Chinese Invade IMF - Yuan Set to Become Reserve Currency

At peak of last global financial crisis of Sub Prime fame, Chinese leadership publicly criticized  international monetary system. China chided that a  international monetary system solely dependent on US Dollar for stability, will be prone to disaster. From there started Chinese quest to invade international monetary system.

China went about being the good guy and convinced IMF executive board that Yuan meets standard of "freely usable" currency. It also observed all IMF compliance rules to get approval for entry into SDR (Special Drawing Rights) basket.

Countries can use SDR to supplement their reserve currency. IMF member countries holding SDR can draw any currency from the basket to meet balance-of-payment needs.

Presently this basket of Reserve Currencies has US Dollar, Euro.Yen and British Pound. On 01 Oct 2016 Yuan will join these privileged currencies to stake claim to Global Reserve Currency basket with weighting of 10.82%, ahead of Yen and British Pound

Are you convinced that IMF has rightly approved Yuan as Reserve Currency? 

Chinese leadership has long history of being secretive and manipulative in their demeanor. All economic activity and data are either hidden from international scrutiny or fudged.

China has always been cheating on its currency and has pegged it artificially and arbitrarily to the dollar.

Despite its dubious track record on monetary front, China could win IMF approval by opening its onshore Bond and Currency markets to foreign Central Banks. Plus it reported its reserves to IMF - Bah Big Deal!!

No one is sure these reserve reports are true or not.China recently reported its Gold reserves as 1658 metric tons after a gap of six years. This is close to last reported figure six years back. However experts believe that it should be nearly double that figure at 3000 metric tons.

Who should we believe? I am with the experts who keep a close tab at various bullion activities of the dragon nation and have nothing to gain by falsifying figures.

Why IMF ignored Time Bomb called Chinese Economy?

Chinese economy is in shambles with balloons all over. Which of these balloons will burst and when, is anyone's guess.

In my earlier post I had mentioned China as one of the three factors that can crash global markets. Other two factors mentioned in that blog were Oil and Brexit. You can again visit the post : Bears Sharpening Daggers - US Markets in Danger of Bear Grip

Very briefly we will go through present state of Chinese economy to get the full import of IMF decision :-

• Chinese stock markets, barometer of health of any economy, have simply collapsed. Shanghai Composite Index has sunk from 52 week high of 5178 to 3042 - loss of 41% in a year. Moreover it is hurtling towards 2000 level. Remember stock markets are leading indicators to overall economy by six months.
• China is in midst of oscillating between bubbles - it moved from real estate bubble to stock market bubble to bond bubble and presently has come back to real estate bubble. Property markets in Shanghai rose by 25% year-on-year.
• China released its GDP figures which simply do not add up. Figures are too smooth to be believed. When they had largest annual decline in rail freight traffic ever reported, how has GDP grown?
• China is a debt fueled economy. Moth-eaten corrupt sectors like real estate are being merrily funded.
• Chinese banks have trillion dollars as bad loans (NPAs) and are collapsing under the burden. Recapitalizing such a huge capital is not an option with the govt. 
• China has not even come clean on the total extent of bad loans that their banks are reeling under.
• Since the present dispensation took over in 2012, no economic reform has been carried, except anti-corruption drive within party with the sole aim of hogging and concentrating power.

The laundry list of Chinese Machiavellian machinations goes on and on. Yet IMF would like to hand over international monetary strings to China? Beats me! 

If anyone in the audience has different take, please do comment to make us wise on this issue. Whether in agreement or not, your views on the subject will go a long way in shedding more light. So do us a favor and comment uninhibitedly. 

Glimpse of US Markets

Going to press, Dow was trading at 18041, down 11 points. It opened at 18059, made a low of 18031 and high of 18078.

I am still maintaining my stance of recommending no action in US markets till clear trend emerges. Remember we are right inside the Resistance Zone of 18000/18200 in Dow. If you missed my recommendation detailing this strategy, here is the link again.

I will be waiting for your comment!

Hear Bulls Roar - Dow Positioned to Break New Ground?

Bears running for cover! And there is none.

From  Asia, Europe right up to America, there is no place for bears to hide. Everywhere bulls are in full control. Markets are in all shades of green, but green all the same.

Oil is up by 0.5% - and surprisingly enough Gold is also up. Bulls are running amok and have inadvertently stepped into gold bastion. But once there by default, they are piling up bullion. Someone please explain more rationally!!

Yesterday Dow recovered form day low of 17848 and closed at 18004, after making a high of 18010. This means that Dow swung a neat 62 points from day low to reach its high. All this was done in gloomy and uncertain situation of oil plunge. Very creditable!

Feeling Left Out of the Celebrations?

Today  Dow has opened in green at 18014 and is at present up by 37 points. But we are out of work, isn't it? That is because I told you to book profit when Dow at 17900/17950 as per my earlier post.

Snippets from that post   Bears Sharpening Daggers - US Markets in Danger of Bear Grip
"Bears are gleefully whetting their hatchets and tomahawks, waiting for markets to open. So the wise thing to do would be to square off all long positions between 17900/17950 in Dow.

I agree that you would feel cheated if Dow was to surge northwards, but it is better to take profits off the table. Remember we had built long positions as per my advice at 17400 in Dow. If you take profit at 17900 you still would have accrued 500 points in Dow.
Massive resistance in Dow Jones exits at it's long term selling zone of 18000/18200. No need to take extra risk in hope of collecting 100 Dow points more, with dark clouds gathering on global stage"

I still maintain this view that there is no point in sticking one's neck out when Dow is in its long term selling zone of 18000/18200. Bears by all means will defend this last territory. Once out of this territory, Dow will be breaking new grounds - "where no man has ever been before!". All time high of Dow is 18351.

What we are witnessing now may be some sort of trap being laid for bulls. I had mentioned it in a post last Saturday. Sample the snippets from the post How will this Sunday be - Black or Grey?

"The best case scenario is that the sell off in equity markets takes place in slow motion. Big players may choose to exit their positions in a classical "Distribution Process" so that they can obtain reasonable price for their huge long positions.

So you may witness very high volatility with spurts of buying interest emerging and trying to draw eternal bulls into a bull trap. That is the shade of grey for you!. Keep out of markets and watch it from sidelines till dust settles down. I will keep you posted and immediately inform you as and when that happens. Be safe, be happy - adopt a no-trade strategy for the moment!!!"

Please don't get trapped!!

Dare Saudis to Execute Threat to Ramp Up Oil Production !

Saudi Prince threatened last Thursday that if Production Freeze at Doha Summit was not agreed to, then they could ramp up oil production by extra 1 million barrels per day. Now that there was no deal at Doha on Sunday, we dare them to ramp up production as announced. We dare them to shoot themselves in the foot. We dare them to carry out their puerile threat. We, the people of planet earth, dare them !!

We are tired of Saudi shenanigans. They are at this mischief for so long that it is not funny any more. As many aver, even with trillions of  petro-dollars Saudis have not done one single act of goodness for mankind. In fact its the other way around!

For investors in oil, there is no reason to panic. This fall was expected which I had announced on Saturday itself. If your are visiting this space for the first time then I recommend you to read following posts before proceeding further :-
                              How will this Sunday be- Black or Grey?
                    World Waits with Bated Breath - Doha Summit Outcome

Lets analyse the situation as it exists today. Crude is down 2.9% at 39.3 USD as of publishing this post. It has recovered lot of lost ground when earlier in the day it had crashed more than 5%, day low being 37.61 USD.

Why am I saying there is no reason to panic for oil investors. Oil can go down to 35 USD this week but that is all. In fact many believe that NO Deal at Doha has been a boon in disguise for long term stability of  crude oil market.

Forces of demand and supply will realign in a structurally sound manner. Supply side constraints will develop as production in many oil producing countries will be curtailed owing
to prolonged low prices not being viable, including shale gas production in US. Offshore drilling will be simply untenable.

On the demand side one is expected to see small incremental steps of growth as global economies claw out of  mire. Local politics, if not anything else, will compel nations to increase productivity in many ingenious ways. After all recession also has shelf life!

Glimpse of US Markets

Dow is up 59 points at 17956 as of going to press. Moving in tandem with oil. Dow has also recovered from its day low of  17848. But we are not trading - remember? I had asked my audience to exit market at Dow in range 17900 - 17950. That was on Friday and you may check it here.

This exit has given us a profit of 500/550 points in Dow since we entered market when Dow was at 17400 as per my recommendations. Check it out here.

But right now we should have market strategy to sit on the sidelines. Let various forces of pull and push play out. Let clear trend emerge and then I'll tell you confidently to enter trade for definite gains, like I always been doing. Remember trading gains of 700 points jump in Dow from 16500 to 17200!

Enjoy no work!!

World Waits with Bated Breath - Doha Summit Outcome

Will they, will they not? That is the moot question that investors, especially oil traders are asking around the globe. And 'They' are the major oil producing countries. These countries will go into a huddle to decide whether they should announce a production freeze on crude output so as to restrain the supply of global oil or not. With supply side contained, these oil producing nations expect oil prices to  increase.

In Doha Summit there will be 12 OPEC nations participating, with Libya abstaining. Iran will attend but will  send a delegate instead of its Oil Minister.. Others attending are Saudi Arabia, Iraq, UAE, Kuwait, Angola, Algeria, Equador, Indonesia, Qatar, KSA, Venezuela

Seven non-OPEC countries have been invited. Out of these seven, Russia, Bahrain and Oman are sure to attend. Mexico will send its observer. It is not clear whether invitees Azerbaijan, Norway and Kazhakstan will attend or not.

That this Summit is bound to fail has already been discussed in my previous post How will this Sunday be - Black or Grey?. But some important aspects which need to be kept in mind are mentioned below :-

1. This exercise of Doha Summit for Production Freeze of Oil output was a ploy by Saudi Arabia to stop Iran from hiking production. 
2. Iran has called the bluff of Saudis by insisting that it wants to ramp up production till pre-sanction level of 4 million barrels per day is achieved
3. Saudis have cleared their stance of not signing any treaty without others, specially Iran agreeing..
4. Iraq cannot stop production hike as its economy is in shambles and needs extra money for its army to carry on its campaign against Islamic State.
5. Saudi Prince has threatened to increase production by 1 million barrels per day, if there is no production freeze.
6. Most countries are already pumping out oil at their maximum capacity, except Iran and Iraq. So production freeze summit is just an eye wash.

Be that as it may, the very news of no production freeze coming out of the summit will make oil to crash to 35 USD per barrel over the coming week. At that level oil should find support again, since some sense will prevail over oil traders that Oil Production Freeze Summit at Doha was just a charade, and nothing more.

How will this Sunday be - Black or Grey?

Yesterday my call-to-action in US markets was for booking profit at 17900/17950 in Dow. Check it out here. That call was given before the markets opened. Dow opened at 17925, reached a high of 17938 and finally closed at 17987, down by 29 points from last closing.

Trade in US markets was testimony to the confusion that prevails in trading community. Tug-of -war of sorts between bulls and bears, if you may! This situation of uncertainty is mainly due to a divided house on how Doha Meet on Oil Production Freeze will pan out coming Sunday.

Frankly speaking I have no hopes from Doha Meet of major oil producing countries. This aspect I had covered in my last post Bears Sharpening Daggers - US Markets in Danger of Bear Grip

How can you expect consensus from a motley crowd with divergent geo-political interests and views? Some of these countries have been serious adversaries for a long time with ethnic and sectarian undercurrents. And we are supposed to pin our hopes on a consensus from them? Not me.

What we can expect tomorrow is Black Sunday, as Doha Meet winds up with no production freeze. I say Black Sunday because that will galvanize a furious sell off in oil prices. Presently equity markets are moving in tandem with oil market, and hence I leave it to you to draw conclusions. Since equity markets are not decoupled from oil prices, I expect a mayhem in US stocks.

The best case scenario is that the sell off in equity markets takes place in slow motion. Big players may choose to exit their positions in a classical "Distribution Process" so that they can obtain reasonable price for their huge long positions.

So you may witness very high volatility with spurts of buying interest emerging and trying to draw eternal bulls into a bull trap. That is the shade of grey for you!. Keep out of markets and watch it from sidelines till dust settles down. I will keep you posted and immediately inform you as and when that happens. Be safe, be happy - adopt a no-trade strategy for the moment!!!