We live in a Financial World dominated by the collapse Europe, huge problems in the US, and the emergence of China as an ecomomic power (according to Soros, since the financial crisis started in the US in 2008, China became the motor of the global economy“).

In other words we are on the brink of colossal change.

Stir in markets at such extremes that in the case of the US Bond Market it is practically mathematically impossible for it to improve to any degree, and this may well be one of the the most important times in history to be paying close attention to really smart people like George Soros. 

The Resistible Fall of Europe: An Interview with George Soros

Editor’s note: On May 12, George Soros was awarded the Tiziano Terzani Prize for his 2012 book Financial Turmoil published in Italy by Hoepli. The following interview is adapted from a press conference held in Udine, Italy, on that occasion.

SOROS: I have been very concerned about Europe. The euro is in the process of destroying the European Union. To some extent, this has already happened, in the sense that the EU was meant to be a voluntary association of equal states. The crisis has turned it into something that is radically different: a relationship between creditors and debtors. And, in a financial crisis, the creditors are in charge. It is no longer a relationship between equals. The fate of Italy, for example, is no longer determined by Italian politics – which is in a crisis of its own, I would say – but rather by the creditor/debtor relationship. That is really what dictates policies.

QUESTION: But the stock markets are apparently in good condition. Why do you think we are in a crisis? Do you think this kind of honeymoon will go on for a long time?

SOROS: The answer is no. We are in what I call a far-from-equilibrium situation. Therefore, it cannot last. But I am not in a position to predict the future.

QUESTION: The spread between German treasury bonds and Italian treasury bonds has decreased despite the current financial difficulty. Do you think this could delay the introduction of Eurobonds – which, if I am correct, you support – as a possible solution to remedy the current discrepancies among rates in Europe.

SOROS: Yes, I think it could, because this could continue, and the discrepancy in the rates would not disappear, though it would remain within a range that could be tolerated for an indefinite period. Of course, it would be a big handicap for Italy, making it m

……read more HERE

Interview with George Soros

Complete transcript of an interview with George Soros in Hong Kong on April 4, 2013.

Chinese Economy and the new Leadership

Q: What do you think of China’s economic performance in the past year? 

A: Since 2008, when the financial crisis started in the US, China became the motor of the global economy. It became the driving force moving global economy forward. China’s economy is much smaller still than the US. It is smaller than the US consumer [economy]. Therefore, the growth has been slower since 2008 than it was before. So I rate China’s contribution quite high. 

Q: What are the main threats to the Chinese economy?

A: They are partly external, because of the slow growth, and the inability of the global economy to continue to absorb the ever-increasing Chinese exports. And internal, because China has to change its growth model. China has to reorient itself from export and investments to domestic consumption.

It is going to be a very difficult transformation, because the household consumption is only 1/3 of the Chinese economy. Exports and investments are 2/3. The growth of 1/3 cannot make up for the slower growth in the 2/3. Therefore, the overall growth rate will have to be significantly slower than it has been up to now. That is a very important point.

I don’t have enough knowledge to have an estimate [of China’s GDP growth rate this year], but the official estimate is 7.5 per cent. The important point is that it is less than the 8 per cent which was considered sacrosanct until now. It was in fact significantly exceeded in reality. That means significantly lower growth.

Q: What will China’s economic transformation be like in a few years?

A: I think the period of rapid growth when the overall economy was growing more than 10 per cent in reality is over, and it is unlikely to recur. It is a phase of growth that occurs at the early stage of economic transformation, and it does not occur in the more mature phase that China is today entering.

Q: What do you expect from the new government after the new leadership took power?

A: I believe they are aware of the need to make this change. I should have said earlier that this change doesn’t necessarily have to occur today — the old model can last for another year or so, but it cannot last another 10 years. Therefore, the new leadership that has to think in terms of 10 years must embark on this change, especially that, in my opinion, the change was already delayed by the previous leadership which only had one or two years to go, and therefore they extended the life of the old model. That actually creates additional problems for the new leadership because with the extension, some serious imbalances have developed in the last year or so.

Shadow Banking

Q: What are the imbalances?

A: By stimulating investments, the capacity of industry increased, but the market didn’t increase enough. Therefore, the profitability of production, both of export and of investment themselves, declined. That creates financial problems — it increases the bad loans that banks have made. And also, the government has started cutting back on the availability of cheap credit. Therefore, particularly the real estate companies were forced to borrow in the quasi-bank markets. And that borrowing cost is much higher, at a time when the investments were less profitable. When it comes to repaying the loans, there may be some difficulties in collecting the money.

……read more HERE

Since the middle of April everyone and including their grandmother seems to have been building a short position in the equities market and we know picking tops or bottoms fighting the major underlying trend is risky business but most individuals cannot resist.

The rush one gets trying to pick a major top or bottom is flat out exciting and that is what makes it so darn addicting and irresistible. If you have ever nailed a market top or bottom then you know just how much money can be made. That one big win naturally draws you back to keep doing it much like how a casino works. The chemicals released in the brain during these extremely exciting times are strong enough that even the most focused traders fall victim to breaking rules and trying these type of bets/trades.

So if are going to try to pick a top you better be sure the charts and odds are leaning in your favor as much as possible before starting to build a position.
Below are a few charts with my analysis and thoughts overlaid showing you some of the things I look at when thinking about a counter trend trade like picking a top within a bull market.

UTILITY STOCKS VS SP500 INDEX DAILY PERFORMANCE CHART:

The SPY and XLU performance chart below clearly shows how the majority of traders move out of the slow moving defensive stocks (utilities – XLU) and starts to put their money into more risky stocks. This helps boost the broad market. I see the same thing in bonds and gold this month which is a sign that a market top is nearing.

That being said when a market tops it is generally a process which takes time. Most traders think tops area  one day event but most of the times it takes weeks to unfold as the upward momentum slows and the big smart money players slowly hand off their long positions to the greedy emotion drove traders.

Look at the chart below and notice the first red box during September and October. As you can see it took nearly 6 weeks for that top to form before actually falling off. That same thing could easily happen again this time, though I do feel it will be more violent this time around.

SPY ETF TRADING CHART SHOWS INSTABILITY AND RESISTANCE:

Using simple trend line analysis we see the equities market is trading at resistance and sideways or lower prices are more likely in the next week or two.

STOCKS TRADING ABOVE 150 DAY MOVING AVERAGE CHART:

This chart because it’s based on a very long term moving average (150sma) is a slow mover and does not work well for timing traded. But with that said it does clearly warn you when stocks are getting a little overpriced and sellers could start at any time.

General rule is not to invest money on the long side when this chart is above the 75% level. Rather wait for a pullback below it.

STOCKS TRADING ABOVE 20 DAY MOVING AVERAGE CHART:

This chart is based on the 20 day moving average which moves quickly. Because it reacts quicker to recent price action it can be a great help in timing an entry point for a market top or bottom. It does not pin point the day/top it does give you a one or two week window of when price should start to correct.

How to Spot and Time Stock Market Tops Conclusion:

As we all know or will soon find out, trading is one of the toughest businesses or and one of the most expensive hobbies that one will try to master. Hence the 95-99% failure rate of individuals who try to understand how the market functions, position management, how to control their own emotions and to create/follow a winning strategy.

With over 8000 public traded stocks, exchange traded funds, options, bonds, commodities, futures, forex, currencies etc… to pick from its easy to get overwhelmed and just start doing more or less random trades without a proven, documented rule based strategy. This type of trading results in frustration, loss of money and the eventual closure of a trading account. During this process most individuals will also lose friends, family and in many cased self-confidence.

So the next time you think about betting against the trend to pick a top or a bottom you better make darn sure you have waited well beyond the first day you feel like the market is topping out. Stocks trading over the 150 and 20 day moving averages should be in the upper reversal zones and money should be flowing out of bonds and other safe haven/defensive stocks to fuel the last rally/surge higher in the broad market.

Also I would like to note that I do follow the index futures and volume very closely on both the intraday and daily charts. This is where the big money does a lot of trading. Knowing when futures contracts are being sold or bought with heavy volume is very important data in helping time tops and bottoms more accurately. And the more experience you have in trading also plays a large part in your success in trading tops and bottoms.

Download my FREE eBook on Controlling Your Trades, Money & Emotions:http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

The Dow rose another 48 points wednesday. Gold was up $24 per ounce wednesday, 

Nothing remarkable. Nothing illuminating, either.

The newspapers and TV channels all reported the Dow 15,000 story as though it were just a stepping-stone on the way to 16,000… or 20,000… or 30,000.

Heck, the sky’s the limit!

Investors have reached a new level of bullishness. They’re borrowing again to buy stocks, confident that prices go in only one direction.

Advisors, too, seemed sure that this was not the end of a trend, but the beginning of one. Just what you’d expect at a market top.

There’s also a swift current of economic analysis telling us that the commodities boom is over… that the Fed has the situation under control… and that the bull market in gold is finished.

All of which is amazing… and often breathtaking.

Between Improbable and Impossible

Stock market investors don’t seem to know or care that the main thing propping up their investments is the same thing that will ultimately destroy them. And that the longer the situation continues the bigger the mess will be when it finally blows up.

We’re talking, of course, about Fed, Bank of England, Bank of Japan and People’s Bank of China monetary policy. It is “experimental.” It is “bold.” It is also reckless and potentially catastrophic.

Lending money at negative real interest rates creates grotesque distortions in the market.

Savers get nothing for their trouble. In fact, they lose money in real (inflation-adjusted) terms. So they shift to speculating on stocks. The stock market goes higher… but it is not a market you can trust.

It is being driven by the printing of trillions of dollars, yen, pounds and renminbi. But central bank policy hasn’t been able to budge slumping economic fundamentals. And any attempted exit by central banks in the absence of a genuine economic recovery will be, in the words of hedge fund manager Paul Singer, “somewhere on the continuum between problematic and impossible.”

It is also unnatural for a central bank to print up new money and use it, indirectly, to pay for government operations. If you could do that without penalty – that is, if you could pay for real things with fake money – you would do it all day long.

Normally, central banks don’t even try. They know the penalties make it not worth the fleeting enjoyment.

Do you see any penalties, dear reader? We don’t.

But the fact that the penalties have not yet been assessed doesn’t mean they don’t exist. And the longer we go without paying them, the greater they will eventually be.

What’s Not to Like?

At present, the feds get only rewards.

First, lower interest rates make it easier to finance federal debt.

Second, low debt interest payments reduce the outstanding debt in real (inflation-adjusted) terms.

Third, Fed Treasury bond buying indirectly funds government spending – to the tune of about $45 billion per month.

Fourth, the lack of yields in the bond market corrals investors into stocks. This pushes stock prices higher. Rich bankers and rich campaign contributors get richer.

What’s not to like?

For the moment, nothing.

But the markets won’t stay in this “sweet spot” for long. The time will come when the Fed will have to reverse its policies or face substantially higher inflation.

But how? Instead of buying bonds, the Fed will have to sell them. But to whom?

Fortune magazine reports:

Warren Buffett has a piece of advice for Ben Bernanke: It’s easier to buy than it is to sell.

Buffett, speaking on Saturday at Berkshire Hathaway’s annual meeting in Omaha, said he is worried about what will happen when the Federal Reserve tries to wind down its recent efforts to stimulate the economy. Via a program nicknamed “QE,” short for “quantitative easing,” the Fed in recent years has bought up over $2 trillion in bonds in order to lower interest rates and promote borrowing and investment.

Some have warned that when the Fed decides to sell its trove of bonds, or even just stops adding to it, stock markets could tank. Rising interest rates could cause banks to lose billions, perhaps igniting another financial crisis. Buffett says we don’t know what will happen, but he is concerned.

“QE is like watching a good movie, because I don’t know how it will end,” says Buffett. “Anyone who owns stocks will reevaluate his hand when it happens, and that will happen very quickly”…

“People make different decisions when they can borrow for practically nothing… It’s a huge experiment.”

Charlie Munger, Buffett’s long-term chief lieutenant, who was also talking at the meeting, says he worries about more than just inflation.

“What has happened in macroeconomics has surprised pretty much everyone,” says Munger. “Given that history, economists should be more cautious when they print money in massive amounts.”

Regards,

Bill

Wall Street “Escape Plan” Saves American Retirements

Wall Street investments are dragging American investors into the poorhouse. But with this “Escape Plan,” you could start building lasting wealth today. These nine Wealth Secrets could be your ticket to financial independence. Find out how you could use these strategies to generate reliable wealth here.

Navigating the Economic Obstacles

Unresolved challenges—sequestration in the U.S., Europe’s recession, China’s extended slowdown—could affect markets in the months ahead. — see page 3

China Property Market Executive Summary

In a world of sub-par economic growth, more lies on China’s shoulders than ever before, a key reason why China’s property market has become a flash point of investor concern. — see page 7

Commodities

Following the April slump in most commodity prices, see our latest thoughts on gold, energy, industrial metals, and agricultural commodities. — see page 24

Canada Equity Market

We are cutting our recommended rating to Neutral — see page 15

For the complete report as well as Daily and Weekly Updates CLICK HERE.