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Hmmmm.. market sniffs money printing.. reason markets are up?
From Silver Doctors
Stockton, CA Files for Largest Chap 9 Bankruptcy Ever
Stockton, California will become the largest US city in history to file for Chapter 9 bankruptcy.
The proposal will eliminate retirees’ medical benefits. Don’t worry, Goldman and JP will still receive their interest and consulting fees.
There are a thousand other US cities in the same position as Stockton, CA, and 48 US States. Do you think when push comes to shove the US will not print to bailout California, Arizona, Illinois, and Michigan the same as the ECB is bailing out the PIIGS?
Counterfeiting will be required in unimaginable levels before this crisis is over.
From Reuters:
Stockton, California will become the largest U.S. city to seek protection from its creditors after its leaders approved a budget on Tuesday night based on the city filing for bankruptcy.
A Chapter 9 bankruptcy by the city of nearly 300,000 in California’s Central Valley, about 85 miles east of San Francisco, could come as early as Wednesday.
Stockton’s city council voted six to one in favor of the 2012-2013 budget after a contentious five-hour meeting where angry retired city workers pressed council members to reject the $155 million spending plan. It proposes eliminating retirees’ medical benefits to help fill a $26 million budget deficit.
Brightness, give me an idea how to make money...
thanks
there hasn't been any trading ideas for a long time..
and I very much wish there were, as I said in my recent post days ago.
politics interlock with markets at times.. and thats where I am coming from in my posts .
discussion is meaningful aside from personal attacks. When Zeev was alive the markets were not as corrupt. The financial world was not on the brink of implosion.
there are a couple of negative and churlish posters here (the same person?) who disrupt on purpose.
Bring on the trading ideas...
postie, falling apart..??
No,
alive, yes.
No derangement Alex. Main St. media even states that.
Alternative media does a better job.
You are showing your cards Alex , mentioning enron.
I don't think you have any idea what you are talking about.
You are speaking to yourself. In a closet.
Alex, you posted an article in praise of Obama being
responsible for lowering the oil price. Etc, etc.
That is the subject ,period.
As usual when you receive disagreement, you flare and fire.
Ever hear of dialogue, discussion ?
now, now Alex...more level headed and knowledgable
minds will prevail here . We all don't have to favor Obottom.
I am a liberal in the true sense of the word. Both candidates
are very, very clueless.Neither political party has any leadership.
We are indeed doomed until there is real reform and that cannot and
will not occur, particularly under Obottom. I pity your naivete.
I won't call you moronic though..
Alex, do you really believe that crap??
The CFTC is paid off by Obamas cronies as is the CME; they look the other way as in MF Global and
JP Morgue.
The Banks, Obama Corzine, Dimon.Same person.
Raising GDP.... where, WHERE did the savings go to......to be counted as GDP..??
I don't know what Forbes is attempting here but its so stupid its laughable.
More erudite posters here can take this apart. I suppose the author believes
the current deflation raises GDP ..
Speculators are a part of it. Politics and big money surely still count right??
The day after the election hmmm...you wonder if Obama cares about oil???
You believe 'big oil' isn't gonna get theirs soon enough..??
Alex, you attack what makes reasonable sense and you depart.
Cheap shots. You join the ranks of someone else...
Maybe you are one and the same person.
Brightness adds much to Zeeves.
Thank you Dan for excellent pictures.
Fabian has a grip on the precious metals..... fois gras does not most unfortunately.
Hand the 'mike' to Fabian.
zeeves has returned. find fabian.
Westy- what state do you reside in..?
Will you take over Zeeve's??
We need you sorely.
Lee, Newly, Cap, anybody else..on a day like today .. what would Zeeve say..??
thanks
Zero Hedge
Natural Gas: Where Endless Money Went to Die
Submitted by testosteronepit on 06/20/2012 19:29 -0400
Chesapeake Energy Mexico Natural Gas None
Wolf Richter www.testosteronepit.com
The fiasco that is playing out in the natural gas industry doesn’t happen often in a free market, and when it does happen, it’s usually short—and brutal for all involved: namely, prices that are way below production costs. In most industries, hedging strategies might get market participants through the period, while unhedged production, a money-losing activity, gets slashed. If it lasts long enough, it causes a shakeout where less efficient or poorly capitalized producers, and their investors, get wiped out. It’s all part of the capitalist system that weeds out weaker elements through occasional sweeps of creative destruction.
As shortages crop up on the horizon, prices return to sustainable levels, and occasionally spike to once again unsustainable levels. For the survivors, or for lucky new entrants, the next step in the cycle has begun.
Alas, thanks to the Fed’s zero-interest-rate policy and the trillions it has handed over to its cronies since late 2008, the sweeps of creative destruction have broken down. Instead, boundless sums of money have been searching for a place to go, and they’re chasing yield when there is none, and so they’re taking risks, any kind of risks, in their vain battle to come out ahead. The result is a stunning misallocation of capital to the tune of tens of billions of dollars to an economic activity—drilling for dry natural gas—that has been highly unprofitable for years. It’s where money has gone to die. What’s left is debt, and wells that will never produce enough to make their investors whole. For that whole debacle, read.... Capital Destruction in Natural Gas.
But the money has dried up. And drilling for natural gas is collapsing. Last week, there were only 562 rigs drilling for dry natural gas—the lowest number since September 1999. A dizzying downward trajectory:
Producers, if at all possible, are switching to drilling for oil and natural gas liquids (priced like oil), still a profitable activity. Thus, capital is now being channeled to where it can make money. Drilling for dry natural gas will continue to decline as the long delayed sweep of creative destruction is scouring the industry.
The largest producer, ExxonMobil, given its monumental size and worldwide focus on oil, will weather the fallout just fine. But the second largest producer, Chesapeake Energy, is struggling. It’s trying to dump assets to raise cash to deal with its mountain of decomposing debt. Other producers that haven’t diversified away from dry natural gas are in a similar quandary. And at current prices, it’s going to be bloody.
At $2.53 per million Btu at the Henry Hub, the price of natural gas is up 33% from the April low of $1.90 per million Btu—a number not seen in a decade. But even if it doubled, it would still be below the cost of production. And if it tripled, it might still be below the cost of production for most producers. That’s how mispriced the commodity has become.
Misallocation of capital, and the resulting overproduction, is only part of the problem. The other part of the problem is horizontal fracking itself—a drilling method that extracts gas from shale formations. With nasty economics. It’s an expensive method. And once drilled, the well suffers from steep decline rates; after a year or a year-and-a-half, only 10% of the original production might still come to the surface.
The breakeven price for natural gas under these conditions—and it differs from well to well—is still partially theoretical since horizontally fracked wells have not yet gone through their entire lifecycle. Here is a detailed discussion and pricing model. The short answer: over $8 per million Btu. Even if that number is off, at the current price of $2.53 per million Btu, the industry is still near its point of maximum pain.
There are consequences. Power generators, having switched massively from coal to natural gas, are driving up demand. And production has finally seen a bend, a small one, in the curve that had set new highs month after month. Now, it’s declining. There is a lag between dropping rig count and production. The rig count estimates how many new wells are being drilled. Even if it dropped to zero next week, production would not immediately be impacted because the current wells would continue to produce. Production would then taper off as a function of decline rates per well—and in fracked wells, that lag is expressed in months, not years.
While the US doesn’t yet have LNG terminals to liquefy and export natural gas—in the global markets, LNG fetches mouthwatering prices between $10 and $15 per million Btu—it does have a pipeline to Mexico. According to BENTEK Energy (via the EIA), pipeline exports to Mexico hit 1,867 million cubic feet per day, a record in the seven plus years that BENTEK has been tracking it (by comparison, Chesapeake Energy produces about 2,575 MMcf/day).
Rising demand and exports are slamming into declining production. What was a record amount of natural gas in storage is coming down rapidly. Fears that storage would reach capacity towards the end of the injection period in the fall, and that natural gas would have to be flared, thus reducing its price to zero, seem ridiculous now. But prices, if they stay in the current ballpark, will continue to demolish producers, drive them away from dry natural gas, and cause financial bloodshed.
Until shortages appear on the horizon. But then, production can’t be ramped up quickly, regardless of what the price might be. Expect a spike and more mayhem, but this time in the other direction.
And oil, which has experienced a phenomenal production boom? In North America, the range of oil qualities and a raft of infrastructure nightmares are wreaking havoc with record price differentials, writes energy expert Marin Katusa in his excellent and informative.... Oil Price Differentials: Caught between the Sands and the Pipelines.
Looks promising Belgie.
It is now on my screen, thanks.
Thank you Belgie.
do you like the total absence of discussion here as well.....
all vitality gone....not because of Dan. We need vitamins & minerals galore FAST.
Change name to Dan's News.... I read the same agenda as Dan does. I come here for discussion ok...
Zeeves is done for unfortunately.
there has been a funeral and some of us missed it..
dan cannot give up his headlines and 'news'.. even though we are all clued in regarding
financial and political reality. Even though many of us read these same sources daily as a routine.
It seems aggressive to continue posting the 'news' under present circumstances but...
Discussion about making money in our chosen venues has lost context unfortunately.
Maybe Zeeves will resurrect in the future....
Dan-
I read the same stuff as you do. We all are aware by now of the sites.
Is it not time for talking about trends and what will do well...
We can refer to these great sites as we elect. Jesses, degroot, jsmineset
zerohedge. Lets try to make money and use this board for discussion.
5 Min. Forecast (5minforecast.agorafinancial.com)
Innovators Outrunning the Wealth Destroyers
Dave Gonigam - June 12, 2012
"The 'cash on the sidelines' mantra has always been a crock of crap."
"The record cash and cash equivalents just so happen to coincide with record corporate debt."
"Look it up! How could corporations possibly refrain from issuing debt at record-low interest rates? Any CFO that didn't build a war chest of cash by issuing debt at these rates should be fired."
"Back in 2008 when the debt window closed, many corporations found themselves cash strapped and struggling to survive. Any executive management team that forgot that lesson after only three years should have been sacked. So they issued debt hand over fist and sat on a stash of cash waiting for either for the STHTF or for things to get better. Either way, building ready cash was prudent. In fact, it would have been irresponsible not to build cash."
"But the notion that corporations should be spending this cash hoard when 1) final demand is weak 2) higher taxes are coming and 3) we have the most business hostile administration in history manning (abandoning?) the wheelhouse... is absurd. You don't borrow to spend, you borrow to invest, and why invest when you are running at 67% capacity?
"There is no record 'cash on the sidelines,' as anybody who can read a balance sheet (none of the media) has always known. It is more than offset by record liabilities."
Continue reading on AgoraFinancial.com
the peices I have read infer closer to 18 billion...
Alex you just lost.
well done brightness. I voted for Ron Paul here in VT.
the money pulled out in 2008-9 went in again.. then out ..its on its 3rd go.. when that occurs.. then quickly out again.. you got the timing/ we'd enjoy hearing.
Great to have you back Alex.
Dan,
From jesses
Gold Daily and Silver Weekly Charts - The Fear
Gold was threatening to break out of the intermediate downtrend today but was smacked down rather hard just after the Fed beige book release.
The meme from the spokesmodels was that the economy is doing well enough so that no QE is needed for recovery, and this was implied by the Fed's observations.
I think there is fear and foreboding in Zombieland.
Jesses Cafe 6/4
The video starts after the introductions.
"Unfettered, unregulated capitalism...turns everything into a commodity, human beings become commodities, the natural world becomes a commodity, that it exploits until exhaustion or collapse. In essence it cannibalizes itself, and this is the process that we are undergoing."
Chris Hedges
The essence of statism, of the far left or the far right, is to objectify the individual and diminish their value to some measurement held by the state itself.
This is what can turn market captialism into corporatism and then fascism, often in a reaction against the rising of the people against economic repression of crony capitalism and corruption.
Hedges helps to illustrate this. He is certainly further to the left of my own more centrist, non-Marxist views, but I find his perspective interesting. Certainly given the corporatist and dehumanizing skew of most modern American dialogue.
Ditto what Tinner just said.
Dan, many thanks for that info. I hope Lee is correct.
I think he may be.
Talk about who's asleep.
Silver as much if not more...
Lee, Why did Canny leave..?
Wheres Newly??
321 Gold
Gold And Growth With Safety
Stewart Thomson
email: stewart@gracelandupdates.com
email: stewart@gracelandjuniors.com
May 29, 2012
Do you feel comfortable and in control of the markets, or are they in control of you? Please click here now. You are looking at a very basic chart of the Dow Jones Industrial Average. It’s a weekly chart that shows the RSI indicator is falling. MACD is on a sell signal.
Rather than wondering if the Dow might crash, simply prepare yourself to buy it inside the crash zone. The dividend yield on the Dow is currently around 4%. Getting paid 4% a year to wait for quasi-hyperinflation that could send the Dow skywards is a fairly good deal.
Please click here now. That’s a chart of the Dow Diamonds ETF, DIA-nyse. The high at $120.66 that I’ve highlighted with a blue circle is the first HSR (horizontal support & resistance) area that I would buy, but the amount of risk capital I would commit there is negligible.
The reason for my caution at that price is that the Dow has rallied about 100% from the lows of 2009 without a significant correction.
A much more interesting entry point is the HSR at $106.45. That price on the “diamonds” is equivalent to about 11,258 on the Dow.
A decline to the 11,200 area on the Dow would likely be accompanied by a significant amount of fear and very bearish news. The best investors establish beachheads in the Dow at prices where most investors are selling. Don’t guess when investors might sell; just be ready to buy when they do. Once you’ve established your beachheads, you can begin to have fun by shorting the market occasionally.
The big question that gold stock investors are dying to ask is, “what happens to our gold stocks if the Dow crashes?”.
Gold stocks have already experienced a 1929-style crash numerous times in this crisis. I think they are at the lows of one of them now.
I think the Dow probably is about to crash, but the crash will be against your gold stocks more than against the dollar. Please click here now. That’s a weekly chart matching the Dow against GDX-nyse.
The Dow looks terrible. Technical indicators and oscillators are having a veritable fist fight to see which one can show the Dow as most ready to tumble.
If the Dow crashes, this chart indicates that gold stocks are likely to soar.
I believe that just as many retail investors sold their stock market holdings into the lows of 2008 and bought bonds, as investors in the gold community have recently sold their gold stocks in despair, and bought gold bullion.
The gold community’s version of the “growth with safety” play is understandable, but those who engaged in it should probably reverse course very quickly.
To understand why they should reverse course, please click here now. That is a weekly chart of gold against GDX. It indicates that gold stocks look set to give gold bullion a severe beating. Note the disintegrating volume as gold rallied against gold stocks from early January.
Most of the weekly chart indicators and oscillators are on sell signals. In my professional opinion, it doesn’t matter if the $1525 area lows represent the bottom for bullion or not. Regardless of what happens to bullion, gold stocks now look set to dramatically outperform the dollar, the Dow, and gold itself.
Please click here now. GDXJ is a well-known junior gold stocks ETF. As good as the senior gold stocks look, the juniors look even better.
That daily chart suggests that GDXJ will almost immediately begin to outperform GDX.
Gold could break the lows near $1525, and fall towards $1432 or $1266. lf gold stocks soared while that happened, investors would be stunned.
Please click here now. I call this chart my carrier strike group map. It’s a monthly chart that covers the entire gold bull market. I view the major HSR zones like carrier strike groups, because I view the market as a war.
As the price of gold declines to the outskirts of these enormous support zones, it’s critically important that investors in the gold community are ready to buy.
Note the support areas at $1432 and $1266. There’s nothing to be afraid of. $1432 and $1266 are significant support zones that will support you in your battle against the “dollarbugs”.
Please click here now. That’s the same monthly chart of gold against the dollar, with an emphasis on the technical indicators. It doesn’t look good for gold right now in the battle against the dollarbugs.
I have little interest in seeing investors try to call exact tops or bottoms. Instead, I think investors should focus on accumulating the highest quality assets when they appear to be undervalued at significant HSR zones. Liquidate a modest portion of your holdings when they appear to be overvalued.
For those who are interested in calling tops and bottoms, I don’t think a case can be made that gold has bottomed now, but a strong case can be made that it offers superb value for accumulators. In contrast, a very strong case can be made that gold stocks are making a generational bottom!
May 29, 2012
Stewart Thomson
Graceland Updates
website: www.gracelandupdates.com
email for questions: stewart@gracelandupdates.com
email to request the free reports: freereports@gracelandupdates.com
Tuesday May 29, 2012
Dan, you agree with that analysis??
I don't.
Dan & Pants-- from safehaven.com 5/25
Euro to Surge
By: Adam Hamilton | Fri, May 25, 2012 More Sharing ServicesShare
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The fortunes of Europe's beleaguered euro currency have been heavily influencing US markets. Both stocks and commodities have been battered down recently by overwhelming euro bearishness. This has proven seriously vexing for traders trying to focus on fundamentals. But the extreme euro pessimism worrying everyone is actually very bullish. This loathed, oversold currency is due to surge again.
Today of course the great fear plaguing the euro is centered around Greece. This profligate, unrepentant debtor nation seems hellbent on not honoring its commitments to the rest of Europe which could force its exit from the eurozone. And though Greece's economy is immaterial relative to greater Europe's, traders are worried Greece forsaking the euro will trigger other troubled debtor countries to follow suit.
And if Greece proves the initial domino that ultimately leads to the eurozone fracturing, what is the fate of the euro itself? This compelling line of reasoning has catapulted the short-euro trade to become the most-crowded macro bet on the planet. There is a universal expectation the euro is doomed to spiral lower, with only the magnitude of losses in doubt. This euro-to-zero sentiment is immensely popular.
But provocatively it is nothing new. Since the euro was born in January 1999, every time it has been near lows similar euro-to-zero arguments were ubiquitous. Yet the euro has still thrived, defying the naysayers every time. In fact, between mid-2001 and mid-2008 the euro surged 90.5% higher in a mighty secular bull. Even this week near new interim lows, the euro was still up 50.5% since its bull began!
The euro's rise to prominence has been meteoric. Today it is the world's second-largest reserve currency and second-most-traded currency. It now has more physical money in circulation than the US dollar! It is used by 330m Europeans daily, and another 175m people use currencies pegged to it. The euro continues to grow in acceptance and even preference by countries, central banks, and companies.
The euro is not going anywhere, the world needs a viable alternative to the US dollar. This is especially true in light of the Federal Reserve's relentless dollar inflation and Washington's Greek-style rampant overspending. Whether Greece stays in the euro or not is truly irrelevant. Back in 2010 before its worst woes began, Greece only accounted for less than 1.9% of Europe's GDP. Today it is a rounding error!
To put this in US terms, the states of Indiana and Minnesota each account for about 1.9% of US GDP. If one was to secede, stop using the US dollar, and print its own currency, would the US dollar be doomed to fail? Of course not. Greece doesn't matter and never has, it isn't big enough to be material. Whether Greece stays in the eurozone or not, the euro itself will continue to thrive as the dollar's major competitor.
And if the euro's existence isn't threatened by Greece's intransigence, then today's euro lows are merely a normal market event to analyze. Like everything else the near-future performance of this embattled currency will be driven by sentiment and technicals, while fundamentals determine its long-term fortunes. And if you can step back from the wildly-overdone Greece hysteria, the euro is due to surge.
This chart looks at the euro priced in US dollars over the past 4 years or so, since before late 2008's stock panic. The euro (blue) along with some key technicals are slaved to the right axis. On the left in red is a construct I call the rEuro, or the euro divided by its own 200-day moving average. Based on my Relativity trading model, it helps identify the euro's tradable sentiment extremes of unsustainable greed and fear.
Since late April, the euro has plunged by 4.9% to just under $1.26. This sharp move lower was mainly sparked by early May's elections in Greece, where a radical-left political party shocked the world by winning about 1/6th of the popular vote. This SYRIZA (Greek acronym for Coalition of the Radical Left) party wants to nullify Greece's bailout agreements with Europe and grow Greece's government again.
As this chart shows, a $1.26 euro is very interesting technically. Ever since the stock panic, this has been the euro's major long-term support zone. Each time it plunged to $1.26, it soon rallied sharply in a major new upleg. Whenever the euro approached today's levels in recent years, traders got caught up in the downside momentum and expected this currency to spiral even lower. That was the wrong bet to make.
Back in July 2008, the perennial euro-to-zero fears were a distant memory. The euro was achieving all-time highs against the dollar, which itself was mired deep in a long secular bear. But the euro's revelry was interrupted by something amazing, a rare once-in-a-century stock panic erupted out of nowhere. This terrifying event ignited the highest levels of fear we'll see in our lifetimes, a literal fear superstorm.
In just a month in October 2008, the flagship S&P 500 stock index plummeted an unbelievable 30%! Investors and speculators around the world rushed for the exits, cashing out to end the pain. So the US dollar rocketed higher. The benchmark US Dollar Index soared 22.6% in just 4 months, its biggest and fastest rally ever witnessed over such a short span. The dollar was the world's safe haven of choice.
Well unfortunately for the euro, it dominates the USDX at 58.6% of this index's weight. So with flight capital catapulting the dollar higher, the euro had to fall. And it did, plummeting 22.0% in just 7 months from its July all-time high. In October and November 2008, on the exact days the US stock markets hit panic lows (driving dollar buying), so did the euro. Popular consensus argued it wouldn't survive.
But the euro-to-zero crowd, as usual, overlooked a critical point. The world needs a direct competitor to the US dollar, and for better or worse the euro is it. Central banks need to diversify away from their heavy dollar holdings built up over decades. Countries and companies that don't like Washington's disastrous mismanagement (rapid inflation, rampant overspending, zero yields) of its currency need an alternative.
So the wildly-oversold euro soon started surging again, right from $1.26ish levels where traders were wrongly hyper-bearish on it. This fast euro recovery was mostly dollar-centric. As the US stock markets stopped plummeting and bounced, flight capital hiding in the USDX quickly exited. And the falling dollar quickly pushed the unloved euro higher. The euro couldn't stay near its major support for long.
But it did revisit these deep lows again in early 2009. While the stock panic was over, US stocks slumped dramatically again as the openly Socialist (theft via taxation) and Marxist (class warfare) Obama Administration haughtily asserted that American investors were undertaxed and the federal government was too small! So once again flight capital poured into the US dollar, forcing another plunge in the euro.
This second $1.26 approach in March 2009 just as the US stock markets bottomed is very illustrative for today. Even though the euro's initial attempt to launch a new upleg just after the stock panic failed, its strong support held and formed a double bottom. So just because the euro has approached this major support line twice so far in 2012 certainly doesn't mean a major euro upleg isn't imminent again.
The euro would ultimately surge 21.4% higher in 12.2 months in 2009's major upleg, ridiculing the euro-to-zero naysayers whose ideas were so popular during the stock panic. But by then the euro was overbought, it was trading above 1.08x its 200dma. As the light-red rEuro line in this chart shows, once the euro rallies fast enough and far enough to hit this metric a correction is due to rebalance sentiment.
Currencies are just like stocks in that excessive greed (after major uplegs) and excessive fear (after major corrections) can never persist. Emotional extremes soon burn themselves out and the great sentiment pendulum slowly starts swinging the other way. So the euro's correction in early 2010 was totally normal until the first round of Greece fears hit. And then the decade-old euro perma-bears gleefully reemerged.
In order to join the European Union, countries have to agree to keep their budget deficits under 3% of GDP. Obama would never make it, he has been irresponsibly and recklessly running US deficits in the 8% to 10% range! In early 2010, the world learned that the filthy Greek politicians had outright lied about its deficit. Instead of the 6% claimed (already a problem), Greece's deficit was nearly 13% of its GDP!
So the already-correcting euro started to plunge, with Greece's profligacy creating a crisis of confidence in Europe's composite currency. In May 2010 Europe approved a massive €110b bailout package for Greece, but it wasn't enough. The euro kept on plunging well below its $1.26 major-support line. By the time the dust settled in June 2010, the euro was trading at just $1.19. Everyone thought it was doomed.
Except a handful of contrarians, including me. When any price has already corrected for a long time, and then starts falling sharply, fear quickly balloons to extremes. But this very capitulation is incredibly bullish, as everyone susceptible to being scared into selling anytime soon is forced out. That leaves only buyers, so a price soon starts surging after such a plunge. The euro looked really bullish, even with its support broken.
I wrote an essay on this in late-May 2010 called Euro Panic Buying Op. The day it was published the euro was under $1.26, and the euro-to-zero crowd dominated discourse. There were widespread predictions the euro would fall to parity soon ($1.00), far lower than it was trading. I took the unpopular contrarian position then, as I am now, that the hyper-oversold euro was due to surge. I wrote...
"Today's radically-oversold euro is one of the most extreme low-price anomalies I've ever seen. I can't imagine it not reversing soon and violently, with the resulting euro relief rally being blisteringly fast just like it was in early 2009. This has huge implications for commodities stocks, as the rallying dollar and falling stock markets have really depressed them lately."
The deluge of hate mail I got after that essay was dizzying. Was I blind? Dumb? Naive? All of the above? Couldn't I see that Greece was going to drag down the euro, and that Italy and Spain were next? Clearly Europe was plunging into a perpetual recession and the euro was doomed! At major lows, it is almost impossible for the great majority of traders to fight the incessant groupthink to buy into fear.
But the few other contrarians and I were right, the euro would rocket 24.5% higher over the next 10.9 months in a massive upleg just as predicted. If you want better perspective on the euro-to-zero hype today, I encourage you to find what your favorite euro bears were writing back in May 2010. Did they wrongly expect the euro to plunge from lows back then too? If yes, why trust their herd mentality now?
After that massive upleg born out of extreme fear and despair much like today's, the euro eventually grew overbought again in spring 2011. Greed was excessive, sucking in everyone interested in buying anytime soon. This left only sellers so the euro started correcting again. And just like in its 2010 correction, once again Greece fears flared to help accelerate this latest correction's decline late last year.
By February 2012 Greece's continuing rampant government overspending had spawned such an insurmountable debt burden that the other European countries approved a second €130b bailout package. I couldn't believe it. If the Greeks couldn't get their act together after the first massive bailout, why throw good money after bad? Europe should have just kicked Greece out of the eurozone.
This latest round of Greece fears drove the euro near $1.26 support in mid-January, and again this week after the Greek government that agreed to the terms of the second bailout lost this month's elections. So traders are once again terrified by little, immaterial, perpetually-broken Greece. What if it leaves the eurozone to fire up its dusty drachma printing presses again? How can the euro weather such a crisis?
So the same old euro-to-zero arguments that have come out of the woodwork at every major euro low since its 1999 introduction have reared up again today. After correcting 15.1% in 12.7 months, rather than seeing a mature correction and oversold euro traders and analysts are jumping on the downside-momentum bandwagon again. They fully expect the euro to continue selling off, maybe hitting parity.
But once again I'm taking the contrarian side on this one. When everyone thinks a price that has already suffered a long decline is heading lower indefinitely, they are almost always wrong. The euro is nearing oversold levels and fear is out of control. Euro shorts are everywhere, hedge funds are heavily short this currency just like they wrongly were in spring 2010. And euro bulls are scarce, seemingly extinct.
So the oversold euro is due to surge, probably to enter a major new upleg. And the last two major uplegs after extreme euro fear near its $1.26 major-support line have averaged 23.0% gains over 11.6 months each. A similar upleg today would carry the beleaguered euro up to $1.55 by next spring, which is not far from its all-time highs. This would certainly send the euro-to-zero crowd scurrying into hiding again.
But even if similar performance proves elusive as Greece's increasingly-likely euro exit is discussed in this coming year, the euro is still due for a major rally. Its major resistance line of recent years is currently at $1.42, and dropping by about $0.04 per year. So by autumn this resistance zone will be near $1.40 or so. This would net a conservative 11.1% rally for the euro in the coming months, with huge implications.
Ever since the stock panic, there has been a strong negative correlation between the US dollar and US stock markets. So whenever traders see the dollar rally, they tend to sell stocks while futures traders definitely dump commodities. The recent sharp May plunge in both the US stock markets and commodities prices is the direct result of the fast-rallying USDX. And that was driven by the Greece-induced euro plunge!
So when the euro reverses out of today's extreme lows and starts surging higher, the US dollar is going to get hit hard. All the selling pressure on stocks and commodities will evaporate immediately. And all the capital hiding out in the dollar will start flowing back into these oversold arenas. So euro strength will effectively spark major rallies in stocks and commodities, starting to rebalance May's rotten sentiment.
And when both stock markets and commodities recover, the biggest beneficiaries will be the hyper-oversold commodities stocks. The carnage in this sector has been unbelievable lately, with many commodities stocks nearing panic levels even though the prices of the commodities they produce and their profits are far higher today. The imminent surge in the oversold euro should quickly reverse this.
At Zeal we've always been contrarians, because that's the only way to build fortunes in the stock markets. The only time prices are really cheap is when everyone fears they are doomed to fall lower indefinitely. That is the time to buy! And the proverbial blood is flowing in the euro streets today. When it inevitably reverses, the US dollar will fall igniting sharp rallies in oversold commodities. Gold will benefit the most, and gold stocks just suffered a full-blown capitulation driving them to panic-like lows.
The bargains in this sector are amazing, and we've been adding gold-stock trades in our acclaimed weekly and monthly newsletters. In them I draw on our vast experience, knowledge, wisdom, and ongoing research to explain what the markets are doing, why, where they are likely heading, and how to trade them with specific stock trades as opportunities arise. Subscribe today and take advantage of the oversold euro to buy commodities stocks cheap!
The bottom line is the euro is due to surge. Greece's long-known dysfunctionality has driven the euro to major multi-year support again. But these levels have held strong even through and since 2008's stock panic, the greatest fear event of our lifetimes. Whenever the euro falls this low, it is oversold and fear is excessive. Like anything else suffering such extremes, a sharp rally soon erupts to rebalance sentiment.
So the smart bet to make today is the contrary one, fighting the euro-to-zero groupthink and being long this battered currency. Sooner or later some catalyst is going to drive some euro strength, which should ignite a monster short-covering rally to kick off the euro's next upleg. The best part is this will hammer the overbought dollar, paving the way for capital to return to oversold stock markets and commodities.
Because they lied about inventories...election year.
They can control markets until they can't.
sounds like a double bottom
I wasn't casting dispersion on Fabbie or anyone else... get over it..
go on to more important stuff... gadzooks
onward and upward