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Charlie Aitken

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How Watching Market Psychology Can Help You Time the Market

Elliott wave patterns in price charts reflect the struggle between the bulls and bears
By Elliott Wave International

 

Two economic reports hit the newswires Thursday morning (March 6). Both were important, yet each one had the opposite implication for the trend. The market chose one report over the other, and the question is, why — and what can we learn from that? Read more.

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Investment Markets Overview – w/e 14 March 2014

Crimea’s 1.5m eligible voters will be asked this week-end on whether to rejoin Russia or to stay with Ukraine and with ethnic Russians making up 59% of the region against 24% ethnic Ukrainians, the result is fairly predictable. This move towards secession appears to have caught everyone by surprise, but why? A student of Socionomics would identify that the collective social mood of a Nation can be identified by its main stock-index and in Russia’s case it peaked back in May 2008, re-traced part of the subsequent losses until April 2011, since when it has slumped by 50%. As such, the collective social mood of Russia has been turning more negative for five years now, not since last week, and during negative social mood trends, polarisation within society and trends towards secession go hand in hand.

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Note also the strong correlation of Russia’s stock-index to the price of Crude Oil, which has diverged of late. This would suggest that either the collective social mood within Russia is about to lighten-up OR the price of crude is about to crash. We will watch the January low of $91.61 very closely.

For more on our Socionomic input you may wish to consider our subscription services.

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Subscribe to the Full Investment Markets Overview Newsletter which contains the following:-

Additional Commentaries:

  • US economic data . . .
  • Euro-Zone   . . .
  • The UK . . .
  • Out East   . . .
  • The $US index  . . .
  • Within the commodities complex  . . .
  • Economic data due next week includes  . . .
  • It was a year ago this week that the proverbial hit the fan in Cyprus, when the banking system went bust and the country needed a $US23BN “bail in,” as they are now called. The difference between this and a “bail out,”  . . .

Charts:

  1. Russia Stock – Index vs West-Texas Light Crude Price
  2. Indices Weekly
  3. US Adv Salse Y on Y vs Wholesalers Investories Monthly % Change
  4. UK BRC Sales Like for Like Y on Y vs UK GDP Q on Q
  5. SH Comp vs China Exports Y on Y
  6. Commodity 1 Week Moves

Table:              

   13 Indices, 11 columns of detailed information, for accurate analysis

Click  HERE to view Details of the full version of this Newsletter which includes full text and detailed Charts for each section

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Due to holiday commitments there will be a two-week break for the weekly investment overview. We’ll be back for the week-ending 4th April.

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“Secession = Political Divorce”

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An Honest Central Banker?

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Yeah, maybe, but let’s at least look at the comment, bold for emphasis:

Philly Federal Reserve Bank President, Charles Plosser, recently stated, “On monetary policy, we must back away from increasing the degree of policy accommodation in a manner commensurate with an improving economy. Reducing the pace of asset purchases in measured steps is moving in the right direction, but the pace may leave us well behind the curve if the economy continues to play out according to the FOMC forecasts. Even after the asset purchase program has ended, monetary policy will still be highly accommodative… Let me conclude with this thought. Over the past five years, the Fed and, dare I say, many other central banks have become much more interventionist. I do not think this is a particularly healthy state of affairs for the central banks or our economies. The crisis in the U.S. has long passed. With a growing economy and the Fed’s long-term asset purchases coming to an end, now is the time to contemplate restoring some semblance of normalcy to monetary policy. In my view, the proper role for monetary policy is to work behind the scenes in limited and systematic ways to promote long-term growth and price stability. But since the onset of the financial crisis, central banks have become highly interventionist in their efforts to manipulate asset prices and financial markets in general as they attempt to fine-tune economic outcomes. This approach has continued well past the end of the financial crisis. While the motivations may be noble, we have created an environment where ‘it is all about the Fed.’ Market participants focus entirely too much on how the central bank may tweak its policy, and central bankers have become too sensitive and desirous of managing prices in the financial world. I do not see this as a healthy symbiotic relationship for the long term.”

Hmm, whilst agreeing with him 100% in respect of the moral hazard that CBs have created, not to mention the damage caused to the prudent, it’s interesting to note the “guilty plea” to market manipulation, at a time that lesser mortals are facing or have faced jail-time for similar offences.

Whilst admiring Mr Plosser’s insight and pleased that he is a voting member of the FOMC this year, he patently suffers from the same delusion as the rest of the CB brethren in thinking that they actually control market interest rates, which of course, they don’t. One look at the following demonstrates that central banks, the Fed in this case, have never made a pro-active decision in their lives, only re-active.

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Kindly note that the FOMC rate has followed the trend of the 2-year treasury yield, not the other way round. Furthermore, the 2-year has jumped by 157% since its low of September 2011 and the 10-year yield (lower window) is ahead by 100% since its mid-2012 record low, despite all of the rhetoric and so called “forward guidance” that rates will remain low until the CB decides. This has nothing to do with inflation, as US CPI has been trending lower for five years now, despite the guidance that QE would re-flate!

The new Fed Chair, Ms Yellen, will have her work cut out in trying to present a united front this year, as Charles Prosser appears to have an ally in Dallas Fed President, Richard Fisher. A statement from Fisher last week included, “The program of bond-buying has lasted too long, and there are signs it is now distorting financial markets and encouraging risk-taking, the stimulus is stoking asset-price bubbles thatmay result in tears’ for investors acting on bad incentives. ‘There are increasing signs quantitative easing has overstayed its welcome: Market distortions and acting on bad incentives are becoming more pervasive,’ he said of the asset purchases… ‘I fear that we are feeding imbalances similar to those that played a role in the run-up to the financial crisis.”

Quite, snort,snort!

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Investment Markets Overview – w/e 7 March 2014

Over the past few weeks, economists including the new Fed Chair Yellen have pointed toward the winter weather as the reason for the recent economic slowdown, but the latest US Non-farm payrolls appears to refute that theory, particularly as weather-sensitive construction jobs picked up. In total, 175,000 jobs were added in February against the consensus forecast of 163K and the January number was also revised higher to129,000 from the initial 113,000 stated. Digging a little deeper, private payrolls came in at 162,000 against the expected 170K but were an improvement on January’s 145,000.The “official ” unemployment rate increased to 6.7% in February from 6.6% in January but the average working week fell once again, to 34.3 hours, which, along with the increase in part-time positions, is put down to employers’ response to the Affordable Care Act, better known as Obamacare.

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Subscribe to the Full Investment Markets Overview Newsletter which contains the following:-

Additional Commentaries:

  • US economic data . . .
  • Euro-Zone   . . .
  • The UK . . .
  • Out East   . . .
  • The $US index  . . .
  • Within the commodities complex  . . .
  • Economic data due next week includes  . . .
  • Returning to the economic health of the US, household wealth increased in Q413 by $US2.95 trillion, or 3.8% to a record $80.7trillion, according to the Federal Reserve financial accounts report  . . .

Charts:

  1. Indices Weekly
  2. US ISM Manufacturing vs US Trade Balance
  3. E-Z Retail Sales vs E-Z GDB
  4. OZ GDP Q on Q vs CCI Commodity Index
  5. Commodity 1 Week Moves

Table:                

13 Indices, 11 columns of detailed information, for accurate analysis

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“Debt appears to have no limits, until it does

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Click  HERE to view Details of the full version of this Newsletter which includes full text and detailed Charts for each section

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Investment Markets Overview – w/e 28 Feb 2014

The Royal Bank of Scotland made a loss last year of £8.2bn, its sixth consecutive annual loss, taking its cumulative losses to £46bn, which neatly equals all the money invested in it by the UK tax-payer six years ago for an 81% stake when the lender came close to collapse. Excluding a £3.8bn bill for customer mis-selling compensation and a £4.8bn impairment charge against the continued run down of its bad loans, RBS reported an operating loss for the year of £2.5bn, yet still managed to put aside £576m to pay staff bonuses for 2013, presumably so that they do not lose these “talented individuals?” Commenting on the results, the chairman of the Treasury Select Committee, Andrew Tyrie MP, said, “Well after the crisis broke, bonus schemes have continued to reward failure. There are not enough signs that banks understand the need for radical reform of remuneration.” With an alleged 52% of Tory Party Funding coming from the Financial Sector, one shouldn’t expect any return for the beleaguered British tax-payer anytime soon.

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Subscribe to the Full Investment Markets Overview Newsletter which contains the following:-

Additional Commentaries:

  • US economic data . . .
  • Euro-Zone   . . .
  • The UK . . .
  • Out East   . . .
  • The $US index  . . .
  • Within the commodities complex  . . .
  • Economic data due next week includes  . . .
  • Fed Chair Janet Yellen’s partially delayed testimony before the Senate Banking Committee this week, repeated her dovish tone of a fortnight ago, . . .

Charts:

  1. Indices Weekly
  2. US Durable Good Orders vs US GDP Y on Y
  3. UK GDP Y on Y vs UK GDP Q on Q
  4. Japan Housing Starts Y on Y vs Japanese Overall Household Spending Y on Y
  5. Commodity 1 Week Moves

Table:                

13 Indices, 11 columns of detailed information, for accurate analysis

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“A Chasm often Starts with a Split?

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Click  HERE to view Details of the full version of this Newsletter which includes full text and detailed Charts for each section

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Investment Markets Overview – w/e 21 Feb 2014

As the 30:1 leveraged Lehman Brothers Bank collapsed in the autumn of 2008 it would appear that the Bernanke Fed were both divided and fairly clueless on how to respond, at least that’s how it appears from the transcripts of the September 2008 FOMC meeting released this week. Apparently Ben, who remember spent the whole of his academic career studying the 1930s depression, thought that cutting interest rates would be inflationary, despite the fact that US CPI had fallen from 1% in June 2008 to 0.7% in July and was at -0.1% by August. The records certainly show Fed officials struggling to understand the magnitude of the financial crisis that was underway and the potential fallout for the economy, albeit that another member of the FOMC committee did state the obvious, “the failure of a major investment bank, the forced merger of another, the largest thrift and insurer teetering, and the failure of Freddie and Fannie are likely to have a significant impact on the real economy.” Don’t hold your breath for wise-guidance and unity going forward.

140221_chart

Subscribe to the Full Investment Markets Overview Newsletter which contains the following:-

Additional Commentaries:

  • US economic data . . .
  • Euro-Zone   . . .
  • The UK . . .
  • Out East   . . .
  • The $US index  . . .
  • Within the commodities complex  . . .
  • Economic data due next week includes  . . .
  • The G20 road-show opens in Sydney this weekend, with the official theme stated as, “restoring global growth,”

Charts:

  1. Indices Weekly
  2. US Housing Starts vs US Home Builders Sentiment
  3. UK Retail Sales by Volume Q on Q vs UK Average Regular Pay Q on Q
  4. Japan GDP Q on Q vs Japan Department Store Sales
  5. Commodity 1 Week Moves

Table:                

13 Indices, 11 columns of detailed information, for accurate analysis

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“Divide and Conquer or Divide and Fail?

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Click  HERE to view Details of the full version of this Newsletter which includes full text and detailed Charts for each section

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China & Old King Coal

Of late we have commented on the correlation between commodities and the emerging markets asset class, including that of the BRICS, which can be found in “Sub-Merging markets,” and “BRICwall Cracking.”

Today we’ll delve a little deeper into perhaps the most important constituent of the BRICS family, China, and perhaps more importantly, its relationship with coal, which as can be seen below is still a very important source of Global energy, of which China has become a major player in respect of both demand and supply.

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First up, however, a peek at the Shanghai Composite stock-index shows the boom and bust of the past decade as investors’ saw a five-fold return in the 4+ year lead up to the October 2007 market top, only to suffer a 65% hit since.

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The index continues to test its 40 week moving average and remains within a contracting triangle, where the green-line offers support and the red resistance. The lower window shows that after 6 years of under-performance against an Emerging Markets Index, China has started to out-perform, albeit that a break either way from the triangle will determine Shanghai’s trend.

Moving onto China’s relationship with Coal, a final chart shows the Shanghai Comp versus the price of Coal, adjusted in $US terms to better demonstrate the close fit between them.

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The International Energy Agency predicts that China, the world’s biggest consumer of coal, will reduce demand through 2018, as the country increases its use of alternative sources of energy. To this one could add the likely reduction anyway due to the rapid slow-down evident of China’s economic growth.

Aside of pointing out the relationship above, a current major area of concern for China relates to the 50 publicly traded coal companies and the trust products that have invested into them. Investors in a high-yield product issued by China Credit Trust, which had lent to Shanxi Liansheng, faced a near 2BN Yuan ($US330m) default earlier this month, until an 11th hour bail-out by the China Development Bank Corp.

Thirteen of those fifty publicly traded coal companies have a debt-to-equity ratio exceeding 100 percent, whilst the number of maturing trust redemptions tied to coal and sold to multiple investors will jump to 19 this year from five in 2013, according to Cnbenefit, a consulting firm based in the southwest city of

Chengdu. As borrowing costs have risen, and coal prices have fallen, defaults will be hard to avoid and investors within the next ones may not be as fortunate as China Credit Trust.

Watch “Old King Coal,” it could be important for both China and globally.

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