Bank of Japan Adopts Negative Interest Rates: Surprise, Surprise We Lied Again; Meaning of "Now"

Bank of Japan Adopts Negative Interest Rates: Surprise, Surprise We Lied Again; Meaning of "Now"

Meaning of “Now”

Eight days ago, the Bank of Japan governor Haruhiko Kuroda, said No Plan to Adopt Negative Rates Now.

Well, that was then, and this is now.

Negative Rates Announced

Today we learn Bank of Japan Adopts Negative Interest Rates.

The Bank of Japan has slashed interest rates to minus 0.1 per cent in a shock move that adds a new dimension to its record monetary stimulus.

Showing its willingness to expand the policy further, the BoJ said it “will cut the interest rate further into negative territory if judged necessary”.

“The bank will lower the short end of the yield curve by slashing its deposit rate on current accounts into negative territory and will exert further downward pressure on interest rates across the entire yield curve.”

However, the BoJ will use a complicated three-tier system, which makes the negative rate much weaker than comparable moves by the ECB and other European central banks.

Crucially, it will only pay negative rates on any new bank reserves resulting from its programme of asset purchases. All existing bank reserves — which amount to about $2.5tn or 50 per cent of gross domestic product — will continue to be paid interest at 0.1 per cent.

That means there is unlikely to be any impact on bank profits or bank depositors in the short term. The negative interest rate will only have an impact over time as the BoJ keeps buying assets and creating new bank reserves.

The move will add to Mr Kuroda’s reputation for surprises, suddenly adopting policies he has vehemently denied were even possible. Eight days ago he told parliament the BoJ was “not seriously considering” a negative rate.

Surprise, Surprise, We Lied Again

Surprised minds may be interested in how the Yen reacted to this surprise move.

Yen vs. US Dollar 15 Minute

The two consecutive long green candles represents a decline in the Yen vs. the US dollar of about 2.3%. That sounds big but the next chart puts the move in perspective.

Yen vs. US dollar Monthly

Since January of 2012, the Yen has declined nearly 37% against the US dollar. Yet, Japan is still mired in deflation.

If any of these surprises ever accomplished anything, we wouldn’t keep having them.

Mike “Mish” Shedlock

Bank of Russia Keeps Interest Rate Steady at 10.5%

Bank of Russia Keeps Interest Rate Steady at 10.5%

Bank of Russia Keeps Interest Rate Steady at 10.5%

July 29, 2016

The Bank of Russia had reduced the rate in June, but according to its new statement, a paused decline in expected inflation led officials not to cut further this time.  The statement, however, leaves the door open to more rate relief if, as they expect, inflation actually continues to decline.  The 4% target is expected to be achieved by late 2017.  From 17% at start of 2015, the central bank implemented 600 basis points of ease by the end of July.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

Tags: Bank of Russia




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Can Bitcoin Rally Sustain Momentum?

Can Bitcoin Rally Sustain Momentum?

Bitcoin showed resilience over the course of the weekend, twice bouncing off the $645 level and steadily working back to $655. Another period of consolidation looked to be forming at $655, but a breakout occurred which saw the price top $664 before settling at the $662 level.

$680 is again the focus on the upside, with resistance expected there should this breakout continue. A continued run to $680 would mark a 50% Fibonacci retracement of the slow decline that began five days ago. Traders still holding their position from recent entry should trim their positions should bitcoin test the $680 level, where all attempts to push past resistance there have easily failed in the last three weeks.

Long-term, bullish sentiment remains prevalent. The Winklevoss Twins‘ long-awaitedbitcoin ETF (COIN) has decided to list itself on BATS, bringing it and bitcoin one step closer to integration with the US stock market. Access to Wall Street’s pool of liquidity is a very positive marker for bitcoin, which has grown in popularity but is still very new for traditional investors.

tradingview 24 hr chart

The RSI Pattern that was previously established has been broken multiple times, and can no longer be considered reliable for day trades. The red arrows on the TradingView chart above indicate the first break. Previously, an RSI above 65 marked the entry for a short position, to be closed when the RSI cooled to 55. As you can see, RSI breached 65 slightly below the $656 level, but the breakout continued to $659 even as RSI fell to 55. If a short position had been established here, it would have resulted in a loss.

This incident also affirms the need for tightly established stop-losses when trading off of an established pattern, no matter how many times you have seen it work previously. When an established pattern breaks, it is prudent to allow a confirmed reset to occur before entering any new positions.

Summary

Long-term traders should wait to see a break above the $664 resistance level. Should this occur, the next level of resistance is the $680 level that has repeatedly rejected bull runs. There is nothing to indicate that buying power will be strong enough to break through $680 this time, so entries above $664 should be closed and profit taken at the $667-$668 level.

It is likely that price is looking to break out of the $640-$680 level it has found itself stuck in the last two weeks. Whether that break will be bull or bear is unclear.

 

 

 

Ian Telfer’s Take on Gold: What 35 Years in the Mining Business Has Taught Him

Ian Telfer’s Take on Gold: What 35 Years in the Mining Business Has Taught Him

Goldcorp-IanTelfer-2Thus far this year, things are looking upbeat for gold.  Gold and gold equities have surpassed all other major asset classes and are expected to keep pace for the rest of the year. Indeed, the precious metal’s stellar performance has caught many market analysts by surprise, especially since gold hasn’t had a first quarter as lucrative as 2016’s since 1986.

“That gold has held up is a good sign and vouches well for further increases,” said Rolf Schneebeli, CEO of Gold Services AG. “There is certainly a good chance that gold reaches $1,500 by year end.”

Investor apprehension following the Brexit vote is a prominent reason why gold is continuing to do well into the summer. Investors have been gravitating towards assets that retain or increase in value during uncertainty, and historically, investors consider gold a safe haven asset.

Gold’s positive performance since the beginning of the year can be attributed to a variety of factors.  However, steadfast global demand has been the biggest contributor in helping the gilded metal carve out a durable price floor in the general vicinity of $1,100 to $1,350 per ounce (in mid-July, the price was $1,329 an ounce).

The record-setting first quarter that has set gold on its upward trajectory can also be credited to global oil instability and international market volatility. “When markets go into a panic, traders will buy up gold,” notes a recent report from Zacks Investment Research. “In a fearful market, investors will avoid most assets involving paper money and turn to things that are material, just in case this is the time the world ends.”

While gold set record gains in early 2016, it’s uncertain if it will rebound to its  2011 highs, when the precious metal was worth more than $1,900 an ounce. Despite reaching close to $2,000 an ounce on August 22, 2011, the price of gold quickly fell by $105 the next day and continued to decrease until it began to slowly climb again in late 2015. This time, it appears the gains are built on a stronger foundation and aren’t as meteoric as in 2011, which gives hope for sustained performance.

One person who isn’t worried about the future of the yellow bullion is Goldcorp Inc. Chairman Ian Telfer, who has built his more than three decade business career in establishing and growing successful mining companies.

“Gold will always be in demand.  It has been around for thousands of years and it will continue to be, in part because it is associated with luxury,” Ian Telfer says.

The Canadian gold executive points to the increase in gold demand around the world as proof that gold is resilient and wanted on the world stage.

“I have been involved in the gold industry for almost forty years and I have seen it fluctuate and ebb and flow, but it always rallies back,” continues Telfer.

As Ian Telfer points out, he has seen gold reach unexpected heights and also distressing lows, but in the end, gold is a valued commodity that people will always want.  Telfer also adds that in the days immediately following the Brexit vote, gold stocks were up.

“It’s a trend we see: when markets get volatile, investors congregate to assets that hold value over the long haul,” Ian Telfer adds. “And gold stocks have always been one of those rainy day stocks.”

To add to Telfer’s point, in the days following Britain’s controversial vote to part ways with the European Union, there was a gold rush of sorts, as investors clamored to purchase stock in the precious metal.

“The speed at which people are purchasing gold is unprecedented,” said Joshua Saul, CEO of The Pure Gold Company. “We are seeing people convert as much as 40 to 50 percent of their net worth into physical gold, (compared to) 5 to 10 percent in the past.”

While gold’s performance so far for 2016 has been very promising, the question remains, will it be able to  hold on to the ground it’s gained?

Recently, Oversea-Chinese Banking Corp. economist Barnabas Gan, an international authority on precious metals forecasting, called bullion a “superhero” because of its performance so far this year. He also suggests that gold will continue on its projected upswing and may reach the $1,400 mark before year’s end.

With Charles Brandes and Emanuel Derman @EmanuelDerman at the Concentrated Investing Book Launch

With Charles Brandes and Emanuel Derman @EmanuelDerman at the Concentrated Investing Book Launch

With Charles Brandes and Emanuel Derman @EmanuelDerman at the Concentrated Investing Book Launch

This was fun. Two photos from the launch of Concentrated Investing.

20160608_184629

The great Emanuel Derman, author of My Life As A Quant and Models.Behaving.Badly., and Professor at Columbia University.

20160608_190809

Charles Brandes, legendary founder of Brandes Investment Partners.

Click here if you’d like to read more on Concentrated Investing.

Buy my books Concentrated Investing: Strategies of the World’s Greatest Concentrated Value Investors (Wiley Finance, 2016) or  Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations (hardcover or Kindle, 240 pages, Wiley Finance) from Wiley Finance, Amazon, or Barnes and Noble.

Here’s your book for the fall if you’re on global Wall Street. Tobias Carlisle has hit a home run deep over left field. It’s an incredibly smart, dense, 213 pages on how to not lose money in the market. It’s your Autumn smart read. –Tom Keene, Bloomberg’s Editor-At-Large, Bloomberg Surveillance, September 9, 2014.

Click here if you’d like to read more on Concentrated Investing or Deep Value, or connect with me on Twitter, LinkedIn or Facebook. Check out the best deep value stocks in the largest 1000 names for free on The Acquirer’s Multiple.

FOMC Not Expected to Change Interest Rate Today

FOMC Not Expected to Change Interest Rate Today

FOMC Not Expected to Change Interest Rate Today

July 27, 2016

No press conference is scheduled to follow today’s released FOMC policy statement due at 18:00 GMT (14:00 EDT), nor are policymakers likely to spring a surprise federal funds rate hike on the market.  If that were to happen, an unscheduled press conference would be hastily arranged.  The previous FOMC statement on June 14 occurred just over a week before the British referendum vote, whose uncertain outcome hung over that meeting.  Policymakers voted unanimously to keep the federal funds target steady at 0.25-0.50% and observed some slowdown in the U.S. labor market, which subsequently has reversed itself.

Minutes from the mid-June FOMC meeting, published on July 6, revealed greater divisiveness than the unanimous vote suggested.  Different opinions were expressed over U.S. labor market conditions, the outlook for economic growth, risks to growth, and whether U.S. inflation is starting to rise in a sustainable way.  The group concluded that it would be prudent to wait and see more information about U.S. trends and to clarify any spillover from the coming British vote.  There was also debate over whether lower bond yields reflect declining expected inflation.

Since June 14 as can be seen in the table below, the dollar has strengthened against European currencies but not changed much on net against the yen.  The 10-year Treasury yield has fallen another 8 basis points.  U.S. stocks continue to rally in the face of very low interest rates, and the price of West Texas Intermediate crude oil has dropped over 10%, settling back into the low $40s from the high $40s.

EUR/$ $/JPY 10Y, % DJIA Oil, $
06/30/04 1.2173 109.44 4.63 10396 37.95
06/30/05 1.2090 110.89 3.96 10370 57.00
06/29/06 1.2527 116.07 5.20 11077 73.41
06/28/07 1.3452 123.17 5.10 13456 69.82
08/07/07 1.3749 118.55 4.73 13510 72.27
09/18/07 1.3888 115.75 4.51 13475 81.42
10/31/07 1.4458 115.28 4.42 13873 93.59
12/11/07 1.4682 111.49 4.11 13645 89.78
01/30/08 1.4792 107.31 3.70 12454 91.70
03/18/08 1.5786 98.73 3.41 12257 107.53
04/30/08 1.5562 104.58 3.83 12953 111.54
06/25/08 1.5568 108.37 4.18 11837 133.62
08/05/08 1.5445 108.42 3.97 11484 119.82
09/16/08 1.4144 105.16 3.36 10936 91.18
10/08/08 1.3625 99.87 3.50 9447 87.02
10/29/08 1.2933 97.15 3.81 9145 67.38
12/16/08 1.3790 90.14 2.52 8687 44.14
01/28/09 1.3253 90.01 2.61 8356 42.92
03/18/09 1.3115 98.13 2.94 7340 47.73
04/29/09 1.3331 97.06 3.02 8194 51.05
06/24/09 1.3984 95.43 3.59 8373 68.76
08/12/09 1.4221 96.17 3.71 9366 70.64
09/23/09 1.4779 91.50 3.50 9859 69.13
11/04/09 1.4884 90.75 3.51 9896 80.66
12/16/09 1.4542 89.78 3.56 10478 73.14
01/27/10 1.4045 89.49 3.61 10148 73.31
03/16/10 1.3756 90.64 3.67 10645 81.45
04/28/10 1.3157 94.10 3.75 11043 82.57
06/23/10 1.2284 90.12 3.13 10307 76.50
08/10/10 1.3107 85.85 2.81 10605 79.94
09/21/10 1.3132 85.21 2.66 10747 73.05
11/03/10 1.4059 81.35 2.53 11174 84.59
12/14/10 1.3423 83.37 3.38 11497 88.47
01/26/11 1.3658 82.55 3.41 12001 87.36
03/15/11 1.3969 81.04 3.29 11815 98.09
04/27/11 1.4665 82.63 3.36 12612 112.48
06/22/11 1.4392 80.12 2.97 12175 94.87
08/09/11 1.4234 77.09 2.36 10993 81.76
09/21/11 1.3778 76.34 1.93 11377 86.74
11/02/11 1.3724 78.11 2.03 11805 92.77
12/13/11 1.3067 77.92 1.98 12130 100.20
01/25/12 1.3027 77.96 1.97 12670 98.85
03/13/12 1.3096 82.76 2.08 13044 106.34
04/25/12 1.3226 81.37 1.97 13096 104.13
06/20/12 1.2693 79.28 1.66 12837 83.63
08/01/12 1.2300 78.10 1.49 13028 88.98
09/13/12 1.2895 77.43 1.72 13342 97.60
10/24/12 1.2948 79.75 1.77 13115 85.72
12/12/12 1.3082 83.24 1.70 13325 87.13
01/30/13 1.3584 91.16 2.02 13949 97.63
03/20/13 1.2948 95.65 1.94 14497 92.82
05/01/13 1.3195 97.48 1.62 14740 90.47
06/19/13 1.3364 95.76 2.23 15304 98.38
07/31/13 1.3301 97.92 2.67 15565 105.63
09/18/13 1.3363 98.28 2.76 15606 107.01
10/30/13 1.3764 98.18 2.48 15660 97.42
12/18/13 1.3696 103.81 2.89 16198 98.06
01/29/14 1.3651 102.13 2.73 15719 97.23
03/19/14 1.3918 101.75 2.71 16335 99.96
04/30/14 1.3868 102.11 2.66 16553 99.52
06/18/14 1.3584 101.93 2.61 16892 106.12
07/30/14 1.3372 102.84 2.51 16878 101.45
08/17/14 1.2961 107.60 2.57 17151 94.05
10/29/14 1.2677 108.40 2.33 16956 82.51
12/17/14 1.2409 117.58 2.11 17201 57.85
01/28/15 1.1337 117.77 1.78 17457 44.75
03/18/15 1.0637 120.98 2.05 17733 42.49
04/29/15 1.1164 118.67 2.05 18039 59.16
06/17/15 1.1255 124.22 2.39 17862 59.12
07/29/15 1.1073 123.61 2.29 17720 49.17
09/17/15

10/28/15

1.1334

1.1081

120.86

120.50

2.26

2.07

16778

17687

47.01

45.83

12/16/15

01/27/16

03/16/16

04/27/16

06/14/16

07/27/16

1.0956

1.0874

1.1089

1.1339

1.1205

1.1004

121.72

118.48

113.70

111.37

106.15

105.68

2.29

2.02

1.99

1.89

1.62

1.54

17583

16002

17217

18013

17675

18470

35.95

30.85

37.79

44.89

48.29

42.43

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

Tags: FOMC




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Record Speculative Long Position in Silver Futures

Record Speculative Long Position in Silver Futures

There’s a thing about records. They continue until, they don’t. A string of record weather continues until it changes. Similarly, markets can be continually propelled until they aren’t. Such is the case with the current silver market. Speculators in the silver futures market have set net long and total position records in each of the last three weeks. This has led to a significantly overbought market that is due for a correction. Once a catalyst is provided, whether it be an FOMC announcement or some other data point, the speculative washout should be substantial.

We frequently discuss the imbalance of positions between the speculators and the commercial traders because these imbalances create the turning points we look for as swing traders. Commercial traders tend to push the market in trends. They are the ones who know whether they’re facing a shortfall or, surfeit of the commodity in question and adjust their business plans accordingly. Therefore, when commercial traders are selling silver futures, they’re locking in future delivery prices for silver contracts they intend to mine and deliver. Their actions in the futures market provide an indication of their forward outlook on fundamental prices. This makes the record setting forward selling of futures contracts exceptionally noteworthy as it clearly states that they don’t believe they’ll be able to sell their silver on the open market once it’s mined at the prices currently being traded.

The speculators, on the other hand, base their actions on numerable factors but they’re all subscribed to the task of creating more money from the money they’ve invested. The speculative trading category is prone to, “group think,” and I believe this is a larger repeat of the idea that easy monetary policies across the globe will lead to an inflationary environment. This has pushed speculators into the silver market at an unprecedented pace both in overall bullishness and in total position size. Unfortunately for speculators, their track record since the silver market made its 2011 high has been very poor. Several recent rallies have been led by the large speculators only to get washed out upon silver’s next decline. We see this situation repeating itself, now. Large speculators are traditionally trend followers; this leads to adding on to existing positions as they become profitable. In this case, it has led to the purchase of nearly 37,000 contracts at prices above $17.25 since mid-June.

Below is the recent Commitments of Traders report. This is published by the Commodity Futures Trading Commission and breaks the market’s participants down into four broad categories. For our purposes, we’ll focus on the interaction between the commercial traders labeled as, “Producer/Merchant/Processor/User,” and the speculators labeled, “Managed Money.” The commercial traders are clearly hedging forward production as can be seen by the 77k+ short contracts they’re holding compared to their 20k+ long contracts. These numbers shift as a given market becomes over or, under valued and the commercial traders hand the controlling interest baton from the Producers/Merchants to the Processor/Users. This action helps define the support and resistance levels we find so crucial in our swing trading approach to the markets. Finally, note that the long/short ratio of the commercial trader category stands around 3.7 short contracts for every long contract.

The Commitments of Traders report provides a weekly tally of the market's major players and their actions.
The Commitments of Traders report provides a weekly tally of the market’s major players and their actions.

Now, let’s look at the speculative side of things via the, “Managed Money,” category. This data is compiled on a Tuesday and released on a Friday for the previous week’s action. This means that nearly 6k new long contracts were added by the speculators at prices between $19.77 and $20.615. This also makes the recent lows just above $19.25 incredibly important technical and psychological support. Finally, applying the same math to the speculative position shows that they are long a WHOPPING 12.8 contracts for every contract they’re short. This also stands as a record position. Large speculators have NEVER been this wildly bullish in the history of the silver market.

This weekly silver futures chart with net and total positions as reported in the Commitments of Traders report shows just how wildly bullish the speculators have become.
This weekly silver futures chart with net and total positions as reported in the Commitments of Traders report shows just how wildly bullish the speculators have become.

The alarm bells are ringing as the records continue to pile up. There’s an interesting inflection point in the commercial vs speculator balance of the market. The commercial traders work for existing businesses. These businesses have fairly predictable supply and demand needs. Once their needs are met, they have little interest in further market action. Speculators, however can turn the previously mentioned, “group think” into a stampeding herd as the media draws more and more attention to the developing story. This is part of the reason why record speculative positions alone, don’t immediately dictate a trade. We must first wait for some type of reversal in order to provide us with two key pieces of information. One, that the market has turned. Two, it provides a swing high against which we can place a protective stop.468x60

Moving to the daily silver futures chart below, you’ll see the discretionary trades that have been triggered by this approach. Each red or, blue circle indicates the entry signal. Each signal is sent with its corresponding protective stop order, which is placed at the recent swing high or, low accordingly. Each trade is triggered once our momentum indicator indicates a potential turn back inline with the commercial traders’ forecasted direction.

The daily chart shows the actual trades generated and sent by nightly email through this methodology.
The daily chart shows the actual trades generated and sent by nightly email through this methodology.

As you can see, we are currently short the September silver contract and have placed a protective buy stop, accordingly. Measuring the risk of a given trade should always be the first step in building a trading plan. In this case, it’s to the recent high at $21.225 on our Discretionary Cot Signals program and somewhat less than that on the Mechanical Cot Signals version I trade for our clients and myself.

The Federal Open Market Committee (FOMC) will make an announcement tomorrow that has the financial world on edge. Predicting the FOMC’s actions is difficult. Predicting the FOMC’s actions and the markets’ reaction to their decisions is virtually impossible. We’ve reached a point where every word is so highly scrutinized that it simply makes for unending TV babble. What does matter is knowing the construction of a given market’s internals so that the market’s reaction can be framed in a logical manner. Based on our experience, the markets rarely make it easy on the speculators.

The record position they’re continuing to build has come under no heat. Markets create pain for their participants. Most speculators exit trades due to losses. Remember, most speculators fail. I understand that these are the professionals in the Managed Money category that we’re dealing with but it’s also important to understand that the members of the Managed Money category also come and go. Speculative trading endeavors come and go just like the little guys. Therefore, we expect the FOMC to add considerable volatility to an already wild market. A volatile move lower could easily trigger substantial stop loss selling by the Managed Money sector.

Our plan is to sit with the short positions we’ve initiated and leave our protective stops in place. If history repeats itself, the majority of the action will be lower. Perhaps, considerably so.

Please visit Cot Signals for more information on our mechanical Commitments of Traders program as well as a free trial to the version of Cot Signals.


This material has been prepared by a sales or trading employee or agent of Commodity & Derivative Advisors and is, or is in the nature of, a solicitation. This material is not a research report prepared by Commodity & Derivative Advisors’ Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Commodity & Derivative Advisors believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.