For the past several weeks the real story has been Japan’s amazing efforts to weaken the Yen – and in turn drive it’s stock market “The Nikkei” to the moon in the process.
Regardless of what you might think (with respect to recent data coming out of the U.S or even the latest stream of “upbeat earnings” from U.S companies) – the primary driver ( actually ”the only” in my view ) to higher equity prices in the SP500 has been the massive liquidity injections by The Bank of Japan coupled with Uncle Ben’s usual 85 billion per month.
We have now ( and finally ) reached a point where there is absolutely no question that we are in “bubble territory” as even the Fed is now doing what it can to “talk down” its own stimulus (which we all know can’t happen).
The correlations laid out here have been very straight forward. “Nikkei up = Yen down” and “SP 500 up = USD up”.
What’s interesting when we “zoom out” (and look at much longer term charts such as the last 20 or so years of The Nikkei) we see that nothing is really that far out of wack.
The Nikkei has been rejected at the downward sloping trendline of “lower highs” – for the last 20 odd years running.
So once again we are left to consider if indeed the massive amount of money printing and central bank intervention can truly..TRULY…make a lasting difference in the growth of a given economy…or merely provide a brief “reprieve” from the pressures therein.
As the Nikkei corrects lower – so will USD.
I remain short USD….and look to get long JPY in coming days.
As I’ve pointed out many times before, it’s important to understand the relationship (and intermarket dynamics) played out between bonds, currency and the stock market. In this case we’re looking at Japan whos recent “money printing fiasco” may have set in motion a domino effect across these asset classes – with a potentially catostrophic result.
The Japanese stock market “The Nikkei” is down aprox -1000 points as of this writing. Tha’ts over 7% drop overnight alone.
The following video outlines the potencial pitfalls of access money printing, as well provides an excellent “road map” for where the U.S is headed shortly.
WATCH THIS SHORT VIDEO – IF FOR NO OTHER REASON THAN TO BETTER YOUR UNDERSTANDING OF BONDS, INTEREST RATES AND MONEY PRINTING.
You see – since the recent “jawboning” from the Fed (with suggestion that they might consider “tapering” their current QE program) the markets have perked up and taken notice.
Off the top of your head you’d imagine – this is a good thing! Less QE – suggesting a growing economy with no need for additional stimulus….and if the Fed is considering tapering off QE – that must be indication that things are improving etc….
Wall street knows (without question) that once the “kool-aid” is turned off – its lights out. If Ben where to stop buying all the new bond paper ( can you believe like 80 % of it! ) yields would literally skyrocket overnight ( in order to entice foreign bond buyers – the rate of interest paid on those bonds must move higher) and BOOM – Greece in a handbag.
NOW – with the wonderful contribution from your local media – YOU WILL WANT TO HEAR BAD NEWS ABOUT THE ECONOMY/ JOB GROWTH ETC – SO YOU CAN GO BACK TO SLEEP KNOWING THAT QE WILL NEVER END.
The “spin” will now be reversed…. to ensure that the general public will once again “support” more money printing.
Bad news will now be perceived as good news – cuz you know…….the Fed’s got your back.
Occasionally I’ll turn on the “CNBC T.V” widget within my Think Or Swim Trading Platform.
I get a chance to “see what you see” there in the U.S - the wonderful rants n raves of the “oh so knowledgeable” and not at all “bias” staff of CNBC. This morning I was thrilled to hear of the massive recovery in housing in the U.S, with some “million plus new homes on the build” and the question came to mind……..
How can there be a housing recovery in the U.S when the price of lumber has absolutely tanked since March?
I am no economist ( by any means ) and do hope that perhaps one my valued readers can help me understand.
Seriously? – Can some one a little closer to the source explain this? – Or just better to go with the opinions / bullshit that the local media keeps throwing you?
The most reasonable explanation for the continued U.S dollar strength ( making a fool of good ol Kong here ) is two-fold in my view.
1. The massive amounts of liquidity provided by the Bank of Japan is most certainly spilling out - and into U.S equities. In order to make those equity purchases – your foreign currencies need to be exchanged for US dollars ( through which ever institutions / brokerages these stock purchases are made) so as “hot money” looks to take advantage of the continued pumping of U.S equities by the FED and his “banksters”, USD goes along for the ride.
I have been considering a time when both USD and U.S equities would fall together ( and had assumed that time was now ), and now am even more certain of this market dynamic – as we clearly see the two continue to rise together.
How far it can go now is anyone’s guess as the upward break in USD coupled with the complete detachment of U.S stock prices from reality – have both blown right past/through any prior levels I had in mind. Chart patterns and lines of support and resistance have absolutely zero value in a market as rigged as this.
2.The Fed’s continued manipulation of the Gold and Silver markets ( in order to drive prices lower, and mask the massive dilution / devaluation of US dollars via 85 billion in printing per month) and artificially low-interest rates (providing “savers and retired folk” zero on their money) coupled with the massive bond purchasing program has achieved its goal in essentially “snuffing out” any other viable investment opportunity – other than the U.S stock market.
If the Fed was to stop buying U.S government debt or allow the price of Gold to accurately reflect the massive devaluation of the dollar – the entire thing would collapse within days.
Check out this chart of U.S Macro Data ( at it’s worst in 8 months ) compared to the S&P 500.
The higher this parabolic rise goes – the faster / harder it will fall, giving the Fed exactly what it wants……justification to print even more money.
One seriously needs to question – whose interests does the Fed truly serve?
Certainly not those of the American people.
If you’ve ever logged in to an actual forex trading platform you’ll have noticed right away – a number of wonderful options for “entering your order”.
You’ve got trailing stops, market orders, limit orders….then of course the “one cancels other order” – and the ever so complicated ”if then? one cancels other order” – just to name a few. Each “order option” complete with its own little drop down menu’s providing you with “predetermined stop values” as well “predetermined take profit values” such as -25 pips, -50 pips etc……
Have you lost your mind?
The vast majority of Forex brokers act as “trading desks” – and in that small amount of time between you “placing” your order , and waiting anxiously to ” get filled” - your brokerage has placed the exact “opposite order” on their own behalf – trading straight against you, and more or less banking on the fact that you are dead wrong.
The “predetermined stop values” and “take profit areas” are seen across the entire platform – and targeted daily!
Ever wonder why no matter how hard you try to trade the smaller time frames / short-term action – you wind up getting cleaned out? Duh! – You are showing your broker ( who is actively trading against you ) exactly the level to hit your stop!
Add this little nugget to the list, throw in the current volatility and complete “gong show” we call the market – and once again take heed.
Do not try to trade this!
Over the years it’s been suggested on several occasions, that perhaps I should write a book.
Not to say that my story is anything special ( by any means ) but fair to say “unique” – as I’ve wondered this planet some 15 years now with little to no sense of “home” and with few connections to anything……or anyone. Some call it lonely – I call it normal, as for the majority of my adult life – this is all I’ve known.
I used to stay at the same hotel whenever I’d get back to visit my family, and the girls at the front desk always had a chuckle. Knowing me as they did – I’d been filed under “N for Nomad”. I had a laugh too.
Reasons for this behavior run the gambit. I have my own theories as do I assume - those who know me. It’s not important. Without question I’m as regular a person as any on Earth, questioning at times – ” what am I doing?” and “why am I the way I am?”
Up until most recently I’ve had little interest in “writing it all down”. From confrontations with machine gun packing Rastas in the West Indies…to long dark drives into “deep dark places” of Colombia…to the “helplessness” of being trapped in an elevator in Romania. Problem being – I’ve never had a “plot” and for the life of me can’t come up with a decent ending.
Don’t get me wrong – there are some really good times as well.
They just don’t make for very interesting stories.
A pivotal day in “the life of Kong” as a number of factors come into play. Of particular significance “00.01″ the irony, the drama – and further development of a story that just might have a plot……….and an ending!
I watch a lot of UFC (mixed martial arts) and often identify with the discipline required.
As a boy I gave wrestling a shot, as well judo – and spent time in a “relatively serious” boxing environment before the ripe ol age of thirteen. I remember it all…….every minute - like it was yesterday.
In particular a story from the boxing ring.
A new kid there in the garage – fast, eager and more than just a little cocky. It didn’t take long until he as well, had done his time and was ready for a real opportunity in the ring. We squared off , came together at the center, touched gloves and BANG!…….before I’d even taken a step back – the kid wound up and clocked me with everything he had.
It was the first time I’d truly “seen stars” and the rage that surged through in those seconds after – was again………something I will never forget, and despite every ounce of myself screaming to “ annihilate this lil sh#$t” – I remained calm. I boxed.
3 rounds later – I lost that fight…………but in retrospect – I gained far more.
I learned how to take a punch. I learned that “life’s not fair”. I learned that things will likely be a lot tougher than you expect – and that you can’t win all the time.
Needless to say – that kid didn’t last very long. He danced around a couple more sessions, but in the end couldn’t handle the crunches and circuit training, gave up and went home crying to his mother.
Boxing like trading – you really do need to learn………how to take a punch.
I want so badly to get short USD/CAD for another leg down in the pair – and am watching the price of oil here this morning, as CAD will often correlate.
Regardless of the near term squiggles and “apparent strength” in USD, my eye on the price of oil suggests it’s going higher. Pulling a daily chart of “/CL” Light Sweet Oil Futures – I see our friend “the hammer” made an appearance on Friday suggesting that buyers had stepped in and that downside pressure would subside.
Short and sweet here this morning – but CAD looks strong against several other currencies. Should we see the price of oil move higher “getting long CAD” looks like a very good trade.
Otherwise – we still sit patiently awaiting moves in USD – Question being – Is the recent strength a sign of something new – or merely a “pop” before USD continues lower?
We will get our answer by close tomorrow.
The last two days “rocket ship” strength in the USD , and in turn further weakening of the Japanese Yen pretty much blew my trade plans out of the water – as I had been positioning for the complete opposite. The currency markets are extremely volatile right now – to the point to where I “should” likely take my own advice and step aside.
We all know I’m not gonna do that.
We will wait and see if indeed the USD has any follow through here – or turns back down and continues on its way. In light of this I wanted to show you something interesting. Not as much the USD value vs any number of other currencies – but USD with respect to its actual “purchasing power” in real world scenarios.
I’ve “borrowed” this lovely graphic from friends at Zerohedge, and hope no one will mind:
Decline OF USD Purchasing Power
Inflation is nothing new I know, but it does go to show how “endless money printing” really affects those living within it, as opposed to just looking at USD vs another currency. Fact is, with every Central Bank on the planet doing it’s best to keep up with the devaluation of the USD its difficult to really see it day-to-day.
In not living in the U.S and getting almost unimaginable “bang for my buck” here in Mexico, I can’t say that I know what it feels like either - but imagine that a young struggling new family ( with likely one person out of work ) must be feeling the pinch.
And so the printing continues……. with likely larger QE 5 coming soon.