September 19th, 2015
University students live in the lap of luxury
The U.S. housing market may be about to implode — again.
Before I get into the “why,” know that the residential real estate market never fully recovered.
Annualized new home sales this past July stood at 507,000, vs. the July 2005 peak of 1.39 million. The chart and commentary from the August Elliott Wave Theorist offer:
The percentage of Americans who own a home is still plummeting despite the partial recovery in real estate prices. Today, the percentage of families owning homes in America has plunged to its lowest level in 48 years, nearly half a century. … By saddling home-buyers with massive debts, the government has done the opposite of what it promised; it has ruined the American Dream for tens of millions of families. Now it’s doing the same thing to education … .
Yes, U.S. student loans amount to some $1.2 trillion. Yet the new on-campus trend is luxury student housing.
A few weeks ago, a friend showed me around the campus of a private university and I saw the upscale student apartments. Next to the apartments was even a bigger-than-usual Starbucks.
I thought the luxury student housing at this university might be unique.
Then I read that some property development companies are dedicated to high-end, urban-style student housing:
Landmark [Properties], like other student housing developers, is profiting from ever-growing demand … . Landmark grew 40 percent even during the recession and is plowing ahead with several new projects.
The Standard, a high-security building [at the University of Georgia], offers students luxury apartments with granite countertops in the kitchen and en suite bathrooms for each bedroom. … What really draws attention, though, are the added amenities. The pool, fitness center, saunas, game room with large-screen televisions and even a golf simulator.
CNBC, September 3
Here you have evidence of a bubble in both housing and education.
Reminders of the real estate boom days can also be found elsewhere. A headline (CNBC, September 10) says:
Investors snapping up new homes for rentals
Specifically, institutional investors are buying properties for real estate investment trusts.
Be wary of such investments: The May Elliott Wave Financial Forecast reveals why housing is probably headed for another crash:
New home sales generally fall in bear markets. With the added impetus of a brief deflation, home sales plunged dramatically in 2008/2009. The current recovery has barely managed to return sales to prior lows. After the major stock averages reverse and an even more aggressive bout of deflation takes hold, U.S. real estate will join a global decline that will be even more severe than the last one.
That’s just the beginning of what’s ahead for Real Estate. Want to read the full story? Check out the link below to get the entire August issue of Robert Prechter’s Elliott Wave Theorist — FREE
If you invest in U.S. stocks, please stop what you’re doing, sit down and pick up Robert Prechter’s Aug. 19 investment forecast. Prechter published one of the most widely read investment letters of the 1980s, and he remains one of the most widely known market technicians in the world. On Aug. 19, before the latest spike in volatility, he warned of “pandemonium in the stock market” and a “stunning decline in US stock prices.” Now you can read his complete, subscriber-level report that predicted what you see today.
Click Here to Download Prechter’s 10-Page Report Now - It’s FREE >>
August 24th, 2015
With today’s market action, I don’t have a lot of time, and I’m sure you don’t either, but I want to drop a quick note before things get too crazy this week.
Here’s the deal: This morning, the Dow crashed 1,000 at the open and has since rebounded. China declined 8.5%. Europe and the S&P 500 are down ~3% in early morning trading.
99.9% of investors are panicking right now; Elliott Wave International’s subscribers are not. Why?
Because they were prepared. EWI prepared them for the 2007-2009 crisis, and they’re doing it again. In fact, in the calm of Aug. 18, EWI’s own Bob Prechter wrote a sharp critique of the U.S. stock market in his new Elliott Wave Theorist, in which he said to expect market “pandemonium.” (His commentary was published the following day.)
“as shown in this issue, time and price factors call for an immediate end to this dream state. When the alarm goes off and the dreamers awake, it will be pandemonium in the stock market. As the next few charts show, time and price have run out of room. Together, these time and price events seem finally to have cleared the way for a stunning decline in US stock prices.”
If you’re anything like me, you’re near at least one flashing trading monitor right now, your eyes wide open, and the predominant color you see is RED. I want to tell you today that red doesn’t have to equal losses for your portfolio. You can turn that red into opportunity. Opportunity to safeguard your assets while others panic.
Now, I do not expect to bend your ear while the markets are trading today, but I do want to leave you with a strong and serious appeal. An appeal to ask you to — once today’s closing bell rings or now if you have a few minutes — stop what you’re doing and read Bob Prechter’s free report, “Pandemonium in the Stock Market.”
As usual, Bob does his best work BEFORE the markets make their moves, so be assured that this reported, excerpted from his Theorist published Wednesday, speaks to what we are seeing today.
As I’ve repeated many times, bear markets don’t have to be scary for the people are prepared for them. In fact, they can be downright thrilling – IF you know what you’re doing. EWI’s subscribers know what they’re doing, and I want YOU to experience this level of foresight for yourself.
As Bob warns, and as market action during the 2008-2009 credit crisis proved …
“Bear markets move fast and are intensely emotional; investors and traders who are prepared have greater opportunities on the downside than on the upside.”
You need two things to turn this market crisis into your opportunity:
- You must be AHEAD of the trend …
- And you must be READY for the turns.
Now is your big opportunity …
Download Bob Prechter’s free report, “Stock Market Pandemonium.”
August 23rd, 2015
Is this the start of a global financial crash?
“When the alarm goes off and the dreamers awake, it will be pandemonium in the stock market.” — Bob Prechter, from the just-released Elliott Wave Theorist.
You would agree that markets around the world have served investors a lot of surprises lately:
- Crude oil just fell below $40 a barrel, a 6 1/2-year low.
- Gold — after hitting lows not seen in five years and disappointing just about every gold bug on the planet — is up big and trading above $1160 an ounce.
- The U.S. dollar, doomed to failure by the mainstream consensus a few years ago due to the Fed’s “inflationary” QE policies, is enjoying strength not seen in years.
- Chinese stocks, up almost 60% YTD into their July peak, suddenly crashed, sparking fears of global contagion.
And almost every step of the way, Elliott wave price patterns have guided us and our subscribers:
- Last November, a joint bulletin from our Elliott Wave Theorist and Elliott Wave Financial Forecast called the low in gold and silver to within two days. Last month, on July 24, we issued another bullish bulletin — the exact day of the intraday lows in gold and silver after four years of decline.
- On June 6, 2012, we sent to subscribers a Special Report calling the low in 10-year T-bond yields after 31 years of decline. The top in T-bonds came right around the same time.
- Crude oil has followed its Elliott wave script since 1998, including the all-time high near $150 in 2008 and the more recent secondary peak — one from which oil fell to $40 a barrel this week.
- Wave patterns warned us of the huge declines in commodities — and the huge rally in the U.S. dollar, both against nearly universal disagreement.
Plus, says Bob Prechter in the new Elliott Wave Theorist,
“With rare foresight, our European and Asian analysts predicted the failure of both the Swiss franc peg and the Chinese yuan peg, dramatic events that caught economists completely off guard. You have to know a lot about markets to do these things.”
Yet the credit doesn’t go entirely to our analysts — it goes to the Elliott wave method. For the past 80 years, waves have warned thousands of investors about risks — and new opportunities! — at countless market junctures.
This week’s #1 story is the 1000-point sell-off in the Dow. Both the DJIA and the S&P 500 are now solidly in the red for 2015. Even the white-hot NASDAQ is down 6% for the week. Are the “bubble days” really over?
Even the white-hot NASDAQ ended the day with a 3% decline
Is this a “normal correction” — or are the “bubble days” really over?
Prechter’s new Elliott Wave Theorist — which got published on Wednesday (Aug. 19) — says:
“When the alarm goes off and the dreamers awake, it will be pandemonium in the stock market.”
We invite you to read this special free report “Pandemonium in the Stock Market” from Elliott Wave International. It features analysis and insight into the conditions leading up to the market turmoil we’re seeing right now.
In this just-released report, you’ll see new excerpts from our two flagship monthly publications, The Elliott Wave Theorist and The Elliott Wave Financial Forecast. Get valuable insight into the volatility we saw in the markets this week. We think you’ll come away better prepared than most investors.
Get this free report now!
This article was syndicated by Elliott Wave International and was originally published under the headline Stocks Slide Globally. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
August 20th, 2015
There is one solution to staying ahead of oil’s trend changes — Elliott wave analysis!
You know the expression “God works in mysterious ways”?
Well, according to an August 6 CNBC article, the price action of one financial market — i.e., crude oil — has out-mystified even God himself. Or, rather, the well-heeled star of the oil world, Andy Hall — a.k.a. “God Trader.”
According to CNBC, Hall’s oil-focused commodity hedge fund plunged 17% in July, its second-biggest monthly loss ever. And one that left the fund “$500 million poorer.”
In a letter to investors, Hall admitted failing “to anticipate a sudden market shift that roiled crude,” and wrote:
“Last month was brutal for most commodities and anyone investing in them.”
No argument here: July was a “brutal” month, as crude oil prices crashed 21% for their biggest monthly decline since the 2008 financial crisis.
And, yes — many oil experts (despite their God-like reputations) failed to anticipate the roiling “market shift.” The reason why they failed to see it coming, though, may surprise you.
Here’s the thing: From its March 2015 low to June high, oil prices had soared 40%-plus to enjoy their strongest rally in six years. Not to mention a positive fundamental backdrop including strong demand and escalated violence in the Middle East, led by protests in Libya and conflict in Yemen.
From a mainstream perspective, oil’s downside looked overdone, as this bullish May 6 news source affirms:
“Global demand continues to surprise to the upside with data showing no signs of slowdown despite a pick-up in prices… Bulls are in control of the market.” (Reuters)
Looking at that bullish backdrop of “market fundamentals,” there was simply no way to have foreseen the opposite scenario — namely, oil’s imminent reversal. From the viewpoint of Elliott wave analysis, however, oil’s reversal was quite plain to see. In fact, our June 2015 Elliott Wave Theorist set the stage for just such a move:
“The price of oil has been stunningly volatile, but — unlike the stock market — it has consistently responded to our wave interpretations and extremes of sentiment…
“Figure 14 marks our predictions and updates prices. On a near term basis, the latest rally is now nearly the size of the rally of early 2014. The ‘No Bottom in Sight’ articles have stopped appearing, and the Daily Sentiment Index (courtesy trade-futures.com) has hit 86%. The rally should be about over.”
Let’s be honest. We’re all human. There’s no such thing as omnipotence in the world of trading or market-forecasting. Elliott wave analysis is not about 100% certainties. But it is about identifying the most likely turning points in advance — not by reading the news, but by reading the Elliott wave patterns unfolding on the price charts themselves.
In a new FREE report titled “Peak Oil — and Other Ways Crude Oil Fooled Almost Everyone,” we show you how Elliott wave analysis has remained one step ahead of not just the July sell-off, but the major peaks and lows that have occurred since oil’s all-time 2008 high near $150 a barrel.
If you’re already our free Club EWI member, click here to get instant access to the full report, absolutely free.
Or, take a minute to join the free online Club EWI community. And with your new password, read the “Peak Oil” report anytime you want — 100% free!
This article was syndicated by Elliott Wave International and was originally published under the headline Crude Oil Works In Mysterious Ways. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
August 16th, 2015
Years ago we used to hear the chatter about how OIL price is going through the roof because either the world is about to reach peak production or has already done so. There was talk of the world running out of OIL and the price would inevitable skyrocket and there was no going back as the world consumption kept going higher. The supply would never satisfy the demand according that theory. Fast forward to today, we are discussing whether we have enough storage capacity to store the excess oil. How did we get here? Was it all a surprise? An unpredictable twist?
Recall crude oil’s dramatic 2008 price collapse. The high that year was in July at $147.50 a barrel. By December, the price had plummeted to $30.28.
This chart shows how Elliott Wave Theorist subscribers were warned ahead of time.
It was a few weeks before the top when the Theorist said, “Crude Oil: One of the greatest commodity tops of all time is due very soon.”
Eventually oil did climb back above $100 a barrel. But it took two-plus years, and even then prices remained far below the July 2008 high.
Crude traded roughly sideways through June 2014. Then came another nosedive, and about nine months later crude was trading below $44 a barrel.
Once again, subscribers were warned weeks ahead of time. Here’s what the May 2014 Theorist said:
“The multi-year outlook is for much lower prices.”
After oil’s relentless multi-month decline, the January 2015 Theorist said that “now that bearish conviction has crystallized, oil is likely to rally.”
By May 5, oil’s price climbed to just above $60 a barrel. Yet as our long-term analysis suggested, the bounce was relatively short-lived:
“US oil settles at a six-year low of $43.08 a barrel” (CNBC, Aug. 11).
Where are oil prices headed?
Well, one prominent financial observer has been consistent with his outlook for oil.
“Gary Shilling thinks the price of oil is going way lower. The economist and financial analyst wrote an op-ed for Bloomberg View discussing the various reasons why he thinks the price could get down to $10-20 per barrel” (Business Insider, Feb. 17).
Shilling is a deflationist. In an Aug. 3 tweet he reiterated his oil forecast: “Prices will drop even further.”
As always, there are voices saying the glass is half full: The founder of a financial firm recently told CNBC that “Oil does not have much more of a downside left.”
Time will tell which of these forecasts is correct.
Consider the bigger picture — namely the downtrend in other commodities (like copper). Think about the economic weakness in Europe and now China. Consider the record levels of global debt. Reflect on the ineffective stimulus efforts of central banks around the world. And finally, consider this excerpt from the July Theorist:
People who are afraid that deflation will lead to economic contraction are correct. That’s why the subtitle of Conquer the Crash includes both words: Deflationary Depression. But the trip to the finish line is a zigzag path. Results don’t show up overnight. What’s happening now is nothing compared to what’s coming.
“Peak Oil” — And Other Ways Crude Oil Fooled Almost Everyone
Remember “Peak Oil”? About ten years ago, it was a hugely popular theory “explaining” why oil prices would only go higher. They didn’t. These excerpts from Robert Prechter’s Elliott Wave Theorist highlight the flaws in the conventional approach to forecasting oil prices and show you a better method — a method that has done a remarkable job forecasting the future path of oil prices.
Read this free report now.
This article was syndicated by Elliott Wave International and was originally published under the headline (Video, 3:38 min.) Oil’s Slippery Slope: How Far Will Prices Fall?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
July 19th, 2015
After the rally from 2009 stock market bottom, stocks relentlessly marched up often without a breather. We have reported complacency has reached extreme levels in the past. But that in itself does not pinpoint a top. But when we have multiple measures lining up, one has to stop and contemplate the possibility that we are seeing the view from the very top.
This article was adapted from Robert Prechter’s June 2015 Elliott Wave Theorist. For more charts and detailed commentary, analysis and forecasts from Prechter’s latest issues, click here for the extended subscriber version of this free report.
It is amazing to read assertions from the Fed and others that the stock market is nowhere near being in a bubble. Several aspects of the financial environment are actually so extreme as to be unprecedented. Some indicate a bubble, and others a bubble in trouble.
Below are eight indicators we are watching closely, among others.
1) Record debt in U.S. dollars
Total dollar-denominated debt peaked at $52.7 trillion in early 2009. At the end of Q1 2015, it stands at $59 trillion, an unprecedented amount.
2) Margin Debt at All-Time Highs
Never have more trading-account owners owed so much money, and never have they had such a low level of available funds from which further to draw.
3) Stocks Are Overvalued (based on dividend yields)
The Dow’s annual dividend payout has been less than 3% for 235 out of the past 246 months. Prior to the bull market that started in 1982, the longest duration under 3% was just one month, at the top in 1929.
4) Fund Managers Are Maxed Out
The percentage of cash in mutual funds has been below 4% for all but one of the past 70 months (a period of nearly six years). Prior to this time, the longest such duration was only nine months, a streak that ended in October 2007.
5) Stocks are at a Triple Extreme
Previous triple manias occurred in 1901/1906/1909 and 1965/1968/1972, and both led to severe bear markets. This one is even bigger and has lasted longer.
6) Stocks Rose on Low Volume for Six Straight Years
Such a thing has never occurred before — one year, maybe, but not six.
7) Unprecedented Divergence Among Major Indexes
On May 20, we published an interim issue of The Elliott Wave Theorist to tell subscribers:
Today something amazing happened: The Dow Transports closed at a 6-month low on the same day that the S&P 500 made an all-time intraday high. I doubt this has ever happened before.
The Dow Theory non-confirmation between the Dow Industrials and Transports is now [more than] six months old. This big a divergence, for this long a time, is very bearish.
Advisor Bearishness at 38-Year Low (optimism near record high)
The 30-week moving average of the percentage of bears among stock market advisors is at a 38-year low. (Investors Intelligence data is inverted to show optimism.)
This article was adapted from Robert Prechter’s June 2015 Elliott Wave Theorist. For more charts and detailed commentary, analysis and forecasts from Prechter’s latest issues, click here for the extended subscriber version of this free report!.
Are you prepared for the market crash? Beware! By definition, only the few can sell at the top which is a point in time. When it comes to pass, a rapid decline can wipe out years of gain in a matter of weeks! It has happened in the past. Do not think this time is any different.
July 3rd, 2015
“Chao gu” is the Chinese term for speculating in stocks. Roughly translated, it means “stir-frying” shares. Lately, though, for millions of Chinese investors, it means getting fried.
Enter the “nerve-shredding,” “whiplash-inducing,” rollercoaster “tantrum” of China’s stock market. After soaring to 7-year highs on June 12, both the Shanghai Composite and Shenzhen stock indexes collapsed in a respective 21% and 25% sell-off (as of June 30), frequently marked by wrenching intraday swings the likes of which haven’t been seen in 20 years.
In the words of one June 28 news source (bold added):
“You have to have a very strong stomach to trade in China. You have to be prepared for days when you are up or down more than 5% and there is no clear fundamental explanation.” (FinanceAsia)
In fact, not only isn’t there a bearish fundamental explanation for the market rout, but those fundamentals widely seen as bullish for stocks have also failed to stem the slide. Take, for instance, these recent stock-boosting initiatives on the part of the People’s Bank of China:
- A .25% cut to both its 1-year lending and deposit rates
- A decrease in banks’ reserve requirements to loosen the lending spigot
- The first-ever approval of local government pensions to buy stocks
That China’s stock market shrugged off these (and other) supposedly bullish catalysts hasn’t gone unnoticed. In the words of one Chinese investor, these moves imply “the stock market is kidnapping the government.” (The Globe & Mail, June 30)
Well, he’s sort of right. The moves imply the government is not in control of the market. Actually, on June 5, our own Asian-Pacific Financial Forecast expressed this exact sentiment and wrote:
“China’s current bull market is not a product of government stimulus or of investor ignorance or — as a prominent short-seller told CNBC this week — ‘the largest pump-and-dump in history.’ “(Bloomberg, 6/1/15).
So, what is it a product of? Well, our Asian-Pacific Financial Forecast provides this Elliott wave explanation:
“Actually, it’s the initial wave within China’s wave V up, which followed the end of its wave IV contracting triangle.”
In other words, Chinese stocks have been in a bullish Elliott wave formation, but those don’t develop in a straight line; you should expect pullbacks, whether or not there is a good “fundamental” explanation for them.
In fact, before the current rollercoaster ride began, our Asian-Pacific Financial Forecast wave count showed China’s stocks nearing a wave 3 peak, setting the stage for an important decline. On June 5, we wrote:
“The indexes should soon correct in wave 4 for some weeks”
One week later — on June 12 — China’s stocks turned down in the stomach-churning decline we see today.
Whether this decline marks a long-term top for China’s bull market — the same June 5 Asian-Pacific Financial Forecast shows you what key indicators to look for, and when.
The best part is, EWI has bundled exclusive charts and commentary from that subscriber-only report and made it available as a FREE resource to all Club EWI members.
This free resource, titled “China Stocks: Where Have They Been and Where Are They Going?” may be the most valuable report you read on the developing trend in China’s stock market. And the best part is, it’s absolutely FREE to all Club EWI members. If you haven’t joined already, a life-time membership to Club EWI is also FREE!
This article was syndicated by Elliott Wave International and was originally published under the headline China’s Stock Market Rollercoaster Ride Continues. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
June 11th, 2015
The real reason consumers aren’t spending is not a matter of monetary policy; it’s a matter of psychology.
On June 2, the postman rang once — and, boy, did he ring.
That day, the Wall Street Journal published a strongly worded letter titled, “Grand Central: A Letter to Stingy American Consumers,” which included these notable passages:
“Dear American Consumer,
“This is the Wall Street Journal. We’re writing to ask if something is bothering you. The sun shined in April and you didn’t spend much money. The Commerce Department here in Washington says your spending didn’t increase at all, adjusted for inflation last month, compared to March.
“You’ve been saving more too. You socked away 5.6% of your income in April after taxes, even more than in March. This saving is not like you. What’s up?
“Fed officials want to start raising the cost of your borrowing because they worry they’ve been giving you a free ride for too long with zero interest rates. We listen to Fed officials all of the time here at The Wall Street Journal, and they just can’t figure you out.”
Well, on behalf of the “stingy American consumer,” we’d like to answer this letter to best of our ability.
“Dear Wall Street Journal,
“Your frustration is well founded. Something is off. People have taken the Fed’s gift of free money and returned it to sender. This isn’t normal, as the chart of the total savings versus the Federal Funds rate since 1975 shows.
“Here you can see that for the better part of four decades, lower rates coincided with mild to steady savings… until mid-2000. Then, the pattern changed drastically. The cheaper it became to borrow, people borrowed less — a lot less.
“‘What’s up?,’ you ask? What changed to compel this radical shift toward thrift?
“In Chapter 9 of his business best-seller Conquer the Crash, Bob Prechter explains:
When the social mood trend changes from optimism to pessimism, creditors, debtors, producers, and consumers change their primary orientation from expansion to conservation.… consumers save more and spend less.
A defensive credit market can scuttle the [central bank's] efforts to get lenders and borrowers to agree to transact at all, much less at some desired target rate.
During deflation, they cannot even induce them to do so with a zero interest rate.
“Deflation? Nobody said anything about the “D” word, but in fact, that’s exactly why consumers have gone on a buying boycott. Conquer the Crash writes:
These behaviors reduce the ‘velocity’ of money, i.e. the speed with which it circulates to make purchases, thus putting downward pressure on prices. These forces reverse the former trend.
“Note the emphasis on ‘downward pressure on prices.’ Here, our November 2014 Elliott Wave Financial Forecast shows you ample evidence of its arrival:
Most economists are baffled: ‘One of the greatest mysteries is why the U.S. has lacked inflation, despite all the money being pumped into the economy.’ This long-term chart of the CPI shows a succession of lower highs since the early 1980s, as inflation turned into disinflation, which is on the cusp of leading to outright deflation.
Some argue that the Consumer Price Index is rigged to show milder levels of inflation, but the bottom graph shows the same steady move toward the zero line in the Personal Consumption Expenditures Index, an alternate inflation measure favored by the U.S. Fed.
“Deflation is rare. Because of that, few people understand it. Deflation is also tricky, because it makes even the most ‘reliable’ financial assets to lose value, and those assets that no one expects to grow to actually gain.
“The ’stingy’ consumer is not the cause; it’s the effect of a deflationary trend now underway in the world’s largest economy.”
Get this free 10-page report about the unexpected but serious risk to your portfolio — with highlights from Robert Prechter’s New York Times’ business bestseller, Conquer the Crash.
You’ll get 29 specific forecasts for stocks, real estate, gold, cultural trends and more.
Download your free report here.
May 24th, 2015
Elliott Wave International’s European markets expert Brian Whitmer often cautions his subscribers to beware of the pitfalls that will accompany the developing deflation in Europe.
On May 20-27, Brian is hosting a free 5-video event at elliottwave.com: Investing in Europe: 5 Critical Insights.
“Europe seems to be leading the way on important global trends, so even if you don’t invest in Europe, knowing about these trends in advance can help you determine your investment strategy.” — Brian Whitmer
Read some of Brian’s recent analysis of Europe’s latest debt nightmares from the April issue of his European Financial Forecast, and then register here to join his free 5-video event.
Excerpted from the April 2015 European Financial Forecast (pub date: March 27.)
One big clue to the size of the oncoming debt deflation is the central bank’s ongoing policy shift away from bail-outs — where taxpayers shoulder the losses at a failed bank — and toward so-called bail-ins, where the losses are dumped onto bondholders. In February 2015, we commented that “the days of unconditional financial rescues are clearly over,” and it took almost no time for this forecast to become another hard-hitting reality. Indeed, “Europe’s latest debt nightmare” (UK Telegraph, 3/7/15) quickly thumped bondholders in Austria, as its Financial Market Authority refused to cover €10.2 billion in bond guarantees at Heta Asset Resolution (Heta). Heta, itself, was the so-called bad bank created in 2009 to absorb the soured assets of another failed lender, Hypo Alpe Adria. It’s the first major banking failure under Europe’s new Bank Recovery and Resolution Directive, and it displays nearly every pitfall that we’ve spent months cautioning subscribers to avoid. Here, for instance, was our September 2014 admonition to senior debtholders at Banco Espirito Santo, who only narrowly avoided losses when the Portuguese conglomerate went belly up (emphasis added):
The terms of the rescue call for BES’s junior bondholders to share in the losses with stockholders…. For now, the rescue won’t affect senior bondholders or bank depositors, but, like before, this arrangement should change at some point in the near future.
–European Financial Forecast, September 2014
In Austria’s case, the near future proved to be closer than we thought, as sources in Vienna tell the Telegraph that “even senior bondholders are likely to face a 50% write-down.” The top panel on the chart depicts a 50% nosedive in Heta’s 4-3/8% note, expiring in January 2017. These bondholders have become the “first victims of the eurozone’s tough new ‘bail-in’ rules,” according to the Telegraph, but they won’t be the last. The bottom panel on the chart depicts the long-term decline in Austria’s ATX index, and Bloomberg reports that Europe is “awash with interlinked banking and public liabilities, many of which will never be repaid and basically need to be written off.”
In fact, financial ripples from the Heta debacle started spreading immediately. On March 16, Germany’s association of private banks stepped in to rescue Duesseldorfer Hypothekenbank AG, a real estate lender with €348 million in exposure to Heta. Property lender NordLB reported €380 million in exposure, while BayernLB, the German bank with the largest known exposure, reported €2.35 billion in unsecured credit lines to Heta. Germany’s Commerzbank (€400 million in Heta bonds) is considering legal action against Austria’s decision, but the potential lawsuit provides little comfort for investors sitting on major losses now.
A Simple Fight Over Money
Austria’s debt write-down uncovered more than the weak assets that pervade the books of European banks; it exposed the political rifts that divide the country itself. Indeed, most of Hypo’s original bonds were underwritten by the southern Austrian region of Carinthia. When Fitch ratings stripped Austria of its AAA credit rating in early March, finance minister Jorg Schelling took to public radio demanding that Carinthia pay its full share. The following day, Carinthia’s premier Peter Kaiser shot back. “Carinthia cannot pay,” said Kaiser, observing that the €10.2 billion in debt guarantees amounted to more than five times the region’s annual budget. (Deutsche Welle, 3/4/15)
It’s true. And with nearly €1 billion in Heta bonds coming due, Austria’s Der Standard anticipates that a “flood of lawsuits” will inundate the Austrian courts. The problem is that these floodwaters will keep rising in an environment of sustained deflation. In February 2015, the EU commission revealed that national governments are backstopping more than €1.2 trillion of various forms of debt. At €113 billion (35% of GDP), Austria is one of the biggest users of state guarantees. But Ireland, too, has contingent liabilities that amount to 32% of its economy, and Germany is backstopping debt that equals 18% of national output. Last month, GMP warned about the dangerous interdependence between European banks and their respective sovereign governments. The hazard is fast getting real now.
Europe is flashing signals which point to significant changes ahead. If you know how to read these signals, then you can get out of the way of big threats — and also, capitalize on new opportunities!
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This article was syndicated by Elliott Wave International and was originally published under the headline One of Europe’s Latest Debt Nightmares. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.
May 16th, 2015
Another shot fired in the “War on Cash”
Lyndon McLellan owns the L&M Convenience Mart in rural North Carolina. A few months ago, the Internal Revenue Service went to McLellan’s bank and seized all the cash in his store’s account.
McLellan had violated a “structuring” law by making cash deposits of under $10,000. Structuring laws are supposed to catch drug traffickers and money launderers. But small business owners can also unknowingly run afoul of these laws.
Last July, a swarm of officers from North Carolina’s Alcohol and Law Enforcement, the local police and the FBI descended on McLellan’s place of business.
The agents told the small business owner something that shook him to his core: The Internal Revenue Service had seized all of the money in L&M’s bank account: $107,702.66.
“‘Are you telling me you took my money?’” McLellan recalled asking the agents. “I didn’t understand what was going on. They dropped a bomb on me. I was lost for five to 10 minutes. I can’t believe that y’all guys can walk in here and tell me y’all took every bit of my money out of the bank.”
The Daily Signal, May 11
McLellan is still fighting to get his money back.
“In 2005, the Internal Revenue Service made just 114 structuring seizures. By 2012, that number had risen to 639.”
This story shows how the government can financially upend the lives of citizens.
Consider this excerpt from the March Elliott Wave Theorist:
The most vulnerable money is sitting in bank accounts. Depositors in Cyprus banks found that out in 2013, when the government seized a large portion of uninsured deposits to pay its debts to the EU. …
… I have long advocated holding outright cash notes, which are already preserving value better than commodities and negative-interest-rate bonds. But we cannot depend upon government to act fairly. If in a future panic central banks opt to recall cash, even cash-holders will be doomed. All authorities need do is demand that people turn in their cash for new notes worth 1/10 as much. In 1933, the U.S. government confiscated gold because that was the money of the day. Now, dollar deposits and cash notes are the money of the day, and they are even easier to seize.
We’ve been updating subscribers on the “War on Cash.”
- JPMorgan Chase Bans Storage of Cash in its Safety Deposit Boxes (InfoWars)
- Citi Economist Says It Might Be Time to Abolish Cash (Bloomberg)
- Sweden moving towards cashless economy (CBSNews)
- Large U.S. bank bans wire transfers, limits cash withdrawals (TheCrux)
Giant financial institutions and the government are now waging a large-scale war on cash.
This is the time to get the financial insights you need to protect your hard-earned savings.
Big government is conspiring with big banks to wage a secret war on cash by limiting and even outlawing the use of physical currency. This development may have a devastating impact on your hard-earned savings unless you prepare right now.
Get your free report now »
This article was syndicated by Elliott Wave International and was originally published under the headline Why the IRS Seized All the Money from a Country Store. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.