InvestMacro Forex News

By CentralBankNews.info
    Seven central banks maintained their policy rates last week while Vietnam cut its rate as Janet Yellen, the new chair of the U.S. Federal Reserve, learned how every single word she utters has the power to move markets via trigger-happy news media.
    As her predecessor Ben Bernanke learned after chatting to CNBC’s Maria Bartiromo three months after taking over from Alan Greenspan in 2006, every single word from a Fed chair has to be scrutinized and weighed for its potential impact on jittery financial markets. There is no room for subtle points or thinking out loud.
    Although Yellen on several occasions during her first press conference on Wednesday said the Fed’s new guidance did not “indicate any change in the Committee’s policy intentions,” this point went out the window when she tried to explain what the Fed meant by “a considerable period.”
    In its new guidance, the Fed, like the Bank of England last month, ditched unemployment as a simplistic threshold for changing policy in favor of a broader range of indicators that can give policymakers a fuller understanding of the slack in the labor market and inflationary or deflationary pressures.
    In its statement, the Fed’s policy-making body, the Federal Open Market Committee (FOMC), said the fed funds rate will likely be maintained at the current level for “a considerable time after the asset purchase program ends” especially if inflation is below the Fed’s 2.0 percent goal.
    As any good journalist, a Reuters reporter quizzed Yellen on how long the gap could be between the ending of the Fed’s asset purchase program sometime in the fall of 2014 and a rate rise.
    Yellen took the bait.
    “But, you know, (that) probably means something on the order of around six months or that type of thing,” Yellen said.
    It was a dream come true for journalists. The headline and the story was served on a silver platter. The message that the Fed was likely to raise rates in the first half of 2015 was instantaneously flashed to financial markets across the world.
    Yellen’s context for her statement and clarification that any decision to raise rates would depend on the condition of the labor market and inflation was lost in the shuffle as global stock and bond markets dropped in anticipation of a rate rise in April 2015, some three months earlier than expected.
    In the days following what will likely become known as Yellen’s rookie mistake, her Fed colleagues did their best to explain that financial markets overreacted to her statement and she was not signaling a more restrictive policy stance.
    Yellen has not spoken in public since the press conference.
   
    Through the first 12 weeks of this year, rates have been cut 14 times, or 13 percent of this year’s 108 monetary policy decisions by the 90 central banks followed by Central Bank News, steady from the previous week but down from 14 percent at the end of February.
    Rates have been raised 10 times, or 9.3 percent of this year’s policy decisions, down from 10 percent the previous week and 10 percent at the end of February.

• Vietnam cuts rate 50 bps to boost growth as inflation falls
• Turkey holds, repeats tight stance until better CPI outlook
• Iceland holds rate, says inflation outlook has improved
• Fed trims QE to $55 bln, holds rates for considerable time
• SNB maintains FX, interest rates, cuts inflation f’cast
• Sri Lanka maintains rates, sees inflation mid-single digits
• Mexico holds rate, rise in January inflation was temporary
• Sri Lanka maintains rates, sees inflation mid-single digits
• Colombia holds rate, extends FX intervention program

GOLD: With GOLD weakening and reversing its previous week gains the past week, further downside is likely in the days ahead. Support comes in at the 1,320.39 level. This if taken out will pave the way for a run at the 1,300.00 level. Below here will aim at the 1,280.00 level where bulls may come in. Its weekly RSI is bearish and pointing lower supporting this view. On the upside, for GOLD to annul its correction it will have to recapture the 1,367.40 level, a tough call based on its present price action. Further out, resistance resides at the 1,388.95 level, its Mat 17 2014 high followed by the 1,400.00 level, its psycho level. A break will trigger further upside pressure towards the 1,450.00 level, its psycho level. All in all, GOLD remains biased to the downside in the short term.

Article by www.fxtechstrategy.com

EURUSD: With EUR triggering weakness the past week to close lower at the end of the week, further decline is likely. However, we are watching out for signs of corrective recovery in the new week. Support lies at the 1.3749 level. Further down, support comes in at the 1.3685 level where a violation will target the 1.3600 level. Its weekly RSI is bearish and pointing lower supporting this view. Conversely, on recovery higher, the pair will aim at the 1.3844 level. Further out, resistance resides at the 1.3900 level where a violation will aim at the 1.3966 level followed by the 1.4000 level. All in all, EUR remains biased to the upside on further recovery.

Article by www.fxtechstrategy.com

By John Mauldin

In speeches and presentations since the end of last year, I have been saying that I think the biggest macro problem in the world today is China. China has run up a huge debt, and the payments are coming due. They seem to be proactive, but will it be enough? How much risk do they pose for the global system?

This week as I travel to Cafayate I have asked my young associate Worth Wray to write up his research and our conversations on China. Worth has lived in China; and with his (and my) access to people with their fingers on the pulse of China, he has come up with some valuable insights. The hard part for him was to keep it in a single letter. China is a such a huge topic that writing about it can easily yield a tome.

I am lucky to have enticed Worth to come to work with me. He is extraordinarily talented and insightful as an economist, has the boundless energy of youth (which means he seemingly doesn’t sleep), and spent the last five years deep in one of the best training grounds that a young analyst could have. He brings his own extensive Rolodex to our organization. In the not too distant future, we plan to start writing a joint letter on portfolio design and construction, translating the macro insights we have into real-world portfolios that can inform your own investing. Lots of I’s to dot and T’s to cross, but we are making progress.

I am delighted to be able to bring a talent like Worth to your attention. So let’s let him talk China to us and see where it takes us. [Note: as I do the final edits here in Cafayate, I see that Worth did an outstanding job of bringing the data together and making the story understandable. You want to take the time to read this!]

A Front-Row Seat

By Worth Wray

Before I teamed up with John last July, I worked as the portfolio strategist for an $18 billion money manager in Houston, TX that, among its other businesses, co-managed (with an elite team of investors from the university endowment world) one of the largest registered funds of funds in the United States.

For a bright-eyed kid from South Louisiana, it was a life-changing experience. I had a front-row seat for every investment decision in a multi-billion-dollar portfolio for almost five years; and along with my colleagues and mentors in Texas, North Carolina, New York, Shanghai, and Singapore, I had the chance to meet and interact with a long list of the most sought-after hedge fund, private equity, and venture capital teams. I often found myself in the same room with honest-to-god legends like Kyle Bass, John Paulson, JC Flowers, and Ken Griffin … and I forged lasting some friendships with their portfolio managers and analysts.

As you can imagine, the information flow was addictive. I spent thousands of hours poring over manager letters from six continents, doing my best to connect the global macro dots ahead of the markets and coming up with question after question for everyone who would return my calls. That experience plugged me in to an enduring network of truly independent thinkers, forced me to see the world from an entirely different perspective, and put me in an ideal position to figure out what it takes to navigate the unprecedented (not to say strange) investment challenges posed by a “Code Red” world.

Sometimes, combing through a mountain of manager letters felt like reading the newspaper years in advance. I remember watching with amazement as a free-thinking global macro investor named Mark Hart made a fortune for his investors by shorting US subprime mortgages and then shifted his focus to what he argued would be the next shoe to drop – a series of sovereign defaults across the Eurozone.

Mark explained how the launch of a common currency had allowed historically riskier borrowers like Portugal, Ireland, Italy, Spain, and France to issue sovereign debt for the same borrowing cost as Germany did… without any kind of fiscal union to justify the common rates. The resulting debt splurge led to a big increase in fiscal debts, drove an unwarranted rise in unit labor costs across the southern Eurozone, and essentially activated a ticking time bomb at the very foundations of the euro system. It seemed obvious that rates would eventually diverge to reflect the relative credit risks of the borrowers, but the market didn’t seem to care until it got very bad news from Athens. We all know what happened next.

Just as Mark and his team at Corriente Advisors had predicted, spreads blew out in Greece, then in Ireland, then in Portugal, then in Spain… and it now appears that Italy and France are veering toward a similar fate. When the euro crisis finally broke out, my colleagues and I were waiting for it, because Mark had already walked us through his playbook for a multi-act global debt drama.

Instead of blowing up in spectacular fashion, the Eurozone crisis has taken far longer to resolve than a lot of investors and economists expected (Mark, John, and myself included); but the euro’s survival thus far has been largely the result of extensive Realpolitik and an increasingly hollow narrative from Mario Draghi and the ECB laying claim to the wherewithal to “do whatever it takes” to preserve the single-currency system. Meanwhile, as Corriente understood, the likelihood of major defaults across the Eurozone rises every day that the ECB does the bare minimum to resist France’s and Italy’s slide toward deflation. It’s not over until the fat lady sings.

The point I am trying to make is that Mark saw the fundamental imbalances behind the global financial crisis in time to launch a dedicated fund in 2006, and he saw the root causes of the ongoing European debt crisis in time to launch a dedicated fund in 2007… precisely because he thinks of the global economy as one interconnected system peppered with a series of unstable and still unresolved debt bubbles. Mark is one of the most forward-thinking investors I have ever met and one of the best in recent decades at spotting the big imbalances that spell T-R-O-U-B-L-E.

I can’t tell you if he will be right about the next phase of the global debt drama. Predicting the actions and reactions of elected and unelected officials is next to impossible in a Code Red world, but some people have an eye for fundamental imbalances. And since Mark has been largely right in identifying the major debt bubbles that have plagued the world since 2007, John and I can’t comfortably ignore his warning.

As Carmen Reinhart and Kenneth Rogoff argued in their still-authoritative history of financial boom and bust over the past eight hundred years, “When an accident is waiting to happen, it eventually does. When countries become too deeply indebted, they are headed for trouble. When debt-fueled asset price explosions seem too good to be true, they probably are.”

The Bubble That Is China

Following his prescient calls on the subprime debacle and the European debt crisis, Mark identified in 2010 another source of instability that he warned could shake the global economy. And it took me by surprise. He warned that China was in the “late stages of an enormous credit bubble,” and he projected that the economic fallout when that bubble burst could be “as extraordinary as China’s economic outperformance over the last decade.”

To my knowledge, Mark Hart and his team at Corriente were the first of many global macro managers to anticipate a hard landing in the People’s Republic of China. Mark argued that the Middle Kingdom would land very hard indeed, popping speculative bubbles in the property and stock markets, sending foreign capital flying out the door, and triggering a rapid collapse in the renminbi … and even if the Chinese government could manage its economy away from a deflationary bust, they would be forced to devalue the renminbi to do so. In other words, Mark saw a much lower renminbi under almost every outcome.

It was a mind-blowing concept to me that the main driver of global growth (at the time) could not only implode but even drag the rest of the world down with it.

I can’t share the original Corriente China presentation with you for legal reasons, but here are a few public notes published by the Telegraph’s Louise Armistead after she attended one of Mark’s presentations in November 2010. These may look like obvious observations today, the sort you can find plastered all across the internet, but very few people were actually paying attention four years ago. And the data has only gotten worse since 2010 as rampant credit growth and insidious shadow lending have continued to fuel greater and greater capital misallocation.

In the presentation, which amounts to a devastating attack on the prevailing belief that China is an engine for growth, the financier argues that ‘inappropriately low interest rates and an artificially suppressed exchange rate’ have created dangerous bubbles in sectors including:

Raw materials: Corriente says China has consumed just 65pc of the cement it has produced in the past five years, after exports. The country is currently outputting more steel than the next seven largest producers combined – it now has 200m tons of excess capacity, more that the EU and Japan’s total production so far this year.

Property construction: Corriente reckons there is currently an excess of 3.3bn square meters of floor space in the country – yet 200m square metres of new space is being constructed each year.

Property prices: The average price-to-rent ratio of China’s eight key cities is 39.4 times – this figure was 22.8 times in America just before its housing crisis. Corriente argues: “Lacking alternative investment options, Chinese corporates, households and government entities have invested excess liquidity in the property markets, driving home prices to unsustainable levels.” The result is that the property is out of reach for the majority of ordinary Chinese.

Banking: As with the credit crisis in the West, the banks’ exposure to the infrastructure credit bubbles isn’t obvious because the debt is held in Local Investment Companies – shell entities which borrow from Chinese banks and invest in fixed assets. Mr Hart reckons that ‘bad loans will equal 98pc of total bank equity if LIC-owned, non-cashflow-producing assets are recognised as non-performing.’

The result is that, rather than being the ‘key engine for global growth’, China is an ‘enormous tail-risk’.

(Louise Armistead, The Telegraph, “Hedge fund manager Mark Hart bets on China as the next ‘enormous credit bubble’ to burst.” Nov. 29, 2010)

The markets may damn well prove Mark right, along with a host of other managers who either jumped on his bandwagon or reached the same conclusions independently; but it seemed downright crazy in 2010 to think that the main driver of global growth could abruptly become its biggest threat within a few short years.

On a personal note, I obsessed over China’s culture, economy, and political system for years in college and then witnessed the country’s transformation firsthand during my time at Shanghai’s Fudan University in the summer of 2007. Then and later, I marveled at China’s strength relative to the developed world and the seemingly invincible central government’s ability to keep the economy chugging along with credit growth and fixed investment while it hoped for the return of its developed-world customers then mired in the Great Recession.

It wasn’t what I wanted to hear … but I had to accept that Mark could be right. He had clearly identified a major imbalance which has continued to worsen over the last few years, and now we are just waiting for the next shoe to drop.

Four years later, Chinese production is slowing in the shadow of a massive credit bubble and in the face of aggressive reforms.

Disappointing investment returns are revealing broad-based capital misallocation; property prices are cooling (relative to other countries); and commodity stockpiles are mounting.

With China’s new policy of allowing defaults (historically, China’s default rate has been 0%), there is a real risk that follow-on events could spin out of control, raising nonperforming loan ratios and sparking a panic as bank capital is significantly eroded.

In the meantime, the renminbi is trading down, most likely due to an intentional effort by the People’s Bank of China to aid in the slow unwinding of leveraged trade finance.

Now the signs of a Chinese slowdown (and thus a global one, as the world is geared to 8% Chinese growth) are clear, and people around the world are meeting uncertainty with emotion. With that in mind, let’s dig into the data that really matters and try to get to the heart of China’s dilemma.

China’s Minsky Moment?

“China is like an elephant riding a bicycle. If it slows down, it could fall off, and then the earth might quake.” – James Kynge, China Shakes the World

After 30 years of sustained economic growth topping 8% and a successful bank cleanup in 2000, the People’s Republic was well on its way to blowing through the “middle income trap” and transitioning to a more advanced consumption-based economy. But then in 2008 the banking crisis in the United States abruptly ushered in a painful era of balance sheet repair across the developed world and delivered a demand shock to emerging markets. Rather than allow the Chinese economy to fall into recession at such an inconvenient time, the Party leadership sprang into action to stimulate demand with its largest fiscal deficit in more than 60 years and to mobilize bank lending with historically low interest rates and enormous liquidity injections.

As you can see in the charts above, China’s total debt-to-GDP (including estimates for shadow banks) grew by roughly 20% per year, from just under 150% in 2008 to nearly than 210% at the end of 2012 … and continued rising in 2013. Even more ominous, corporate debt has soared from 92% in 2008 to 150% today against the expectation that China’s government would always backstop defaults. That makes Chinese corporates the most highly levered in the world and more than twice as levered as US corporates, just as  corporate defaults are happening for the very first time in more than 60 years.

By another measure, China has accounted for more than $15 trillion of the $30 trillion in worldwide credit growth over the last five years, bringing Chinese bank assets to roughly $24 trillion (2.5x Chinese GDP) and prompting London Telegraph columnist Ambrose Evans-Pritchard to tweet John and me a short message: “China riding tail of $24 trillion credit tiger. Tiger will eat Maoists.” And to that, I would respond that I hope the tiger doesn’t find its way to France. (You can follow John and Worth on Twitter at @JohnFMauldin and @WorthWray.)

Looking further into the debt problem, China is steadily incurring more and more credit for less and less growth – suggesting that the newer debt is less productive because it is being put to unproductive uses – as you can see in Chart 2 above. That explains why many analysts believe China’s official reported nonperforming loan ratio of 1% is more like 11% – or more than 20% of GDP.

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.

© 2013 Mauldin Economics. All Rights Reserved.
Thoughts from the Frontline is a free weekly economic e-letter by best-selling author and renowned financial expert, John Mauldin. You can learn more and get your free subscription by visiting www.MauldinEconomics.com.

Please write to [email protected] to inform us of any reproductions, including when and where copy will be reproduced. You must keep the letter intact, from introduction to disclaimers. If you would like to quote brief portions only, please reference www.MauldinEconomics.com.

To subscribe to John Mauldin’s e-letter, please click here: www.mauldineconomics.com/subscribe
To change your email address, please click here: http://www.mauldineconomics.com/change-address

Thoughts From the Frontline and MauldinEconomics.com is not an offering for any investment. It represents only the opinions of John Mauldin and those that he interviews. Any views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with, Mauldin’s other firms. John Mauldin is the Chairman of Mauldin Economics, LLC. He also is the President and registered representative of Millennium Wave Advisors, LLC (MWA) which is an investment advisory firm registered with multiple states, President and registered representative of Millennium Wave Securities, LLC, (MWS) member FINRA and SIPC, through which securities may be offered. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB) and NFA Member. Millennium Wave Investments is a dba of MWA LLC and MWS LLC. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article. Mauldin companies may have a marketing relationship with products and services mentioned in this letter for a fee.

Note: Joining The Mauldin Circle is not an offering for any investment. It represents only the opinions of John Mauldin and Millennium Wave Investments. It is intended solely for investors who have registered with Millennium Wave Investments and its partners at http://www.MauldinCircle.com (formerly AccreditedInvestor.ws) or directly related websites. The Mauldin Circle may send out material that is provided on a confidential basis, and subscribers to the Mauldin Circle are not to send this letter to anyone other than their professional investment counselors. Investors should discuss any investment with their personal investment counsel. John Mauldin is the President of Millennium Wave Advisors, LLC (MWA), which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS), an FINRA registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). Millennium Wave Investments is a dba of MWA LLC and MWS LLC. Millennium Wave Investments cooperates in the consulting on and marketing of private and non-private investment offerings with other independent firms such as Altegris Investments; Capital Management Group; Absolute Return Partners, LLP; Fynn Capital; Nicola Wealth Management; and Plexus Asset Management. Investment offerings recommended by Mauldin may pay a portion of their fees to these independent firms, who will share 1/3 of those fees with MWS and thus with Mauldin. Any views expressed herein are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest with any CTA, fund, or program mentioned here or elsewhere. Before seeking any advisor’s services or making an investment in a fund, investors must read and examine thoroughly the respective disclosure document or offering memorandum. Since these firms and Mauldin receive fees from the funds they recommend/market, they only recommend/market products with which they have been able to negotiate fee arrangements.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor’s interest in alternative investments, and none is expected to develop. You are advised to discuss with your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staffs may or may not have investments in any funds cited above as well as economic interest. John Mauldin can be reached at 800-829-7273.

 

Weekend Update | www.thepracticalinvestor.com

March 21, 2014

— Although the VIX closed lower for the week, it may be signaling a breakout ahead as it builds a higher base.  This is the prelude to a probable run to the top of the chart that may occur over the next several weeks.  The VIX is considered a leading indicator of the direction of the SPX.

SPX remains above the Wedge trendline.

SPX peaked today at 1883.97, just .40 above its March 7 high of 1883.57.  It appears that equities are running out of steam, since there was no confirmation of its ever-so-slight higher high from the Industrials.  There is a minute Broadening Wedge whose trendline matches the upper trendline of the Bearish Wedge.  A decline beneath the Bearish Wedge trendline is an important step in reversing the trend.  Long-term support at 1743.61 is the next level of support and the likely target once the upper supports are broken.

(ZeroHedge)  Once European markets closed, US equity markets gave up any correlation with JPY crosses and began to fade. After bouncing off early Nasdaq-Biotech-driven lows, a ramp of AUDJPY saved the European close but that was it. There does not appear to be any news catalyst to drive this dump as Quad-witching pumps are unwound. The S&P 500 and Russell 2000 join the Trannies and Nasdaq in the red from the FOMC statement.

NDX fails to make a new high, closes at support.

NDX failed in its Friday morning rally to make a new high, leaving the March 7 high standing.  It closed just above Cycle Top support at 3640.47 and Short-term support at 3622.35.  Cycle Top has been its support since the October 9 low, with the exception of the brief decline in early February.  This support must be broken to begin the change in trend.

(ZeroHedge)  Quad-witching only added to an extremely volatile week as the entire bond, stock, FX complex pumped and dumped on the basis of whether a “considerable period” was really six months and whether “quite some time” was more or less than six months. The S&P hit record highs early on this morning thanks to a ramp in AUDJPY (but once again bonds didn’t blink). All that ended when Europe closed and the Biotech sector’s weakness spread, leaving the Nasdaq -1.4% post-FOMC (and all other indices in the red post-FOMC).The range of moves in bonds, FX, commodities, and vol this week were impressive as we noted below…

The Euro reverses inside its Ending Diagonal.

The Euro reversed beneath its Ending Diagonal and its Cycle Top at 139.44 last week.  Last week I had suggested, “Ending Diagonals often have throw-overs in the final week or two prior to a reversal.”  This appears to be no exception.  The financial press is downplaying this event.

(Reuters) – A three-day dollar rally sputtered out on Friday as world markets adapted to possible shifts in U.S. monetary policy and the euro rose on news of a record monthly euro zone current account surplus.

The dollar, whose gains accelerated on Wednesday after the chair of the Federal Reserve hinted that U.S. interest rates may rise sooner than anticipated, eased against other major currencies.

EuroStoxx bounce in an inside candle.

The EuroStoxx 50 index regained some of its losses of the prior week, but could not make a new high.  This “inside reversal” is known as a bearish Harami in Candlestick parlance.  A further decline next week will confirm this pattern.

(WSJ)  Given Europe’s reliance on Russia’s energy exports, much analysis of the crisis has rightly focused on the potential economic damage from a shut-off in fuel supplies by Moscow.

Europe has other economic vulnerabilities, however. That’s particularly a problem as the region tries to claw its way out of a two-year recession.

Silvia Merler, an associate fellow at the Bruegel think tank in Belgium, estimates  European banks have around $150 billion in claims in Russia, compared to the $40 billion in claims by U.S. banks. With more than $50 billion in claims, French banks are the most exposed, including through Société Générale’s ownership of one of Russia’s largest banks, Rosbank. Italy, Germany and the U.K. banks also have large financial claims in Russia.

The Yen eases back to Short-term support.

The Yen eases back to its short-term support at 97.87.  It is now due for a Master Cycle low, which may arrive in the next week. The degree of bearishness depends on whether the Head & Shoulders neckline is broken or not.  Shold it remain intact, the current Elliott Wave structure remains correct.

(DailyFX)  Half of the most liquid yen crosses closed out this past week in the green. Though, that should provide long-term bulls little relief. So far in 2014, this once high-flying group is under water. The forces that provided the momentum of 2012 and 2013 – a reach for yield and the introduction of a massive stimulus program from the BoJ – have been sidelined. And now, fear is creeping in that there is a very real risk that speculative appetites are starting to wilt and the central bank is shelving plans to upgrade its QE plans. While neither theme is threatening to collapse – yet – the yen crosses may still topple (yen rally) in the absence of further expansion.

The Nikkei is easing toward its Head & Shoulders neckline.

The Nikkei eased further toward the neckline of its Head & Shoulders formation at 13995.86.  Once the neckline is broken, the Nikkei may drop below its weekly mid-Cycle support at 11793.42.  The Cycles Model projects a decline into early April.

(Reuters) – Japanese stocks retreated from one-week highs on Thursday after Federal Reserve Chair Janet Yellen raised the prospect of interest rate hikes starting earlier than previously thought, sparking a selloff in equity markets and lifting the U.S. dollar.

   The weaker yen helped to contain broader market losses as a softer Japanese currency is generally seen as a positive for exporters’ income.

U.S. Dollar reverses from Ending Diagonal.

After extended its Master Cycle low yet another week, the Dollar finally broke out of its Ending Diagonal formation.  It ended the week closing at weekly Short-term resistance, just beneath its Triangle trendline.  While breaking above the trendline the dollar will also emerge above Intermediate-term resistance at 80.46.  What appears to be a temporary reversal may become a real problem for the Dollar bears.

(ZeroHedge)  While the talking heads are desperate to maintain the myth that this statement is dovish, the fact is, the flow of free money from the Fed is slowing and confusion of the outlooks for growth (and more Fed member see rate hikes in 2015) means Yellen’s dovishness is being questioned aggressively by the bond and stock markets. The S&P 500 fell 12 points. Treasuries are getting clubbed with major short-dated selling (and bear-flattening). The dollar is surging and gold is down modestly.

(Bloomberg)  The dollar gained to the strongest level in two weeks against the euro after Federal Reserve policy makers signaled they’ll probably raise interest rates by the middle of next year.

The greenback rose versus 14 of 16 major peers after Fed officials raised interest-rate forecasts yesterday and Chair Janet Yellen said borrowing costs could start rising “around six months” after the Fed stops buying bonds.

Treasuries challenging Long-term support.

Treasuries declined to challenge Long-term support at 132.50.  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)  Something hilarious, and at the same time pathetic, happened earlier today: at precisely 9 am the US Treasury released its delayed Treasury International Capital data (which was supposed to be released yesterday but was delayed because it snowed) which disclosed all the latest foreign Treasury holdings for the month of January. Among the key numbers tracked and disclosed, was that China’s official holdings increased from $1.270 trillion to $1.284 trillion, that Japan holdings declined by a tiny $0.2 billion, that UK holdings increased by $7.8 billion to $171 billion, and that holdings of Caribbean Banking Centers, aka hedge funds, declined by $16.7 billion. Here is Reuters with the full data summary (save it before this article is pulled).

So why is it hilarious and pathetic? Because just three short hours later, the Treasury – that organization that has billions of dollars at its budgetary disposal to collate, analyze and disseminate accurate and error-free data – admitted that all the previously reported data was in effect made up!

Gold makes a hard reversal.

Gold made its peak retracement on Monday as suggested in an irregular Intermediate Wave (2).  The Cycles Model calls for a month-long decline that may break through the Lip of a Cup with Handle formation in the next two weeks.  The potential consequences appear to be severe.

(MarketWatch) — A day after Federal Reserve Chairwoman Janet Yellen threw the market a three-word curveball, sellers were in control — sending prices for gold and silver futures down for a fourth-consecutive session to their lowest settlement levels of the month so far.

Gold for April delivery GCJ4 +0.30%  fell $10.80, or 0.8%, to settle at $1,330.50 an ounce on the Comex division of the New York Mercantile Exchange. Prices had already tallied a loss of 2.7%, or nearly $38 an ounce, over the past three trading sessions and tracking the most-active contracts, they closed Thursday at their lowest level since Feb. 28, FactSet data show.

Crude bounced off  Intermediate-term support.

Crude bounced from Intermediate-term shpport at 98.16 to retest Long-term resistance at 100.24.  The next support level to be tested is the weekly mid-Cycle support at 96.30.  There is a Head & Shoulders formation at the base of this rally may be overshadowed by the Cup with Handle formation, with an even deeper target.

(Reuters) – Crude oil futures rose on Friday as fresh U.S. and European sanctions on Russia renewed fears of a supply disruption from the world’s second largest oil producer.

The European Union imposed sanctions against the Russian deputy prime minister, two aides to President Vladimir Putin and nine others on Friday, adding to the nearly two dozen prominent Russians (that) Washington sanctioned on Thursday, including Gennady Timchenko, co-founder of oil trading firm Gunvor.

Within hours of Thursday’s sanctions, Gunvor announced Timchenko had sold his near 50 percent stake in the company to allow the firm, which handles almost 3 percent of global oil supplies, to avoid disruptions to its operations.

China stocks bounced at a neckline.

The Shanghai Index bounced from its Head & Shoulders neckline to challenge Short-term resistance at 2053.63.  The Cycles Model calls for a brief bounce before it resumes the decline beneath the neckline.  The ensuing decline may be swift and deep.  There is no support beneath its Cycle Bottom at 1938.33.

(ZeroHedge)  We have described in detail over the past two years how we believe China’s twin excesses (excessive investment funded by excessive debt) will inevitably unwind, causing a substantial slowdown in China’s economy, significantly below market expectations. In recent weeks, a trip to the region and further research into China’s shadow banking system have convinced us that China is approaching its “Minsky Moment,” (Display 1) which increases the chances of a disorderly unwind of China’s excesses. The efficiency with which credit generates economic activity is already deteriorating, as more investments are made in non-productive projects and more debt is being used to repay old debts.

The Banking Index repelled by Cycle Top.  

BKX rose to test its weekly Cycle Top this week at 73.63.  This is the final probe higher in the 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)  It’s mid-March, which means it is time for the annual confidence boosting theatrical spectacle known as the Fed’s stress test (for those who may have forgotten last year’s farce when Jamie Dimon preempted the Fed by announcing a dividend in advance of the results, can read here). And like in the past, there were absolutely no surprises with 29 of 30 banks passing with flying colors. Of course, since it is a “test”, and someone has the be sacrificial calf, this year that honor falls to Zions Bankshares. Last year its was Citi, SunTrust and MetLife. In both years the results are completely meaningless, as the Fed neither then, nor now, has any methodology for how to calculate capital in case of the same kind of counterparty failure chain as happened during Lehman, and when no amount of capital would have been sufficient to preserve the financial sector. Like we said: theatrical spectacle. But at least everyone’s confidence has been boosted.

(ZeroHedge)   Moments ago the “absorption” of Crimea into the Russian Federation was completed after Putin signed the final previously passed by parliament. And with that, in less than a month, the Crimean “question” has been answered. The only question is whether Putin will stop here or will the ease with which he just expanded the Russian political map leave him hungry for more.

In other news, as part of the Western escalations against Russia, Bank Rossiya, the one bank exclusively identified in the sanctions list, announced that Visa and MasterCard have stopped, without notification, providing services for payment transactions for clients. Another bank that saw the drop of merchant credit card services was SMP bank, co-owned by brothers Boris and Arkady Rotenberg, who were also on the latest U.S. sanctions list.

(ZeroHedge)  “Of late there has been much breathless wonder expressed at the Bank of England’s supposedly ground-breaking release. ‘Money in the Modern Economy’, in which it argues – shock! horror! – that banks do not lend out previously received deposits, but that they create the latter ex nihilo by first making loans. Alas, as Gunnar Myrdal waspishly observed of Keynes himself, this has been a reaction plagued with the ‘unnecessary originality’ of those who don’t know their literature.

(ZeroHedge)  With Bernanke gone, the remaining Fed members knowing full well they will be crucified, metaphorically of course (if not literally) when it all inevitably comes crashing down, are finally at liberty with their words… and the truth is bleeding out courtesy of the president of the Dallas Fed, via Bloomberg.

• FISHER SAYS QE WAS A MASSIVE GIFT INTENDED TO BOOST WEALTH

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.

The use of web-linked articles is meant to be informational in nature.  It is not intended as an endorsement of their content and does not necessarily reflect the opinion of Anthony M. Cherniawski, The Practical Investor, LLC.

USDCHF: With the pair closing higher following its price halt the past week, the risk is for more gains to occur. However, the situation on the daily chart is different as its mentioned rally has printed a reversal candle (shooting star) suggesting it may be tough for USDCHF strengthen further for now. If it cannot go up we think it should head lower on correction. Support comes in at the 0.8768 level where a violation will turn focus to the 0.8698 level. Further down, support is located at the 0.8600 level and then the 0.8568 level followed by the 0.8500 level. On the upside, resistance resides at the 0.8868 level. Further out, resistance resides at the 0.8895 level where a break will clear the way for a run at the 0.8950 level. On a break of here, resistance stands at the 0.9050/81 levels. All in all, the pair remains biased to the downside medium term though attempting a recovery.

Article by www.fxtechstrategy.com

By MoneyMorning.com.au

The coffee machine in the Money Morning office gets a work out. Sometimes, you can hear the grinding of beans all day.

However, it’s also a meeting point to catch up with co-workers. We’re in different parts of the building, or with our heads down engrossed in analysing one thing or another. So we don’t always get to have a chat. So the coffee machine enables us to have a quick catch up.

On Friday morning, when I headed down to the machine for my morning brew, I bumped into Jason Stevenson, the resource analyst for Diggers and Drillers. As he waited for his latte I decided to bend his ear on the iron ore market – as you do!

Here’s the outcome of our chat…

Iron ore is getting a beating from the mainstream at the moment.

The recent dip in the ore price resulted in the usual cries of ‘the end is nigh’ from the standard rags. After all, the price had its largest one day drop in four years, to US$104.70.

Now, I know Jason loves an out favour commodity. Not only does he love a contrarian play, but he always looks for the opportunities that the mainstream analysts ignore.

Once we got talking about iron ore, I realised he had a remarkable insight, far out of the mainstream’s view.

So for this week, I thought I’d share with you our chat on what’s happening in the iron ore market. And why you shouldn’t be alarmed; if anything you should be prepared for a golden opportunity.

I had my mobile phone handy, pressed record, and here’s what Jason had to say in the time it takes for a latte to brew…

The Key to Buying Resource Stocks in Today’s Market

Shae: Tell me, in this week’s Diggers and Drillers update, you only briefly mentioned the volatility in iron ore prices. Why is that?

Jason: To be honest, it’s not really newsworthy. There has been all this hype in the mainstream media over the decline in the price, when the fundamentals haven’t really changed – iron ore offers a great investment opportunity at the moment. In fact, the iron ore companies that I’m following offer some of the greatest value in the market going around.

Shae: OK. We’ll come back to the reasons behind your recent Diggers and Drillers stock tips in a moment. However, is the price drop in iron ore as significant as the mainstream would like us to think?

Jason: Well, yes and no. The price did drop by roughly 14% due to some economic data from China. In February Chinese exports fell 18%, yet the month before exports were 11% higher. Punters got scared. However, from January to March is the Chinese New Year period, so you should expect volatile numbers as business and people sort of slow down during this time.

This happens every year. Since the first year of the last iron ore bull market, which started in 2008, Chinese exports have dipped at the beginning of the year because of the lunar celebrations.

So there’s no cause for panic. It’s just that the dip in February was larger in magnitude than expected.

I’ll send you a chart later that shows this. [Ed note: See chart below.]

Source: tradingeconomics.com
Click to enlarge

Shae: But hasn’t China been stockpiling iron ore? And also, I read that production was lower as well.

Jason: Yes. China’s stockpiles have increased to around 105 million tonnes and production was slightly off the long term average of 2.1 million tonnes to 2 million tonnes. But again, these are seasonal factors. Every year, the same thing happens.

Shae: Alright, I want to go back to your Diggers and Drillers iron ore tip. How is this one more isolated from the market than the ‘big boys’ of iron ore? Take Fortescue for example. It’s 9% down since the iron ore price fell, yet XXXXXXXX has recovered. Why is that?

Jason: Fortescue is highly leveraged. Its debt to equity ratio is around 240%. That’s huge. It also needs a high iron ore price to break even. If iron ore drops below USD$80 per tonne, Fortescue is in serious trouble.

Compare that to BBB stock, which has no debt on its balance sheet. It’s got a strong cash position, and is a high margin producer. The iron ore price would have to drop 38% from where it is now before this company gets even close to being cash flow negative.

That’s why it held its price. Investors know the strength of this company. They understand a dint in the iron ore price won’t hurt it like it would high cost iron ore businesses.

Right now, I like iron ore. No one else is willing to take a punt on it at the moment. The market is largely ignoring it. But I still say there are plenty of opportunities out there. You just have to look for a sound company with a low cost of production and sound financials.

Shae: Thanks Jason, enjoy your coffee.

Shae Smith+
Editor, Money Weekend

Join Money Morning on Google+

By MoneyMorning.com.au

The MetaTrader 4 trading platform is probably the most popular of all Forex trading platforms. It is estimated that there are over 400 Forex brokers that offer MetaTrader 4. With an estimated 80% of the retail Forex market trading on Metatrader it’s a wonder how and why this trading platform got so popular.

One of the best-known features of MetaTrader 4 are what are known as expert advisors.

What is an expert advisor?

An expert advisor is really a trading system or the parameters of the trading system in a downloadable file which is also known as an MQL4. Traders around the world are constantly updating and creating new expert advisors based on their trading systems. One of the great things about expert advisors is that it can be installed on any of the MetaTrader 4 platforms. It is as simple as dragging and dropping this into the expert advisors folder in your MT4 platform. Then after the MetaTrader 4 platform is restarted, one could drag-and-drop their expert adviser into the chart of their choice. They can then activate their expert adviser for live trading.

Although the developing and implementing an expert advisor that works can be very challenging, the popularity and the accessibility of MetaTrader 4 expert advisors has brought automated forex trading to the masses..

To learn more please visit www.clmforex.com

Disclaimer: Trading of foreign exchange contracts, contracts for difference, derivatives and other investment products which are leveraged, can carry a high level of risk. These products may not be suitable for all investors. It is possible to lose more than your initial investment. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. A Product Disclosure Statement (PDS) is available from the company website. Please read and consider the PDS before making any decision to trade Core Liquidity Markets’ products. The risks must be understood prior to trading. Core Liquidity Markets refers to Core Liquidity Markets Pty Ltd. Core Liquidity Markets is an Australian company which is registered with ASIC, ACN 164 994 049. Core Liquidity Markets is an authorized representative of Direct FX Trading Pty Ltd (AFSL) Number 305539, which is the authorizing Licensee and Principal.

By MoneyMorning.com.au

Another day, another crazy internet IPO.

Following Facebook and Twitter’s successful floats, King Digital Entertainment has also joined the IPO party. It’s the maker of Candy Crush Saga, and it’s expected to be valued at $US7.6 billion when it goes public this month.

For the uninitiated, Candy Crush Saga is a free mobile app that requires the player to push together matching coloured candy into lines of three.

Apparently it’s addictive, and has some impressive numbers behind it.

Since launching in April 2012 it’s been downloaded over 500 million times. And it has generated revenue of US$602 million in the fourth quarter of 2013 for King. That’s up from US$22 million in the first quarter of 2012.

That’s big revenue growth, sure, but it’s mostly due to Candy Crush downloads. King makes around 180 other games which don’t even come close to the popularity of Candy Crush.

Can Candy Crush sustain it’s growth?

The mobile game app is a big market — estimated at US$17 Billion.

But it’s unlikely Candy Crush will be able to sustain its growth.

Games are essentially a single-use products. While other tech companies can expand their platforms — think of the new features Facebook constantly adds — games remain mostly the same.

That’s fine if the product in question is one you need, or one it does a better job than your competitors.

But there are literally hundreds of millions of digital games on the market, each there to tempt bored commuters or lazy office workers.

And it seems unlikely that Candy Crush will remain the game of choice. In fact, odds are that another fad will sweep the game away.

Fads of the past show Candy Crush IPO is overrated

How can we be so sure?

Well, other popular games have come and gone.

Farmville for example was once the ‘addictive’ game of the moment.

In a similar flurry of insanity the company behind the hit Facebook game was valued at US$7 billion when it started trading on the stock market in 2011. At the time, that was the biggest internet IPO since Google.

But guess what? Farmville’s popularity waned and its stock price has since halved.

You’d think that would cool the excitement surrounding the <em>Candy Crush IPO.

But no, it hasn’t.

Instead, investors are smacking their lips. Are they crazy? Possibly, but no more crazy than other tech investors of late.

And King has one thing many other tech companies don’t: an ability to turn a profit.

Making a profit before tax of US$714.3 million last year, King stands out among other tech firms that have popular products, but no way of making money.

Still, the company seems massively overvalued considering how fickle our tastes in online gaming are. Maybe Wall Street traders are just looking for an excuse to play Candy Crush in the office?

Callum Denness
Contributing Editor, Money Morning
Join Money Morning on Google+

By MoneyMorning.com.au

By MoneyMorning.com.au

There’s a new economic buzzword doing the rounds: ‘infrastructure’.

The Productivity Commission recently released a draft report that found Australia gets a poor bang for its buck when investing in infrastructure.

The draft report identified a number of factors that are to blame: slow approvals processes, a lack of rigorous cost-benefit analyses, inadequate industrial relations regimes and mandates dictating the use of Australian labour and suppliers.

It’s a timely report, because the government and many economists have begun to talk of the importance of infrastructure as mining begins to decline.

Our outdated infrastructure is also holding back investment and productivity.

Anyone who lives in an Australian capital city can see it for themselves: crowded roads, inadequate public transport, and inefficient airports.

While there is broad agreement on the need for better infrastructure; the big question is how to fund it.

Why superannuation funds and the private sector
are on the Government’s infrastructure investment ‘hitlist’

We all know that Federal and State governments are running out of money and running up big debts. There is also a critical need for infrastructure to boost productivity and investment.

So the government is naturally eyeing the private sector and the $1.8 trillion pool of superannuation funds.

They want to encourage investors to back big infrastructure projects.

But investors would be crazy to do so.

Infrastructure projects in this country are frequently expensive, poorly planned and deliver a poor return for investment — both for taxpayers and private investors.

The productivity commission report spells it out. But if there was any doubt about their findings, you’d only have to look at a recent string of projects.

Sydney’s Cross City Tunnel, the Airport rail line and Brisbane’s cross river tunnel are notable examples of big, expensive projects that have lost investors’ money.

The projects looked attractive to investors, with the government taking on most of the project cost and providing rosy projections of patronage.

But these passenger projections turned out to be fantastical, and the financial case never properly tested. Construction companies got big contracts, the politicians got their photo ops, and investors either lost money outright or got a bad return.

But the damage wasn’t limited to those who directly invested in the projects. It wasn’t just this wasteful investment that stung taxpayers. Congestion in many cases got worse after these projects were built either as a direct consequence of poor planning or the deferral of more critical projects. That’s not to mention the disruption to business caused by construction, without any pay-off.

Currently under construction, the NBN and East West Link in Melbourne (both government funded) look to be similar legacies of mis-management, bad planning and poor financial modelling.

The real opportunity for investors and governments

The government does have access to another financing option, one that is more attractive to investors: asset sales.

Power plants, ports, government enterprises: all are saleable and will generate billions of dollars of government revenues. The private sector has run businesses such as Commonwealth Bank and Telstra more efficiently than the Government, delivering probability, dividends and strong returns for investors. (Even in spite of the bad publicity around the ‘T2’ sale of shares which occurred just before the dot com bust.)

That’s where investors should be looking.

In the meantime, ignore fancy tunnels and trains with big patronage estimates. History shows they’re probably a load of bull.

Callum Denness
Contributing Editor, Money Morning
Join Money Morning on Google+

By MoneyMorning.com.au