Saturday, June 25, 2016

WHAT's NEXT AFTER BREXIT?

The aftermath of BREXIT has been unrelenting and fierce. Global markets tumbled:

Dow > 3% down
S&P > 3% down
Nikkei < 8% down
Hang Seng < 3% down
CAC > 8% down
FTSE > 3% down
DAX > 6% down

Pound fell to its lowest in 31 years
Gold and silver soared to 52 weeks high
US Dollar index went up to 95.63

If one were to examine the reason behind the recent rally prior to BREXIT, it smacked of over confidence. backed further favourable odds ran by the bookmakers and supported by huge bets made by single individuals despite the fact the the polls were close giving either party a 50-50 chance of a win. Therefore, anyone who participated in the rally based on bookmakers odds, truly deserved to lose their money.

If you have been long gold and silver the miners and related ETFs, then you are on relatively safe grounds.

In the coming weeks week, I would expect there could be an unwinding of trades, due to margin calls, or hedge funds closing due to hefty losses. But what could create further havoc and uncertainties in the global markets will be the unwinding of financial derivatives.

The bullion banks have been shorting gold all through the week prior to BREXIT, pushing gold from US$1,290s per oz to US$1,260 er oz. In fact, the shorts were the highest recorded in history. The unexpected results could cause a massive short squeeze and the bullion banks certainly deserve the outcome due to the constant manipulation in the precious metals market.

Therefore I would also expect that come Q2 2016 financials, major banks would be hit in their earnings. One of the way to ride on the weakness the banks' earnings to to buy the ETF that shorts the financials, ie: SEF  I believe Deutsche Bank would be severely hit, while in the US, it will be JP Morgan. Both of these banks have financial derivatives that are many times larger than their assets.

The US dollar is unlikely to hold on to its strength. while everyone has been busy with the news on BREXIT. 3 sets of data immediately draw concern. US factory orders fell -2.2% worse than expected. The Chicago Fed national Activity came in at -0.51 vs the prior month of 10.0. New housing sales fell below expectations with an even lower revision in the prior month. If anything, these are signs that the US economy is weak and could deteriorate further.

I believe there will not be any rate hike for the rest of the year and if the impact of BREXIT worsens going forward, we could a have QE4. Thus, in such a circumstance, the US Dollar will weaken. But precious metals could do well in such an environment.

The BOJ and the PPT from the Treasury Department have been actively supporting the US and Japan markets. And in a whiff of sell off the same billions have been lost. What sheer lunacy to borrow billions to support the market when the same billions could be used for development to improve the nation's economy. No wonder the remaining 99% were pissed and BREXIT happened!

Major corporations too have borrowed trillions to by back shares just as when the S&P was trading at its peak. What now with the heavy losses incurred? Who is to be held accountable to the shareholders?

I believe that BREXIT is a victory for Britain, a victory against the unelected officials of the European Commission, a victory against the bankers and elitists who think they know what is good for the global economy, a victory against the arcane financial experiment which is decimating the middle class and last but not least a victory for freedom, a choice to determine one's own nation's destiny and regaining Britain's sovereign.

I have deep respect for the British people  for their resilience. Switzerland is also not a member of the EU, yet it has the most millionaires per population. The other being Singapore.I believe Britain would emerge  form this stronger.




Thursday, June 16, 2016

GOLD HAMMERED ON RUMOUR OF A DELAY IN BREXIT REFERENDUM

The last two days certainly have been both exhilarating for gold bulls and bears.

First the Fed decided not to raise rates which sent gold to its highest in one year. Then as the tragic assassination of a British MP unfolds, rumour spread that the BREXIT referendum will be delayed and the algos took over, smashing gold down by more than $30 per oz.

If anything it just shows how on edge the market is over BREXIT. Tragic at it was the Pound and stock markets surged.

While the gold and silver momentum has been slowed, it does not hide the fact that the world is heavily indebted with diminishing growth prospects, with pockets of crisis everywhere, and the US$ will continue to weaken as the Fed will unlikely to raise interest rates going into 2017.

All these will continue to support the price of gold and silver in the medium to long term, We just have to look beyond the present noise.

I believe as the British will re-assert themselves on the referendum, I am sure gold and silver would move back into positive territory.

Meanwhile, my condolences and sympathy go to bereaved family of Jo Cox.

Saturday, June 11, 2016

HAS A FINANCIAL MELTDOWN BEGUN?

Friday capped a week where the price of both gold and silver recovered from a massive sell off in the month of May after the dismal jobs report.

However what have to be the most interesting news were the German 10 year bond yield which hovers near zero and the shocking news that BREXIT was leading BREMAIN by 10 percentage points!

So despite the US$ going higher on Friday, gold and silver held on to their gains. The BREXIT news of  course sent the Pound falling vs the US$.

The EU financial system looks set to have greater volatility going into the BREXIT referendum, and coupled with the news of the German 10 year bond yield could ignite an exit from stocks and into the precious metals market.

Bill Gross recently issued a warning that the bond market could implode as the number of bonds with negative yields have risen to US$10T. Just a few months ago it was at US$7T. One thing for sure, bonds with negative yields are rising, and rising fast.

In Japan even Mitsubishi UFJ has indicated it might exit the JGB primary dealers club due to the negative interest rates. Could Mitsubishi UFJ lead a walkout with several banks? If it happens it could be detrimental to the Japanese bond market and raise further concerns on Japan's economy.

Next week the Fed will be having its June meeting. After having talked up the US$ with interest rates hike, the Fed cheereladers seemed awfully quite for the week. Should the Fed raise interest rates, then the US$ will spike and the stock market will tank, and the economy too. With a depressing jobs report will the Fed raise interest rates? Should the Fed decides against raising interest rates, then they could lose even more credibility. Therefore the Fed may just raise rates to maintain whatever credibility they have left. That will be cutting off the nose to spite the face. What ensure could be another market turmoil like what happened in January and February.

Looking at the issues, I doubt the Fed will raise rates sue tot he threat of a global unwinding of risky assets. Hey, haven't the Fed been pushing up the stock market recently? Why allow it to fall? Like it or not it will fall because of the inherent risks in the global financial system, the huge amount of global debt and financial derivatives,and the central banks which have driven assets to huge bubbles.But when it happens nothing the Fed nor the Treasury's PPT could do will salvage it.  




Thursday, June 9, 2016

WHY THE US ECONOMY IS A "HOUSE OF CARDS"

Why the US economy is a "House of Cards". According to a report in Zerohedge, it took US$10 of debt to create US$1 of GDP growth in Q1 2016.
How on earth is US$1 going to repay US$10 of debt? The debt will continue to grow and eventually implode crushing assets of all classes save for the one asset type which has lasted 5,000 years: Gold and silver.
Because of this the US is suppressing the price of gold and silver through the actions of the bullion banks in the COMEX.
Currently, only China is promoting her citizens to own gold, which could put a floor on the price of gold and silver.
The other asset which is both disruptive and outside the control of governments is Bitcoin. Though risks remain, is another asset class of its own. I own a small position in Bitcoin, but more as another leverage against the western governments' war on cash. The war on cash is happening in EU where depositors are creditors in a banking crisis, withdrawal of the 500 Euro note, limitations on daily cash withdrawal, and promotion of a cashless society and in the US, former Treasury Secretary, Larry Summers is suggesting the withdrawal of the US$100 bill.
This chart from Zerohedge shows it all:

Friday, June 3, 2016

US MAY JOBS - A TOTAL DISASTER!

Well the May jobs certainly proved to be awesome - an awesome disaster that is!

At 38,000 jobs vs an consensus of 160,000 jobs, it was the worst jobs report since 2010, just as the US was emerging out of the Global financial Crisis. In a addition to that, the April jobs report was revised lower at 123,000 jobs vs the prior report of 158,000.

On top of that, the US has lost 315,000 full time jobs in the last two months vs a gain of 118,000 part time jobs.

Now what happened to the Fed's narrative that the economy will stay "strong"? The US has been missing jobs growth expectations for two consecutive months! Isn't that a sign of a weakening economy?

In fact in the last PMI flash readings, indicators are already there that the jobs growth in the month of May will be below expectations, but the Fed believed otherwise and continued to ramp up the US$ through a series of hawkish tone to warn of interest rates hike.

After the initial sharp fall, the Plunge Protection Team (PPT) came in and decided to push the indices higher in an attempt to maintain their recent highs. And this is not the first time the PPT has come in to rescue the market. What happens to the free market system?

One thing is certain. Central banks across the globe are pushing up the market to hide the failure of their policies.

Meanwhile to continue to support the markets in their highs, you can rest assured that they will also continue to rack up huge balance sheets and debts.

Recently I have added my position in Bitcoin, due in part of the worsening global economic indicators, the bank bail-ins, the restriction on cash and withdrawal, the prospects of more currency printing, unsustainable government debts, and more importantly, Bitcoin is finite and come July the mining will be halved.

I continue to be bullish on gold and physical, the miners and related ETFs.

Remember to do your own research as our risk appetite differs.