Month: November 2011

Early last week saw the pair pushing higher and retesting the 0.8600 area which so far for the month of November has held as fairly good resistance with only a few days managing to break above. With the bulls initially taking hold of the market early last week and the bears finally gaining control towards the end of the week, a strong bearish pin bar formed on the weekly charts suggesting we could be in for further selling in the coming days/weeks.

The weekly pin bar was strengthened as it was the final piece of a Hikkake pattern showing a strong rejection of the 0.8600 – 0.8630 area. The pin also managed to close the gap from 4/5 weeks ago, which again strengthens the bearish bias.

We can see from the chart above the 0.8600 area has supported this market for the majority of this year. Late last year the level resisted any move higher, strengthening the significance of this level.

A closer look at the weekly time frame shows a series of lower high’s and lower lows which indicate the market may now be in a downtrend. Should we see the market continuing this pattern and forming a new lower low in the coming week(s) we could expect the bears to take full control and push the price even lower, possibly back down to early 2011 lows.

A quick look on the daily time frame shows the market is in a downwards channel. Although price has not been respecting the upper and lower channel lines perfectly; we can still see the closes of each day have been staying within the levels. Again this further supports the markets bearish outlook at this time.

We will be looking for bearish price action signals on the daily and 4hr chart with the 0.8500 area in mind as an initial target; however should the market continue the way it has for the past few weeks we may see a fall back down to 2011 lows.

Article by www.vantage-fx.com

By MoneyMorning.com.au

This morning the Aussie market has taken off. Why? Because of this report from Bloomberg News:

“The euro rose after Italian daily La Stampa said the International Monetary Fund is preparing a 600-billion euro ($799 billion) loan for Italy in case the debt crisis worsens, without saying where it got the information.”

We’ve lost count how many rumours we’ve seen from European newspapers about bailouts that never happen – remember the China-buying-Italian bonds rumour?

As we see it, it’s another case of bureaucrats and central banks manipulating the market. Which is funny because…

In March 2008, the Australian Securities and Investments Commission (ASIC) clamped down on “rumourtrage”. That is, the spreading of false rumours “designed to harm a company, such as by forcing a share price down…”

In March 2010, ASIC put the campaign on ice… with only one prosecution.

Roll forward to today and we can see why the regulators have stopped targeting “rumourtrage”. Because the only false rumours investors get are from insiders keen to stop the markets falling.

But maybe Italy will get an IMF bailout. However, don’t think for a moment it’s the final fix the Europeans have waited for.

As you should have learnt by now, the fixing of one problem only creates another problem.

Glenn Stevens says useful economic forecasts require “an understanding of the dynamics of how economies typically behave.”

The reason central bankers interfere in markets is because they know how the markets would behave if they didn’t interfere. Ultimately it would mean the end of central banking.

That’s why you can be assured the bailouts and market manipulation will continue.

And why the RBA has things like the Committed Liquidity Facility and Residential Mortgage Backed Securities in place.

The central bankers have far too much skin in the game to allow anything else.

Cheers.
Kris.

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From the Archives…

The Onward March of the State
2011-11-11 – Kris Sayce

Lose a Shirt, But Gain a Wardrobe
2011-11-10 – Kris Sayce

Neither a Borrower Nor a Seller Be…
2011-11-09 – Kris Sayce

Roman or Zimbabwean
2011-11-08 – Kris Sayce

Lighting a Match to Inflation
2011-11-07 – Kris Sayce

For editorial enquiries and feedback, email [email protected]

No Thanks to Central Banks

By MoneyMorning.com.au

Australia doesn’t have nearly as much government debt as Broken Europe. So the local solution is the CLF (Committed Liquidity Facility).

This allows Aussie banks to deposit eligible securities with the RBA and in return the RBA will give the banks liquidity – cash.

The question is, what securities can the banks deposit with the RBA? You guessed it… good old residential mortgage backed securities (RMBS)… the safest security in the land… apparently.

With CLF, the bank agrees to buy the RMBS back from the bank at a fixed price at a later date. That’s why it’s called a repurchase agreement (Repo).

Supposedly this means there’s no risk of a moral hazard problem… where the banks make any loan knowing the RBA will buy it… or is there?

Of course there is. There’s always moral hazard when anyone guarantees to accept something in the future. Especially when there are no questions asked.

You see, the CLF is a banking bailout by another name. No-one will admit the entire global banking system is broke. So Aussie central bankers worked double-time to make sure Aussie banks can stay in the game.

They (like their U.S. and European counterparts) need to keep re-writing the banking rules in order to not go bust.

But the Aussie banking funny-business is just a sideshow. The real stuff is overseas.

Cheers.
Kris.

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From the Archives…

The Onward March of the State
2011-11-11 – Kris Sayce

Lose a Shirt, But Gain a Wardrobe
2011-11-10 – Kris Sayce

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2011-11-09 – Kris Sayce

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2011-11-08 – Kris Sayce

Lighting a Match to Inflation
2011-11-07 – Kris Sayce

For editorial enquiries and feedback, email [email protected]

Residential Mortgage Backed Securities (RMBS)

By MoneyMorning.com.au

Who’s Worse: Weather Forecasters or Economic Forecasters…?

The night prior to the Daily Reckoning Doomers’ Ball a more [ahem] sober event took place in Sydney. It was the Australian Business Economists Annual Dinner. Keynote speaker was Reserve Bank of Australia (RBA) governor, Glenn Stevens.

Surprisingly, Mr. Stevens made one good point during his snooze-fest.
He said:

“One is that the most useful economic forecasts, like weather forecasts, are those that are based on a good sense of the ‘big forces’, as well as on an understanding of the dynamics of how economies typically behave.”

It’s worth noting his speech compared two maligned groups of forecasters – economists and weathermen.

It’s funny someone from a central bank should say that. Seeing as central bankers spend their whole time manipulating economies.

Look no further than the RBA Committed Liquidity Facility (CLF) – another acronym to add to TALF, TARP, EFSF and many, many more.

Put simply, CLF is a joint-venture idea between the Reserve Bank of Australia and the Australian Prudential Regulatory Authority (APRA).

Under Basel III rules, banks need to carry more high-quality liquid assets on their books. Following the 2008 global economic meltdown central bankers thought banks should hold more government debt. Because that’s safer.

The only trouble was… governments had just bailed out the banks. That increased their own liabilities and weakened weak bank balance sheets.

So now European banks have to hold lots of government debt which are impaired by the poor financial position of governments because they bailed out banks which forced them to go further into debt which led to the downgrade of their debt ratings which…

You get the point.

And on our shores the RBA seems to think its system of using residential mortgage back securities (RMBS) is somehow safer.

Cheers.
Kris.

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From the Archives…

The Onward March of the State
2011-11-11 – Kris Sayce

Lose a Shirt, But Gain a Wardrobe
2011-11-10 – Kris Sayce

Neither a Borrower Nor a Seller Be…
2011-11-09 – Kris Sayce

Roman or Zimbabwean
2011-11-08 – Kris Sayce

Lighting a Match to Inflation
2011-11-07 – Kris Sayce

For editorial enquiries and feedback, email [email protected]

Committed Liquidity Facility (CLF)

AUDUSD has broken above the downward trend line on 4-hour chart, suggesting that the downtrend from 1.0342 has completed at 0.9663 already. Lengthier consolidation of the longer term downtrend from 1.0751 would likely be seen over the next several days, and the trading range would be between 0.9663 and 1.0000. As long as 1.0000 resistance holds, downtrend could be expected to resume, and one more fall towards 0.9390 (Oct 4 low) is still possible, only break above 1.0000 could indicate that the fall from 1.0751 is complete.

Forex Signals

By Chris Vermeulen: www.TheGoldAndOilGuy.com

Chris Vermeulen

By MoneyMorning.com.au

There’s no escaping the Eurozone crisis. It even managed to keep China away from the headlines. However, in recent days China’s Economy has fought its way back to the front page.

Why?

Because China’s about to lose its biggest export market.

As the Euro crisis grows, European consumption is rapidly falling. Meaning China will be hit where it hurts… their manufacturing sector.

Which also means… China’s soft landing could now be China’s hard landing …moving into a devastating crash landing.

According to Bloomberg News, ‘China’s exports rose at the slowest pace in almost two years in October as Europe’s deepening debt crisis crimped demand.’

Crimped demand? Demand from Europe has tanked since August.

In August, export growth was a robust 22.3%. Less than a month later, it had tumbled to a tiny 9.8% (that’s tiny for China).

And there’s worse to come. Lu Ting an economist with Bank of America says export growth will fall further.

In total, Ting believes export growth to Europe could be just 10%… for the whole of 2012.

However, it’s not just Europe shrinking Chinese exports. The Purchasing Managers Index (PMI), a gauge of manufacturing activity has taken a dive too.

HBSC believe the index will drop to 48 (a PMI Index number below 50 shows manufacturing is contracting). In other words, China’s factories aren’t producing as much as they were.

As Europe deteriorates, Chinese officials are facing some economic numbers they don’t want.

Is there a solution to this? After all, China obviously can’t fix the Euro Zone problem? So, is there anything it can do?

Just in case those in charge in the Middle Kingdom (China) were out of ideas, two economists have a suggestion. Their favourite ‘fix-everything’ tool – more stimulus.

Alistair Thornton, a Beijing based economist sees monetary interference as China’s only option. He said, ‘A bleak outlook in advanced economies will continue to feed into China’s trade data, acting as a break on growth and potentially forcing the authorities hand in rolling out monetary easing.’

Thornton isn’t the only one who thinks stimulus is necessary. Mark William, an economist at Capital Economics predicts a change in policy. ‘The unexpectedly sharp drop in China’s flash PMI for November, if corroborated by other indicators is likely to push policy makers to go beyond “fine-tuning” to out easing.’

If the latest batch of lending data from China is anything to go by, a loosening monetary policy is already underway.

Lending data for October was 586.8 billion yuan (AUD: $95 billion), far higher than the predicted 500 billion yuan estimated by a Bloomberg News survey. If that wasn’t enough, China’s on track to lend over 7.3 trillion yuan:

When the People’s Bank of China (PBOC) tightened lending criteria this year, most rural sector small business were unable to get credit. Simply because the increased reserve requirements for credit unions limited the amount of funding from the banks.

But now the PBOC is looking to stimulate the economy… including the rural areas. The aim is to get borrowed yuan out there to boost spending from small and medium businesses.

At the same, central bankers will hope for a lift in private consumption as well.

Frighteningly, this lend-like-no-tomorrow concept is likely to be pushed by central bankers into next year as well. It’s speculated that 7.5 trillion yuan would be lent next year. And if the problems in Europe don’t go away, you can bet the credit figures will go higher… and higher.

However, mainstream economists still don’t get it. Sun Mingchun, head of China research for Daiwa Capital market in Hong Kong says higher lending for 2012 will ‘…significantly reduce the risk of a hard landing in the fourth quarter.’

Greg Canavan of Sound Money. Sound Investments, is alarmed at the faith in Chinese officials’ ability to ‘print and fix’ their way out of the problem. In a recent note to his subscribers, Greg wrote:

‘While the markets might be concerned, there is still the general feeling of complacency the Euro debt situation will work out or that the Chinese authorities won’t let anything bad happen to the Chinese economy.’

Simply put, the central bankers controlling China’s economy are running out of ideas. And there’s no way China can replace Europe’s export value by encouraging Chinese domestic consumption.

At some point, the authorities will just have to accept that like the West, they can’t print the problem away.

If Greg Canavan is right, Sun Mingchun’s prediction for avoiding a hard landing is wrong. In fact, China could be in for more of a crash landing rather than a hard landing.

Shae Smith
Editor, Money Weekend

Publisher’s note: Greg Canavan is the foremost authority for retail investors on value investing in Australia. He’s the former head of Australasian Research for a major asset-management group and a regular guest on CNBC, Sky Business’s ‘The Perrett Report’ and Lateline Business. Greg shares his insight, ideas and investment recommendations with readers of his Sound Money. Sound Investments newsletter… to find out more information on Greg’s letter, go here.

China’s Economy: Soft Landing, Hard Landing or Crash Landing?

The Central Bank of Colombia increased its monetary policy interest rate 25 basis points to 4.75% from 4.50%.  The Bank said [translated]: “Given the central forecast described above, and the risks of financial imbalances, the Board considers it prudent to increase 25 basis points interest rate intervention and believes that this movement is achieved monetary stance which helps to maximize the growth of output and employment consistent with the achievement of future targets for inflation. This decision also includes the possibility of early detection of a substantial change in external conditions of the economy and to react quickly to it.”

The Central Bank of Colombia’s last change was an increase of the interest rate by 25 basis points to 4.50% at its July monetary policy meeting this year, following a 25bp increase in June.  Colombia reported annual inflation of 3.73% in September, compared to 3.27% in August, 3.42% in July, 3.23% in June, 3.02% in May, and 2.84% in April; which compares to the Bank’s inflation target of 3% (+/- 1%).  Goldman Sachs had previously forecast 2011 GDP growth at 5.5%, while Morgan Stanley had forecast just 4.9% growth for the Colombian economy.  

The Central Bank of Russia held its benchmark refinancing rate steady at 8.25%.  The Bank said: “Considering recent domestic and international macroeconomic developments the Bank of Russia judged that the current level of money market interest rates was appropriate to balance the inflationary risks and the risks of economic growth slowdown.  The increase in money market interest rates, resulting from the transition to the liquidity shortage in the banking sector together with the instability on the global financial markets, puts upward pressure on other interest rates in the economy.  Thereupon the Bank of Russia will continue to monitor the money market conditions and the external economic developments, and to assess the risks of further increase in the market interest rates and its consequences.”


The Russian central bank previously also left interest rates unchanged, while it last raised the fixed overnight deposit rate by 25bps to 3.50% in May, and the benchmark refinancing rate by 25 basis points to 8.25% in April this year.  Russia reported annual inflation of 7.2% in September and October, down from 8.2% in August, 9% in July, and 9.4% in June, meanwhile Bank Chairman Sergey Ignatiev is trying to keep inflation between 6% and 7%.  

The Croatian National Bank decreased its Lombard lending rate by 275 basis points to 6.25% from 9.00% previously.  Meanwhile the bank held its other interest rates unchanged.  The Bank said: “In addition, the central bank is allowing commercial banks to use their reserve funds under certain conditions,”… “The central bank has to approve the usage of reserves and will charge an interest rate of the Lombard rate plus 1 percent for periods up to 3 months, and Lombard plus 2 percent for longer periods.” according to Bloomberg.