Wednesday, September 16, 2015

The Most Important Geopolitical Trend of the Next Decade…Here’s How to Profit

By Nick Giambruno

The bloodbath was merciless. In 1842, 16,500 British soldiers and civilians withdrew from Kabul, Afghanistan. Only one would survive. It was the most humiliating military disaster in British history. The death toll sealed Afghanistan’s reputation as “the graveyard of empires.”

It was the desire for control of Central Asia that sucked the British Army into its Afghan disaster. For most of the 1800s, the UK and Russia pushed for power and influence in Central Asia in a competition known as “the Great Game.”

It wasn’t just to score points. The thought of losing India terrified the Brits more than anything else. India had huge economic resources, a plentiful supply of military-aged males, and strategic geography. London treasured India as “the jewel in the crown of the British Empire.”

To the Brits, the expansion of the Russian Empire into Central Asia was a threat to their control of India. Neighboring Afghanistan was their red line. If the Russians could draw Afghanistan into their sphere of influence, they would become an intolerable threat to British India.

So, in 1839, the British Army invaded. They installed a puppet regime in Kabul that would stand as a buffer to Russian influence. Every previous attempt to bring Afghanistan under foreign rule had ended badly. The Afghans are some of the toughest and most stubborn fighters in the world. The British knew that executing their plan wouldn’t be a cakewalk.

After a few years of trying and then failing to impose their will, the Brits threw in the towel. Early in 1842, 16,500 British soldiers and civilians packed up and left Kabul. As they fled through the mountainous trails, Afghan tribal fighters attacked repeatedly.

It added up to an epic massacre…..If the Afghan fighters didn’t kill you, disease and winter weather would.

After just seven days, only one man was still alive. William Brydon was bloody, torn, and exhausted. He was the only one to make it to the nearest British military outpost. That outpost was in Jalalabad, 90 miles away from Kabul. The Afghans let him live so there would be someone to tell the grisly story.

The garrison in Jalalabad lit signal fires to guide other British survivors to safety. After several days, they realized no one was left to see the light. Painter Elizabeth Butler captured the pain and desperation of the moment in her Remnants of an Army, below.


The debacle was a brutal lesson in geopolitics: geography constrains the destiny of nations and empires. Ignore that constraint at your peril. Despite their folly in Afghanistan, the British were generally shrewd players in geopolitics. It was a skill developed from a centuries-long career as an imperial power.

The godfather of geopolitical theory was British strategist Sir Halford Mackinder. Mackinder developed a general theory that connected geography with global power. To this day, planners in the US, Russia, and China study his teachings.

Mackinder argued that dominating the Eurasian landmass - Asia and Europe together - was the key to being the leading global power.

Zbigniew Brzezinski, the renowned American geopolitical strategist, echoes Mackinder on the importance of Eurasia in his book The Grand Chessboard: American Primacy and Its Geostrategic Imperatives: Ever since the continents started interacting politically, some five hundred years ago, Eurasia has been the center of world power.

A power that dominates “Eurasia” would control two of the world’s three most advanced and economically productive regions…rendering the Western Hemisphere and Oceania geopolitically peripheral to the world’s central continent. About 75% of the world’s people live in “Eurasia,” and most of the world’s physical wealth is there as well, both in its enterprises and underneath its soil. “Eurasia” accounts for about three-fourths of the world’s known energy resources.

A single power that controls the resources of Eurasia would be an unstoppable global superpower. If one couldn’t control all of Eurasia, the next best thing would be to dominate the world’s oceans. Control of the sea lanes means control of international trade and the flow of strategic commodities.

In 1900, the British Empire was near the peak of its strength. It was the world’s undisputed naval power. Its naval bases ringed Eurasia from the North Atlantic to the Mediterranean, from the Persian Gulf to the Indian Ocean, all the way to Hong Kong. This enabled the Brits to project event shaping military power into Eurasia.

Today, the US is far and away the world’s leading naval power. Like the British before them, the Americans have followed the geopolitical strategy of ringing Eurasia with military bases and exploiting its divisions. The aircraft carrier, with its 5,000-person crew, is the central instrument of US naval power. Putting just one of these enormous vessels into operation costs more than $25 billion.

The US Navy has 11 carriers, more than the rest of the world combined. And it’s not just ahead in quantity. The power and technological sophistication of US aircraft carriers are far beyond the capabilities of any competitor. There is simply no military force now or in the foreseeable future that could dispute US control of the high seas.....Soon, though, it may not matter.

That’s because China, Russia, and others are working on an ambitious plan. They seek to make US dominance of the seas unimportant. They’re tying Eurasia together with a web of land-based transport facilities. A constellation of supporting organizations for financial, political, and security cooperation is also in the works. If they’re successful, they’ll wipe away hundreds of years of geopolitical strategic thinking. They’ll make the current US planning paradigm obsolete. They’ll undermine the strategy that the US - and the UK before it - has relied on to dominate geopolitics. It would be the biggest shift in the global power balance since WWII.

It’s a game for the highest stakes…a real-life battle of Risk. The effort and countereffort to integrate Eurasia is the new Great Game. It’s the most important process to watch for the next 10 years. The central project to integrate Eurasia is the New Silk Road.

The World’s Most Ambitious Infrastructure Project

For over a thousand years, the Silk Road, named for the lucrative trade it carried, was the world’s most important land route. At 4,000 miles long, it passed through a chain of empires and civilizations and connected China to Europe. It was the path along which merchant Marco Polo traveled to the Orient. When he returned, he gave Europeans their first contemporary glimpse of China.

Today, China is planning to revive the Silk Road with modern transit corridors. This includes high speed rail lines, modern highways, fiber-optic cables, energy pipelines, seaports, and airports. They will link the Atlantic shores of Europe with the Pacific shores of Asia. It’s an almost unbelievable goal.

If all goes according to plan, it will be a reality by 2025. A train from Beijing would reach London in only two days.

New Silk Road Routes


The New Silk Road is history’s biggest infrastructure project. It aims to completely redraw the world economic map. And, if completed, it has the potential to be the biggest geopolitical game-changer in hundreds of years.

Tying Eurasia together with land routes frees it from dependence on maritime transport. That ends the importance of controlling the high seas. That reshapes the fundamentals of global power…and it’s exactly what the Chinese and Russians want.

In late 2013, Chinese president Xi Jinping announced the New Silk Road. The Chinese government rules by consensus. They’re careful long-term planners. When they make a strategic decision of this magnitude, you know they are totally committed. They have the political will to pull it off. They also have the financial, technological, and physical resources to do it.

The plan is still in the early stages, but important pieces are already falling into place. On November 18 of last year, a train carrying containerized goods left Yiwu, China. It arrived in Madrid, Spain, 21 days later. It was the first shipment across Eurasia on the Yiwu-Madrid route, which is now the longest train route in the world. It’s one of the first components of the New Silk Road.


As ambitious as the New Silk Road is, it’s just one aspect of the integration of Eurasia. In just the past year, a set of interlocking international organizations has emerged. These new linkages are the institutional support for a new political-economic-financial order in Eurasia.

Here are the most prominent organizations…

Asian Infrastructure Investment Bank (AIIB)
China launched the AIIB in 2014 with financing for New Silk Road projects in mind. Its initial capital base is more than $100 billion.

The AIIB would be a Eurasian alternative to the US-dominated International Monetary Fund (IMF) and World Bank. Those institutions have been standing atop the international financial system. China, Russia, and India are the main shareholders and decision makers at the AIIB.

Nearly 60 countries, mostly in Eurasia, have signed up to join the bank. Japan and the US declined to join. Then, the US government embarrassed itself by trying (and failing) to pressure allies the UK, France, and Germany into snubbing the organization.

BRICS and the New Development Bank (NDB)
The BRICS countries - Brazil, Russia, India, China, and South Africa - are all onboard for Eurasian integration. The NDB, like the AIIB, is an international financial institution headquartered in China (but headed by an Indian banker), with $100 billion in capital. Also like the AIIB, the NDB is an alternative to the IMF and World Bank. The BRICS countries established the NDB in July 2015.

The NDB and AIIB will complement, not compete with, each other in financing the integration of Eurasia. The NDB will also finance infrastructure projects in Africa and South America. The NDB will use members’ national currencies, bypassing the US dollar. It won’t depend on US controlled institutions for anything. That reduces the NDB’s exposure to US pressure. The BRICS countries are also exploring building an alternative to SWIFT, an international payments network.

SWIFT is truly integral to the current international financial system. Without it, it’s nearly impossible to transfer money from a bank in country A to a bank in country B. In 2012, the US was able to kick Iran out of SWIFT. That crippled Iran’s ability to trade internationally. It also demonstrated that SWIFT had become a US political weapon. Neutralizing that kind of power is precisely why the BRICS countries want their own international payments system.

Eurasian Economic Union (EEU)
The EEU is a Russian-led trading bloc. It opened for business in January 2015. The EEU provides free movement of goods, services, money, and people through Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia. Other countries may join. Trade discussions have started with India, Vietnam, and Iran. The EEU is gradually expanding as countries along the New Silk Road remove barriers to trade. Egypt, Argentina, Brazil, Paraguay, Uruguay, and Venezuela are also in trade talks with the EEU.

Shanghai Cooperation Organization (SCO)
In the military and security realm, there’s the SCO. Current members include China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan. India and Pakistan will join by 2016. Iran is also likely to join in the future.

Putting the Pieces Together

Eurasian integration, and the US attempt to block it, will be the most important story for the next 10 years. This is the new Great Game. Oddly, the US media has barely made a peep about it. Maybe the story of Eurasian integration is just too big and complex to fit into sound bites.


The New Silk Road…the Asian Infrastructure Investment Bank…the BRICS New Development Bank…an alternative SWIFT system…the Eurasian Economic Union…the Shanghai Cooperation Organization…these are the building blocks for a new world. There could be huge profits for investors who position themselves correctly ahead of this monumental trend.

There is an easy way for US investors to tap into this trend. Click here to get the latest issue of Crisis Speculator for all the details.
The article was originally published at internationalman.com.


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Monday, September 14, 2015

ENCORE: Here's a Second Chance to Attend John's LIVE Event

If you missed last weeks event with our trading partner John Carter of Simpler Options you get another chance to catch this free webinar LIVE this Tuesday evening September 15th at 8 p.m. est. [now a replay]

Last weeks event was over prescribed so those that logged in late lost their seat to the those on the waiting list. Don't let that happen again. Please reserve your seat asap and make sure you log in 10 minutes early on Tuesday night so you don't lose it.

 Watch the "500k Proof and Trading Plan" Webinar Replay

Even if you attended last week you might try to get another spot this week as John has added even more examples of how to put these methods to work right away. John is a special trader for sure, and what really sets him apart is his ability to pass on his skills. He has a "knack" for making his trading methods easy to understand so you can put them to work the following trading day.

Watch the new video John has put together to get ready for this class.....Watch it HERE

John became famous for the "Big Trade" he made on Tesla, ticker TSLA in 2014. And in the process changed the way wall street looks at using options for protection and profit. And this weeks webinar will make it clear, it's not an unattainable thing to trade like John. And he will deliver this Tuesday, that's why we are going and that's why we believe you should as well.

Register for live event and secure recording HERE [Now a Replay]

See you Tuesday evening,
Ray C. Parrish
aka the Crude Oil Trader


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Saturday, September 12, 2015

Weekly Crude Oil, Natural Gas, Gold, Silver, Dollar and Coffee Markets Recap with Mike Seery

The institutional traders are back from vacation and trading volume is picking up. So who better to have than our trading partner Mike Seery back to give our readers a recap of this weeks trading and help us put together a plan for the upcoming week. 

Crude oil futures in the October contract settled last Friday in New York at 46.05 a barrel while currently trading at 45.20 as this market has been highly volatile as I probably will not be trading crude oil for quite some time as the chart structure is terrible so look at other markets that are beginning to trend with less risk. Prices are currently trading above their 20 day moving average for the first time in months but still below their 100 day average as the trend remains mixed.

Crude oil prices have been following the stock market as when the S&P 500 is sharply lower you can rest assured crude oil prices will be lower and vice versa as everything comes to and as we were short this market from $59 as the trend was our friend for three months before turning on a dime, as this is why you must have an exit strategy as mine is placing a stop at the 10 day high if I am short as never getting out is very dangerous in my opinion. Goldman Sachs cut demand for crude oil sending prices lower this Friday afternoon as experts are calling for lower prices and the possibly of breaking $30 a barrel due to massive oversupply but I will wait for a trend to develop.
Trend: Mixed
Chart Structure: Poor

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Natural gas futures settled in New York at 2.65 last Friday afternoon while currently trading at 2.67 in a very nonvolatile trading week as prices are stuck in an incredibly tight three-week channel looking to breakout one direction and my feeling is to the downside and if prices break 2.63 I’m recommending a short position while placing your stop loss above the 10 day high at 2.73 risking $1,000 per contract plus slippage and commission. Natural gas futures are still trading below their 20 and 100 day moving average as this has been a bearish trend over the last several years due to oversupply issues here in the United States as we are a massive supplier and exporter of natural gas and I don’t think that situation is going to change, so keep a close eye on this market as a breakout is in the cards in my opinion. As a trader you have to look for special situations as my consolidation rule states that a consolidation must be 8 weeks or longer so this does not meet criteria, however the chart structure is outstanding therefore lowering monetary risk as I’m looking forward to getting into this trade either on the short side or possibly even on the long side as the risk/reward is your favor once the breakout occurs but you must be patient.
Trend: Sideways
Chart Structure: Outstanding

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Gold futures in the December contract settled last Friday in New York at 1,121 an ounce while currently trading at 1,106 down about $15 this week trading below its 20 and 100 day moving average near a 3 week low as I’m currently sitting on the sidelines as this market remains choppy with poor chart structure. I still see no reason to own gold currently as the risk/reward is not your favor so look at other markets that are starting to trend such as the silver market which I am currently recommending a short position because the chart structure is outstanding. Gold prices had a significant rally in the month of August bottoming out around 1,080 then rallying to 1,170 which was impressive in my opinion due to short covering and a flight to quality as the stock market has experienced volatility in recent weeks sending money out of stocks and into gold as a safe haven but things have settled down putting short-term pressure on gold. As I’ve talked about in many previous blogs I am a trend follower and I do not like to trade choppy markets because they are extremely difficult in my opinion so avoid this market at the current time and focus on silver.
Trend: Lower
Chart Structure: Poor

Silver futures in the December contract are trading lower by about $.30 this Friday afternoon in New York currently trading at 14.33 an ounce as I’ve been recommending a short position from around 14.70 and if you took that trade place your stop loss above the 10 day high which currently stands at 14.95 as you’re going to have to be patient as that stop loss will not be lower for quite some time. The next major level of support is at the contract low around the $14 mark and I do think that’s a possibility that could be retested in next week’s trade as the chart structure is still very solid at the current time. Silver prices settled last Friday at 14.55 while currently at 14.33 down over $.20 for the trading week as prices have been consolidating the recent downdraft in prices over the last three weeks, but the long-term and short-term trend still remain bearish in my opinion, so continue to play this to the downside while taking advantage of any price rally while maintaining the proper risk management strategy. Silver futures are trading below their 20 and 100 day moving average closing at 3 week low in today’s trade as the commodity markets still looks bearish in my opinion.
Trend: Lower
Chart Structure: Solid

The U.S. dollar index futures in the September contract are trading below their 20 day but still above their 100 day average telling you that the trend is mixed and has remained choppy for the last two weeks as I’m currently sitting on the sidelines waiting for a breakout above 96.63 to occur before entering a bullish position. The dollar settled last Friday at 96.24 while currently trading at 95.50 as investors are awaiting the Federal Reserve’s interest rate decision which will come out next week and will certainly send high volatility into this market so keep a close eye on this trade as we could be involved in next week’s trade. I have not traded the currencies in quite some time but when I do see excellent chart structure coupled with a solid risk/reward situation I will trade the currency market but at this point the chart structure does not meet my criteria so sit on the sidelines and see what the Federal Reserve states, and in my opinion I think they will not raise interest rates at the current time as there is too much uncertainty especially in the stock market.
Trend: Mixed
Chart Structure: Improving

Coffee futures in the December contract are trading below their 20 and 100 day moving average hitting a multi year low while settling in New York last Friday at 119.15 a pound while currently trading at 117.50 down slightly for the week in low volatility. I’m currently sitting on the sidelines kicking myself as we should be entering a short position but the 10 day high is too far away and does not meet my risk/reward criteria, however I’m certainly not recommending any type of bullish position in this market as I do think prices could break 100 in the next month or so as ample supplies worldwide continue to keep a lid on prices. Many of the soft commodities including sugar and cocoa have rallied in recent weeks but has not help support coffee prices at all as this trend remains your friend and certainly the short-term trend is to the downside and if the chart structure does improve I will be recommending a short position which could happen in the next couple of days especially if a price rally occurs. I would imagine that volatility in coffee will start to increase as historically speaking coffee is one of the top five most volatile commodities in the world as this low volatility will not last.
Trend: Lower
Chart Structure: Improving

Mike has been a senior analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets. Get more of Mike's calls on this Weeks Commodity Markets


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Thursday, September 10, 2015

Hate Mail, Crumbling Factories, and Sinking Stocks

By Tony Sagami 

The bulls are mad at me. I’ve been heavily beating the bear market drum in this column since the spring. The S&P 500, by the way, peaked on May 21, and this column has been generating a rising stream of hate mail from the bulls as the stock market has dropped. My hate mail falls into two general categories: (1) you are wrong, and/or (2) you are stupid.

Well, I may not be the sharpest tool in the Wall Street shed, but I haven’t been wrong about where the stock market was headed. This column, however, isn’t about me. It’s about protecting and growing your wealth—and that’s why I have been so forceful about the rising dangers the stock market is facing.

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One of the themes I’ve repeatedly covered in this column is the rapidly deteriorating health of the two most basic economic building blocks of the American economy: the “makers” (see August 25 column) and the “takers” (see July 14 and August 4 columns).

There are thousands of economic and business statistics you can look at to gauge the health of the US economy, but at the economic roots of any developed country is the prosperity of its factories (makers) and transportation companies (takers) delivering those goods to stores.

This week, let’s look at the latest evidence confirming the piss poor health of American factories.

Factory Fact #1: The Institute for Supply Management released its latest survey results, which showed a drop to 51.1 in August, a decline from 52.7 in July, below the 52.5 Wall Street forecast, and the weakest reading since April 2009.


NOTE: The ISM survey shows that raw-materials prices dropped for 10 months in a row. If you own commodity stocks—such as copper, oil, aluminum, or gold—you should consider how falling raw materials prices will affect the profits of those companies.

Factory Fact #2: Despite all the crowing from Washington DC about the improving economy, US manufacturing output is still worse today than it was before the 2008-2009 Financial Crisis, according to the Federal Reserve.


Factory Fact #3: Business inventories increased at the fastest back to back quarterly rate on record. Inventories increased 0.8% in Q2, following a 0.3% increase in Q1, and now sit at $586 billion. That’s a 5.4% year over year increase!


Remember, there are two reasons why businesses accumulate inventory:
  • Business owners are so optimistic about the future that they intentionally accumulate inventory to accommodate an upcoming avalanche of orders.
OR
  • Business is so bad that inventory is starting to involuntarily pile up from the lack of sales.
Factory Fact #4: The Manufacturers Alliance for Productivity and Innovation (MAPI), a trade association for US manufacturers, is none too optimistic about the state of American manufacturing.
The reason for the pessimism is simple: US manufacturers are struggling.

  • U.S. manufactured exports decreased by 2% to $298 billion in the second quarter, as compared with 2014.
  • The US deficit in manufacturing rose by $21 billion, or 15%, compared with the second quarter of 2014.
“The US $48 billion deficit increase in the first half of the year equates to a loss of 300,000 trade related American manufacturing jobs, and the deficit is on track for a loss of 500,000 or more jobs for the calendar year,” said Ernest Preeg of MAPI.

So what does all this mean?

When I connect those dots, it tells me that American manufacturers are struggling. Really struggling.
Take a look at the Dow Jones US Industrials Index, which peaked in February and started to drop well ahead of the August market meltdown.


You know what’s really nuts? The P/E ratio for this struggling sector is almost 19 times earnings and 3.3 times book value!


Is there a way to profit from this slowdown of American factories? You bet there is.

Take a look at the ProShares UltraShort Industrials ETF (SIJ). This ETF is designed to deliver two times the inverse (-2x) of the daily performance of the Dow Jones US Industrials Index. To be fair, I should disclose that my Rational Bear subscribers have owned this ETF since June 16, 2015, and are sitting on close to a 15% gain.

Critics could say that I am “talking up my book,” but I instead see it as “eating my own cooking.” My advice in this column isn’t theoretical—we put real money behind my convictions. That doesn’t mean you should rush out and buy this ETF tomorrow morning. As always, timing is everything, so I suggest you wait for my buy signal.

But make no mistake, American “makers” are doing very poorly, and that’s a reliable warning sign of bigger economic problems.
Tony Sagami
Tony Sagami

30 year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here.

To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.



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Wednesday, September 9, 2015

IMPORTANT: Crucial Profit Growth Trading Meeting this Tuesday Evening

The big industrial traders are back from their summer vacations and they know how to trade this market volatility we are experiencing. Do you? So our timing couldn't be better. If you are serious about trading and your trading profits then this is the place to be on Tuesday evening September 15th at 8 pm EST..

Attend this free event with Simpler Options CEO John Carter.

Sign up here for the "500k Profit, Proof and Plan Webinar"

John is hosting this exclusive webinar where he'll show us exactly how he made 500k in 8 months and how you can to. The best part is that you can do this no matter the size of your account.

The methods are simple, and the execution is easy. If you attend Tuesday evening, or watch the recorded version, you can learn the material and apply it to your trading the next day.

Register for live event and secure recording HERE

See you in the markets putting this to work!
Ray C. Parrish
aka the Crude Oil Trader


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Tuesday, September 8, 2015

Muddling Through Shanghai

By John Mauldin

“He who knows when he can fight and when he cannot, will be victorious.”
– Sun Tzu

A couple of weeks ago I was complaining about 47,000 China reports clogging my email. The number now feels like it is well into six figures (perhaps a slight exaggeration). Maybe my memory is going, but there wasn’t nearly as much China talk on the way up. Funny how that works.

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Is China collapsing? I think parts of China are under severe pressure if not outright recession, and clearly the stock market is a disaster. Anyone who bought Shanghai or Shenzhen stocks on margin this year is probably on the brink.

That said, China itself is not collapsing. There are parts of China that are doing just fine, thank you very much. It does have serious problems, though. The Pollyannas and the Cassandras are both wrong. The change in tone in the Financial Times is quite amusing. Their recent hyperbolic, bearish section called “China Tremors” is a case in point. Of the last 30 articles on China on their website, I found less than a handful that were positive on China. My take? China will muddle through, at least for the near term.

China is in transition, a transition that was clearly telegraphed if you have been paying attention. Our recent book on China (A Great Leap Forward?) clearly laid out this new path. Today we are going to talk about this precarious, difficult transition, which may impose profound impacts on much of the rest of the world. This transition is going to change the way global trade has worked in the past. There will be winners and losers.
But first, a brief comment on today’s employment report and how it impacts the need for a rate hike by the Federal Reserve in September. I offer a little different perspective on the coming decision.

To Hike or Not To Hike – That Is the Question

Today’s unemployment report was lackluster, as has been the case for the initial reporting for the last two Augusts. Both were revised significantly upward – August 2012 was eventually revised up 96,000 jobs, while August 2013 saw a final revision upward of 69,000 jobs, and August 2014 saw a final count of +213,000 jobs. Part of the reason for the major revisions is that only some 70% of the potential survey participants actually responded (hat tip Joan McCullough).

Evidently the United States is becoming like Europe, and we are all going on vacation in August. Or at least the department personnel responsible for handling employment figures are. Expect to see significant upward revisions in the coming months, just as July saw another 30,000 added and June saw a plus 14,000.

This report was not so ugly that it would take the breath away from hawks wanting to raise rates or force doves into agreeing to a rate increase. Nothing changed, really. That is illustrated by the two articles below that were side-by-side on the New York Times website within an hour of the release of the report (hat tip Brent Donnelly). Everybody got to see what they wanted to see.


I can’t remember a time when there was such serious disagreement over what the Federal Reserve should do regarding a rate hike. I have been in several groups of analysts and economists in the last few months, and I must confess to being surprised at the split in opinions.

Upon reflection, I think I can actually understand both positions. First, the Fed keeps reiterating that they are “data dependent” – thus the focus on every little bit of data, no matter how trivial. Let me see if I can explain why both sides can feel they are right and then why, to my way of thinking, they are missing the point.

On the side of those who feel that a rate hike should be postponed at the September meeting, it must be remembered that most rate hikes are in anticipation of an economy beginning to pick up speed. The Fed has said they want to see low unemployment, and under the leadership of Bernanke and now Yellen, they have a 2% inflation target. Remember, their congressional mandate is to promote stable prices and full employment.

While unemployment did drop to 5.1%, that is a “soft” unemployment figure. The participation rate is down. The number of part time workers wanting full time jobs is still high. And the new employment trend is not encouraging.

August's gains were well below trend. The average of the previous five months is 211,000; for the previous six before that it was 282,000. The yearly employment gain, 2.1%, is off 0.2 point from the late 2014/early 2015 rate. The private sector gain is 60,000 below the average of the previous six months. (The Liscio Report)

We are not close to 2% inflation; and, frankly, it doesn’t look like we’re going to get there for a while. The economy is, at best, stuck in a low, Muddle Through gear (as I predicted years ago); and getting back to a stable 3% growth rate, let alone the occasional 4–5% that we used to see, seems out of reach. The dollar is strong and getting stronger and is not only holding down inflation but also, anecdotal evidence suggests, slowing down exports in various sectors of the economy.

There were those who argued that a bubble was developing in the stock market, but it appears the stock market is taking care of itself to make sure it doesn’t become overheated. There is no need to pile on to see if we can drive asset prices even lower. Further, we are just in the beginning of a housing recovery. Why raise mortgage rates, etc., at the beginning?

In such an environment, why would you raise rates in order to keep the economy from overheating? The last thing we seem to be doing is overheating, let alone even getting to a slow boil. Instead, we may already be cooling down. If the economy does start to pick up and inflation becomes an issue, we could raise rates then as fast as we would need to. Or so Kocherlakota and his friends on the FOMC say. And thus we should postpone a rate increase until we see a reason for it. Kind of like, don’t shoot till you see the whites of their eyes.

Those who think we should raise rates likewise have an array of data to support their case. GDP grew 3.7% in the second quarter. If you take out the weather related first quarter 2015 GDP figure, GDP growth is running well over 3%. Given the global headwinds currently buffeting economies, that’s about as good as it’s going to get.

This economy has weathered tax increases and the abrupt changes of Obamacare, as well as a significant drop in capital spending related to oil production and has “kept on ticking.” If there is a recession in our near future, as David Rosenberg points out, it would be the first recession ever that did not see consumer spending or employment go down for the count.

We’ve always been able to find negatives in the unemployment rate. Even if unemployment were somehow to ratchet down to less than 200,000 per month, it will be for only two quarters at the most; and it may be that before the end of the year we will be under 5% unemployment. We just set a record for all measures of corporate profits in absolute terms. We finally set a new record for real disposable personal income in July, again in absolute terms. As Jim Smith says,

What all this means is that when the FOMC meets on September 16 and 17, they will be looking at a US economy in which more people are employed than ever before, earning more money than ever before, producing more goods and services than ever before, and with personal consumption expenditures and corporate profits at the highest levels ever seen. If that is not a prescription for finally raising the Fed Funds rate, then I can't imagine what it would take to get them to move. (source)

Despite the significant slowdown in the oil patch, the level of investment in the second quarter was almost 4% higher than last year. Businesses are optimistic. Even given the turmoil in Canada, China, the Eurozone, and the rest of the BRICS, and even though global trade is beginning to fall off a little bit, the US economy seems to be doing quite well in spite of it all.

What else do you need in order to begin to normalize rates? Inflation is under control and according to most Fed economists seems to be ticking higher. Unemployment is moving lower. The economy is doing quite well. If not now, when? How much better do you want things to get before rates are taken back to something close to normal?

I must confess that I personally lean toward the latter argument, but I have a few additional reasons for thinking the Federal Reserve should act in September. As I have presented in previous letters, there are real reasons to think that low interest rates are not only creating malinvestment but also encouraging companies to use financial engineering and to buy their competition rather than purchasing the tools of production and actually competing head on. These behaviors distort an economy over the long term. They frustrate Schumpeter’s forces of creative destruction.

Further, what policy tools does the Federal Reserve still have available if we enter a recession? I admit that doesn’t seem to be a likely possibility today, but there are many potentials for exogenous shocks to the US economy that could cause a recession. Further, in the history of the United States we have never had a period longer than nine years without a recession. This recovery, relatively weak though it is, is getting long in the tooth. Do we want the Fed to confront the next recession with another round of massive quantitative easing as the only policy tool left to deploy? When their own research shows that QE wasn’t very useful and when we can clearly see the distortions caused by QE in emerging markets around the world?

The Federal Reserve is functionally incapable of not feeling the need to “do something” in the midst of a recession. If the only tool they have is further massive quantitative easing, they will use it. Damn the distortions, full speed ahead!

I would not argue for a rapid rate hike. In fact, I would prefer 1/8 of a point at every meeting, rather than the typical quarter point. But there is no reason not to raise a quarter of a point at this meeting, skip a meeting to make sure everybody can take a deep breath, and then raise once more before the end of the year.

I mean, really? Does the Fed think this economy is so fragile that it can’t take a lousy quarter of a point increase in interest rates? The Federal Reserve needs to begin to restock its policy tool chest now. While I personally think we are a long way from ever seeing 5% Fed funds rates again, a 2% rate can probably easily be absorbed if it comes slowly. And that rate would give the Fed some policy tools when, not if, we enter the next recession.

Now, let’s turn back to China.

Repeat After Me: Chinese Stocks Are Not the Chinese Economy

It’s easy to assume that a country’s stock market reflects the condition of its economy, but that is not always the case. Further, what the stock market really does reflect is the consensus estimate of an economy’s future condition. More specifically, stock prices reveal future expectations for corporate profits.

This generally applies to both the United States and China. One key difference, though, is that most American stocks represent companies that seek to make profits. In China, that isn’t necessarily the case. The Chinese stock market includes many state-owned enterprises (SOEs), whose executives answer to bureaucrats in Beijing. The government views them as public policy tools. Everyone is happy if the SOEs make a profit, but profit is not the first priority.

If US stock prices generally tell us more about the future than the present, except in times of serious over- or undervaluation, then Chinese stock prices tell us even less about either. Just as last year’s incredible run-up in Chinese stocks did not signal an economic boom, the ongoing decline does not signal an economic bust. The correlations aren’t just weak, they are nonexistent. China’s official economic data is also questionable and would be so even if GDP were a precise measurement tool. As we discussed last week, it usually isn’t.

It is no stretch to say we are flying blind about China.

Fortunately, we have diligent researchers like Leland Miller of China Beige Book, whose research firm does the hard work of gathering reliable data each quarter from thousands of companies in China and assembling it in comprehensible form. His data shows that China’s economy has actually been in good shape since China stopped acting Chinese last year. But even then, you have to separate the Chinese economy into several categories.

China Good, China Bad, & China Ugly

Among the many letters and reports on China that I received over the last month, I’d like to single out an excellent research note that the team at Gavekal Dragonomics published last week, called “What to Worry About and What Not to in China.” I appreciated this piece, because it really helped me structure my worrying. I dislike spending energy worrying about the wrong things. Further, worrying about the wrong things can be dangerous. It’s when you are paying attention to the wrong things that what you should have been paying attention to jumps up and bites you on the derrière.

In the spirit of the Gavekal note, here is the good side of China. We’ll get to the bad and the ugly below.
Chinese real estate prices will stabilize. We hear a lot about China’s massive infrastructure boom and the resulting “ghost cities.” These aren’t just rumors. The government mandated the construction of entire cities to house the formerly agrarian population as it shifts to industrial jobs. Provincial governments earned as much as 80% of their revenues from land sales. Essentially, this is a process where they take possession of rural land that has very little value in price terms, declare it to be available for development, and can make profits several orders of magnitude greater than their costs. Nice work if you can get it.

The ghost cities will not stay empty forever. They will fill with people over the next few years (in some cases more than a few). The recent housing bubble is more a function of young people wanting to cram into certain popular areas. The broader internal migration will support housing prices even as the bubble areas pop.

It might be helpful to think of the Chinese ghost cities as analogous to the overbuilt condos in Florida. Prices in Florida did in fact collapse, and places were selling for a fraction of their construction cost. I wrote at the time that I thought they would be very good investments, because the number of people wanting to retire to Florida is actually a fairly steadily growing figure. Low taxes, good weather, positive infrastructure, excellent medical care – what’s not to like, other than it’s not Texas? Just saying…..

To continue reading this article from Thoughts from the Frontline – a free weekly publication by John Mauldin, renowned financial expert, best-selling author, and Chairman of Mauldin Economics – please click here.



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Saturday, September 5, 2015

This Weeks Free "500k Proof and Trading Plan" Webinar with John Carter

We will be attending an live online event this Wednesday evening with John Carter and we would love to have you join us. Please reserve your seat asap since John's wildly popular webinars fill up quickly.

Sign Up for the "500k Proof and Plan Webinar"

John is a special trader for sure, and what really sets him apart is his ability to pass on his skills. He has a "knack" for making his trading methods easy to understand so you can put them to work the following trading day.

John became famous for the "Big Trade" he made with Tesla [TSLA] in 2014. Changing the way wall street looks at using options for protection and profit. And this weeks webinar will make it clear, it's not an unattainable thing to trade like John. And he will deliver this Wednesday, that's why we are going and that's why we believe you should as well.

Register for live event and secure recording HERE

See you Wednesday evening,
Ray C. Parrish
aka the Crude Oil Trader


Get ready for Wednesdays with John's latest FREE eBook "Understanding Options"....Just Click Here!

Friday, September 4, 2015

How to Make Sure the Government Can’t Freeze Your Bank Account

By Justin Spittler

If you wake up tomorrow and your bank account is frozen… what will you do? You probably remember when the financial crisis in Greece was dominating headlines a few weeks ago. For years, Greece spent more than it took in. This led to a financial crisis that looked like it might destroy Europe’s financial system.

The Greek government closed all banks to prevent people from withdrawing all their money and crashing the banking system. Greek citizens could only withdraw €60 ($67) of their own money each day from ATMs. European authorities eventually gave Greece a bailout... and the crisis dropped from the headlines.

But here’s something you probably haven’t heard from the mainstream media….

It’s now been two months and Greek people still can’t fully access their own cash.
Reuters reports:      
                                                                                      
Greek banks are set to keep broad cash controls in place for months, until fresh money arrives from Europe and with it a sweeping restructuring, officials believe. “Broad cash controls” means Greek banks are essentially frozen. Greek people can withdraw only €420 ($460) per week of their own money.

More from Reuters:
The longer it takes, the more critical the banks’ condition becomes as a 420 euro ($460) weekly limit on cash withdrawals chokes the economy and borrowers’ ability to repay loans. “The banks are in deep freeze but the economy is getting weaker,” said one official, pointing to a steady rise in loans that are not being repaid.

One Greek farmer can’t get enough cash to run his businessIt’s a nightmare. I owe many people money now - gas stations and firms that service machinery. I have to go to the bank every single day, and the money I can take out is not enough.

Short on cash, Greek people have resorted to bartering….

Reuters goes on to say:
A rising number of Greeks in rural areas are swapping goods and services in cashless transactions since the government shut down banks on June 28 for three weeks, restricted cash withdrawals and banned transfers abroad to halt a run on deposits and prevent a collapse of the banks.

“Bartering” means exchanging goods and services without using money. It’s how humans did business thousands of years ago.

Reuters reports how the Greek farmer is trying to survive the crisis:
Squeezed on all sides, the 41 year old farmer began informal bartering to get around the cash crunch. He now pays some of his workers in kind with his clover crop and exchanges equipment with other farmers instead of buying or renting machinery.

Another farmer is trading cotton and wheat for bales of hay and machine parts, Reuters says.

This is a good reminder of something we stress often: the government controls any money you have in the bank. It can decide you’re not allowed to touch your own money at any time. Or it can put severe restrictions on how much money you can take out, like the Greek government is doing right now.

We began this essay with a question: what will you do if you wake up tomorrow and your bank account is frozen? There’s no good answer. At that point, it’s too late. You need a plan in place before the government decides you can’t touch your own money.

This is exactly why we wrote Going Global 2015…..

Going Global 2015 is our guide to surviving financial crises.

It shows you specific and easy steps for protecting yourself and your family from the next financial disaster. And we’d like to send you a free copy of this hardcover book today.

You may think the odds of such a complete financial disaster happening in the US are low. But even if that’s true, it still makes sense to prepare.

You likely pay for fire insurance. Because even though your house is unlikely to burn down… the small risk of the financial devastation it would cause you is unacceptable.

A financial crisis can cause far worse financial ruin than a house fire. And fire insurance costs hundreds or thousands of dollars per year.

We will send you a free copy of this book.

We’ve done all the legwork for you. We went to foreign countries to open bank accounts. We talked to the best lawyers. We even found the one country that has never, EVER had a bank failure… and where it’s easy for an American to open an account. The best thing about Going Global 2015 is it includes steps you can take, right now, to protect yourself, your wealth, and your family.

Most people have a huge misunderstanding about this topic. They think you have to be rich to use these strategies. But Going Global 2015 will show you that’s not true at all. Almost anyone can tuck a few thousand dollars away in a safe foreign bank account... just in case the US banking system blows up again and the government can’t save it this time.

That’s what’s in it for you. You might be wondering….what’s in it for us? Why give away a book that we put so much work into for free? Well, quite simply, we believe that by trying what is essentially a free sample of some of our best and most valuable work, you might want to do business again with us in the future.

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Tuesday, September 1, 2015

Buy the Dip? Hell No.....Sell the Rip Instead

By Tony Sagami

Are you worried about the stock market? You should be; at least according to your local Starbucks barista.
Starbucks CEO Howard Schultz told his 190,000 employees in his daily “Message from Howard” email communication: “Today’s financial market volatility, combined with great political uncertainty both at home and abroad, will undoubtedly have an effect on consumer confidence and … our customers are likely to experience an increased level of anxiety and concern. Let’s be very sensitive to the pressures our customers may be feeling.”

You can’t make this stuff up!

Hey, maybe I shouldn’t be too harsh on Mr. Schultz, because the stock market is in a lot of trouble… and not for the reasons the mass media and Wall Street experts are telling you. The know it alls on CNBC are pointing their fingers at the Chinese stock market meltdown as the reason for our stock market turmoil, but that is just the catalyst… not the root problem.

The source of the meltdown is deeper, more problematic, and more painful. What I’m talking about is that the Federal Reserve—from Greenspan to Bernanke, to Yellen—thought they possessed Wizard of Oz powers to fix whatever ails the economy with their menu of monetary tools.

In 2000, the Fed thought it could solve the bursting of the dot-com bubble with massive interest rate cuts and repeated that playbook again for the 2008-09 Financial Crisis. And when they ran out of room by cutting interest rates to zero, they trotted out Operation Twist and QE 1, 2, and 3.


Those three rounds of QE added about $3.7 trillion to the Federal Reserve’s balance sheet since 2008, which now totals a mind boggling $4.5 trillion. The problem is not China; the problem is Janet Yellen and her Federal Reserve buddies.


The Fed—beginning with the original monetary Mr. Magoo of Alan Greenspan—created a bubble, then rolled out more of the same to deal with the bursting of the bubble, and like the shampoo bottle says: Rinse, Lather, Repeat. Zero interest rates plus QE1, QE2, and QE3 created a massive misallocation of capital that has affected everything from home supply, ocean-going freighters, the US dollar, and wages, and pushed stock prices to a bigger than ever bubble.


The recent weakness is the painful process of deflating that bubble, but the Federal Reserve refuses to learn from its mistakes. It won’t be long until we hear about QE4 and/or a delay to the overpromised interest rate liftoff. Former US Treasury Secretary Larry Summers had this to say yesterday: “A reasonable assessment of current conditions suggests that raising rates in the near future would be a serious error that would threaten all three of the Fed’s major objectives; price stability, full employment and financial stability.”

Honestly, I don’t know what the Federal Reserve will do next. Heck, I bet they don’t know what to do either… but they will do something. Central bankers are arrogant know-it-alls who think they can fix the world’s financial problems with a couple of pulls of a monetary lever.

So pull they will.

And so the stock market damage will continue, albeit with some powerful up moves along the way.
Bulls, whether in a Spanish bull-fighting arena or roaming the floor of the NYSE, are a tough animal to kill. They won’t surrender until they make a few more desperate attempts to push the market higher.
Look at what happened last Tuesday after the 588-point Monday meltdown. The Dow Jones Industrial Average shot up by as much as 441 points before ending the day with a 204-point loss.


My point is that you’re going to see a lot of powerful up moves in the coming months… but I’m telling you, these are nothing more than bear market traps to lure you into buying at the wrong time. The stock market is falling into a bear market, and that means big swings both up and down, similar to 2000–2003.


The Federal Reserve, along with the rest of the world’s central bankers, has puffed stock valuations into an epic bubble, and the stock market has a long, long ways yet to fall…..just not in a straight line. That’s heart attack material for both buy-hold-and-pray and buy the dip investors, but it is a goldmine if you adapt your strategy.


Instead of buying the dip, the right strategy going forward is SELL THE RIP.

When the stock market gives you a big rally, the right move will be to sell into strength.

And if you have some risk capital, that will be the time to load up on inverse ETFs and put options, like my Rational Bear subscribers did in July.

The biggest short-selling opportunity of our lifetimes is knocking on your door.
Tony Sagami
Tony Sagami

30 year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here.

To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.



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How Did John Carter Get Through the Market Turmoil of Last Week?

You know him as our trading partner that made a name for himself as the guy who made the Big Trade on Tesla. Simpler Options CEO John Carter has continued to allow us to watch over his shoulder as he quietly took an account that he put $150,000 in at the beginning of the year and in 8 months turned it into $650,000.

Our readers have been attracted to John's trading methods due to the system's ability to limit risk while limiting the fees it takes to trade in this manner. And best of all it can be accomplished with any size account, no matter how large or small.

So how did John fair in the market turmoil of last week? He calmly continued to make money while using the volatility to his advantage. Luckily for us John put together another game changing free video that shows us exactly what he did in the peak of the madness.

Watch the video HERE

Here's what else he covers for you in the video.....

  *  Why the recent market sell off didn't change his plan

  *  How to compound profits correctly

  *  Why options are so profitable no matter the market condition

  *  And his plan that you can easily copy

Watch the video HERE for free, and let us know what you think


See you in the markets putting this to work,
Ray C. Parrish
aka the Crude Oil Trader


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