Thursday, April 28, 2016

Japan Unsettles Global Markets - Havoc Spreads

Bank of Japan announced it's monetary policy today -  that announcement brought tsunami in local and global markets. What did Bank of Japan(BoJ) do to unsettle global markets so much that bulls had no place to hide? Long trades were decimated in all markets from Asia to Europe to America.

In Japanese markets there was bloodbath with Nikkie225  losing 624 points, down 3.6%. So what did Bank of Japan do in it's policy announcement that horrified the investor community and made them dump everything in sight? Bank of Japan took following monetary policy decisions:-
  1. BoJ kept its Deposit Rate unchanged at -0.1%.
  2. BoJ maintained it's Asset Purchase target at 80 trillion Yen (USD 738 billion as of current conversion rate). 
  3. It gave some relief to quake hit areas by offering zero interest rate loans to those areas.
Result of BoJ Inaction: 
After the announcement by BoJ, Yen roared into super-drive and strengthened from 111.88 to 108 against US Dollar. Presently it is trading at 108.5 as of going to press. 

Japanese economy is export oriented and hence Yen gaining so much strength against US dollar means that export of  Japanese companies will no longer be competitive. That will directly hit the top line of companies, finally effecting their bottom line.

What was wrong with BoJ decision?
Will someone please tell me what was so terribly wrong with BoJ decision. It basically did not alter anything from what existed since February 2016. Maybe it was scared to shake the equilibrium in the market as it existed. And look what it achieved - just the opposite!.

Why did BoJ keep rates unaltered?
BoJ thought not to change anything because it got scared of consequences. When it decreased Deposit Rate from +1% to - 1% last February, a sharp drop occurred in stock prices. This time around it did not want to take the blame of upsetting the market. And yet it did!

What did market want from BoJ?
We live in bizarre times. Negative deposit rates mean that if you deposit money with Central Bank, you will have to pay for it and not get paid.. 

Did market participants want further cut in deposit rates? I don't think so. That would have been disastrous for Yen- Dollar trade. Japanese exports would have got further hit.

Did market participants want BoJ to increase deposit rate to pre-February rate of +1% ? That would have effected liquidity. Entire exercise of negative rates was meant to spur growth for Japanese economy so that it can come out of decade long stagnation.

Maybe market participants wanted BoJ to decrease the borrowing rates to negative territory. That would mean that you get paid for taking loan from Central bank. Point to ponder!

Illogical Market Reaction
Japanese companies are effected and so is Japanese economy. Economy will shrink and deflation will take roots. But that has been the state of this third largest economy of the world for nearly two decades. How does that effect global economy?

Global economy has been chugging along despite Japanese stagflation for years. What has materially changed in global economy with today's inaction of BoJ ? Then why such a violent reaction in global markets to BoJ decision? I have no answer. If anyone reading this can provide an answer, we all will get educated. Hit the comment button at the bottom of this post freely.

As of now Dow is trading 58 points down. US market participants have reacted more maturely to news from Japan. May be it will make rest of the world think and act logically tomorrow.

Sun is finally setting in the land of rising sun. That is a reality and we have to come to terms with it - earlier the better.

Tuesday, April 26, 2016

Beginning of End of Oil Age - Saudi Vision 2030

Saudi Arabia got its importance and wealth from US oil crisis in 1970s.

U.S. response to the energy crisis was to establish deeper relations with Saudi Arabia. Deeper relations boiled down to two main points of agreement:-
  • Saudi Arabia will have to sell its oil in US dollars only. It's implication is that any country wanting to buy Saudi oil will first have to buy US dollars to pay for oil purchased from Saudi Arabia. Thus began dominance of Petro-Dollars in world economy.
  • In return Saudi Arabia got military protection from US.
Importance of Saudi oil started to change from 2009, when US oil production increased year on year. Increase in US oil production carried on unabated and Saudi influence declined proportionately.

To add insult to injury, more factors surfaced on the horizon for Saudis' discomfort :-
  • New technology  allowed further increase in US oil production through fracking (Shale gas).
  • US no longer is energy dependent on Saudi Arabia.
  • Saudi Arabia allowed oil price to plunge, hoping to make offshore drilling and Shale Gas production economically not viable. By doing so, Saudi's calculated that they will decimate competition and again rule the oil market.
  • Instead something very strange happened. Unimaginably low oil price did not increase demand in oil. 
  • Demand destruction in oil was due to global financial crisis in initial stage. Then governments across the world started to curb use of oil and started investing in cleaner and greener alternative energy sources
  • G-7 countries have agreed to cut carbon emissions and totally end fossil fuel use by end of this century.
  • Paris Agreement on Climate Change last December commits all countries to holding global temperature rise to "well below 2 degrees Celsius". This can be achieved by sincerely shunning fossil fuel in an accelerated manner world over.Some more thoughts on fossil fuel in this post:
                          Break Free from Fossil Fuel - Resolve on Earth Day

Saudi Arabia has now realized that it has lost control over oil price. Iran's entry into the fray as another major oil producer has not helped the Saudi cause. As last ditch effort Saudis played Doha Summit card for production freeze so as to contain Iran. But Saudi bluff was exposed by Iran and rest is history. Read more :

                      World Waits with bated Breath - Doha Summit Outcome
                              How Will This Sunday Be - Black or Grey?

Last Monday Saudi Crown Prince announced pompously that Saudi Arabia will become oil-independent for its survival in next four years. He unveiled "Saudi Vision 2030" - an ambitious plan to diversify into income streams not dependent on oil.

This is admission by Saudi Arabia that it has finally given up hope of controlling oil price. We can now expect to be freed from the vice like grip of oil cartel headed by Saudi Arabia.

Before Doha Summit, Saudi Prince had threatened to increase oil production in case Iran did not sign Production Freeze agreement. I had commented that it is empty threat to scare US, so that Iran can be pressured. You may again like to read my argument in: Dare Saudis to Execte Threat to Ramp Up Oil Production.

"Saudi Vision 2030" has finally brought curtains down on fight to control market share. This will help oil price to stabilize and get dictated by market forces of genuine demand and supply.

However we wish Saudis success in their new venture.

As for us, we are presently unemployed. We are sitting on the sidelines, watching fight between bulls and bears in US markets. For insight into our present idleness read " Out of Work But Thankfully Out of Danger - US Markets Dive "

Monday, April 25, 2016

Dow In Negative Territory - Are You Scared US Markets Will Crash?

US markets have risen too much too fast. From mid Feb 2016 to date (in about two and half months) Dow has gained 2700 points (approx).This was achieved without any significant correction.

That has given credence to market speculation that US markets may collapse any time. Are you stressed by such announcements?

Let me categorically state that US markets are not going to collapse any time soon. Dow may drop down to 17200 in a worst case scenario. In such market condition, Dow will find support at 17200 and rise.

Reason why I am saying so is simple. There is long term support at 17200 level in Dow. However, Bank of Japan and US Fed will have to spring some nasty surprises this week for Dow to touch 17200.

In the absence of any shock from Fed/BoJ, Dow will go into sideways movement in coming days. 

Is this a Bull-Trap?

Let me draw your attention to the fact that I had forewarned you about a Bull-Trap  when Dow was near 18000. It was mentioned last week in this post . Relevant excerpts are again reproduced here for your eyes only.

"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!!!"

Buying interest was generated when after Doha Summit debacle, Dow jumped from 17900 to 18150. From then onward there has been a steady slide. Are we witnessing the "Bull Trap" theory being unfolded?

Now the question is: How sapping will the Bear Hug be? I think not very sapping. If this is a Bull -Trap then bears will ensure that markets rise from their lows.  This will be done to entrap more bulls, before settling down into a bear phase. In short, be ready to witness sideways movement in US markets as I had mentioned at the beginning of the post.

As of going to press, Dow was down more than 100 points at 17890. Are you not happy that you are away from this volatility? Stranded with long positions, spoiling your mood and mental make-up, is quite disturbing!
So enjoy money saved by employing "No-Trade Strategy" as recommended by me in my earlier post. Check it here. Snippets from that post is shared again.

"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"

Saturday, April 23, 2016

Break Free from Fossil Fuel - Resolve on Earth Day

Earth Day was celebrated world wide on 22 April- a day to reflect on environmental issues of our planet. On Earth Day let us spare a thought for our environment - not for any lofty abstract charitable symbolism but for our own survival on this planet.

We must debunk the myth that any step to protect environment, will save our planet. It will save us.

When we tackle environmental issues with positive action, we are saving ourselves, and not the planet. This planet will survive any environmental catastrophe, but humans will not.

So let us do ourselves a favor - protect our environment. In this process we will save our species from extinction. Earth has and will survive many such catastrophe.

Fossil Fuel

This Earth Day let us resolve to phase out fossil fuel from our environment.

We the people of planet earth, have to set urgent realistic deadlines and act firmly to throw out fossil fuel from our ecosystem. Once and for all!

Break free from fossil fuel within next 10 years. It is possible if we have many more Elon Musk (CEO Tesla Motors) on earth.

We must have many variations of Tesla by many other automobile companies. Automobiles consume 60% of world's total oil consumption. Replace fossil-fuel-guzzling automobiles with clean efficient Tesla-kind-of-electric automobiles and enjoy pollution free cities.

Recent precipitous fall in crude oil prices will help the cause of fossil-fuel-free world.

Find ways and means to keep oil prices low for a long time so that oil business is no longer lucrative, and finally gets abandoned by big influential coteries and countries.

Peabody, world's largest coal company, recently filed for bankruptcy protection in US owing to falling demand of coal. This space should quickly get filled by renewable energy.

Technology enhancement in renewable energy should be a global effort, backed by governments under UN umbrella, and not left to corporations. Then only renewable energy will be accessible, cheap and user friendly for mass consumption.

Peek at US Markets from Sidelines

Dow opened the day at 17985, rose to a high of 18027 , then plunged to a low of 17910 and recovered smartly to be slightly in green.

Important points to keep in mind for Dow :-

If Dow closes flat today, then it will be very encouraging for bulls. It will mean that Dow has taken support from 10 EMA and declared it's intention to move higher on Monday. I am expecting that low and high made so far in Dow, remain intact in trade today.

On Monday, if Dow does not violate today's low(17910) and closes above today's high(18027) - then we can expect Dow to touch 18300,

Friday, April 22, 2016

Out of Work But Thankfully Out of Danger - US Markets Dive

We went out of business when Dow reached 17900 last Friday. I had asked my audience to exit US markets with Dow between 17990/17950. Dig out details here.

I not only asked my audience to exit markets, I also told them to stay on the sidelines. That makes us unemployed - watching the battle from gallery. Probe yourself. If you are short of time to probe, examine the operative paragraphs :-

"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!!!"

Watching from sidelines, you can witness battle raging between bulls and bears. Today bears seem to be winning. I have been maintaining in all my previous posts that bears will defend their last known territory between 18000/18200 in Dow. You can find mention of this here or read the excerpts below ;-

"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."

US markets are down more than 100 points at the moment. Don't you agree that we are safe sitting out this volatility? It is very difficult to be holding positions in such times when there is no clear trend.

At such moments you cannot even build short positions. For all you know, tomorrow you may find Dow 100 points higher. 

One thing is certain though - definite move either way  will be signaled by an intra-day movement of 300 points in Dow in that direction. Therein lies your indication to trend development. 

Watch this space regularly for updates and call to action. Also, your comments will be most appreciated. So take out few minutes to do me a favor and comment without any inhibitions.