Monetary Policy Week in Review – Feb 24-28, 2014: Israel 1st advanced economy to cut rate in ’14 as Brazil raises

    Last week in global monetary policy Israel and Albania cut their rates as Israel became the first advanced economy to ease in 2014, illustrating the sluggish state of the global economy despite its gradual healing from the global financial crises.
    With weak global demand keeping worldwide inflation at bay, currency depreciation is boosting import prices and thus inflation in pockets around the world, including in Brazil and Zambia, with both banks raising rates last week as they continue their tightening cycles started in early 2013.
    Eight rate increases through the first 9 weeks of this year compared with 11 rate cuts by the 90 central banks followed by Central Bank News shows that the trend in global monetary policy is shifting toward tightening though rates are likely to remain very low for years to come.
   Viewed in percentage terms, rates have already been raised 10 percent of this year’s 79 monetary policy decisions compared with only 5.3 percent through the 52 weeks of 2013.
    Central banks in advanced economies cut rates 9 times in 2013 as the Bank of Israel cut three times,  the European Central Bank and the Reserve Bank of Australia cut twice and Sweden cut once. Denmark managed to both raise and cut its rate last year. But Denmark’s central bank is an anomaly among advanced economies as its monetary policy is purely aimed at defending the krone’s exchange rate to the euro so in most cases it shadows the ECB.
    The global shift toward higher rates is being driven by the U.S. Federal Reserve’s gradual wind-down of quantitative easing, underpinned by an improving U.S. economy.
    Apart from the distortion that ultra-low rates are having on financial assets and investors’ behavior, low rates also means that major central banks have little ammunition with which they can respond to an economic shock, an unsettling prospect that has been raised by Russia’s aggressive behavior in the Crimean peninsula.
    While much of the current debate around monetary policy in the U.S. and the UK is focused on the timing of rate rises, the issue of the future level of rates is increasingly being discussed.
    Mark Carney, governor of the Bank of England (BOE), has on several occasions, including his Feb. 12 presentation of the Bank’s new forward guidance, said that rates in the medium term will be “materially lower than before the crises” due to the headwinds of public and private deleveraging, strains in the financial system, weak global demand and a high sterling exchange rate.
    Last week Dennis Lockhart, president of the Atlanta Federal Reserve, echoed this sentiment, saying he expects the U.S. to be “in this low interest rate environment for quite a while.”
    David Miles, an external member of the Bank of England’s Monetary Policy Committee, added fresh perspective to this debate in a speech last week on “The transition to a new normal in monetary policy.”
    While Miles acknowledged the above-mentioned headwinds to demand, he believes that the financial crises has also led to a much more fundamental and longer-lasting change in investors’ risk perception.
    “I suspect the memory of the crises and the effect it has had on the risk perceptions will last longer than the impact on spending and taxes of the need to rebuild balance sheets,” Miles said on Thursday in London.
       To help examine investors’ perception of risk, Miles looked to economic models developed by the American economist Robert Barro, senior fellow at Stanford University’s Hoover Institution and well-known critic of government stimulus programs.
    The events surrounding the global financial crises were largely considered inconceivable by most economists and investors during the so-called Great Moderation from the mid-1980s to 2007.
    But now, investors are considering such crises as rare, but not inconceivable. The implication is that assets that are low in risk, such as indexed bonds issued by governments with a small risk a default, are viewed as much more attractive with a corresponding decline in their yields.
    This new post-crises perception risk will tend to increase the difference between the returns on safe assets, which are closely linked with rates set by central banks, with the returns on riskier assets that are more closely linked to an economy’s performance, such as corporate debt.
    “A rise in that spread between safe rates and rates on riskier assets is likely to mean that the rate set by a central bank should be lower,” said Miles, professor at London’s Imperial College.
    Interestingly, Miles finds that BOE’s Bank Rate historically has been around 5.0 percent. Not only was this the average rate from 1997, when the BOE was granted independence, to the end of 2007, but also the average rate in the 320-year-history of the Bank of England, from its creation in 1694 to 2014.
    Underlying this 5.0 percent Bank Rate was an average inflation rate of 2.0 percent so historically, the risk-free real UK interest rate has been around 3 percent, Miles said.
    “Indeed there are reasons to think that for some time to come the level of Bank Rate that will keep demand and supply consistently in balance and keep inflation at the target rate is likely to be below
(maybe well below) the 5% figure,” he said.
    Spreads between lending rates and Bank Rate may come down in coming years once banks have built up their capital to more adequate levels and if competition in the banking sector picks up. But spreads on risky lending, whether by banks or by capital markets, are unlikely to fall to where they were before the crisis, partly because those pre-crises spreads unsustainable.
    Miles shows how the spread of corporate bond rates over 5-year government bond rates fell to an average of 0.9 percent in the period from 1997-2007 from 1.6 percent during 1938-1996. The spreads then jumped to 3.5 percent from 2008-2013 and has now narrowed to 2.0 percent in January 2014.
    A parallel example is how mortgage rates fell to unprecedented lows in the decade before the crises. The spread of mortgage rates over the BOE’s Bank Rate averaged 1.2 percent from 1938 through 1996 but then narrowed to only 0.5 percent from 1997 through 2007. From 2008 through 2013 it then widened to 2.7 percent as banks’ perception of risks changed dramatically. Since then it has narrowed to 1.9 percent in January.
    Financial liberalisation may be one factor behind lower spreads during 1997-07 compared to 1938-96. But another likely reason for Miles is that in the years before the crisis, lenders and borrowers underestimated the risk that debt would not be repaid. Those risks are now perceived to be significantly higher and are likely to stay higher for many years.
    Another perspective on the future evolution of monetary policy came from bitcoin when Tokyo-based Mt. Gox, one of bitcoin’s biggest exchanges, went dark under mysterious circumstances, casting doubts on the future viability of the virtual currency.
    The collapse of Mt. Gox, including a reported 744,000 missing bitcoins – worth over $400 million – has showcased the complete lack of regulation and legal status of the bitcoin system.
    Nevertheless, Federal Reserve Chair Janet Yellen, in her Thursday testimony to a Senate committee, said Congress should consider ways to regulate virtual currencies as the Fed currently has no jurisdiction.
    On the same day, Japanese Vice Finance Minster Jiro Aichi said that legally bitcoin was not a currency as it was not issued by the Bank of Japan. However, Aichi also said that any regulation of bitcoin should involve international cooperation to avoid loopholes.
    These two comments show that central bankers and policy makers believe digital currencies are likely to play a growing role and they are now starting to consider how to regulate them in the future.



COUNTRY MSCI      NEW RATE            OLD RATE         1 YEAR AGO
ISRAEL DM 0.75% 1.00% 1.75%
ALBANIA 2.75% 3.00% 3.75%
BRAZIL EM 10.75% 10.50% 7.25%
FIJI 0.50% 0.50% 0.50%
MOLDOVA 3.50% 3.50% 4.50%
EGYPT EM 8.25% 8.25% 9.25%
ANGOLA 9.25% 9.25% 10.00%
ZAMBIA 10.25% 9.75% 9.25%
COLOMBIA  EM 3.25% 3.25% 3.75%

    This week (Week 10) eight central banks will be deciding on monetary policy, including Australia, Uganda, Canada, Poland, Malaysia, the European Central Bank, the United Kingdom and Serbia.

AUSTRALIA DM 4-Mar 2.50% 3.00%
UGANDA 4-Mar 11.50% 12.00%
CANADA DM 5-Mar 1.00% 1.00%
POLAND EM 5-Mar 2.50% 3.25%
MALAYSIA EM 6-Mar 3.00% 3.00%
EURO AREA DM 6-Mar 0.25% 0.75%
UNITED KINGDOM DM 6-Mar 0.50% 0.50%
SERBIA FM 6-Mar 9.50% 11.75%

Investors ignored Game-Changing Deal; WhatsApp


In January 2009, Jan Koum bought a new smartphone.

A top-of-the-range iPhone 3G.

As soon as Jan booted up his new device, something exciting dawned on the young infrastructure engineer.

He realised that the Apple App Store – then just seven months old – was about to spawn a whole new software industry.

That gave Jan an idea…

Jan worked on the idea day and night for the next several months until he’d perfected it.

Jan’s idea would eventually make him an incredibly rich man. But when he released his idea to the world, investors wouldn’t even give him the time of day.

If you’d been browsing the online forum ASmallWorld on the 4th of May 2009, you might have come across this post…

Source: The Reformed Broker
Click to enlarge

We’re told the post above received no replies. Zero.

Five years and $19 billion later…

Unless you’ve been under a rock for the past week, you’ll have seen that Facebook Inc [NASDAQ:FB] has just agreed to buy WhatsApp, a four-year old text messaging company with 55 employees and $20 million in annual revenue, for $19 billion.

At face value, that’s a staggeringly large sum of money.

And yes, this deal dwarfs most high-profile tech acquisitions. It’s more than the combined total Microsoft [NASDAQ:MSFT] shelled out for Nokia’s mobile phone business and for Skype…and it’s much more than Google [NASDAQ: GOOG] paid for YouTube.

But large doesn’t necessarily mean expensive. And it’s important to realise what Facebook has really bought here. There’s an important lesson in it for investors…

Price is What You Pay – Value is What You Get

Facebook has just bought a company that processes 50 billion free messages a day. WhatsApp has grown to more than 450 million users, and 70% of those users log into the app every day. That level of engagement is valuable because the more users interact with a service, the more ads or other products can be sold to them.

Brian Blau, an analyst at research and advisory firm Gartner Inc [NYSE:IT], put it best when he said:

If you’re a technology player today, and you’re in the communications business, then you need a way to capture people and bring them into your ecosystem. Virtually anybody in the technology space that has a pillar product around conversations and connecting people together could be a potential buyer.

Facebook paid $42 per WhatsApp user…a great proportion of them are highly active. In fact, the average WhatsApp user sends more than 1,000 messages every month!

But compare $42 per user to the price commanded by the other major social networks. $42 is a fairly cheap price for a pair of eyeballs…as you can see in the chart below, which compares WhatsApp to its social network peers.

Source: Statista
Click to enlarge

You’ll note certain words missing from that chart: ‘sales’, ‘cashflow’, and – god forbid – ‘earnings’.

And that’s fine.

Mark and friends will figure out a way to monetise those users. In the long run, it’s not hard to see WhatsApp getting anywhere from $1 to $10 per user annually. That would make it a lucrative business in its own right.

And that’s before you consider the less tangible benefits that come from extending Facebook’s reach.

According to mobile research firm Jana, 55% of people surveyed in India said WhatsApp was their most-used messaging service. That response rose to 63% in Brazil and 78% in Mexico.

Those kind of penetration rates – and the swathes of personal data that come with them – will be a godsend to Facebook as it pushes into emerging markets.

But WhatsApp isn’t the only communication software start-up that’s been snaffled this month for big dollars…

Lost In The Noise

If it’s possible for an international takeover worth close to a billion US dollars to get drowned out in market noise, well, that’s what happened two weeks ago.

That’s when Japanese e-commerce giant Rakuten Inc [TYO:4755] announced its purchase of voice-call app-maker Viber for $900 million.

On any valuation metric, the price that Viber’s owners achieved for their business looks pretty shabby compared to WhatsApp’s $19 billion price tag.

Should Viber’s founder, Israeli entrepreneur Talmon Marco, feel hard-done-by to have only gotten $900 million for his app?

I’d imagine Talmon has spent a few sleepless nights this week wondering what might have been if the WhatsApp deal had been announced before he’d agreed to sell. It’s clear that tech industry heavyweights are now placing a much higher price on strategically important assets.

You may not have noticed, but stories like the WhatsApp acquisition are constantly playing out in the Australian stock market.

The only difference is that you don’t have to be a secretive fund manager like Sequoia Capital to win this game. That’s the venture capital firm that backed WhatsApp five years ago in exchange for a share in the business. As Kris Sayce told you last week…with the Facebook takeover, Sequoia made a 35,525% return on their initial stake in WhatsApp.

While that sort of gain doesn’t happen often, opportunities for big triple-digit or quadruple-digit percentage gains do happen relatively often. All you need is the courage to take on some calculated risks in exchange for the potential to make huge gains.

I’m talking about investing in the opportunities we find amongst the speculative small-cap companies listed on the ASX.

Not just smaller Aussie companies with revenue, profit and an established business plan…but tiny firms with little more than some start-up capital and a bright idea.

The potential to make huge gains

These small-cap companies typically ask you to invest in their business before they have an idea of how they’re going to make any money.

Many of these companies will fail to reach their full potential. But some will…and if you get along for the ride, the returns will be breathtaking.

Here’s a tip on how to find the next Aussie WhatsApp…an investment that’ll go on to pay you as much as 35,525% more than your initial outlay.

Look for a small company with three things: a unique asset, barriers to entry and smart operators at the helm.

If you find a company that ticks those boxes at the right time, the rest will look after itself.

You don’t get $19 billion small-cap takeovers every day, but the huge deals we’ve seen in the past two weeks show you what can be possible.

The trick is in finding these companies before everybody else does. That’s not always easy.

My recent research has unveiled tiny Aussie companies building unique businesses in high technology, alternative finance and online retail.

Will these be the next Aussie WhatsApp? Maybe. Maybe not.

But either way, these are exciting stocks with a great future. They may not return investors a 35,525% gain…but if my analysis is right, high triple-digit percentage gains are a realistic possibility.

It’s an exciting time to be an investor, especially a small-cap investor.

Tim Dohrmann+
Analyst, Australian Small-Cap Investigator

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Warren Buffet’s Latest Investment Tips Are Must-Reads


I can be awfully cynical about Warren Buffett sometimes.

There’s something about that folksy, down-home, man-of-the-people persona, and the gushiness of his fan base.

It doesn’t sit well with the reality of being the man that even Goldman Sachs, the ‘vampire squid’ of legend, comes running to when it gets into trouble.

But at the end of the day, that’s all showbiz. What matters is that Buffett is a brilliant investor, and better yet, he writes extremely well on the topic.

His latest letter contains two key lessons that will definitely change your investing for the better if you haven’t already learned them…

Lessons From Warren Buffett’s Property Investments

The latest excerpt from Warren Buffett’s annual letter to Berkshire Hathaway shareholders, published in Fortune magazine, tells the tale of two property investments he made.

You can – and should – read the whole piece. But here’s what it boils down to. Buffett bought a farm on the cheap after one recession. Then he bought some retail property in New York after another one.

With the help of some trusted experts, he looked at the business case for both. He saw that the returns looked good, even on a conservative estimate. So he bought them, made loads of money, and still owns them decades later.

Good for him, you’re thinking. But what can I learn from Buffett’s good fortune? I’d say there are two main takeaways – both critical to being a better investor.

Firstly, he points out that he ignored the broader economic backdrop. He didn’t think: ‘property prices are bound to go up, I’ll buy now.’ Instead he looked at the earnings these properties were likely to generate in the future. On that basis, they looked cheap, so he bought in.

This is important. It’s the way you should look at any investment, from shares to bonds. It’s not about asking: ‘What will the price be tomorrow?’ It’s about asking: ‘Does this represent good value, given the returns I can realistically expect from it?’

This seems simple. Yet, as Buffett points out, with share prices being barked at you from the TV every other minute, it’s easy to get caught up in the sense that you are missing opportunities, or that your hard-earned wealth might be at risk.

In short, invest in businesses because they’re good value, not because the price is going up.

The Financial Industry Wants you to Trade Like a Maniac

Secondly, Buffett flags up the importance of keeping ‘your costs minimal’.

As he puts it, if farm owners ‘frenetically bought and sold farmland to one another, neither the yields nor the prices of their crops would be increased. The only consequence would be decreases in the overall earnings realised by the farm-owning population because of the substantial costs it would incur as it sought advice and switched properties.

The financial industry wants you to trade like a maniac. It gets a bite of your money every time you do. But if you take the time to make a sensible, considered investment decision in the first place, you won’t be panicked into doing anything rash.

Successful Investing for People who aren’t Warren Buffett

This is all very well. But what if you’re a normal human being, and not someone like Buffett, who actively loves the process of analysing businesses?

As far as he’s concerned, there’s a simple solution. Invest in a cross-section of American businesses by sticking your money in a cheap S&P 500 tracker. If you invest regularly, then you don’t have to worry about market timing. Any short-term losses made by buying near the highs will be compensated for by gains made by buying in near the lows.

There’s a lot to be said for this. The truth is that for many people, simply even establishing a monthly, low-cost savings plan would greatly improve their long-term financial outlook. And if you have a long period of time to save over – a decade or more – then saving regularly in shares has historically produced better returns than cash.

But I think you can do better than that, even as a non-specialist. Buffett is right to focus on cheap tracker funds. But he ignores one great benefit of such funds – you can use them to buy into a very wide range of assets, not just US or British stocks.

It’s really easy to build a diversified portfolio that has exposure to shares across the globe, and also to property, bonds, and gold. All without paying a fortune in fees, or even having to spend a lot of time setting the thing up.

That reduces the risks of having all your money in one very over-valued asset class at any given moment. Which in turn should make it even easier to sleep at night while your money steadily accumulates.

I do think this point about diversification is particularly important right now. There’s a lot of frankly nutty-looking stuff going on in the investment world at the moment.

Stupidly expensive deals are being done in the tech sector. Valuations are being put together on the basis of rosy future scenarios – one investment bank analyst even used the word ‘utopia’ in his valuation model of Tesla the other day. (Interestingly enough, Tesla’s looking to raise funds, and said investment bank is in the running to get the business.)

Meanwhile, China’s financial system is looking ever more rickety. And markets can’t seem to make up their mind about whether the ‘taper’ is really happening or not, and what it means if it does.

In short, conditions look ripe for a ‘slip-up’ of some sort. Maybe nothing will happen. But it’s worth being prepared for if it does.

John Stepek,
Contributing Editor, Money Morning

Ed note: The above article was originally published in MoneyWeek.

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USD/JPY Forecast March 3-7

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USDJPY had a downfall last week after the Japanese economy showed some signs of strength. The household spending improved with a rate of 1.1% and the expected value was 0.5%.  The most pleasant surprises were the industrial production and retail sales with both of them being published above expectations. Another important indicator that didn’t disappoint was Tokyo Core CPI that also came above expectations proving that “Abenomics” is making some progress.

Also, the political turmoil from Ukraine was a factor that led to the appreciation of the yen. In this kind of situations when uncertainty reigns, investors prefer safe haven assets and the Japanese yen is one of them. The US macro indicators were mixed but the markets are seeing only the good part right now as S&P 500 managed to hit a new record level.

Economic Calendar

Capital Spending q/y (6:50 GTM)-Sunday. The indicator measures the change in total value of new capital expenditures made by businesses and it is a leading indicator of economic health. It is forecasted an increase of 5.1%, so it will be interesting to see if the Nippon economy can maintain the level it showed last week.

Monetary Base (6:50 GTM)-Monday. It is the change in total quantity of domestic currency in circulation and current account deposit held at the BOJ. This is a low impact indicator. It is expected for the monetary base to rise with 54.2% this month.

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EUR/USD Forecast March 3-7

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Euro managed to close the 4th week on positive ground. Even though last week didn’t start very good because of the low German economic data things have changed in the second half. The 0.8% inflation has risen investor’s optimism and that was seen also on the EURUSD chart. The Euro has passed again above 1.38 key level. Even though it didn’t close the day and week above this level it still a big step for the European single currency.

Next week’s economic calendar is full with important releases and events. Continue reading our article to see what the most expected indicators are and what technical analysis suggests.

Economic Calendar


Spanish Manufacturing PMI (08:15 GMT) – This economic indicator for the Spanish Manufacturing sector has surprised the market with the first two releases of this year, above expectations. In February it was published 52.2 and it is expected for Monday to be even higher at 53.2.

Italian Manufacturing PMI (08:45 GMT) – 30 minutes after the Spanish PMI it is expected to be released the Italian one. Italy had a very good January release but it didn’t keep the same line for February. Last month the Manufacturing PMI was released 53.1, which was 1.1 points under estimates. This month the expectations are lowered to 53.3.

ECB President Draghi Speaks (14:00 GMT) – He is due to testify before the Committee on Economic and Monetary Affairs of the European Parliament, in Brussels.

ISM Manufacturing PMI (15:00 GMT) – This is one of the top leading indicators from USA. In January its release didn’t brought any surprise. In February it was almost 5 points lower than its estimates. For Monday the expectations are lowered from 56.2 all the way to 52.3. It usually triggers volatility in the market, especially when it comes as a surprise.


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Colombia holds rate, inflation seen moving toward target

    Colombia’s central bank held its policy intervention rate steady at 3.25 percent, saying interest rates were appropriate because they are stimulating spending while inflation is converging toward the bank’s 3.0 percent target.
    The Central Bank of Colombia, which has held rates steady since April 2013 after cutting them by 100 basis points in the first three months of last year, said economic growth in 2014 is still projected to expand by 4.3 percent after likely growth of 4.1 percent in 2013 within a range of 3.7-4.3 percent.
    For the fourth quarter, the central bank’s staff is projecting growth of 4.6 percent, up from 4.5 percent forecast by the central bank in January, the bank said after a meeting of its board on Friday.
    Investment is increasing by the largest amount while household consumption is growing at its historical average rate. Exports are also accelerating but at a rate that is lower than imports.
    Colombia’s Gross Domestic Product expanded by 1.10 percent in the third quarter from the second quarter for annual growth of 5.1 percent, the fastest rate in six quarters and up from 3.9 percent in the second quarter.
   Colombia’s inflation rate rose to 2.13 percent in January, within the central bank’s 2.0 to 4.0 percent target range with core inflation at 2.55 percent. Inflation expectations one year from now are around 3.0 percent.
    The central bank added that the rate of credit growth slowed in January but was still higher than the growth of nominal GDP.
    Last month the central bank’s governor, Jose Dario Uribe, said inflation was likely to rise to between 2.5 and 3.0 percent this year after falling to 1.94 percent in 2013, helped by a depreciation in the peso against the U.S. dollar that is raising import prices.

GOLD: Vulnerable To The Downside

GOLD: Vulnerable To The Downside

GOLD: GOLD remains vulnerable to the downside having continued to maintain below the 1,345.28 level. We believe its present bear threat is temporary suggesting it will fade and return to mentioned level. However, it will have to retake the mentioned level to annul its present bear threats. Further out, resistance resides at the 1,400.00 level. Additionally, resistance stands at the 1,450.00 level, its psycho level and possibly higher towards the 1,480.00 level. Conversely, the risk to this analysis will be a return to the 1,300.00 level where bulls may come in. But if taken out, further decline is likely towards the 1,300.00 level. We expect that level to hold and turn the pair higher. However, if this fails to occur, expect more weakness to happen towards the 1,231.48 level. Further down, support comes in at the 1,218.35 level, representing its Jan 08’2014 low. All in all, GOLD remains biased to the upside in the medium term.

Weekend Update by The Practical Investor




Weekend Update |

February 28, 2014

— VIX closed below its cluster of weekly Model supports after challenging weekly mid-Cycle resistance at 15.63.  VIX  did not make new lows this week, a non-confirmation of the SPX rally attempts.

SPX is repelled by Cycle Top resistance.

SPX rallied to a new closing high, but reversed short of its weekly Cycle Top resistance at 1877.75.  Orthodox Broadening Tops are often called 5-point reversal patterns.  The SPX currently has 7 points within its Megaphone pattern, a rare anamoly.  The upper trendline of the Bearish Wedge acted as a suport this week in a second throw-over pattern.  I had mentioned that, “A new record high will not negate the effects of a Bearish Wedge or the Broadening Top.  It only postpones it.  Many bearish technicians are now bullish, not recognizing the bearish reversal pattern.”

(ZeroHedge)  With the Ukraine now openly appealing to the world to halt what in its own words is a Russian invasion, it only made sense that after the bigger than expected downward revision to Q4 GDP, and the miss in Pending Home Sales, that the S&P would close at a new all-time high. Oh, there was that surge in the Chicago PMI which confirmed that the February weakness across all other data was not due to the weather, and which is all that the market decided to focus on.

NDX probes at the Broadening Wedge trendline.

NDX probed its Broadening Top trendline for a third week, closing with a gain for the week.  This type of rally is a bull trap, keeping investors reassured that all is well.  A late-day reversal occurred on Friday that portends some follow-through on Monday.


(Bloomberg)  U.S. retailers last quarter suffered their darkest days since the recession.

With results in from 62 of 122 retail chains, the industry has posted its first profit quarterly drop since the economic contraction that ended in 2009, according to Retail Metrics Inc. Revenue also rose at the lowest rate since that year, the research firm found.

The results paint a grim picture of an industry hit hard by the sluggish job recovery and slow wage growth, which have turned U.S. consumers into a nation of penny pinchers.

The Euro’s head fake stretches another week.

The Euro bounced from weekly Short-term support at 136.58, but did not exceed its prior high.  The inability to make a new high indicates this may be a bearish head fake.

(ZeroHedge)  Here we go:









The Yen is consolidating in a narrow range.

The Yen rose above weekly Intermediate-term resistance at 97.48, but staying in a shallow range.  Further decline is anticipated by the Cycles Model. The next break of the Head & Shoulders neckline may bring the Yen beneath its 2008 lows.


(Reuters) – Asian stocks edged up in late trading after a volatile session on Friday, as investors weighed unrest in Ukraine against Federal Reserve Chairwoman Janet Yellen expressing confidence in the strength of the U.S. economy.

The fear factor helped the yen rise against the dollar and euro on its traditional safe-haven appeal as tensions mounted in Ukraine, even after Yellen’s testimony to a Senate committee helped the S&P 500 close at a record high.

U.S. Dollar makes a final Cycle low.

The dollar low on February 18 appeared within the window for a Master Cycle low, but it made a deeper low on Friday, February 28.  This appears to be the final low of this Master Cycle.  A reversal above the trendline reinstates the bullish view on the Dollar.  The dollar shorts may have to deal with the reversal in the coming weeks.


(Reuters) – The dollar fell to a two-month low against the euro on Friday, posting its worst monthly performance since April after data showed steady euro zone inflation and a downward revision to fourth-quarter U.S. economic growth.

The European Union’s statistics office Eurostat estimated that consumer prices in the 18 countries sharing the euro rose 0.8 percent year on year this month, a sign of stability that cooled expectations the European Central Bank might ease monetary policy as early as next week.

Treasuries challenge the declining Trading Channel.

Treasuries bounced from the (red) Broadening Wedge trendline and weekly Intermediate-term support at 131.27, challenging Long-term resistance and the declining Trading Channel at 133.27.  The Cycles Model suggesting a Cycle turn at the end of February inverted, tracing out a high instead of a low.  However, Friday is an important turn date and we may see a surprise collapse in bonds over the next month.

(ZeroHedge)  While it is unclear why it happened, in the most recent week of Fed data, February 19, Primary Dealer holdings of Coupon securities tumbled by $21 billion, to just $2.3 billion. As the chart below show this is curious because the last time PD holdings of coupon securities was this low was in September of 2011, suggesting that in the middle of the month dealers were dumping coupon paper aggressively even though this did not impact the prevailing price of the various maturity buckets, considering the bond complex continues to grind higher in 2014 despite panicked warnings by the punditry that all Treasury holdings must be sold.


Gold continues above Long-term resistance.

Gold stayed above Long-Term resistance at 1306.91 but made little headway after making a 64.8% retracement of the prior decline on Tuesday.  The Cycles Model calls for a month-long decline that may break through the Lip of a Cup with Handle formation.  The potential consequences appear to be severe.

(ZeroHedge)  While the FT promptly retracted an article on precisely the topic of gold manipulation from earlier this week (recorded for posterity here), Bloomberg appears to not have had the same “editorial” concerns and pressures, and today released an article once again slamming the final conspiracy theory that while every other asset class is manipulated, gold is in a pristine class of its own, untouched by close-banging, price fixing traders or central bankers, and reports that “the London gold fix, the benchmark used by miners, jewelers and central banks to value the metal, may have been manipulated for a decade by the banks setting it, researchers say.”

Crude completes a 58% retracement.

Crude made a higher peak on Monday with a total retracement of 58% thus far.  It now may be ready for a swift decline.  There is a Head & Shoulders formation at the base of this rally, which, if pierced, may lead to a much deeper decline.

(Reuters) – U.S. oil on Friday had its eighth straight week of gains on market talk of fewer oil rail shipments from the booming Bakken shale in North Dakota.

Brent oil settled moderately higher but ended the week lower, weighed down by an outlook for dampening demand in China and another for stymied European growth due to uprisings in Ukraine.

Crude oil loadings at a dozen major North Dakota rail terminals fell by more than 200,000 barrels on average in the past two days to 345,000 barrels, data from industry intelligence provider Genscape showed on Friday.

China stocks decline beneath supports.

The unusually large bounce from the January 20 low gave the Shanghai Index a new chart pattern to track.  This week’s decline beneath all Model supports suggests that China stocks are on their way to that goal.  The secular decline may now resume with the next significant low in mid-March.  There is no support beneath its Cycle Bottom at 1946.41.

(Bloomberg)  On any list of banking accidents waiting to happen, China is assured a place at the very top. But could a crash there take the entire global economy down with it?
Absolutely, says Charlene Chu, who until recently was Fitch’s headline-generating analyst in Beijing. Chu has fearlessly trod into an area that China is trying desperately to keep off limits: its vast shadow-banking system. Now that she’s working for a private firm that doesn’t have to rely to governments for revenue, as do rating companies, Chu is free to speak completely openly. And is she ever.
“The banking sector has extended $14 trillion to $15 trillion in the span of five years,” Chu, who is now with Autonomous Research, told the Telegraph. “There’s no way that we are not going to have massive problems in China.” What’s more, she added, China “could trigger global meltdown.”

The India Nifty bounced above resistance levels.

The CNX Nifty continued its retracement through Intermediate-term resistance at 6185.82.  The retracement now appears complete at 72.4%.  The Cycles Model calls for a decline through mid-May. Could there be some economic disappointments ahead?

(OfTwoMindsBlog)  The conventional view of China and India sports not one but two pair of rose-colored glasses: Chindia (even the portmanteau word is chirpy) is the world’s engine of growth, and this rapid economic growth is chipping away at structural political and social problems.

Nice, especially from a distance. But on the ground, China and India (not Chindia–there is no such entity) are both powder kegs awaiting a spark for the same reason: systemic corruption in every nook and cranny of both nations. The conventional rose-colored view is that corruption will inevitably decline with modernization and economic growth.

This is simply wrong on multiple levels: as the opportunities for crony/neofeudal skimming increase, so does corruption. As the scale of the economy increases, so does the scale of corruption.


The Banking Index remains beneath its trendline.  

BKX attempted a challenge of weekly Short-term resistance and trading channel trendline at 68.89, closing on it for a third week.  The uptrend line is broken and, more importantly, stands as a resistance to any further rally.  The Cycles Model suggests a new low may be seen in the next two weeks.  Might there be a flash crash?

(ZeroHedge)  Raise your hand if you are surprised that, as has emerged, virtually every major bank was manipulating currencies (and everything else)whether as part of the “Bandits’ Club”, the “Cartel” or some other – until recently- secret message room.

That’s what we thought.

Now raise your hand if you thought the manipulation could be so pervasive, so glaring and so in your face, that even the oldest central bank – the Bank of England – and who knows how many other monetary authorities, were openly encouraging traders from these private banks to do more of the illegal activity they had been engaging in – namely manipulating currencies – with their explicit blessing knowing very well such behavior is undisputedly illegal.

(ZeroHedge)  While the “developed” world scrambles to find a way to provide Ukraine with a bailout in such a way that Russia doesn’t turn off the gas, Ukraine is doing some scrambling of its own to assure the local banks, which have been plagued by both bank runs and a collapse in the currency to record lows over the past few days, that it will be there to provide funding on a business as usual basis. Itar-Tass reports that “Ukrainian banks will be provided with necessary liquid assets, including cash.” But there is a condition: the funding will only come “if they will remain under open control of the National Bank of Ukraine, the newly-appointed NBU Chairman Stepan Kubiv is quoted as saying on the bank’s official website.”

(ZeroHedge)   Well that escalated quickly. It seems the ouster of Yanukovych, heralded by so many in the West as a positive, has done nothing to quell the fear of further economic collapse in Ukraine:



This is around a 30 billion Hyrvnia loss (over $3 billion) in just 2 days for the banks and the new central bank chief is considering “stabilizing loans” to help banks deal with the liquidity crisis(though Ukraine’s reserves stand at a mere $15 billion).

Reserves are in freefall… and will only get worse if the bank run continues…

(ZeroHedge)  In a desperate attempt to distance itself from the widening corruption scandal linking the Vatican’s bank accounts to fund (and allegedly bribe) a 2007 acquisition by Monte dei Paschi of Antonventa, the Pope has taken an unprecedented step in open the Vatican’s finances to public view.

As Reuters reports, Pope Francis on Monday revolutionized the Vatican’s scandal-plagued finances by appointing an auditor-general stating that the Church must see its possessions and financial assets in the “light of its mission to evangelize, with particular concern for the most needy.

The auditor-general will have wide oversight powers “to conduct audits of any agency of the Holy See and Vatican City State at any time,” a statement said. Francis decreed that the changes have “immediate, full and stable effect,” abrogating any existing rules not compatible with them.

Have a great week!


Anthony M. Cherniawski

The Practical Investor, LLC

P.O. Box 129, Holt, MI 48842

Office: (517) 699.1554

Fax: (517) 699.1558


Disclaimer: Nothing in this email should be construed as a personal recommendation to buy, hold or sell short any security.  The Practical Investor, LLC (TPI) may provide a status report of certain indexes or their proxies using a proprietary model.  At no time shall a reader be justified in inferring that personal investment advice is intended.  Investing carries certain risks of losses and leveraged products and futures may be especially volatile.  Information provided by TPI is expressed in good faith, but is not guaranteed.  A perfect market service does not exist.  Long-term success in the market demands recognition that error and uncertainty are a part of any effort to assess the probable outcome of any given investment.  Please consult your financial advisor to explain all risks before making any investment decision.  It is not possible to invest in any index.

The use of web-linked articles is meant to be informational in nature.  It is not intended as an endorsement of their content and does not necessarily reflect the opinion of Anthony M. Cherniawski or The Practical Investor, LLC.





EURUSD: Builds Pressure On The 1.3893 Level.

EURUSD: Our outlook on EUR remains higher following a sharp rally the past week. As long as it can trade and hold above the 1.3772 level, we look for the pair to strengthen further towards the 1.3850 level where a violation will turn attention to the 1.3900 level and then the 1.4000 level, its psycho level. Its weekly RSI is bullish and pointing higher supporting this view. Conversely, to annul its past week gains it will have to return below the 1.3772 level. Further down, support lies at the 1.3685 level. Further down, support is seen at the 1.3600 level and then the 1.3561 level where a break will turn focus to the 1.3476 level. All in all, EUR remains biased to the upside on further recovery.

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USDCHF: Sees Further Bearish Momentum.

USDCHF: With continued weakness seeing USDCHF testing a low of 0.8776 before closing lower at the 0.8801 level on Friday, further decline remains intact. It requires a break and close below the 0.8798 level, its Dec 27 2013 low and the 0.8776 level, its past week low to decline further. Further down, support lies at the 0.8750 level with a cut through here paving the way for a run at the 0.8700 level, its big psycho level. Below here if seen will set the stage for more weakness towards the 0.8650 level. Its weekly RSI is bearish and pointing lower supporting this view. Conversely, to reduce its downside pressure it will have to return to the 0.8929 level followed by its resistance residing at the 0.9037 level. This if seen could force further upside towards 0.9081 levels followed by the 0.9156 level, its Jan 21 2014 high. Further out, resistance resides at the 0.9200 level, its psycho. All in all, the pair remains biased to the downside in the medium term.

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