October’s deck is stacked against stocks

The FANG stocks are losing a little altitude as Sept. come to a close.

The high-flying tech giants — Facebook, Amazon, Apple, Netflix and Google — have all seen roughly 5 percent pullback from recent highs. Apple is close to 10% down.

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An open letter to Chair Yellen on the inflation mystery

Let me take this post to write an open letter to Fed chief Janet Yellen to explain what is going on in the US economy. It appears she needs it

At her press conference on Wednesday Yellen said of the inflation rate being suppressed. “I will not say that the committee clearly understands what the causes are of that.”

Dear Chair Yellen, Continue reading

Bitcoin thrives on dollar weakness

As bitcoin has recovered some of its JPM chief Jamie Dimon/China crackdown attack of last week, it awaits the next onslaught.

Trading roughly a $1,000 off its almost $5,000 high earlier this month the cryptocurrency has better resolve than other currencies including the US dollar.

The dollar has lost roughly 10% of its value against other currency this year. Trading near a high of 94 on the WSJ dollar index, today it stands at 85.3. The chart is one long slope down with no peaks since January.

Funny how this metric never comes up in Federal Reserve meeting or discussions. Cheapen the dollar to spur growth is not a sound basis to build a recovery. But Wednesday when the Fed announces its rate decision, we will not hear anything about the dollar’s worth vs. world currencies.

So how much of the roughly $3,000 price gain in 2017 can be attributed to dollar weakness? I would say it can take credit for almost half the gains as more sophisticated investors sought a hedge against a depreciating dollar. Especially the Chinese, which have their yuan pegged to the dollar.

Look for bitcoin to rise further after the Fed holds rates on Wednesday. This will give you more of an indication of who is using bitcoin as a hedge.

Who will catch the falling knife that is bitcoin price?

September has been the cruelest month for bitcoin.

On the first of the month the price was $4,950. This morning’s low price was $3,036. Nearly a 40% decline over the first half of the month.

While many stories point to the Chinese crackdown on the cryptocurrencies through the exchanges and others give a nod to JPMorgan chief Jamie Dimon’s comments at the beginning of this week, I believe it has more to do with the newest investors in the crypto space.

The “investors” who came in at $3,000 and up — after finally learning how to buy a crypto — all they wanted to know after that was how to sell it. No buy and hold. Make a quick return and get out.

With that said, I could see bitcoin settling around this level as the shake out of newbies is completed. Remember no chart goes straight up from left to right.

If you recall earlier this summer, bitcoin had roughly a 34% drop in mid June, but by the middle of July put in a floor in at $1,995 and marched on to just below $5,000 from there.

You need a shake out in the markets — whether its stocks or cryptos — to set a floor to build on. The trouble is 40% down in two weeks is teetering on a panic and re-enforcing Dimon’s comments of it ending poorly.

However, the huge sell off on a percentage basis should not be directly compared to stocks since bitcoin does not have a Plunge Protection Team to come in and catch the falling knife when the market is experiencing panic selling.

IMF eyeing blockchain for roll out of SDR to replace US dollar: Rickards

I was talking to a currency trader, Thursday on the train going home. He knows I’m a business editor at a large paper in New York City.

He was telling me how Fx traders were not taking any positions after the end of this year. How the markets were constricting and said it was a huge problem and perhaps a bigger story.

I asked why? Was there a global currency coming or perhaps a reset?

All he could tell me as we got off the train was that I should look into it.

I researched over the weekend, and could not come up with anything. Now admittedly, I don’t usually look that deep into the currency trading world. It’s a closed community that’s not very transparent or accessible.

However this morning I did see that James Rickards, author of “Currency War,” among other titles and cited here before, put out an open letter to President Trump warning him of problems in the US dollar.

The nutshell of the letter is that beginning Jan. 2018 the International Monetary Fund — using blockchain technology, which is the same technology that bitcoin and other cryptocurrencies use, will be issuing Special Drawing Rights (SDR) as a new world currency to replace the dollar.

Now I find his letter highly doubtful given the quick timing of implementation, however I have this currency trader from Deutsche Bank telling me there are problems in the Fx markets, prior to the paper being published.

So I have two sources essentially saying the same thing.

Rickards does cite white papers and statements from IMF chief Christine Lagarde talking about SDRs and certainly Rickards has a long history of talking up the SDR as a world currency, replacing the dollar.

So what does this mean in the big picture? Rickards writes:

Just look what happened the last time we had a big change in our global financial system. In 1971, Nixon announced the U.S. would no longer officially trade dollars for gold. That created a lot of uncertainties, turning that decade into a nightmare for stock investors.

 

Take a look… the Dow Jones, an index of “stable” blue chip stocks (the kind most retirees like to hold), was cut in half. Stock investors bailed out of the market and, for the most part, didn’t come back for a decade.

 

I expect something similar once Distributed Ledgers go live.

The transition from a U.S. dollar system to a new system dominated by SDRs will be messy. Stocks will collapse… and will stay down.

 

There will be no recovery this time, because the U.S. government won’t be able to come to the rescue like they did in 2008.

 

You [President Trump] won’t even have funding for normal operations, let alone enough funds to save stock investors.

 

There has been a plenty of selling of the dollar recently, but that’s against other currencies like the euro and pound, If the IMF’s plan is true those currencies would also be devalued, so that is not a good indication of the plan.

Unless you figure in a currency trading scenario where the 800-lbs gorilla is the dollar and it is weakened, then all other currencies in the world will gain.

If crude can be traded in any currency, then there is big trouble in not only the currency market — a small backwater trading operation — but Treasury trading will implode.

That’s where Rickard’s nightmare scenario comes to fruition.


9-11-01: Never Forget