Jim’s Mailbox

Posted at 10:22 AM (CST) by & filed under Jim's Mailbox.

Jim/Bill,

I always made a decent amount of small pocket change trading put and call options on market inflection points.

Then suddenly, everything went to hell in a handbasket.

All my academic and professional trading knowledge could be tossed out the window.

There is no possible way anyone could utilize fundamental, technical, and macro events to trade.

Not with the advent of algorithms for machine trading (equities are the best example).

Not when the Fed steps in to foil economic laws (precious metals are the best example).

But as the article states, it will come home to roost some day.

One thing is certain, markets have a way of remaining in dreaded doldrums for decades. I’ve seen this in the 60’s.

I’ve seen grown men sitting on the curbside, crying. They saved money for years and invested. Then out of the blue lost everything they had worked for. “Never Again” was the mantra I kept hearing.

Indeed, it a decade or more before interest in stocks resumed.

But of course, by a new crowd. The old timers never returned.

It will take a very loooong time, a generation or more perhaps, until the markets regain popularity again.

People had better brace themselves for a major correction, a reversion to mean if you will, that will exceed the massive and unprecedented Fed stimulated rally of the past decade. Pain never shows its face until it’s too late.

The 2000 and 2008 collapse was just a teaser.

Patience is not a trait the new generation possesses.

Their eagerness will get many into financial trouble and decimate their lives. The illusion of “paper prosperity” will disappear in the blink of an eye.

 

 

 

 

 

 

Be ever vigilant and not fall asleep as the wheel, thinking the Fed will ALWAYS have your back. Even they have their limitations.

Rest assured, although markets can be manipulated, they eventually succumb to the laws of physics. I say physics in lieu of economics, as the former has become nothing more than alchemy in modern times; a charlatan’s game.

Be on your toes!

CIGA Wolfgang Rech

Why The Fed Keeps Propping Up The Market
March 21, 2019

Authored by Jesse Colombo via RealInvestmentAdvice.com,

The bull market of the past decade since the Great Recession has been an unusual one: despite all of the economic damage that occurred during the global financial crisis and rising risks (including global debt rising by $75 trillion), it has been the longest bull market in history. The explanation for this paradox is simple: it’s not an organic bull marketbecause the Fed and other central banks keep stepping in to prop up the market every time it stumbles. Though the Fed has two official mandates (maintaining stable consumer prices and maximizing employment), it has taken on the unofficial third mandate of supporting and boosting the stock market since the Great Recession.

The chart below, which was inspired by market strategist Sven Henrich, shows how the Fed or other central banks have stepped in with more monetary stimulus (quantitative easing, promises to keep interest rates low, etc.) every time the S&P 500 has stumbled over the past decade:

 

 

 

 

 

 

 

 

 

 

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Jim,

We told listeners weeks ago, countries would do what was in their own best interests.

Dave

Italy Joining China’s Silk Road Shows EU Maximizes Its Own Interests Over US Wishes – Former FM
March 21, 2019

Italy’s desire to build trade ties with China isn’t a move against the US, but an effort to “maximise” its own interests, Italy’s former Foreign Minister Franco Frattini told RT, ahead of Chinese President Xi Jinping’s Rome visit.

Italy is expected to sign a non-binding memorandum in support of China’s Belt and Road global trade and infrastructure network, dubbed the New Silk Road, during Xi’s visit, and has signalled its intention to play a major role in the grand plan, despite warnings about the project from Washington.

The move will make Italy the first G7 country to back the initiative, which aims to link China by sea and land with the Middle East, Europe and Africa. Rome is hoping that its involvement can help revive the Italian economy by providing greater access to the Chinese market.

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Jim,

The debt will never be re-paid.

Dave

Japan’s Debt Passes 250% Of GDP
March 17, 2019

anta Claus territory.” That is how Charles Gave of Gavekal Research views renewed debate about how a concept known as “Modern Monetary Theory” can save capitalism.

There’s nothing modern, of course, about the idea that a government can borrow with abandon in its own currency, unconstrained by deficits. It’s not just that its origins can be traced back 100 years – some argue 1,000. It’s that Japan has been toying with MMT for two decades now.

In 1999, the Bank of Japan became the first major authority in modern history to drive interest rates down to zero. A couple of years later, it pioneered the quantitative-easing that peers from Washington to Frankfurt would eventually adopt.

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Jim,

This article is from 2012 regarding Basel III over 6 years ago.

Dave

Basel III Brings Gold Back
December 5, 2012

. . .

Why the turnaround, and at prices much higher than those at which the central banks sold? Because the rules have changed: The Basel Committee on Banking, the body that sets the standards followed by the industrialized world’s central banks (and the commercial banks they oversee), has reclassified gold bullion as a “tier one asset.” According to the Basel Committee’s new rule, known as “Basel III,” as of the New Year, gold will be counted at 100 percent of its market value when a bank’s assets are audited. Moreover, under Basel III, a bank’s tier one assets must rise from 4 percent to 6 percent of its total assets. This means that many banks are likely to replace substantial portions of their mortgage-backed securities and bond portfolios with gold.

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