Money Flow Trading Method along with Risk Management

I am going to list those in order of signing up for the demo accounts with FXCM UK.

I am wondering if everyone is in favor of all on this list of Forex traders to try to post here at least once each day.


(1) DavidRP D102728560001

(2) dttsomh D102731143001

(3) Dildubai D102731452001

(4) KeepCalmfx D102742634001

(5) Rockey007 D25557124001

(6) raveon D102742734001

(7) wayfarer D102743041001

These are the 7 that have signed up. However Rockey007 has since dropped out.

Welcome Maximus2005

(8) Maximus2005 D102746118001


Benjaminis

The way that I work is too read analysts from both sides so I have a consensus of everyone and then I decide for myself what my thoughts are. I stay aware of all points of view and if need be I make adjustments to our Trade Plans.

I do not think that there are many professionals out there at the higher level that understand what I live daily and trade on. The MONEY FLOW is a given as you can now see. That is an incredible EDGE for us and you have the best grasp of why.

Share your thoughts with me and please understand that this is your thread as well so post whenever you feel like posting. Just keep your Snippets shorter. This is of course my sense of humor since I do not do that often for reasons already explained.


Benjaminis

I logged into all 7 FXCM UK Demo Accounts listed at the moment.

My general comments are as follows; Try to take longer profit runs because the idea is to set Risk to Reward either at 2 to 1 or 3 to 1. It is fine to take profits as I have said however that is only if there is a reason clear to you. The whole purpose of each Trade Plan is to risk a Maximum of 6% so if you lose then you lose. Once your winning trades are over 60% then you will end up winning. Since you now understand about MONEY FLOW and you know it is your EDGE over most other Forex traders whether Retail or Commercial then GO FOR IT !!!

Remember you are Trading with $50,000 US Dollars and you cannot lose more than 6% of your trading capital.

On top of which it is almost 100% sure, of course nothing is that sure however WE know the DOW30 MUST GO BACK to Earth and why so here is a great way to make good money. You also now understand the correlation between US30 and USD/JPY through the MONEY FLOW !!!

You are all doing your best and it is MY JOB to make you better each day. When you LOWER your STOPS once you are in Profits of at Least $250 US then you again cut your risks in case of a reversal short term.

Please post here and share with me your thought and tell me if what I just said is clear. You are allowed to make errors and that is part of the learning curve.

Do not be afraid of anything whether here or anywhere. We are ALL doing good and if we were doing bad then you will also hear from me since I am 100% transparent.


Sincerely yours ,


Benjaminis part of A TEAM !!! There are no bosses here or masters. That is the way it needs to be in life however it is not always that way.

Hi Benjamin

I am in favour to try to post at least once each day.

Thank you also for all of the information, the pages keep on coming fast with info to read. Just as I think I am in front for the day, then there is another page. lol
I will save the article you suggest to print and keep for reference.

Still reading through some of the articles.

Almost of to bed, have a great day further.

It is clear. thank you

Thanks - emailed the detail over

There you go....D102746118001

Great maximus2005

Welcome aboard. I will log onto your account and set it up for you. We can communicate here and do not be concened about question just post whenever something is not clear.


Benjaminis

I got this question so I will post it here so we can answer it together.

It came via PM.

Benjamin do u have an indicator which will display the index? but with the possibility to select the weightings since not all pairs have the same weight in creating of an index

I will try to answer first. I assume this is the US Dollar Index ? If it is then the Euro makes up 57.6 % of the Index.


The US Dollar Index Currency Basket
The U.S. Dollar Index consists of six foreign currencies. They are the:

1. Euro (EUR)
2. Yen (JPY)
3. Pound (GBP)
4. Canadian dollar (CAD)
5. Krona (SEK)
6. Franc (CHF)

http://finviz.com/futures_charts.ashx?p=d1&t=DX

https://en.wikipedia.org/wiki/U.S._Dollar_Index

Snippet:
The US Dollar Index (USDX, DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies,[1] often referred to as a basket of US trade partners' currencies.[2]
It is a weighted geometric mean of the dollar's value relative to other select currencies:

1. Euro (EUR), 57.6% weight
2. Japanese yen (JPY) 13.6% weight
3. Pound sterling (GBP), 11.9% weight
4. Canadian dollar (CAD), 9.1% weight
5. Swedish krona (SEK), 4.2% weight
6. Swiss franc (CHF) 3.6% weight

USDX goes up when the US dollar gains "strength" (value) when compared to other currencies.[3]
USDX started in March 1973, soon after the dismantling of the Bretton Woods system. At its start, the value of the US Dollar Index was 100.000. It has since traded as high as 164.7200 in February 1985, and as low as 70.698 on March 16, 2008.

The make up of the "basket" has been altered only once, when several European currencies were subsumed by the euro at the start of 1999. The make up of the "basket" is overdue for revision as China, Mexico, South Korea and Brazil are major trading partners presently which are not part of the index whereas Sweden and Switzerland are continuing as part of the index.

USDX is updated whenever US Dollar markets are open, which is from Sunday evening New York City local time (early Monday morning Asia time) for 24 hours a day to late Friday afternoon New York City local time.

USDX can be traded as a futures contract on the IntercontinentalExchange (ICE). It is also available in exchange-traded funds (ETFs), options and mutual funds.

Hello Maximus2005

You can log into your account now. You have 3 rows of 6 Currency Pairs and I arranged it in the proper order for you. If you have any questions please ask me. What time zone are you in ? Hold off making any trades until tomorrow. Again nice to have you here with our group !!!


Benjaminis

Update of our list of Forex FXCM UK Demo Traders.

Eastern time...New york time.... thx

http://www.actionforex.com/

This is a good resource site !!!

Dec 29 13:44 GMT, by ActionForex.com
Dollar stays soft in early US session but selling momentum is limited so far. Indeed, the greenback has pared back some losses against Yen, which is the relatively stronger one. Released from US, trade deficit widened to USD -65.3b in November, larger than expectation of USD -61.5b. Exports rose 1.0% to USD 121.7b while imports rose 1.2% to USD 18...

1. Daily Report: Synchronous Dips in Stocks, Yield, and Dollar Raise Chance of Correction
2. Daily Report: Canadian Dollar Weak in Dull Markets
3. Daily Report: Yen Mildly Lower on a Bunch of Weak Data

All Market Overview Reports >>
TECHNICAL OUTLOOK
GBP/JPY Daily Outlook
GBP/JPY's break of 142.98 support indicates short term topping at 148.42, on bearish divergence condition in 4 hours MA... - Dec 29 08:38 GMT
EUR/JPY Daily Outlook
EUR/JPY's consolidation from 124.08 is still in progress. Intraday bias remains neutral for sideway trading. Further ra... - Dec 29 08:28 GMT
EUR/AUD Daily Outlook
No change in EUR/AUD's outlook. With 1.4401 minor support intact, further rise is expected for 1.4880 resistance. Decis... - Dec 29 08:14 GMT

http://www.goldpriceoz.com/us-dollar-index.html

Snippet:

As most of us in the trading gold are aware, gold is a rare metal used as money, and considered to be a hedge against inflation, currency failure, recession, and other uncertainties factors. The fluctuation of gold price is affected by many factors; the US dollar index is the one of them. If you are considering whether to invest in gold or have already invested in gold, it is essential to understand the close relationship between the price of gold and the value of US dollar.

Grasping the relationship between gold price and US dollar index can help make the most advantageous investment decisions.
Anyone who takes attention on gold and currency markets closely will find that the Gold Price and Dollar Index generally trend in negative correlation.

Reason of the inverse relationship
First of all, historical speaking, gold and silver were used as currencies in the past. The value of a unit of US dollar was originally tied to the value of a specific amount of gold or silver. However, during the periods of Civil War, the First World War and the Great Depression, this relationship was temporarily cut in order to protect the gold reserves. After ended the Bretton Woods system in the early 1970s, the US dollar became a true fiat currency allowing to be freely traded and sold.

Secondly, gold and the dollar are considered as global currencies. Many foreign banks hold dollars as a reserve currency, or invest more in gold to preserve their assets during volatile economic conditions. When the dollar weakens, banks as well as investors around the world buy more gold to protect their money and hedge against the U.S. dollar weakness; when the dollar strengthens, more and more investors and banks invest U.S. dollar to discard gold. Due to the fall in demand, the value of gold depreciates. This choosing of investors brings about negative relationship between gold and the US dollar.

In addition, the value of gold is commonly expressed as US dollars per ounce; therefore, any fluctuations of dollar are likely to affect the dollar price of gold. As the dollar rises, the gold price in dollar falls, and vice versa. It is worthwhile to note that the value of gold is unlikely to inversely fluctuate exactly in line with the value of US dollar. In fact, this reciprocal relationship is generally not obvious in a short period, but is almost obvious during periods of 12 months or longer. As illustrated from January 2001 to January 2004, the price of gold and US dollar index had a strong negative relationship.


http://img.goldpriceoz.com/us-dollar...gold-price.png
Do the gold and dollar index always have an inverse relationship?

It is obvious not! Historically speaking, in some periods the price of gold and US dollar index had a strong positive correlation. For instance, as illustrated from May 1993 to December 1993, they broke down the traditional inverse relationship.
http://img.goldpriceoz.com/us-dollar...price-1993.png

In fact, besides the interaction between gold price and US dollar index, there are many other external factors also impact the price of the two. Such as in a war period, some people might buy more gold to keep value, whereas others might think that purchasing US dollar was a safer way to keep value. The behavior of people might create gold price as well as US dollar index to rise.

Comments from Benjaminis: 5 Minute Gold Chart from Finviz.

http://finviz.com/futures_charts.ashx?t=GC&p=m5

https://mishtalk.com/2016/12/29/beyo...gainst-the-eu/

Snippet:
Beyond Brexit: Case Against the EU

29ThursdayDec 2016

Posted by MishMoments | December 29, 2016 4:00:54 | Economics

≈ 5 Comments

The UK made the right move in deciding to dump the EU. Other countries would be wise to do the same.
Gatestone Institute writer George Igler makes a compelling case in The EU vs. the Nation State?

1. The question remains, however, why any nation would want to throw out its sovereignty to institutions that are fundamentally unaccountable, that provide no mechanism for reversing direction, and whose only “solution” to problems involves arrogating to itself ever more authoritarian, rather than democratically legitimate, power.
2. Previous worries over unemployment and the economy have been side-lined: the issues now vexing European voters the most, according to the EU’s own figures, are mass immigration (45%) and terrorism (32%).
3. The Netherlands’ Partij Voor de Vrijheid, France’s Front National and Germany’s Alternativ für Deutschland are each pushing for a referendum on EU membership in their respective nations.
4. Given that the EU’s institutions have been so instrumental as a causal factor in the mass migration and terrorism that are now dominating the minds of national electorates, some might argue that the sooner Europeans get rid of the EU, which is now doing more harm than good, the better.

Mike “Mish” Shedlock

http://www.zerohedge.com/news/2016-1...ops+to+zero%29

Snippet:
Submitted by David Gordon via The Mises Institute,

Mervyn King is the British Ben Bernanke. An eminent academic economist, who now teaches both at New York University and the London School of Economics, King was from 2003 to 2013 Governor of the Bank of England. In short, he is a very big deal. Remarkably, in The End of Alchemy he frequently sounds like Murray Rothbard.

King identifies a basic problem in the banking system that has again and again led to financial crisis.The idea that paper money could replace intrinsically valuable gold and precious metals, and that banks could take secure short-term deposits and transform them into long-term risky investments came into its own with the Industrial Revolution in the eighteenth century. It was both revolutionary and immensely seductive. It was in fact financial alchemy the creation of extraordinary financial powers that defy reality and common sense. Pursuit of this monetary elixir has brought a series of economic disasters from hyperinflation to banking collapses.

How exactly is this alchemy supposed to work? People believed in alchemy because, so it was argued, depositors would never all choose to withdraw their money at the same time. If depositors requirements to make payments or obtain liquidity were, when averaged over a large number of depositors, a predictable flow, then deposits could provide a reliable source of long-term funding. But if a sizable group of depositors were to withdraw funds at the same time, the bank would be forced either to demand immediate repayment of the loans it had made, or to default on the claims of depositors. Readers of Rothbards What Has Government Done to Our Money? will recognize a familiar theme.

Many have sought to salvage the alchemy of banking by resorting to a central bank. By acting as a lender of last resort, a central bank can bail out banks in need of funds to satisfy anxious depositors and thus avert the danger of a bank run. The alchemy of transforming deposits into investments can now proceed.

Though he was one of the worlds leading central bankers, King finds fault with this solution. A local bank can be rescued by getting money from the central bank, but the process generates new problems. Thomas Hankey, a nineteenth-century Governor of the Bank of England, pointed out some of these in response to Walter Bagehot, the classic defender of the central bank as the lender of last resort:

[i]f banks came to rely on the Bank of England to bail them out when in difficulty, then they would take excessive risks and abandon sound principles of banking. They would run down their liquid assets, relying instead on cheap central bank insurance and that is exactly what happened before the recent [2008] crisis. The provision of insurance without a proper charge is an incentive to take excessive risks in modern jargon, it creates moral hazard.


Given the dangers of financial alchemy, what should we do about it? Again, King strikes a Rothbardian note. He writes with great sympathy for one hundred percent reserve banking.

Even though the degree of alchemy of the banking system was much less fifty or more years ago than it is today, it is interesting that many of the most distinguished economists of the first half of the twentieth century believed in forcing banks to hold sufficient liquid assets to back 100 percent of their deposits.

They recommended ending the system of fractional reserve banking, under which banks create deposits to finance risky lending and so have insufficient safe cash reserves to back their deposits.

Like Rothbard, King calls attention to the insights of the nineteenth-century Jacksonian William Leggett. King cites an article of 1834 in which Leggett said:
Let the [current] law be repealed; let a law be substituted, requiring simply that any person entering into banking business shall be required to lodge with some officer designated in the law, real estate, or other approved security, to the full amount of the notes which he might desire to issue.

King may to an extent resemble Rothbard; but unfortunately he is not Rothbard; and alert readers will have caught an important difference between Kings idea of one hundred percent reserve banking and Rothbards. Kings notion, unlike Rothbards, still allows banks to expand the money supply. The liquid assets need not be identical with the deposits: they need only be easily convertible into money should the need arise to do so.

Kings own plan to end the alchemy allows for substantial monetary expansion. He calls his idea the pawnbroker for all seasons (PFAS) approach. This is a form of liquidity insurance. Banks would have to put up in advance as collateral with the central bank some of their assets. This would act as a form of mandatory insurance so that in the event of a crisis a central bank would be free to lend on terms already agreed. So long as the insurance had been paid, though, the central bank would still bail the bank out in a crisis by giving it more money. Contrast this with the plan suggested in the quotation from Leggett, in which if a bank could not redeem its notes, depositors could proceed directly against the banks assets. This allows no monetary expansion; and Rothbards plan is of course more restrictive still.

Having come so close to Rothbard, why does King shrink from the final step? Why does he still allow room for monetary expansion? He fears deflation.


Sharp changes in the balance between the demand for and supply of liquidity can cause havoc in the economy. The key advantage of man-made money is that its supply can be increased or decreased rapidly in response to a sudden change in demand. Such an ability is a virtue, not a vice, of paper or electronic money. The ability to expand the supply of money in times of crisis is essential to avoid a depression.

But if the demand for liquidity suddenly increases, when the monetary stock is constant, cannot falling prices for goods satisfy the demand? King, here following Keynes, is skeptical. Wage and price flexibility does help to coordinate plans when all the markets relevant to future decisions exist. But in practice they do not, and in those circumstances cuts in wages and prices may lower incomes without stimulating current demand. Prices may keep falling indefinitely.
Other possibilities of coordination failure also trouble King, and underlying them is an important argument. Following Frank Knight, he distinguishes between risk and uncertainty.

Risk concerns events, like your house catching fire, where it is possible to define precisely the nature of that future outcome and to assign a probability to the occurrence of the event based on past experience. Uncertainty, by contrast, concerns events where it is not possible to define, or even imagine, all possible future outcomes, and to which probabilities cannot therefore be assigned.

We live in a world of radical uncertainty, and thus we cannot be sure that relying on market prices to adjust to changes in the demand to hold money suffices to avert catastrophe. It is for this reason that resort to monetary expansion sometimes is needed.

This argument moves altogether too fast. It does not follow from the fact that Knightian uncertainty prevails widely that one must take seriously the possibility that prices and wages would fall indefinitely. In a situation of uncertainty, we cannot, by hypothesis, calculate probabilities; but this does not require that we take outlandish possibilities as likely occurrences that must be averted by the government. Some reason needs to be given for supposing that prices will continue to fall indefinitely. Why would entrepreneurs not be able to correct the situation, without resorting to monetary expansion? We are not faced with a dichotomy between exact mathematical calculation, in the style of an Arrow-Debreu equilibrium, and blind groping in the dark.

King himself acknowledges that in the American depression of 1920 to 1921, no resort to the government was needed.

The striking fact is that throughout the episode there was no active stabilization policy by the government or central bank, and prices moved in a violent fashion. It was, in the words of James Grant, the Wall Street financial journalist and writer, the depression that cured itself.

It is encouraging that King cites the Austrian economist James Grant, but he draws from his work an insufficient message. The key lesson from the experience of 1920-21 is that it is a mistake to think of all recessions as having similar causes and requiring similar remedies. In view of the manifold invidious consequences, fully acknowledged by King, of government intervention, should we not rather emphasize the need to rely on the unhampered market? King nevertheless merits praise for coming close, in his own way, to many Austrian insights.

http://www.hardassetsalliance.com/re...ools/our-blog/

LITTLE SNIPPET: SMILE !!!

The Fed finally raised its target interest rate and issued guidance for 2017. Trump shocked the political world and stocks seem to be making new highs daily. Investor sentiment is at two-year highs, fueled by optimism for renewed economic growth, de-regulation, and tax cuts.


Meanwhile, the mood is decidedly negative toward gold.

Mainstream media sites like Barron’s and The Financial Times are claiming the end of the recent bull run in gold and have a very bleak outlook.


From Barron’s:
Gold is struggling. The election was supposed to increase market volatility and push investors to safe assets. Volatility has risen, but investor sentiment has shifted toward hopes of better economic growth through fiscal stimulus, tax breaks, and infrastructure investing.

With one of Trump’s central economic themes being the need to increase infrastructure investment, industrial metals and the stock market in general have fared better. In contrast, gold is this year’s worst-performing metal.

Modestly stronger US economic expansion and the potential for a rise in inflation propelled by Trump’s spending plans already are setting the tone for more Federal Reserve rate hikes next year. Translation: more downward pressure on gold prices.

With gold bordering on bear market territory—down nearly 20% from its peak earlier this year—now is the time to make a precious metal investment.
As hard as it may be, if you’re a long-term investor seeking additional portfolio insurance or capital preservation, you now have the opportunity to buy what very few other investors want.
http://images.hardassetsalliance.com...161229_HAA.jpg


A Missed Opportunity
Investors watched and listened closely all year to Janet Yellen and other Fed representatives pontificate about the economy, monetary policy, and the direction of interest rates. After forecasting as many as four interest rate hikes in 2016, we wound up with one. In the process, gold went from $1,050/oz. to well over $1,300/oz.


Investors who waited patiently for sub-$1,000 gold prices were left at the proverbial station as the gold train took off. As gold performed strongly in the first half of 2016, many potential buyers kicked themselves for not taking a position earlier.
http://images.hardassetsalliance.com...161229_HAA.jpg

The Turning of the Tide
Gold looked poised to move even higher on election night as Trump’s victory became more certain, but markets quickly reversed course and investors are bidding US stocks to record levels. The market’s reaction to Trump’s election hasn’t been seen since Ronald Regan’s defeat of Jimmy Carter in 1980.

The Dow Jones Industrial average is up over 15% and small cap US stocks, represented by the Russell 2000, are up over 22% year to date, with the bulk of the move coming recently. US financials, represented by the ETF XLK, has risen 23% since the election, and the US dollar vs. a basket of other major currencies is the strongest since 2002.


Meanwhile, safe-haven assets such as treasuries have fallen out of favor, experiencing sharp declines. The 10-year US treasury yield has surged 40% since November 1 and gold has declined nearly 15%.

History doesn’t repeat itself but it often rhymes.

Forecasting the Future
If you think the Fed will raise rates three times in 2017—and the new administration will smoothly usher in changes to boost economic output and corporate investment—then perhaps increasing or maintaining significant exposure to stocks is the right strategy.


Stock investors are currently pricing in a very orderly implementation of tax cuts, deregulation, infrastructure spending, and more advantageous trade deals by the new administration.

But if you think there’s a chance of rising volatility, heightened geopolitical risks, or a myriad of other risks such as sovereign bond default by a member of the European Union or an emerging market country, then adding to or initiating a precious metal investment is warranted.

Comments from Benjaminis: Gold is a store of wealth. Gold is no persons debt. Gold has been around for 5000 Years so they say !!!

You CANNOT print Gold. There are also MANY NEWS REASONS Sunday, January 1, 2017.

The Muslim world able to buy Gold now backed 100% by Gold on the Shanghai Exchange.

THE SDR (Special Drawing Rights) which now includes the YUAN since October 1, 2016.

All is good and now I need some rest so see everyone later. Tomorrow is the end of All Trading for 2016 and a Friday to boot in markets 60% closed by the absence of the large trading houses.

Be careful trading on Friday and Thanks for all the communication that we had today. We made good progress.


Benjaminis

http://www.europac.com/commentaries/bush_trumps_reagan

FULL SNIPPET:

Our weekly commentaries provide Euro Pacific Capital's latest thinking on developments in the global marketplace. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital.

By:
Peter Schiff
Thursday, December 22, 2016

The optimism that has followed the election of Donald Trump has pushed the Dow Jones Industrial Average to the threshold of 20,000, a level that will be both a nominal record and a symbolic milestone. Although this is not the way most observers had predicted that 2016 would play out, most on Wall Street have become extremely reluctant to look a gift horse in the mouth…or to even look at him at all. The impulse is to jump on and ride, and only ask questions if it pulls up lame. But if this year has proven one thing, it is that predictions made by the consensus should not be trusted.

Back in the earlier part of 2016 the mood was decidedly darker. At that point most people believed that the Federal Reserve would be raising rates throughout the course of the year. While such hikes had been anticipated (and delayed) for years, most took comfort in the belief that the economy would be expanding nicely by the time the Fed actually pulled the trigger. But in late 2015, the already tepid GDP growth seen in the prior two years seemed to be decelerating. Investors also concluded that Hilary Clinton was a lock to win the election, thereby assuring that the anti-growth policies of the Obama years would continue. Many looked at these developments and concluded that the sins of the past decade, in which the Government and the Federal Reserve had used unprecedented levels of fiscal and monetary stimulus to prop up the economy and the stock market, had finally caught up with us. As a result, the Dow Jones shed more than seven per cent in the first two weeks of the year, its worst start on record.

But the year comes to an end amid a cloud of Trump-fueled bullishness. The markets fully embrace an unapologetic capitalist, and his team of billionaires, who promises to cut taxes, rewrite trade deals in America’s favor, take a machete to anti-growth regulations, repeal Obamacare, and return America to its former industrial might. Many are making parallels to the Reagan Revolution in which a maverick anti-establishment Republican took charge in Washington and ignited an economic boom, a stock market rally and a surge in the dollar. But to make this comparison, boosters must jump over a more telling comparison to the last Republican president elected, George W. Bush.

The parallels to W. are striking. Both lost the popular vote, and will have taken office following the tenure of a two-term Democrat who had presided over a furious stock market bubble and a surging dollar. In the 4 years prior to Bush's election, the Dow Jones had surged approximately 60% and the dollar index had risen approximately 19% (1/2/97 to 12/29/2000). For Trump, the numbers are 48% and 24% (1/2/13 to 12/21/16). Then, as now, the U.S. was seen by investors as the only game in town. Clinton's second term was rife with global crises that both created safe-haven flows into the dollar and caused the Fed to backstop U.S. financial markets with cheap money (at least cheap by the standard that existed at the time). Both will have come into office promising tax cuts and regulatory relief following eight years of Democratic reign. As a result, the market gains of the Clinton and Obama years were expected to continue under their Republican successors.

But the optimists did not anticipate that the big, fat, ugly bubble that inflated during Clinton’s second term, would burst early in Bush’s first term (although the air started coming out of that bubble while Clinton was still in office). Given the ensuing recession of 2001, it can be argued that the only reason Bush was reelected in 2004 was that the Fed was able to inflate an even bigger, fatter, and uglier bubble in housing that postponed the pain until the financial crisis of 2008. That is where the similarities will likely end, as Trump will likely not be that lucky.

One of the pillars of dollar strength under Clinton was eight straight years of deficit reductions, culminating with a massive $236 billion budget surplus in 2000 (Congressional Budget Office). While the surplus did require some accounting smoke and mirrors and a stock market bubble to create, it nonetheless marked a significant achievement. At that point, many economists had assumed that the U.S. debt problem had largely been solved and that the country would ride a wave of permanent surplus. The only problem most could envision was a shortage of Treasury bonds once the national debt was fully repaid. No one is to worried about that “problem” now.

Similarly, Trump is taking charge at a time when official budget deficits have fallen consistently since 2009 (albeit from astronomically high levels). But 2016 is projected to be the first year since 2009 in which the deficit will have risen, significantly, from the prior year. The Congressional Budget Office sees a return to perpetual $1 trillion plus annual deficits in the early part of the next decade (The Budget and Economic Outlook: 2016 to 2026 report, January 2016), even if we have no tax cuts, spending increases or recessions over that entire time. Under the Trump presidency, we are likely to get all three.

If a recession comes early in Trump’s presidency, it will be no more his fault than the 2001 recession can be blamed on Bush. A sharp pullback has been years in the making. Firstly, there is simply the issue of timing. On average, the U.S. has experienced a recession every 60 months or so since WW II (based on data from National Bureau of Economic Research and Bureau of Labor Statistics). The current expansion is already 90 months old, or 50% longer than average. Sooner, rather than later, it will have an end date. Recessions completely reshuffle the budgetary deck, causing government outlays to rise and revenues to fall simultaneously. The swings can be dramatic. The 1981-1982 recession resulted in a 61% increase in Federal red ink. The recession of 2001 turned a $236 billion surplus in 2000 into a $377 billion deficit in 2003 (then a record). The Great Recession of 2008-2009 caused the $458 billion deficit in 2008 to more than triple to $1.4 trillion in 2009. Rest assured, the next recession can cause a similar catastrophe to the government’s finances.

Trump’s election was predicated on his intention to buck traditional Republican policy of fiscal restraint. He has promised tax cuts for people and corporations and massive $1 trillion plus spending binges on infrastructure and the military. Of course the argument goes that these moves will stimulate growth thereby raising tax revenue to pay for both the cuts and the spending. The same arguments were made by George W. Bush in 2001 when he cut taxes, increased spending, and pushed through a temporary tax holiday to encourage corporations to repatriate money held overseas. Deficits soared anyway. The only real question is will the recession arrive before or after Trump’s fiscal policies kick in. If the events happen simultaneously, the budgetary implications will be hard to fathom.

Investors who are basking in the Trump victory should take a hard look at what happened to the markets during the Bush presidency. In mid-2008 (just a few months before the financial crisis sent stocks plummeting), the S&P 500 was just 17% above the level when Bush was elected nearly eight years earlier. The dollar, in particular, took a beating under Bush. In August 2008 (right before the dollar rallied temporarily as a result of the panic), the dollar index had fallen by 19% since his election. The opposite occurred in gold. In November of 2000, gold was at about $370 per ounce, close to a 20 plus year low. In August 2008, it was more than $920, down significantly from it's high of almost $1,100 hit earlier that year.

Also, for all the optimism about the U.S. stock market and pessimism abroad, it was foreign markets that delivered for investors. From Bush’s election to mid-2008, just before the global financial crisis sent stocks reeling around the globe, developed foreign markets were up 80% (priced in U.S. dollars) while emerging markets were up a staggering 300% (priced in U.S. dollars). Even if you include the huge losses in the back half of 2008, by the time Obama was sworn in, developed markets were down less than 3% from the time of Bush’s election, and emerging markets were still up about 80%. (In contrast, the S&P 500 was down almost 27%).

The 2001 Recession, which was triggered by the bursting of the dotcom bubble and the September 11 attacks, came very early in Bush’s first term. Fortunately for W., the Federal Reserve was able to support the economy by bringing rates down from more than 6% to just 1% (Federal Reserve Bank of St. Louis) (which helps explain the swift collapse of the dollar). As a result, the 2001 recession was the shortest and mildest on record. In doing so, however, the Fed blew up an even bigger bubble in real estate, the bursting of which created a far bigger recession in 2008, propelling Obama into the White House.

But can the Fed ride to the rescue this time around? Given that rates are practically zero and the Fed is choking on trillions of dollars of assets that are permanently held on its balance sheet, the answer is clearly no. All the Fed will be able to do is launch the mother of all QE programs, perhaps in the form of a massive helicopter drop. But the bad news for Trump fans is that the result will not be a housing bubble like the one that bailed out Bush, but a wave of stagflation that will make Trump a one-termer. The nightmare scenario is that once again tax cuts and deregulation take the blame, allowing Bernie Sanders or a socialist candidate to ride another populist wave, only this one headed far left, into the White House of 2020.




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Sentiment Extremes
Below is an update of a number of interesting data points related to the gold market. Whether “interesting” will become “meaningful” remains to be seen, as most of gold’s fundamental drivers aren’t yet bullishly aligned. One must keep in mind though that gold is very sensitive with respect to anticipating future developments in market liquidity and the reaction these will elicit from central banks. Often this involves very long lead times.

http://www.acting-man.com/blog/media...sure-Chest.jpgBlackbeard’s treasure chest.

If one looks at long term charts of gold, one can see that meaningful rallies usually start as technical short covering moves, which often are still at odds with at least some of the macroeconomic fundamentals. The starting points of these rallies often involve divergences with associated markets or data points. If the market is too far ahead of itself, these moves will be given back again quickly.
If a meaningful move has indeed begun though, the fundamental drivers will begin to fall into place as it continues, and it will become clear in hindsight that the market has anticipated these developments. It is therefore definitely worthwhile to pay attention to sentiment extremes and inter-market divergences.
One thing that has struck us as noteworthy lately is that the momentum of the decline in gold stocks has decreased significantly during the the most recent phase of the decline in the gold price – contrary to the much stronger relative momentum seen in the August sell-off.

http://www.acting-man.com/blog/media...divergence.pngDuring the move in gold prices from $1220 to the current level of approx. $1135, the HUI Index has only lost less than 8 points (as we write this, the loss has actually been reduced to just 5 points). That is remarkably mild compared to preceding selling squalls (the first of which is highlighted above) – click to enlarge.

Despite the increasing reluctance of gold stocks to weaken further in the face of gold’s ongoing swoon, sentiment on gold has become quite bearish. The next chart is actually a bit dated by now. It shows the short term sentiment situation as of December 1, with gold trading at around $1180. At the time the HUI was actually unchanged from its level of two weeks earlier (when gold still traded at $1220).
The chart was originally shown in the monthly issue of the Elliott Wave Financial Forecast and depicts a 10-day average of the DSI (daily sentiment index of futures traders) compared to gold prices. We have removed the wave labeling from the chart. The historically very low 10-day average of 9.1% bulls included a single day reading of 6%, which was just 1% above the previous all time low. A new all time low of just 4% bulls in the daily DSI was posted in mid December.

http://www.acting-man.com/blog/media...a-955x1024.pngThe 10-day moving average of the DSI stood at 9.1% bulls as of December 1, which was among the three lowest 10 day averages since the 2011 peak. At the 2015 price low, this indicator was actually slightly higher – click to enlarge.

Here is a chart of one day DSI readings that shows the 4% all time low in the bullish consensus posted in mid December. In addition it shows a recent divergence between the gold price and the Goldman Sachs financial conditions index, which indicates that gold has moved down too far too fast, probably due to sheer momentum:

http://www.acting-man.com/blog/media...ions-index.jpgGold vs. the GS financial conditions index and daily DSI readings (daily sentiment of futures traders, bullish consensus percentage) – click to enlarge.

These sentiment readings are not only at odds with the relative performance of gold stocks in the preceding weeks, they are also diverging from the higher late 2015 DSI readings which coincided with a lower gold price.
In recent years, gold has exhibited strength early in the year and has been weak in the normally seasonally strong period at year end. The usually strong showing early in the year may be a hint that the seasonal pattern in silver remains operative. It also shows that the short term effect of seasonal jewelry demand on gold prices has been very small in recent years; this effect is far more obvious when it is aligned with a bullish macro-trend driving gold.
Given the pattern seen in recent years, the fact that such strong bearish sentiment is seen right at the end of the year is definitely a heads-up indicating that another bout of surprise strength in gold is likely in early 2017. This is supported by anecdotal evidence as well.
As Mish notes here, both Barron’s and the Financial Times have recently seen fit to pronounce gold “dead”. It has “died” many times in the mainstream financial press in recent years and such stories tend to proliferate near turning points. There is certainly no shortage of bearish articles on gold lately – even many long term bulls are currently bearish on the short term outlook (the opposite situation can be found in the stock market, see further below).

US Dollar Divergence
This brings us to another well-known anecdotal contrary indicator, namely the Economist magazine. The uptrend in the US dollar is one of the negative macro fundamentals currently putting pressure on gold, but the dollar index is also one of the price series from which gold is diverging at the moment.
Whether the US dollar is rising or falling, the Economist is always worrying about it. Up or down, it’s always bad (Google Economist covers on the dollar and try not to laugh out loud!). Economist cover stories on the dollar not only have that in common though, they also represent warnings of an imminent change in trend, usually of at least the medium term variety. As forecasts go, the magazine’s pronouncements on the dollar are unblemished by success. Here is the cover that appeared in the first week of December (note, the rising dollar is a “problem”…)

http://www.acting-man.com/blog/media...llar-Cover.jpgThe Economist has spotted another dollar problem.

Here is the chart showing the divergence between the dollar index and gold:

http://www.acting-man.com/blog/media...llar-index.pngThe dollar index vs. gold, weekly, since 2012. The two periods highlighted show that gold tends to anticipate moves in the dollar. In late 2012 – mid 2013 gold sold off sharply, even though the dollar index didn’t move much – but it rallied sharply 6 months later. Recently the dollar index has broken out to new high ground, but gold has not “confirmed” this move so far.

Anecdotal sentiment as well as dollar positioning data (in currency futures) are buttressing the idea that the divergence shown above is actually meaningful. Admittedly, it would not take much to negate it, but that seems unlikely to happen in the near term.

Gold Stocks – Long Term Support and Resistance Levels
Below is a chart we have shown before, which shows important trading ranges and the associated lateral support and resistance lines in the HUI Index over the long term. We have made the annotations on this version of the chart about two or three months ago, when it was still uncertain how deep the ongoing correction would become (it has become deeper than we thought it would, but one of the levels shown on the chart seems to have come into play):

http://www.acting-man.com/blog/media...ance-areas.pngA monthly chart of the HUI. When we annotated this chart, we pointed to the blue dotted line which served as resistance in 2002-2003 and support in 2008 and briefly in early 2015 again. We didn’t really think it would get there, but the line was almost touched again recently – click to enlarge.

Perhaps it will be sufficient that the line has been almost reached. In early January 2016 an important support line at 100 was slightly undercut intraday before the index reversed (a more pronounced break was evident in the equivalent XAU support line), and sometimes a market finds support slightly above an obvious support line. We wouldn’t necessarily be surprised if this support is revisited before the market reverses and stages a significant rebound, but it certainly doesn’t have to happen.

Fundamental Drivers
Apart from the uptrend in the dollar, other currently gold-bearish macro drivers consist of the ongoing decline in credit spreads, the strength in stock prices, as well as the surge in real yields (in the form of TIPS yields). On the positive side, we find strength in commodity prices and a noticeable steepening of the yield curve.
Real yields are currently probably the most important of these drivers, as a very pronounced and very tight negative correlation between TIPS yields and gold has been in evidence for quite some time. A renewed decline in real yields will probably be needed for a sustainable reversal in the gold price. The uptrend in 5-year TIPS yields has actually stalled a bit lately – from a high of 32 basis points in mid December they have decreased to 20 basis points as of last week.

http://www.acting-man.com/blog/media...d-1024x505.png5 year TIPS yields – the uptrend since mid 2016 has been quite negative for gold, but perhaps this trend is about to reverse again – click to enlarge.

The steepening yield curve indicates that inflation expectations are rising, which is confirmed by a recent 27-month high in the 5-year inflation breakeven rate. This usually tends to be bullish for gold, but is currently outweighed by other considerations.

http://www.acting-man.com/blog/media...ield-curve.png10 year minus 2 year treasury note yield. The yield curve has steepened quite a bit in recent months – click to enlarge.

As for competing asset classes such as stocks, we have recently discussed the NAAIM exposure index in these pages (see “The Exiling of Risk” for details). The average net stock market exposure of fund managers taking part in the survey remains above 101%, but what is really remarkable is that the most “bearish” manager was net long by 30% last week. As far as we know, this is yet another unprecedented datum:

http://www.acting-man.com/blog/media...sure-table.pngNAAIM survey data details: responses may range from -200% leveraged short to +200% leveraged long. The average exposure currently stands at a historically very high 101.33%, but the most astonishing data point is the +30% net long position of the “most bearish” respondent highlighted above – click to enlarge.

Since the correlation between stocks and gold has been strongly negative of late, the proliferation of sentiment and positioning extremes in stocks is also supporting the notion of a turnaround in the gold price in the not-too-distant future.

Conclusion:
It looks like gold is close to staging a playable rally again early in the new year. Whether it will be durable or just a technical rebound is hard to say at the moment – that will have to be determined as it unfolds. If a rally does get underway in early 2017, one thing is definitely going to be different from previous years though: it will be the first time in the past four years that gold and gold stocks deliver a new year rally from a higher low (the 2014, 2015 and 2016 rallies all started from progressively lower lows).
That would represent further subtle confirmation that the market’s character has changed. Consider in this context that the first correction in a new bull market can retrace a significant percentage of the initial rally – in the worst case, up to 100%. Such significant early corrections usually have in common that they generate greater bearishness than was evident shortly before the initial rally phase, which seems to be the case with gold at this juncture.

Charts and tables by: StockCharts, Elliott Wave International, CSinvesting, St. Louis Federal Reserve Research, NAAIM

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← Eight Years After an Epic Banking Crash, Americas Biggest Threat Is Still Its Banks
Did Big Media Run Fake Headlines on the Deutsche Bank Settlement ? →
Shhh! Dont Tell this Bank Regulator Weve Got a Derivatives Problem
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Source: Office of Comptroller of the Currency

By Pam Martens and Russ Martens: December 28, 2016
Each quarter the Office of the Comptroller of the Currency (OCC) releases a detailed report showing the exposure to derivatives at U.S. banks. The most recent report for the quarter ending June 30, 2016 indicates that U.S. bank holding companies have a total notional amount (face amount) of derivatives of $252.6 trillion. Of that total, just five Wall Street banks hold $230 trillion or 91 percent, underscoring how massively concentrated this high risk game has become. Those five banks are: Citigroup, JPMorgan Chase, Goldman Sachs Group, Bank of America and Morgan Stanley.


There are numerous U.S. units of foreign banks on the derivatives list of bank holding companies but one name is conspicuously missing: the German giant, Deutsche Bank. Without knowing how much potential exposure U.S. banks have to Deutsche Bank in the derivatives arena, the U.S. public is left completely in the dark on just how dangerously exposed our banks are, once again, to the potential failure of a systemically interconnected counterparty. Heres what we do know no thanks to the OCCs copious reports.


From late summer and into the fall of this year, Deutsche Bank was struggling in quick sand with Wall Street banks trading like they were tethered tightly to its sinking hulk. Heres how Wall Street On Parade reported the situation on September 27:
Yesterday, Germanys largest financial institution, Deutsche Bank,lost 7.06 percent by the close of trading on the New York Stock Exchange. That plunge in one of the most globally-interconnected banks dragged down the shares of every major Wall Street bank yesterday: Bank of America lost 2.77 percent; Morgan Stanley declined by 2.76 percent; Citigroup lost 2.67 percent; Goldman Sachs shed 2.21 percent; and JPMorgan Chase closed down 2.19 percent. Deutsche Bank, whose shares traded at more than $120 pre-crisis in 2007, closed at $11.85 yesterday in New York and was down another 3 percent in overnight trading in Europe.

Since October, Deutsche Bank has recovered some lost ground, closing yesterday on the New York Stock Exchange at $18.37. That trading price, unfortunately, still puts it at a share price loss of 86 percent over the past decade.


A major global bank bleeding gobs of equity value is cause enough for concern but Deutsche Bank raises other serious red flags to the U.S. banking system. According to a report released in June of this year by the International Monetary Fund (IMF), Deutsche Bank is the most important net contributor to systemic risks. The researchers wrote:
Notwithstanding moderate cross-border exposures on aggregate, the banking sector is a potential source of outward spillovers. Network analysis suggests a higher degree of outward spillovers from the German banking sector than inward spillovers. In particular, Germany, France, the U.K. and the U.S. have the highest degree of outward spillovers as measured by the average percentage of capital loss of other banking systems due to banking sector shock in the source country.

Among the G-SIBs [Global Systemically Important Banks], Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit SuisseThe relative importance of Deutsche Bank underscores the importance of risk management, intense supervision of G-SIBs and the close monitoring of their cross-border exposures, as well as rapidly completing capacity to implement the new resolution regime.


The report includes the graph below, indicating that a blowup at Deutsche Bank would spill out to every major Wall Street bank banks which are holding almost half of the insured savings deposits in the U.S. effectively mandating more massive taxpayer bailouts such as those that occurred in 2008.
In February 2005, the U.S. Treasurys Office of Financial Research also quietly warned that U.S. banks were using foreign counterparties for their derivative trades, writing as follows:
Surprisingly, OTC derivatives contributed only about half as much to intrafinancial system liabilities ($632 billion) as to intrafinancial system assets ($1.2 trillion). Across all OTC market participants, derivatives assets must equal derivatives liabilities, so this imbalance indicates that the U.S. banks held large positive OTC derivatives positions with financial institutions outside this group.


If all of this wasnt concerning enough, the very type of derivatives that blew up the giant insurer AIG in 2008 (credit derivatives) are making a big comeback at Citigroup, the recipient of the largest taxpayer bailout of a bank in U.S. history during the 2008 crash. The OCCs June 30 report shows Citigroups holding company with $2.2 trillion in credit derivatives and $53.6 trillion in total notional amount of derivatives at a bank holding company with only $1.8 trillion in assets.


According to a January 2016 report in Risk Magazine, Citigroup bought $250 billion of credit derivatives from Deutsche Bank in 2013. The same article indicates that Citigroup is now considered one of the top three market makers in single name Credit Default Swaps in both North America and Europe. In her book, Bull by the Horns, Sheila Bair, the Chair of the Federal Deposit Insurance Corporation (FDIC) at the time of Citigroups implosion in 2008, singles out credit derivatives as one of the factors leading to Citigroups epic crash to a penny stock. Bair writes: It was taking losses on credit default swaps entered into with weak counterparties.


The OCC is the dominant regulator of national banks. According to its 2015 Annual Report, it has 3,959 employees and a budget of $1.09 billion. It has bank examiners stationed at the major Wall Street banks. According to its Annual Report, its regulatory model makes it possible for examiners, bank managers, and the board of directors to identify changes in the banks risk profile at an early stage, which in turn provides additional time, if necessary, to develop and implement strategies for mitigating that risk.


That statement would clearly be more reassuring to Americans had not the largest bank in the U.S. in 2008, Citigroup, blown itself up while lying to the public and its shareholders about its exposure to subprime debt and holding more than $1 trillion in assets off its balance sheet.

The OCCs reassurance would also be more believable had JPMorgan Chase not lost more than $6.2 billion of its depositors money gambling in high risk derivatives in London in 2012 just four years after the biggest financial crash since the Great Depression and just two years after the Dodd-Frank financial reform legislation was supposed to have restored sanity to the U.S. banking system.


The OCC urgently needs to defog its lenses and defang the derivative entanglements at the biggest Wall Street banks.
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Systemic Risk Among Deutsche Bank and Global Systemically Important Banks (Source: IMF The blue, purple and green nodes denote European, US and Asian banks, respectively. The thickness of the arrows capture total linkages (both inward and outward), and the arrow captures the direction of net spillover. The size of the nodes reflects asset size.)