Posts by The Trend Letter

US_debt

How to survive the coming crisis

We are getting many questions from readers on how do we as individuals survive this coming period of incredible change. It used to be that people would work hard, save their money, and then when they retire, they could live off their savings. Today, seniors can no longer simply live off their savings, with record low interest rates, and now even negative rates being implemented, there is no yield to fund their retirement.

Many semi, and unskilled workers face a very challenging future with the incredible technological gains being incorporated in virtually every industry. While these changes are already underway, they are just beginning.

But of all the changes coming, there is one underlying trend that is already starting to drive the financial markets and create social unrest. This will reshape everything… our investments, our currency,  and what rights and freedoms we retain. Long before Donald Trump’s name was on the political landscape, we had warned that the loss of confidence in government would be the impetus for a dramatic Trend Change, starting in late 2015, going into 2020

We are now seeing social unrest spread through Europe, as the immigration crisis seems to have been the final straw, as the people have had it with the politicians and bureaucrats who have lined their own pockets, while bankrupting the country with their corruption and fiscal mismanagement.

Whether you approve of Donald Trump of not, he understands, and is exploiting the anger that is building up in the masses. The people have started to pull back the curtain, and realize that all politicians are the same, they are all part of a system that no longer meets the needs of the people.

The mainstream politicians and media laughed when Trump first announced he was running. Now they are doing everything they can to keep him from winning the Republican nomination. But they just don’t get that the reason Trump is so popular is that he represents change, he is the polar opposite of a mainstream politician.

The people want change, real change, not the change every politician promises during elections. They want changes where a government manages the budget so that the future is not compromised for the benefit of a few.

We are in the midst of an economic decline. Throughout the West, other than the very rich, the  standard of living is declining as no matter what party is in power, government expands, handing out ”entitlements’ when there is no money to pay for them.

There are a number of key votes coming. First, we will have the UK referendum on whether or not they leave the European Union (Brexit). Then we have the US election at the end of this year, where Donald Trump could actually be the next US President. In 2017, both Germany and France hold their elections where both Hollande and Merkel will be under immense pressure.

As we predicted over two years ago, Europe is falling apart. European countries have deep, rich, and varying cultures, and the concept that 19 countries with vastly different cultures, could co-exist, sharing a single currency , but not the debt, was doomed from the beginning. It puts countries with under-performing economies at the mercy of those with robust economic performance.

As this crisis in government gains momentum, we are seeing the smart money leave the perceived area of risk, and move to perceived areas of safety. We live in Vancouver where real estate prices are rising dramatically, as buyers from Asia, Europe, and the Middle East are scooping up high end real estate here, as a safe place to park their money,

This is a key that every investor needs to understand; when there is trouble in one area, capital flows to perceived safety. European and Asian capital has poured into US Treasuries, not for the meager return, but for the perceived safety of US government bonds.

People keep calling for the demise of the US dollar due to the massive US debt, but they fail to realize that the $US is the world reserve currency, and the largest currency pool in the world. In times of trouble, smart money wants to own ‘stuff’, and for cash, they want to be in the most widely traded currency, and that’s the $US.

As this global economic crisis unfolds, we will see Europe under tremendous stress, Our models forecast that the Euro may not survive. Think about that. If you are a European, you really need to think about what would happen if the Euro collapses.

Five year German bonds are yielding -.25%. Why would anyone pay the German government to take their cash? – because they feel that if the Euro collapses, Germany will survive, while many other countries won’t.

Two years ago we forecasted that Europe will see the first Sovereign Debt Default, likely late 2016, or early 2017. Whether it starts in Greece, Hungary, Poland or wherever, it doesn’t matter, because there will be many more defaults.

When we predicted Europe’s demise, we did not know what would be the trigger. We knew that the sense of ‘entitlement’, the corruption, the fiscal mismanagement, and massive unemployment were all going to bring the matter to a head, but it may be that the mishandling of the migrant crisis will be the final nail in the coffin for Europe.

Big government is the problem, not the solution, and the masses are starting to figure it out. As investors, we need to understand that as these social and fiscal problems bubble up and finally implode, capital will flow out of the trouble areas, into areas of safety.

Europe will be the first area hit, but the massive debt crisis will not be confined to Europe, it will spread globally, moving to Japan, and ultimately hitting the largest economy in the world, the US.

If you want to survive this coming global Sovereign Debt Crisis, you need to follow the global flow of capital. A Sovereign Debt Default occurs when a country can no longer meet its debt obligations. It doesn’t mean the country defaults 100%, rather that it must “restructure” its debt, meaning a hair cut, and massive losses for bond holders.

Be clear here, the volatility is going to ramp up, and go off the charts. Social unrest and violence in Europe has been very under reported by the mass media. Each investor needs to get their head out of the sand, and pay attention to what is going on. We will continue to keep our general audience updated in these Musings articles, and will be keeping our subscribers to The Trend Letter & Trend Technical Trader services apprised of where we will be investing our money, to not just survive this coming crisis, but to prosper from it.

Typically, in times of uncertainty and trouble, capital flows out of private investments (stocks), and into public investments (gov’t bonds). But what happens when the problem lies in government? When government is the problem, the opposite occurs; capital flows out of public investments (bonds), and into private investments (stocks, commodities, precious metals etc.).

We have already seen high end real estate rise in many areas, as smart money has begun to park in perceived ‘safe’ areas. Recently, with the birth of negative rates, we saw capital move into gold. While we do not feel that this is the right time to load up on gold, we foresee gold, North American stocks, commodities, and collectibles becoming targets of global capital.

Politicians and bureaucrats have been singing from the same song books for decades, and now the jig is up – finally coming to a dramatic end. Unfortunately, most investors are going to be caught blindsided when this global debt crisis finally unfolds and we see the first Sovereign Debt Default. Once the first default happens, it will be just the first domino, there will be many more to fall.

The consequences of not being prepared for this massive Trend Change will be devastating. For those who understand what is coming, it will be an opportunity of a lifetime to dramatically increase your wealth.

Understand that this crisis is a debt crisis, and on a personal level, look to reduce your personal and family debt as much as possible. While negative rates are here now, be aware that when government bonds are no longer a ‘safe’ bet, interest rates will rise, as bond holders dump their bonds. When bond holders no longer want to hold bonds, the rates must go up to entice others to buy them. Rising bond rates mean rising interest rates.

Most of us weren’t around in 1932, and the mass media never mentions this, but back in 1932, every major European country defaulted on their Sovereign Debt. That’s right, three years after the Crash of 1929, 17 countries in Europe defaulted on their sovereign debt. And guess where those investors moved their capital to?

They certainly didn’t buy US government bonds because they were afraid that the US would also have debt problems. No, instead of buying bonds, they bought US stocks, sending the Dow Jones up 392% over the next five years.

Remember, capital has to go somewhere. When it starts to panic out of gov’t bonds, it will move to other sectors. Timing is the key.

Stay tuned!

iphonehack

John Oliver explains why Apple needs to maintain its encryption—to stay “one step ahead” of hackers

As figures in technology and politics weigh in on the US Federal Bureau of Investigation’s iPhone encryption battle with Apple, the comedian John Oliver has now joined the fray. In his show on Sunday (Mar. 13), Oliver backs the tech company’s resistance to government efforts to compel it to unlock an encrypted iPhone belonging to a suspect in a mass shooting in San Bernardino, California. And Oliver called out the FBI on its troublingly over-simplistic view of how technology works:

obama

Obama admits hunting taxes is a motivation for iPhone backdoor

While speaking today at SXSW, Obama said he could not comment directly on the Apple-San Bernardino shooter case, but gave these remarks on the larger issue surrounding the FBI’s ongoing fight with Apple about penetrating encryption.

While using the usual fear of terrorism as the reason that government needs to be able to hack into our lives, he also let it slip that hunting taxes was a motive.

“And the question we now have to ask is if technologically it is possible to make an impenetrable device or system where the encryption is so strong that there is no key there, there’s no door at all? And how do we apprehend the child pornographer? How do we solve or disrupt a terrorist plot? What mechanisms do we have available that even do simple things like tax enforcement? Because if you can’t crack that at all, and government can’t get in, then everybody’s walking around with a Swiss bank account in their pocket. So there has to be some some concession to the need to be able to get to that information somehow.”

Having a Swiss bank account is not illegal, but clearly Obama considers it illegal.

“Those who surrender freedom for security will not have, nor do they deserve, either one.”
…Benjamin Franklin

Negative rates

What would negative rates mean for you?

It used to be that you worked hard, saved your money, and then when you retired, you lived off the interest of your savings. Today, global central bankers are changing the landscape, where already in 15 countries, the term negative interest rates is a reality.

Japan is the latest country to do this, following Europe, as the largest economies to now have negative interest rates. And make no mistake, every other central banker, including the US Fed, & the Bank of Canada, is considering doing the same thing. So what does this mean for you?

Imagine that you have worked and saved all your life, and are now looking to retire, and live off your savings. If negative rates are imposed on us, instead of earning a decent return on your money from the bank, with negative rates, you would actually have to pay a penalty to leave your money in the bank. As bizarre as this sounds, it is exactly what is happening in over 15 countries today, and  it is very likely coming to North America soon.

Why are these central banks doing this?  Basically, the only solution that they have managed to come up with to reinvigorate an economy has been to lower interest rates, and pump over $12 trillion globally into assets.

The idea with low interest rates was that with rates low, businesses would borrow to expand their operations, while consumers would use low rates to borrow and buy homes, cars, and other big ticket items. All this borrowing and spending, theoretically, would create new jobs & grow the economy.

The only problem with the theory is it didn’t work; businesses didn’t like all the talk of increasing taxes, so they didn’t expand their business. In fact, most businesses cut and slashed jobs to avoid losses. Consumers also didn’t like all the increases in taxes and fees that governments were implementing, so they cut their debt load rather than increase it. So at the end of the day, all that stimulus that global governments piled on, didn’t achieve the desired results.

Even though negative rates didn’t work, these central bankers are now venturing below zero, and have introduced what a few years ago would have seemed unfathomable, negative rates.

Negative interest rates are a sign of desperation, a signal that traditional policy options have proved ineffective, and new limits need to be explored. They are a tax on deposits. They punish banks that hoard cash instead of extending loans to businesses or to weaker lenders. Rates below zero have never been used before in an economy as large as Europe or Japan..

The logic is that with rates below zero, businesses and consumers will finally borrow. Are we going to see a scenario where your take out a mortgage, and  instead of paying interest, you actually get paid?

As a consumer, are you going to leave your money in the bank and have to pay a penalty, or do you decide to make some purchases. For seniors, what do you do with your savings, leave it in the bank and lose money every year, or do you take it out and hide it in your back yard? In Japan, there has been a massive run on safes, as people are taking their cash out of the bank and keeping it at home.

To deter people form withdrawing their money and hoarding it, instead of spending it, central banks are now removing large denominated bills, such as the €500 in Europe, & the $100 in the US. They claim that they are doing this to fight terrorism, but it seems a little too much of a coincidence that they are doing it just as negative rates are being implemented.

By eliminating large bills, it will become very difficult to hoard cash easily. As we highlighted in last week’s issue of The Trend Letter, if banks add a small 0.25% fee on deposits, if you had $500,000 and left it in the back for a year, at the end of the year you would only have $498,750. It would have cost you $1250 for the privilege of keeping your money in the bank. So the temptation would be to move your money out of the bank, but by eliminating large bills, you would need a lot more space to stash you cash.

Globally, there is now over $8.3 trillion of Government bonds that are paying 0% or less. There is $5.5 trillion that is paying negative yield, meaning that about one quarter of all global bondholders will end up paying their government custodians for the pleasure of parking their cash in the “safety” of government bonds.

negativebondyields

These latest moves by central banks of negative rates, and eliminating cash all feed into the growing trend of a loss of confidence in government that will lead into a massive Sovereign Debt Crisis.

As all of these events play out, we will see more and more capital pull out of the perceived riskiest areas, and into the perceived safest areas. Ultimately, that means out of public investments (gov’t bonds), and into private investments (stocks, commodities, precious metals etc).

Stay tuned!.

cashless

The real reason central banks want to eliminate cash

First we had ECB president Mario Draghi announce he is seriously considering eliminating the €500 note, & today we have former US treasury secretary Larry Summers lobbying to eliminate the $100. Both of them use the ‘terrorist’ angle as justification, saying that the only users of high denominated currency are terrorists, & criminals. But this move to eliminate high valued notes is just the start, as central bankers want to eliminate all cash, & the reason why has nothing to do with terrorism, or criminals.

No, the real reason that central banks want to eliminate cash is so that they can add more taxes & fees to every transaction made. They also feel that they know best what you should do with your money. They want to force people to spend or invest their money in the risky activities that revive growth, rather than hoarding it in the safe places.

Under the guise of terrorism, they want to watch every transaction that you make, & they want to tax each of those transactions. These are the same geniuses who in the last 8 years have globally…

  • cut interest rates 67 times
  • forced rates to negative to such a degree that today 55% of ALL government bonds pay yield 1% or less
  • purchased over $12 trillion in assets in an attempt to boost the economy

None of these measures has done anything to boost the global economy. With negative rates imposed, the effect for banks or long-term savers, is that by putting your money in a ‘perceived’ safe place – such as the central bank or a government bond – you automatically lose some of that money.

Hardly surprising, these measures have led to the growing popularity of cash for people with any substantial savings. Bank of England research shows demand for cash has grown faster than GDP in many countries. So the central banks face a further challenge: how to impose negative interest rates on cash itself.

They are killing seniors who have saved all their life so that they could live on the interest on their savings. Instead of seniors earning interest on their savings, these bureaucrats are implementing negative rates to charge penalties on these seniors’  savings.

And now they want to eliminate cash altogether. While the convenience of electronic transactions are enormous, moving to a strictly electronic system has huge ramifications. One of the biggest threats today to Western countries is a massive cyber attack against its infrastructure. Imagine that ISIS or some other terrorist group took down the power grid in major cities. There would be no access to money for businesses or households.

The same holds true if there is a massive earthquake in a region. Power could be out for weeks in some areas, eliminating all access to electronic funds.

There are many other drawbacks. One is fundamental & concerns the freedom to take your cash out of the bank, & to spend it anonymously, as you see fit. Some like to play poker, or bet with friends on the outcome of a game. Technically, these activities would be considered illegal &/or at the very least, taxable by the bureaucrats.

While the governments keep telling us this is all for our security & protection, it is really about rights & freedoms, those which our parents & grandparents fought to preserve.

A cashless society would mean that the government would control how much money you can spend. When we get the next banking crisis, if the system is strictly cashless, then they could simply shut down the access, so that you cannot access, or spend your own money.

Before jumping on the cashless society bandwagon, think about the potential consequences. Also, when you hear the politicians & bureaucrats telling you it is all to protect you from terrorists, remember Ben Franklin’s quote…

”People willing to trade their freedom for temporary security deserve neither and will lose both.”

Stay tuned!

OilDrop

Why we are about to turn bullish on oil

Historically, when we see the bottom of an oil bear market, like we saw in 1999, 2002, 2007,& 2009, we would then see the price of oil rebound very quickly in a ‘V” style recovery, In those instances, the price of oil jumped between 60% & over 100%, & many of the oil stocks did even better.

oildeclines

The problem today is that there is still a glut of oil as inventories continue to build. The following chart shows the Weekly US oil production, although down slightly from the highs in January, they are still above the previous record levels in 1986.

oilproductionfeb

On top of the current production, we know that there is another 50 million barrels of capacity to still come on board. Add to that, we have Iran soon coming on board as the West’s sanctions are being lifted, & Iran is looking to increase their capacity by another 300K-500K barrels per day. So once Iran’s production gets into the market, we will be looking at a glut of about 1.5 million barrels per day. This glut will remain until we see the supply side reduced, & the demand side increased.

Last year global demand increased by 1.3 million barrels per day, & estimates for 2016 show a further increase of 1.2 million barrels, & another 1 million barrels for 2017.  On the following chart we see the oil consumption of non-OECD countries such as China, has been on a rapid uptrend.

So looking forward, the demand side of the equation is quite healthy, it is the supply side that is the real problem.

oilconsumpotion

Last year subscribers who followed our lead made substantial gains in the oil market by shorting oil via an easy to trade Exchange Traded Fund. We shorted oil because of the rapidly expanding production in the US. But like all bear markets, the crash in oil prices will rebound, it always does.

In previous years OPEC nations would normally agree to reduce their production when oil prices got too low. With an OPEC production cut, supply declines, & prices push higher. The result would then allow OPEC producers to earn higher profits.

Saudi Arabia knows that many US shale producers borrowed heavily when the price of oil was over $100. They did this to ramp up exploration & production to take advantage of those high oil prices.

As US shale producers borrowed hundreds of $Billions to reinvest in exploration & production, it increased supply to the point where supply now far outweighs demand. Prices then declined & now we are at the point where, with a 73% slash in prices, these producers are seriously short of cash flow to service their massive debt loads.

Haynes & Boone’s latest Oil Patch Bankruptcy Monitor shows there are now 36 oil producers who have filed for bankruptcy in 2015. Combined they have a total of over $13 billion in debt outstanding.

With more & more bankruptcies in the sector, we are seeing a huge drop in exploration as the following chart of US rig count shows.  Since June’14, the total rig count has dropped from 1600 to under 600.

 Rig count

Ultimately, this huge reduction in exploration will result in a decrease in supply. What most investors do not understand is that US shale oil sources have a 40%-50% depletion rate in the 1st year of production, & an 85% depletion rate in the first 3 years.This compares to a 6% depletion rate in OPEC’s traditional oil sources.

oildepletion

What we will soon see is that due to these producers drastically reducing their exploration, combined with the rapid rate of depletion in the US shale plays, the supply levels will soon start to retreat. If we combine that with anticipated 1.2 million barrel demand increase, all of a sudden, the over supply ratio comes back into balance, & we even see demand outpace supply.

It is all part of the cycle, where low oil prices are the cure for low oil prices. We are now at the point in the oil cycle with the massive reduction in exploration expenditures, & the growing number of bankruptcies, the supply side of the equation will soon decline, opening the door for the demand side to dominate, forcing higher prices.

oilcycleJan

Stay tuned!

robotgolf

A robot sinks a hole-in-one on the PGA Tour

From Quartz…

About a week after beating a supposedly unbeatable board game, robots are now turning their attention to a game you’ve actually heard of: golf. LDRIC, a robot named after Tiger Woods’ birth name (“Eldrick,” phonetically), knocked in a hole-in-one on the 16th hole of the Waste Management Phoenix Open in Scottsdale, Arizona on Wednesday.

Right after LDRIC’s winning shot, the green was showered with beer cans, which may at first seem to be a desperate attempt by golf fans to stave off the robot uprising, but is in fact how fans celebrated when Italian golfer Francesco Molinari got a hole-in-one on the same hole last month and when the actual Tiger Woods famously sunk a hole-in-one in 1997 at the same spot.

LDRIC, short for Launch Directional Robot Intelligent Circuitry, was created by pro golfer Gary McCord and Golf Laboratories, a company that builds robots to test out new golf club designs. It can hit the ball up to 130 mph—about 5 mph faster than the the real Tiger can hit—and duplicate any players’ swing. If LDRIC is anything to go by, it may well be that before we have leagues of fighting robots, or racing robots, we’ll have robot golfers. Robot grandparents everywhere will be thrilled.

It’s worth noting that this robot isn’t prefect yet: LDRIC hit that hole-in-one on its fifth try (possibly making that a double bogey), according to ESPN. Considering some of the most advanced robots in the world have trouble opening doors without falling over, it might still be a while before the PGA accepts another Eldrick onto the tour.

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Question on Gold

Q. You have continually warned that gold will not truly move into the bull market that you have projected until we see a loss of confidence in government. Given Trump’s popularity, isn’t that an indication that we are indeed seeing that loss of confidence in government now, and that this is why gold is rising?

A. As of last night’s closing, gold is up 7.6% since the start of the year. As of the time of this writing, gold is up another 13.00 dollars for the day, sitting at the 1154.00 level. As we can see on the following daily chart, gold is now testing its 3.5 year resistance level (red dotted line).

Gold has been picking up a ‘safe haven’ bid, as the Bank of Japan joined the ECB & moved into negative rates, but has also benefited recently from the weakness in the $US. So, in the near-term gold has had a nice rally, & if it can close the week above 1143, this rally could run for a while yet.

As to the question, is this the ‘loss of confidence in government trend change that we have been calling for? – it is too early for that play. Yes, Donald Trump is representing a rejection of the status quo political system, but the vast majority of investors still believe that government will find a way to solve the massive debt problems that these same bureaucrats created in the first place.

So no, we do not believe that gold is going to the moon just yet. Yes, we do see the gold bug publications again calling for the demise of the $US & for gold to go to $3000, $5000, & even $10,000 on this run. Just remember these are the same  people who have being saying the same thing for the past five years, as gold has lost over 40% of its value, & most gold stocks have lost over 70% of their value.

That does not mean that gold cannot have a nice run here, it is long overdue for one. To remain in a near-term bullish trend, gold needs to do the following:

  1. Close this week above 1143
    2. Have a continued move higher, & a sustained close above 1180 on a weekly basis.

If gold can achieve those two near-term targets, then it could void our ultimate target low of 875-925.

As to when we will see the ‘loss of confidence in government’ trend move gold to new highs, we are likely looking for that trend to start after the next quarter & potentially not until late 2016.

We will update subscribers in Sunday’s issue of The Trend Letter.

Stay tuned!

news

Headlines

  • Global markets rise as weak dollar, US rate outlook keep oil strong. Read story
  • Oil seen ‘lower for longer’ by Morgan Stanley as forecasts cut. Read story
  • US jobs markets signals loss of momentum; productivity plunges. Read story
  • Bank of England cuts growth estimate; call for rate hike dropped. Read story 
  • America holds crisis meeting as Zika ‘nighmare’ spreads. Read story
  • Valeant, Turing slammed by congressmen as drug hearing opens. Read story
  • Continental says 5 million vehicles may have defective air bags. Read story
  • Shell ready for more cuts as earnings fall 87% on low crude prices. Read story
  • Korea ‘preparing long-range missile launch.’ Read story
  • The world’s biggest luxury company isn’t worried about China. Read story
  • Mumbai attack mastermind Saeed warns India of more terror attacks. Read story
  • A divided Libya struggles against ISIS attacks. Read story
  • Paris attack leader said he entered France with group of 90 extremists. Read story
  • Beer, cars, & mortgages? Super Bowll ads go financial this year. Read story
  • Daallo airlines confirms passenger missing on plane with fuselage hole. Read story
  • 10 CEOs tell their one killer interview question for new hires. Read story
  • On the lighter side. Check it out

Stay tuned!

Trend News Team