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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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Week Ending 18th April 2014

Over the past few weeks we have commented on the massive leverage evident within the financial markets and indeed within the World’s most important Central Bank. We also included comment last week from the FOMC’s most hawkish member, where he warned on US margin debt and price-earnings ratios. An edition of The Wall Street Journal recently included an article entitled, “Stocks Stumble, but Hope Lingers,” in which it commented that a selection of investors’ didn’t think the overall market was dangerously high, stating, “although the NASDAQ is trading at a P/E of 35X and is higher than the long-term average of 32, it is nowhere near the index’s dizzying multiple of 175X seen in 2000.” Clearly forgotten appears to be the little fact that from the once in a lifetime manic extreme the NASDAQ crashed by 78% and still remains below its peak level some 14-years later.

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 . . .

Charts:
1.Indices Weekly
2.US housing starts v house prices
3.Euro-Zone CPI v credit growth
4.China GDP v credit growth
5.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

Leverage and Markets Peak?

It was an interesting week in respect of leverage, when one recalls that the 1998 market swoon was accompanied by the LTCM “black-box” collapse, leveraged at 5 times and the 2007/09 market rout which saw the demise of Lehman Bros bank, leveraged 30 X. The latest Federal Reserve numbers show that its balance sheet has reached a record $US4.24 Trillion, or 73 X its assets, whilst NYSE margin debt reached a record high, at $US466BN, on which we comment more below. Turning to the UK, its main financial regulator, the FCA, appears to be perfectly happy to report that Hedge Funds regulated by it have increased their leverage, which is the use of borrowed money to maximise bets, from 54 X their assets at June 2013 to 64 times as of the latest report. Presumably, what’s good enough for the most important Central Bank in the world is good enough for Hedge Fund clients’, assuming that the are aware of any of this.

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NYSE “margin debt,” the amount borrowed against US stock-portfolios and used to leverage yet more stock exposure, reached a record high in February, at a near $US.466BN, up by 5% year to date and by 169% since the March 2009 S & P 500 low. Whilst the past is no guarantee of the future, one can note the correlation between it and stock-market tops and that this rally has required even more debt than the prior two bubbles had.

Just what do you think?

Week Ending 11th April 2014

Week Ending 11 April 2014.

The IMF and the World Bank hold their spring meeting in Washington this weekend and ahead of it the IMF released its biannual World Economic Outlook. It revised higher the 2014 GDP forecast for the UK, US, the Euro-Area and Canada, whilst downgrading its expectations for Japan and for Russia. Whilst it appears to be pleased with the Western part of the world, the IMF expressed concerns over China’s reliance on a credit-fuelled drive for growth, suggesting that it’s putting the world economy at risk and the Chinese government should rein in “rapid” credit growth.There was no mention, of course, in respect of the Federal Reserve growing its balance sheet liability at a 30% annualised pace over the past few years.

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  . . .

Charts:
1.Indices Weekly
2.US sentiment v consumption
3.UK base rate v market rate
4.China trade
5.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

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.

140314_1_chart

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.

140314_2_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  . . .
  • 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.

weekly_blog_140312_02

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.

140307_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  . . .
  • 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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