Timing & trends
Donald Trump’s receiving of the Republican nomination for President, the UK voting to leave the EU and Syriza coming to power in Greece, are part of what has become known as the anti-establishment movement. This trend has also been seen in countries outside the ‘West’ with India and the Philippines electing candidates that could be labeled as the anti-establishment.
…related from Martin Armstrong:
New York Times Proves it is the Establishment – End of Independence
Calling Wall Street’s banks stupid and dangerous is like calling the sun “big and warm.” It’s a clear understatement of an obvious fact. The same goes for calling Japan and China economically clueless. Their actions pretty much guarantee that they’ll ultimately enter some sort of death spiral.
Germany, meanwhile, is many things, but clueless and stupid aren’t normally on the list. So why is that country’s biggest bank causing nightmares for global policy makers and investors? Because – in a sign of just how close we are to the end of the fiat currency/fractional reserve banking era – Deutsche Bank is behaving in ways that would make executives at Lehman Brothers and Bear Stearns step back in alarm. It seems, for example, to have become a derivatives junkie. Like a Vegas high-roller who can’t stop raising his bets, DB’s exposure to this unregulated, largely off-balance-sheet market now exceeds not just its host country’s GDP, but that of its entire continent:
And it recently joined its Wall Street cousins-in-crime by attracting a $14 billion fine for mortgage fraud. This amount seems puny next to a trillions-with-a-T derivatives book, but it’s enough to force DB to raise capital at an extremely inauspicious time. Here’s an excerpt from a Bloomberg article on the bank’s — and Germany’s — plight:
Deutsche Bank’s Pain Is Germany’s Too
Berlin is trying to distance itself from Deutsche Bank and the threat of a $14 billion U.S. fine that would likely force the bank to raise capital.
This makes sense politically ahead of an election year. It also, effectively, calls the U.S. authorities’ bluff: if the fine is too big, German taxpayers won’t step in to help.
But the danger is that deepening investor concerns over the health of the country’s No. 1 bank spiral out of control — and circle right back to Berlin.
As unpalatable as it may be politically, the market sees Germany and Deutsche as joined at the hip.
You can see it in Deutsche Bank’s share price: it plumbed a record low on Monday after Focus magazine has reported Chancellor Angela Merkel ruled out state aid for the lender ahead of next year’s elections.
You can also see it in the lender’s credit-default swaps: both the German five-year sovereign CDS and Deutsche Banks’s five-year CDS have risen in tandem over past weeks.
Even Deutsche Bank’s own executives have commented on it. It’s almost a year to the day since Stefan Krause, then a member of the bank’s management board, noted how investors confused the lender with the Bundesbank and therefore saw “there was always an implicit state guarantee” when giving the bank funding.
Deutsche Bank is a truly systemic bank with about $2 trillion in assets, about two-thirds of Germany’s entire annual output. The weaker it becomes, the more investors will expect its home country to be on the hook.
Deutsche Bank said it’s determined to manage on its own and a capital increase isn’t currently on its agenda. Merkel’s government is attempting to stay out of the fray. On Monday, her chief spokesman said there were “no grounds” for speculation over state funding.
This last sentence illustrates the severity of the problem: When a government has to deny its intention to bail out a bank, a bail-out is not just possible but highly likely.
Zero Hedge has had some fun over the past year with a chart comparing DB’s share price with that of Lehman Brothers, a Wall Street bank that eventually collapsed, setting off the 2008-2009 conflagration. Here’s the chart from this summer:
And here it is after the most recent set of horrendous headlines:
DB’s saga seems to be nearing some kind of resolution, with exactly zero potential happy endings. Either it crashes, taking the European and maybe global financial system down with it, or Germany nationalizes it, potentially tipping the euro, dollar and yen into chaos.
Germany at the center of a global crisis, who would’ve thought it?
dollarcollapse.com
Gold moved about $30 last week and many investors view this fact as a bullish sign and indication that much higher gold prices are likely to follow. Is this really the case? Let’s take a look at the gold charts (charts courtesy of http://stockcharts.com):
From the long-term point of view, not much changed despite a $30 rally. Gold is still consolidating after a sharp rally earlier this year and it’s quite likely to move much lower as this year’s entire rally was simply a correction to the 38.2% Fibonacci retracement level (based on the 2011 – 2015 decline). Please note that gold didn’t rally above the declining blue resistance line, so the medium-term trend remains down also from this perspective.
Moreover, please note that gold’s weekly rally took place on relatively low volume, which is a bearish sign for the following weeks.
Comparing gold prices to stock prices shows that gold is already after a medium-term breakdown and the implications are bearish for the following weeks.
Gold’s move higher this year caused a rally in most of the important moving averages and this in turn seems to have generated some buy signals – at least at the first sight. In fact, we were just asked if it is a meaningful long-term buy signal that gold’s 24-week moving average moves above the 104-week moving average.
Even before looking at the chart, it seems quite doubtful that this particular set of moving averages would be effective as it appears rather artificial (24 and 104). The thing is that if a dataset is “tortured long enough, it will confess to anything”. So, if one keeps searching for the “optimal” version of the moving averages (or any other variable), they will ultimately find it, but it doesn’t mean that it is really the best one. Similarly, (as Nassim Taleb described in his Fooled by Randomness book) if you have an infinite number of monkeys with typewrites pressing the buttons, you will ultimately find a monkey (among many billions of other monkeys) that was able to write the exact copy of Homer’s Iliad. Would that make it likely to expect that this exact monkey will write Homer’s Odyssey next? No. There are techniques that can greatly increase the chance of obtaining the optimal values for moving averages and other variables (such as indicator parameters), but most traders and analysts are not aware of them and are not applying them. Consequently, we are always suspicious, when presented with a “special”, non-standard number in case of moving averages or indicators.
The second thing that the above resembles is the myth of supposedly bullish implications of the golden cross in gold and the bearish implications of the death cross in gold. You will find details in the above links (alternatively, search for these terms in the Dictionary section on SunshineProfits.com), but to make a long story short, they don’t work as they supposed to and as it is commonly believed.
Still, let’s take a look at the chart.
The “buy signal” is theoretically seen when the shorter moving average moves above the longer-term one. We saw 3 such cases in the past decades. One in late 1995, one in early 2000 and one in late 2001. In 2 out of 3 cases, we saw the following: gold rallied initially, then erased the entire rally and kept on declining for months. In the first case, gold moved below the previous lows (and moved to the final low of the bear market) and in the second case, gold moved very close to the previous bottom.
After the third time, gold rallied.
What happened after the signal this year? Gold rallied on a short-term basis, just like what happened in all 3 previous cases. However, in most previous cases, such rally was followed by even bigger declines, so the implications are somewhat bearish, not bullish. Why only somewhat? Because we have only 3 previous cases – it could simply be a more or less random kind of link, and it seems that we should focus on other signals and use the above only as a small confirmation of the bearish scenario. However, if we insist on implying something from it, the implications should not be bullish.
Summing up, even though gold rallied about $30 last week, it doesn’t seem it changed anything from the long-term point of view. Based on the breakdown in the gold to stocks ratio, the weak weekly volume and short-term indications that we have not covered in this free articles, it seems that the medium-term trend for gold remains down.
Thank you.
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For most of us the investment markets are one big puzzle. Victor Adair makes sense of it by talking about the big trends moving markets. One such trend is the complacency in the interest rate markets.
…Michael’s Editorial: Oh No Not Again
For most of us the investment markets are one big puzzle. Victor Adair makes sense of it by talking about the big trends moving markets. One such trend is the complacency in the interest rate markets.
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