We all know that asset prices (stocks) are being supported by the central bank’s easy money policies. Leading central banks such the Federal Reserve, Bank of England, Bank of Japan, the European Central Bank, Reserve Bank of Australia, and others have been either creating money, or lowering interest rates in order to inflate stock markets around the world. Usually, this action by the central banks will help boost the economies around the world by making money easier to borrow. It will also help to increase exports by devaluing the currency. The only problem is that every country is now doing the same thing simultaneously.
Is this money printing by central banks sustainable? If money printing solved all of the problems of the world why didn’t the central bankers start this a long time ago? There would probably be no hunger or poverty in the world today. The problem is that money printing does not work for long periods of time. It will usually lead to inflation or another major bubble in stocks, commodities, or real estate. Just think about it, the policies made by former Federal Reserve Chairman Alan Greenspan could be the leading reason why the markets experienced the tech bubble in 2000, and the housing and credit crisis in 2008. This time around there are central banks is printing money in almost every country and there could be giant bubbles building all around the world.
Below are a list of some of the easy money programs by the central banks:
Bank of England: £375bn quantitative easing program, interest rates are 50 basis points
Bank of Japan: The bank is increasing its purchase of government bonds 50 trillion yen ($520 billion). The benchmark interest rate in Japan was last recorded at 0 percent. Japan’s economy is 1/3 of the United States.
Federal Reserve (United States central bank) has a zero percent fed funds rate which is the overnight lending rate to the large banks. The Federal Reserve is also buying $85 billion a month worth of U.S. Treasuries, and mortgage backed securities. The Federal Reserve’s balance sheet is estimated to be over $3 trillion.
European Central Bank: the central bank just cut interest rates to 50 basis points from 75 basis points. The ECB also buys debt from nations such as Spain, Italy, and Portugal in order to keep borrowing costs low. They have several other monetary programs in place at this time. The European Central Bank’s balance sheet is roughly at $3.45 trillion.
Reserve Bank of Australia; they just cut interest rates to 2.75 percent today.
In doing some research I found that these central banks had printed over $17 trillion in new money over the past few years. This money printing is certainly helping the stock and real estate markets higher, but is it sustainable? What is the exit strategy when inflation starts to creep into the economy? How long can the money printing party continue?
Almost every day, the U.S. markets hit new all time highs. With rampant unemployment, low jobs growth and an ugly global economy, many are wondering if we are in the midst of a new stock market bubble. Below are the top 5 reasons why you know another stock market bubble is forming.
5. Earnings have been poor at best with many large Fortune 500 companies like International Business Machines Corp. (NYSE:IBM) missing horrible. The market continues to make new all time highs.
4. Volume is almost non existent on every move up. Today, we have done 34 million on the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). This tells us institutions are far from being buyers.
3. Mutual fund inflows have surged dramatically 2013. This tells us the little, average investor is finally feeling safe enough to buy into the market again. As we all know, when all the average investors pile in, the end is near and a big drop is just ahead.
2. The Federal Reserve has printed close to $4 trillion Dollars out of thin air in the last few years. The Federal Reserve has also created every bubble in recent history. Printing this much money keeps yields artificially low. Keeping yields at record lows forces money to chase better returns. Thus money rushes into stocks creating a bubble.
1. Mila Kunis and other celebrities have endorsed stocks and started investing. If you ever needed a bubble signal in the markets, this is it.
While these Top 5 Reasons all ring true, the key will be discovering where the top of this bubble is…Tune in to the charts, they will show us. A bloodbath is sure to follow.
Everyone knows that asset prices are being supported by central bank money printing called quantitative easing. Central banks such as the Federal Reserve(FRB), Bank of England(BOE), and now the Bank of Japan(BOJ) are printing money at unprecedented levels. When a country can buy its own debt from money created out of thin air that money will then go into stocks and inflate the equity markets.
The NIKKEI 225 (Japan) has been surging higher since the country started to devalue its own currency. The Japanese Yen has plummeted against the U.S. Dollar and this has been the catalyst to boost asset prices in Japan. Leading Japanese ADR’s such as Toyota Motor Corp (ADR) (NYSE:TM), and Honda Motor Co. Ltd. ADR (NYSE:HMC) are now trading at new 52 week highs because of this central bank action.
A weak currency will help to boost exports for Japan as their products become cheaper for countries with a strong currency. The downside to this money printing is inflation, but at this time the central banks around the world say there is very little inflation. The cure for inflation when it comes will be to stop printing money and raise interest rates. Unfortunately, history has shown that most central banks around the world will create a massive bubble before they start to withdraw the easy money policies. We shall see if it is different this time.
The Bank of Japan has stated that they will implement monthly bond purchases in the amount of 7.5 trillion yen (US$78 billion) per month in an attempt to increase inflation to two percent within the next two years. Currently, the United States is buying $85 billion worth bonds every month. It is important to note that Japan’s economy is one third of the size as the United States. So it is safe to say, Japan has the printing presses on turbo at this time. Traders and investors should watch the NIKKEI 225 Index for near term chart resistance around the 14,000 level. There will also be important chart resistance around the 15,000, and 15,470 levels should the index trade higher.
The markets surged higher today, erasing the large downside move from yesterday. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) hit a high of $159.81, taking out the previous all time high of $159.72. While the markets continue to hit all time highs, something is terribly wrong.
The financial stocks cannot catch a bid. As the markets hover at all time highs, the financial stocks retreat. Today alone, JPMorgan Chase & Co. (NYSE:JPM) is trading at $47.91, -0.10 (-0.21%) while markets sit sharply higher. JPMorgan Chase hit its 52 week highs on March 14th, 2013. Since then, the stock is almost down 10%. Other financial stocks like Goldman Sachs Group, Inc. (NYSE:GS) and Bank of America Corp (NYSE:BAC) are the same.
Something seems to be wrong here. The financial stocks are key to leading this move up and they may be telling of a dark cloud brewing over the markets. Be warned.
The Chinese economy is very important to the global economy. After all, there are approximately 1.3 billion people in the country and that large number leads to a lot of consumption and consumer spending for corporations. Companies such as General Motors Co (NYSE:GM), WYNN Resorts (NASDAQ:WYNN), and Yum Brands Inc (NYSE:YUM) are just a few of the major corporations in the world that are highly dependent on the Chinese economy. Many of the leading base and industrial metal stocks are also affected by the Chinese economy. Leading mining companies such as Rio Tinto plc (NYSE:RIO), and BHP Billiton Limited (NYSE:BHP) also depend on Chinese growth for their own industry. After all, just look at a chart of the base metal and industrial metal stocks and you will see how they have declined when the Chinese economy slowed down.
One of the leading indicators that investors will follow for growth is the HSBC manufacturing Purchasing Managers’ Index. In April, this number declined to 50.4 from 51.6 in March. Please note, any reading above 50.0 indicates growth, but it is easy to see how this number is declining indicating a weakening economy.
One of the best ways to follow the Shanghai Index and the Chinese economy is to follow the charts. At this time, the Shanghai Index will have near term support around the 2138.00 level. The next important support levels are 2073.00 area, and the important double bottom from December 2012 at 1950.00. It is important to note, the Shanghai Index is trading below the important daily chart 50-day moving average. This is a generally a sign of weakness when price trades below the 50-day moving average. This current weakness tells us that the 2300.00 level will be important near term resistance on the daily chart should the Shanghai Index rally higher.
This morning, almost every leading commodity is declining ahead of the highly anticipated Federal Open Market Committee meeting announcement. Traders can see the early weakness in the SPDR Gold Trust (NYSEARCA:GLD), iPath Dow Jones UBS Copper Subindex Total Return ETN (NYSEARCA:JJC), United States Oil Fund (NYSEARCA:USO), and the iShares Silver Trust (NYSEARCA:SLV). Often, weakness in the commodity complex will signal global economic weakness. Recently, the economic data from around the world supports the weak economy thesis.
Traders and investors should also follow the U.S. Dollar Index very closely when trading the leading commodity ETF’s. Usually, the leading commodity ETF’s will trade inversely to the U.S. Dollar Index. Today, the U.S. Dollar Index futures (DX-M3) are trading lower by 0.17 cents to $81.63 per contract. It should be noted that the U.S. Dollar Index was sharply lower at the start of the trading day.
Later today, the Federal Reserve will announce its policy statement for the U.S. economy. The central bank is not expected to make any changes to its current $85 billion per month asset purchase program, known as quantitative easing, or QE3. Any hint of the central bank scaling back on these asset purchases could cause a stock market decline. The announcement by the Federal Reserve will be made at 2:15 pm EST.
This morning, many of the leading steel stocks are trading lower at the start of the trading session. One of the leading stocks in the sector is U.S. Steel Corp (NYSE:X). Today, X stock is trading lower by 0.46 cents to $17.05 a share. Short term traders should watch for intra-day support around the $16.60 level. The daily chart for X stock remains in a downtrend at this time.
Some other leading steel stocks that are under selling pressure today include Steel Dynamics Inc (NASDAQ:STLD), ArcelorMittal (ADR) (NYSE:MT), and Nucor Corp (NYSE:NUE). All of these leading steel stocks remain in a downtrend on the daily charts. These stocks are very oversold so there could be short term bounces soon. Until these stocks can recapture the daily chart 50-day moving average all bounces are likely to be just dead cat bounces which are temporary.
Oil companies have been on an impressive run of late. Money, annoyed at yields on bonds and returns on CD’s and saving accounts has been rotating into the stock market. For the safer investors and hedge funds, dividend paying oil stocks have been a favorite. That may change soon.
The parabolic moves in stocks like Chevron Corporation (NYSE:CVX), Dominion Resources, Inc. (NYSE:D) and Occidental Petroleum Corporation (NYSE:OXY) are great examples. Both Chevron and Dominion Resources are at all time highs and threatening to shoot higher. A major pullback is looming for all three of these. Below I will list the master levels.
1. Chevron Corp. is approaching a major inflection point at $122.50. This represents a cycle high pivot on the stock before a probable significant pull back. The last cycle pivots occurred at $110 in 2011 and saw a pull back to $86. In 2012 it happened at $118 and saw a pull back to $94.00.
2. Dominion Resources has had an epic move straight up. Since early November 2012, the stock moved from $49.00 to a new all time high of $61.57. The master level here is $62.25. The pull back will likely be a 10% correction.
3. Occidental Petroleum had some poor news recently. However, in this market that matters little. The stock is surging higher and has just taken out its 2013 high today. The master level is a double top from 2012 at $92.50. This represents a highly overbought point and major inflection price.
At 1 pm, April 30, 2013, Fast Money Trader will issue a trade on two stocks that could become giants in one of the most explosive sectors today.
It’s one of the strongest materials found on earth.
It’s tougher than diamonds, stretches like rubber, and weighs close to nothing.
It’s 200 times stronger than steel, yet it’s the thinnest material in the world — and could eventually rival silicon.
It’s set to revolutionize everything in your daily life… from mobile phones and planes to lithium-ion batteries and circuitry.
And if it lives up to the hype, you could eventually roll up your mobile phone and stick it behind your ear… or buy a high-definition TV as thick as wallpaper.
We’re talking about graphene, the single-atom layer of carbon atoms that can conduct heat and electricity better than copper. “It would take an elephant balanced on a pencil to break through a sheet of graphene the thickness of Saran wrap,” says BBC News.
So it’s no real wonder that scientists, governments, and green investors alike are rushing to find supply…
The graphene industry is expected to grow at a 40% clip over the next several years, growing from $9 million to more than $126 million.
Where Will It All Come From?
Clearly, this material presents exciting developments, which can lead to big profit opportunities.
There’s just one problem…
While it’s obvious our future will depend heavily on it, where will all this graphene come from? China dominates 70% of the global market (just as they control 97% of the rare earth market). And the Chinese are trying afford “graphene the same protection as rare earth” after imposing a 20% export duty on the material.
Worse, China has strict export controls and taxes in place that’ll limit the export of graphene. So it’s no real surprise that prices are quickly moving higher, with no real end in sight…
Don’t miss these trading opportunities.
Each could easily return north of 250% gains over the next year.
Ian L. Cooper
Fast Money Trader
This is hilarious.
Wall Street is jumping on the “Buy Apple” bandwagon because “you buy when every one gets scared.”
But, as I’ve been saying for quite some time, Apple’s good days are behind it. Once Steve Jobs passed away, the excitement was gone.
There’s no new great innovation. And Tim Cook doesn’t seem to listen to any one.
On April 22, 2013, analysts upgraded the stock, and managed to ramp up the stock price. The move will not last. The foolish herd is behind the move. And I’m sticking with my $375 near-term price target.
Laughably, a BGC analyst announced he was “taking advantage of the weakness in AAPL shares to upgrade our rating to BUY from HOLD” and upgraded the stock to Buy from Hold with a $550 target. Here’s what the BGC analyst had to say on CNBC.
He believes “any” good news could boost Apple stock because Apple hasn’t had any good news lately. Great argument there…
UBS has a buy rating and a $560 price target. Sterne Agee has a Buy rating and a $610 target. Citigroup has a $480 target. BMO Capital has a $440 target. CLSA has a $505 price target. And Crowell, Weedon has a $625 target with a Buy rating.
I think they’re all wrong. And I strongly believe we’ll see $375 Apple before we even touch the low-end of those target prices from Wall Street.
The markets are roaring higher today ahead of Apple Inc. (NASDAQ:AAPL). This will be a big report for the whole technology sector. In addition, Friday morning Wall Street will get the GDP number. This will be the major economic report of the week. Since last Thursday’s low, the markets have soared. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has jumped from $153.50 to a high today of $157.88.
This sharp up move sets up for a pivotal next few days. The two scenarios are as follows. Between Apple and the GDP numbers the markets breakout to new all time highs, or the markets collapse again, taking out the recent lows.
The major resistance levels to watch on the SPY are gap fill at $158.81 and the double top at $159.71. On the downside, the support levels are $153.50, $152.90 and $148.85.
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