Bear Market


USDJPY Threat of a Bullish Break from the Range

March 31, 2014 by · Leave a Comment 

By Michael Trinkle, ForexTraders

USDJPY Upside Risk to 103.40/45; Bull Shift Seen Through 103.70

  • As expected a still better effort on Monday having stated in our last report that “we now see a constructive bias with early April skewed risk for a push above 103.00/05 and maybe a test to 103.70”.
  • The strong rally last week from ahead of key supports at 101.20 above bullish failure peaks at 102.70 sees risk of a still more bullish shift into early April.
  • We still see the broader Feb-March non-trend theme as dominant, simply defined by 101.20 and 103.70, but with threat for a bull breakout.
  • WHAT CHANGES THIS?
  • Upside: Above 103.70 signals a bull shift for 104.85/90 maybe 105.35/45 highs.
  • Downside: Below 101.20 re-energizes bear forces through 100.75/60 chart/ retrace/ 200-DMA supports.

Please see full report with levels and latest audio-visual analysis here: http://members.marketchartist.com/Daily/USDJPY.pdf

 Daily USDJPY

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The Dark at the End of the Investing for Retirement Tunnel

March 31, 2014 by · Leave a Comment 

The Daily Reckoning

You’re probably aware that Port Phillip Publishing has unleashed World War D in Melbourne. And as the first day of this two day event draws to a close, we can say for certain that our marketing team was not exaggerating.

This really IS the biggest investment conference in Australia of the decade.

With so much going on and so many remarkable presenters, your regular Daily Reckoning editors were overwhelmed enough to enlist their managing editor to help cover the event.

It was our luck to pull our good pal Nick Hubble from the hat. Well not literally. Nick’s not a big guy, but he’d hardly fit in a hat. We did get to cover his speech though, and that was huge.

You’re not going to like what he said on the subject of retirement and superannuation. But that’s okay. No one in the packed conference room liked it much either. Not that he didn’t say it well. Or that his conclusions don’t sound frighteningly plausible. It’s just one of those ‘no one likes the bearer of bad news’ things. Fortunately this is Australia, not the US, and nobody shot the messenger.

To Nick this stuff is obvious. But we had to wrack our brains to get our head around it. And when we did came to see the light at the end of the tunnel — or the dark at the end of the tunnel — we almost wished we hadn’t.

Let us explain.

Nick prepared the audience by warning this could be the most bearish investment presentation anyone had ever given. He then surprised us, not once, but twice.

First he changed the name of the conference, as he sees it. ‘The World War D you really need to worry about is not World War Digital. It’s World War Demographic.

Then he changed the subject of his speech, leaving us scratching our heads and staring a bit myopically at our glossy conference programs. It seemed we would not be enlightened on ‘opium and gunboat diplomacy’ after all.

It turns out Nick had a rather jarring epiphany recently. Jarring enough for him to drop his apple into his coffee, a trend that’s yet to catch on with the rest of the office.

With a slide of the apple floating in the coffee projected behind him, Nick dropped the following bombshell: ‘The modern western welfare system is based on saving and investing for retirement. The idea is you accumulate investments that you then sell during retirement instead of scrounging off the government. After all, we have an ageing population. There won’t be enough taxpayers to support the pension.

But let me ask you, if the government run welfare system is unsustainable because of demographics, why would the investing welfare system be sustainable? In the end, the cash for both comes from the same place — younger taxpayers are the same people as younger investors.

The buyers you expect to turn up in the stock market, property market, small business market and other asset markets during your retirement will not be there for one simple reason: You never conceived enough of them!

Researching material for his The Money for Life Letter, Nick studied the population pyramids of developing and developed countries across the world, including Australia. These ‘demographic charts’ go from youngest at the base to oldest at the top. Historically they’ve been shaped as their name implies, like pyramids, with many younger people working to support a smaller number of older people at the tip of the pyramid. Because of this there has always been enough demand from the younger generations to buy the investments that the older generation are selling to fund their retirement.

But due to declining birth rates most population pyramids are getting top heavy, a fact Nick attributes to the rapid growth of prophylactics. To illustrate, and likely to lighten the punch he was delivering, Nick showed another slide.

Population pyramids in many countries are no longer shaped like pyramids. If you look at this one… it looks like the tip of a prophylactic… I only point that out because it is brilliantly ironic that population pyramids are now shaped like a condom because of condoms.

The critical issue Nick mentioned here is that number of young people no longer dwarf the number of old people. And this is especially true for the baby boomer generation. And Nick points out that asset prices can fall even as earnings rise, not boding well for your retirement plans.

If you’re like us, you’ve been taught that investing money will, over time, make you wealthier. And today’s Australian baby boomers have accumulated the greatest trove of wealth in the country’s history. But what, Nick asked the crowd, What‘f, when you retire, nobody is willing to buy your investments at a price anywhere near what you expect? If you want to sell your investments for a profit, you have to find someone who is willing to buy the same asset at a higher price. Cynics call this person the ‘greater fool’.

Sharing that he was 24 years of age – making us feel decidedly old – Nick proclaimed he would not serve as anyone’s greater fool. He also took a moment to apologise to his father, sitting in the audience, for planning to ruin his retirement.

As an example of what happens when population pyramids get top heavy, Nick put the spotlight on Japan, the only country to experience a demographic crisis like the one now facing the rest of the western world.

In Japan, a demographic bulge reached the peak of their saving and investing phase in 1990. But after 1990 the bulge of investment buyers turned sellers. And, for the first time ever, they were selling to a group of buyers smaller in number than themselves. Supply overwhelmed demand. The result was the famous tumble in the stock market. Even with an impressive rally recently, the Japanese stock market is still nowhere near it’s all time high.

Of course Nick had much more to say. He looked at Ponzi Schemes of the past, international demographics, and different variables which could affect the impact of an ageing population on the supply and demand for your investment assets.

Prices could plunge much faster than declining demographics. That’s why you can’t wait for the crisis to come around. The selloff could be sudden and severe,’ Nick warned.

Nick offered his insight and best investment advice on how best to position yourself in this ageing nation. He addressed the advice to his dad, so as not to offend anyone (else) in the audience.

We won’t share everything he said here, but we will say that to protect yourself from the coming crisis, Nick told the audience they needed to make the most of ‘first mover advantage’.

If you’d like to hear Nick’s entire speech with all his advice and conclusions, we brought in a professional film crew to record the two day WWD conference. You can order that here.

Well that’s all from us today. It sounds like the delegate wine tasting has commenced. And we don’t want to miss that.

Regards,

Bernd Struben
Managing Editor, The Daily Reckoning

From the Archives…

Check on Your Chinese Neighbour
21-03-2014 – Nick Hubble

Join The Daily Reckoning on Google+

More articles from The Daily Reckoning….

How the US Economy Changed the Nature of Money

March 31, 2014 by · Leave a Comment 

The Daily Reckoning

The Occupy Wall Street movement and most of academia love to wail about the evils of capitalism. Economist Richard Duncan reckons it’s a bit late for that. About 100 years too late.

Capitalism died a grisly death in 1914 and 1939. What makes Duncan’s take unique is how he sees its replacement. It’s called ‘Creditism’.

But first, how did Capitalism fall? It fell when America entered into the two World Wars. The government intervened heavily in the US economy to mobilise and fund the war effort. Like all of the government’s temporary measures, they turned out to be permanent. The US economy never returned to normal. Ever since, war and Capitalism’s replacement seem to be inextricably linked.

Creditism is all about keeping the amount of credit growing, explained Richard Duncan. That’s because credit growth looks a lot like GDP growth, wealth and prosperity. At least while it’s growing fast enough. If you can maintain this growth, the faux economy is surprisingly real.

Under Capitalism, the economic growth was driven by investment and savings. More specifically, savings funded investments which were invested in productive assets. Yes, that is as slow and tedious as it sounds. Today, the US economy is driven by credit creation and consumption. Credit comes out of thin air and finances consumption. But that’s a temporary measure at best. And it creates a dangerous amount of instability.

The first experiment with Creditism Duncan covered was the roaring 20s, after the end of the First World War. After the wars, household credit growth took over from the government’s war spending. But the credit boom that gave us the roaring 20s left us with the first type of hangover we’ve seen periodically since. The hangover when debt stopped growing is now known as the Great Depression.

Skipping a few episodes in between, if you compare the experience of the 20s and 30s to today, Duncan pointed out it follows the script nicely:

THE GREAT DEPRESSION

  1. Gold Standard Breaks Down (1914).
  2. Credit Boom: The Roaring 20s
  3. Boom Leads to Bust When the Credit Can’t Be Repaid.
  4. Banking Collapse.
  5. International Trade Collapses.

THE NEW DEPRESSION

  1. Bretton Woods Breaks Down (1971).
  2. Credit Boom: Global Economic Bubble.
  3. Boom Leads to Bust When the Credit Can’t Be Repaid.
  4. Banking Collapse.
  5. International Trade Collapses

There are some key differences too. For example, Duncan argues that this famous quote from Austrian Economist Ludwig von Mises is no longer entirely correct.

There is no means of avoiding the final collapse of a boom brought about by credit expansion.  The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
Ludwig von Mises, 1949

Because we now live in a world of fiat currencies, the collapse brought about by credit expansion can be delayed almost indefinitely. Almost.

The problem with delaying the inevitable is that it gets worse when it does happen. When credit growth does slow, the collapse could be severe:

  • Most of the world’s banks would fail, destroying most of the world’s savings.
  • The Economy would implode. GDP contracted 46% during the Great Depression.
  • Unemployment would skyrocket (25% during the 1930s).
  • Trade barriers would go up. Globalisation would collapse.
  • The developed nations could no longer afford welfare.
  • The US could not maintain its global military dominance.
  • China’s economy would implode.
  • Widespread starvation, world chaos and war.

Yikes.

The most interesting part of Duncan’s ideas is that he’s put a number on his predictions. Credit must keep growing at 2% in real terms to prevent collapse in the US economy. That’s about $2.4 trillion adjusted for inflation at 2%.

Where did Duncan get his 2% from? Well, historically, every time credit growth fell below this level, a recession followed.

So who can borrow that much money to keep credit growing? The US government’s deficit is falling. And the private sector isn’t filling the gap sufficiently.

Duncan’s hypothesis is that the US government will ramp up fiscal and monetary stimulus at the slightest sign of trouble… indefinitely. There is plenty of room to do both. The world is going through deflation from technology and globalisation, and Japan has shown how US debt to GDP could double or more.

So how do you invest? Well, for now you can’t fight Creditism. It could last far too long. But be ready for when it ends.

Regards,

Nick Hubble+
for The Daily Reckoning Australia

From the Archives…

Check on Your Chinese Neighbour
21-03-2014 – Nick Hubble

Join The Daily Reckoning on Google+

More articles from The Daily Reckoning….

Data Paranoia Watch: ACA Edition

March 31, 2014 by · Leave a Comment 

Senator Barraso (Republican-Wyoming) follows in the fine tradition of Allen West in charging a conspiracy so vast…

From FoxNews, Barraso describes the Administration’s statement on enrollments [1] thusly:

“I don’t think it means anything,” he told Fox News Sunday. “They are cooking the books on this.”

The Administration’s estimates are depicted in this figure

ACA_enroll

Figure from Andrews, Park and Tse, “Ten Key Questions on Health Care Enrollment,” NY Times (27 March 2014).

The tabulation by Charles Gaba at ACASignup.net estimates 6.9 million enrollees by March 31 (h/t Paul Krugman).

See also Paul Krugman‘s discussion of the strange failure of the media to highlight the achievement of the “target”. Nonetheless, while we are likely well on the way to exceeding the 6 million target, there are several targets that we do not yet know whether we have hit [3] (although I am not sure that it is required that actual 40% youth enrollment is necessary for viability).

Several observers have raised the issue of paid vs. unpaid enrollments; Secretary Sebelius has indicated 80-85% of enrollments are paid. ACASignups provides an estimate at 85%, as well.

For a broader measurement of coverage under all aspects of the ACA, see this graph:

aca_chart_140330b (1)

Figure 2:from ACASignups.

For other examples of data paranoia, see here and here.

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Global banks issue alerts on China carry trade as Fed tightens and yuan falls

March 31, 2014 by · Leave a Comment 

“Citigroup tells clients to brace for second phase of the “taper tantrum” that rocked emerging markets last year, but this time with China at the eye of the storm”

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Commodities become the best performing asset in Q1 2014

March 31, 2014 by · Leave a Comment 

Strength was concentrated on agricultural and livestock sectors while energy and industrial metals sectors suffered losses in the first three months of this year.

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Turk: Gold Could Rise Over 100% In One Year

March 31, 2014 by · Leave a Comment 

“If you look at Turk’s astonishing chart above, it reveals that gold and the S&P 500 have essentially tracked the increase in the Fed’s balance sheet over a period of many years.  This remained the case until Western central planners made the decision to intervene in and manipulate the gold market in a much more aggressive manner.  As the chart above clearly illustrates, what they have done to the price of gold is totally unsustainable, but it is breathtaking to look at the distortion in the very short-run.”

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Brochure: RANA Refuge One Air Centre for Powered Oxygen Supply

March 31, 2014 by · Leave a Comment 

RANA’s Refuge One Air Centre provides and maintains a source of breathable air during an underground mine emergency. Refuge One units may be used in a stationary refuge chamber or in a mobile chamber, such as the Tommyknocker. Download the free produ…

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Equatorial Resources secures mining licence for Congo iron project

March 31, 2014 by · Leave a Comment 

The Republic of Congo (ROC) Government has awarded Equatorial Resources a mining licence for the Mayoko-Moussondji iron project.

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Whitehaven Coal’s Maules Creek project still faces protests

March 31, 2014 by · Leave a Comment 

More than 80 people have protested against Whitehaven Coal’s new $767m Maules Creek coal project in New South Wales (NSW), following the Federal Court’s approval.

Read more….

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