Money Flow Trading Method along with Risk Management

https://www.zerohedge.com/news/2018-...ops+to+zero%29

Having hovered higher overnight, US stock markets slid from their open and dropped into the red for the day as European markets closed their worst year since 2008...
https://www.zerohedge.com/sites/defa...31_8-33-44.jpg
Will stocks catch down to bonds?
https://www.zerohedge.com/sites/defa...31_8-37-08.jpg
https://www.zerohedge.com/sites/defa...31_8-34-53.jpg

Europe was a bloodbath with the Stoxx 600 down 13% in 2018, its biggest loss since 2008...
https://www.zerohedge.com/sites/defa...31_6-28-51.jpg

And as Project Fear kicked in, The FTSE 100 ended 2018 down 12% - also its worst year since 2008...but Germany's DAX was worst
https://www.zerohedge.com/sites/defa...31_6-31-21.jpg

http://www.whatdoesitmean.com/index2749.htm

https://www.oftwominds.com/blog.html

January 1, 2019
The story of the 21st century is debt is soaring while earned income is stagnating for the bottom 95%.

Best wishes to all my readers and correspondents for a safe, healthy and productive 2019. Thank you, longstanding supporters, for renewing your financial support at the new year without any pathetic begging on my part. (The pathetic begging will commence shortly.)


While I don't have any predictions for 2019 (why look any dumber than I have to?), I do have a couple of thoughts on the economy, markets, globalization, etc. Here are a few of the key issues confronting humanity:
1. The war being waged by Corporate Power (Globalization / Open Borders) to eradicate democracy and the power of nation-states to control their own destiny. Democracy ceases to exist in a corporate-controlled globalized system of governance; the sole structure that enables a citizen to have political and economic agency is the nation-state.


Try voting for a U.N. resolution or E.U. regulation. Sorry, pal, there are no elections or representation of the rabble in globalized governance. Globalization destroys democracy and the agency of the citizenry. That's its goal.


Global corporations seek to destroy any and all barriers to their power and profits, and globalization / tax havens / Open Borders are the means to co-opt, marginalize and neuter nation-states and the political and economic agency of the citizenry. The net result of Corporate Power controlling the machinery of governance is neofeudalism.


2. Energy and capital flows. The status quo holds that energy flows don't matter very much because energy represents a shrinking percentage of economic activity. In other words, capital is what matters, not energy, because capital can always buy whatever it wants.

Try pushing your car or truck uphill for a mile. How many humans would you need to push your 3,000 pound "compact" vehicle up a slight incline for a mile or two? How about 20 miles, or 100 miles?

Take away liquid fuels and the global economy grinds to a halt, and capital loses its scarcity and value. So-called renewable energy is around 3% of total global energy consumption.

3. Volatility, liquidity and price discovery. Central banks have labored diligently for the past decade to eradicate volatility and price discovery while providing almost unlimited liquidity.

For a variety of reasons (including the political blowback of the 90% who have been stripmined by central bank policies, corporate cartels, taxation and globalization), central banks are now attempting to "normalize" by reducing or withdrawing their distorting, perverse-incentives policies.

As a result, what they've suppressed--price discovery and volatility--have erupted. What they've pimped--liquidity--is sagging.

As I explained last month, capital gets skittish when certainty evaporates. When big blocks of assets hit the market, liquidity dries up due to the mismatch between sellers trying to unload hundreds of billions of dollars of assets and the few buyers willing to nibble on a couple of billion dollars of these assets.

Central banks can fill the mismatch by becoming buyers of last resort, but the political leeway to engage in this sort of manipulation is evaporating along with liquidity.

4. 2018-19 is not a repeat of 2008-09. While many have observed the similarity of the stock market meltdown in 2008 and 2018, the fundamentals are not as close a match. There is no analog to subprime mortgages this time around. That doesn't mean there won't be turmoil and asymmetries, but it does suggest we shouldn't put too much weight on expectations that 2019 will follow the template of 2009. I'll have more to say on this soon.


5. The predictably outsized returns on capital have ended. There's more on this in The Crisis of Capital.


6. Debt and stagnant income. Rising debt is supposed to be matched by rising income to service the debt, but the story of the 21st century is debt is soaring while earned income is stagnating for the bottom 95%. That asymmetry eventually matters, for example, when zombie corporations finally default and marginal household borrowers default. The losses can't be socialized this time around; the stripmined masses have finally awakened to the skims and scams of central states and banks.
https://www.oftwominds.com/photos201...s-real9-18.png


7. The much-desired de-dollarization of the global economy has yet to materialize. Personally, I believe a profusion of competing currencies in a transparent, open market is the ideal arrangement, but here's the current arrangement: the USD and euro are dominant.
https://www.oftwominds.com/photos201...currencies.jpg


8. Global harvests of grain and other essential food commodities have been good. Our luck may run out in the years ahead.

9. Cultural Revolutions are becoming more extreme and divisive. I'll have more to say on this soon.

10. The topics covered here in December are key issues in 2019: in case you missed these:
How Many of Your Local Taxes and Fees Are Rocketing Higher?
When Certainty Frays, Capital Gets Skittish
Why Everything That Needs to Be Fixed Remains Permanently Broken
"Yellow Vests" and the Downward Mobility of the Middle Class
Neofeudalism Isn't a Flaw of the System--It's the System Working Perfectly
France in a Nutshell: "The Government Stopped Listening to the People 20 Years Ago"
The Conflicting Forces of Modernism
Are We in a Recession Already?
The View from the Trenches of the Alternative Media
Truth Is What We Hide, Self-Serving Cover Stories Are What We Sell


My new book Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic is discounted ($5.95 ebook, $10.95 print): Read the first section for free in PDF format.


My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF)

My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.

https://www.facebook.com/photo.php?f...6524894&type=3

Good Morning

RISK OFF

https://finviz.com/futures.ashx

https://finviz.com/futures_charts.ashx?t=YM&p=m5

https://www.zerohedge.com/news/2019-...ops+to+zero%29

https://www.zerohedge.com/sites/defa...?itok=LY4e264-
by Tyler Durden


Wed, 01/02/2019 - 03:29


Update: Things are escalating quickly... Dow futures are down 450 points (down 600 from the highs)...
https://www.zerohedge.com/sites/defa...02_0-23-52.jpg


Rapidly erasing last week's 'odd' pension-flow driven panic-bids...
https://www.zerohedge.com/sites/defa...02_0-27-21.jpg


Nasdaq futures are worst - down 2.6% from New Year's Eve close.
This follows weakness in China overnight...
https://www.zerohedge.com/sites/defa...02_0-33-01.jpg


And European indices are tumbling, led by France's CAC...
https://www.zerohedge.com/sites/defa...02_0-37-48.jpg

With the stock dive prompting a sudden safe haven bid into the USD...
https://www.zerohedge.com/sites/defa...02_0-39-57.jpg


* * *
US futures markets opened overnight with a flourish, extending Monday's New Year's Eve panic-bid close. But as with all moments of excess, there is a price to be paid and the hangover has accelerated as markets head into the European open with Dow futures down 400 points from the highs...
https://www.zerohedge.com/sites/defa...1_23-55-54.jpg



All the major indices have reversed early gains, back to last week's lows...
https://www.zerohedge.com/sites/defa...23-54-46_1.jpg



And as a reminder, stoks have quiet a catch down to go if bonds are right over the Xmas holiday...
https://www.zerohedge.com/sites/defa...02_0-00-15.jpg

YOU WERE ALL WARNED


BWM

https://news.goldcore.com/prepare-fo...-outlook-2019/

Prepare For Global Debt Bubble Collapse – Outlook 2019


1, January

– Are we to prepare for a global Debt Bubble Collapse in 2019?

– 2019 to see the political and economic uncertainty of 2018 continue and likely to deepen

– Investors lulled into a false sense of security by politicians, brokers, bankers etc.

– Much “cheer leading” of the “economic recovery” narrative and by extension financial markets – particularly property and stock markets

– Trade wars, currency wars, Brexit, Italexit, EU contagion are real risks

– Systemic risks posed by Deutsche Bank, Italian/ Irish etc. banks and indeed nations such as Italy, UK, US and the global debt bubble

– Risk assets and property to under-perform and precious metals to outperform

– Hope for best but be prepared for the worst by increased allocations to cash and gold

In the 10th Episode of The Goldnomics Podcast Mark O’Byrne and Stephen Flood are in conversation with Dave Russell as they look forward to 2019 and discuss what might be in store for financial markets if the trends from 2018 continue.
https://news.goldcore.com/ie/wp-cont...lay.png?x20670


Listen to the full episode or skip directly to one of the following discussion points:
00:57 – Mark O’Byrne: What has 2019 got in store for us and are we expecting a global debt bubble collapse?
03:41 – Stephen Flood: Rising global debt level is unsustainable and several indicators point to a potential debt bubble collapse in 2019.
05:20 – Mark O’Byrne: Interest rate outlook for the next 12 months.
08:45 – Global debt level nears a quarter of a quadrillion ($250 trillion), 320% of total world output.
10:31 – Humongous debt and associated risks: what role are central banks playing?
11:05 – The end of quantitative easing: Any implication on the stock market?
12:30 – Interest rate hike in 2019: Are big banks insulated?
13:41 – Deutsch Bank: A potential cause of another financial liquidity crisis?
17:40 – Ramifications of a no-deal Brexit.
22:32 – Stephen Flood: Will a no-deal Brexit work out well for the UK in the medium/long term?
24:27 – No-deal Brexit and Bail-Ins: Should depositors and investors be concerned?
26:30 – How likely is it that impeachment proceedings will be instituted against Donald Trump in 2019?
31:30 – How good of a strategist is Donald Trump?
32:41 – Inequality and political events in USA: A peep through the lens of The Arc of Inequality.
36:23 – Instability, inequality and The Arc of Inequality: Looking at the role of populist leaders vs. central banks.
38:17 – Instability and inequality: Looking at the role of technological advancement and oligopolists.
40:51 – Globalization and progress in the east (Asia, India and China, etc.): A cause of reduced standard of living in the western world?
41:36 – De-dollarization of the global economy likely to continue in 2019.
45:13 – US to find it more difficult to fund budget deficits in future.
46:42 – Beyond the doom and gloom: where’s the bright spots out there?
49:50 – Asset allocation: How much should be invested in gold?
51:20 – Stock market advice from “experts”: Any need to be cautious?
52:41 – The implications of recent events for silver in 2019.
55:02 – Cryptocurrency: Outlook for Bitcoin in 2019.
58:01 – Silver vs. Bitcoin, which is a better investment option?
59:14 – Potential global financial crisis in 2019: what would be the main catalyst?

Make sure you don’t miss a single episode…… Subscribe to the Goldnomics Podcasts on iTunes, Soundcloud, or YouTube: https://soundcloud.com/goldcore-381451255
YouTube.com/user/GoldCoreLimited

Follow us on social media:
GoldCore on Twitter: https://twitter.com/goldcore
GoldCore on Facebook: https://www.facebook.com/GoldCore/
GoldCore on Linkedin: https://ie.linkedin.com/company/goldcore


Visit our website at: https://www.goldcore.com
https://news.goldcore.com/ie/wp-cont...mes.png?x20670

Secure Storage Ireland – Click here for information

News and Commentary
Gold settles higher as Fed lifts a key interest rate (MarketWatch.com)
Stocks Retreat on Fears of Fed Mistake; Oil Slumps: Markets Wrap (Bloomberg.com)
Asia Stock Carnage Deepens as Hopes Fizzle With Policy Updates (Bloomberg.com)
Gold steadies, Fed signals ‘some’ rate hikes for 2019 (Reuters.com)
Fed lifts rates, now sees ‘some further’ hikes ahead (Reuters.com)

EDUCATE YOURSELF


BWM

thanks for your explanation,

on your previous post about your daily habit,you mentioned watching cnbc as one of your tool to determine risk on/off,what program on cnbc that i should watch in order to determine risk on/off?( i never watch cnbc,it is paid service compare to bloomberg is free)
for example :
- today you judge risk on/off at about 4.00 am,so mean you watch cnbc/read news flow before 4.00.
what headline/ story/program that can be used as a tool to determine risk on/off?



otnishan

Good Day


It is fine to use Bloomberg. It is just to listen to what the so called experts are saying and news that is revealed. Yes there are a few real experts who are not just talking heads. I think Bloomberg is more neutral then CNBC

Happy New Year.

I entered two more Forex trades for you. Soon you will need to start to trade your account.


BWM

quote from benjaminis:

Make sure you don’t miss a single episode…… Subscribe to the Goldnomics Podcasts on iTunes, Soundcloud, or YouTube: https://soundcloud.com/goldcore-381451255
YouTube.com/user/GoldCoreLimited


i have subscribed on soundcloud and youtube,but can not find those conversation above( i copy and paste to soundcloud/youtube,but still can not find those title),any suggestion on how to find?

AMAZING LISTEN !!! PLEASE DO !!!

happy new year,

question about your indicator, quote on post 4,496:

By the way technical indicators are very important to my overall trading methods as I have designed my own standard template for my technical indicators which are used to show support and resistance. I use the 5 minute charts as well the 15 minute charts. I will get into the technical side of trading in later posts.


would you suggest me on thread or website about "how to use the indicator above(support and resistance)"?
i think that support n resistance indi is very useful, i ve ever read about thread here"dominos price n orderflow trading"/ akt:trading institutional order flow/ nbt:no brainer trade).
is it your indi match with the one of three system above?

thanks

about support and resistance indicator, this is just guessing about your action in sell/buy with your s/r indi

example is spx500 trade today,this is snapshot:




look at grey line,this is my guessing you short today with your indi?please comment!(sorry still can not use platform perfectly,with grey line)

about your tp i am still confused,if you dont mind please explain.

1. Dec 30, 2016 2:56pm | Edited at 3:21pm

1. https://cdn-assets.faireconomy.media...ar496005_1.gif KeepCalmfx
2. | Joined Oct 2016 | Status: Member | 518 Posts

What a nice surprise to come home to.

The money flow method is amazing, thank you Benjamin for dealing your trade secrets with us.
I also agree with Dttsomh, I also became very good friends with SAR & Fractal, its working very well.

Patients is key, I added 1 x US30 & 1 x JPY position yesterday afternoon. Both went into drawdown of +/- $500 each, but I had faith in the money flow method and it paid off well.
I added another position this afternoon and now I am in a nice profit with US30.
I moved my stop losses to 1960.00
I am very excited about our journey for next year!
Attached Images (click to enlarge)
https://www.forexfactory.com/attachm...1&d=1483127550 https://www.forexfactory.com/attachm...1&d=1483127628 https://www.forexfactory.com/attachm...1&d=1483128313

 

1. Post 653
2. Cleanup
3. Quote
4. Dec 30, 2016 3:32pm

1. BenjaminIs
2. | Commercial Member | Joined Dec 2014 | 4,259 Posts | Online Now

Quoting BenjaminIs
{quote} Thanks for the link and Thanks for not putting a long Snippet up. That is my own joke on myself and if it helps everyone we can take a vote if we should do it your way with maybe a summary of what we got out of the article. Please let me know. I see US 30 continues to move down. My unrealized Profit is now $640.00 US 5 Minute Chart from Finviz on US 30 http://finviz.com/futures_charts.ashx?t=YM&p=m5 I might take profits if it goes over $850 US Unrealized Profit as a Bird in Hand is Worth Two in the Bush. However either way $840...
It worked like a charm and now I reached my 3:30 PM lunch and business meeting combined and my Limit Out closed my last Forex Trade of today and I am out with a profit of $850 US Dollars and all in cash. My Balance now is $54,039.25 US Dollars and All is Good. That is 8% in 10 days.

Benjaminis

https://gainspainscapital.com/2019/01/02/10911/

The Everything Bubble Has Met Its Needle… and It’s Named Jerome Powell
Posted in Crisis By The Phoenix On January 2, 2019


In December, Jerome Powell confirmed that he is going to implement a financial reset.


That reset will crash stocks.


We know this because the Fed didn’t even HINT at tapering its Quantitative Tightening program at this latest Fed FOMC despite stocks staging the worst December since the Great Depression.


This tells us that the Powell Fed is going to normalize the Fed’s balance sheet no matter what. And THAT is the real issue for the financial markets (the withdrawal of liquidity) NOT rate hikes/cuts.


This is what the market is reacting to. Stocks now know that the era of easy money is over. The Fed is being run by a man who doesn’t see it has his job to create/sustain asset bubbles.


And that is why The Fed Has Confirmed It Will Crash Stocks

In December, Jerome Powell confirmed that he is going to implement a financial reset.


That reset will crash stocks.

We know this because the Fed didn’t even HINT at tapering its Quantitative Tightening program at this latest Fed FOMC despite stocks staging the worst December since the Great Depression.


This tells us that the Powell Fed is going to normalize the Fed’s balance sheet no matter what. And THAT is the real issue for the financial markets (the withdrawal of liquidity) NOT rate hikes/cuts.


This is what the market is reacting to. Stocks now know that the era of easy money is over. The Fed is being run by a man who doesn’t see it has his job to create/sustain asset bubbles.


And that is why we are going to crash.

Think of it this way, the era from 2008-2018 was a time in which stocks got bubbly, disconnecting from economic realities. Once Jerome Powell took the helm at the Fed, the markets slowly began to realize that this era is OVER. As a result, we’ve seen numerous asset classes begin to crash as their respective bubbles burst and they drop to price levels that are fundamentally sound.


Stocks are now going to play catch up. Oil has already broadcast that this stock market bounce won’t last.we are going to crash.

Think of it this way, the era from 2008-2018 was a time in which stocks got bubbly, disconnecting from economic realities. Once Jerome Powell took the helm at the Fed, the markets slowly began to realize that this era is OVER. As a result, we’ve seen numerous asset classes begin to crash as their respective bubbles burst and they drop to price levels that are fundamentally sound.


Stocks are now going to play catch up. Oil has already broadcast that this stock market bounce won’t last.
https://gainspainscapital.com/wp-con...01/unnamed.png


On that note we just published a 21-page investment report titled Stock Market Crash Survival Guide.

In it, we outline precisely how the crash will unfold as well as which investments will perform best during a stock market crash.

Today is the last day this report will be available to the public. We extended the deadline based on yesterday’s sucker rally, but this it IT… no more extensions.
To pick up yours, swing by:
https://www.phoenixcapitalmarketing....rketcrash.html


Best Regards

Graham Summers

https://www.zerohedge.com/news/2019-...ops+to+zero%29

https://www.zerohedge.com/sites/defa...?itok=LY4e264-
by Tyler Durden
Wed, 01/02/2019 - 21:05

Authored by Michael Howell via CrossBorder Capital,
All around is crashing: Can the centre hold?

1. Global Liquidity falling at its fastest rate since 2007/08 Crisis
2. Over-zealous Central Banks are largely to blame. Not a broken banking system like 2007/08 Crisis
3. Squeeze evidenced by flat yield curves and negative ‘real’ term premia
4. In the US, the impact of ‘reverse’ QE is equivalent to another 10 rate hikes

We will enter 2019 with Global Liquidity tumbling at its fastest rate since the 2007/08 Financial Crisis. Yet again investors are learning the hard lesson that low nominal interest rates are a dangerously ambiguous guide to monetary conditions.
Already risk asset markets are skidding, in response to tight liquidity, and economic slowdown and probable recessions lie ahead. The future looks especially bad for those economies, firms and institutions that have spent the last decade kicking the proverbial debt can down the road. High debt levels always demand high liquidity to facilitate re-financing. Systemic risks rise if debt cannot be re-scheduled.
https://www.zerohedge.com/sites/defa...images/0_2.png
Figure1 shows the scale of the recent drop in Global Liquidity. Liquidity here refers to funding liquidity, rather than market liquidity, although the two are closely linked. Since end-January 2018, World private sector liquidity has fallen by some US$3 trillion, with roughly two thirds of the drop coming from the Developed economies, while World Central Bank liquidity has fallen by another US$1.1 trillion, with two-thirds of its drop recorded in Emerging Markets, paced by their large foreign reserve losses. Added together, Global Liquidity has in total fallen by just over US$4 trillion to US$124.1 trillion.


This 3% drop looks more serious when set against its 7% ‘normal’ trend. Put another way, after its brief recovery Global Liquidity has fallen back again to stand some 25% below its long-term trend. The table reports the latest weekly activities of the key Central Banks: only China’s People’s Bank (PBoC) is still expanding its balance sheet. And, measured in current US dollars, latest data show World Central Bank money is down by nearly 10% at an annualised 3-month clip.


What to Watch?
We monitor Global Liquidity by closely watching three channels:

1. Central Bank liquidity injections
2. Private sector liquidity provision
3. Cross-border capital flows

The first channel is now fashionably dubbed ‘QE’ or quantitative easing and measures the activities of policy makers in the money, repo and debt markets. The second looks beyond credit at all forms of cash generation by the private sector. It embraces bank credit, shadow bank credit and household and corporate savings flows in retail and, particularly, wholesale markets, and covers a history of financial engineering that extends back to the UK fringe banks in the 1970s and Japanese zaitech in the 1980s. Cross-border flows include all forms of net investment, but they are noteworthy because foreign currency borrowings, e.g. Eurodollars, are often used as collateral and levered up by domestic credit providers. It follows that Central Bank liquidity and cross-border flows represent what we term primary liquidity, while banks and shadow banks provide secondary liquidity.


We define Liquidity broadly to include ‘global’ or cross-border effects, and deeply, insofar that it extends beyond the traditional financial sector, to include corporate cash flows, and beyond retail banking by embracing wholesale money and repo markets.
The link between the volume of liquidity and interest rates was anyway never one-to-one: a fact that is especially true in the post-2008 period. Moreover, the link between bank reserves, money and liquidity has been similarly blurred; with the size of Central Bank balance sheets playing a more complex role in the funding structure since they simultaneously affect both the supply of cash and the availability of collateral. According to Adrian and Shin (2009):“The money stock is a measure of the liabilities of deposit-taking banks, and so may have been useful before the advent of the market-based financial system. However, the money stock will be of less use in a financial system such as that in the US. More useful may be measures of collateralized borrowing, such as the weekly series of primary dealer repos.” Adrian and Shin, Money, Liquidity And Monetary Policy, New York Fed Staff Papers, January 2009 Funding and the specific role played by Central Banks are critical factors explaining the liquidity cycle.


Central Banks have an outsized-effect in deregulated financial systems, where retail deposits are not the sole funding source, because what matters most is the ability to re-finance positions and at the margin Central Banks are the marginal suppliers of liquidity. Put another way liquidity is not fungible in crises, the very times that it matters most, and so Central Bank interventions are required. Since the supply of liquidity to roll-over existing positions matters more than the demand for finance for new projects, the size of the Central Bank balance sheet often outweighs the impact of interest rates.

It follows that the relationship between interest rates and the supply of liquidity is rarely one-to-one. Central Bank interventions into the money markets significantly affect the elasticity of the financial system: in short, quantities matter and Central Banks increasingly determine the volume of funding liquidity and often directly impact the amount of market liquidity in modern financial systems.
https://www.zerohedge.com/sites/defa...%20%281%29.png
Figure 2 shows the dramatic expansion in the size of the US dollar money markets to around US$9 trillion and the dominant role played by the US Federal Reserve in the period since 1980. These markets have increasingly supplemented retail deposits and now fund a rising proportion of US credit and liquidity, notably wholesale lending activity. Admittedly, following the 2007/08 Crisis, they have essentially flat-lined in size. Although the money markets are exploited by both traditional banks and shadow banks as financing pools, what sets traditional banks apart from all other financial institutions is their ability to issue liabilities, e.g. demand deposits, that serve the non-bank sector as a means of payment. Consequently, traditional banks do not face the same funding constraints as other financial intermediaries, so making their lending more elastic. In theory, as long as capital requirements are met, the traditional banking system can accommodate additional credit demands by simply creating new means of payment in the process of making new loans.


What shadow banks do is to transform these bank assets and liabilities and refinance them as longer and more complex intermediation chains, e.g. A lends to B who lends to C, etc. In doing this they provide alternative stores of value, e.g. asset backed securities, to institutional investors that do not want to hold all of their liquid assets as (uninsured) demand deposits. However, shadow banks largely repackage and recycle existing savings. By lengthening intermediation chains they became involved in large volumes of wholesale funding, without creating much new lending. The data show that they are involved in 66% of gross funding, but directly account for barely 15% of new lending. Shadow banks, therefore, increase the elasticity of the traditional banking system by relaxing banks’ capital requirements, through, say, selling loans externally to GSEs or internally to off balance sheet vehicles, so boosting the credit multiplier.


A speculative appetite to borrow always exists and seemingly is independent of interest rates. Keynes dubbed this the ‘unborrowed fringe’. Yet, shadow banks could not have originated the credit boom that preceded the 2007/08 Crisis, since they themselves depend on bank credit. The fragility of this wholesale funding model based on short-term repos has heightened systemic risks, not least because it is market collateral-based and highly pro-cyclical, and it always threatens to feed-back negatively on to the funding, as well as the lending books of traditional banks. Traditional economics misses the importance of this gross funding dimension, because it takes every credit as a debt (debit), every debt as a credit: so assets and liabilities must match, and the system always balances to zero. Thus, it never acknowledges just how big these numbers are: regardless of how much credit or debt there is in the system, the net figure is always the same. But knowing this fact is akin to scaling the World’s longest ladder and promising never to fall off!


The vital role that Central Banks play in this funding mechanism is also not well understood, even by the policy-makers themselves. For example, some experts have even claimed that collateral, such as Treasury notes that were purchased by policy-makers as part of QE operations, when released back into the market from the asset side of the Fed balance sheet:
“is a far better lubricant for the financial system than the reduction in reserves balances on the liability side of the Fed balance sheet. ... Thus, a leaner central bank balance sheet... could justify a much higher policy rate in this cycle than currently being anticipated.” Singh, FT April 2017


This is dangerous talk, particularly if it has recently played a role in persuading policy-makers to become more cavalier in their tightening actions. We maintain that the size of the Central Bank balance sheet serves as an unambiguous guide to the availability rather than simply the cost of primary funding. Thus, quantitative tightening is likely to have an out-sized effect in the modern financial system. This can be seen in Figure 3 which highlights the close relationship between movements in the size of the US money markets and changes in the size of the Federal Reserve balance sheet. The latest drop in the balance sheet spells out an ominous warning for US money market conditions.


This Is A Different Crisis To 2007/08
Therefore, we suggest that, unlike the 2007/08 Crisis which was more about a broken banking system involving the sudden collapse of leverage among over-extended banks and shadow banks, the current credit squeeze looks more like the 1997/98 Asian Crisis when Central Banks, led by the US Fed, tightened the supply of primary liquidity and cross-border flows rapidly retreated. This time around financial markets are probably even more interconnected and more global. Consequently, this could be an Asian Crisis-like sell-off, but one not only confined to Asia. This is shown in Figure 4, which depicts the two moving-parts that explain fluctuations in total credit – changes in the credit multiplier (black line) and growth in the monetary base (orange line).
https://www.zerohedge.com/sites/defa...%20%282%29.png
Although the supply of primary liquidity dipped, the 2007/08 Crisis was dominated by a forced de-leveraging as shown by the skidding credit multiplier– the ratio between total credit and the official monetary base. In fact, pace its absolute decline in 2006, the US Federal Reserve’s balance sheet subsequently expanded rapidly as the crisis unfolded. This is shown by the orange line in Figure 4. The explanation for this collapse is that in the run-up to 2007/08 shadow banks had been borrowing against new collateral, such as US dollar deposits, and re-hypothecating existing collateral (i.e. the so-called collateral multiplier) to create what might be dubbed a ‘shadow monetary base’. We can crudely estimate the size this notional shadow base by keeping the credit multiplier fixed at its previous average value and calculating the funding ‘gap’ required to justify rising total credit. This is shown in Figure 5. On the same chart we have added the cumulative flows of cross-border capital to Emerging Markets because these flows were likely dominated by dollar loans that were probably being sourced from the same off-shore wholesale markets. Not surprisingly, the two series co-move closely.


The Collapse of World Central Bank Money
In contrast, today’s monetary problem is more about the other component, namely tight primary liquidity. This has four dimensions:

1. US Federal Reserve tightening
2. Tightening by other major Central Bank (e.g. ECB and BoJ)
3. USD Area tightening (e.g. Emerging Market Central Banks)
4. Legislative onslaught against the Eurodollar/ off-shore wholesale markets

https://www.zerohedge.com/sites/defa...%20%283%29.png
Figure 6 examines the growth in Central Bank money, broken-down into three parts: the US Federal Reserve, Central Banks in the non-US Developed markets and Emerging Market Central Banks. The scale of the current liquidity squeeze goes beyond the US Fed raising the bar on its ‘reverse QE’ to US$50 billion per month and the ECB halting its QE from year-end. The chart shows how the US Fed has been tightening QE policy since 2015. The major non-US Central Banks started easing later and only began tightening earlier this year. Similarly, with Emerging Market Central Banks and as Figure 7 highlights, the EM cycle has been (as usual) largely dictated by underlying foreign exchange reserve movements. This, in turn, likely reflects an additional negative spill-over from US Fed tightening. Summarising the aggregate story, the chart shows that all three groups are now contributing to the sharpness of the overall liquidity slowdown.


The fourth component of tightening is harder to pin-down because data is scarce. However, we suggest that the offshore wholesale markets are under fire from the US Federal Authorities, who seem keen to regain control of US dollar liquidity.

The Eurodollar markets, which lie outside of US Fed or Treasury control, were a major factor behind the wayward shadow banking boom ahead of the 2007/08 Crisis. There have been three moves made to regain control: (1) the planned replacement of (uncollateralised) LIBOR with the new secured SOFR on-shore money market interest rate; (2) the 2018 tax amnesty that facilitated the repatriation of off-shore US corporate deposits, and (3) the recent removal of the tax allowance for interest payments on off-shore inter-bank loans. These official directives should substantially reduce the future attractions of using the Eurodollar markets. One way to show their impact is in Figure 8, which plots the amount of net funding that US-based banks receive from international banks. Since this represents dollar funding, the likely foreign sources are the Eurodollar markets. Figure 8 highlights the sizeable decline from the US$750 billion peak in 2015.
https://www.zerohedge.com/sites/defa...%20%284%29.png
Other Evidence of Tightness
The scale of this tightness can be seen in two other statistics: (1) the ‘real’ term premia on US 10-year Treasuries, and (2) the flat slope of the G4 yield curve. The 10-year Treasury is the canonical ‘safe’ asset for World investors and a low term premia suggests a high demand for ‘safe’ assets. To remove the distorting effects of inflation expectations on term premia, we calculate an inflation-adjusted series or ‘real’ term premia. When the net demand for safe assets is ‘normal’, the real term premia should be around zero: greater demand for safety pushes it lower, and greater risk appetite among investors should push it higher. Consequently, these real term premia movements provide another way of judging whether monetary conditions are too loose or too tight.


Figure 9 plots the ‘real’ term premia for 10-year Treasuries against Fed Funds. It shows that because of the effect of reverse QE, the ‘true’ Fed Funds rate is nearer to 5% than the prevailing 2.5% target: in other words, tight liquidity conditions are equivalent to the Fed undertaking around 20 rate hikes rather than the nine it has so far implemented this cycle.
https://www.zerohedge.com/sites/defa...%20%285%29.png
In Figure 10, we show the relationship between Global Liquidity and the term structure of World interest rates as depicted by the slope of the G4 government yield curve. Term premia again play a role here because tight liquidity conditions, by forcing investors into demanding more ‘safe’ assets, push up bond prices and simultaneously pull down their yields and term premia. Thus, the general ‘flatness’ of yield curves across the major economies again testifies to generally weak Global Liquidity conditions. It is simply not the case, as many suggest, that Central Bank QE lowers bond yields. Rather, because government bonds are ‘safe’ assets, ‘reverse QE’, in fact, causes lower yields, and QE raises bond yields. This follows because term premia widen as the extra liquidity persuades investors to take more risks, so shifting asset allocation from ‘safe’ bonds to risky equities.



Conclusion
We expect a major policy easing in 2019. However, only China’s PBoC (People’s Bank) among the majors is so far easing monetary policy. We anyway see China as leading this cycle. The US Fed is likely to follow given the scale of tightness in domestic and Global Liquidity and this must involve greater liquidity injections, rather than simply interest rate cuts. We have no view whether this takes the formal shape of an explicit ‘QE4’ policy or if it involves an unannounced increase in the size of the Fed’s balance sheet.


Whichever, the immediate implications will be a yield curve steepening and ultimately a weaker US dollar. Financial shares and Emerging Markets may prove the main beneficiaries.

PLEASE LISTEN AS IT IS VERY IMPORTANT TO UNDERSTAND WHAT REALLY IS HAPPENING IN THE MARKETS

GOOD MORNING

THE ARTICLE THAT I SHARE NOW WILL MAKE IT VERY CLEAR WHY FINANCIAL COLLAPSE IS AWAITING OUR WORLD.

https://www.armstrongeconomics.com/a...gxNcI.facebook

While the BitCoin people have hated me for not agreeing with them that a private currency could displace the currencies of all nations and BitCoin would be the new “reserve currency” killing the dollar, to me they are in serious need of help. They have ZERO comprehension of governmental power and ZERO understanding of what is going on behind the curtain. The IMF has come out and stated that each nation should issue their own cryptocurrency and these fools cheers claiming I am not with it and do not get this new age of technology. Sorry, but these people are really clueless if not perhaps undercover people with a mission to get people willing to surrender their final liberty – paper money.
https://d33wjekvz3zs1a.cloudfront.ne...ank-Robber.jpg



While cryptobugs advocate gold is dead and BitCoin will conquer the financial world, they miss the point entirely. The IMF is by no means embracing cryptocurrencies for the same reason these people have claimed it will bypass central banks. The IMF is advocating the end of paper money to kill the underground or black economy solely to aid the hunt for taxes and to PREVENT bank runs. If there is no paper money, how can you run to the bank in a panic demanding to withdraw your money? They also argue eliminating paper money will end crime.
https://d33wjekvz3zs1a.cloudfront.ne...-Taskforce.jpg



https://d33wjekvz3zs1a.cloudfront.ne...-Australia.jpgNow, Michael Andrew, the man appointed by the Australian Federal government to lead the ‘Black Economy Taskforce’ at the end of 2016, is arguing for an interim-step. He believes tracking the currency denomination is the best solution in stopping the underground/black economy and grabbed taxes if you found a $50 or $100 bill on the street and failed to give the government their 50%.



Governments are going broke. They will not listen and instead, they are obsessed with just a solution for the next quarter. They lack any vision of the future and will NEVER tax responsibility for their own mismanagement. Their single solution is to always raise taxes rather than reform. The more they press toward this cashless society the greater the economic implosion. What comes after the elimination of cash and the budgets are never balanced with institution starting to shift to private assets rather than government bonds that pay nothing and present huge risks will be the default on social programs without the corresponding reduction in taxes. This all leads to the inevitable collapse of Western Society just as we witnessed the collapse of Communism in 1989.
Our model is famous for forecasting the collapse of Communism and even the fall of the Berlin Wall (November 9, 1989; 1989.857). The likelihood of Western Socialism surviving as some benevolent government will come to an end by 2041.457. The 1989 Tiananmen Square protests that culminated on June 4th, 1989 (1989.424). This means we should begin to see a sharp rise in civil unrest cyclically speaking beginning October 28th, 2020 going into the US Presidential elections.


The future appears very dark unless we can convince the world governments that they face a hopeless path to secure its power. In this hunt for taxes, they are destroying all liberty. They cannot reasonably pretend to be governments of the people and by the people in a wonderful land of democracy and opportunity when they need to track everything we do and have. Paying a babysitter will be illegal with cash. Society will not run to cryptocurrencies with open arms. We will be forced to return to barter systems.


Categories: Economics
« The Central Bank War – Nobody Notices


REGISTER FOR BLOG UPDATE ALERTS
If you are human, leave this field blank.
https://d33wjekvz3zs1a.cloudfront.ne...jax_loader.gif


BLOG CATEGORIES

1. +Armstrong Economics 101
2. +Armstrong in the Media
3. +Forecasts
4. +History
5. Hong Kong
6. +International News
7. Market Talk
8. +Markets by Sector
9. Plagues
10. +Products and Services
11. Q&A
12. Real Estate
13. Uncategorized
14. +Upcoming Events
15. +World Events

PROMOTIONS
https://d33wjekvz3zs1a.cloudfront.ne...eo-273x140.jpg

1. PROMO

Instructional Videos
https://d33wjekvz3zs1a.cloudfront.ne...k-socrates.jpg

1. PROMO

Socrates
https://d33wjekvz3zs1a.cloudfront.ne...ip-273x140.jpg

1. PROMO

Models and Methodologies
https://d33wjekvz3zs1a.cloudfront.ne...EC-273x140.gif

1. PROMO

2018 World Economic Conferences
BLOG ARCHIVES

1. January 2019
2. December 2018
3. November 2018
4. October 2018
5. September 2018
6. August 2018

View All