BOOM as at 12th August 2018

THEY HAVE DOLLARS, WE HAVE GOD — ECONOMICS IS POLITICS — POLITICS IS ECONOMICS — BITCOIN CRASHES AGAIN

THEY HAVE DOLLARS, WE HAVE GOD

Yesterday, the President of Turkey Recep Erdogan said “they have dollars, we have god.” He also said that Turkey “will seek new friends”. He was referring to his nation being under economic attack especially his currency that has plunged dramatically lately.  Those ten words actually summed up the situation rather well.

Turkey is moving steadily towards the SCO group of nations and away from the West. The Shanghai Cooperation Organization Member Nations are Russia, China, India, Pakistan, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.  Observer Nations are Afghanistan, Belarus, Iran and Mongolia.  So called “Dialogue Partners” are Armenia, Azerbaijan, Cambodia, Nepal, Sri Lanka and Turkey. Egypt and Syria have submitted applications for observer status. And Iraq has also signaled its interest as have Bahrain and Qatar.

Turkey has also indicated an interest in joining the BRICS group of nations — Brazil, Russia, India, China and South Africa. And they have indicated that they will purchase the Russian S400 missile defense system. They have traditionally been a major purchaser of US weapons systems (using US Dollars, of course) and they are a major military power in the NATO alliance so this is a very significant departure from normal practice.

Their currency, the Turkish Lira, is being attacked in the foreign exchange markets.  And the US has just announced the imposition of tariffs on Turkish steel and aluminium imported into the United States. But President Erdogan is not responding as expected. He is refusing to raise short term interest rates. And he will not begin talks with the IMF for a loan. Also, he is not imposing capital controls (the usual next step in the defense of a currency). As long as he does this, then we are left with the attack on the currency possibly continuing. This could end in eventual currency collapse and Hyperinflation. He appears resolute so this is a major test.

The term “Currency War” has been coined to describe such a situation. That term has been attributed to Guido Mantega, the Brazilian finance minister, who used it in 2010. But the book “Currency Wars” is a bestseller in China and precedes Mantegna, reportedly selling over 200,000 copies in addition to an estimated 400,000 unlicensed copies in circulation. Originally published in 2007, it was written by Song Hong Bing and is also known as “The Currency War”.

Apart from raising interest rates and seeking IMF assistance, nations in this situation usually adopt capital controls. Capital is restricted from leaving by banning the movement of funds across borders or into other currencies. Finally, foreign currency accounts or currency can be seized.

If Turkish banks or corporations hold large loans denominated in foreign currency, then their solvency will be threatened if the “war” continues as those loans will become more and more expensive to repay. And the foreign holders of bonds issued by Turkey in US Dollars will be faced with dramatic capital losses if those bonds are defaulted upon.  Such holders may include foreign banks in Italy, Spain and France whose banks are heavily involved in the Turkish economy.

So this “war” has a long way to go before resolution. France, Spain and Italy may soon declare their support of Turkey and start buying the Turkish Lira currency. And the huge Turkish population in Germany may pressure the German government to do likewise. China may also join in and the weight of numbers will determine the outcome. To do this, those nations will have to buy Turkish bonds and stocks. So watch for a huge surge in buying support soon for those assets.

If this happens, the United States will again be isolated from its NATO allies just as it is now in regard to Iran since it abandoned the JCPOA agreement. The Joint Comprehensive Plan of Action, known commonly as the Iran nuclear deal or Iran deal, is an agreement on the nuclear program of Iran reached in Vienna on 14 July 2015 between Iran, China, France, Russia, United Kingdom, United States, Germany and the European Union.  On May 8, 2018, the United States unilaterally withdrew from the Joint Comprehensive Plan of Action. That decision may have very serious consequences for the US in the long run as power and influence slowly bleeds away to the larger population centers of Eurasia and Eastasia.

Turkey looks vulnerable here but it may, in fact, be in a very strong position. Remember this game is called Geo-politics and the Geographic component is clearly critical to long term success.

While this is all happening, the military war in Yemen is entering a critical phase with many non-combatant deaths and casualties (including children) and pressure is building on the US and UK to become more circumspect in supporting Saudi Arabia. Meanwhile, Brexit is steadily moving the UK towards relative isolation away from the EU.

So the Post World War Two global dominance of the US (and UK) via US Dollar dominance, military power, the Petro-Dollar, the Weapons-Dollar, the IMF, the World Bank, the SWIFT money transfer system and the Bank for International Settlements appears to be slowly but surely coming to an end. The word “slowly” is critical here because these arrangements cannot change rapidly. Why? Because the US Dollar is still 60% of global foreign currency reserves and is still used in most international trade settlements.

As BOOM says — In economics, things work until they don’t.

ECONOMICS IS POLITICS

POLITICS IS ECONOMICS

Many BOOM readers often ask how economics can be politics and vice versa. They are generally unaware of the links between the two after having watched the mainstream media separate them for many years.

News programs on television show the news segments first (which tend to involve politics) and then they switch to reporting on the financial markets and economic situation as if there is no connection. So the daily news is subtly dissociated from the economic news. Viewers sub-consciously receive this message every time they watch a TV news program, or read a newspaper.

BITCOIN CRASHES AGAIN
CRYPTOS CRASH AGAIN

TOTAL MKT CAP FALLS to $ 207 Billion

Bitcoin and almost all the Cryptos crashed very hard indeed over the last week. At its peak, the Bitcoin price was almost US$ 20,000. It has now fallen to US$ 6,111. That is a decline of 70% since December 17th last year.  Market watchers are holding their breath to see if it plunges below $ 6,000 this week.

The Total Market Capitalization of the entire Crypto market (which includes the Bitcoin capitalization) has plunged from a high point in December of US$ 827 Billion to just $ 207 Billion. That is a 75% plunge. Again, market watchers are looking for further declines below $ 200 Billion to indicate another key psychological support level broken.

Bitcoin’s market capitalization is still maintaining a dominant position of just over 50% of the entire Crypto market capitalization.

WHAT IS VALUE? WHAT IS PRICE?

There are now 1,818 different Cryptos available to trade on myriads of unregulated online markets. The huge falls in price for Bitcoin and the other Cryptos over the last 8 months beg the question — What is the difference between Price and Value in the investment world?

Warren Buffett once said “Price is what you pay and value is what you get”.  Some people say “Buy Low and Sell High”. That is a little too cute for BOOM who prefers the wisdom of “Buy High and Sell Higher”.  Why? Because just like Ebenezer Scrooge, BOOM always regards any price as too high and wants to be pleasantly surprised by yet higher prices. If the expectation is always the opposite, then higher prices must always indicate better “value”. How can that be? Because in that situation, the value of the investment is rising.

It is important to always remember that losing money is easier than making it in the investment world.  For example, Bitcoin has fallen in price by 75% in just 8 months. But if an investor had bought a Bitcoin at $ 20,000 and held that investment for the last 8 months, then they are actually in a much more difficult position than a loss of 75%.  You see, to regain their investment of $ 20,000, they would have to now see an increase of over 300% in the current $ 6,111 price of Bitcoin.

So maybe the best aphorism is to “Buy High and Don’t Sell Lower”?

In economics, things work until they don’t.


Until next week …………  Make your own conclusions, do your own research.

BOOM does not offer investment advice.

CLICK HERE FOR PODCASTS:   OUR BRAVE NEW ECONOMIC WORLD

PRICE PULSE DOMINANCE CHANGES DURING LAST WEEK Ended 11th August 2018:

1. DENMARK STOCKS — Changed to NO Arrow Dominant
2. US HIGH GRADE CORP BONDS (LQD) — Changed to UP Arrow Dominant
3. TED SPREAD — Changed to DOWN Arrow Dominant

===================================================================

NOTE — RED ARROWS INDICATE BOOM PRICE PULSE DOMINANCE in the present moment (as indicated by the date of the chart and taking into account the 3 year time frame shown).  The charts are now arranged in PRICE PULSE RED ARROW DOMINANCE.    NOTE: All Charts are WEEKLY Charts over the last 3 YEARS time frame.  Arrows indicate PAST price action (not future).  No predictions are implied from past action.

Comments refer to past PRICE PULSE (Red Arrow DOMINANCE) over the last 3 years, the week ended 11th August 2018.  You can RIGHT CLICK a chart and OPEN in a New Tab.   Make your own conclusions, do your own research. BOOM does not offer investment advice. 

PLEASE NOTE — Many charts are ETF’s from NY Market  (not the base commodity or currency etc). The NY Stock Code is in the Top Left Hand Corner of each chart.
Charts are produced from http://www.stockcharts.com

Return to the BOOM Main Website –  BOOM Finance and Economics at  http://boomfinanceandeconomics.com/


NOTABLE PRICE PULSE CHANGES OVER THE LAST WEEK ENDED 11th August 2018:-

1. DENMARK STOCKS — Changed to NO Arrow Dominant
DENMARK STOCKS

2. US HIGH GRADE CORP BONDS (LQD) — Changed to UP Arrow Dominant
LQD HIGH QUALITY CORP BONDS

3. TED SPREAD — Changed to DOWN Arrow Dominant

TED SPREAD

================================================================

PRICE PULSE RISING — (RED ARROW UP DOMINANCE)

# US HIGH GRADE CORP BONDS (LQD) — UP Arrow Dominant
# US INFLATION PROTECTED BOND PRICES — UP Arrow Dominant
# US UTILITIES STOCKS — UP Arrow Dominant
# AGGREGATE US BOND PRICES (BND) — UP Arrow Dominant
# US LONG BOND PRICE (TLT) — UP Arrow Dominant
# RWR (US Real Estate REIT Fund) — UP Arrow DominanT
# AUSSIE ALL ORDS INDEX — UP Arrow Dominant
# INDIAN STOCKS — UP Arrow Dominant
# VALE STOCK (Iron Ore) — UP Arrow Dominant
# US BIOTECHNOLOGY INDEX — UP Arrow Dominant
# WEST TEXAS OIL PRICE — UP Arrow Dominant
# TAIWAN STOCKS — UP Arrow Dominant
# US DOW STOCK INDEX — UP Arrow Dominant
# RUSSELL 2000 INDEX — UP Arrow Dominant
# US TRANSPORT INDEX — UP Arrow Dominant
# US INSIDER SENTIMENT (KNOW) — UP Arrow Dominant
# NASDAQ COMP INDEX — UP Arrow Dominant
# US JUNK BOND PRICES — UP Arrow Dominant
# US 3 MTH T BILL YIELD — UP Arrow Dominant
# LIBOR — UP Arrow Dominant
# FRANCE STOCKS — UP Arrow Dominant

PRICE PULSE FALLING — (RED ARROW DOWN DOMINANCE)

# TED SPREAD — DOWN Arrow Dominant
# GOLD PRICE (in Aus Dollars) — DOWN Arrow Dominant
# COPPER PRICE — DOWN Arrow Dominant
# INDUSTRIAL METALS ETF (DBB) — DOWN Arrow Dominant
# YUAN (AGAINST USD) ETF — DOWN Arrow Dominant
# HANG SENG — DOWN Arrow Dominant
# GOLD PRICE in USD —DOWN Arrow Dominant
# SOUTH KOREA STOCKS — DOWN Arrow Dominant
# SINGAPORE STOCKS — DOWN Arrow Dominant
# THAI SETI INDEX — DOWN Arrow Dominant
# AUSSIE DOLLAR AGAINST US DOLLAR — DOWN Arrow Dominant
# CANADIAN DOLLAR AGAINST USD — DOWN Arrow Dominant
# BRAZIL STOCK INDEX — DOWN Arrow Dominant
# ARGENTINA STOCKS — DOWN Arrow Dominant
# BRITISH POUND AGAINST USD — DOWN Arrow Dominant
# NOMURA HOLDINGS — DOWN Arrow Dominant
# EURO (AGAINST $US) — DOWN Arrow Dominant
# SWISS FRANC (AGAINST $US) — DOWN Arrow Dominant
# PLATINUM PRICE — DOWN Arrow Dominant
# SHANGHAI STOCKS — DOWN Arrow Dominant
# PALLADIUM PRICE — DOWN Arrow Dominant
# BITCOIN INDEX $NYXBT — DOWN Arrow Dominant
# SWISS STOCKS — DOWN Arrow Dominant
# DEUTSCHE BANK SHARES — DOWN Arrow Dominant
# FOOD INPUT PRICES (DBA) — DOWN Arrow Dominant
# EURODOLLAR INDEX ($XED) — DOWN Arrow Dominant

PRICE PULSE UNCERTAIN NON-DOMINANCE OF RED ARROW –

# DENMARK STOCKS — NO Arrow Dominant
# COMMODITIES INDEX (USCI) — NO Arrow Dominant
# YEN (AGAINST $US) — NO Arrow Dominant
# JAPAN NIKKEI STOCKS — NO Arrow Dominant
# RUSSIAN RTSI STOCK INDEX — NO Arrow Dominant
# TRIM TABS US FLOAT — NO Arrow Dominant
# COAL ETF (KOL) — NO Arrow Dominant
# FVL — VALUE LINE — NO Arrow Dominant
# US KBW BANK INDEX — NO Arrow Dominant
# NATURAL GAS (SPOT PRICE) — NO Arrow Dominant
# GERMAN DAX — NO Arrow Dominant

Disclaimer: All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice.The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

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