World Out Of Whack: Time To Buy The Mexican Crash?

World Out Of Whack: Time To Buy The Mexican Crash?

Market dislocations occur when financial markets, operating under stressful conditions, experience large widespread asset mispricing.

Welcome to this week’s edition of “World Out Of Whack” where every Wednesday we take time out of our day to laugh, poke fun at and present to you absurdity in global financial markets in all its glorious insanity.

While we enjoy a good laugh, the truth is that the first step to protecting ourselves from losses is to protect ourselves from ignorance. Think of the “World Out Of Whack” as your double thick armour plated side impact protection system in a financial world littered with drunk drivers.

Selfishly we also know that the biggest (and often the fastest) returns come from asymmetric market moves. But, in order to identify these moves we must first identify where they live.

Occasionally we find opportunities where we can buy (or sell) assets for mere cents on the dollar – because, after all, we are capitalists.

In this week’s edition of the WOW we’re covering Mexico

Even before the “Anti-Christ” took the US presidency the market was gyrating like an overly intoxicated teen on spring break, trying to figure out what would happen to the country of drug dealers and rapists South of the border should the worst happen for them – the election of the devil instead of the basilisk.

The peso was the favoured market punchbag, and if we look at the short-term trading during the US fiasco election it certainly looks like it took a knee to the groin and got at least one black eye falling by 13.4% – the most since the Tequila crisis of 1994-95 when Mexico was bailed out by the US and nearly went bankrupt, forcing them to devalue the peso.

mn

Now, a month after the election I find my daily news feeds littered with pundits talking about Mexico. Who’s bullish, who’s bearish, and who just wants their face on TV and will say anything to to make it so?

I have in my inbox several emails from readers asking me about both the peso and the Mexican stock market. Are they a buy? A short?

Let me first say that out of the 50 odd countries I’ve visited Mexico isn’t one of them, and I don’t have any particular deep insights.

With that caveat in place let me show you the below chart. This is the iShares MSCI Mexico Capped ETF (EWW). It’s a decent enough proxy for the Mexican stock market.

MSCI Mexico ETF

The reason I chose to show you this chart, one going all the way back to the GFC, is because I want you to see the forest and not get caught up in the gnarly branches and roots of the trees, and as such realise that despite all the brouhaha crossing your news feeds. Trump’s election is IRRELEVANT to this market. The trend was in place well before Trump began lashing out at the Mexicans and Chinese for stealing America’s rice bowls KFC.

Trend Explained

Let’s get back to the chart above.

The GFC brought about massive QE. This folks simply turned the dollar immediately into the best funding currency on this ball of dirt. If you want to know how this functions go read this article on the carry trade. What took place was that every man and his dog borrowed dollars, thus going short, and investing in higher yielding currencies and assets: in currencies such as the Mexican peso and markets such as the Mexican stock market.

Take another look at the chart and you’ll see this rally in the Mexican market began directly after the GFC. You’ll also notice this gig ended in late 2014, not coincidentally when we told folks that a bull market in the dollar was underway and that most would get blindsided by it. I even sat down and wrote a free Dollar Bull Run report to explain the thinking:

“A bull market in the US Dollar is underway and its magnitude and duration are likely to catch everyone by surprise. I believe it isn’t out of the question for the USD Index to advance by at least 50% within the next 5 years. If this forecast proves correct, there will be profound ramifications for the global economy and many financial markets, particularly emerging markets.”

All good, so here we are at the tail end of 2016. What now?

Take another look at iShares MSCI Mexico Capped ETF (EWW). You don’t need to know anything about charts to see that the trend was in motion well BEFORE Trump started blaming Mexicans for Goldman Sachs cocaine consumption, rape, bad manners, and promising to build a Trump wall, thereby taking on Qin Shi Huang, the first emperor of China.

Take another look at the first chart I showed you: the peso getting a black eye. Now take a look at this one below:

eww

We have here the USD/MXN in green and red with EWW in blue. As the dollar goes so goes the Mexican stock market.

There is but one thing you need to keep your eye on and it sure ain’t whether Trump builds a stupid wall or whether he plants a million daisies on the border instead.

Keep your eye on the dollar because that’s all that matters right now. Remember, currencies trend for long periods of time, and the dollar spent a decade going down. It’s only been in a bull market since late 2014, a few short years.

Oh, and in case you’ve failed to read between the lines: I have nothing against Mexicans, and building a wall is easily one of the stupidest ideas I’ve heard in a long time. Trump has promised to do many things in his presidency. The question isn’t whether they should or shouldn’t be done – many are loony and others are fabulous ideas – but whether he actually can or will. I suspect he won’t do many of the things suggested.

None of this matters with the major trends in motion. One of those is the direction of the greenback.

Question

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We’d love your feedback and if you have a market you think worthy of covering please send it to me here.

– Chris

“When Mexico sends its people, they’re not sending their best… They’re bringing drugs. They’re bringing crime. They’re rapists. And some, I assume, are good people.” — Donald Trump,  June 16, 2015

Happy Holidays!

Happy Holidays!

by Bill McBride on 12/25/2016 08:19:00 AM

Happy Holidays and Merry Christmas to All!


Whose woods these are I think I know.
His house is in the village though;
He will not see me stopping here
To watch his woods fill up with snow.

My little horse must think it queer
To stop without a farmhouse near
Between the woods and frozen lake
The darkest evening of the year.

He gives his harness bells a shake
To ask if there is some mistake.
The only other sound’s the sweep
Of easy wind and downy flake.

The woods are lovely, dark and deep,
But I have promises to keep,
And miles to go before I sleep,
And miles to go before I sleep.

“Stopping by Woods on a Snowy Evening” by Robert Frost

Enjoy the season!

Sovereign Debt Yields Lower on Last Business Day Before Christmas

Sovereign Debt Yields Lower on Last Business Day Before Christmas

Sovereign Debt Yields Lower on Last Business Day Before Christmas

December 23, 2016

Ten-year sovereign debt yields retreated four basis points in Germany and Italy, three bps in U.K., France and Canada and two bps in the United States. Japan’s market is shut to commemorate the Emperor’s birthday.

The dollar slipped 0.2% overnight against the euro and yen but climbed against commodity-sensitive currencies and sterling. The greenback is up 0.4% relative to the loonie, 0.7% vis-a-vis the Australian dollar and 0.6% versus the kiwi. The yuan and Swiss are steady.

Stocks are little changed in Europe but fell 0.9% in China, 0.4% in Taiwan and Singapore, and 0.3% in Australia and India. Chinese President Xi expressed acceptance of growth below the 6.5% target.

Comex gold is trading 0.3% higher on the day at $1,133.30 per ounce but is headed for its seventh straight weekly decline. West Texas Intermediate crude oil slipped 0.4% to $52.75 per barrel.

Britain, France, Canada and The Netherlands reported GDP.

  • British on-quarter growth in 3Q was revised up a tenth of a percentage point to 0.6%, while growth in the second quarter was revised down 0.1 percentage point to 0.6% as well. GDP last quarter was 2.2% greater than a year earlier, beating the 1.8% increase between 3Q14 and 3Q15.
  • A 0.2% on-quarter uptick in French GDP during 3Q was confirmed, but on-year growth was revised a tenth percentage point (ppt) lower to 1.0%. Net exports subtracted 0.6 ppts of GDP growth, but inventories augmented GDP by 0.6 ppts.
  • Monthly Canadian GDP fell 0.3% in October, the worst result since May, and was just 1.5% higher than a year earlier. Industrial production sank 1.6% due to broad-based manufacturing losses.
  • Dutch 3Q growth got revised up 0.1 ppt to 0.8% and was associated with a 2.4% GDP increase from a year earlier.

The U.K. current account widened 15.5% in the third quarter to GBP 25.494 billion, equivalent to 5.2% of British GDP.

German consumer confidence rose 0.1 point to a three-month high reading of 9.9.

In the twelve months to November, consumer prices in Singapore were unchanged, Finnish producer prices climbed 0.6%, and Spanish producer prices increased 0.8%. Industrial production rose 11.9% in Singapore but a mere 0.2% in Austria. French consumer spending increased 3.3%.

The Reuters/U. Michigan U.S. consumer sentiment index for December, which was initially reported with a reading of 98.0 versus 93.8 in November and 87.2 in October, got revised even higher to 98.2.

592 thousand U.S. new home sales were reported by the Commerce Department for December, up 5.2% from 563K in November and the best level since July. New home sales were also 16.5% greater than in the final month of 2015.

China’s business indicator improved to a score of 55.9 in December from readings of 53.1 in November and 52.2 in October.

The Swiss index of leading economic indicators stagnated in December at 102.2 instead of rising as analysts were projecting.

European bank shares were aided by the Italian government’s indicated willingness to help out that sector.

Brazilian consumer sentiment sank sharply lower in December, dropping from a reading of 79.1 the month before to 73.3.

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

Tags: British GDP, Canadian GDP, foreign exchange, French GDP, U.S. new home sales




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Gold’s Consolidation Results in Bearish Pennant Pattern

Gold’s Consolidation Results in Bearish Pennant Pattern

Prices for gold were falling sharply since the beginning of November but have entered a consolidation mode several days ago. That created a bearish pennant pattern on the daily chart of the commodity. As the name “bearish” suggests, the pattern forecasts continuation of downward move after the consolidation period.

The pattern itself is shown on the present chart by the yellow lines. The cyan line offers an entry point for short positions if prices will indeed move down and is moved from the lower border of the pennant by 10% of the flagpole length. The green line is situated below the cyan line by the flagpole’s length and provides a profit-taking objective.

It is important to remember that chart patterns do not work 100% of the time as was demonstrated by the same bearish pennant pattern that formed on chart of silver in October but was invalidated by a move of prices higher.

Click the image to enlarge it to a full-size screenshot:

The chart was built using the ChannelPattern script. You can download a MetaTrader 4 chart template for this gold pattern. You can also trade it using the free Chart Pattern Helper EA.

If you have any questions or comments regarding this bearish pennant pattern on gold chart, please feel free to submit them via the form below.

Why I’m Hopeful

Why I’m Hopeful

Why am I hopeful? the Status Quo is devolving, and a better way of living lies just beyond the corrupt, wasteful, ruinous consumerist debt/financial tyranny we now inhabit.

Readers often ask me to post something hopeful, and I understand why: doom-and-gloom gets tiresome. Human beings need hope just as they need oxygen, and the destruction of the Status Quo via over-reach and internal contradictions doesn’t leave much to be happy about.

The most hopeful thing in my mind is that the Status Quo is devolving from its internal contradictions and excesses. It is a perverse, intensely destructive system with horrific incentives for predation, exploitation, fraud and complicity and few disincentives.

A more human world lies just beyond the edge of the Status Quo.

I know many smart, well-informed people expect the worst once the Status Quo (the Savior State and its corporatocracy partners) devolves, and there is abundant evidence of the ugliness of human nature under duress.

But we should temper this Id ugliness with the stronger impulses of community and compassion. If greed and rapaciousness were the dominant forces within human nature, then the species would have either died out at its own hand or been limited to small savage populations kept in check by the predation of neighboring groups, none of which could expand much because inner conflict would limit their ability to grow.

The remarkable success of humanity as a species is not simply the result of a big brain, opposable thumbs, year-round sex, innovation or even language; it is also the result of social and cultural associations that act as a “network” for storing knowledge and good will–what we call technical and social capital.

I have devoted significant portions of my books to an explanation of how community and self-reliance have atrophied under the relentless expansion of the dominant Savior State.

The social capital and “return on investment” earned from investing time and energy in community and other social networks has been replaced by a check from the Savior State–a transfer payment that surely beats the troublesome work of investing in community in terms of risk and return.

The net result of the Savior State dominating society and the economy is the rise of a pathological mindset of entitlement and resentment–the two are simply two sides of the same coin. You cannot separate them.

Once self-reliance has been lost, so too has self-confidence been lost, and the Savior State dependent–individual and corporation alike–soon distrusts their ability to function in an open market.

This is a truly sad, self-destructive state of affairs, and deeply, tragically ironic. The calls for “help” quickly lead to dependence on the Savior State, and that dependence quickly breeds complicity and silence in the face of repression and predation by the State and its corporate partners.

In a very real sense, citizens relinquish their citizenship along with their self-reliance and self-worth once they accept dependence on the State.

I often mention that the U.S. has much to learn from so-called Third World countries that are poorer in resources and credit. In many of these countries, the government is the police, the school and the infrastructure of roadways and energy. Many of these countries are systemically corrupt, and the State is the engine of enforcing that corruption.

Rather than something to be embraced and lobbied, involvement with the State is something to be avoided as a risk. In everyday life, people rarely encounter the government except in law enforcement or schooling.

As a result, people depend on their social capital and community for sustenance, support, work and connections.

This is not altruism, it is mutually beneficial.

Once a community dissolves into atomized individuals who each get a payment from the Central State, then they no longer need each other. Rather, other dependents on the State are viewed as competitors for the State’s resources.

These atomized, isolated individuals have a perverse relationship with the State and what remains of the community around them: lacking the self-worth earned from work or engagement/investment in a community, then their only outlet for self-identity is consumption: what they wear, eat, drink, etc. as consumers.

This dependence on the State also serves the State’s goal, which is a passive, compliant populace of dependents, and distracted, passive workers who pay their taxes. Thus dependence on the State and a hollow consumerism are ontologically bound: one feeds the other.

The era of debt-based consumption as the engine of “growth” and “prosperity” is coming to an end. Adding debt via credit no longer creates growth; it actually takes away from the economy by expanding debt service (interest payments).

The vast majority of developed-world people have had the basics of life since the late 1960s — transport, food, shelter and utilities. The “growth” since then depended on cheap, abundant oil and a consumerist mentality in which one constantly re-defines and renews one’s identity not from social investments in others or the shared community but from consumption.

Not coincidentally, this dominance of consumption as the only metric for “growth” (as opposed to, say, productive activity) has been paralleled by the dominance of the Central State.

The end of credit-based consumption will be a very positive development, as will the devolution of the Savior State. The Savior State is like oil–both are at their peaks and are starting their inevitable slide down the S-curve. The world they created was not as positive for human fulfillment and happiness as we have been told.

Indeed, study after study has found that people with the basics for life, a higher purpose that requires sacrifice and a tight-knit community are far and away happier than isolated, atomized, insecure consumers, regardless of their wealth and consumption.

This potential to re-humanize our economy is why I am hopeful.

Join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Check out both of my new books, Inequality and the Collapse of Privilege ($3.95 Kindle, $8.95 print) and Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle, $8.95 print). For more, please visit the OTM essentials website.

Next and Last Week of 2016

Next and Last Week of 2016

Next and Last Week of 2016

December 23, 2016

Many Holiday Closures Including: United States, U.K., Germany, France, Spain, Italy, Switzerland, Australia, New Zealand, Canada, Hong Kong and South Africa on Monday and Australia, New Zealand, Hong Kong, Britain, Greece and Canada on Tuesday for a combination of Christmas, Boxing Day or St. Stephen’s Day. Also, Russia and early closes in Germany and Britain on Friday for New Year’s Eve.

Central Banks: Israeli central bank meeting on Monday. Bank of Japan minutes from end-October meeting and summary of December meeting get released. BOJ Governor Kuroda speaks to a business group.

Scheduled Japanese Data Releases: Consumer prices, labor statistics, household spending, retail sales, industrial production, small business sentiment, housing starts, construction orders, corporate service prices, and index of leading economic indicators.

Other Selected Asian Data: Chinese current account. South Korean consumer confidence, industrial production, and consumer prices. Malaysian and Singaporean producer prices. Thai and Hong Kong trade balances.

U.S. Economic Indicators: Case Shiller house price index, pending home sales, Dallas Fed and Richmond Fed manufacturing indices, Chicago regional manufacturing purchasing managers index, consumer confidence, advanced trade balance, and weekly jobless insurance claims, consumer comfort, mortgage applications, chain store sales, and energy inventories.

Euroland: Money and credit growth.

Members of the Euro Area: German retail sales and import prices. Italian CPI, PPI, business sentiment, and consumer confidence. Spanish current account, retail sales and CPI. Cypriot, Greek, and Austrian PPIs. Greek and Portuguese retail sales. Cypriot and Portuguese industrial production. Finnish consumer confidence and trade balance.

Eastern Europe: Czech business and consumer sentiment. Polish producer prices and Russian CPI.

Great Britain and Switzerland: British Nationwide house price index and BBA mortgage approvals. UBS Swiss consumption indicators.

Nordic Europe: Swedish trade balance and Norwegian retail sales.

Australia, Brazil, South Africa and Turkey: South African and Turkish trade. Australian money and private credit growth. South African money and credit growth. Brazilian unemployment.

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

Tags: Economic Data Calendar




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