of the savannah. In retrospect, it seems that limb was rather crowded.

So, with that in mind, let me show you where the other lion is. Then go back and look at the first picture. After a few times you will see the hidden lion almost before you see the obvious ones.

Black Swan or Hidden Lion?

I should note that a lion in the grass is different from a black swan. A black swan is a random event, something which takes us all by surprise. Economic black swans are actually quite rare – 9/11 was a true black swan. Other than Nostradamus some 500 years ago, who saw it coming?

The last recession and the credit crisis were not true black swans. There were those who saw it all coming, but few paid attention. They were dancing right along with Chuck Prince to the rousing music of a bull market and swelling profits.

As we know now, a few people saw the subprime crisis coming and made huge fortunes. Sadly, pulling that off generally required one to risk a small fortune to play in that game. So while I talk about the lions hidden in the grass, remember that if you can figure out how to play it, there can be large profits betting on that which is unseen by the markets.

Now, let’s look at a few obvious lions and then see if we can spot a few hidden lions lurking nearby.

The Lions in Europe

By some miracle, Mario Draghi and his team at the European Central Bank (ECB) continue to get from their communication tools what most central banks have to take by force. Widespread complacency has washed over the region in the months and quarters since July 2012, when Mr. Draghi introduced the Outright Monetary Transactions (OMT) facility and adamantly promised to do “whatever it takes” to preserve the euro system.

As a result, government borrowing costs are converging back to pre-crisis levels even as falling inflation brings the next debt crisis forward … and markets are clearly still responding to the ECB’s increasingly hollow commitments.

Without changing the ECB’s main policy rate at this week’s monetary policy meeting, Mr. Draghi once again attempted to talk his way to a policy outcome by suggesting that he has the broad-based support to authorize quantitative easing, if and when it is needed. It will be needed – and maybe soon.

As I wrote late last year, European banks are in terrible shape compared to US banks. We think of German banks as the epitome of sobriety, but they have been on a lending binge to creditors who now appear to be in financial trouble; and with 30- or 40-1 leverage, they could easily see their capital fall below zero. Despite modest bank deleveraging across the Eurozone since early 2012…

… public and non-bank private debt burdens have not improved:

Low inflation is also seriously disrupting government debt trajectories. The analysis below from Bank of America Merrill Lynch shows how low inflation, near 0.5%, raises debt trajectories in France and Italy that would be a lot lower under a normal, 2%, inflation scenario. As the charts show, persistent “lowflation” for several years could add another 10% to 15% to the public debt-to-GDP ratio in each country … even if rates stay where they are today.

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best-selling author, and Chairman of Mauldin Economics – please click here.

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Article By RoboForex.com

Analysis for April 7^th, 2014

EUR USD, “Euro vs US Dollar”

Euro is still moving inside descending structure, which may be considered as correction. We think, today price may return to level of 1.3750 and then continue falling down towards level of 1.3620.

GBP USD, “Great Britain Pound vs US Dollar”

Pound is still forming the fifth wave inside correctional flag pattern. We think, today price may return to level of 1.6620 and then continue falling down towards target at level of 1.6430.

USD CHF, “US Dollar vs Swiss Franc”

Franc continues forming ascending structure. We think, today price may fall down towards level of 0.8890, return to level of 0.8980, and then continue moving downwards to reach level of 0.8630.

USD JPY, “US Dollar vs Japanese Yen”

Yen is still forming the fifth wave inside ascending structure. We think, today price may move downwards to reach level of 102.97. Later, in our opinion, instrument may grow up towards level of 104.20 and continue falling down to reach level of 100.00.

AUD USD, “Australian Dollar vs US Dollar”

Australian Dollar is still consolidating at the top of its ascending wave. We think, today price may fall down to break minimum of this consolidation channel. Later, in our opinion, instrument may continue moving inside descending trend to reach main target at level of 0.8400.

USD RUB, “US Dollar vs Russian Ruble”

Ruble completed its correction. We think, today price may continue growing up towards level of 35.90 and then start moving downwards to reach level of 35.50. Later, in our opinion, instrument may start new ascending movement to return to level of 36.40.

XAU USD, “Gold vs US Dollar”

Gold is completing its descending structure, which may be considered as correction towards the first ascending wave. We think, today price may start growing up towards level of 1314 and then fall down to return to 1296. Later, in our opinion, instrument may start new ascending movement with target at level of 1357.

RoboForex Analytical Department

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

Article By RoboForex.com

Analysis for April 7^th, 2014

DJIA Index

It looks like Index is about to finish wave (2) and may start new and fast ascending movement inside the third wave. Earlier price completed double three pattern inside wave [2] and bullish impulse inside wave (1). I’ve got only one buy order with stop placed at local minimum.

More detailed wave structure is shown on H1 chart. It looks like wave (2) is taking the form of zigzag pattern. On minor wave level, market is completing impulse inside wave C. Possibly, instrument may start forming initial wave 1.

Crude Oil

Forecast is still bearish; price completed bearish impulse inside wave 1. Probably, wave 2 has been already completed as well. In the nearest future, Oil may start falling down again inside the third wave.

As we can see at the H1 chart, last week Oil finished bearish impulse wave [1] and then formed zigzag pattern inside wave [2]. In the near term, instrument is expected to fall down inside wave (1). In the future, I’m planning to increase my short position during correction.

RoboForex Analytical Department

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

After a rather hectic week on the data front, this week things will slow down. The minutes from the last Fed meeting may however provide interesting answers.

Fed members raised their interest rate expectations at the last meeting. The positive explanation is that everything simply is going better. The negative explanation is that there are small financial bubbles underway. The answer will come on Wednesday.

Legal information

Video by en.jyskebank.tv

Article by Investazor.com

Last Friday we had a volatile but directionless trading day. The Non-Farm Payrolls was published, as I expected inside 190K – 205K (at 192K) and the Unemployment Rate for US stood still at 6.7%, even though analysts expected a 0.1% drop.

In my first scenario I have said that a NFP release inside this range would bring a 60 pips sideways move for the EURUSD and so it did. After the publication of the US labor market indicator the price has set a high at 1.3730 and a low at 1.3672. The week has ended with no further important actions from investors.

See Friday analysis: EUR/USD Forecast And Price Action for April 4^th;

Today the price has opened near last week’s closing price and the Euro managed to recover 20 pips.

The post EUR/USD Forecast And Price Action For April 7th appeared first on investazor.com.

By CentralBankNews.info
    The central banks of Brazil and Ghana raised their policy rates last week as six other central banks left their rates unchanged, including the the European Central Bank (ECB), which nevertheless took a major step forward toward launching some form of unconventional monetary measure if inflation threatens to remain at the current low level.
   Despite the two rate rises, the Global Monetary Policy Rate (GMPR) – the average policy rate of 90 central banks followed by Central Bank News  – remained steady at 5.56 percent from the end of March, but was up from 5.55 percent at the end of February and 5.53 percent at the end of January, illustrating how monetary policy worldwide is slowly but surely tightening.
    Through the first 14 weeks of this year, policy rates have been raised 13 times, or 9.7 percent of this year’s 134 policy decisions by the 90 central banks, up from 8.7 percent from the previous week.
    But on a global scale, economic growth is still sluggish and inflation low, with the result that monetary policy is still being loosened in some countries. So far this year, policy rates have been cut 15 times, or 11 percent of this year’s policy decisions, down from 12 percent at the end of the previous week and 14 percent at the end of February.

    The main events in global monetary policy last week were the policy decisions by the ECB and the Central Bank of Brazil.
    The ECB once again dashed hopes for a rate cut or some type of unconventional policy measure, such as quantitative easing or a negative deposit rate, amid renewed concerns over deflation.
    Nevertheless, the ECB took a major step forward in preparing financial markets and investors for the possibility of introducing some form of quantitative easing if inflation does not start to rise soon.
    Inflation in the euro zone fell to 0.5 percent in March from 0.7 percent in February and has now remained under 2 percent for the last 14 months. The ECB targets inflation of close to, but below 2 percent.
    But ECB President Mario Draghi dismissed concerns of Japanese-style deflation, telling a press conference that “frankly we do not see the risks of deflation as having increased.”
    Explaining that the March inflation figure was impacted by this year’s timing of Easter along with the base effect of energy prices, Draghi said the ECB and financial markets are still expecting inflation to rise as the economy improves. At this point, deflation is not priced into markets.
    However, the ECB council is clearly worried that the longer inflation remains at such a low level, it could lead to a fall in inflationary expectations. This would pave the way for consumers to postpone purchases and thus further delay the economic recovery.
    “It is quite obvious that the Governing council is looking at this prolonged period of low inflation and it is quite obvious that the longer the period of low inflation, the higher the risk for inflation expectations in the medium and long term,” Draghi told the press conference.
    In an apparent reflection of the Bundesbank’s recent acceptance of quantitative easing, Draghi said the ECB council was “unanimous in its commitment to using also unconventional measures,” pointedly saying the ECB mandate would allow it to engage in quantitative easing.
    In contrast to the council’s meeting last month, the ECB this time specifically discussed various forms of quantitative easing during what Draghi described as “a very rich and ample discussion.”
    There are two reasons the ECB has been reluctant to undertake some form of quantitative easing, such as buying government or private sector bonds, as carried out by the Bank of Japan, the U.S. Federal Reserve and the Bank of England.
    The first and primary reason is that euro zone firms, unlike U.S. companies, rely much more on bank lending than capital markets for funds. When the Fed, for example, purchases bonds, it quickly affects the cost of credit whereas the health of banks is more critical to euro zone business.
    “In our case, the economy is based on the bank lending channel and therefore the programme has to be carefully designed in order to take this element into account,” Draghi said, showing just how far along the ECB is in considering the details of its form of quantitative easing.
    The second reason that the ECB has been reluctant to engage in quantitative easing by buying sovereign bonds is that it would be dealing with 18 national bond markets, making such an operation much more complex to design and execute.

    In Brazil, the central bank raised its rate for the ninth time since embarking on its tightening campaign in April last year but signaled that is now ready to take a breather to judge the impact on inflation from its 375 basis-point hike in the benchmark Selic rate.
    As usual, the statement from the Central Bank of Brazil’s policy committee, known as Copom, was slightly cryptic but the message was received by financial markets and the real currency fell.
    In its statement, the central bank dropped earlier references to rate rises as a continuation of a process that got under way in April 2013 and inserted that the decision was taken “at this moment,” conveying the impression that the latest rate rise was more of a one-off than part of a tightening cycle.
    In addition, Copom also said its next move would be based on “the evolution of the macroeconomic scenario,” signaling that the rate could be maintained in May unless inflation accelerates sharply.
    Brazil’s inflation rate rose in February to 5.68 percent from 5.59 percent, but this was partly due to higher food prices from the impact of severe drought in southern Brazil.
    And although the central bank has already raised its 2014 inflation forecast to 6.1 percent from 5.6 percent as a result, inflation is still within the central bank’s tolerance range of 2.5 to 6.5 percent and the economy is clearly in need of stimulation.

• Fiji holds rate on comfortable inflation, reserves outlook
• Australia holds rate, repeats steady rates for a period
• Angola holds rate, cuts standing, raises absorption rate
• Uganda holds rate, sees lower short-term inflation
• Ghana holds rate, raises CRR, cuts NOP limits
• India holds rate steady, further policy tightening not expected
• Brazil raises rate to 11%, next move depends on economy
• ECB ready to cut rate, other measures to boost inflation  

By MoneyMorning.com.au

‘This will probably be the most bearish investment presentation you’ve ever heard…’

That was how Nick Hubble of The Money for Life Letter opened his speech at World War D last week. He wasn’t wrong…

The modern western welfare system is based on saving and investing for retirement.
The idea is you accumulate investments, which you then sell when you hang up your work-boots.

You hope that over time your investments will be worth many times what you paid for them. They will have grown enough to support your lifestyle in retirement when you sell them. And, if you’re like most people, you believe that investing inherently makes us wealthier.

But at the Grand Hyatt last week Hubble asked a crucial question: what if that assumption is wrong?

What if the buyers you expect to turn up in the stock market…property market…small business market…and other asset markets during your retirement, turn out not to be there? Without young and middle-aged Australians buying your shares, small businesses and investment properties…who will you sell them to?

Nick’s answer last week was that you WILL be able to find some buyers…but probably at prices a fraction of what they are today.

The premise of Nick’s thesis is pretty simple: There won’t be enough younger people to buy your retirement investments when you want to sell them

Why? Short answer: You never conceived enough of them.

As Nick told the audience:

‘If I had to summarise my presentation to you in one sentence, it would be this: You accumulated the greatest store of wealth in history to prepare for retirement…but you forgot you’d need someone to sell it to.

‘Investments need to be sold to someone for you to get your hands on the cash they promised, right? And you need that cash to pay for your retirement. You need it to be many times more than the amount of cash you invested over the years.

‘But if you want to make that kind of profit, you have to find someone who is willing to buy the same asset at a higher price.

‘Cynics call this person the ‘greater fool’. Well I have news for you. I will not be your greater fool…’

Nick Hubble, by the way, is 24 years old. You’d think a 24 year old telling a room full of mostly baby-boomers he’s going to ‘ruin your retirement’ would have gone down like a lead balloon. In fact many attendees found it was the most lively and entertaining talk of the whole two days. ‘Nick Hubble — what a star,’ wrote conference-goer L. McMahon, ‘Excellent, fun & thought provoking.’ (You can watch the full speech by getting a DVD of the event. To find out how click here.)

‘Truth is,’ Nick continued, ‘It’s my age that allowed me to arrive at my conclusions.
See, I know how I feel about having to fund your retirement. I don’t feel very good about it. At all…

‘And I don’t just mean paying taxes to support your pension. I’m sure the pension is not your fall-back plan anyway. What I mean is I will not be your greater fool.

‘More importantly,’ Nick continued, ‘there aren’t enough greater fools amongst Australia’s younger generations to buy all your assets. In fact, there aren’t enough of us full-stop (no matter how foolish we may be).

‘We do not have the buying power to buy the investments you are going to try and sell us to pay for your retirement. At least not at prices anywhere near what the superannuation industry is promising you…’

Nick went on to prove his case.

Demographics drive investment prices. And Australia is at a demographic turning point…as are many other places around the world.

We are indeed an ageing country. Australians aged over 65 will soon make up one quarter of the population. One in six Aussies will be aged 75 or more. A Productivity Commission research paper released last year says there is currently one person aged 100 or over for every 100 Australian babies under 12 months. By 2060 there will be 25 centenarians for every 100 babies.

This, starting now according to Nick, is going to radically alter the investment markets.

Nick asserts that one of the key reasons investment prices have been going up over long periods of time is demographic. The overall demographic trend of the 20th century made asset prices go UP. But what happens when that demographic trend reverses? Prices go down.
 
And, as Nick prophesised:  ‘Investing in the way you have been will be a losing proposition.’

To understand why, you need to see his presentation. In it Nick links Population Pyramids with the asset markets in a very clear, compelling way. If you want to be able to plan and prepare for the impact changing demographics might have on your retirement, you should check out Nick’s speech here.

Michael Graham,
Contributing Editor, Money Morning

From the Archives…

Why You Should Avoid the ‘Fake Contrarians’ and ‘Do Nothing Investors’
Join Money Morning on Google+

By MoneyMorning.com.au

By MoneyMorning.com.au

At last week’s World War D conference we tried to make a key point.

We’re not sure if everyone got the message.

Actually, based on the feedback we received, we’re certain that not everyone got the message.

What was the message?

It was an important message…perhaps the most important message of the two-day conference. And now events are proving just how right we were to give that message…

Most investors think that being a contrarian means doing the opposite to everyone else.

It doesn’t.

Being a contrarian means being the first, or among the first, to act on a trend. By doing so the contrarian investor aims to profit from the beginning of a trend that can reward the investor handsomely to begin with, and potentially make them a fortune in the long run.

This is what we tried to explain at World War D. Only we’re not sure everyone got the message.

Bag the big gains on the Stock Market by striking early

Right now, most investors, whether they are mainstream investors or what we call ‘faux contrarians’, are more interested in trying to spot the next bust rather than looking for the next opportunity.

That’s a shame. Although there’s a lot of glory in picking a bust, it’s nothing compared to the financial glory of picking a new boom.

Here, let’s explain…

Let’s say you back a stock in a new trend that’s about to take off. And let’s say the stock is trading for 20 cents.

It’s high risk. That’s why it’s only 20 cents. But you’ve spotted a new trend that few others have noticed. So you buy it. In this scenario it pays off. A few weeks or months later, the stock is trading for $1 on the stock market. You’ve bagged a 400% gain.

Nice.

At that point, other investors get in on the same idea. They buy at $1. A few months later, the stock is trading for $10. The punters who bought in at $1 are thrilled, and rightly so.

Even though they didn’t get in early, they’ve still racked up an impressive 900% gain. That’s great by anyone’s standards. Well, almost anyone’s. But remember, you got in earlier. Instead of paying $1 per share, you only paid 20 cents per share.

It doesn’t seem much of a difference, just 80 cents. But it is. It’s a big difference. If you had invested $1,000 at $1 per share, it would now be worth $10,000 at $10 per share.

But by spotting the trend earlier and investing $1,000 at 20 cents per share, it has made an enormous difference to your returns. That’s because, with the shares now trading at $10, you’ve turned the $1,000 into $50,000.

That’s a 4,900% gain.

You’ve made five times the return, just for having the guts and the foresight to recognise an opportunity that few others had considered.

Invest while others look elsewhere

That’s the truth of being a contrarian investor. If you spot the new trends early you have the opportunity to notch up outsized gains.

But what about the risk?

Sure, it can be riskier investing in the stock market before a trend has gained momentum. But as we’ve shown you in the two examples, in both cases the maximum loss is $1,000.

The biggest risk with backing new trends is that the trend may not occur. That could cause you to lose all the money you invest. Theoretically, if you invest in a stock that has already started a trend then you should be on safer ground. But that’s not always true.

A stock can begin to take off, but reverse course if things don’t play out. So the truth is that investing at any stage of a stock’s cycle is always risky. But if you want the potential for the biggest bang for your buck, then the best (and riskiest) time to invest is when few others can see the opportunity.

That’s happening to one of the markets we’ve taken a keen interest in over the past few months…when most other investment pros have written off the sector.

We’re talking about emerging markets.

Cheers,
Kris+

PS: I’m in San Diego and Los Angeles for the next three weeks. I’ll be reporting from the ground here so the commentary may have more of a US-tinged flavour. However, my team of analysts in Melbourne and London will also keep you posted on what’s happening in the Aussie market and the opportunities in the tech sector. I’m sure you’ll enjoy it.

From the Port Phillip Publishing Library

Special Report: Mining Boom Act II

Join Money Morning on Google+

By MoneyMorning.com.au

By MoneyMorning.com.au

‘The sell-off has gone too far’

We hope to have some exciting news for you on this front over the coming days. It involves your editor putting his money where his mouth is as we seek to help you profit from one of the global economy’s most beaten-down markets.

Stay tuned for more details.

And the good news is, it looks as though we’re on the right track. As the Financial Times reports:

‘Mr Paolini says there are tactical investments to be picked up as valuations have fallen. One example is Chinese banks. “The sell-off has gone too far. Sure, non-performing loans my go to 10 per cent but their assets are in [the state’s] reserve requirements and the state has unlimited firepower. Even if the share price falls you are still getting a dividend yield of 7 per cent.”’

Mr Paolini is the chief strategist for Pictet Investment Management in London. According to the report, he puts emerging markets equities into four categories. The one that interest us the most is the first category, what he calls ‘very cheap’ markets.

These include Turkey, South Korea, Russia — and most importantly, China.

Russia and China are the emerging markets Mr Paolini favours most. And out of those two, it’s China’s economy that interests us the most, obviously due to Australia’s proximity to China.

That’s why we see this as such an exciting opportunity. China’s market is still more than 60% below the record high reached in 2007. Most mainstream and contrarian investors hate it right now because they’re focused on one thing — the potential for a crash.

We take a different view. Our view is that the worst of the crash has already happened. Now is the chance to buy a beaten-down market everyone hates, before the big new China trends starts to move.

Stay tuned for details on how we plan to help you be a part of it.

Cheers,
Kris+

PS: I’m in San Diego and Los Angeles for the next three weeks. I’ll be reporting from the ground here so the commentary may have more of a US-tinged flavour. However, my team of analysts in Melbourne and London will also keep you posted on what’s happening in the Aussie market and the opportunities in the tech sector. I’m sure you’ll enjoy it.

From the Port Phillip Publishing Library

Special Report: Mining Boom Act II

Join Money Morning on Google+

By MoneyMorning.com.au

Weekend Update | www.thepracticalinvestor.com

— VIX made a new Master Cycle low on Wednesday, but still managed to close at weekly Long-term support at 14.50.  This is the prelude to a probable run to the top of the chart that may occur over the next several weeks.  Despite the constant late-day VIX selling for the past month, it has managed to maintain a higher base since the beginning of the year..

SPX eased down to the Wedge trendline.

SPX has been stair-stepping down to close within 10 points of its year-end value at 1848.36.  It is barely hanging on to a gain for the first quarter, while the Dow is down 265 points from its year-end.  There is a good probability that SPX may finally come off the ledge that is the upper trendline of the Bearish Wedge.  In the process it may also break two important Cyclical supports at 1840.00 and 1829.00.

(Bloomberg)  U.S. stocks climbed after a two-day slide, as consumer shares rebounded amid data showing household purchases rose the most in three months. Biotechnology shares extended losses, weighing on the Nasdaq Composite Index.

The Standard & Poor’s 500 Index (SPX) added 0.5 percent to 1,857.62 at 4 p.m. in New York, trimming its loss for the week to 0.5 percent. The Dow Jones Industrial Average rose 58.83 points, or 0.4 percent, to 16,323.06 today. The Nasdaq Composite increased 0.1 percent to 4,155.759, completing the week with a 2.8 percent drop.

NDX declines to its Ending Diagonal trendline.

NDX declined beneath three major weekly supports and closed at its Ending Diagonal trendline.  It is already at a loss for the first quarter and a further decline may put last year’s entire gain of 35.9% in jeopardy.  The Cycle Top is no longer support, so there is a good probability of a fast decline once the trendline is broken.  This support must be broken to begin the change in trend.

(ZeroHedge)  Yesterday’s late bounce and this morning’s opening follow-through were heralded by many talking-heads this morning as the end of the sell-off and a great buying opportunity. Well, on the bright side, those stocks are now at least 3% cheaper having plunged from the opening highs – even as the broader indices hold in. The Momos, also considered to have seen the worst, are re-collapsing…

The Nasdaq and Russell are now red YTD once again

The Euro consolidates lower.

The Euro attempted to rally above its Ending Diagonal but failed, ending with a small loss.  It still must decline beneath its Cyclical supports to gain downside momentum.  The lower trendline of the Ending Diagonal is important, since a decline beneath it may imply a further decline to the July low.

(CNBC) – The euro fell to three-week low against the dollar on Friday, with investors wary given strong rhetoric from European Central Bank officials about its recent strength and awaiting German inflation data that could undermine it further.

Slightly soft Spanish inflation numbers led to a drop in the euro in early trade in London, with more sellers likely to line up if German inflation data, due at 1300 GMT, highlights subdued price pressures in Europe’s largest economy, traders said.

EuroStoxx resolves inside candle to the upside.

The EuroStoxx 50 index had an upside breakout this week, after a week of indecision.  This breakout appears to be an extension and may challenge its ultimate resistance at the weekly Cycle Top at 3224.02.

(Reuters) – European stocks rallied on Friday, with Milan’s benchmark index hitting a near three-year high, lifted by mounting expectations that the European Central Bank may ease policy next week to support the region’s fragile economic recovery.

Speculation that China could step in to stimulate its economy also helped lift sentiment, boosting shares of metal and mining stocks, with Anglo American up 1.5 percent and Glencore Xstrata up 2 percent.

The FTSEurofirst 300 index of top European shares ended 0.8 percent higher, at 1,332.29 points, while Milan’s FTSE MIB index surged 1.5 percent, hitting a level not seen since May 2011.

The Yen loses Short-term support, stops at Intermediate-term support.

The Yen declined beneath its short-term support at 97.81, but found Intermediate-term support at 97.09.  There is an opportunity for the Yen to rally, should this support hold.  The dollar/yen carry trade is dependent upon a declining Yen.  Despite a strong USDJPY ramp on Friday morning, there was no follow-through, raising questions of sustainability.

(Bloomberg)  Japan’s encouragement of yen depreciation to boost the economy threatens to backfire by making the country dependent on foreign investors for funding.

That’s the very same economic weakness that prompted Morgan Stanley to describe emerging-market currencies from South Africa’s rand to Turkey’s lira last year as the “fragile five.” While the yen is still regarded by investors as a safer bet than any of those developing currencies, the prospect of 33 years of current-account surpluses coming to an end may dent its appeal as a haven, according to Brown Brothers Harriman & Co.

The Nikkei is is testing Short-term resistance.

The Nikkei rallied away from its Head & Shoulders formation, but stalled at weekly Short-term resistance.  Should it resume its decline beneath the neckline, the Nikkei may drop below its weekly mid-Cycle support at 11893.85.  The Cycles Model projects a decline into early April.

(Bloomberg)  Japan’s Topix index rose for a fifth day, capping its biggest weekly advance in four months, as consumer lenders and airlines led gains.

Consumer-finance and leasing company Orix Corp. added 4.3 percent. Japan Airlines Co. climbed a second day for the biggest advance among air-transport shares. A Topix (TPX) gauge tracking brokerages rose 2.4 percent after dropping the most among the broader measure’s 33 industry groups yesterday. Yahoo Japan Corp. plunged 6.4 percent after agreeing to buy parent SoftBank Corp.’s broadband-service provider eAccess Ltd. for 324 billion yen ($3.2 billion). SoftBank slid 1.5 percent.

The Topix increased 0.8 percent to 1,186.52 at the close in Tokyo, after falling as much as 0.7 percent. The gauge’s five-day winning streak is the longest since October. The measure capped a 3.5 percent gain this week, its biggest such gain since the period ended Nov. 15. The Nikkei 225 Stock Average rose 0.5 percent today to 14,696.03.

U.S. Dollar challenges the Triangle trendline.

The Dollar eked out a small gain as it challenged the lower trendline of its massive Triangle formation.    While breaking above the trendline the dollar may also emerge above Intermediate-term resistance at 80.4.  What appears to be a temporary reversal may become a real problem for the Dollar bears.

(Investing.com) – Solid personal spending data in the U.S. sent the dollar firming against most major currencies on Friday, though profit taking cooled the greenback’s gains. In U.S. trading on Friday, EUR/USD was up 0.07% at 1.3751.

The Commerce Department reported earlier Friday that U.S. personal spending rose 0.3% in February, in line with expectations, Personal spending in January was revised down to a 0.2% gain from a previously estimated 0.4% increase.

A separate report showed that the core U.S. personal consumption expenditures price index remained unchanged at 0.1% last month, in line with expectations.

Elsewhere the revised Thomson Reuters/University of Michigan consumer sentiment index ticked up to 80.0 in March from 79.9 the previous month. Analysts had expected the index to rise to 80.5 this month.

Treasuries have a week of indecision.

Treasuries made a small gain above Long-term support at 132.32.  The Cycle high made on March 3 remains intact.  Should the March 3 high remain, we may see a surprise collapse in bonds over the next two weeks.

(ZeroHedge)  The short-end of the Treasury curve continues to reprice higher in yield (3Y +2bps) as the term structure bear-flattens with 30Y yields rallying further after the aggressive 7Y auction. 30Y yields just broke below 3.5% (-4.5bps) – the lowest level intraday since early July 2013. 2s10s are now at 2.21% – near 10-month lows – and 5s30s has plunged to 1.80% – its flattest since September 2009.

Gold extends its decline.

Gold extended its decline to challenge weekly Intermediate-term support at 1278.18.  A further breakdown may challenge the Lip of a Cup with Handle formation in the next week or so.  The potential consequences appear to be severe.

(Forbes)  Gold prices are $100 off their price peak from two weeks ago, and gold-market analysts said they’re going to watch technical charts to see how the yellow metal behaves next week and whether or not the slip in prices spurs physical demand.

June gold futures fell Friday, settling at $1,293.80 an ounce on the Comex division of the New York Mercantile Exchange, down 3.2% on the week. May silver rose Friday, settling at $19.790 an ounce, down 2.6% on the week.

Crude extends its rally.

Crude broke above Long-term resistance at 100.28 to complete a 65.7% retracement of its initial decline from its March 3 high.  This action may be setting up crude for a hard reversal next week.  A subsequent decline may lead to the Head & Shoulders formation at the base of this rally, which may be overshadowed by the Cup with Handle formation with an even deeper target.

(Reuters) – Brent crude oil rose for a fourth straight session on Friday, notching its first weekly gain since February, on promising U.S. economic data and concern that possible Western sanctions on Russia’s energy sector could disrupt global supplies.

The United States and NATO have voiced alarm over what they say are thousands of Russian troops massed near its western border with Ukraine. Russian President Vladimir Putin has reserved the right to send troops into Ukraine, home to a large population of Russian-speakers in the east.  U.S. crude oil rose for its third session on data showing consumer spending increased in February, lifted by an increase in services consumption, news that also buoyed the U.S. equities markets for most of the session. However, a dip in consumer sentiment this month offered confirmation that economic growth slowed in the first quarter.

China stocks fail at  Intermediate-term resistance.

The Shanghai Index challenge both Short-term resistance at 2057.22 and Intermediate-term resistance at 2075.88 before dropping beneath both this week.  The brief bounce called for by the Cycles Model is now complete.  It may now resume the decline beneath the neckline.  The ensuing decline may be swift and deep.  There is no support beneath its Cycle Bottom at 1936.40.

(ZeroHedge)  Over the past month, we have explained in detail not only how the Chinese credit collapse and massive carry unwind will look like in theory, but shown various instances how, in practice, the world’s greatest debt bubble is starting to burst, resulting not only in the first ever corporate default, but also in the bursting of the associated biggest ever housing bubble. One thing we have not commented on was how actual trade pathways – far more critical to offshore counterparts than merely credit tremors within the mainland – would be impacted once the nascent liquidity crisis spread.

Today, we find the answer courtesy of the WSJ which reports that for the first time in the current Chinese liquidity crunch, Chinese importers, for now just those of soybeans and rubber but soon most other products, “are backing out of deals, adding to a wide range of evidence showing rising financial stress in the world’s second-biggest economy.”

The Banking Index reverses from its Cycle Top.  

BKX reversed from its weekly Cycle Top this week at 73.97 and fell to its trading channel trendline.  It has yet to break the lower trendline of its Orthodox Broadening formation with bearish consequences.  The Cycles Model suggests a new low may be seen by mid-April, which heightens the probability of a flash crash.

(ZeroHedge)  Curious what the real, and not pre-spun for public consumption, sentiment on the ground is in a China (where the housing bubble has already popped and the severe contraction in credit is forcing the ultra wealthy to luxury real estate in places like Hong Kong) from the perspective of the common man? The photo below, which shows hundreds of people rushing today to withdraw money from branches of two small Chinese banks after rumors spread about solvency at one of them, are sufficiently informative about just how jittery ordinary Chinese have become in recent days, and reflect the growing anxiety among investors as regulators signal greater tolerance for credit defaults.

(NYTimes)   After the Cold War ended in the early 1990s, Viennese banks pushed aggressively into the newly open markets of Eastern Europe, as if rebuilding the old Hapsburg Empire one A.T.M. at a time.

The banks of Vienna were not the only Western lenders seeking to stake out the former Soviet bloc, of course. But the Austrians, for reasons of geography and history, bet big on Eastern Europe and Russia.  Now, as regional tensions with Russia rise, Austrian banks risk being caught in the financial and geopolitical crossfire.

(Reuters) – St Petersburg-based Bank Rossiya is to cease all foreign currency operations and work only with the Russian rouble in response to U.S. sanctions imposed last week, it said in a statement on Friday.

Bank Rossiya is Russia’s 15th-largest bank by assets, and the only Russian company that has so far been included on the list of individuals and entities sanctioned over Russia’s annexation of Crimea, because of its close links to businessmen seen as personal allies of Russian President Vladimir Putin.

U.S. officials said that the bank would be “frozen out of the dollar”.

(ZeroHedge)  While we are sure the governments and their IMF handlers will find a way around such annoyances as the rule of law, the Greek Supreme Court just ruled that the seizure of bank deposits due to debts to the state without previous notice was against the Constitution. We humbly suggest the Ukrainian courts be rapidly brought to a decision on the same ruling, before IMF hands start dipping into pockets.

Have a great week!

Anthony M. Cherniawski

The Practical Investor, LLC

P.O. Box 129, Holt, MI 48842

www.thepracticalinvestor.com

Office: (517) 699.1554

Fax: (517) 699.1558

Disclaimer: Nothing in this email should be construed as a personal recommendation to buy, hold or sell short any security.  The Practical Investor, LLC (TPI) may provide a status report of certain indexes or their proxies using a proprietary model.  At no time shall a reader be justified in inferring that personal investment advice is intended.  Investing carries certain risks of losses and leveraged products and futures may be especially volatile.  Information provided by TPI is expressed in good faith, but is not guaranteed.  A perfect market service does not exist.  Long-term success in the market demands recognition that error and uncertainty are a part of any effort to assess the probable outcome of any given investment.  Please consult your financial advisor to explain all risks before making any investment decision.  It is not possible to invest in any index.

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