BOOM as at 18th November 2018

NATURAL GAS SKYROCKETS UP
OIL PRICE CONTINUES DOWN

Wow, the dramatic energy price dynamics that BOOM wrote about last week have continued. During the last 5 days, the US Natural Gas price rose 33 % in 2 days then fell 20 % the next day. The price finished the week up almost 15 %. So, in just 2 weeks the Natural Gas price has risen by 33 %. At its highest level, it was up over 50 %. That is not an error, folks. Up 50% in just 2 weeks. Meanwhile, the West Texas Oil price fell last week by another 5.8 %. It has fallen 27 % since early October. So oil down, natural gas up; the conundrum continues.

The Natural Gas price is now at $ 4.93 — still well below the average price prior to the Global Financial Crisis of 2008. As BOOM said last week — “Prior to 2008, the US Dollar price of Natural Gas in MMBtu (Million British Thermal Units) averaged around $ 7.00 – $ 8.00. There were peaks of price around US$ 14 – $ 18. However, since 2008, the average price has been mostly below US$ 4.00.”

BITCOIN COLLAPSES

The price of Bitcoin collapsed last week dramatically by about US$ 1,000 to finish the week around $ 5,500. The entire world of Cryptos pretty much followed suit with a sea of red ink across the CoinMarketCap website.

Just 2 weeks ago, BOOM wrote “There really is no reason for the prices of individual Cryptos to rise again as far as BOOM can tell. They mostly represent nothing of intrinsic value — just sequences of digital code that may have some utility or may not.”

GOLDMAN SACHS DROPS — DOWN 9.22% LAST WEEK

The Dow index plunged on Monday last week by over 600 points. Many attributed the fall to weakness in Apple stock and other technology company stocks. But perhaps more interesting was the plunge in the share price of Goldman Sachs, the large US Wall Street bank. Goldman stocks fell 7.5% on that Monday and 10% over just 2 days. Many global banks’ stock prices plunged as well. Some Doom and Gloom analysts considered this as the beginning of a financial system collapse. But it wasn’t. Most global bank stocks held firmly or rose strongly over the next few days. The problem was (perhaps) just a Goldman Sachs problem.

So what was the problem? It concerns links between the previous Malaysian government and the bank. Goldman Sachs had reportedly arranged a Bond issuance for the previous Malaysian government of $ 6.5 Billion and charged a fee of $ 600 Million to do so. The deal has become known as the 1MDB Deal. Funds have disappeared and it appears that some of the people involved have spilled the beans and admitted wrong-doing.

Bloomberg has reported one key protagonist as saying “I conspired with other employees and agents of Goldman Sachs very much in line of its culture of Goldman Sachs to conceal facts from certain compliance and legal employees of Goldman Sachs”. The previous Prime Minister of Malaysia has been imprisoned. This is all very messy for Goldman Sachs back in New York. No one knows the possible ramifications and it may take years of court proceedings to clear the air.

Goldman Sachs shares have fallen by 25 % since early March, just 8 short months ago. The global banking sector seems nervous as a result but BOOM suspects that this will be temporary.

EMERGING MARKETS SHOW SOME CONFIDENCE

Emerging economy stock markets and the Chinese stock market held last week or rallied with calm buying evident all week, perhaps stimulated by the continued and timely collapse in the global oil price. BOOM sees energy costs (especially oil) as critical for emerging markets.

THE PROTECTION RACKET
POWER CORRUPTS

Gerhard Schroeder, the former Chancellor of Germany, last week said

“We can’t accept being treated like an occupied country. When I look at the behavior of the US ambassador to Germany I get the impression he sees himself as an occupying officer rather than an ambassador in a sovereign country.” “Those countries that are affected by conflicts emanating from the United States will have to get closer. We can’t become part of an American trade war with China.” and he said that Chinese investors were preferable to American “locusts”, a term coined recently in Germany to describe U.S. private equity firms and aggressive hedge funds.

How can we make sense of these seemingly extraordinary statements?

The US is not a normal nation. Why? Because its principal export is not in normal goods and services. It “exports” US Dollars in a bid to remain in position as the supplier of the world’s principal reserve currency. And this gives it great economic power. I will explain later in this article why the inverted commas are placed around the word “exports” in this context. It is because they don’t really export Dollars — there is a neat trick involved.

The US captured the role of principal global reserve currency supplier from the UK in July 1944 at the Bretton Woods meeting attended by the 44 allied nations. If they can maintain that position as supplier of the principal global reserve currency, then they can effectively buy any goods (including capital goods such as land, real estate, ports) and any services at will from other nations. They can even destroy other nations currencies if they wish in engineered hyperinflation events by circulating US Dollars inside those nations as an alternative currency. A dominant reserve Currency is the ultimate economic weapon. John Maynard Keynes of the UK understood that at Bretton Woods and tried to prevent US Dollar dominance but he was over-ruled by the Americans who were in a position of great power and influence due to the fact that World War Two was still raging in both Europe and the Pacific with America being critical to its successful resolution.

In order to keep this currency dominance in place over time, the US must run a large trade deficit which it does. This began in earnest in 1971 after the US dropped the Gold Standard. It must also invest heavily in other nations. If the US imports vast amounts of goods and services or purchases offshore assets and pays for them with US Dollars then, clearly, the counter party nations must be willing to accept US Dollars as settlement.

Now let’s look at US goods exports by asking the question — what traded goods are best suited as US exports? The answer is weapons. If you are a purchaser nation, then the weapons you buy are probably obsolete almost as soon as they are delivered, they can be easily destroyed (thus needing to be replaced), they have no real useful purpose (unless a war is engaged) and they do not contribute to your economy in any productive way. A purchaser nation must acquire US Dollars in loans (US Dollar denominated debt) or in other trade settlements to build their reserve of US Dollars. Then they must ship those US Dollars over to the US manufacturers as payment. This is akin to being trapped in a spider’s web.

The spider’s web is strengthened by the US insisting that the chief supplier of global oil (Saudi Arabia) sell its oil only in return for US Dollar settlement. In return, Saudi Arabia accepts military protection from the US against its Northern Shia neighbors (principally Iran, Iraq, Bahrain, Lebanon and Syria). But this protection is always dependent upon US Dollar settlement, the so-called Petro-Dollar arrangement. Interestingly, Saudi Arabia is also the world’s biggest importer of weapons. Makes sense? Especially if you take into account the fact that only 9 % of America’s oil imports come from Saudi Arabia.

What does “principle reserve currency” mean? It is the currency most held by all central banks because it is accepted most readily as settlement in international trade deals and capital deals. The US Dollar represents about 60% of total foreign currency reserves held by central banks on the planet. The Euro is about 20% of the total. The remaining 20% is held in Yen, British Pounds, Australian & Canadian Dollars, Swiss Francs and Chinese Yuan (plus many other small amounts of other currencies). The Yuan component is about 1.0 – 1.5% of the total so China simply cannot threaten the US Dollar as principal reserve currency at present and it will take a very long time before it can do so. Thus, you can forget the “collapse of the US Dollar” arguments put forward by many famous commentators, many of whom are Gold Bugs and possibly intelligence services operatives pushing dis-information.

Donald Trump understands some of this. He knows that he must continually sell weapons and protection to his client nations. But he probably does not know why. He thinks this is all about protection against mutual enemies and trade but it isn’t. It’s about inducing client nations to acquire US Dollars via trade and loans in order to pay their debts with US Dollars.

It is a marvelous, clever system. It has operated since 1944, principally to the benefit of the US. It was boosted by the Marshall Plan in 1948 and expanded dramatically in 1971 when the US dropped the Gold Standard. Gold’s price connection to the US Dollar had become a hindrance to the ever-necessary global expansion of the US Dollar supply (via US Dollar denominated growth in credit).

If you look at the Net Capital Outflows of the US, however, you will see that they tend to rotate around a base of zero with very large positive and negative swings. You will not see a persistent negative number — so there is no evidence to be seen for a large net export of US Dollars. Why? The answer lies in the Eurodollar system. A Eurodollar is any US Dollar existing on deposit outside of the US.

The US does not need to create large amounts of US Dollars onshore and then push them offshore. There is a clever trick. It allows the large international banks (both US and non US) to create offshore loans denominated in US Dollars. The resultant offshore deposits are, of course, in US Dollars. Long term BOOM readers will know that almost all deposits are created as bank loans. They are assets to the banking system and liabilities to the borrowers.

How many US Dollar deposits are located offshore? That is very, very hard to ascertain but it is probably in the vicinity of US$ 30 – 40 Trillion or possibly more. US$ 5 Trillion can be seen in the foreign currency reserves of central banks and about US$ 25 Trillion can be seen as deposits in tax haven banks. Remember — no one has saved that $ 25 Trillion. Those Dollars have been created as loans to borrowers.

Eurodollars are term deposits denominated in U.S. dollars at banks outside the United States, and thus are not under the jurisdiction of the US Federal Reserve. Consequently, such deposits are subject to much less regulation than similar deposits within the U.S. The term was originally coined for U.S. dollars in European banks, but it expanded over the years to its present definition. A U.S. dollar-denominated deposit in Tokyo or Beijing is deemed a Eurodollar deposit. There is no connection with the Euro currency or the Eurozone.

Why is all of this important to understand? What is this all about?

We don’t live on Planet Earth in an economic or financial sense. We live on a US Dollar Planet. All other currencies are necessary but can never dominate if this situation is to continue. This is a double edged sword for the US as it tends to relentlessly drive the US Dollar upwards.

The sad thing about all this is that money does not really exist. 97% of it is just digital entries on banks’ electronic ledgers. Binary code — ones and zeros. It is just a convenient means of settlement for contractual promises made between two parties.

So, this is really all about power and control in the end. Power and control of one person over another, of one group over another, of one nation over others. And therein lies the potential for evil to arise.

William Pitt said in 1770 — “Unlimited power is apt to corrupt the minds of those who possess it”.

And Alphonse Marie Louis de Prat de Lamartine said in 1848 “Absolute power corrupts the best natures“.

Lord Acton in 1887 described the dynamics most succinctly — “Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men.”

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.

 

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

EMAIL: gerry [@] boomfinanceandeconomics.com

PRICE PULSE DOMINANCE CHANGES DURING LAST WEEK Ended 18th November 2018:

1. RUSSELL 2000 INDEX — Changed to NO Arrow Dominant
2. US BIOTECHNOLOGY INDEX — Changed to NO Arrow Dominant
3. US INSIDER SENTIMENT (KNOW) — Changed to NO Arrow Dominant
4. NASDAQ COMP INDEX — Changed to NO Arrow Dominant
5. US JUNK BOND PRICES — Changed to NO Arrow Dominant

RUSSELL 2000

BIOTECH INDEX

INSIDER SENTIMENT

NASDAQ

JUNK BONDS OVER 6 MONTHS

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 18th November 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/

PRICE PULSE RISING — (RED ARROW UP DOMINANCE)

# NATURAL GAS (SPOT PRICE) — UP Arrow Dominant
# BRAZIL STOCK INDEX — UP Arrow Dominant
# PALLADIUM PRICE — UP Arrow Dominant
# ARGENTINA STOCKS — UP Arrow Dominant
# US INFLATION PROTECTED BOND PRICES — UP Arrow Dominant
# US UTILITIES STOCKS — UP Arrow Dominant
# RWR (US Real Estate REIT Fund) — UP Arrow Dominant
# VALE STOCK (Iron Ore) — UP Arrow Dominant
# WEST TEXAS OIL PRICE — UP Arrow Dominant
# US DOW STOCK INDEX — UP Arrow Dominant
# US TRANSPORT INDEX — UP Arrow Dominant
# US 3 MTH T BILL YIELD — UP Arrow Dominant
# LIBOR — UP Arrow Dominant

PRICE PULSE FALLING — (RED ARROW DOWN DOMINANCE)

# COMMODITIES INDEX (USCI) — DOWN Arrow Dominant
# SWISS FRANC (AGAINST $US) — DOWN Arrow Dominant
# FRANCE STOCKS — DOWN Arrow Dominant
# AUSSIE ALL ORDS INDEX — DOWN Arrow Dominant
# THAI SETI INDEX — DOWN Arrow Dominant
# GERMAN DAX — DOWN Arrow Dominant
# TAIWAN STOCKS — DOWN Arrow Dominant
# FVL — VALUE LINE — DOWN Arrow Dominant
# US KBW BANK INDEX — DOWN Arrow Dominant
# US LONG BOND PRICE (TLT) — DOWN Arrow Dominant
# YEN (AGAINST $US) — DOWN Arrow Dominant
# DENMARK STOCKS — DOWN Arrow Dominant
# COAL ETF (KOL) — DOWN Arrow Dominant
# TED SPREAD — 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
# SOUTH KOREA STOCKS — DOWN Arrow Dominant
# SINGAPORE STOCKS — DOWN Arrow Dominant
# AUSSIE DOLLAR AGAINST US DOLLAR — DOWN Arrow Dominant
# CANADIAN DOLLAR AGAINST USD — DOWN Arrow Dominant
# BRITISH POUND AGAINST USD — DOWN Arrow Dominant
# NOMURA HOLDINGS — DOWN Arrow Dominant
# EURO (AGAINST $US) — DOWN Arrow Dominant
# PLATINUM PRICE — DOWN Arrow Dominant
# SHANGHAI STOCKS — DOWN Arrow Dominant
# BITCOIN INDEX $NYXBT — DOWN Arrow Dominant
# DEUTSCHE BANK SHARES — DOWN Arrow Dominant
# FOOD INPUT PRICES (DBA) — DOWN Arrow Dominant
# EURODOLLAR INDEX ($XED) — DOWN Arrow Dominant

PRICE PULSE UNCERTAIN NON-DOMINANCE OF RED ARROW –

# RUSSELL 2000 INDEX — NO Arrow Dominant
# US BIOTECHNOLOGY INDEX — NO Arrow Dominant
# US INSIDER SENTIMENT (KNOW) — NO Arrow Dominant
# NASDAQ COMP INDEX — NO Arrow Dominant
# US JUNK BOND PRICES — NO Arrow Dominant
# GOLD PRICE in USD —NO Arrow Dominant
# GOLD PRICE (in Aus Dollars) — NO Arrow Dominant
# TRIM TABS US FLOAT (TTAC) — NO Arrow Dominant
# US HIGH GRADE CORP BONDS (LQD) — NO Arrow Dominant
# AGGREGATE US BOND PRICES (BND) — NO Arrow Dominant
# INDIAN STOCKS — NO Arrow Dominant
# SWISS STOCKS — NO Arrow Dominant
# RUSSIAN RTSI STOCK INDEX — 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.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments. Do NOT ever purchase any security or investment without doing your own and sufficient research.  Neither BOOM Finance and Economics.com nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

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LIGHTHOUSE SYDNEY

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