Month: April 2014

Historically, the Fed has claimed to have two mandates: maintaining stable prices and maximum employment.

However, the Dodd-Frank bill, which passed in 2010, unveiled a new, third mandate for the Fed.

Dodd-Frank instituted a third official mandate for the Fed, empowering it to regulate systemic risk and preserve financial stability. The Fed is now required to present its findings on risky, non-bank financial firms to the Financial Stability Oversight Council, which instructs the Fed on how to sanction those institutions.

http://www.cfr.org/international-finance/role-us-federal-reserve/p21020

Bernanke, obviously didn’t take this mandate to heart as his policies helped increase financial instability rather than reduce it.

With Janet Yellen’s Fed, however, the focus is different.

While I am not necessarily a fan of Yellen or her policies, I have to give her credit that she did perceive the housing bubble in advance (unlike Bernanke). In fact, she even advocated raising interest rates at the time.

On some level Yellen is aware that the Bernanke Fed’s policies have run counter to the third mandate implemented by the Dodd-Frank bill. Indeed, during a key hearing in November 2013 before she was appointed next Fed Chairman, Yellen openly stated that QE created “potential risks for financial stability.”

This theme of increased focus on financial stability continued into her instatement as Fed Chairman. Indeed, the entire final portion of Yellen’s first semi-annual monetary policy report to Congress focused on strengthening the financial system AKA increasing financial stability.

Yellen is evidently aware that stocks are bubbling. As Fed Chairman she cannot admit it (no Central Banker will ever say the markets are in a bubble), but the signs that she is aware of this are present.

Yellen is also aware on some level that Wall Street believes she will be even more dovish than Bernanke was. For this reason, her first Q& A as Fed Chairman saw her even mentioning raising interest rates in the future.

The financial media lambasted Yellen as a fool who is damaging the markets. But the reality is that Yellen is attempting to talk stocks down without bringing about a collapse.

We get additional evidence of this from the fact that the Fed’s stress tests failed Citibank. The Fed also requested Bank of America and Goldman Sachs to resubmit their capital plans.

I am not naïve enough to claim that Yellen wouldn’t do anything to hold the system together if the stuff hit the fan again a la 2008. But the market right now is not in 2008 mode. It is in 2006-2007 bubble mode. And Yellen’s Fed is working to get this under control without creating a panic.

If you need additional evidence that Yellen is taking a different route from Bernanke, consider the recent speech from NY Fed President and uber-dove Bill Dudley in which he admitted that one could argue…

… that Fed policy has been too accommodative for too long, creating risks for financial stability worldwide.

This is Bill Dudley we’re talking about. A man who has done nothing in the last five years but clamor for more QE.

Be aware, there are warning signs flashing throughout the financial system…

With that in mind, We’ve already urged Private Wealth Advisory clients to start prepping. We’ve opened three targeted trades to profit from the stock bubble bursting. As we write this, all of them are roaring higher.

We’ve helped thousands of investors manage their risk and profit from market collapses. During the EU Crisis we locked in 72 straight winning trades and not one loser, including gains of 18%, 28% and more.

All for the the small price of $179: the annual cost of a Private Wealth Advisory subscription.

To take action to prepare for what’s coming… and start taking steps to insure that when this bubble bursts you don’t lose your shirt.

Click Here Now!

Phoenix Capital Research
 

Central Bankers will never openly admit that they or their policies have failed. Moreover, they do not rush into sudden tightening (more on this in a moment). But one can begin to notice subtle changes in their language and actions that indicate they have noticed what’s happening in Japan (the failure of the BoJ’s “shock and awe” QE program to generate growth).

Nowhere is this more clear than at the US’s Federal Reserve or Fed. Indeed, starting in August 2013, various Fed officials began questioning the efficacy of QE.

First came the San Francisco Fed with a study revealing that QE generally doesn’t appear to generate economic growth:

Asset purchase programs like QE2 appear to have, at best, moderate effects on economic growth and inflation. Research suggests that the key reason these effects are limited is that bond market segmentation is small.

Moreover, the magnitude of LSAP effects depends greatly on expectations for interest rate policy, but those effects are weaker and more uncertain than conventional interest rate policy. This suggests that communication about the beginning of federal funds rate increases will have stronger effects than guidance about the end of asset purchases.

http://www.frbsf.org/economic-research/publications/economic-letter/2013/august/large-scale-asset-purchase-stimulus-interest-rate/

A few months later, the former Fed official in charge of the Fed’s first round of QE, penned a Wall Street Journal article stating that QE was in fact a Wall Street bailout.

I can only say: I’m sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed’s first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time…

It wasn’t long before my old doubts resurfaced. Despite the Fed’s rhetoric, my program [QE] wasn’t helping to make credit any more accessible for the average American. The banks were only issuing fewer and fewer loans. More insidiously, whatever credit they were extending wasn’t getting much cheaper. QE may have been driving down the wholesale cost for banks to make loans, but Wall Street was pocketing most of the extra cash.

http://online.wsj.com/news/articles/SB10001424052702303763804579183680751473884

Around this time, the Fed began to taper QE first by $10 billion in December… and another $10 billion in January. By this point even uber-dove Fed President Bill Dudley (he formerly claimed inflation is low because iPads are getting cheaper) even admitted the following:

We don’t understand fully how large-scale asset purchase programs work to ease financial market conditions—is it the effect of the purchases on the portfolios of private investors, or alternatively is the major channel one of signaling?

http://www.ny.frb.org/newsevents/speeches/2014/dud140104.html

At this point, Ben Bernanke handed off the reins for Fed Chairman to Janet Yellen. Yellen has since continued Bernanke’s tapering projects, reducing the monthly QE spend from $65 billion to $55 billion.

The failure of the Bank of Japan’s massive QE program and the Fed’s decision to taper are not unrelated. Take a look at the timeline.

• April 2013: Japan announces a “shock and awe” QE program.
• August 2013: San Francisco Fed economists (where future Chairman of the Fed Janet Yellen is President) write a study showing QE is ineffective at generating economic growth.
• November 2013: Former Fed officials admit QE was not meant to help Main Street.
• December 2013: the Fed begins to taper its QE programs by $10 billion
• January 2014: Bernanke’s last FOMC as Fed Chairman, Fed announces another $10 billion taper
• March 2014: Janet Yellen takes over at the Fed and announces another $10 billion QE taper.

This represents a tectonic shift in the financial markets. It does not mean that Central Banks will never engage in QE again. But it does show that they are increasingly aware that QE is no longer the “be all, end all” for monetary policy.

Investors take note. One of the primary market props of the last five years is being removed. What happens when the markets finally catch on?

Be aware, there are warning signs flashing throughout the financial system…

With that in mind, We’ve already urged Private Wealth Advisory clients to start prepping. We’ve opened six targeted trades to profit from the stock bubble bursting.

We’ve helped thousands of investors manage their risk and profit from market collapses. During the EU Crisis we locked in 72 straight winning trades and not one loser, including gains of 18%, 28% and more.

All for the the small price of $179: the annual cost of a Private Wealth Advisory subscription.

To take action to prepare for what’s coming… and start taking steps to insure that when this bubble bursts you don’t lose your shirt.

Click Here Now!

Yours in Profits,

Phoenix Capital Research

 

The market leaders are collapsing.

Market tops usually feature something called rotation. This occurs when investors move out of former top performing companies or market leaders, into safer investments.

Because of this, one of the most critical items to observe is how market leaders are performing.

Right now they’re breaking down in a big way.

Twitter, which nearly doubled after its IPO in late 2013, has absolutely collapsed.

 

 

 

 

 

 

 

LinkedIn, another former market leader, has broken down, destroying its upward momentum.

 

 

 

 

 

 

 

Netflix is also in big trouble:

 

 

 

 

 

 

 

And the biotech sector as a whole (one of the top performing sectors in 2013) looks to be collapsing:

 

 

 

 

 

 

 

 

So while the market as a whole remains in a solid uptrend, these stocks are hinting that more serious danger lies ahead.

 

 

 

 

 

 

 

Be aware, there are warning signs flashing throughout the financial system…

With that in mind, We’ve already urged my Private Wealth Advisory clients to start prepping. We’ve opened six targeted trades to profit from the stock bubble bursting.

We’ve helped thousands of investors manage their risk and profit from market collapses. During the EU Crisis we locked in 72 straight winning trades and not one loser, including gains of 18%, 28% and more.

All for the the small price of $179: the annual cost of a Private Wealth Advisory subscription.

To take action to prepare for what’s coming… and start taking steps to insure that when this bubble bursts you don’t lose your shirt.

Click Here Now!

Yours in Profits,

Phoenix Capital Research

Good Morning Investors

The big story developing in the US markets regards the sudden crackdown by regulators, most notably the SEC and Justice Department, on High Frequency Trading or HFT.

For well over five years now, certain trading firms have been using high-speed computers to front-run orders from other investors.

In simple terms, the market exchanges, like the NYSE, would let these firms (for a price of course) see when someone put in a market order to buy or sell shares on the market.

The trading firm would then use super fast computer programs to buy or sell shares in front of that order, before turning around and selling the shares to the investor at a slightly higher price. The trading program may only make a $0.01 profit by doing this, but because they were doing it millions of times a day, they were making billions of Dollars per year.

At one point, this practice accounted for as much as 70% of all market volume. Put another way, 70% of all shares being traded on the market were not from investors actually placing buy and sell orders, but from computers front-running investors and each other.

These firms argued that they were providing liquidity to the markets (an outright lie). The reality is that they spent millions of dollars lobbying in Washington DC to make sure that the regulators didn’t crack down on them.

However, it would appear that things have finally hit a boiling point with author Michael Lewis publishing a book exposing HFT as the immoral and illegal activity it is.

Between this, and a number of high profile media appearances, Lewis has finally raised public awareness on the issue of HFT. And the public is not happy about it As a result both the SEC and Justice Department have opened investigations.

As far as stocks are concerned, we’ve seen a sharp drop in the companies that were highly favored by HFT firms.

Amazon, an HFT favorite, has imploded from its highs.

 

 

 

 

 

 

 

The same goes for Facebook:

 

 

 

 

 

 

 

This was always the problem with HFT: that these firms were pushing prices higher, through artificial pressure, not real buying power. Now that they’re moving out of the market, we’re seeing the consequences of this.

Indeed, the sharp drop in those companies favored by HFT firms predicted the recent collapse in the NASDAQ index as a whole:

 

 

 

 

 

 

 

Today, the NASDAQ is resting on its 100-day moving average. As you can see in the above chart, this line has help during every correction since 2013.

IF we see a breakdown here (meaning this line doesn’t hold), then the HFT crackdown could become a very serious issue for the markets. With these programs dominating trading so much, removing them from the market will have serious consequences for prices.

The whole situation is very reminiscent of the computer trading, which led to the 1987 Crash.

Could the markets crash again? We’ll see. But smart investors should be prepared for whatever may come.

On that note, if you’re seeking investment recommendations on how to position your portfolio, you should check out our paid monthly newsletter Private Wealth Advisory.

Private Wealth Advisory is a monthly investment advisory that outlines the market action and shows you how to profit from what’s to come. On that note, we currently are sitting on over 17 winners in our Private Wealth Advisory portfolio, with gains as large as 18%, 21%, even 33%… all opened in the last year.

Every Private Wealth Advisory subscription comes with a iron clad 90 day refund period. So if you find Private Wealth Advisory is not for you at any point in the next three months, simply drop us a line and we’ll issue a full refund.

The reports you download and investment ideas you get between now and then are yours to keep.

To subscribe now to Private Wealth Advisory for just $179 (a 40% discount from the normal market price of $300)…

Click Here Now!

Best Regards

Phoenix Capital Research

 

 

 

The global Central Banks are relying increasing on verbal intervention.

The reasoning here is very simple: actual monetary policy is proving to have marginal effects. In the US, every new wave of QE has had less and less impact on the stocks.

I mention stocks specifically because it is now obvious even to the most ignorant commentator that QE was designed to aid Wall Street and few others (see recent admissions by both former and current Fed officials that QE was a “backdoor Wall Street bailout” and “gift intended to boost wealth.”

These admissions are creating a secondary issue, namely that QE is proving to become increasingly toxic from a political perspective. Indeed, even the mainstream media has picked up this theme.

This is not to say that QE will suddenly be dropped entirely (note that the Fed is tapering its programs gradually, the act of tapering simply reducing the pace of asset purchases rather than ceasing them altogether).

However, the point remains, that if promises of QE can produce the desired effects (higher asset prices) without eliciting the same level of political consequences, why bother even launching it?

The EU seems to have learned this lesson better than the US. European Central Bank (ECB) President Mario Draghi managed to pull its entire financial system from the brink of collapse in 2012 simply by promising to do “whatever it takes.”

The European markets erupted higher and haven’t looked back. The fact that the ECB would face a tangled web of politics and legal issues to actually back this claim up was irrelevant, investors knew the ECB wanted to act and so poured into the markets.

Two years later, Europe’s economy remains excruciatingly weak. Bank lending is virtually non-existent and the human cost is becoming outright horrific (over 25% of Europeans are now living in poverty).

What does the ECB do? It cannot force EU banks to lend. And it cannot force EU consumers to take out loans (or trust bankers for that matter). So the ECB leaks that it has “modeled” a €1 trillion QE campaign.

After all, verbal intervention worked well before. Why wouldn’t it now? If the goal is to lower yields further and boost asset prices, it’s a lot easier (and less legally problematic) to simply hint at something than to actually do it.

You can see the Yellen Fed playing off of this as well. Yellen’s first FOMC meeting saw her not only proving more hawkish than Wall Street expected… she actually went so far as to even hint at raising interest rates in the future.

The markets balked and Yellen did an about face, stating within a few weeks that the economy would need “extraordinary commitment… for some time” and that she believes that “view is widely shared” by her fellow policy makers.

Again, if the promise of help and liquidity can have the intended impact, why bother even announcing a new program?

Look for this theme to increase going forward both in Europe and elsewhere. Central Bankers are aware that their monetary efforts are failing to produce the allegedly intended results. Moreover, they know that these efforts are becoming increasingly unpopular with citizens.

So Central Bankers will be increasingly relying on verbal intervention. At least until the next asset price collapse occurs.

On that note, if you’re seeking investment recommendations along with laser pinpointed investment research, you should check out our paid monthly newsletter Private Wealth Advisory.

Private Wealth Advisory is a monthly investment advisory that outlines the market action and shows you how to profit from what’s to come. On that note, we currently are sitting on over 17 winners in our Private Wealth Advisory portfolio, with gains as large as 18%, 21%, even 33%… all opened in the last year.

Every Private Wealth Advisory subscription comes with a iron clad 90 day money back guarantee. So if you find Private Wealth Advisory is not for you at any point in the next three months, simply drop us a line and we’ll issue a full refund.

The reports you download and investment ideas you get between now and then are yours to keep.

To subscribe now to Private Wealth Advisory for just $179 (a 40% discount from the normal market price of $300)…

Best Regards

Phoenix Capital Research

 

 

 

 

 

 

 

As noted previous articles… the global central banks have begun to realize that the success of their reflationary efforts has resulted in yet another speculative bubble in asset classes, specifically stocks and real estate.

Nowhere are these issues more evident today than in China.

Many commentators have spent a great deal of ink proclaiming China to be the next great economic power. While it is true China has seen dramatic improvements in its economy over the last 30 years, my view has been and remains that most of the “growth” of the China “miracle” is just a debt-fueled bubble built upon a loose foundation of Government corruption and fraud.

The reason 99% of investors fail to see this is because:

1)   They believe Chinese economic data as gospel.

2)   They fail to understand China’s economic policies from a political perspective.

Regarding #1, Chinese economic data is absurdly gimmicked to the point of making the US’s look clean in comparison (no small feat).  Indeed, back in 2007, no less than current First Vice Premiere of China, Li Keqiang, admitted to the US ambassador to China that ALL Chinese data, outside of electricity consumption, railroad cargo, and bank lending is for “reference only.”

Put another way, one of the top-level Chinese politicians admitted in private that China’s economic data is a total fiction. However, the reality is even worse than this admission. The truth is that even China’s electrical consumption data is dodgy at best as it has become a political tool for the Chinese Government to illustrate its “growth” much like China’s GDP.

The reason for this economic gimmicking pertains to #2 above: the political perspective of China’s economic data. As a communist regime, China’s government has one focus and one focus only. It’s not economic growth for growth’s sake, nor is it improving the quality of life for China’s population.

No, China’s Government is obsessed solely with remaining in power.

The reasoning for this is that a Government job remains the easiest, cushiest means of becoming wealthy in the People’s Republic. Case in point, last year Chinese officials are known to have stolen at a minimum the equivalent of $157 billion.

The CDIC report, which was obtained by the Economic Observer newspaper, suggested that nearly 10,000 luxury homes had been sold by government officials in Guangzhou and Shanghai alone last year.

It also claimed that an astonishing $1 trillion (£630 billion), equivalent to 40 per cent of Britain’s annual GDP, had been smuggled out of China illegally in 2012.

Economists and experts cast doubt on the figure, but said the flow of money from China was dramatic. Li Chengyan, a professor at Peking University, suggested that a total of roughly 10,000 officials had absconded from China with as much as £100 billion.

Source: the Telegraph

To put the above numbers in perspective, this theft is equal to roughly 2% of China’s total GDP. On a per official basis, we’re looking at roughly $15.7 million… not over the course of a decade but in ONE year.

In contrast, the average college graduate in China makes $2,500 per year. So you’re talking about an average theft equal to over 6,250 years’ worth of work for a college educated Chinese civilian.

A few other indications of just who is getting ahead in China:

• Immediate family members of Premiere Wen Jiabao control assets worth at least $2.7 billion.
• Gong Aiai, a deputy chief of a county bank, (not even a major bank) was found to have assets worth $160.2 million.
• Zhang Xiuting, an anticorruption official, is currently under investigation for amassing 19 properties along with his former wife.

In simple terms, many, if not most of the people who have gotten wealthy in China over the last few decades were corrupt Government officials or those close to them. In this light, you can see that China’s Governmental policies are all really aimed at one issue: keeping the Government in power by keeping the Chinese population content enough not to demand real change.

All other issues (economic growth, improved air quality, stimulus projects, etc.) are secondary to this issue. And the single biggest threat to Chinese officials’ abilities to live high on the hog is inflation.

Nearly 40% of China lives off of $2 a day. Your average college graduate in China makes just $2,500 per year. In an economy such as this, a rise in prices in costs of living can be devastating for the population.

Inflation is a stealth tax and one that is terrifying officials in China. Note the recent publicity campaigns to crack down on corruption and maintain price stability. Whenever things reach a boiling point, we could very well see a “China Spring” similar to the Arab Spring that shook the Middle East in late 2010/ early 2011.

On that note, if you’re seeking investment recommendations along with laser pinpointed investment research, you should check out our paid monthly newsletter Private Wealth Advisory.

Private Wealth Advisory is a monthly investment advisory that outlines the market action and shows you how to profit from what’s to come. On that note, we currently are sitting on over 17 winners in our Private Wealth Advisory portfolio, with gains as large as 18%, 21%, even 33%… all opened in the last year.

Every Private Wealth Advisory subscription comes with a iron clad 90 day money back guarantee. So if you find Private Wealth Advisory is not for you at any point in the next three months, simply drop us a line and we’ll issue a full refund.

The reports you download and investment ideas you get between now and then are yours to keep.

To subscribe now to Private Wealth Advisory for just $179 (a 40% discount from the normal market price of $300)…

Click Here Now!

Best Regards

Phoenix Capital Research

 

 

 

Warren Buffett once noted, Gold doesn’t do anything “but look at you.” It doesn’t pay a dividend or produce cash flow.

However, the fact of the matter is that Gold has dramatically outperformed the stock market for the better part of 40 years.

I say 40 years because there is no point comparing Gold to stocks during periods in which Gold was pegged to world currencies. Most of the analysis I see comparing the benefits of owning Gold to stocks goes back to the early 20^th century.

However Gold was pegged to global currencies up until 1967. Stocks weren’t. Comparing the two during this time period is just bad analysis.

However, once the Gold peg officially ended with France dropping it in 1967, the precious metal has outperformed both the Dow and the S&P 500 by a massive margin.

See for yourself… the below chart is in normalized terms courtesy of Bill King’s The King Report.

According to King, Gold has risen 37.43 fold since 1967. That is more than twice the performance of the Dow over the same time period (18.45 fold). So much for the claim that stocks are a better investment than Gold long-term.

Indeed, once Gold was no longer pegged to world currencies there was only a single period in which stocks outperformed the precious metal. That period was from 1997-2000 during the height of the Tech Bubble (the single biggest stock market bubble in over 100 years).

In simple terms, as a long-term investment, Gold has been better than stocks.

Now, let’s compare Gold to the US Dollar.

Every asset in the financial system trades based on relative value. Ultimately, this value is denominated in US Dollars because the Dollar is the reserve currency of the world.

However, even the US Dollar itself trades based on relative value. Remember the Dollar is merely a sheet of linen and cotton that is printed by the Fed and is backed by the full faith and credit of the Unites States.

In this sense, the Dollar’s value is derived from the confidence investors that the US will honor its debts.

Moreover, the Dollar’s value today also derived from the Fed’s money printing. Indeed, a Dollar today, is worth only 5% of a Dollar’s value from the early 20^th century because the Fed has debased the currency.

As a result of this the world has adjusted to this change in relative “value” resulting in a Dollar buying less today than it did 100 years ago.

In this sense, Gold’s value is derived from investors’ faith in the Financial System (ultimately backstopped by the Dollar) and the Fed’s actions.

If you remove this confidence, then the entire system collapses as the reserve currency is no longer perceived has having value.

The problem with this setup however is that the US, like almost every other country in the world (I’m including China which is sporting a Debt to GDP ratio north of 200% if you account for its Shadow Banking liabilities), has made promises that it cannot possibly keep.

The US “officially” owes nearly $17 trillion in debt. However, if you include unfunded liabilities this amount surges to at least over $80 trillion and likely north of $100 trillion.

These are promises the US has made. And the US Dollar’s value is based on the belief that the US will honor these promises.

The US is not isolated in this regard. Indeed, the problem of unfunded liabilities exists throughout the world.

In the case of Europe, the situation is so bad that the average EU country would need to have an amount equal to over 400% of its GDP sitting in the bank, earning interest at the government’s borrowing rate, in order to fund its unfunded liabilities.

The same goes for Japan and even China where the shadow banking system has liabilities north of 200% of China’s GDP.

These are promises that cannot be kept. And when these promises are broken confidence in the system will be broken. This will inevitably lead to a period of currency collapse. After this, ultimately there will be a need to restore confidence in the system.

The only way to do this will be by backing currencies with Gold again (or a basket of items that includes Gold).

Given the limited amount of Gold in the world, (a little over 171,000 tons) and the enormous amount of US Dollars in the world, this would require a revaluation of Gold to north of $10,000. Dylan Grice formerly of Societe General lays this out beautifully in the below chart.

I cannot possibly predict when all of this would happen. All I can state with 100% certainty is that ALL fiat currencies throughout history have failed.

This failure has been based on a loss of confidence. And the only way to restore confidence is to limit the ability of Central Banks to print money.

This will inevitably lead to some form of a Gold backed currency. Gold has been used as currency for over 5,000 years. It will be considered currency again in the future. When it does, the price of Gold will be much higher (remember, Gold has risen over 34 fold in the last 40 years).

On that note, if you’re seeking investment recommendations along with laser pinpointed investment research, you should check out our paid monthly newsletter Private Wealth Advisory.

Private Wealth Advisory is a monthly investment advisory that outlines the market action and shows you how to profit from what’s to come. On that note, we currently are sitting on over 17 winners in our Private Wealth Advisory portfolio, with gains as large as 18%, 21%, even 33%… all opened in the last year.

Every Private Wealth Advisory subscription comes with a iron clad 90 day money back guarantee. So if you find Private Wealth Advisory is not for you at any point in the next three months, simply drop us a line and we’ll issue a full refund.

The reports you download and investment ideas you get between now and then are yours to keep.

To subscribe now to Private Wealth Advisory for just $179 (a 40% discount from the normal market price of $300)…

Click Here Now!

Best Regards

Phoenix Capital Research