Financial Intelligence Report
The Newsletter for people willing to take control of their financial future
January 18, 2015
This is today's issue of the Financial Intelligence Report
Contributing Editors: Bob Rinear, Robert Foster, Ted, Chuck and the gang!
Wall Street Lunacy donated by Janet Yellen, and Central Bankers the world over!
Part 1: General Commentary
Part 2: Market Commentary
General Commentary... Swiss Miss
NOTE>> Because of overwhelming response to the options tutorial that we wrote a few weeks ago, we've decided to do a webinar next Saturday at noon. The webinar will focus on a handful of major topics, such as using options as a hedge, how to use them to mitigate volatility, we will cover gold, oil, stocks, plus options for leverage and as a hedge. The online webinar will run for a minimum of two hours, and generally end up doing 3. I invite you all to come and participate in this event. I'll personally be doing a large part of the options training, so if you're one of those folks that have been afraid of options, or really don't understand them, this is THE event you want to come see.
I have a nice "coupon" for all you InvestYourself readers. The Webinar will be 85.00 for the general public, but if you use my promo code, you get in for 75.00. Here's the link...http://www.philsgang.com/invest/
So please folks, cut out a few hours next Saturday the 24th and attend this webinar. It will be fun and educational. But most of all it will be profitable, and in this crazy market, making profits is paramount. Make the time to attend. You need to go register now, as seats do fill up. That's not a marketing "ploy" it's real. There's a limited number of attendee's that the system can handle, and I'd like you all to be able to get in. Commentary-
By now most of you probably know that this week the Swiss National Bank came out of the clear blue and made two substantial moves. One was that they cut their sight deposit rate to -0.75%. Yes folks you read that right. If you are an institutional player and need to park some money in their bank, it's going to cost you about a percent for the honor. How lovely is that? Not very for sure. You know the world is upside down when in several nations it now costs you money to park your deposit at a bank, a bank that will take that deposit and go play cowboy in the markets.
But the much more interesting and damaging news is that they removed the "floor" ( or ceiling, depending on how you want to look at it) of their currency in relation to the Euro. That resulted in a spike higher for the Swiss Franc of about 23% overnight, a move that you could only call gigantic in scope. Because of that enormous move, many traders and even trading firms found themselves on the wrong side of the move, and the pain was instantly felt. By Friday morning two currency brokers were already declared insolvent and one of the publicly traded FX companies, FXCM was halted in pre-market trading as they too tried to find capital to keep from bankruptcy.
Many will say "so what? The markets carry risk and these guys were all on the wrong side of the boat. Who cares that they made a bad bet?" Well, that is NOT the issue here folks. Yes markets carry risk. Yes you can lose money on a bad bet. But that is NOT the underlying issue here. The issue is that the Swiss bank STABBED everyone that trusted them right in the back with a massive dagger.
Here's the dirty... for 3 years the Swiss have had a peg to the Euro. No matter how much pressure that put on the bank as far as their balance sheet expanding, and their debt level to GDP going crazy, they repeated over and over and over that they'd "never" let the peg slide. They'd do anything it takes to keep things in line. So, traders and firms around the globe took them at face value. They trusted the Central bank. Surely if they were going to change their minds, they'd telegraph that for months and months so that positions could be squared off and calm would remain in place....right? Wrong. With absolutely no formal or official warning, they simply came out and "did it".
Now, the reason they did it is simple, they're in the dire straights. They've been printing Franc's and buying up Euro's, to keep that peg in place. Meanwhile they're getting killed doing it. Knowing that next week Draghi and his European Banker friends are going to launch a QE program, which would mean all the Euro's the Swiss hold would be worth considerably less...they made the move to cut those losses. Frankly they should have been men 3 years ago, and ignored the silly peg, and then back in November they should have gone all aboard on the Gold initiative. But they screwed the people instead. Their currency in 2010 and 2011 was very strong. The only people that didn't like it was exporters. Everyone else that has to import goods, loved it because imports were cheap. The country was doing incredibly well letting it's currency rise to market levels. But then they were "instructed" so to speak to get in line. They pegged the Franc to the Euro and spent umpteen billions to keep it. It was killing them.
Remember back in November the Swiss were to hold a referendum ( a vote) about returning to a gold standard, where at least 20% of their currency value was backed by gold? What did the Central bank do? It spent millions on scare ad's telling the Swiss people how insane it would be, how it would hurt their ability to keep stability, and how gold had now lost any reason to back a currency. Their scare tactics worked. From an initial "50/50" position in the polls, when the vote hit, the "no's" won in a 4 to 1 landslide. The "honest" Central bankers had swayed the folks into thinking that the CB was God. It alone was honest. It alone would protect them. It alone knew what was best for everyone. Not that crummy old gold stuff.
Then Wednesday night/Thursday morning...they said "too bad folks... we're cutting your throat". Instantly the currency soared. Instantly the folks that rely on exports were screaming "how could we sell product??" The tourism Industry is vomiting. "Who's going to pay above market rates to come visit us??" Their market fell like a rock, and billions in value "evaporated". In one swipe of the pen, the Central bank has caused global repercussions.
But that's all just mechanics. Action/reaction sort of thing. That is what you can see the results of. But that's not the really big problem here. The problem they just unleashed is one that cannot be seen nor measured. They've removed the very thing that allows Central bankers to remain in power...they have busted the people's trust.
How can anyone ever trust a Central banker again? I kid you not folks, the man in charge of their operation, Mr. Thomas Jordan ( head of the central bank) has said time and time again that you can trust him to do right. He'd NEVER let the currency get out of control. He'd do what ever it takes to keep lock step with the Union. The SNB, that only last month pledged to spend unlimited amounts of Swiss Francs to buy unlimited amounts of euros to maintain their 1.20 currency peg to the falling euro, comes out and reverses all that in one moment.
They folded folks. After all the bravado talk, after telling folks for decades that there's NO power so big that a central bank can't fix it, they have admitted DEFEAT. There ARE powers bigger than them. They can't fix and save the world. They're NOT the God's they think and say they are. This is a PROFOUND situation.
So, next week the world is expecting big things out of the EU. Draghi has stated over and over that he's willing to do what ever it takes to make sure deflation is defeated and the EU shakes off its ills. Do you believe him? Why should you, didn't Jordan say the same things?? We've just seen that there's no longer even any honor among thieves.
Jordan just proved to us that the global economic situation is far beyond what most people think. In the past we could all be assured that the CB's would work in tandem to promote their agenda. But because of the various currency wars, because of the "breakdowns" between the major players, we're seeing an "every man for himself" sort of thing shaping up.
Consider what we're seeing in the big picture folks. I've harped on this for quite some time, but I think most folks are dismissing it as "so what?" Our machinations in the Ukraine have NOT drawn Russia into a military confront with NATO. What it has done however is chase them right into the willing arms of China. The single biggest energy deal ever penned is now being consummated via Rubles and Yuan. China continues to amass enormous amounts of gold, and they continue to expand the amount of nations that will directly trade in Yuans. China and Russia will have their own "SWIFT" system of settlements set up by June or July of this year.
This fall the IMF is going to be rebalancing the SDR make up. China wants in that in a very big way. For every one "win" that China makes concerning their currency, that's one more "loss" for the US dollar as the global reserve currency. Now we see the Swiss going rogue. Who's next? What nation is next that says "hey, the dollar and the Euro and the Yen are dying, we want out....?" The great Nixonian error of fiat currency is really showing its stripes now. Everyone is waking to the realization that it's all fake. It has no value.
Gold has been up since the Swiss announcement. Next week the Europeans should embark on a program to destroy their currency because the ECB is now poised to start printing unlimited amounts of euros to buy up unlimited amounts of dead beat Club Med-European - unrepayable debt, in a last ditch effort to keep the wealth and job destroying, Euro from going extinct. Between the actions in Japan, and what we expect out of Europe, there's little wonder why the Chinese have been amassing such a huge stockpile of gold. Even that old pervert Greenspan can't talk fast enough about how ONLY gold is money and not even the US dollar can touch it. That's because after being a central bank insider himself, he knows fiat is a rigged game and destined to fall. He's trying to tell you all.
We're in a currency war. Most people think Jim Rickards coined that in his 2011 book by that name, but please...Bill Bonner and I were discussing currency wars in 2000, and was one of the major reasons I was pounding the table on Gold. I'm still a firm believer in gold, no matter how many people laugh at it because it fell from 1900 to 1200. They didn't laugh when we rode it from 295 to that 1900 however. They missed ALL of that. We're in a fiat currency war, and it is going to end badly. In the end, it's my opinion that whom ever owns the gold, will win the war. Think about it.
So the central banks have proven to the world that they are quite adept at stabbing people in the back. They cannot be trusted any longer. Their whole premise of being saviors is out the window. It is now proven that if the pressures get too big, the CB's will fold. That right there is a massive problem folks. How can you ever believe a word they say? You can't. The Market...
Pushes and pulls, ups and downs, hopes and fears...it's all adding up to a level of volatility we haven't seen in quite some time. What's it all mean? It means a lot of things. One is that the underlying market is in itself "weak". Secondly, periods of incredible volatility usually suggest that a market reversal of trend is trying to take place. Well, for 5 years the market has trended higher. The volatility suggests that many don't think it will continue any longer and are heading for the exits.
The big picture view of things is about as mixed and curious as I've ever seen. We've got very big market moving situations breaking loose all over the globe. Last week of course was the SNB cutting the Euro peg. This coming week we'll hear from Draghi, and see what sort of QE program they're going to launch.
But in a "bigger picture than that" we have the un-measurable things to consider. As I wrote above, all trust in Central banks has been damaged by the Swiss. Trust in fiat paper currency is being damaged daily, as finally people are waking to the idea that having fake money, printed out of thin air...is not a sustainable basis for value. This is why gold has made a strong leap higher, as folks are figuring that "maybe that stuff doesn't look so bad right now..."
Friday we put in a Bravado, snap back, Hail Mary sort of day. Yes the major banks had missed earnings. Yes the economic news was pretty horrid. Yes there were currency traders being blown apart and bankrupted by the Swiss move...yet we ended the day up 186 points. They were desperate to show the world that things aren't that bad, and US stocks still make sense. Can you say "plunge protection team??"
This coming week has every bit the chance of being as volatile as we've seen lately. If the Europeans bring out the "bazooka" and really unleash a massive QE program, for at least the short term it will fire off the algo-bots that are addicted to cheap free money. But it will also cause those with a thinking mind to say "wow, the world is in such crap shape that even the Europeans need to subvert their constitution and print money just to keep the wheels from coming off??" That should lead to higher gold, and even lower yields on Treasuries as they eventually flock to "safety".
We come into the weekend holding 3 long positions in our Insider's Club. ( our paid membership area). They are WEN, LULU and SWN. All three have done very well for us during these volatile times. IF the market continues higher, which is possible for Tuesday, we might consider adding another position, probably in the energy sector.
But it won't be until Thursday that we hear what the Europeans are going to do. If the markets decide that they're doing too little - too late... we could roll over and see this market plunge in a big way. If they bring the bazooka and go all out... we could see a short term trip up that challenges the highs of Jan 8 - 9.
I'm going to base any buying of gold and/or mining shares on what we hear from Europe. If they go big... I think the miners and gold/silver will continue to push higher. If they go meek... the metals might cap off here temporarily. We'll see.
The bottom line is the market is a maddening choppy mess, and until it settles down and finds a trend, you either have to be fast, or sit this out. We'll know a lot more by the end of the week. Have a great Holiday and we'll see you all Wednesday night.
PS.. If you'd like to see the exact stocks/options/metals/ETF's and 401K moves we will be looking at for this week, please consider becoming a member of the "Insiders Club" located here: www.investyourself.com