Archive for year: 2016

The dollar rally has been led in hopes of the FED tightening rates in December of 2016. While most of the other developed nations are still struggling with low inflation, the U.S.Government provided data that has been largely supportive of a rate hike.

The sharp rise in the dollar had taken it to extreme levels against the EURO, as shown in the Bloomberg chart below.The reversal was due, as evidenced by the RSI, however, the fall has been more vicious and looks like a correction, rather than a mere pullback.

The seesaw in the U.S. Presidential election polls is affecting the dollar.

“There is some anticipation that the markets have built in a Hillary victory and that a Trump victory is going to roil the markets,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago, reports Reuters.

However, after recent reports of the FBI reviewing of more emails in its investigations of Hillary Clinton a few polls are now showing Mr. Donald Trump ahead in the polls.  The markets have started to realize that both the candidates have an equal opportunity to win.

Will A Trump win quash any hopes of a December rate hike?

Mr.Donald Trump has long been critical of FED Chair Janet Yellen. He has also spoken against the rates being artificially kept low to benefit Wall Street.

“It’s staying at zero because she’s obviously political and she’s doing what Obama wants her to do. And I know that’s not supposed to be the way it is, but that’s why it’s low,” Trump said during an interview with CNBC back in September, reports USA News.

Hence, most believe that a Trump win will force the FED to push back their plans of a rate hike in December of 2016.

“The uncertainty over the election is certainly weighing on the dollar,” said Stephen Casey, senior foreign exchange trader at Cambridge Global Payments in New York, reports Reuters.

Yellen in support of running a “high pressure” economy.

The FED projected four rate hikes in 2017 after the first rate hike in December 2016. Following the China scare and the Brexit uncertainty in the early part of this year, the FED developed cold feet and they brought down the expectations of rate hikes from four to two.

Since then, the members of the Central Bank have been jawboning the dollar. Though there were three dissenters in the last meeting, the permanent members are of the opinion that the economy should be given more time.

In a recent speech,  Dr. Janet Yellen said she might be open to “temporarily running a ‘high-pressure economy'” to help heal the damages caused due to the anemic recovery. “High pressure”, implies to allowing inflation to rise above the FED’s target of 2% to 3%. This can be possible only if  Dr. Yellen does not do a rate hike at all in the near future.

What does the technical picture of the dollar forecast?

The dollar has a history of making double tops, as marked by the circles in the chart (below). Every major double top formation has led to a slide in the dollar. Presently, the dollar has again formed a double top, along with a false breakout. A fake out leads to a sharp fall, as being seen in the dollar currently.

The ADX reading shows hysteric buying of the dollar, which is coming to an end. Similarly, the Stochastics are showing a trend change. So, what do we do to benefit from this fall in the dollar index?

 

Buy inverse ETF “UDN”.

The chart (below) shows that the ETF has been trading in a range since March of last year. The last two times this  ETF had come to the lower end of the range, it showed a sharp pullback, which carried it towards the highs. Currently, the ETF is rising from the support levels and a rally to the highs of $22.62 cannot be ruled out in the medium-term.

The current rally will face resistances at the three trendlines as seen on the chart (below).. There is a trade in UDN for both the short-term and the medium-term trader!.

 

The Bottom Line:

I have been warning my readers all throughout the year that the FED will not employ a rate hike and I have been proven correct, now, I am again going to forecast a Q.E.5 sometime in 2017. I have been among only a couple analysts who has gone against the crown and has been proven correct!

The stock markets are at a critical juncture, as is the dollar and gold. The different markets are not following the traditional rules of trade. The globe has changed with the ultra-loose monetary policy of the Central Banks. Hence, a deep understanding of economics and trading is needed to catch the next move up or down.

If you also want to benefit from my timely calls, please subscribe to my trading newsletter services at www.TheGoldAndOilGuy.com

Chris Vermeulen

A subscriber sent me this chart/analysis which I am not sure who originally

created it but I found it very interesting and is part of my talk with HoweStreet Radio today.

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Last week the market sent us one of those special price spikes and member took full advantage of it for some quick and easy profits.

Spike Alert Chart

Next Day Spike Target Reached

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Although the seeds of the 2008 ‘financial crisis’ were sown at a  much earlier period of time, the banking institutions continued to reap the benefits of ‘easy money’ until the financial crisis of 2008 negatively impacted the economy. The damage would have been much larger had U.S. taxpayer’s money not been used to bail out a large number of struggling banks and companies.

It is now more than eight years since the last  financial ‘crisis’ has occurred and the current global situation is now beyond that of the financial ‘crisis’ of 2008. The Central Banks have been able to “kick the can down the road”, but that has only produced such vast proportions of debt that the next financial ‘crisis’ will not be manageable by the Global Central Banks.

 

European Banks have already begun the ‘crisis’:

 

The world’s riskiest bank, according to the U.S. Federal Deposit Insurance Corporation, is the Deutsche Bank.

The Bank’s leverage ratio of 2.68% is far worse than that of what the U.S. banks were before the 2008 ‘crisis’.

“In 2008, the 10 largest US banks held on average 3.1% tangible equity capital-to-assets. When the financial crisis hit, these institutions experienced significant losses and required extraordinary government support,” said FDIC Vice Chairman Thomas M. Hoenig, reports the Business Insider.

The recent fine of $14 billion demanded as RMBS settlement, by the U.S. authorities, is 80% of the bank’s market cap and twice the amount that the bank has in reserve for litigations. The Deutsche Bank is on the brink of collapsing and will need a full-fledged bailout immediately.

However, it is not only the Deutsche Bank.  There are other European banks in trouble, as well.  Primarily, it is the Italian banks which are under considerable pressure.

With a GDP of approximately €16.2 trillion (nominal), the European Banks have approximately €1.2 trillion of bad loans. The total non-performing loans, of the Italian banks, is around €360 billion which represents 20% of Italy’s GDP.

However, Italian and German counterparts both continue to spar over their struggling banks.

Recently, the Italian Prime Minister Matteo Renzi told Bundesbank Chief Jens Weidmann to sort out the mess of the German banks which have “hundreds and hundreds and hundreds of billions of euros of derivatives”, rather than worry about the Italian banks.

“The European Banking Authority said in July that the region’s banks may need as much as 470 billion euros ($524 billion) in additional MREL-eligible funding. The EBA sample consisted of 114 banks representing 70 percent of the EU’s banking assets, including lenders not overseen by the SRB,” said Elke Koenig, Single Resolution Board Head, who is the resolution authority for 142 banks, reports Zero Hedge.

 

 

Will U.S. banks be immune to a financial ‘crisis’ since their European counterparts are experiencing such a ‘crisis’?

 

Although the Fed Chairwoman Janet Yellen wants us to believe that the large U.S. banks are in a much better situation as compared to 2008, because they “have put in place numerous steps and have more in the works that will strengthen these [financial] institutions, force them to hold a great deal of additional capital, and reduce their odds of failure. There will be much lower odds that a so-called systemic firm will fail, and should that occur, we’ll have better tools to deal with it”.

What is the reality? Even before the 2008 ‘crisis’, the regulators of Bear Stearns, Wachovia, Washington Mutual, Fannie Mae and Freddie Mac all kept on assuring the public that the institutions were well-capitalized, until the very end.

Therefore, we cannot accept the regulator’s word as final and/or factual truth.

In a recently published paper for the Brooking Institute, authors, former Treasury Secretary Larry Summers and Harvard Ph.D. candidate in economics, Natasha Sarin found the opposite to be true!

“To our surprise, we find that financial market information provides little support for the view that major institutions are significantly safer than they were before the crisis and some support for the notion that risks have actually increased,” the authors wrote.

The authors analyzed the six largest U.S. banks and fifty of the largest banks, around the world.

 

Conclusion:

 

Multiple experts like Steve Eisman have pointed out that the next financial ‘crisis’ will originate within the European Union. The politics of the region is unlikely to allow for a logical solution to the problems plaguing both the Italian and the German banks.

If one had believed the regulators, in 2007, they would have incurred huge losses. Similarly, if one believes that the American banks are immune to the next financial ‘crisis’, believe so at your own risk.

This is the beginning of “The Great Reset”, globally.

Learn more and profit from this big change in within the financial sector.

Chris Vermeulen – www.TheGoldAndOilGuy.com