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Mini bubble in precious metals? It's rather fair to say that retail traders and investors see precious metals as attractive once again. They view it as a good play to "hedge" against central banking failure, runaway inflation, and a bear market in the U.S. dollar. As a result of a Fed that has lost all its credibility and a volatile USD, precious metals have been one of the best performing assets YTD.

This has led to an explosion in metal ETF holdings (GLD for gold, SLV for silver) to roughly 2012 (gold) and 2014 (silver) highs. With so much retail interest in gold and silver, we have to beg the question of whether prices are nearing a top or have already carved in a top. Extreme bullish sentiment, and near record speculative net long positioning in both gold and silver futures are really leading us to lean towards this thesis.

We are henceforth very cautious about being long the precious metals at this stage. Not necessarily bearish, but cautiously aware of these facts.

#Forex #Stocks #Trading #Investing #Money #Economy #Finance #Business #Friday #FOMC #QE #NIRP #Brexit #UK #Europe #Euro #UK #Gold

What happens when a mindless market crashes on fears of something stupid happening, something such as Brexit (which no one really knows the outcome of until a week later), overshooting bearishness, climatic fear, and senseless panic selling? Well the opposite happens on the slightest of events.

These charts tell the full story and we needn't repeat ourselves. The event that reversed most markets from their post FOMC trends was the killing of British pro-Brexit law maker. The person was shot dead, leading to what was a micro capitulation in the short GBP, and long USD (yes, long USD even after a pretty dovish June FOMC statement and press conference with Yellen...). So we got a sharp reversal in just about every asset class besides oil.

Stocks are not unchanged from pre-FOMC, gold is lower, yields are only slightly lower (from very much lower)... Like we said, trading this market is akin to gambling without knowing one's odds. So good luck try to wit out a senseless market. We wish to have nothing to do with this...

#Forex #Stocks #Trading #Investing #Money #Economy #Finance #Business #Friday #FOMC #QE #NIRP #Brexit #UK #Europe #Euro #UK

Presented without comment...

#Forex #Stocks #Trading #Investing #Money #Economy #Finance #Business #Friday #FOMC #QE #NIRP #Brexit #UK #Europe #Euro #UK

What gun control? Despite all the gun related deaths (accidental or deliberate) over the last 5 years in the U.S., gun ownership amongst Americans has never been higher. Thanks to this, firearm sales to the general public (not for law enforcement or the military) have reached record highs as seen in this chart plotting the sales of Smith & Wesson, one of America's largest small firearms manufacturer.

You might not know this, but America has the highest number of gun-related fatalities in the entire world. So let the gun control debate rage in whilst the rest of the world watches on rather amusingly.

#Forex #Stocks #Trading #Investing #Money #Economy #Finance #Business #Friday #FOMC #QE #NIRP #Brexit #UK #Europe #Euro #UK #Orlando #GunControl #Trump #Politics

After the pro-Brexit UK lawmaker was killed by a mentally ill person, campaigning was halted (now for the second day).

This sent Brexit risk lower as seen in the top pane, and GBP higher, dragging risk assets up.

We talked about this earlier today but have to ask the question of whether this is a blip in a trend, or a reversal. Only one way to find out... That is to wait and well, continue to gamble at the Brexit table.

Cable (GBPUSD) has now rallied from last Thursday's lows of 1.40 to the current 1.44 a few short hours after the FX markets opened for trading Monday. The 400+ pip rally in GBPUSD (along with other GBP crosses) was clearly sparked by the killing of UK MP Jo Cox, a pro-Brexit advocate.

As campaigning was temporarily suspended (still is to date), selling in GBP seemed to exhaust itself as shorts scrambled to cover as upside momentum exploded. We might have seen a short squeeze, as we noted last week that both sentiment and market positioning in GBP futures were at extremely levels, while prices were approaching key technical support. It's fair to say that quite some number of traders shorted GBP at or around 1.40, expecting a breakdown on what in retrospect seems to be climactic selling.

#Forex #Stocks #Trading #Investing #Money #Economy #Finance #Business #GBPUSD #GBP #JoCox #Brexit #UK #Europe #Euro #UK #EUref

The Ultimate Visual Guide To Brexit

This coming Thursday, 23 June 2016, the United Kingdom will vote on a historical referendum deciding on the status of its European Union (EU) membership.

For the last 2 years since 2014, the UK parliament, led by Prime Minister David Cameron have promised a public referendum on Britian's EU membership.

Britain's relationship with Europe has always been one of contention, and many have long been awaiting this once in a generational lifetime opportunity to voice their opinions through the democracy of a vote.

READ ALL UPDATES HERE:
http://www.businessoffinance.com/insight/2016/6/20/the-ultimate-visual-guide-to-brexit

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Pound sterling was trading at 1.4020 on Thursday morning when a tragic event sent it soaring 600 pips higher, rising above 1.4660 in the following days. Whether the murder of Jo Cox was the catalyst (that has turned around the outcome of the Brexit referendum) is unclear. It is however apparent that the moment when the news of her shooting and subsequent death hit, coincides perfectly with lows in GBP.

Since thence GBP has soared without looking back, as the momentum in the 'leave' camp has gone, replaced by a poll showing 'stay' leading by 3%. As a result, global equities and risk assets have rallied, with the pound strengthening the most since 2008, soaring by 300 pips since Friday's close. Meanwhile, safe haven assets such as the yen, U.S. treasuries, and gold have slumped. The markets are clearly in risk on mode.

Less than 2 days till the Brexit vote and intensity of fear mongering and campaigning has started to really heat up in earnest. Just on Monday alone, GBP crosses saw high volatility after various headlines starting that the 'stay camp' continued to gain a lead over Brexit. New pollster result came in and we also saw The Telegraph taking sides saying that it supported Brexit...

Which is ironic because the media company would then go on to publish poll details showing Bremain in the lead.

For those doubting the integrity of bookkeeper's data, the recent surge in Bremain votes is backed by a comparable decline in Brexit votes via opinions polls (i.e. changes in bookies are matched by changes in pollsters).

The latest poll results from ORB dated 21 June (Tuesday) show the 'stay' camp in the lead at 53% vs. 46% for the '"leave' camp.

The divergence and convergence game is strong in this one. As global GDP growth expectations waxes and wanes, ultimately trending much lower since the start of 2015 (3.8% to 3% currently), global equities have in many occasions over the same period diverged higher from this key macro measure, only to converge by diving lower each time.

Now, global stocks are the most expensive they've ever been relative to global GDP growth expectations, and we must say the technicals don't look good at all for a bullish proposition on stocks. So we'll ask the rhetorical question meant to be posed to the observation marked in the red square: What now?

Will stocks correct lower, or will GDP growth expectations miraculously turn higher? You decide.

Since the advent of extraordinary monetary policies worldwide, and some 665 interest rate cuts by global central banks later, not all stock markets benefit equally (or even suffer!) from QE and very loose monetary policy. In this study, Deutsche Bank investigates this matter.

This is a good example of why a long term strategic selection of geographies to invest your capital is crucial to total returns.

***

From the piece titled "Illusory Benefits of Cheap Money" by DB's Oleg Melentyeb:

"Easy monetary policy now coupled with direct involvement by central banks in pushing down the price of credit risk, equity performance distribution must be in direct proportion to those efforts. Wrong, the answer is exactly the opposite."

The charts depict relative performance of US, EU, and Japan broad equity benchmarks against the MSCI World index (MXWO) since Jan 2008. The timeframe here was chosen to fully capture the period of extraordinary central bank activity around the globe.

An interesting picture emerges from taking a closer look at these graphs. US equities are the best performing segment among these three, having outrun the global index by 41%. Remarkably, however, more than half of that outperformance was achieved after the Fed was done with QE; the relative standing was +18% in late 2013. Also remarkably, the last 10% were achieved since mid-2015 as the Fed prepared for and executed the first rate hike in this cycle.

The picture is quite different in EU and Japan, where initial easing/QE announcements in 2015 and 2013 respectively have delivered the expected sugar-rush of risk appetite, most of which has been reversed by now, just as those policies went from a drawing board to implementation.

The charts also show the surprising relative change in US vs. European vs. Japanese stock markets since the end of QE3 in the US and the launch of aggressive monetary policies elsewhere around the world.

If the central banks behind extreme policy measures have little to show for the risk they have taken on their balance sheet to this point, and the pressures they have subjected their savers and financial institutions to, why should we expect such actions to be extended much further into the future? Any benefit of additional central bank accommodation appears to have been largely exhausted at this point in the cycle.

If that is indeed the case, it is much more likely that a year from now we would see those programs on their way to curtailment rather than further expansion. Fundamentals would once again prevail over technicals, just as they always do over time. Recent market moves suggest investors are beginning to position themselves accordingly in anticipation of such an outcome."

Are the markets getting more anxious about gold (or the precious metals complex as a whole)? Maybe. When we look at interest rates (represented by DM bonds here), gold, and market-implied Fed rate hike expectations, we see a tight and positive correlation between the 3 throughout various different situations in the past year.

The phase before the first Fed rate hike in December 2015 saw the strictest correlations between these so called anti-dollar assets. The phase after the Fed hiked saw correlations pull apart but still strongly positive. It's clear that the huge May NFP disappointment sparked the latest upside in gold (via the weak dollar trade) and has sent yields plunging and rate hike odds falling once again. This was fueled by last week's dovish FOMC event.

However, looking at market positioning, gold Bulls have to be mindful that positioning is near 2011 highs and is potentially climatic. Trade wisely.

Remember how we reported on the massive bubble in Tier 1 Chinese property prices, a niche market meant for the uber rich that had seen 35% YoY increases? Well, forget about that being the best example of China's infatuation with bubbles of all kind.

Here we see the average land price (not property, but UNDEVELOPED LAND) in the top 100 cities in China surge 100% (or more than double) from May 2015 to May 2016. If this doesn't set off alarm bells ringing in your head, than nothing will. The 3,100 Yuan per square meter price is the highest on record and sets a new precedent for sure.

This debt-fueled inflation is staggering. The conventional wisdom when confronting a financial bubble is to stop inflating it. However, it seems that China has little concerns about it and plans to keep blowing itself closer to the cliff's ledge.

Average land price per square meter for the top 100 Chinese cities in the first five months of this year jumped nearly 50% from same period last year. Certain land prices are even higher than asking prices for fully built houses nearby. Yup, a plot of land in China can cost more than a fully built high end apartment of the same size...

Here are some examples of how the Chinese government is pushing the real estate bubble on an unsustainable parabolic path that will lead to an unmitigated bubble explosion:

State-owned developer Poly Real Estate bought a piece of land in a Shanghai suburb for 5.5 billion yuan ($835.5 million) last month. This translates to roughly 44,000 yuan per square meter of buildable space. This is more than what full-built houses in the region sell for, with the average price at around 40,000 yuan per square meter. After taking into account construction costs, taxes and other expenses, property prices would have to nearly double for the developer to make money.

A property subsidiary of China Gezhouba Group, a state-owned builder of power plants and dams, spent 3.3 billion yuan last month to buy the most expensive land, in terms of price per square meter, in Nanjing. Another state dam construction company, Power Construction Corp. of China, snapped up a piece of land in Chinas bubbliest property market, the southern metropolis of Shenzhen, for 8.3 billion yuan.

Cinda Real Estate, a subsidiary of state-owned bad bank China Cinda Asset Management, has splurged on at least 35 billion yuan of land over the past year, even though the market value of the company, listed in Shanghai, is just 7.3 billion yuan.

Goodness gracious!

The Ultimate Visual Guide To Brexit

This coming Thursday, 23 June 2016, the United Kingdom will vote on a historical referendum deciding on the status of its European Union (EU) membership.

For the last 2 years since 2014, the UK parliament, led by Prime Minister David Cameron have promised a public referendum on Britian's EU membership.

Britain's relationship with Europe has always been one of contention, and many have long been awaiting this once in a generational lifetime opportunity to voice their opinions through the democracy of a vote.

READ ALL UPDATES ON OUR WEBSITE HERE:
http://www.businessoffinance.com/ins...uide-to-brexit

FOLLOW US ON FACEBOOK AND INSTAGRAM FOR REAL-TIME UPDATES:

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IG: @thefatrader

Brexit or Bremain come this Thursday, UK stocks are still expensive however way you look at it. As the referendum comes and goes, the markets will likely quickly parse it off as history and should eventually start to refocus on the fundamentals that are the near record high multiples and valuations that English stocks are trading on.

So regardless of this Thursday's outcome, UK stocks are hardly attractive for the value investor that objectively seals out bargains. In fact, being so high up on this scale, the risk-to-reward profile of UK stocks becomes extremely inferior as the downside risks far outstrips the potential upsides.

***

SocGen's Andrew Lapthone comments more on this:

Global equity markets continued to struggle last week, with the MSCI World index off 1.8% pushing the index back into red for the year. Big losses were seen in Japan with the Topix 500 down 6% and the volatile Mothers index crashing 18.5% over the week as the yen continued to strengthen. According to the BOE measure, the trade-weighted yen is now up more than 20% over the past year and back to where it stood three years ago. In the battle for the weakest currency, Japan looks to have thrown in the towel.

Whatever the outcome of the Brexit vote this week investors will still be facing the prospect of negative rates and negative yields on a huge range of bonds, massive corporate leverage with worryingly rising delinquencies and of course expensive equity markets and falling profits. To that extent these political events are a distraction from the main event, weak global economic growth and perverse asset markets. So whilst the market preference for the status quo might be celebrated in the short-term, actually when the fog clears all of the problems will still be there.

Let’s take the UK for example. The market will most probably rally as it is doing today if Brexit is rejected, but rally to where? We have already highlighted the excessive leverage and payout ratios in the UK, but these are not the only problems. On a disaggregated basis, median valuations are at the upper end of historical estimates (see below), profitability whether measured on an ROE, ROA or ROIC basis has rarely been this weak outside of an economic slump, and these figures do not materially change whether the problematic commodity and financial sectors are included or not. Brexit or not, the UK equity market hardly looks healthy.

As expected, very choppy an volatile trading intraday in GBP crosses. Wild swings of 200 pips either way to be expected. Overnight GBPUSD sold off nearly 120 pips, only to rebound 140 pips to Tuesday's intraday highs at 1.4770, and then rolling over lower around the U.S. open on news that the 'leave' camp has gained some ground, narrowing the gap behind Bremain, according to the latest Survation poll data.

News flow is ore or less the same with language from both sides getting increasingly superfluous but also more bombastic.

For those verses in economics, should you believe John Taylor's estimated monetary policy interest rate for the U.S. economy, or the Fed's target rate?

Wikipedia explains that "the Taylor rule is a monetary-policy rule that stipulates how much the central bank should change the nominal interest rate in response to changes in inflation, output, or other economic conditions."

As seen in the chart, there are apparently gaping differences between this "Taylor rate" and the Fed's rate. Notice how they both were on the same standing back in mid-2007; both flat and pretty much intertwined at 5.3%. That was before the Fed started slashing rates to the zero-lower-bound, in what will eventually become the greatest and most unconventional monetary policy experiment ever to be conducted in history.

The "Taylor rate" initially agreed and started falling along side (with a slight lag) the Fed's rate, giving a lot of credence to the Fed's decision to cut rates in late 2007. However, it was in December 2008 when the Fed reached what it saw as the absolute floor for interest rates, zero. In its eyes, interest rates could not be set lower than 0%, although rates could well be negative in theory, or as implied by the Taylor rule which kept estimating an interest rate well below 0% to be appropriate for the U.S. economy.

In fact, the "Taylor rate" kept decreasing until it bottomed just under -4% in 3Q2009, nearly 9 months after the Fed stopped lowering rates at their targeted 0-0.25%. The estimates rate actually went on to make a lower low in 4Q2010, before bottoming and trending higher.

The "Taylor rate" has been rising from its nadir in 2010 ever since, only experiencing a brief pause between late 2012 to mid 2013. The "Taylor rate" eventually crossed above the Fed Funds target rate in 4Q2013, and kept going higher.

The "Fed Funds - Taylor rate" premium is at the most negative ever as the former has been kept at 0.5% (after the Fed's first hike in 9 years last December), and the latter currently touching 4%.

***

A few questions that we have:

• Is the U.S. economy indeed so robust that a 4% level of interest rate is appropriate? We have very strong doubts about this.

• Has the constant rise in the "Taylor rate" been the primary result of a strengthening labor market? The inflation element would have been a subtractor in the last 1-2 years, so for the estimated rate to continue rising, something else must have been placed in overdrive. What is it?

• The Taylor rule obviously doesn't take into account some very key qualitative aspects of the current monetary policy regime. The Fed is clearly not adjust in interest rate mechanically, but rather discretionarily. The Taylor rule would be much less efficacious in such a scenario wouldn't it?

Again, these are very long term trends and issues, so don't expect to get answers to these questions over the coming week, months, or even years... As unfortunate as it is.

Pretty much says it all doesn't it? Celebrities and superstars are now also apparently politicians. The BBC News reported on Monday that top English celebrity and Football legend David Beckham supports Bremain, and has even urged his followers to vote for the status quo.

We'll just leave it at there...

Central banks are OUT OF CONTROL & OUT OF AMMO. We tried to make this chart as colorful and cheerful as possible but there was little we could do to hide the truth, that our global central banking elite have lost it. As can be readily seen, the collective balance sheet size of global central banks have been inflating since a brief interlude in late 2014 - early 2015 (after the Fed officially ended QE in September 2014).

If the world feared the disappearance of the large scale asset purchase programs by central banks on stocks, bonds, and an increasing breadth of financial assets, those fears were quickly displaced when the ECB, BoJ and other smaller central banks (mostly in Northern Europe) stepped up their game to fill the shoes of a then flat Fed.

In fact, the chasm was much more than bridged as we can see how much the red line has risen, and its slope steepened. The pace of central bank balance sheet expansion has hardly ever been higher.

But that's not important. What the market really cares about is if said balance sheet expansion is able to lift asset prices in a magical levitation, keeping the virtuous "wealth cycle" going, consumers happy and feeling "rich", thereby spending more and boosting the economy...

That has not been the case... Since May 2015, something happened that changed how stock prices, bond yields, and perhaps even volatility correlate with central bank balance sheet size. Even as the red line tips higher, global stocks, and bond yields have faded in the exact opposite direction. What can possibly explain this stark divergence?

Perhaps the meme that we posited at the start of this writeup. Namely that "central banks are out of control and ammo". We are indeed in precarious times. Central banks cannot now save us from severe market turmoil, nor can the markets rely on their omnipotence to perpetually lift all boats...