Posts by The Trend Letter

Banca Monte dei Paschi Siena

Italian banks on the brink!

Over the past six months we have been warning that European banks were in big, big trouble. We have published charts such as the one below of Deutsche Bank, showing how beaten up these banks have become. Deutsche Bank’s stock is down 90% from its 2007 high, & is now at an all-time low.

db

While all European banks are in trouble, the Italian banks are the closest to collapse. Two weeks ago, we reported that Italian banks are sitting on a combined €360 billion ($401 billion) of bad debts.

According to the Wall St Journal, in Italy, “17% of banks’ loans are sour. That is nearly 10 times the level in the US, where, even at the worst of the 2008-2009 financial crisis, it was only 5%. Among publicly traded banks in the eurozone, Italian lenders account for nearly half of total bad loans.”

At the beginning of this year, European banks were already facing a host of problems, including, falling profits, a slowing global economy & negative rates, all reducing their ability to boost their profitability. This at a time when a lot of them were being encouraged to boost lending to the wider economy as well as improve their capital buffer.

Now the Brexit vote for the UK to leave the European Union (EU) has dramatically increased fears that a total European banking collapse is possible.

After the Brexit vote, the Milan Stock Exchange dropped almost 16%.

MIB

Pierpaolo Baretta, an undersecretary at the Italian Economy Ministry said “There is an epidemic, and Italy is the patient that is sickest, & if we don’t stop the epidemic, it will become everybody’s problem… The shock of Brexit has created a sense of urgency.”

Italy’s oldest & 3rd largest bank, Banca Monte dei Paschi Siena, is at the core of the problem. More than 30% of BMPS’s loans have already gone bad, & the European Central Bank has now told the bank to cut nonperforming loans by 40% over the next three years.

Yesterday, Italian regulators “temporarily” put a ban on shorting BMPS stock.

Recent changes to the EU banking rules mean that depositors, rather than taxpayers, have to bear the brunt of any bailout. This would be a political disaster for Prime Minister Renzi, as Italian households hold about 29 billion ($32.17 billion) worth of bank-issued bonds that are subject to being written down or converted into equity in case those banks need to be rescued, according to an April report from the Bank of Italy.

Looks like Italy may be the next domino to fall.

Stay tuned!

Brexit

Post Brexit Market Update – Day 2

The global markets continued to get hit as investors struggle to grasp the potential impact of the UK leaving the European Union (EU).

1. After dropping 8.88% on Friday, the British Pound dropped another 3.37% today. That’s a drop of 12.25% in two days.

BP

2. The Euro declined 2.87% on Friday, and lost another .70% today.

Euro

3. The US Dollar gained 2.19% on Friday, and another 1.07% today.

usd

4. The Japanese Yen gained 4.38% on Friday, and moved up another .24% today.

Yen

We also saw big reactions in the global stock markets, especially in the European banks.

5. On Friday we reported how Barclays lost a whopping 20.48% on Friday. Today, it lost another 20.92%.

bcs

6. The London FTSE dropped 3.15% on Friday, and a further 2.55% drop today.

FTSE

7. The big loser on Friday was Spain’s IBEX as investors were concerned that the socialist PSOE party would take power in Sunday’s election. On Friday, the IBEX lost a huge 12.35%. Given that the PSOE did not gain power, the IBEX had a much milder drop today, down 1.83%.

IBEX

8. On Friday, the Japanese Nikkei was hit hard, dropping 7.92%. Today, the Nikkei recovered 2.39%.

 nikk2

9. In North America, the S&P 500 lost 3.59% on Friday, and today it dropped another 1.81%.  On Friday, we highlighted how the S&P had closed right at its 300-Day Moving Average (blue line), which for much of this year had acted as a strong Support level (green arrows). As we can see on the following chart, today that level failed to hold. The next key level of support is the Near-term Support at 1978-1998 (green shaded area).

spx

10. On Friday, the Canadian TSX index was one of the least affected, as it has a large gold component to it. On Friday, the TSX closed down 1.70%, today it was down another 1.45%.

TSX

11. Gold had a huge day on Friday, closing up 59.80 for the day, & at its highest level in two years. Today, gold gained another 8.50. As highlighted over the past two months, 1365 is a key monthly level for gold.

gold

12.After dropping 2.56 on Friday, Oil was down another .98 today.

gold

Tomorrow will be the 3rd day since the Brexit vote, and the market tends to move on from bad news after 2 or 3 days, so watch for a bounce tomorrow mid session.

We keep reading and hearing in the mass media how Brexit was political, and all about the UK. Make no mistake, this is not about politics, and everything to do with the lack of accountability in government. It is about the end of the ‘age of entitlement’, and beginning of the ‘age of consequences.’

Watch for the $US to gain strength over the next year, likely to levels that will shock the masses

Stay tuned!

Brexit

Brexit Wins, Cameron Resigns, Markets Panic

The U.K. voted to quit the European Union after more than four decades in a stunning rejection of the continent’s postwar political & economic order, prompting Prime Minister David Cameron to resign and sending shock waves around global markets.

We have warned for over two years now that 2016 would be the start of a major Trend Change, where the masses finally figure out that those in power are only looking out for themselves. We have highlighted that as Western economies start to crash, the people will finally lose confidence in the governments, & realize that those in power have no idea how to fix the massive global debt problems they created.

The first domino has fallen, & the markets are overreacting: The British Pound is down 15.33 cents to a 30 year low, Gold is up 69.00, the FTSE is down 229.00,  the DAX down 680, S&P 500 futures down 72.00, the Euro down 3.48, Oil down 2.59, & Gold up 71.00.

The curtain has been pulled back to reveal the side of the EU that they do not want anyone to see:- an undemocratic, self-serving bureaucracy, that is full of perks, and utter waste, operating with a complete lack of accountability. Despite all the rhetoric from other European leaders, other dominoes will fall.

The UK vote to leave the EU is a major statement, & will kick start the global loss of confidence in government.

The initial market reaction is a panic move, & not a breakout (as in gold), or a break down (equities). These moves will be overblown, & we will likely see a directional change very soon, which will present some good buying opportunities. Stay tuned!

Headlines

Headlines

  • Brexit voters wade through torrential rain storm to cast ballots. Read story
  • Stocks jump as havens slide after release of latest EU poll. Read story
  • Plot to rig Brexit vote? Read story
  • Tesla shares hit hard after offer to buy SolarCity. Read story
  • If Briton elects Brexit, changes will come slowly. Read story 
  • Brexit already has a winner:The gambling industry. Read story
  • Possible names for EU exits for all EU members. Read story
  • China added 144,000 millionaires in 2015. Read story
  • As expanded Panama Canal opens, New York isn’t ready. Read story
  • US new homes sales drop from eight-year high. Read story
  • China brushes off doubts over support on South China Sea, says it is growing. Read story
  • Virgin Atlantic is using new behavioral science research to teach pilots to save fuel. Read story
  • Putin courts Xi. Read story
  • Heroine use at 20-year high: in US drug ‘epidemic’, says UN. Read story
  • California exodus increases as taxes, costs skyrocket. Read story
  • On the lighter side. Check it out!
Market update

Market Update 06/14/16

We are receiving a lot of email from some very nervous investors. Many are confused with what is happening, & there is clearly fear ramping up. Below is a chart of the VIX Volatility Index. VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets. As we can see on the chart, the VIX has jumped over 50% in the past week, moving out of the ‘complacent’ range.

Vix0614

Understand that the global crisis that our models warned about almost three years ago is starting. There are going to be big volatile moves up & down, as capital starts to move out of ‘perceived’ risky sectors, & into ‘perceived’ safer sectors. Our first priority always, is to preserve our capital. There are going to be a lot of false moves, & unfortunately many investors will get caught on the wrong side of the trade.

The masses are starting to wake up to the fact that there are major changes coming. Right now the focus is on Brexit, & the now very real possibility that the UK could leave the European Union (EU). But as we noted in yesterday’s Musings, Brexit is just the first big challenge to the status quo, there are many more coming. 

The US election is between Donald Trump & Hilary Clinton, the two most unfavorable candidates in history according to a CBS/NY Times poll. In that election, we have one candidate who represents change, but is seen as racist, & extreme; while the other is a career politician with ties to Wall St, & is under investigation for using her State Department position to solicit donors in exchange for influence on foreign policy. It would be hard to imagine that this campaign doesn’t turn out to be the most hostile campaign ever.

Then in 2017, we have the elections in Germany & France, where anti-EU parties are gaining popularity daily.

For now Brexit has the market’s focus, & we are seeing huge reactions.

1. German 10-year gov’t bond yield drops to negative for the first time ever…currently at .004%. This is all part of the rush to the ‘perceived’ safety of government bonds as Brexit  spooks the markets.

German 10 year

2. British Pound is taking a beating.

Pound

3. Japanese Yen, even with its negative rates is catching a ‘safe haven’ bid, & is now at its highest level since October’14.

Yen0614

4. The Euro is declining. Note that the Euro actually rallied as the Pound initially got hit. This action may continue as investors want out of the Pound, but are not sure what currency to move to. This move of capital from the Pound to the Euro may happen again if the Brexit vote goes LEAVE. We are long-term bearish the Euro, & advise to move to the $US, as it will be the strongest currency long-term.

euro0614

5. The US dollar started to rally after investors decided that the Pound to Euro didn’t make sense, so they moved to the Yen & $US. As the national debt problems come back to center stage, we will see Europe & Japan collapse before the US. Every country is in serious debt trouble, but Europe & Japan will collapse before the US, it is all about timing.

USD0614

6. Gold caught a ‘safe haven’ bid from Brexit, after just dropping below our Near-term Support level at 1203. These Support & Resistance levels have proven to be very resilient to date, with gold not breaking through either. We started to see gold & the $US move in unison recently, which is a trend we expect to see later when all hell breaks loose.

gold0614

7. The S&P 500, & virtually every global market is pulling back on the uncertainty of what a Brexit would look like. This is a temporary, sympathy move for the S&P 500, as ultimately, it will be a destination for much of the global capital that will be seeking safety & return. While government bonds are paying minuscule, & even negative,  returns, the S&P 500 pays over 2%.

For the S&P 500 the key numbers are:

  • 2140 (blue line) is the 300 Moving Avg & acts as Near-term Support. A break below this levels then opens the door to test Key Support
  • 1978-1998 is Key Support. If this level is breached, then we could test Major Support at 1020-1040
  • 2100 is Near-term Resistance
  • 2140 is Key Resistance. If the S&P 500 can push through 2140, we could be on the way to 2500

A Brexit LEAVE vote will delay any move toward 2500. A REMAIN vote could see the S&P 500 push through 2140, but retreat as we get closer to the US election as it promises to be a nasty campaign, & will feed the disdain that the masses feel for politicians, & the economy in general. 

s&P0614

Our models have accurately forecasted each major trend change over the past 15 years, & the forecast of a coming global crisis starting in 2016 looks to be bang on. We are in a solid cash position currently, giving us lots of ammunition to strike when we get the next BUY or SELL signal.

Stay tuned!

 

Brexitlogo

Brexit – the beginning, not the end of change

Over two years ago we warned that beginning in late 2015, we would start to see a major global Trend Change, where the masses would rise up & reject the political status quo. We further warned that at the core of the uprising would be the financial mismanagement & corruption of the political elites. When we made these forecasts, we did not know what the first domino to fall would be, but we did say that once that first domino falls, we would see global contagion.

On June 23rd, the people of the United Kingdom will vote on whether or not to leave the 28 member European Union (EU). In the latest poll from the Guardian earlier today, the LEAVE camp is ahead 52% to 48%.

According the the Pew Research Center’s latest survey, the British are going to the polls at a time when ‘Euroskepticism’ is on the rise across Europe, & that about two-thirds of both the British & the Greeks, along with significant minorities in other key nations, want some powers returned from Brussels to national governments. Below is the chart showing the declining view of the EU.

EU Survey

One of the keys to the Brexit vote is that should the Brits decide to LEAVE, it would open the floodgates with other EU countries looking to have their own referendum. For those who are not familiar with what a bureaucratic, undemocratic,& corrupt, organization the EU is, check out Brexit: The Movie.

You just know that these non-elected EU political elites must be in utter panic right now. Their empire may be on the verge of collapsing, as a LEAVE vote for the UK  would send a shock-wave of reality through Europe. The reality that those in power are now realizing is that they will have to radically reinvent the EU, or actually dissolve it.

The Euro currency is also in serious trouble. The whole concept of 19 countries sharing a common currency, but not a common debt, simply does not work.

But it is not just the UK or Europe that is seeing dramatic revolt from the masses, it will spread globally. We have just spent the past four decades living in an ‘age of entitlement’, with government offering handouts every election, treating its voters like heroin addicts, just give them more stuff, & they will be happy. It didn’t matter which party, they all did the same thing. The problem was they didn’t have the money to pay for all these freebies, & now its the day of reckoning.

France has not had a balanced budget since 1974, 42 years ago! For 42 years, they have spent more money than they took in, even though they kept raising taxes almost every year.

Francebudget

This ‘age of entitlement’ is ending, & now we are entering the ‘age of consequences.’ After decades of spending like drunken sailors, virtually every government is broke. The only way they have survived has been by issuing more & more debt, every year. 

It used to be that if you lent the government money, they paid you a nice yield each year until the bond matured. Today, we live in a world of negative yields, meaning that instead of the government paying you to lend them money, you actually have to pay them to take your money. 

In Switzerland the yield on their Gov’t 10-year bond is -0.85%. That means if you were to buy 500,000 (SF) worth of Swiss gov’t bonds, you would have to pay them 4,250 (SF) per year for the privilege of giving them your money. Over the 5-year term, you would have paid a total of 21,250 (SF) to lend the government your 500,000 (SF).

We are now at the stage where the masses say ‘enough.’ Seniors & pension funds all over the globe are in serious trouble because in this zero (or even negative ) rate world, they cannot make any yield on their money. As we enter this ‘age of consequences’, the curtain gets pulled back to reveal that governments have borrowed much more money than can ever be paid back.

In the US so far, the following cities have filed for bankruptcy:

— City of Hillview, Ky.
— City of Detroit, Mich.
— City of San Bernardino, Calif.
— Town of Mammoth Lakes, Calf.
— City of Stockton, Calif.
— Jefferson County, Ala.
— City of Harrisburg, Pa.
— City of Central Falls, R.I.
— Boise County, Idaho 

Over half of the US states are technically broke, but unlike cities & municipalities, they cannot declare bankruptcy. And then there are the countries. Following is a map from howmuch.net that compares the debt-to-GDP ratios of the world’s most representative economies. The size of each country on the map represents the level of debt — a larger size means a higher debt-to-GDP ratio. Also included is a color coding to illustrate the GDP growth rates of each country: red countries have negative growth rates (-5% to 0%), and green countries have very high growth rates of more than 5%.

globaldebtmap

Most countries have issued far more debt than can ever be paid off. Why should you care? Because the coming massive Trend Change is going to affect every aspect of your financial life. We are talking about a Trend Change that is going to affect your domestic currency, bonds, stocks, real estate, even food costs. You need to be ready.

The status quo is starting to crumble, we are about to embark on a new normal. Unfunded social programs either have to be cut back, or taxes raised to fund them. Many were shocked by the rise in popularity of Donald Trump & Bernie Sanders. These two & many others world wide represent a form of change. Yes Donald Trump says some pretty bizarre things, but the more different he can be from the career politician (Clinton), the more many of the masses eat it up.

The people want change. They are tired of the same old promises never delivered. Hilary Clinton represents the old guard. Sure, she would be the first woman president, but she does not represent any political change. Extreme movements all over the globe are forming. The further away from the status quo, the more popular they seem to be. This is real!

So what does this mean for investors? We are in a zero % interest rate world, & we are seeing political reform happening everywhere. We  will soon see the first of many Sovereign Debt Defaults. Up to now, when investors get scared, they move their capital out of perceived risky assets, into perceived safer investments. But what happens when it is government that is seen to be the problem?

When we start to see governments default on their debt, just like we saw in Puerto Rico, investors get nervous. When we see the second, then third & fourth country default, investors will look around & ask ‘who’s next?’ When investors start to lose confidence in government’s ability to service its debt, capital will flow out of those bonds, &into the safety of blue chip equity stocks. 

The mass media is perplexed that the S&P 500 has not crashed. They do not understand that the smart money has been moving their capital out of Russia, Europe, Japan, & China into the US equities, real estate, collectables, & other assets.

The S&P 500 briefly broke through its downtrend channel, then retreated on Brexit concerns. If we get a LEAVE vote, then we should see a sympathetic correction in global markets due to the uncertainty.  If that were to happen, it will set up as a great buying opportunity. That’s right….while the masses are loading up on short positions, we will soon be looking for a great buying opportunity.

spx0613

Stay tuned!

Holder

Former US Attorney General says Edward Snowden did a ‘public service’

From the Independent…

A former top government law official has said that NSA whistle blower Edward Snowden performed a “public service” by triggering a debate over surveillance techniques.

Yet Eric Holder, a former US Attorney General said he believed Mr Snowden should still be punished for leaking classified intelligence information that he claimed threatened US national security.

“We can certainly argue about the way in which Snowden did what he did, but I think that he actually performed a public service by raising the debate that we engaged in and by the changes that we made,” Mr Holder told David Axelrod on a podcast produced by CNN and the University of Chicago Institute of Politics.

“Now I would say that doing what he did, and the way he did it, was inappropriate and illegal. He harmed American interests.”

Mr Holder, who led the Justice Department between 2009 to 2015 when Mr Snowden leaked the information to several newspapers, said he knew of several ways in which the US was damaged. Mr Snowden and the newspapers that published his leaks in 2013 onwards, have always denied this.

“I know there are ways in which certain of our agents were put at risk, relationships with other countries were harmed, our ability to keep the American people safe was compromised,” he said.

“There were all kinds of re-dos that had to be put in place as a result of what he did, and while those things were being done we were blind in certain really critical areas. So what he did was not without consequence.”

Mr Snowden, who has spent the last few years in exile in Russia, should return to the US to deal with the consequences, Mr Holder claimed.

“I think that he’s got to make a decision. He’s broken the law in my view. He needs to get lawyers, come on back, and decide, see what he wants to do,” he said.

“But, I think in deciding what an appropriate sentence should be, I think a judge could take into account the usefulness of having had that national debate.”

Read complete story, & Snowden’s reaction

brexit

Brexit: The Movie

The fear-mongering and outright bs over what a UK exit from the EU would mean, has reached such a level that the pro-EU side is now claiming that if the British leave the EU, they would risk getting cancer.

Brexit_cancer

To counter all of the pro-EU propaganda, documentary maker Martin Durkin created Brexit: The Movie, which makes a total mockery of claims the 28-member bloc is still “democratic”.

We have warned for two years now that 2016 would be the start of a major Trend Change, where the masses finally figure out that those in power are only looking out for themselves. We have highlighted that as Western economies start to crash, the people will finally lose confidence in the governments, and realize that those in power have no idea how to fix the massive global debt problems they created.

This movie pulls the curtain back to reveal the side of the EU that they do not want anyone to see:- an undemocratic, self-serving bureaucracy, that is full of perks, and utter waste, operating with a complete lack of accountability.

A UK vote to leave the EU would certainly be a major statement, and would kick start the global loss of confidence in government. You can view the movie below

storm

Tide change, or a storm warning?

Investment trends are a lot like tides, generally quite predictable for those who know what to look for.  The average person may look out to the sea, and notice ripples and waves, but have no clear idea as to whether the tide is coming in or going out.

Waves and tides are predictable when you have all the data – – wind speed, wind duration, wind fetch, storm formations, earthquakes, phase of the moon … all contributing to changes in water level and water movement.

Tides are mostly driven by the gravitational pull of the moon and the sun, however, financial markets are driven by the flow of global capital. Right now, markets are very choppy, with many external forces such as central banks, and governments, trying to influence the trends.

Think of these external forces as gusts of wind that may cause a particular wave on an outgoing tide to exceed the previous high water mark; external forces can make markets appear to be changing direction, much like a wind gust can affect the size and force of a wave hitting the beach.

Over the past 15 years, our models have accurately forecast every major trend change, including the rise in gold in 2002, the uranium bull market in 2003, the US real estate crash in 2005, the stock market crash in 2008, and the top in gold in 2011. They also highlighted the bottom in the $US, and the top in the Euro in 2014.

In each case, our models gave initial warnings up to a year in advance. Of all the forecasts of financial storms on the horizon, none of them compare in severity to what we are seeing ahead with the coming Sovereign Debt Crisis.

Two year ago, our models warned that starting the 4th quarter of 2015, we would begin the next cycle, which would result in a massive global debt default, similar, but even greater, to what happened during the Great Depression. When we first issued that warning, we did not know what the  exact impetus of this change would be, however we suspected it would be a loss of confidence in government.

We are now past Qtr 4 2015, and it appears that the final straw was the introduction of negative interest rates.  Central bankers have  kept interest rates low, in a futile attempt to boost the economy. It didn’t work, and even worse, it is destroying the savings of the elderly, and ii is crushing pension funds.

Einstein defined insanity as “doing the same thing over and over again, expecting different results“. After seven years of keeping interest rates near 0%, & seeing no positive result, central bankers now decided to push rates into negative territory. For some reason, they think that this will now inflate the economy, seemingly having no understanding that with rates going negative (meaning it will cost you to leave your money in the bank), the masses will hoard cash.

Negative rates may be the big wave that finally tips the global economic ship, and will be the driver that wakes the masses up to the fact that those in charge really have no idea of what they are doing. The masses are now starting to realize that real change is required to lift us out of the massive debt hole that decades of the ‘entitlement’ age have produced.  It is why Trump and Sanders are gaining popularity … they represent change.

The turbulence that we have seen since Qtr 4 2015 will continue. Our models are giving extreme warnings that we are now in the first phase of a dramatic financial storm that will shake the global economy to the core. Those who understand what is happening will not only protect their wealth, they will actually profit greatly. Those who do not understand what is coming will be crushed by the economic storm that has now begun.

Stay tuned!