Seeking Alpha

Cliff Wachtel's  Instablog

Cliff Wachtel
Send Message
Cliff Wachtel, CPA, is currently the Director of Market Research, New Media and Training for, a fast growing forex and CFD broker. He covers a variety of topics including global market drivers, forex, currency hedged and diversified income investing, and is currently working on a... More
My company:
My blog:
My book:
The Sensible Guide To Forex: Safer, Smarter Ways To Survive & Prosper From The Start
View Cliff Wachtel's Instablogs on:
  • The Coming Week's Must-Know Lessons: State Of Markets, US Jobs, Ukraine, Etc.

    What we can & can't tell about the state of global markets, US employment, & how EU's failed banking deal is already doing damage

    The following is a partial summary of the conclusions from weekly analysts' meeting in which we cover the key lessons learned for the coming week and beyond.


    --Technical & Fundamental Drivers In Near Term Equilibrium & What's Likely Sources Of New Trends

    --Lessons From The US: State Of US Markets, Employment, & What The Fed Doesn't Mention About US Jobs

    --State Of The Bull Market: Warning On Using Historical Indicators To Time Markets & Examples of Their Use & Misuse

    --Lessons From Europe: How The Failed Bank Union Deal Already Coming Back To Haunt EU

    Global Markets: Waiting For The Next Big Thing

    Both our technical and fundamental analysis of global market drivers shows that bullish and bearish considerations remain in equilibrium.

    Technical Outlook: Virtually every global risk asset market we see, be it a major global stock index or currency, remains within a 12 week trading range. Longer term uptrends are intact but can't get past nearby long term resistance, be it 1890 on the S&P 500, or 1.39 for the EURUSD

    Fundamental Outlook: Similarly, each week's top tier economic data continues to present mixed results that do nothing to change the prevailing consensus about the various big economies that drive global growth. For example:

    --In the US, slow recovery.

    --In the EU, a patchwork ranging from slow recovery to stagnation

    --In China, slowing growth

    It's a "two steps forward 1 step back" theme.

    See our posts on the coming week's market movers and the EURUSD weekly outlook for details.

    The short version: Without a material, sustained bullish or bearish change in data from the leading economies, markets are likely to range trade until they get at least one of the following:

    · A policy shift from the Fed or ECB

    · A sudden geopolitical threat like a real escalation in the exchange of economic sanctions between Russia and the West

    · A new bout of EU crisis or other contagion threat

    Next, we look at specific lessons learned for the coming week and beyond.

    US Latest On The State Of The Market

    Here's a summary of what we've read over the past week

    Reasons To Be Bullish: Valuations Can Stay High Longer Than The Current Bull Market

    Even if traditional measures say stocks are overvalued, or if stocks have had a huge run higher, that doesn't mean they'll go down anytime soon.

    Per a recent research note from Gluskin Sheff's David Rosenberg, bear markets don't happen unless we get one or both of the following:

    · the Fed over-tightens

    · the economy heads into recession

    Rosenberg offered this chart showing 12-month returns in the S&P 500 since 1969, showing that market downturns usually come due to recessions (shaded area).

    (click to enlarge)

    (click to enlarge)

    (via Business Insider here)

    01 May. 04 18.41

    Note also that that 30%-plus rallies over a given 12-months like that seen in 2013, are not uncommon.

    The Key To Using Historical Market Timing Indicators: Check Historical Context

    The below are two recent bearish indicators. However their bigger lesson is that whenever you see charts of alleged historic stock market crash indicators you (really) need to check the fundamental/historical context.

    The indicators themselves are rarely the actual cause of a pullback. Rather, their value is that they provide signal that you may be missing a more logical reason for a coming pullback, and that you need to do some fast investigation to uncover what's behind these signals and whether it's a legitimate threat.

    Example 1: Stock Market Margin Debt Reversing Off Record Peak

    Wolf Richter points out that the recent reversal of the multi-year all time high in margin debt that began in August 2012, peaked in February 2014, and reversed by $15 bln in March, is a particularly ominous sign. The last 2 times it happened, markets crashed (simultaneously in 2000, after a few months in 2007).

    (click to enlarge)

    (click to enlarge)

    Source: here

    02 May. 04 18.50

    He suggests this reversal in margin debt after a record move higher is the reason for the dive we've already seen in momentum stocks, which in the past two crashes were also the first to go in 2000 and 2007. Similarly, he notes another momentum asset class is looking troubled. Six housing markets where prices were soaring mere months ago are showing plunging sales and soaring inventories. Seehere for details.

    Just looking at March 2007, this was a worthwhile indicator because if you weren't aware of what was happening with the US sub-prime crisis (it was just starting in earnest) this one might have tipped you off. The Fed could have used the hint. Note how it kept the Fed Funds rate at 5.25% steady through the summer even as the subprime mess was unfolding.

    Here's an excerpt from the St. Louis Fed's excellent Financial Crisis timeline .

    February 27, 2007 | Freddie Mac Press Release

    The Federal Home Loan Mortgage Corporation (Freddie Mac) announces that it will no longer buy the most risky subprime mortgages and mortgage-related securities.

    April 2007

    April 2, 2007 | SEC Filing

    New Century Financial Corporation, a leading subprime mortgage lender, files for Chapter 11 bankruptcy protection.

    June 2007

    June 1, 2007 | Congressional Testimony

    Standard and Poor's and Moody's Investor Services downgrade over 100 bonds backed by second-lien subprime mortgages.

    June 7, 2007

    Bear Stearns informs investors that it is suspending redemptions from its High-Grade Structured Credit Strategies Enhanced Leverage Fund.

    June 28, 2007 | Federal Reserve Press Release

    The Federal Open Market Committee (FOMC) votes to maintain its target for the federal funds rate at 5.25 percent.

    July 2007

    July 11, 2007 | Standard and Poor's Ratings Direct

    Standard and Poor's places 612 securities backed by subprime residential mortgages on a credit watch.

    July 24, 2007 | SEC Filing

    Countrywide Financial Corporation warns of "difficult conditions."

    July 31, 2007 | U.S. Bankruptcy Filing

    Bear Stearns liquidates two hedge funds that invested in various types of mortgage-backed securities.

    August 2007

    August 6, 2007 | SEC Filing

    American Home Mortgage Investment Corporation files for Chapter 11 bankruptcy protection.

    August 7, 2007 | Federal Reserve Press Release

    The FOMC votes to maintain its target for the federal funds rate at 5.25 percent.

    August 9, 2007 | BNP Paribas Press Release

    BNP Paribas, France's largest bank, halts redemptions on three investment funds.

    August 10, 2007 | Federal Reserve Press Release

    The Federal Reserve Board announces that it "will provide reserves as necessary…to promote trading in the federal funds market at rates close to the FOMC's target rate of 5.25 percent. In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets. As always, the discount window is available as a source of funding."

    Example 2: S&P 500 Topping When It's 20% Above Its 150 Week Moving

    Richard Ross, global technical strategist at Auerbach Grayson notesthat the last time this happened, in 2011, stocks fell over 20% back to the 150% weekly moving average.

    Why I like This: Occurred During Fed Historical Easing

    I include this tidbit because unlike other bearish signals, this one last occurred during the recent era of ultra-easy Fed policy and historically low rates. Thus it appears to counter the claim that as long as benchmark rates stay near zero, cash keeps stocks supported.

    Why I Don't: Massive Context Omission

    That said, a 20% pullback is not a crash, and the last one didn't last long.

    Most importantly, and this is the thing that most undermines Ross's argument; the drop was rather clearly driven by a second round of EU crisis fears. Highlights from the period of that pullback from May to September 2011 include:

    · Last minute bailouts for Portugal and Greece (after the usual default and contagion threats, political unrest and threats of governments falling before debt deals could be reached, Germany refusing to pay for more bailouts etc.)

    · The Greek bailout that included "voluntary" losses inflicted on bondholders yet wasn't a default. This unprecedented theft deal shook bondholder and stock markets, sending shares and credit ratings of other GIIPS nations and banks tanking, like those of too big to bail/fail Italy, and soon after, Spain.

    · Things got so bad that on September 26, US President Obama publicly lost patience with EU inaction and said the EU debt crisis was "scaring the world." Three days later Germany approved an expanded EU bailout fund, easing market fears enough to stop the downturn.

    Worth Noting

    Given that nasty bout of EU crisis, and general inexperience with how to handle it, this particular overbought indicator can't be taken that seriously as it fails to consider the very exceptional fundamental context.

    What we can say is that when markets are topping and are 20% over their 150 week EMA, they are especially vulnerable. However in time of historically low rates, even a threatened contagion risk was well contained.

    Key Point

    Again, view these timing indicators as mere warnings that something may be developing. We don't time our entries and exits based on them; however we would use them as signals to investigate the underlying problem that may be causing the smart money to exit.

    US Jobs Picture & What The Fed Should Emphasize But Doesn't

    As we discussed in some depth here, an otherwise very bullish set of April US jobs reports was undermined by 2 things.

    1. The labor force participation rate (LFPR), which fell to its lowest level since 1978, suggesting that the drop in the unemployment rate was due mostly to longer term unemployed no longer looking and thus no longer counted in the unemployment rate calculation.

    Per Dan Crawford of the Economic Policy Institute , the headline unemployment rate heavily understates true unemployment, saying if the LFPR were more stable, the unemployment rate would be much higher, closer to 9.9%. Still, the U-6 rate (more inclusive of those discouraged dropouts) also fell along with all other alternative measures of labor underutilization.

    (click to enlarge)

    (click to enlarge)

    Source: Dan Crawford (via Business Insider)

    06 May. 02 17.02

    2. Wages remained stagnant. Although the Fed is believed to be focused on the numbers of jobs and percentage of job seekers employed, we have not heard much about how the fed weighs wages and income in its policy planning. That doesn't make sense considering that consumer spending is about 70% of GDP. For growth to recover, spending has to recover. For spending to recover, incomes have to recover.

    However it's well known that a key feature of the current recovery is that most of the new jobs don't pay as well as old ones did. The employed are making as much as they did before the financial crisis. For example:

    The National Employment Law Project (NELP), via George Magnus, reports that from February 2010 to 2014, most of the job growth is in lower-wage industries.

    There are 1.85 million more jobs in lower-wage industries now than before the recession, and two million fewer jobs in the mid and higher-wage industries than before the recession. See here for the details of the report. Highlights include:

    · "Lower-wage industries constituted 22 percent of recession losses, but 44 percent of recovery growth.

    · Mid-wage industries constituted 37 percent of recession losses, but only 26 percent of recovery growth.

    · Higher-wage industries constituted 41 percent of recession losses, and 30 percent of recovery growth."

    See here for further details.

    Key Points About US Employment

    --It's still unclear:

    ---- How much slack remains in the labor force, see here for details

    ---- Whether Fed policy can do anything about it, see our special report here for details

    --Even if the number of jobs and real employment rates recover, the recovery will be limited to the extent that real wages don't recover too. If wages and incomes stay flat, the recovery is likely to remain weak due to lack of domestic spending.

    EU Failed Bank Union Deal Undermining Coming Stress Tests, EU Banking's Credibility, Stability

    In our past posts we've repeatedly warned readers of the dangers of the EU's failure to agree on a credible banking union. Chief among these is that they would make planned rigorous ECB bank stress tests impossible because if the EU has no credible way of closing or healing undercapitalized banks. That leaves the ECB with yet another set of bad choices (we already discussed its limited options for fighting deflation in our weekly EURUSD outlook):

    1. Keep standards rigorous and avoid a bigger problem later, at a cost of risking a market panic now because the EU has no bank safety net in place.

    2. Lower standards yet again, maintaining calm at the cost of undermining EU banking's credibility from yet another set of unrealistically light stress tests, and of risking a bigger banking blowup if a downturn destabilizes enough banks to again scare markets into a new EU crisis.

    Last week the European Banking Authority (EBA) released its stress test methodology. As expected they chose #2. As reported here (We'd prefer to be compared with our previous attempts, thanks very much), Citi mocked the EBA's standards compared to those of the US. Morgan Stanley also found the EBA's tests wanting compared to those of the UK.

    In short, EU banking remains a ticking bomb strapped to the EU's chest, and keeps the threat of another EU banking crisis and contagion threat very much alive and well.

    Of course that day of reckoning could be years away, or perhaps never arrive, if the ECB is allowed to print Euros as needed.

    However this continued failure to provide meaningful guarantees for EU banks, (and thus to prevent a potential crisis from becoming reality as bank depositors, lenders, and shareholders from flee at the first signs of trouble), has more immediate ramifications.

    Ukraine Crisis Unlikely To Threaten Markets

    As we discussed in our special report: Fools Russian: 1 Chart Shows How To Play Russia Tension-Related Selloffs, Europe's dependence on Russian energy and trade virtually assures that it will offer Ukraine little support beyond acts that are mere symbols and sympathy. Otherwise, it's business as usual.

    If you weren't convinced, consider the combination of EU banking's

    · Lack of a credible safety net to preserve bank system stability (or at least confidence in it)

    · Unknown number of weak banks that "passed" the stress tests and are now the ECB's official responsibility in 2015

    · Exposure to Russia, which means any serious sanctions risk a Russian counter move aimed at EU banks.

    Stay tuned for a coming update to the above "Fools Russian" post for more on the range of Ukraine sanction risks and ramifications for investors.


    See our full report here for details.

    To be added to Cliff's email distribution list, just click here, and leave your name, email address, and request to be on the mailing list for alerts of future posts. For information on a free intro to currencies video course based on my award winning book, see here.


    May 05 3:58 AM | Link | Comment!
  • Fools Russian: 1 Chart Shows Why Russia Tension-Related Selloffs A Buying Opportunity

    There are many reasons to be bearish. Fear of a protracted economic sanctions war between Russian and the West isn't one of them. Here's why and what to do if markets sell off on related fears

    Fools rush in

    Where angels fear to tread…

    …Fools rush in

    Where wise men never go

    (Song: "Fools Rush In (Where Angels Fear to Tread)" -Lyrics By Johnny Mercer)

    Buy when there's blood in the streets - Baron Rothschild

    Be greedy when others are fearful - Warren Buffet

    (click to enlarge)

    Via: Business Insider/Matthew Boesler

    06 Apr. 20 04.37

    Given the facts in just this one graphic, Europe has every motivation to avoid a sanctions war with Russia.

    If the above isn't enough proof for you, the EU's real leaders have little enthusiasm for curtailing trade with Russia.

    First, consider Germany's position. Wolf Richter had a great piece on that back in March, German Exporters Fire Warning Shot About Russia "Sanction-Spiral," Banks At Risk. Highlights include:

    German Exporters Oppose Tough Sanction

    Anton Börner, president of the German Association of Exporters (BGA), which represents 120,000 companies, the lifeblood of the economy, warned at a press conference in Berlin that further escalation of the crisis in the Ukraine could hit exporters very hard. He said that the BGA expected exports to rise 3% to €1.13 trillion and imports 2% to €914 billion for a trade surplus of €215.6 billion - the highest in history. But "if the crisis in the Crimea escalates further," these wondrous forecasts of endlessly growing exports and surpluses "could turn very quickly into a mal-calculation.

    So Too Do German Bankers

    It isn't just German exporters that are fretting, and lobbying with all their might. Russia, with an economy that is already stagnating, and dogged by vicious bouts of capital flight, has$732 billion in foreign debt. Relatively little of it is sovereign debt, but nearly $700 billion is owed by banks and corporations - most of them owned or controlled by the Kremlin. Oil major Rosneft and gas mastodon Gazprom owe $90 billion combined to foreign entities; the four state banks Sberbank, VTB, VEB, and Rosselkhozbank owe $60 billion. Some of this debt matures this year and next year.

    European banks and insurance companies are up to their dirty ears in this suddenly iffy and potentially toxic Russian debt.

    When it comes due, it will have to be rolled over, and some of the companies will need to borrow more, simply to stay afloat. Alas, the current sanction regime of visa bans for the elite, asset freezes, and trade restrictions could make that difficult. Then there's the threat, now more broadly but still unofficially bandied about, that Russian companies should simply default on this $700 billion in debt in retaliation for the sanctions.

    Some European banks, including some German banks, might crater. Even the possibility of a major loss would further rattle the confidence in these banks with their over-leveraged and inscrutable balance sheets and their assets that are still exuding whiffs of putrefaction. And this sort of fiasco, as the financial crisis has made clear, has an unpleasant way of snowballing - and taking down the already shaky global economy with it.

    During the financial crisis, German exports collapsed, banks toppled and got bailed out, and the economy experienced its two worst quarters in the history of the Federal Republic. No politician in Germany has any appetite to re-experience that. And the banking industry, with its powerful and long tentacles winding their way through the hallways and doors of the German government, has been assiduously at work, quietly and behind the scenes, to whittle any sanctions down to irrelevance. (emphasis mine)

    Remember that EU banking remains as vulnerable as ever, given the EU's recent failure to agree on a serious banking union with the means to prevent future banking crises.

    I could quote similar views from French industrial groups, or from British bankers.

    Of course, as is often pointed out, Russia's economy is a mess, and it too would suffer greatly. Thus Putin has every reason to minimize the kind of blatant provocations that would force Western hands.

    All of the above is well known to all sides and to investors as a whole. Thus it's no surprise that investors remain sanguine about the crisis.

    That said, so too does Putin, and the spreading rise of Russian separatism beyond the Ukraine suggests that he'll continue to encourage apparent 'grass roots secessionist movements' as long as the West is unable to produce a credible disincentive.

    Putin's Political Advantage

    However, Putin has broad political support for his aggressive policy, whereas the West has little appetite for economic, never mind military conflict.


    Therefore the potential for a sustained Russia-West crisis, and sell-off, remains. If that happens, see it as a buying opportunity.

    Whatever tensions flare up won't last. In the end the West will grudgingly yield. Diplomatic relations may suffer, but otherwise it will be business as usual.

    The West won't make serious economic or military sacrifices for the sake of Ukraine or other front-line states. Russia will.

    End of story.

    What To Do

    See our full report here for details.

    See here, here, and here for related posts on current market movers to watch.

    To be added to Cliff's email distribution list, just click here, and leave your name, email address, and request to be on the mailing list for alerts of future posts.


    Apr 23 8:33 AM | Link | Comment!

    A quick visual guide to social media platforms for forex investors and industry professionals

    The following is part of a continuing series of trader education posts from

    (click to enlarge)

    01 Apr. 07 19.30


    By definition it's an oversimplification because many have multiple uses and applications. So we presented sample posts that represented the most typical post OR uniquely distinctive feature of the site that would be most relevant for forex traders and industry professionals. The below table adds a bit of detail and commentary.

    For further details on the distinctions between the above platforms and why they matter to forex traders and professionals, see our special report: Traders' Quick Introduction to Social Media

    To be added to Cliff's email distribution list, just click here, and leave your name, email address, and request to be on the mailing list for alerts of future posts.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Apr 08 10:45 AM | Link | Comment!
Full index of posts »
Latest Followers


  • #UBER is more expensive in #NYC than a $TAXI, generally costlier if surge pricing good news for those long $TAXI
    Apr 8, 2015
  • $TAXI: why the huge 8%+ jump on biggest volume in 6 mos? Didn't see any news. dang just missed my order too.
    Apr 3, 2015
  • More growing pains for #Uber, more bad news for $TAXI shorts - Uber struggles in less free market economies
    Mar 22, 2015
More »

Latest Comments

Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.