"- Washington has apparently fomented or supported a coup in the Ukraine that increases the likelihood of war in Europe dramatically therefore sending the gigantic pools of liquid financial assets in the world scurrying into the greenback and US Treasuries, which the Chinese have stopped gobbling up;…
"Guest Post: How Monetary Policy Drives Foreign Policy," Tyler Durden
Zerohedge.com, 03/11/2014
The Chinese sold a record Amount of U.S. Treasuries in December, 2013.
The WAR in The Key Financial Sector is moving into Stage 2.
The Stage 2 War will have Substantial Effects on virtually all Sectors of the Economy and Markets. Those aware of its Prospective Effects will be able to Profit and Protect Wealth. Those Unaware will likely suffer Great losses.
Consider the Prospective Effects.
Until Fed Chair Yellen's comments recently that Interest Rates could go up about "six months after" tapering is scheduled to complete (i.e., about April, 2015) the US$ was in a serious Downtrend, closing several times below 80, basis USDX. A Key Factor in this War so far as the value of the $US is concerned is and will continue to be, weak U.S. fundamentals as well as Fed Money Printing. Consider Housing for example.
"Based on this mornings (March 20 th) Reporting, existing house sales were declining at an annualized quarterly pace of 24.4%."
Shadowstats.com 3/20/14
Contrary to Mainstream Media Reports, the U.S. Economy is not recovering (Note 1). But the Prospective Rise in interest Rates signaled by the Yellen comment, coupled with ongoing Geopolitical Concerns would, and did, drive up the $US temporarily as an Ostensible Safe Haven.
Unstated was the fact that Interest Rates will have to rise anyway to stave off the inflation that Fed Money Printing has already created in the Economy. Real US CPI is already 8.81% per Shadowstats.com. And the other Real Numbers also show the U.S. Economy is not recovering (Note 1).
But with the Chinese and other Sovereigns and Major Players already selling the $US, the $US as World Reserve Currency is already threatened. Foreign Holders of U.S. Treasuries are at a 10-year low!
So other Measures have to be taken (in the eyes of the Private-for-Profit Fed), and other Powers that be, to shore up the $US. But such Measures will provide only a temporary boost to the $US in the ongoing Currency War.
Regarding Geopolitics and the value of the $US, consider the following fuller Explanation of the Coup overthrowing the Yanokovich government of the Ukraine.
"- Washington has apparently fomented or supported a coup in the Ukraine that increases the likelihood of war in Europe dramatically therefore sending the gigantic pools of liquid financial assets in the world scurrying into the greenback and US Treasuries, which the Chinese have stopped gobbling up;…
"Russia has repeatedly stated over the past decades that an EU move on the Ukraine crosses a red line. The EU ignored the warning, and with the US's help and the ire of Ukrainians sick of a corrupt government crossed Putin's red line. What the Ukrainians want is democracy and relief from their corrupt plutocrats (see previous post's article by Paul Craig Roberts).
"The US has no compelling strategic interest in the Ukraine, or in the Crimea remaining part of the Ukraine. Yes, the Ukraine has been looted by its oligarchs, just as Russia was, and just as the US is being looted by its oligarchs right now; incomes of a majority of American households are falling so the banks can collect on bad debts. It would be nice for people everywhere if they could break the grip of the plutocrats over their livelihoods. In the Ukraine, to substitute debt servitude to Western banks for the domination of the oligarchs would only accelerate the collapse of the EU. And it's not clear the EU, if it offers help, won't be ripped off by the oligarchs as well. The new government in the Ukraine has already increased the power of the oligarchs by giving them provinces to rule, so it's not clear the Western "rescuers" are even able to help solve the fundamental problem at all, and might end up losing their shirts again, as they have in Greece, Portugal, et al."
"Guest Post: How Monetary Policy Drives Foreign Policy," Tyler Durden
Zerohedge.com, 03/11/2014
In sum, the prospect of rising Rates, the Ukraine Crisis, and relative Chinese and Emerging Market weakness, drove investors to the Ostensible Safe Haven $US and US Treasuries very recently. Result: A $US Bounce, albeit a temporary one.
Longer term, rising rates will be lethal to U.S. Treasuries and the U.S. Economy ¾ already ¼ (one-fourth!) of available U.S. tax Dollars are used to pay interest on the $17.4 Trillion U.S. National debt.
But it is critically important not to let the aforementioned Developments Mask The Fundamental Reality: An International Fiat Currency War is in progress and is being played out in Economic, Financial and Geopolitical Arenas.
"Markets have been sanguine about geopolitical risk for several years now, a phenomenon illustrated by the relaxed approach they have taken to Ukraine's crisis. There are understandable reasons for this, but contrary to a popular saying, this could well be a case where the trend is not necessarily the markets' friend."
Mohamed El-Erian, chief economic adviser to Allianz
Financial Times, 03/24/2014
El Erian's comment arguably applies to the Ongoing Currency War.
That is, Major Powers are engaged in a Competitive Devaluation of their Currencies. A Key Policy of Abenomics in Japan is the ongoing Devaluation of the Yen. And recently, the Chinese made a Major Move to devalue the Yuan.
But the Chinese have less reason to worry long-term about the relative "Paper Price" of the Yuan, because the Yuan is de facto backed by over Three Trillion Dollars in Foreign Exchange Reserves, and an increasing Hoard of Physical Gold and interests in Real Tangible Assets around the World. And Russia's Ruble in de facto backed by Precious Metals & Energy Assets.
And the $US and Euro are backed by … Nothing Comparable which is Tangible. Thus China and Russia can not be successfully isolated economically.
And in the entire History of the World, Fiat Money backed by "Nothing Tangible" has failed 100% of the time. The Incremental playing out of these Failing Fiat Currencies sends Signals to those who are tuned in to them and thus present Opportunities and Threats. These Signals have already facilitated Opportunities for Profit (Note 2).
In sum, as Major Governments and Central Banks have now begun actively and competitively to devalue their Currencies (and now with that Currency War moving into the Geopolitical Realm), we have Moved into Stage 2 of that War.
Further consider the Reality that The Fed cannot stop printing (i.e., devaluing the $US), although it is likely to continue tapering a while more; eventually (next few months) it will have to start printing again.
The Equities and other Markets have come to depend on it, as is obvious.
Long-term, since The Fed (and other CB's) will have to continue, and eventually increase, QE again to keep interest rates down and Equities propped up a while longer, the already ongoing debasement of the $US's Purchasing Power as a result of the Ongoing Currency War will become increasingly evident.
Therefore at some point the ongoing modest selling (i.e., refusal to support or purchase) of the $US by Sovereigns will turn into a Rout (as will selling of U.S. Treasuries), likely resulting in the collapse of US Treasury Securities Values as well as the displacement of the $US by the Gold-Backed Chinese Yuan as World Reserve Currency. That is where we are headed, like it or not.
In other words, the Winners in the Currency Wars will be the Holders of Tangible Assets ¾ Gold & Silver above all, as well as Agricultural and Energy Assets. Stay tuned for Forecast Timing of the Trend Shifts and Climacterics which provide both Opportunities and Threats.
Consider another effect of our "progress" per the foregoing Currency War Scenario - the prospects for the Equities Markets.
Absent a Major Market Destabilizing Event - e.g., Ukraine threatening to turn into a Hot War, or several overleveraged Chinese Trust entities defaulting on loans, either of which is possible - Equities have already launched into their Last Gasp (i.e. before The Crash Begins) Rally. But it is not without Trauma, as recently the NASDAQ fell under its 50 day moving average, led by the vastly over-hyped, overvalued social media stocks such as (as we earlier indicated) Facebook.
Indeed, ongoing QE and QE to come (and notwithstanding de minimus temporary tapering) and the Main Stream Media-Promoted (False) Notion that the Economy is Recovering, and Deep Pockets Intervention in the Markets, all Contribute to this last Gasp Equities Push up.
If one considers the Fundamentals providing the basis for our forecast of a Crash, which could start at any time, one sees that they are nearly all directly or indirectly related to the ongoing intensifying Currency War.
In sum, underlying Key Fundamentals are quite weak. Indeed, Fundamentals and Jaws of Death Rising Bearish wedge and other Key Technicals "forecast" a Major Market Crash beginning soon - we communicate probable timing as we receive signals. It is important to consider the Indicators of Fundamental Economic Reality.
Indicator #1 - Q4 U.S. GDP was revised down to 2.4% from 3.2% -- Not Bullish.
Indicator #2 - The Case - Shiller PE Ratio (Google it) reached 28 recently. But the Mean and Median since the 1880s is about 16. Historically, a reading as high as 28 indicates an Equities market which is grossly overvalued, and has typically resulted in a Crash.
Indicator #3 - Retail Sales, and Job Growth, and housing and Industrial Production have slowed.
Indicator #4 - Technically, as we have demonstrated in our recent Alerts, the Equities Markets are making Multi-year Tops, with all exhibiting Jaws of Death Patterns.
Indicator #5 - The Russia-China "Squeeze Play," i.e., the Ukraine, is just aborning (see recent Alerts ).
Indicator #6 - Insider Selling is Heavy.
Indicator #7 - Margin Debt is near Record Highs.
The Currency War, Stage 2, is already Manifest in another Way. Consider that the Economic/Financial Crises of the early 1930s were characterized by Bank Runs.
And we are already seeing such runs this year in Crimea, Ukraine and Rural China.
Defaults in China have left Depositors understandably nervous. Deepcaster's Forecast: there will be more Bank Runs and they will spread, eventually to the Eurozone and U.S.A. Physical Gold and Silver and Tangible Assets such as Energy and Agricultural Products will be the Investors' Salvation.
Regarding Energy, unsurprisingly to us, OPEC recently estimated that World Demand has now risen to 90 Million/bbl/day - an all-time record. China's demand continues to increase (albeit more slowly) and the U.S. still produces only about 45% to 50% of what it consumes.
Fracking is not all it is cracked up to be (pun intended) so far as production increase is concerned. Depletion rates are too high (60% to 70% in the Bakken reportedly) and the EROI is too low.
Indeed, the Crude Price is probably the best (i.e., least easily manipulated) Indication of Real Price Inflation - i.e., Fiat Currency Purchasing Power Devaluation - and the WTI Crude Price has recently moved back up over $100/bbl.
Only the next Episode of The Currency War-facilitated Great Equities Crash will likely serve to substantially deflate Crude Demand and thus Prices significantly once again, but only for a while.
Intensifying Currency Wars provide Opportunities and Threats for those who Track their Dynamic Effects on Key Markets.
Best regards,
Deepcaster
March 28, 2014
Note 1: *Shadowstats.com calculates Key Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider
Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual U.S. Consumer Price Inflation reported March 18, 2014
1.13% / 8.81%U.S. Unemployment reported March 7, 2014
6.7% / 23.2%U.S. GDP Annual Growth/Decline reported March 27, 2014
2. 59 % / -1.40%U.S. M3 reported March 16, 2014 (Month of Febr uary, Y.O.Y.)
No Official Report / 3.48% (i.e, total M3 Now at $15.641 Trillion!)
Note 2: Our attention to Key Timing Signals has facilitated Recommendations which have performed well lately. Consider our six most recent:
• 60% Profit on Water Management Company on March 3, 2014 after 454 days (i.e., about 50% Annualized)
• 100% Profit on Crude Oil Call on February 10, 2014 after 27 days (i.e., about 1400% Annualized)
• 30% Profit on Equity Index Puts on February 5, 2014 after 8 days (i.e., about 1440% Annualized)
• 55% Profit on Water Management Company on January 15, 2014 after 406 days (i.e., about 50% Annualized)
• 140% Profit on Equity Index Call on December 27, 2013 after just 10 days (i.e., about 5200% Annualized)
• 40% Profit on Equity Index Call on December 19, 2013 after just 2 days (i.e., about 7500% Annualized)
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.